DERIVATIVE FINANCIAL INSTRUMENTS

The Company offers interest rate swaps to commercial loan customers who wish to fix the interest rates on their loans, and the Company backs these swaps with offsetting swaps with national bank counterparties. With other lending institutions, the Company engages in risk participation agreements. These arrangements are structured similarly to its swaps with commercial borrowers, but a different bank is the lead underwriter. 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. These swaps are designated as economic hedges. ~~Based on changes in federal regulation, interest~~Interest rate swaps that meet certain criteria to be viewed as conforming are required to be cleared through ~~exchanges beginning when the $10 billion threshold is crossed.~~exchanges. The Bank has designated a national financial institution as its clearing agent.

The Company’s mortgage banking activities result in derivatives. Commitments to lend are provided on applications for residential mortgages intended for resale and are accounted for as non-hedging derivatives. The Company arranges offsetting forward sales commitments for most of these rate-locks with national bank counterparties, which are designated as economic hedges. Commitments on applications intended to be held for investment are not accounted for as derivative financial instruments. The Company has a policy for managing its derivative financial instruments, and the policy and program activity are overseen by the Risk Management and Capital Committee. Derivative financial instruments with counterparties which are not customers are limited to a select number of national financial institutions. Collateral may be required based on financial condition tests. The Company works with third-party firms which assist in marketing derivative transactions, executing transactions, and providing information for bookkeeping and accounting purposes.

The Company sometimes uses interest rate swap instruments for its own account to fix the interest rate on some of its borrowings, all of which have been designated as cash flow hedges. The Company ~~terminated its outstanding cash flow hedges in the first quarter of 2017. The Company evaluates these hedges as part of its overall interest rate risk management. The Company~~ also ~~expects to begin~~has begun offering forward foreign exchange derivatives to its commercial markets as part of its expanded international banking services. The Company expects to back these forwards with offsetting forwards with national bank counterparties. This activity would be targeted to support routine commercial needs of customers engaged in international trading activities and would only be offered for bank approved currencies and durations.

LIBOR BASED INSTRUMENTS

The Company’s floating-rate funding, certain hedging transactions and certain of the Company’s products, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the London Interbank Offered Rate (“LIBOR”), or to an index, currency, basket or other financial metric. LIBOR and certain other benchmark rates are the subject of recent national, international, and other regulatory guidance and proposals for reform. In July 2017, the Chief Executive of the Financial Conduct Authority (“FCA”) announced that the FCA intends to stop persuading or compelling its panel banks to submit rates for the calculation of LIBOR after 2021.

The Company has approximately 950 commercial loans with a total balance of $2.6 billion with the contract interest rate tied to LIBOR. Additionally, the Company has approximately 500 interest rate swap contracts with a notional value of approximately $3.8 billion, including customer, dealer, and risk participation agreements. Many of these interest rate swap contracts are associated with the LIBOR based commercial loans.

The Company established an enterprise-wide LIBOR transition committee in 2019. The committee has assessed the on and off-balance sheet products that will be impacted with the LIBOR transition. The areas with the most impact are LIBOR based interest rate swaps and commercial loans that utilize LIBOR as the indexed rate. During 2019 revised LIBOR fallback language was added to all new Commercial loan contracts that contemplated the use of LIBOR as an index rate. An impact assessment has been completed to identify further exposures, such as systems, processes, and models affected by the discontinuation of LIBOR. The Company continues to develop and execute plans to transition products associated with LIBOR to alternative reference rates.

Table of Contents

WEALTH MANAGEMENT SERVICES

The Company’s Wealth Management Group provides consultative investment management, trust administration, and financial planning to individuals, businesses, and institutions, with an emphasis on personal investment management. The Wealth Management Group has built a track record over more than a decade with its dedicated in-house investment management team. The Bank also provides a full line of investment products, financial planning, and brokerage services through BerkshireBanc Investment Services utilizing Commonwealth Financial Network as the broker/dealer. The Group’s principal operations are in Western New England and it is expanding services in the Company’s other regions. In 2016, the Bank purchased the business assets and operations of Ronald N. Lazzaro, P.C., a provider of financial advisory services in Rutland, Vermont. At year-end 2017, assets under management totaled $1.5 billion, including $1.0 billion in the Bank’s traditional wealth/trust platform and the remainder is managed through its investment services and financial advisory teams. The Bank is integrating with its growing private banking and MyBanker teams to further develop wealth management account generation.

INSURANCE

As an independent insurance agent, the Berkshire Insurance Group represents a carefully selected group of financially sound, reputable insurance companies offering attractive coverage at competitive prices. The Insurance Group offers a full line of personal and commercial property and casualty insurance. It also offers employee benefits insurance and a full line of personal life, health, and financial services insurance products. Berkshire Insurance Group operates a focused cross-sell program of insurance and banking products through all offices and branches of the Bank with some of the Group’s offices located within the Bank’s branches. The Group’s principal operations are in Western New England, and ~~it is expanding~~also provides its services in the Company’s other regions. The Group focuses on the Bank’s distribution channels in order to broaden its retail and commercial customer base.

HUMAN CAPITAL MANAGEMENT

Berkshire’s people are the core of its ability to deliver on its strategic objectives, just as they have been for 175 years. The Company’s approach to human capital management is grounded in its Be FIRST values. It focuses on strong oversight, talent acquisition, development, engagement, retention, and offering a competitive benefits package. The Board of Directors has ultimate responsibility for the strategy of the Company. The Compensation Committee of the Board of Directors oversees executive compensation matters and the Corporate Responsibility & Culture committee oversees company culture, diversity, and employee engagement. The Company ~~may consider acquisitions~~further enhanced this oversight in 2020 by appointing an experienced human resources leader to Executive Vice President Chief Human Resources & Culture Officer.

Talent acquisition is the first step to ensuring Berkshire has employees with the right mix of ~~insurance agencies~~skills and experiences. The Company leverages internship placements, affinity group relationships, and the use of experienced recruiters for key management and specialized positions. After hiring, employees’ undergo an onboarding journey including attending a virtual new hire orientation. Throughout an employees’ career Berkshire focus on development as the Company believes it’s a critical factor to long-term retention. In 2020, the Company launched a new mentoring program to pair high potential junior employees with senior staff to build on existing development opportunities. The Company reskilled and upskilled employees from across the bank to assist in ~~support~~government relief programs such asthe SBA’s Paycheck Protection Program (“ PPP") and for employees looking to expand their professional experience in the classroom, the Company offers an education assistance program.

Berkshire continually evaluates its strategies and looks at best practices to provide competitive pay and benefits packages. All of Berkshire’s benefits are available to married same-sex or different-sex couples as well as domestic partners. In 2020, the Company completed a salary survey to ensure pay and performance measures aligned with the markets it serves and a pay equity analysis to ensure that all employees, regardless of gender and ethnicity, in comparable roles are compensated equitably. Berkshire was listed in the Bloomberg Gender-Equality Index for the second consecutive year in recognition of its ~~growth strategy.~~work and achieved a perfect score on the Human Rights Campaign Corporate Equality Index for the first time.

Berkshire employees' health, safety, and economic stability has and continues to be a priority as the Company continues to navigate the global COVID-19 pandemic. Berkshire suspended non-essential business travel and accelerated its ongoing Work from Home initiative to swiftly, safely and securely move 86% of non-branch staff to a fully remote environment. The Company provided protective equipment to front-line employees, including masks and gloves, and offered all additional paid sick time, paid quarantine/isolation leave, job protected personal leave, flexible work schedules for remote employees, premium pay for onsite employees and maintained full pay for employees with reduced schedules, as a result of the pandemic. Berkshire enhanced support through its Employee

Table of Contents

~~PERSONNEL~~

~~At year-end 2017,~~Assistance Program and launched the You FIRST Fund to help employees impacted by personal financial hardships. As a result of Berkshire’s collective actions, there were no bank related pandemic layoffs in 2020 and the Company ~~had 1,992 full time equivalent~~instituted a special compensation program for employees assisting with government relief programs.


Human Capital*	Total Full Time Equivalent	1,505
	Voluntary Retention Rate	85	%

*All metrics reported are as of or for the year-ended December 31, 2020.

DIVERSITY, EQUITY, AND INCLUSION

Berkshire’s journey to build a more diverse, equitable, and inclusive company is grounded in its Be FIRST values. The Company’s goal is to build a workplace that reflects its communities' unique diversity and creates wealth in underrepresented neighborhoods across its footprint. The Company focuses on its governance practices, employee ~~positions --~~education, talent acquisition & workplace culture, supplier diversity, and product and service offerings. A collection of governance practices serve as the foundation, ensuring the appropriate oversight. The Corporate Responsibility & Culture Committee of the Board of Directors has ultimate responsibility for Diversity, Equity, and Inclusion Program performance and ensuring Management creates a workplace culture consistent with its Be FIRST values. The Company’s Diversity & Inclusion Employee Committee, which reports up to the Corporate Responsibility & Culture Committee, focuses on the diversity and inclusion strategy. The committee consists of employees from throughout the business and works to develop and execute goals, strategies, and tactics and monitor progress.

The Company offers seven Employee Resource Groups each of whom play an ~~increase of 261 since the end of 2016, including positions added through the Commerce business combination~~integral role for employees and the ~~impact~~culture of the ~~First Choice integration in 2017. Commerce reported FTE staff~~company. Each Employee Resource Group provides a safe space for dialogue, education, and collective action on topics relevant to their mission. These groups continue to help the company facilitate important cultural shifts, update policies, host important cultural heritage events, and attend affinity group job fairs. In 2020, the Company rolled out a new suite of ~~226 positions shortly before the merger date. Berkshire~~Diversity, Equity, and Inclusion trainings. In addition, it continues to develop ~~it’s staffing, including staff for new branches~~deeper partnerships with colleges, affinity groups and ~~hires related~~non-profit organizations to ~~team development.~~expand its networks beyond those traditionally touched by the banking industry. The Company ~~has also developed staff with targeted skills~~leverages internal expertise and experienced external recruitment professionals to ~~deepen~~ensure it receives candidate pools that reflect the rural and urban communities where it operates. In addition, the Company regularly reviews the gender and ethnic diversity of its workforce at the employee, manager and executive management level.


Diversity & Inclusion*	Percent of women in workforce	68	%
	Percent of ethnic minorities in workforce	14	%
	Percent disabled in workforce	2	%

*All metrics reported are as of December 31, 2020.

Additional information on Berkshire’s Culture, Human Capital and Diversity, Equity & Inclusion practices can be found in the Company’s ~~infrastructure. The Company’s employees are not represented by a collective bargaining unit.~~annual Corporate Responsibility Report at www.berkshirebank.com/csr, which details the company's environmental, social, governance, and cultural programs.

SUBSIDIARY ACTIVITIES

The Company wholly-owns two active consolidated subsidiaries: the Bank and Berkshire Insurance Group, Inc. The Bank operates as a commercial bank under a Massachusetts trust company charter. Berkshire Insurance Group is incorporated in Massachusetts. Berkshire Bank owns Firestone Financial, LLC which is a Massachusetts limited liability company, ~~First Choice Loan Services Inc. which is a New Jersey corporation,~~ as well as consolidated subsidiaries operated as Massachusetts securities ~~corporations.~~corporations and other subsidiary entities. The Company also owns all of the common stock of a Delaware statutory business ~~trust,~~trusts, Berkshire Hills Capital Trust I.I and SI Capital Trust II. The capital ~~trust is~~trusts are unconsolidated and ~~its~~their only material ~~asset is a $15 million~~assets are trust preferred ~~security~~securities related to the junior subordinated debentures reported in the Company’s Consolidated Financial Statements. Additional information about the subsidiaries is contained in Exhibit 21 to this report.

Table of Contents

REGULATION AND SUPERVISION

The Company is a Delaware corporation and a bank holding company that has elected financial holding company status within the meaning of the Bank Holding Company Act of 1956, as amended. As such, it is registered with, supervised by and required to comply with the rules and regulations of the Federal Reserve Board. The Federal Reserve Board requires the Company to file various reports and also conducts examinations of the Company. The Company must receive the approval of the Federal Reserve Board to engage in certain transactions, such as acquisitions of additional banks and savings associations.

The Bank is a Massachusetts-chartered trust company and its deposits are insured up to applicable limits by the FDIC. The Bank was previously a Massachusetts-chartered savings bank and converted to a Massachusetts-chartered trust company in July 2014. The Bank is subject to extensive regulation by the Massachusetts Commissioner of Banks (the “Commissioner”), as its chartering agency, and by the FDIC, as its deposit insurer. The Bank is required to file reports with the Commissioner and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other depository institutions or branches of other institutions. The Commissioner and the FDIC conduct periodic examinations to test the Bank’s safety and soundness and compliance with various regulatory requirements. The regulatory structure gives the regulatory authorities extensive discretion in connection with supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the Commissioner, the Massachusetts legislature, the FDIC, the Federal Reserve Board, or Congress, could have a material adverse impact on the Company, the Bank, and their operations.

~~Federal Legislation~~

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted in 2010. The Dodd-Frank Act has significantly changed the bank regulatory structure and is affecting the lending, investment, trading and operating activities of depository institutions and their holding companies.

Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing regulations. The regulatory process is ongoing and the impact on operations cannot yet be fully assessed. However, there is a significant expectation that the Dodd-Frank Act will, at a minimum, result in increased regulatory burden, compliance costs and interest expense for the Company and the Bank.

Certain regulatory requirements applicable to the Company ~~including certain changes made by the Dodd-Frank Act,~~ are referred to below. The description of statutory provisions and regulations applicable to financial institutions and their holding companies set forth in this Form 10-K does not purport to be a complete description of such statutes

~~Table of Contents~~

and regulations and their effects on the Company and is qualified in its entirety by reference to the actual laws and ~~regulations.~~regulations.A summary of the regulatory requirements referred to below is as follows:

•Massachusetts Banking Laws and Supervision

•Federal Regulations

•Enforcement

•Holding Company Regulation

•Mergers and Acquisitions

•Other Regulations

•Taxation

Massachusetts Banking Laws and Supervision

General. As a Massachusetts-chartered depository institution, the Bank is subject to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings and payment of dividends. In addition, the Bank is subject to Massachusetts consumer protection and civil rights laws and regulations. The approval of the Commissioner is required for a Massachusetts-chartered institution to establish or close branches, merge with other financial institutions, issue stock, and undertake certain other activities.

Massachusetts law and regulations generally allow Massachusetts institutions to engage in activities permissible for federally chartered banks or banks chartered by another state. There is a 30-day notice procedure to the Commissioner in order to engage in such activities. Massachusetts law also authorized Massachusetts institutions to engage in activities determined to be “financial in nature,” or incidental or complementary to such a financial activity, subject to a 30-day notice to the Commissioner.

Dividends. Under Massachusetts law, the Bank may declare cash dividends from net profits not more frequently than quarterly and non-cash dividends at any time. No dividends may be declared, credited, or paid if the institution’s capital stock is impaired. An institution with outstanding preferred stock may not, without the prior approval of the Commissioner, declare dividends to the common stock without also declaring dividends to the

Table of Contents

preferred stock. The approval of the Commissioner is generally required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained “net profits,” as defined, of the preceding two years. The approval of both the Commissioner and the FDIC is required for the Bank to pay a dividend from its surplus account, which would currently be the case as to any Bank dividend to the Company.

Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority. However, with certain limited exceptions, total obligations of one borrower to an institution may not exceed 20.0% of the total of the institution’s capital, which is defined under Massachusetts law as the sum of the institution’s capital stock, surplus account and undivided profits.

Investment Activities. In general, Massachusetts-chartered institutions may invest in preferred and common stock of any corporation organized under the laws of the United States or any state provided such investments do not involve control of any corporation and do not, in the aggregate, exceed 4.0% of the bank’s deposits. Massachusetts-chartered institutions may also invest an amount equal to 1.0% of their deposits in stocks of Massachusetts corporations or companies with substantial employment in Massachusetts which have pledged to the Commissioner that such monies will be used for further development within the Commonwealth. However, these powers are constrained by federal law, which generally limit the activities and equity investments of state banks to those permitted for national banks.

Regulatory Enforcement Authority. Any Massachusetts-chartered institution that does not operate in accordance with the regulations, policies, and directives of the Commissioner may be sanctioned for non-compliance, including seizure of the property and business of the institution and suspension or revocation of its charter. The Commissioner may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the institution’s business in a manner which is unsafe, unsound or contrary to the ~~depositors~~depositors’ interests, or been negligent in the performance of their duties. In addition, upon finding that an institution has engaged in an unfair or deceptive act or practice, the Commissioner may issue an order to cease and desist and impose a fine on the institution concerned. Finally, Massachusetts consumer protection and civil rights statutes applicable to the Bank permit private individual and class action lawsuits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damage and attorney’s fees in the case of certain violations of those statutes.

Massachusetts has other statutes or regulations that are similar to the federal provisions discussed below.

~~Table of Contents~~

Federal Regulations

Capital Requirements. Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. The existing capital requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act.

Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier ~~1capital)~~1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of accumulated other comprehensive income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. The Bank chose the opt-out election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the ~~regulations.~~regulations, including adjustments for goodwill and other intangible assets.

Table of Contents

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% and 600% is assigned to permissible equity interests, depending on certain specified factors.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer ~~requirement is being~~was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% on January 1, 2019. ~~During the 2017 calendar year, the capital conservation buffer was 1.275%. The buffer increased to 1.875% on January 1, 2018.~~

In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary. As a bank holding company, the Company is also subject to regulatory capital requirements, as described in a subsequent section.

Interstate Banking and Branching. Federal law permits an institution, such as the Bank, to acquire another institution by merger in a state other than Massachusetts unless the other state has opted out. Federal law, as amended by the Dodd-Frank Act, authorizes de novo branching into another state to the extent that the target state allows its state chartered banks to establish branches within its borders. ~~The~~As of December 31, 2020, the Bank ~~operates~~operated branches in New York, Vermont, Connecticut, New Jersey, and Pennsylvania as well as Massachusetts. At its interstate branches, the Bank may conduct any activity authorized under Massachusetts law that is permissible either for an institution chartered in that state (subject to applicable federal restrictions) or a branch in that state of an out-of-state national bank. The New York State Superintendent of Banks, the Vermont Commissioner of Banking and Insurance, the Connecticut Commissioner of Banking, the New Jersey Commissioner of Banking and Insurance, ~~and~~ the Pennsylvania Secretary of Banking and Securities, and the Director of the Rhode Island Department of Business Regulation may exercise certain regulatory authority over the Bank’s branches in their respective states.

~~Table of Contents~~

Prompt Corrective Regulatory Action. Federal law requires that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For this purpose, the law establishes three categories of capital deficient institutions: undercapitalized, significantly undercapitalized, and critically undercapitalized. The FDIC regulations implementing the prompt corrective action law were amended to incorporate the previously discussed increased regulatory capital standards that were effective January 1, 2015. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0%, or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

“Undercapitalized” banks must adhere to growth, capital distribution (including dividend), and other limitations and are required to submit a capital restoration plan. A bank’s compliance with such plans must be guaranteed by its holding company in an amount equal to the lesser of 5% of the institution’s total assets when deemed “undercapitalized” or the amount needed to comply with regulatory capital requirements. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become “adequately capitalized,” requirements to

Table of Contents

reduce assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the holding company. “Critically undercapitalized” institutions must comply with additional sanctions including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

At December 31, ~~2017,~~2020, the Bank met the criteria for being considered “well capitalized” as defined in the prompt corrective action regulations.

Transactions with Affiliates and Loans to Insiders. Transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. In a holding company context, at a minimum, the parent holding company of an institution and any companies which are controlled by the holding company are affiliates of the institution. Generally, Section 23A limits the extent to which the institution or its subsidiaries may engage in “covered transactions,” such as loans, with any one affiliate to 10% of such institution’s capital stock and surplus. There is also an aggregate limit on all such transactions with all affiliates to 20% of capital stock and surplus. Loans to affiliates and certain other specified transactions must comply with specified collateralization requirements. Section 23B requires that transactions with affiliates be on terms that are no less favorable to the institution or its subsidiary as similar transactions with non-affiliates.

Federal law also restricts an institution with respect to loans to directors, executive officers, and principal stockholders (“insiders”). Loans to insiders and their related interests may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Loans to insiders above specified amounts must receive the prior approval of the Board of Directors. Further, loans to insiders must be made on terms substantially the same as offered in comparable transactions to other persons, except that such insiders may receive preferential loans made under a benefit or compensation program that is widely available to the institution’s employees and does not give preference to the insider over the employees. Federal law places additional limitations on loans to executive officers. Massachusetts law previously had a separate law regarding insider transactions but that law was amended in 2015 to generally incorporate the federal restrictions.

~~Table of Contents~~

Insurance of Deposit Accounts. The Bank’s deposit accounts are insured by the Deposit Insurance Fund of the FDIC up to applicable limits. The FDIC insures deposits up to the standard maximum deposit insurance amount (“SMDIA”) of $250,000.

The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. The Dodd-Frank Act required the FDIC to revise its procedures to base its assessments upon each insured institution’s total assets less tangible equity instead of deposits.

Under the FDIC’s risk-based assessment system, insured institutions are assessed based on perceived risk to the Deposit Insurance Fund with institutions deemed less risky pay lower FDIC assessments. ~~Effective July 1, 2016, assessments~~Assessments for ~~most~~ institutions with $10 billion or more of assets are primarily based on ~~financial measures~~a scorecard approach by the FDIC, including factors such as examination ratings and ~~supervisory ratings derived from statistical~~ modeling ~~estimating~~measuring the ~~probability of failure within three years.~~institution’s ability to withstand asset-related and funding-related stress and potential loss to the Deposit Insurance Fund should the bank fail. The assessment range (inclusive of possible ~~adjustments) was reduced to 1.5 basis points to 30 basis points~~adjustments specified by the regulations) for institutions ~~of less~~with greater than $10 billion inof total assets ~~also effective July 1, 2016.~~is 1.5 to 40 basis points. The Dodd-Frank Act required that banks of greater than $10 billion inof assets bear the burden of raising the Deposit Insurance Fund reserve ratio from 1.15% to 1.35%. Such institutions ~~are now~~were subject to an annual surcharge of 4.5 basis points of total assets exceeding $10 ~~billion. This surcharge will remain~~billion, effective July 1, 2016. The FDIC announced in ~~place until~~November 2018 that the 1.35% reserve ratio had been reached so that the surcharges would cease. In 2019, the FDIC distributed premium rebates to the Company and other bank peers as a result of having collected excess premiums in earlier ~~of the~~periods. The Deposit Insurance Fund ~~reaching~~ratio fell to 1.30% as of June 30, 2020 due to extraordinary deposit growth resulting from economic conditions and government initiatives related to the COVID-19 pandemic. The FDIC had adopted a restoration plan for the fund to again achieve a 1.35% ratio within eight years. The current plan does not involve increased assessments or ~~December 31, 2018, at which point a shortfall assessment would be applied.~~surcharges on insured institutions.

~~FDIC insured institutions are also required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation, an agency~~

Table of the federal government established to recapitalize a predecessor deposit insurance fund. These assessments will continue until the Financing Corporation bonds mature in 2017 through 2019. The assessment rate is adjusted quarterly to reflect changes in the assessment base of the fund. For the quarter ended December 31, 2017, the Financing Corporation assessment amounted to 0.54 basis points of total assets less Tier 1 capital.Contents

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a regulator. Management does not know of any practice, condition or violation that might lead to termination of FDIC deposit insurance.

The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what insurance assessment rates will be in the future.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank system, which consists of 12 regional Federal Home Loan Banks that provide a central credit facility primarily for member institutions. The Bank, as a member, is required to acquire and hold shares of capital stock in the FHLBB.

The Federal Home Loan Banks are required to provide funds for certain purposes including contributing funds for affordable housing programs. These requirements, and general financial results, could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. Historically, the FHLBB has paid dividends to member banks based on money market rates.

Enforcement

The FDIC has primary federal enforcement responsibility over state chartered banks that are not members of Federal Reserve System, which includes the Bank. The FDIC has authority to bring enforcement actions against such institutions and their “institution-related parties,” including officers, directors, certain shareholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution or receivership or conservatorship in certain circumstances. Potential civil money penalties cover a wide range of violations and actions, and range up to $25 thousand per day or, in extreme cases, as high as $1.0 million per day.

~~Table of Contents~~

Holding Company Regulation

General. The Company is subject to examination, regulation, and periodic reporting as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Company is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any other bank or bank holding company. Prior Federal Reserve Board approval would be required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after such acquisition, it would, directly or indirectly, own or control more than five percent of any class of voting shares of the bank or bank holding company.

A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than five percent of the voting securities of any company engaged in non-banking activities. The Federal Reserve Board has allowed by regulation some exceptions based on activities closely related to banking including: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; and (v) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.

The Gramm-Leach-Bliley Act of 1999 authorized a bank holding company that meets specified conditions, including being “well capitalized” and “well managed” as defined in the regulations, to opt to become a “financial holding company” and thereby engage in a broader array of financial activities. Such activities can include insurance and investment banking. The Company has elected to become a financial holding company.

The Company is subject to the Federal Reserve Board’s capital adequacy requirements for bank holding companies. The Dodd-Frank Act required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. The previously discussed final rule regarding regulatory

Table of Contents

capital requirements implemented the Dodd-Frank Act as to bank holding company capital standards. Consolidated regulatory capital requirements identical to those applicable to the Bank applied to the Company, effective January 1, 2015. As is the case with institutions themselves, the capital conservation buffer ~~is being~~was phased in ~~between~~beginning in 2016 and was fully effective on January 1, 2019.

Federal Reserve Board policy requires that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act codified the source of strength doctrine.

The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior ~~regulatory~~ consultation with and nonobjection of the Federal Reserve Board with respect to dividends in certain circumstances, such as where the company’s net income for the past four quarters, net of ~~dividends’~~dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. Such Federal Reserve Board consultation and nonobjection was required for certain dividends paid by the Company during 2020. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.

Federal regulations require a bank holding company to give the Federal Reserve Board prior written notice of any repurchase or redemption of then outstanding equity securities if the gross consideration for the repurchase or redemption, when combined with the net consideration paid for all such repurchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption under certain circumstances. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions. Federal Reserve policy provides for regulatory consultation prior to a holding company redeeming or repurchasing regulatory capital instruments under specified circumstances regardless of the applicability of the previously referenced notification requirement.

~~Table of Contents~~

These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of its stock, or otherwise engage in capital distributions.

The status of the Company as a registered bank holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

Acquisition of the Company. Under the Change in Bank Control Act, no person may acquire control of a bank holding company such as the Company unless the Federal Reserve Board has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined ~~under federal law,~~for this purpose, means ownership, control of or holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a majority of the company’s directors, or a determination by the regulator that the acquirer has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the regulations under certain circumstances including where, is the case with the Company, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.

Table of Contents

Massachusetts Holding Company Regulation. In addition to the federal holding company regulations, a bank holding company organized or doing business in Massachusetts must comply with requirements under Massachusetts law. Approval of the Massachusetts regulatory authorities is generally be required for the Company to acquire 25 percent or more of the voting stock of another depository institution. Similarly, prior regulatory approval would be necessary for any person or company to acquire 25 percent or more of the voting stock of the Company.

Mergers and Acquisitions

The Company and the Bank have authority to engage, and have engaged, in acquisitions of other depository institutions. Such transactions are subject to a variety of conditions including, but not limited to, required stockholder approvals and the receipt of all necessary regulatory approvals. Necessary regulatory approvals include those required by the federal Bank Holding Company Act and/or Bank Merger Act, Massachusetts law and, if the target institution is located in a state other than Massachusetts, the law of that state. When considering merger applications, the federal regulators must evaluate such factors as the financial and managerial resources and future prospects of the parties, the convenience and needs of the communities to be served (including performance of the parties under the Community Reinvestment Act), competitive factors, any risk to the stability of the United States banking or financial system and the effectiveness of the institutions involved in combating money laundering activities. Both the Bank Holding Company Act and the Bank Merger Act provide for a waiting period of 15 to 30 days following approval by the federal banking regulator within which the United States Department of Justice may file objections to the merger under the federal antitrust laws. Massachusetts law requires the Commissioner (or Board of Bank Incorporation in certain cases) to consider such factors as whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage will be promoted (including whether the merger will result in net new benefits).

~~Table of Contents~~

Other Regulations

Consumer Protection Laws. The Bank is subject to federal and state consumer protection statutes and regulations applicable to depository institutions. These include the Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinance loans; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; the Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information; the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and the Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. Since the Bank has exceeded $10 billion of consolidated assets, compliance with such federal consumer protection statutes and regulations is examined for and enforced by the Consumer Finance Protection Bureau rather than the FDIC.

The Bank also is subject to Massachusetts and federal laws protecting the confidentiality of consumer financial records, and limiting the ability of the institution to share non-public personal information with third parties.

The Community Reinvestment Act (“CRA”) establishes a requirement for federal banking agencies that, in connection with examinations of depository institutions within their jurisdiction, the agencies evaluate the record of the depository institutions in meeting the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or new facility. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial non-compliance.” A less than “satisfactory” rating would result in the suspension of any growth of the Bank through acquisitions or opening de novo branches until the rating is improved. As of the most recent CRA examination by the FDIC, the Bank’s CRA rating was “satisfactory.”

Table of Contents

Anti-Money Laundering Laws. The Bank is subject to extensive anti-money laundering provisions and requirements, which require the institution to have in place a comprehensive customer identification program and an anti-money laundering program and procedures. These laws and regulations also prohibit depository institutions from engaging in business with foreign shell banks; require depository institutions to have due diligence procedures and, in some cases, enhanced due diligence procedures for foreign correspondent and private banking accounts; and improve information sharing between depository institutions and the U.S. government. The Bank has established policies and procedures intended to comply with these provisions.

Taxation

The Company reports its income on a calendar year basis using the accrual method of accounting. This discussion of tax matters is only a summary and is not a comprehensive description of the tax rules applicable to the Company and its subsidiaries. Further discussion of income taxation is contained in ~~Note 15 - Income Taxes of~~a note to the ~~Consolidated Financial Statements.~~financial statements. The federal income tax laws apply to the Company in the same manner as to other corporations with some exceptions. The Company may exclude from income 100 percent of dividends received from the Bank and from Berkshire Insurance Group as members of the same affiliated group of corporations. The Company reports income on a calendar year basis to the Commonwealth of Massachusetts. Massachusetts tax law generally permits special tax treatment for a qualifying limited purpose “securities corporation.” The Bank’s securities corporations all qualify for this treatment, and are taxed at a 1.3% rate on their gross income.

Table of Contents

ITEM 1A. RISK FACTORS

The risks set forth below, in addition to the other risks described in this Annual Report on Form 10-K, may adversely affect the Company's business, financial condition, strategic objectives, and operating results. In addition to the risks set forth below and the other risks described in this annual report, there may ~~also~~ be additional risks and uncertainties that are not currently known to the Company or that the Company currently deems to be immaterial that could materially and adversely affect the Company's business, financial condition, strategic objectives, or operating results. As a result, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company.

The COVID-19 global pandemic affected all aspects of the company’s business in 2020. The event of the pandemic is discussed in the Operating risk factor below, but it should be understood as affecting the overall risk environment and risk factors of the Company.

Risk Factors Summary

Lending Risks

•Deterioration in the Housing Sector, Commercial Real Estate, and Related Markets May Adversely Affect Business and Financial Results.

•The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits.

•As a Participating Lender in the Small Business Administration Paycheck Protection Program, the Company is Subject to Additional Risks of Litigation from Its Customers or Other Parties Regarding Its Processing of Loans for the Paycheck Protection Program, Which Could Have a Significant Adverse Impact On Its Business, Financial Position, Results of Operations, and Prospects.

•The Company is Subject to a Variety of Risks in Connection With Any Sale of Loans it May Conduct.

•The Company is Exposed to Risk of Environmental Liability When It Takes Title to Property.

Operating Risks

•The COVID-19 Pandemic is Adversely Affecting, and Will Likely Continue to Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.

•The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business.

•The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Hacking and Identity Theft that Could Result in the Disclosure of Confidential Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure.

•Counterparties and Correspondents Expose the Company to Risks.

•The Company’s Business is Reliant on Outside Vendors.

•Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk.

•The Discontinuation of LIBOR and the Emergence of One or More Alternative Benchmark Indices to Replace LIBOR Could Adversely Impact the Company’s Business and Results of Operations.

Table of Contents

Liquidity Risks

•The Company's Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Operations and Future Growth.

•The Company's Ability to Service Our Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions. The Company’s Stock Repurchase Program is also Dependent on These Distributions.

•The Loss Recorded in 2020 May Have an Adverse Effect on Future Dividend Payments to Common Shareholders.

•Secondary Mortgage Market Conditions Could Have a Material Impact on the Company’s Financial Condition and Results of Operations.

Interest Rates

•Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition.

Securities Market Value Risks

•Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce Earnings.

Regulatory Matters Risks

•Legislative and Regulatory Initiatives May Affect Business Activities and Increase Operating Costs.

•Provisions of the Company's Certificate of Incorporation, Bylaws, and Delaware Law, as Well as State and Federal Banking Regulations, Could Delay or Prevent a Takeover of Us by a Third Party.

Significant Accounting Estimates Risks

•If the Company Determines Intangible Assets to be Impaired, the Company’s Financial Condition and Results Would Be Negatively Affected.

•Various Factors May Cause Our Allowance for Credit Losses on Loans to Increase.

Trading of the Company's Common Stock

•The Trading History of the Company’s Common Stock is Characterized By Low Trading Volume. The Value of Shareholder Investments May be Subject to Sudden Decreases Due to the Volatility of the Price of the Common Stock.

Lending

Deterioration in the Housing Sector, Commercial Real Estate, and Related Markets May Adversely Affect Business and Financial Results.

Real estate lending is a major business activity for the Company. Real estate market conditions affect the value and marketability of real estate collateral, and they also affect the cash flows, liquidity, and net worth of many borrowers whose operations and finances depend on real estate market conditions. Adverse conditions in the Company's market areas could reduce growth rates, affect the ability of our customers to repay their loans, and generally affect the Company's financial condition and results of operations. Potential increases in interest rates could increase capitalization rates which could adversely affect commercial property appraisals and collateral value.

The Company’s Emphasis on Commercial Lending May Expose the Company to Increased Lending Risks, Which Could Hurt Profits.

The Company emphasizes commercial lending, which generally exposes the Company to a greater risk of nonpayment and loss because repayment of such loans often depends on the successful operations and income stream of the borrowers. Commercial loans are historically more susceptible to delinquency, default, and loss during economic downturns. Commercial lending involves larger loan sizes and larger relationship exposures, with greater potential impact on profits in the event of adverse loan performance. The majority of the Company’s commercial loans are secured by real estate and subject to the previously discussed real estate risk ~~factors.~~ factors, as well as risks specific to individual properties and property types. Geographic expansion may result in ~~new~~ risks not ~~identified~~previously

Table of Contents

experienced by the Company or which it is unfamiliar with monitoring or resolving. Recent expansion has been focused on the Greater Boston market, where the Bank may be financing projects with larger loan amounts and where the Bank has less experience than in its traditional market areas and where competition may result in different lending structures.

Commercial lending activities pose higher risk of fraud. In 2019, the Company wrote-off the $16 million balance of a secured commercial loan in circumstances involving alleged borrower fraud. This asset was a participating interest in a commercial loan managed by another financial institution. Such participating interests involve risks related to counterparty performance, as further described in a later risk factor. In the case of this loan, the Company has filed legal claims against the agent bank in pursuit of the recovery of some of the loss recorded by the Company. The outcome of such legal proceedings is subject to uncertainty, and the Company has not recognized any such potential recoveries in its financial records.

As a Participating Lender in the Small Business Administration Paycheck Protection Program, the Company is Subject to Additional Risks of Litigation from Its Customers or Other Parties Regarding Its Processing of Loans for the Paycheck Protection Program, Which Could Have a Significant Adverse Impact On Its Business, Financial Position, Results of Operations, and Prospects.

The COVID-19 pandemic and its impact on the economy have led to actions including the enactment of the Coronavirus Aid, Relief and Economic Security Act, which established the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (“SBA”). Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved lenders that participate in the program, subject to numerous limitations and eligibility criteria. The Company is participating as a lender in the PPP and may be exposed to the risk of litigation. Since the initiation of the PPP, several banks have been subject to litigation or threatened litigation regarding the process and procedures that such lenders used in processing applications for the PPP. If any such litigation is filed or threatened and is not resolved in a manner favorable to the Company, it may result in significant cost or adversely affect our reputation. Any financial liability, litigation costs, or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial position, results of operations and prospects.

The Company is ~~subject~~Subject to a ~~variety~~Variety of ~~risks~~Risks in ~~connection with any sale~~Connection With Any Sale of ~~loans~~Loans it ~~may conduct.~~May Conduct.

In connection with the Company’s sale of one or more loans or loan portfolios, it may make certain representations and warranties to the purchaser concerning the loans sold and the procedures under which those loans have been originated and serviced. If any of these representations and warranties are invalid, the Company may be required to refund premiums, indemnify the purchaser for any related costs or losses, or it may be required to repurchase part or all of the affected loans, which may be impaired. The Company may also be required to repurchase loans as a result of borrower fraud or in the event of early payment default by the borrower on a loan it has sold. The Company’s ability to maintain seller/servicer relationships with government agencies and government backed entities may be jeopardized in the event of the emergence of one or more of the above risks. Demand for the Company’s loans in the secondary markets could also be affected by these risks, which could lead to a reduction in related business activities.

The Company may be required to reduce the value of any loans it marks as held for sale, which could adversely affect its results of operations. As a result of the Company’s strategic initiatives, the Company sold certain loans which were previously held for investment and conducted sales with buyers who it had not previously transacted with.

The Company is ~~exposed~~Exposed to ~~risk~~Risk of ~~environmental liability when it takes title~~Environmental Liability When It Takes Title to ~~property.~~Property.

In the course of its business, the Company may foreclose on and take title to real estate. As a result, the Company could be subject to environmental liabilities with respect to these properties for property damage, personal injury, investigation and clean-up costs. The costs associated with investigation or remediation activities could be substantial. The Company

~~Table of Contents~~

may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.

Table of Contents

Operating

~~Expansion, Growth,~~The COVID-19 Pandemic is Adversely Affecting, and ~~Acquisitions Could Negatively Impact Earnings If Not Successful.~~Will Likely Continue to Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.

The ~~Company plans~~COVID-19 pandemic has negatively impacted the U.S. and global economy; disrupted U.S. and global supply chains; lowered equity market valuations; created significant volatility and disruption in financial markets; contributed to ~~grow organically, by geographic expansion, through business line expansion,~~a decrease in the rates and ~~through acquisitions. Successful expansion depends~~yields on U.S. Treasury securities; resulted in ratings downgrades, credit deterioration, and defaults in many industries; increased demands on capital and liquidity; and dramatically increased unemployment levels and decreased consumer confidence. In addition, the ~~maintenance and development~~pandemic has resulted in temporary closures of ~~an adequate infrastructure. Success also depends on customer acceptance~~many businesses and the ~~long-term recruitment~~institution of social distancing and ~~retention~~sheltering in place requirements in many states and communities, including those in our footprint. The pandemic has caused us, and could continue to cause us, increases in the Company's allowance for credit losses and subsequent increases in credit losses in our loan portfolios. Some of ~~key personnel~~the risks the Company faces from the pandemic include, but are not limited to: the health and ~~acquired customer relationships. Profitability depends~~availability of our colleagues, the financial condition of our clients and the demand for our products and services, falling interest rates, recognition of credit losses and increases in the allowance for credit losses, especially if businesses remain closed or restricted, unemployment continues to rise and clients and customers draw on ~~whether~~their lines of credit or seek additional loans to help finance their businesses, and a significant deterioration of business conditions in our markets. Furthermore, the ~~income generated~~pandemic has caused us to recognize impairment of our goodwill and there could be impairment of our financial assets. Sustained adverse effects may also increase our cost of capital, prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements, or result in downgrades in our credit rating. The extent to which the COVID-19 pandemic impacts our business, financial condition, liquidity and results of operations will ~~offset~~depend on future developments, which are highly uncertain and cannot be predicted, including the ~~increased operating expenses. The Company implemented certain expense restructuring activities, related~~scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our customers, colleagues, counterparties and service providers, and actions taken by governmental authorities and other third parties in ~~part~~response to the ~~rationalization~~pandemic.

Governmental authorities have taken significant measures to provide economic assistance to individual households and businesses, stabilize the markets, and support economic growth. The success of ~~acquired operations. Changes~~these measures is unknown, and they may not be sufficient to mitigate the negative impact of the pandemic. Additionally, some measures, such as a deferment of loan payments and the significant reduction in ~~operations may result in inefficiencies or control deficiencies.~~

~~Merger and acquisition activities are subject~~interest rates to a number of risks, including lending, operating, and integration risks. Such growth requires careful due diligence, evaluation of risks, and projections of future operations and financial conditions. Adverse developments couldnear zero, will have a ~~material adverse effect~~negative impact on ~~the Company's~~our business, financial condition, liquidity, and results of operations. ~~Acquisitions often involve extensive merger agreements, which may lead~~We also face an increased risk of litigation and governmental and regulatory scrutiny as a result of the effects of the pandemic on market and economic conditions and actions governmental authorities take in response to ~~litigation risks or operating constraints.~~those conditions.

The ~~Company has recruited executive~~length of the pandemic and ~~business line management~~the effectiveness of the measures being put in place to ~~support its growth~~address it are unknown. Until the effects of the pandemic subside, we expect continued impacts on liquidity, reduced revenues in our businesses, and ~~expansion,~~increased customer defaults. Furthermore, the U.S. economy experienced a recession as a result of the pandemic, and it ~~has absorbed management~~is probable that our business would be materially and adversely affected if current conditions do not improve sufficiently. To the extent the pandemic adversely affects our business, financial condition, liquidity, or results of ~~acquired operations. This involves retention risks, operating risks, and financial risks. Such recruitment can affect~~operations, it may also have the ~~retention~~effect of ~~new and old business, and can also be affected by competitive reactions and other relationship risks in retaining accounts. The relocation~~heightening many of the ~~Company’s headquarters may affect operational functioning.~~other risks described in this Annual Report on Form 10-K.

Regulatory examinations may identify matters requiring attention. Deficiencies related to regulatory compliance may result in changes that affect operating revenues and costs, including the scope or scale of business activities and/or potential future expansion initiatives. The Company has crossed the $10 billion threshold for additional Dodd Frank regulatory requirements. These regulations affect revenues and operating costs, and introduce additional compliance requirements. If targeted earnings accretion is not achieved, some profitability metrics may be reduced. The Company may also face additional acquisition approval requirements, and growth plans could be slowed if expected approvals are not obtained.

~~Competition From Financial Institutions and Other Financial Service Providers May Adversely Affect the Company’s Growth and Profitability.~~

Competition in the banking and financial services industry is intense. Larger banking institutions have substantially greater resources and lending limits and may offer certain services not offered by the Company. Local competitors with excess capital may accept lower returns on new business. There is increased competition by out-of-market competitors through the internet and mobile technology. Federal regulations and financial support programs may in some cases favor competitors. Competition includes competition for banking teams and talent. Competition creates risk that revenues, earnings, or market share could be adversely affected by the loss of talent.

~~Market Changes May Adversely Affect Demand For The Company’s Services and Impact Revenue, Costs, and Earnings.~~

Channels for servicing the Company’s customers are evolving rapidly, with less reliance on traditional branch facilities, more use of online and mobile banking, and demand for universal bankers and other relationship managers who can service multiple product lines. The Company has an ongoing process for evaluating the profitability of its branch system and other office and operational facilities. The identification of unprofitable operations and facilities can lead to restructuring charges and introduce the risk of disruptions to revenues and customer relationships. The Company competes with larger providers who are rapidly evolving their service channels and escalating the costs of evolving the service process.

The Company is Subject to Security and Operational Risks Relating to the Use of Technology that Could Damage the Company's Reputation and Business.

Security breaches of confidential information in our technology platforms could expose the Company to possible liability and damage its reputation. Any compromise of data security could also deter customers from using the

~~Table of Contents~~

Company's services. The Company relies on industry standard internet security and authentication systems to effect secure transmission of data. These precautions may not protect the Company's security systems from compromises or breaches and could result in damage to its reputation and business. The Company utilizes third party core banking software, in addition to other outsourced data processing. If third party providers encounter difficulties or if the Company has difficulty in communicating and/or transmitting with such third parties, it could significantly affect its ability to adequately process and account for customer transactions, which could significantly affect its business operations. The Company interfaces with electronic payments systems which are subject to security and operational risks. The Company utilizes file encryption in designated internal systems and networks and is subject to certain state and federal regulations regarding how the Company manages data security. The Company's enterprise governance risk and compliance function includes a framework of controls, policies and technologies to

Table of Contents

monitor and protect information from cyberattacks, mishandling, and loss, together with safeguards related to the confidentiality, integrity, and availability of information. Natural disasters and disaster recovery risks could affect its operating systems, which could affect its reputation. The Company's business continuity program addresses crisis management, business impact, and data and systems recovery. Potential problems with the management of technology security and operational risks may affect regulatory compliance, which could affect operating costs and expansion plans.

The Company Faces Cybersecurity Risks, Including Denial of Service Attacks, Hacking and Identity Theft that Could Result in the Disclosure of Confidential Information or the Creation of Unauthorized Transactions, Which Could Adversely Affect the Company’s Business or Reputation and Create Significant Legal and Financial Exposure.

Banking institutions face increased cybersecurity risks due to the number of employees that are working remotely in regions impacted by stay-at-home orders. Increased levels of remote access create additional opportunities for cybercriminals to exploit vulnerabilities, and employees may be more susceptible to phishing and social engineering attempts due to work responsibilities at home. In addition, technological resources may be strained due to the number of remote users. Banking institutions should evaluate their cybersecurity risks in light of these issues and update their existing risk factors for any material changes or developments

The Company’s computer systems and network infrastructure are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, steal financial assets, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. Denial of service attacks have been launched against a number of large financial services institutions. As a growing regional bank, the Company may be subject to similar attacks in the future. Hacking and identity theft risks could cause serious reputational harm and possible financial loss to the Company. Cyber threats are rapidly evolving and the Company may not be able to anticipate or prevent all such attacks.

The Company may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss. Despite efforts to ensure the integrity of its systems, the Company will not be able to anticipate all security breaches of these types, and the Company may not be able to implement effective preventive measures against such security breaches. The techniques used by cyber criminals change frequently and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce employees, customers or other users of the Company’s systems to disclose sensitive information in order to gain access to its data or that of its clients or to conduct unauthorized financial transactions.

These risks may increase in the future as the Company continues to increase its mobile-payment and other internet-based product offerings and expands its internal usage of web-based products and applications. A successful penetration or circumvention of system security could cause serious negative consequences to the Company, including significant disruption of operations, misappropriation of confidential information of the Company or that of its customers, or damage to computers or systems of the Company or those of its customers and counterparties. A security breach could result in violations of applicable privacy and other laws, financial loss to the Company or to its customers, loss of confidence in the Company’s security measures, significant litigation exposure, and harm to the Company’s reputation, all of which could have a material adverse effect on the Company.

~~Table of Contents~~

~~The Company is subject to regulatory environment changes regarding privacy~~Counterparties and ~~data protection and could have a material impact on our results of operations.~~

The growth and expansion of the company into a variety of new fields may potentially involve new regulatory issues/requirements such as the EU General Data Protection Regulation (GDPR) or the New York Department of Financial Services (NYDFS) Cybersecurity Regulation. The potential costs of compliance with or imposed by new/existing regulations and policies that are applicable to us may affect the use of our products and services and could have a material adverse impact on our results of operations.

~~The Company needs to stay current on technological changes in order to compete and meet customer demands.~~

The financial services market is changing rapidly with frequent introductions of new technologies which increase service and improve efficiency. Some of the Company’s competitors have substantially greater resources to invest in technological improvements than it currently has. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.

~~Financial and Operating Counterparties~~Correspondents Expose the Company to Risks.

The Company's use of derivative financial instruments exposes us to financial and contractual risks with counterparties. The Company maintains correspondent bank relationships, manage certain loan participations, engage in securities and funding transactions, and undergo other activities with financial counterparties that are customary to its industry. The Company also utilizes services from major vendors of technology, telecommunications, and other essential operating services. There is financial, reputational, and ~~operating~~operational risk in these relationships, which the Company seeks to manage through internal controls and procedures, but there are no assurances that the Company will not experience loss or interruption of its business as a result of unforeseen events

Table of Contents

with these providers. The Company's ~~expanded~~ mortgage banking operations have ~~also~~ exposed us to ~~more~~ counterparty transactions including the use of third parties to participate in the management of interest rate risk and mortgage sales and hedging. Financial, reputational, and operational risks are inherent in these counterparty and correspondent relationships. The Company could experience losses if there are failures in the controls or accounting, including those related to derivatives activities or if there are performance failures by any counterparties. The risk of loss is increased when interest rates change suddenly and if the intended hedging objectives are not achieved as a result of market or counterparty behaviors.

The ~~Company May Not Be Able to Attract and Retain Skilled People.~~Company’s Business is Reliant on Outside Vendors.

The ~~Company's success~~Company’s business is highly dependent on the use of certain outside vendors for its day-to-day operations. The Company’s operations and reputation are exposed to risk that a vendor may not perform in accordance with established performance standards required in its agreements for any number of reasons including a change in their senior management, their financial condition, their product line or mix and how they support existing customers, or a simple change in their strategic focus. While the Company has comprehensive programs, policies and procedures in place to mitigate risk at all phases of vendor management from selection, to performance monitoring and renewals, the failure of a vendor to perform in accordance with contractual agreements could be disruptive to its business, which could have a material adverse effect on its financial condition, strategic objectives, and results of operations.

Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk.

The Company’s financial performance depends, in ~~large~~ part, on its ability to ~~attract~~develop and market new ~~employees, retain~~ and ~~motivate~~innovative services and to adopt or develop new technologies that differentiate its ~~existing employees,~~products or provide cost efficiencies, while avoiding increased related expenses. This dependency is exacerbated in the current “FinTech” environment, where financial institutions are investing significantly in evaluating new technologies, such as “Blockchain,” and ~~continue~~developing potentially industry-changing new products, services and industry standards. The introduction of new products and services can entail significant time and resources, including regulatory approvals. Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to ~~compensate employees competitively. Competition for~~be developed and implemented, rapid technological change in the ~~best people~~industry, the Company’s ability to access technical and other information from its clients, the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices and the preparation of marketing, sales and other materials that fully and accurately describe the product or service and its underlying risks. The Company’s failure to manage these risks and uncertainties also exposes it to enhanced risk of operational lapses which may result in the recognition of financial statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationships and shifting market preferences may also determine if such initiatives can be ~~intense~~brought to market in a manner that is timely and attractive to the Company’s clients. Products and services relying on internet and mobile technologies may expose the Company ~~may not be able~~ to ~~hire or retain appropriately qualified individuals. As a result of restructuring activities, the Company could experience challenges~~fraud and cybersecurity risks. Failure to successfully manage these risks in the ~~retention~~development and implementation of ~~existing employees.~~

~~Controls and Procedures May Fail~~new products or ~~Be Circumvented.~~

Management regularly reviews and updates the Company’s internal controls, disclosure requirements and practices, and corporate governance policies and procedures. Any system of controls, however well designed and operated, can only provide reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and proceduresservices could have a material adverse effect on the Company’s business and reputation, as well as on its consolidated results of operations and financial condition.

The Discontinuation of LIBOR and the Emergence of One or More Alternative Benchmark Indices to Replace LIBOR Could Adversely Impact the Company’s Business and Results of Operations.

The Company’s floating-rate funding, certain hedging transactions and certain of the Company’s products, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the London Interbank Offered Rate (“LIBOR”), or to an index, currency, basket or other financial metric. LIBOR and certain other benchmark rates are the subject of recent national, international, and other regulatory guidance and proposals for reform. LIBOR may be discontinued as early as December 31, 2021.

Regulators and various financial industry groups have sponsored or formed committees (e.g., the Federal Reserve-sponsored Alternative Reference Rates Committee) to, among other things, facilitate the identification of an alternative benchmark index to replace LIBOR, and publish consultations on recommended practices for transitioning away from LIBOR, including (i) the utilization of recommended fallback language for LIBOR-linked financial instruments, and (ii) development of alternative pricing methodologies for recommended alternative benchmarks such as the Secured Overnight Financing Rate (“SOFR”). SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-based

Table of Contents

repurchase transactions. At this time, it is still not possible to predict whether these recommendations and proposals will be broadly accepted in the market, whether they will continue to evolve, and what the effect of their implementation may be on the markets for floating-rate financial instruments.

The discontinuation of LIBOR could result in changes to the Company’s risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, the Company’s exposure to fluctuations in interest rates) or otherwise result in losses on a product or having to pay more or receive less on securities that the Company has issued or owns. A substantial portion of the Company’s on- and off-balance sheet financial instruments are indexed to LIBOR, including interest rate swap agreements and other contracts used for hedging and trading account purposes, loans to commercial customers and consumers (including mortgage loans and other loans), and long-term borrowings. In addition, such uncertainty could result in pricing volatility and increased capital requirements, loss of market share in certain products, adverse tax or accounting impacts, and compliance, legal and operational costs and risks.

Liquidity

The Company's Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Operations and Future Growth.

The Company must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of its liquidity management, the Company uses a number of funding sources in addition to deposit growth and cash flows from loans and investments. These sources include Federal Home Loan Bank advances, proceeds from the sale of loans, and liquidity resources at the holding company. The Company uses brokered deposits both to support ongoing growth and to provide enhanced deposit insurance to support large dollar commercial relationships. The Company's financial flexibility will be severely constrained if the Company is unable to maintain access to wholesale funding or if adequate financing is not available to accommodate future growth at acceptable costs. Turbulence in the capital

~~Table of Contents~~

and credit markets may adversely affect liquidity and financial condition and the willingness of certain counterparties and customers to do business with the Company.

The Company's Ability to Service Our Debt, Pay Dividends, and Otherwise Pay Obligations as They Come Due Is Substantially Dependent on Capital Distributions from the Bank, and These Distributions Are Subject to Regulatory Limits and Other Restrictions.

A substantial source of holding company income is the receipt of dividends from the Bank, from which the Company services debt, pay obligations, and pay shareholder dividends. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the applicable regulatory authorities could assert that payment of dividends or other types of payments are an unsafe or unsound practice. If the Bank is unable to pay dividends, the Company may not be able to service debt, pay debt obligations, or pay dividends on its common stock.

The Loss Recorded in 2020 May Have an Adverse Effect on Future Dividend Payments to Common Shareholders.

Due to the loss in the first half of 2020 and its impact on retained earnings, the Bank will require the approval from the Massachusetts Division of Banks in order to continue to be a source of dividend income to the Company. Over the long term, these dividends are a source of funds to the parent to support dividend payments to Company shareholders. Also due to the loss, the Company requires nonobjection from the Federal Reserve Bank of Boston for future shareholder dividend payments. Future payments of dividends will also depend on the Board’s holistic assessment of the Company’s operating, risk, and financial situations and current circumstances, as well as regulatory assessments of these factors.

Secondary ~~mortgage market conditions could have~~Mortgage Market Conditions Could Have a ~~material impact~~Material Impact on the Company’s ~~financial condition~~Financial Condition and ~~results~~Results of ~~operations.~~Operations.

In addition to being affected by interest rates, the secondary mortgage markets are also subject to investor demand for residential mortgage loans and increased investor yield requirements for these loans. These conditions may fluctuate or worsen in the future. As a result, a prolonged period of secondary market illiquidity may reduce the Company’s loan production volumes and operating results.

Secondary markets are significantly affected by Fannie Mae, Freddie Mac and Ginnie Mae (collectively, the “Agencies”) for loan purchases that meet their conforming loan requirements. These agencies could limit purchases

Table of Contents

of conforming loans due to capital constraints, a change in the criteria for conforming loans or other factors. Proposals to reform mortgage finance could affect the role of the Agencies and the market for conforming loans which comprise the majority of the Company’s mortgage lending and related originations income.

Interest Rates

Market Interest Rate Conditions Could Adversely Affect Results of Operations and Financial Condition.

Net interest income is the Company's largest source of income. Changes in interest rates can affect the level of net interest income and other elements of net income. The Company’s interest rate sensitivity is discussed in more detail in Item 7A of this report and is the primary market risk to its condition and operations. Changes in interest rates can also affect the demand for the Company’s products and services, and the supply conditions in the U.S. financial and capital markets. Changes in the level of interest rates may negatively affect the Company’s ability to originate real estate loans, the value of its assets and its ability to realize gains from the sale of assets, all of which ultimately affect earnings.

Securities Market Values

Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce Earnings.

Declines in the value of investment securities due to market conditions and/or issuer impairment could result in losses that can reduce capital and earnings. The Company’s investment in equity securities and non-investment grade debt securities present heightened credit and price risks. Under new accounting standards, equity gains and losses are recorded to current period operating results. The Company has an investment in the stock of the Federal Home Loan Bank of Boston ("FHLBB") which could result in write-down in the event of impairment.

~~Taxation~~

~~Changes in Tax Preference Items May Affect Results of Operations.~~

~~Higher tax expense due to planned or unplanned changes in tax preference items may result in lower profitability. Quarterly results may vary significantly from annual results.~~

~~Changes in Federal Tax Policy May Affect Results of Operations.~~

Changes in federal tax policy may result in unexpected impacts to markets and customer behaviors. New tax regulations may result in changes to deductions and tax preferences, which could require a further write-down of the

~~Table of Contents~~

~~deferred tax asset. Changes could affect the Company’s financial results and also could affect the profitability of tax preferred investments.~~

Regulatory Matters

Legislative and Regulatory Initiatives May Affect Business Activities and Increase Operating Costs.

New federal or state laws and regulations could affect lending, funding practices, capital, and liquidity standards. New laws, regulations, and other regulatory changes may also increase compliance costs and affect business and operations. Moreover, the FDIC sets the cost of FDIC insurance premiums, which can affect profitability.

Regulatory capital requirements and their impact on the Company may change. ItThe Company may need to raise additional capital in the future to support operations and continued growth. The Company's ability to raise capital, if needed, will depend on its condition and performance, and on market conditions. If additional capital is not available when needed, it could affect operations and the execution of the strategic plan, which includes further expanding operations through internal growth and acquisitions.

New laws, regulations, and other regulatory changes, along with negative developments in the financial industry and the domestic and international credit markets, may significantly affect the markets in which the Company does business, the markets for and value of its loans and investments, and ongoing operations, costs and profitability. For more information, see “Regulation and Supervision” in Item 1 of this report.

In 2017, the Company crossed the $10 billion asset threshold established by the Dodd-Frank ~~act.~~Act. The Company and the Bank are now subject to closer supervision by their primary regulators and, as to compliance with consumer protection laws and regulations, the Consumer Financial Protection Bureau. The Company and the Bank are subject to ~~new~~ capital stress testing ~~requirements~~expectations which require significant ~~new~~ resources and infrastructure. If the Company’s compliance with the enhanced supervision and requirements is insufficient, there can be significant negative consequences for its operations, profitability, and ability to further pursue its strategic growth plan.

Provisions of the Company's Certificate of Incorporation, Bylaws, and Delaware Law, as Well as State and Federal Banking Regulations, Could Delay or Prevent a Takeover of Us by a Third Party.

Provisions in the Company's certificate of incorporation and bylaws, the corporate law of the State of Delaware, and state and federal regulations could delay, defer or prevent a third party from acquiring us, despite the possible benefit stockholders, or otherwise adversely affect the price of its common stock. These provisions include: limitations on voting rights of beneficial owners of more than 10 percent of common stock; supermajority voting requirements for certain business combinations; the election of directors to terms of one year; and advance notice requirements for nominations for election to the Company's Board of Directors and for proposing matters that stockholders may act on at stockholder meetings. In addition, the Company is subject to Delaware laws, including one that prohibits engaging in a business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder unless certain conditions are met. These provisions may

Table of Contents

discourage potential takeover attempts, discourage bids for the Company's common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of, its common stock. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors other than the candidates nominated by the Board.

Significant Accounting Estimates ~~May Not Be Realized in Accordance with Recorded Estimates.~~

~~Unexpected Changes May Adversely Affect Condition or Performance.~~

The Company’s significant accounting policies are described in Note 1 - Summary of Significant Accounting Policies of the Consolidated Financial Statements in Item 8 of this report. The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. The Company’s critical accounting policies are further discussed in Item 7 of this report. If actual events and results do not conform to critical estimates, there could be a material impact on financial condition, operating performance, and execution of the strategic plan.

~~Table of Contents~~

~~Mergers and Acquisitions~~

~~Acquisitions may disrupt the Company’s business and dilute stockholder value.~~

The Company completed its acquisition of Commerce Bancshares Corp. in October 2017. The Company regularly evaluates merger and acquisition opportunities with other financial institutions and financial services companies. Future mergers or acquisitions involving cash, debt, or equity securities may occur from time to time. The Company seeks acquisition partners that offer either significant market presence or the potential to expand its market footprint and improve profitability through economies of scale or expanded services.

Acquiring other banks, businesses, or branches may have an adverse effect on the Company’s financial results and may involve various other risks commonly associated with acquisitions, including, among other things:

~~difficulty in estimating the value of the target company~~

~~payment of a premium over book and market values that may dilute the Company’s tangible book value and earnings per share in the short and long term;~~

~~exposure to unknown or contingent liabilities, or asset quality problems, of the target company;~~

~~unexpected regulatory responses to merger related applications~~

~~larger than anticipated merger-related expenses;~~

~~difficulty and expense of integrating the operations and personnel of the target company, and retaining key employees and customers;~~

~~inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits; and~~

~~potential diversion of Company management’s time and attention.~~

If the Company Determines Intangible Assets to be Impaired, the Company’s Financial Condition and Results Would Be Negatively Affected.

When the Company completes a business combination, a portion of the purchase price of the acquisition is ~~unable~~allocated to ~~successfully integrate~~identifiable intangible assets. If the Company determines that the fair value of the intangible assets is less than the carrying value, the Company will be required to write down these assets. Any write-down would have a negative effect on the financial statements.

Various Factors May Cause our Allowance for Credit Losses on Loans to Increase.

The Company has an ~~acquired company,~~allowance for current expected credit losses on loans maintained through a provision for credit losses charged to expense. This represents our estimate of current expected credit losses based on an evaluation of risks within the ~~anticipated benefits~~portfolio of loans. The level of the allowance represents management’s estimate of current expected credit losses over the contractual life of the existing loan portfolio. The determination of the appropriate level of the allowance inherently involves a degree of subjectivity and requires that we make significant estimates of current credit risks and current trends and reasonable and supportable forecasts of future economic conditions, all of which may ~~not be realized fully or~~undergo frequent and material changes. Changes in economic and other conditions affecting borrowers, along with new information regarding existing loans other factors, may ~~take longer to realize than expected. A significant decline in asset valuations or cash flows may also prevent~~indicate the ~~attainment of targeted results. Additional discussion about the risk of acquisitions is included above~~need for a future increase in the ~~discussion of Operating Risk.~~allowance.

Trading of the Company's Common Stock

The Trading History of ~~The~~the Company’s Common Stock Isis Characterized By Low Trading Volume. The Value of Shareholder Investments May be Subject Toto Sudden Decreases Due Toto the Volatility of the Price of the Common Stock.

The level of interest and trading in the Company’s stock depends on many factors beyond the Company's control. The market price of the Company's common stock may be highly volatile and subject to wide fluctuations in response to numerous factors, including, but not limited to, the factors discussed in other risk factors and the following: actual or anticipated fluctuations in operating results; changes in interest rates; changes in the legal or regulatory environment; press releases, announcements or publicity relating to the Company or its competitors or relating to trends in its industry; changes in expectations as to future financial performance, including financial estimates or recommendations by securities analysts and investors; future sales of its common stock; changes in economic conditions in the marketplace, general conditions in the U.S. economy, financial markets or the banking industry; and other developments. These factors may adversely affect the trading price of the Company's common stock, regardless of actual operating performance, and could prevent stockholders from selling their common stock at a desirable price.

In the past, stockholders have brought securities class action litigation against a company following periods of volatility in the market price of their securities. The Company could be the target of similar litigation in the future, which could result in substantial costs and divert management’s attention and resources.

Table of Contents

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company's headquarters are located at 60 State Street in leased property in Boston, ~~Mass.~~MA. The Bank's headquarters are located in owned and leased facilities located in Pittsfield, ~~Mass.~~MA. The Company also owns or leases other facilities within its primary market areas: Greater Boston (including Worcester, MA); Berkshire County, Massachusetts; Pioneer Valley (Springfield area), Massachusetts; Southern Vermont; the Capital Region (Albany area), New York; Central New York; ~~Northern~~Central and Eastern Connecticut; ~~and~~Southern Rhode Island; and Princeton area, New Jersey.As of December 31, ~~2017,~~2020, the Company had ~~113~~130 full-service branches in Massachusetts, New York, Connecticut, Vermont, Central New Jersey, and Eastern Pennsylvania.Based on its branch optimization plan, the Bank is targeting to sell its eight New Jersey and Pennsylvania branches and to consolidate 16 branches in its New England/New York footprint, reducing total branches to a target of 106 offices by midyear 2021. The Company opened a commercial banking office in Providence, Rhode Island in the beginning of 2021.

The Company also has regional locations which are full-service commercial offices located in Boston, MA.; Pittsfield, MA.; Springfield, MA.; Albany, N.Y.; East Syracuse, N.Y.; Hartford, ~~Conn.~~CT.; Willimantic, CT. Worcester, MA.; Burlington, MA.; and Lawrenceville, N.J. In addition, the Company has eight lending locations in Central/Eastern, Massachusetts. The Bank's wholly-owned subsidiary, Firestone Financial, LLC, is headquartered in the Boston metro area.

Berkshire Insurance Group Inc. operates from 12 locations in Western Massachusetts and East Syracuse, N.Y. in both stand-alone premises as well as in rented space located in the Bank’s premises.

The Company acquired Commerce Bancshares ("Commerce") in October of 2017, obtaining 13 branches in and around the Worcester, MA area. The Company also assumed Commerce's three branches and three lending offices in the Boston metro area.

The Company acquired First Choice Bank in December of 2016, assuming eight full-service branches in the Princeton, N.J. and greater Philadelphia areas. As a part of the acquisition, First Choice Loan Services Inc., headquartered in East Brunswick, N.J., became a wholly-owned subsidiary of the Bank. As a national mortgage lender, the Company acquired its 12 loan production offices across six states. In 2016, the Company sold two existing branches that management determined to have redundancy with its current footprint.

Berkshire continues to enhance its new retail branch design which eliminates traditional teller counters and provides an interactive customer service environment through “pod” stations which include automated cash handling technology. In many cases, this branch design also includes a multimedia community room which is offered for use by nonprofit community groups. The Company has begun introducing MyTeller automated remote teller stations at new offices and targeted existing offices.

The Bank has made its workplace more flexible as certain designated functions are approved for telecommuting arrangements. As a result of its merger and efficiency initiatives, the Bank has excess facilities space in various locations which is some cases is owned or subject to lease.The Bank is considering alternative uses or dispositions of excess office space, including uses in support of providing community benefit.The Bank opened a Reevx Labs community workspace in 2020 to increase its presence and service to underbanked urban communities.

Access to most Company properties was restricted during periods of 2020 due to the pandemic, and special cleaning and safety protocols were instituted.Drive-up teller facilities, automated teller machines, and interactive teller machines were relied on to maintain ongoing customer access, in addition to the Bank’s internet, telephone, and mobile banking channels.Most back-office staff used home environments and telecommunications capacities to accommodate the shift out of the office due to the pandemic.

Table of Contents

ITEM 3. LEGAL PROCEEDINGS

As of December 31, ~~2017,~~2020, 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. ~~However, other than~~A summary of certain legal matters involving unsettled litigation or pertaining to pending transactions are as follows:

On February 4, 2020, the ~~items noted below, neither~~Bank filed a complaint in the ~~Company nor~~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, to which the Bank is ~~a defendant party to any pending legal proceedings that it believes,~~ in the ~~aggregate, would have~~process of responding. The Company wrote down the underlying credit loss in its entirety in the third quarter of 2019, but recognized a ~~material adverse effect~~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 September 11, 2020, the Company received notice of a demand letter served on the ~~financial condition or operations~~Company and the Bank by a former mortgagee of the ~~Company. Additionally, an estimate of future, probable losses cannot be estimated as of December 31, 2017.~~

~~On April 28, 2016, Berkshire Hills and Berkshire~~ Bank ~~were served with a complaint filed in the United States District Court, District of Massachusetts, Springfield Division. The complaint was filed by an individual Berkshire Bank depositor, who claims~~pursuant to have filed the complaint on behalf of a purported class of Berkshire Bank depositors, and alleges violations of the Electronic Funds Transfer Act and certain regulations thereunder, among other matters. On July 15, 2016, the complaint was amended to add purported claims under the Massachusetts Consumer Protection Act. The complaint seeks, in part, compensatory, consequential, statutory, and punitive damages. Berkshire Hills and Berkshire Bank deny the allegations contained in the complaint and are vigorously defending this lawsuit.

On January 29, 2018, the Bank was served with an amended complaint filed nominally against Berkshire Hills in the Business Litigation Session of the Massachusetts Superior Court sitting in Suffolk County. The amended complaint was filed by two residuary beneficiaries of an estate planning trust that was administered by the Bank as successor trustee following the death of the trust donor, and alleges the Bank breached its fiduciary duty and violated the Massachusetts Consumer Protection Act, M.G.L Ch. 93A (“Chapter 93A). The demand letter alleges that a mortgage payoff statement tendered by the Bank to the mortgagee included a mortgage discharge preparation fee that is purportedly impermissible under Massachusetts law.The demand letter also claims that the Bank failed to provide a copy of the recorded mortgage discharge to the mortgagee in a timely manner. The demand letter further purports to state claims on behalf of a putative class of similarly situated Massachusetts mortgage customers of the Bank, who allegedly may have suffered similar violations of Massachusetts law. The demand letter seeks monetary damages for the original mortgagee claimant and the putative class, plus double or treble damages and reasonable attorneys’ fees, as may be allowed under Chapter 93A. The Company and the Bank have retained outside litigation counsel, who has responded to the demand letter and denied all claims on behalf of the Company and the Bank. No class action or other lawsuit has been served on the Company or the Bank as of the date of this filing.

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 ~~course~~Court of ~~performing~~Common Pleas, Bucks County Pennsylvania against FCLS and two of its ~~duties~~former senior corporate officers generally alleging wrongful termination as ~~trustee.~~ a result of purported whistleblower retaliation and other violations of New Jersey state employment law.The complaint ~~seeks compensatory, statutory,~~also purports to name the Bank and ~~punitive damages. Berkshire Hills~~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 ~~Berkshire~~the Bank ~~deny~~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 ~~allegations contained~~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 ~~the complaint and are vigorously defending this lawsuit.~~accordance with contractual obligations set forth in plaintiff’s previous employment agreement with FCLS.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The common shares of the Company trade on the New York Stock Exchange under the symbol “BHLB”. The following table sets forth the quarterly high and low sales price information and dividends declared per share of common stock in ~~2017~~2020 and ~~2016.~~2019.


2020	High		Low		Dividends Declared
First quarter	$	33.04	$	11.43	$	0.24
Second quarter	18.79		9.15		0.24
Third quarter	11.26		8.55		0.12
Fourth quarter	19.24		9.80		0.12

2017 High Low Dividends
Declared
First quarter $ 37.45
$ 32.90
$ 0.21
Second quarter 38.65
33.55
0.21
Third quarter 39.00
32.85
0.21
Fourth quarter 40.00
35.10
0.21


2016
2019							2019
First quarter	$	28.93	$	24.71	$	0.20	First quarter	$	31.81	$	26.02	$	0.23
Second quarter	28.18		24.80		0.20		Second quarter	31.60		27.35		0.23
Third quarter	28.37		25.90		0.20		Third quarter	33.33		28.20		0.23
Fourth quarter	37.35		27.25		0.20		Fourth quarter	33.72		27.99		0.23

The Company had approximately ~~3,646~~4,107 holders of record of common stock at February ~~23, 2018.~~25, 2021.

Dividends

The Company intends to pay regular cash dividends to common ~~and preferred~~ shareholders; however, there is no assurance as to future dividends because they are dependent on the Company’s future earnings, capital requirements, financial condition, and regulatory environment. Dividends from the Bank have been a source of cash used by the Company to pay its dividends, and these dividends from the Bank are dependent on the Bank’s future earnings, capital requirements, and financial condition. Dividends from the Bank are currently subject to approval by the Massachusetts Division of Banks. Further information about dividend restrictions is disclosed in Note 18 - Shareholders’ Equity and Earnings per Common Share of the Consolidated Financial Statements.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

The Company occasionally issues unregistered shares of common stock to vendors or as consideration in contracts for the purchase of assets, services, or operations. ~~The~~During 2020, there were no shares transferred. During 2019, the Company ~~issued 30,478 shares in 2017 and 8,014 shares in 2016.~~transferred 1,936 shares.

Purchases of Equity Securities by the Issuer and Affiliated Purchases

~~On December 2, 2015,~~In the ~~Company announced that its Board~~first quarter of ~~Directors authorized a new~~2020, stock ~~repurchase program, pursuant to which~~repurchases were suspended as the Company may repurchase up to 500 thousand shares of the Company's common stock, representing approximately 1.6% of the Company’s then outstanding shares. The timing of the purchases will depend on certain factors, including but not limited to, market conditions and prices, available funds, and alternative uses of capital.pandemic emerged. The stock repurchase program ~~may be carried out through open-market purchases, block trades, negotiated private transactions or pursuant to a trading plan adopted~~ in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. Any repurchased shares will be recorded as treasury shares. The repurchase plan will continue until it is completed or terminated by the Board of Directors. As of year-end 2017, no shares had been purchased under this program.

~~Table of Contents~~

effect on December 31, 2019 expired on March 31, 2020 and was not replaced.

Period

Total number of

shares purchased

Average price

paid per share

Total number of shares

purchased as part of

publicly announced

plans or programs

Maximum number of

shares that may yet

be purchased under

the plans or programs

October 1-31, ~~2017~~2020

—

~~500,000~~—

November 1-30, ~~2017~~2020

—

~~500,000~~—

December 1-31, ~~2017~~2020

—

~~500,000~~—

Total

—

—$

—

~~500,000~~

—

Table of Contents

Common Stock Performance Graph

The performance graph compares the Company’s cumulative shareholder return on its common stock over the last five years to the cumulative return of the NYSE Composite Index and the ~~PHLX~~ KBW NASAQ Regional ~~Bank~~Banking Index. Total shareholder return is measured by dividing total dividends (assuming dividend reinvestment) for the measurement period plus share price change for a period by the share price at the beginning of the measurement period. The Company’s cumulative shareholder return over a five-year period is based on an initial investment of $100 on December 31, ~~2012.~~2015.

Information used on the graph and table was obtained from a third party provider, a source believed to be reliable, but the Company is not responsible for any errors or omissions in such information.


	Period Ending
Index	12/31/15	12/31/16	12/31/17	12/31/18	12/31/19	12/31/20
Berkshire Hills Bancorp, Inc.	100.00	130.39	132.53	99.95	125.63	68.83
NYSE Composite Index	100.00	111.94	132.90	121.01	151.87	162.49
PHLX KBW Regional Banking Index	100.00	139.02	141.45	116.70	144.49	131.91

Source:S&P Global Market Intelligence

Period Ending
Index 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17
Berkshire Hills Bancorp, Inc. 100.00
117.53
118.35
132.76
173.10
175.94
NYSE Composite Index 100.00
126.06
134.62
129.40
144.72
171.66
PHLX KBW Regional Banking Index 100.00
146.30
149.67
158.62
219.27
223.02

In accordance with the rules of the SEC, this section captioned “Common Stock Performance Graph,” shall not be incorporated by reference into any of our future filings made under the Securities Exchange Act of 1934 or the Securities Act of 1933. The Common Stock Performance Graph, including its accompanying table and footnotes, is not deemed to be soliciting material or to be filed under the Exchange Act or the Securities Act.

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA

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


	At or For the Years Ended December 31,																At or For the Years Ended December 31,
(In thousands, except per share data)	2017			2016			2015			2014			2013			(In thousands, except per share data)	2020			2019			2018			2017			2016
Per Common Share Data:																Per Common Share Data:
Net earnings, diluted	$	1.39		$	1.88		$	1.74		$	1.36		$	1.65
Net (loss)/earnings, diluted - continuing operations																Net (loss)/earnings, diluted - continuing operations	$	(10.21)		$	2.05		$	2.36		$	1.24		$	1.88
Net (loss)/earnings, diluted - discontinued operations																Net (loss)/earnings, diluted - discontinued operations	(0.39)			(0.08)			(0.07)			0.15			—
Net (loss)/earnings, diluted																Net (loss)/earnings, diluted	$	(10.60)		$	1.97		$	2.29		$	1.39		$	1.88

Total book value per common share	32.14			30.65			28.64			28.17			27.08			Total book value per common share	23.37			34.65			33.30			32.14			30.65

Dividends	0.84			0.80			0.76			0.72			0.72			Dividends	0.72			0.92			0.88			0.84			0.80
Common stock price:																Common stock price:
High	40.00			37.35			30.40			27.28			29.38			High	33.04			33.72			44.25			40.00			37.35
Low	32.85			24.71			24.32			22.06			23.38			Low	8.55			26.02			25.77			32.85			24.71
Close	36.60			36.85			29.11			26.66			27.27			Close	17.12			32.88			26.97			36.60			36.85
Performance Ratios: (1)																Performance Ratios: (1)
Return on assets	0.56		%	0.74		%	0.68		%	0.55		%	0.78		%	Return on assets	(4.15)		%	0.75		%	0.90		%	0.56		%	0.74		%

Return on equity	4.45			6.44			6.14			4.87			6.09			Return on equity	(37.50)			5.75			6.84			4.45			6.44

Net interest margin, fully taxable equivalent (FTE) (2)	3.40			3.31			3.34			3.30			3.67			Net interest margin, fully taxable equivalent (FTE) (2)	2.72			3.17			3.40			3.40			3.31
Fee income/Net interest and fee income	29.41			22.80			21.18			23.02			23.04			Fee income/Net interest and fee income	18.10			23.86			23.36			29.41			22.80

Growth Ratios:																Growth Ratios:
Total commercial loans	37.79%			18.39		%	28.65		%	14.80		%	4.51		%	Total commercial loans	(4.58)		%	9.19		%	6.17		%	37.79		%	18.39		%
Total loans	26.71			14.41			22.32			11.96			4.81			Total loans	(14.95)			5.08			8.96			26.71			14.41
Total deposits	32.13			18.48			20.08			20.95			(6.14		)	Total deposits	(1.16)			15.07			2.66			32.13			18.48
Total net revenues, (compared to prior year)	41.05			11.18			18.40			(0.23		)	14.96			Total net revenues, (compared to prior year)	(14.73)			4.53			11.59			41.05			11.18
Earnings per share, (compared to prior year)	(26.06		)	8.62			27.21			(17.58		)	10.74			Earnings per share, (compared to prior year)	(638.07)			(13.97)			64.75			(26.06)			8.62

Selected Financial Data:																Selected Financial Data:
Total assets	$	11,570,751		$	9,162,542		$	7,831,086		$	6,501,079		$	5,671,724		Total assets	$	12,838,013		$	13,215,970		$	12,212,231		$	11,570,751		$	9,162,542
Total earning assets	10,509,163			8,340,287			7,140,387			5,923,462			5,085,152			Total earning assets	12,089,939			11,916,007			11,140,307			10,509,163			8,340,287
Securities	1,898,564			1,628,246			1,371,316			1,205,794			870,091			Securities	2,223,417			1,769,878			1,918,604			1,898,564			1,628,246
Total loans	8,299,338			6,549,787			5,725,236			4,680,600			4,180,523			Total loans	8,081,519			9,502,428			9,043,253			8,299,338			6,549,787
Allowance for loan losses	(51,834		)	(43,998		)	(39,308		)	(35,662		)	(33,323		)
Allowance for credit losses																Allowance for credit losses	(127,302)			(63,575)			(61,469)			(51,834)			(43,998)
Total intangible assets	557,583			422,551			334,607			276,270			270,662			Total intangible assets	34,819			599,377			551,743			557,583			422,551
Total deposits	8,749,530			6,622,092			5,589,135			4,654,679			3,848,529			Total deposits	10,215,808			10,335,977			8,982,381			8,749,530			6,622,092
Total borrowings	1,137,075			1,313,997			1,263,318			1,051,371			1,063,032			Total borrowings	571,637			827,550			1,517,816			1,137,075			1,313,997
Total shareholders’ equity	1,496,264			1,093,298			887,189			709,287			678,062			Total shareholders’ equity	1,187,773			1,758,564			1,552,918			1,496,264			1,093,298

Table of Contents


	At or For the Years Ended December 31,
	2020			2019			2018			2017			2016
Selected Operating Data:
Total interest and dividend income	$	409,782		$	509,513		$	465,894		$	355,076		$	280,439
Total interest expense	93,000			144,255			109,694			64,113			48,172
Net interest income	316,782			365,258			356,200			290,963			232,267
Fee income	69,990			76,824			74,026			71,356			68,606
All other non-interest (loss)/income	(3,683)			7,178			298			2,888			(2,755)
Total net revenue	383,089			449,260			430,524			365,207			298,118
Provision for credit losses	75,878			35,419			25,451			21,025			17,362
Total non-interest expense	840,239			289,857			266,893			252,978			203,302
(Loss)/income from continuing operations before income taxes	(533,028)			123,984			138,180			91,204			77,454
Income tax (benefit)/expense from continuing operations	(19,853)			22,463			28,961			42,088			18,784
Net (loss)/income from continuing operations	(513,175)			101,521			109,219			49,116			58,670

(Loss)/income from discontinued operations before income taxes	(26,855)			(5,539)			(4,767)			8,545			—
Income tax (benefit)/expense from discontinued operations	(7,013)			(1,468)			(1,313)			2,414			—
Net (loss)/income from discontinued operations	(19,842)			(4,071)			(3,454)			6,131			—
Net (loss)/income	$	(533,017)		$	97,450		$	105,765		$	55,247		$	58,670

Basic (loss)/earnings per common share:
Continuing operations	$	(10.21)		$	2.06		$	2.38		$	1.24		$	1.89
Discontinued operations	(0.39)			(0.08)			(0.08)			0.16			—
Total basic (loss)/earnings per share	$	(10.60)		$	1.98		$	2.30		$	1.40		$	1.89

Diluted (loss)/earnings per common share:
Continuing operations	$	(10.21)		$	2.05		$	2.36		$	1.24		$	1.88
Discontinued operations	(0.39)			(0.08)			(0.07)			0.15			—
Total diluted (loss)/earnings per share	$	(10.60)		$	1.97		$	2.29		$	1.39		$	1.88

Weighted average common shares outstanding - basic	50,270			49,263			46,024			39,456			30,988
Weighted average common shares outstanding - diluted	50,270			49,421			46,231			39,695			31,167

Dividends per preferred share	$	1.20		$	1.84		$	1.76		$	0.42		$	—
Dividends per common share	$	0.72		$	0.92		$	0.88		$	0.84		$	0.80

Asset Quality and Condition Ratios: (3)
Net loans charged-off/average loans	0.41		%	0.35		%	0.18		%	0.19		%	0.21		%
Allowance for credit losses/total loans	1.58			0.67			0.68			0.62			0.67
Loans/deposits	79			92			101			95			99



Capital Ratios:
Tier 1 capital to average assets - Company	9.38		%	9.33		%	9.04		%	9.01		%	7.88		%
Total capital to risk-weighted assets - Company	16.10			13.73			12.99			12.43			11.87
Tier 1 capital to risk-weighted assets - Company	14.06			12.30			11.57			11.15			10.07


Shareholders’ equity/total assets	9.25			13.31			12.73			12.93			11.93

At or For the Years Ended December 31,
2017 2016 2015 2014 2013
Selected Operating Data:

Total interest and dividend income $ 360,258
$ 280,439
$ 247,030
$ 207,042
$ 203,741
Total interest expense 65,463
48,172
33,181
28,351
34,989
Net interest income (3) 294,795
232,267
213,849
178,691
168,752
Fee income 122,801
68,606
57,480
53,434
50,525
All other non-interest income (loss) 2,888
(2,755 ) (3,192 ) (5,664 ) 7,707
Total net revenue 420,484
298,118
268,137
226,461
226,984
Provision for loan losses 21,025
17,362
16,726
14,968
11,378
Total non-interest expense 299,710
203,302
196,829
165,986
157,359
Income tax expense - continuing operations 44,502
18,784
5,064
11,763
17,104
Net income $ 55,247
$ 58,670
$ 49,518
$ 33,744
$ 41,143

Dividends per preferred share $ 0.42
$ —
$ —
$ —
$ —
Dividends per common share 0.84
0.80
0.76
0.72
0.72
Basic earnings per common share 1.40
1.89
1.74
1.36
1.66
Diluted earnings per common share 1.39
1.88
1.73
1.36
1.65

Weighted average common shares outstanding - basic 39,456
30,988
28,393
24,730
24,802
Weighted average common shares outstanding - diluted 39,695
31,167
28,564
24,854
24,965

Asset Quality and Condition Ratios: (4)

Net loans charged-off/average loans 0.19 % 0.21 % 0.25 % 0.29 % 0.29 %
Allowance for loan losses/total loans 0.62
0.67
0.69
0.76
0.80
Loans/deposits 95
99
102
101
109

Capital Ratios:

Tier 1 capital to average assets - Company (5) 9.01 % 7.88 % 7.71 % 7.01 % N/A
Total capital to risk-weighted assets - Company (5) 12.43
11.87
11.91
11.38
N/A
Tier 1 capital to risk-weighted assets - Company (5) 11.15
10.07
9.94
9.03
N/A
Shareholders’ equity/total assets 12.93
11.93
11.33
10.91
11.95

Table of Contents

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

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

(3) For ~~the years 2014 and 2013, the above schedule includes an immaterial adjustment of~~periods prior ~~period interest income earned on loans acquired in bank acquisition.~~

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

(5) In July 2014, the Company changed its status from a savings and loan holding company to a bank holding company through the Bank's conversion from a Massachusetts-chartered savings bank to a Massachusetts-chartered trust company. As a result of this change, the Company became subject to bank holding company capital requirements including the requirement to report Tier 1 capital to average assets, Tier 1 capital to risk-weighted assets, and total capital to risk-weighted assets.

Table of Contents

Average Balances, Interest and Average Yields/Cost

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

Item 6 - Table 3 - Average Balance, Interest and Average Yields / Costs


		2017						2016						2015								2020									2019									2018
(Dollars in millions)		Average Balance		Interest		Average Yield/ Rate		Average Balance		Interest		Average Yield/ Rate		Average Balance		Interest		Average Yield/ Rate		(Dollars in millions)		Average Balance			Interest			Average Yield/ Rate			Average Balance			Interest			Average Yield/ Rate			Average Balance			Interest			Average Yield/ Rate

Assets																				Assets
Loans: (1)																				Loans: (1)
Commercial real estate		$	2,789.8	$	130.0	4.66	%	$	2,239.6	$	95.8	4.28	%	$	1,881.2	$	81.1	4.31	%	Commercial real estate		$	3,958.6		$	151.5		3.83	%		$	3,789.5		$	188.6		4.98	%		$	3,283.6		$	167.7		5.11	%
Commercial and industrial loans		1,259.9		65.7		5.21		1,019.7		51.2		5.02		932.4		41.8		4.48		Commercial and industrial loans		2,049.4			87.7			4.28			1,983.9			111.2			5.60			1,867.9			107.6			5.76
Residential loans		1,962.4		71.5		3.64		1,808.8		66.1		3.66		1,622.8		62.6		3.86		Residential loans		2,324.3			87.8			3.78			2,719.8			100.7			3.70			2,353.1			86.3			3.67
Consumer loans		1,032.6		39.4		3.82		873.3		29.9		3.42		802.5		26.1		3.25		Consumer loans		828.1			31.3			3.78			1,038.4			46.5			4.48			1,115.3			47.2			4.23
Total loans		7,044.7		306.6		4.35		5,941.4		243.0		4.09		5,238.9		211.6		4.04		Total loans		9,160.4			358.3			3.91			9,531.6			447.0			4.69			8,619.9			408.8			4.74
Investment securities (2)		1,757.3		60.3		3.43		1,260.5		41.4		3.28		1,300.9		38.9		2.99		Investment securities (2)		1,845.2			54.6			2.96			1,846.9			62.6			3.39			1,931.7			64.4			3.33
Short-term investments and loans held for sale(3)		134.5		4.6		3.38		51.6		0.9		1.70		62.2		0.7		1.10			767.2			4.8			0.64			335.3			13.4			4.01			146.3			5.4			3.72
Total interest-earning assets		8,936.5		371.5		4.16		7,253.5		285.3		3.93		6,602.0		251.2		3.81		Total interest-earning assets		11,772.8			417.7			3.55			11,713.8			523.0			4.47			10,697.9			478.6			4.47
Intangible assets		449.7		0				347.7						311.5						Intangible assets		316.1									578.1									554.6
Other non-interest earning assets(3)		428.4		0				357.9						341.0							772.3									669.1									516.9
Total assets		$	9,814.6					$	7,959.1					$	7,254.5					Total assets		$	12,861.2								$	12,961.0								$	11,769.4

Liabilities and shareholders' equity	Liabilities and shareholders' equity																			Liabilities and shareholders' equity
Deposits:																				Deposits:
NOW		$	591.0	$	1.5	0.25	%	$	487.8	$	0.7	0.14	%	$	462.9	$	0.7	0.15	%
NOW and other																				NOW and other		$	1,216.6		$	3.5		0.29	%		$	1,053.9		$	6.5		0.62	%		$	824.7		$	4.0		0.49	%
Money market		1,935.8		11.2		0.58		1,470.3		7.0		0.48		1,444.1		5.9		0.41		Money market		2,713.6			15.3			0.56			2,542.6			31.4			1.23			2,432.2			21.9			0.90
Savings		680.1		0.9		0.14		610.8		0.7		0.12		582.4		0.9		0.15		Savings		914.1			0.9			0.10			798.2			1.2			0.15			740.8			1.1			0.15
Certificates of deposit		2,581.1		30.3		1.17		2,094.8		22.5		1.07		1,684.8		15.5		0.92		Certificates of deposit		3,102.9			52.6			1.69			3,754.2			76.1			2.03			3,075.5			51.3			1.67
Total interest-bearing deposits		5,788.0		43.9		0.76		4,663.7		30.9		0.66		4,174.2		23.0		0.55		Total interest-bearing deposits		7,947.2			72.3			0.91			8,148.9			115.2			1.41			7,073.2			78.3			1.11
Borrowings and notes ~~(3)~~(4)		1,373.8		21.6		1.57		1,218.2		17.3		1.42		1,212.5		10.2		0.84			841.6			20.7			2.46			1,115.5			32.4			2.91			1,409.0			33.4			2.37
Total interest-bearing liabilities		7,161.8		65.5		0.91		5,881.9		48.2		0.82		5,386.7		33.2		0.62		Total interest-bearing liabilities		8,788.8			93.0			1.06			9,264.4			147.6			1.59			8,482.2			111.7			1.32
Non-interest-bearing demand deposits		1,296.4						1,081.0						972.6						Non-interest-bearing demand deposits		2,324.6									1,745.2									1,622.4
Other non-interest-bearing liabilities(3)		112.6						85.2						89.1							326.4									257.1									119.3
Total liabilities		8,570.8						7,048.1						6,448.4						Total liabilities		11,439.8									11,266.7									10,223.9
Total shareholders' equity		1,243.8						911.0						806.1						Total shareholders' equity		1,421.4									1,694.3									1,545.5
Total liabilities and equity		$	9,814.6					$	7,959.1					$	7,254.5					Total liabilities and equity		$	12,861.2								$	12,961.0								$	11,769.4
Net interest-earning assets		$	1,774.7					$	1,371.6					$	1,215.3

Net interest income				$	306.0					$	237.1					$	218.0			Net interest income					$	324.7								$	375.4								$	366.9

Table of Contents


	2017					2016					2015						2020					2019					2018
(Dollars in millions)	Average Balance		Interest	Average Yield/ Rate		Average Balance		Interest	Average Yield/ Rate		Average Balance		Interest	Average Yield/ Rate		(Dollars in millions)	Average Balance		Interest	Average Yield/ Rate		Average Balance		Interest	Average Yield/ Rate		Average Balance		Interest	Average Yield/ Rate
Net interest spread				3.25	%				3.11	%				3.19	%	Net interest spread				2.49	%				2.88	%				3.16	%
Net interest margin (4)				3.40					3.31					3.34
Net interest margin (5)																Net interest margin (5)				2.72					3.17					3.40
Cost of funds				0.77					0.69					0.52		Cost of funds				0.84					1.34					1.11
Cost of deposits				0.62					0.54					0.45		Cost of deposits				0.71					1.16					0.90
Interest-earning assets/interest-bearing liabilities				124.78					123.32					122.56		Interest-earning assets/interest-bearing liabilities				133.95					126.44					126.12

Supplementary data																Supplementary data
Total non-maturity deposits	$	4,503.3				$	3,649.9				$	3,462.0				Total non-maturity deposits	$	7,168.9				$	6,139.9				$	5,620.1
Total deposits	7,084.4					5,744.7					5,146.8					Total deposits	10,271.8					9,894.1					8,695.6
Fully taxable equivalent adjustment	11.2					8.1					6.4					Fully taxable equivalent adjustment	6.4					7.5					7.4

Notes:

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

(2) The average ~~balances~~balance of ~~loans include nonaccrual loans, and deferred fees and costs.~~investment securities is based on amortized cost.

(3) Includes discontinued operations.

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

~~(4) Purchased loan~~(5) Purchase accounting accretion totaled ~~$14.8~~$9.9 million, ~~$8.1~~$14.5 million, and ~~$7.6~~$23.1 million for the years-ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, respectively. The effect of ~~purchased loan~~purchase accounting accretion on the net interest margin was an increase in all years, which is shown sequentially as follows beginning with the most recent year and ending with the earliest year: ~~0.17%~~0.09%, ~~0.11%~~0.12%, and ~~0.12%~~0.22%.

Table of Contents

Rate/Volume Analysis

The following table presents the effects of rate and volume changes on the fully taxable equivalent net interest income. Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate), and (3) changes in volume/rate (change in rate multiplied by change in volume) have been allocated proportionately based on the absolute value of the change due to the rate and the change due to volume.

Item 6 - Table 4 - Rate Volume Analysis


	2017 Compared with 2016							2016 Compared with 2015											2020 Compared with 2019									2019 Compared with 2018
	(Decrease) Increase Due to							(Decrease) Increase Due to											(Decrease) Increase Due to									(Decrease) Increase Due to
(In thousands)	Rate			Volume		Net		Rate			Volume			Net			(In thousands)		Rate			Volume			Net			Rate			Volume			Net

Interest income:																	Interest income:
Commercial real estate	$	9,145		$	25,080	$	34,225	$	(591	)	$	15,335		$	14,744		Commercial real estate		$	(45,193)		$	8,096		$	(37,097)		$	(4,367)		$	25,271		$	20,904
Commercial and industrial loans	1,999			12,457		14,456		5,294			4,120			9,414			Commercial and industrial loans		(27,008)			3,561			(23,447)			(2,978)			6,558			3,580
Residential loans	(259		)	5,595		5,336		(3,427		)	6,920			3,493			Residential loans		2,017			(14,907)			(12,890)			901			13,571			14,472
Consumer loans	3,698			5,839		9,537		1,416			2,379			3,795			Consumer loans		(6,575)			(8,592)			(15,167)			2,630			(3,357)			(727)
Total loans	14,583			48,971		63,554		2,692			28,754			31,446			Total loans		(76,759)			(11,842)			(88,601)			(3,814)			42,043			38,229
Investment securities	1,985			16,978		18,963		3,667			(1,238		)	2,429			Investment securities		(7,945)			(57)			(8,002)			1,098			(2,863)			(1,765)
Short-term investments and loans held for sale(1)	1,405			2,271		3,676		324			(132		)	192				(16,924)			8,297			(8,627)			455			7,544			7,999
Total interest income	$	17,973		$	68,220	$	86,193	$	6,683		$	27,384		$	34,067		Total interest income		$	(101,628)		$	(3,602)		$	(105,230)		$	(2,261)		$	46,724		$	44,463

Interest expense:																	Interest expense:
NOW accounts	$	627		$	165	$	792	$	(39	)	$	35		$	(4	)	NOW accounts		$	(3,835)		$	882		$	(2,953)		$	1,217		$	1,265		$	2,482
Money market accounts	1,698			2,506		4,204		1,000			109			1,109			Money market accounts		(18,043)			1,985			(16,058)			8,411			1,036			9,447
Savings accounts	122			88		210		(212		)	42			(170		)	Savings accounts		(409)			156			(253)			5			86			91
Certificates of deposit	2,205			5,561		7,766		2,861			4,140			7,001			Certificates of deposit		(11,486)			(12,093)			(23,579)			12,250			12,562			24,812
Total deposits	4,652			8,320		12,972		3,610			4,326			7,936			Total deposits		(33,773)			(9,070)			(42,843)			21,883			14,949			36,832
Borrowings	1,981			2,338		4,319		7,008			48			7,056			Borrowings		(4,553)			(7,206)			(11,759)			6,695			(7,722)			(1,027)
Total interest expense	$	6,633		$	10,658	$	17,291	$	10,618		$	4,374		$	14,992		Total interest expense		$	(38,326)		$	(16,276)		$	(54,602)		$	28,578		$	7,227		$	35,805
Change in net interest income	$	11,340		$	57,562	$	68,902	$	(3,935	)	$	23,010		$	19,075		Change in net interest income		$	(63,302)		$	12,674		$	(50,628)		$	(30,839)		$	39,497		$	8,658

(1) Includes discontinued operations.

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 ~~adjusted~~operating revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized ~~operations, including~~operations. These items primarily include securities gains/losses, ~~gains on the sale of business operations, losses recorded for hedge terminations,~~ merger costs, restructuring costs, goodwill impairment, and discontinued operations. Discontinued operations are the Company’s national mortgage banking operations for which the Company completed the wind down of operations in 2020. Merger costs consist primarily of severance/benefit related expenses, contract termination costs, systems conversion costs, variable compensation expenses, and ~~certain dispute settlement costs. Non-GAAP adjustments~~professional fees. There were no merger costs in 2020 and merger costs in 2019 are ~~presented net~~primarily related to the acquisition of ~~an adjustment~~SI Financial Group, Inc. in May 2019. Restructuring costs generally consist of costs and losses associated with the disposition of assets and liabilities and lease terminations, including costs related to branch sales. Restructuring costs also include severance and consulting expenses related to the Company’s strategic review. They also include costs related to the consolidation of branches. Restructuring expense and other for ~~income tax expense. In 2017, there was~~2020 primarily related to executive separation expense as a ~~large adjustment for the write-down~~result of the ~~deferred tax asset at year-end due~~CEO transition. Restructuring expense and other for 2019 primarily related to ~~the passage of federal tax reform. There was also an adjustment~~branch consolidations. Restructuring expense and other for ~~investments in employees~~2018 primarily related to a core systems contract restructuring charge and ~~communities which were made by the Company in recognition~~executive separation expense as a result of the ~~future benefits of federal tax reform. The Company also measures adjusted revenues and adjusted expenses which result from the above adjustments.~~CEO transition.

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

~~Charges~~Due to the anticipated earnings volatility resulting from loan loss provisions reflecting changes in estimates of uncertain future economic conditions under the new CECL accounting standard, many users of bank financial statements are focusing on Pre-Provision Net Revenue (“PPNR”). This is a measure of revenue less expenses, and is calculated before the loan loss provision and income tax expense. This measure gives clearer visibility of the operations of the company during the periods presented in the income statements, without the impact of period-end estimates of future uncertain events. This measure also enhances comparisons of operations across different banks, which might have significantly different period-end estimates of uncertain future economic conditions that affect the loan loss provision. Consistent with its previous practices measuring results on an adjusted basis before the impacts of acquisitions, divestitures, and other designated items, the Company has introduced the measure of Adjusted Pre-Provision Net Revenue (“Adjusted PPNR”) which measures PPNR excluding adjustments for items not viewed as related to ~~merger and acquisition activity consist primarily of severance/benefit related expenses, contract termination costs, and professional fees. Systems conversion costs relate primarily~~ongoing operations. This measure is now integral to the Company’s ~~core systems conversion~~analysis of its operations, and ~~related systems conversions costs. Restructuring costs~~is not viewed as a substitute for GAAP measures of net income. Analysts also use this measure in assessing the Company’s operations and in making comparisons across banks. The Company and analysts also measure Adjusted PPNR/Assets in order to utilize the PPNR measure in assessing its comparative operating profitability. This measure primarily ~~consist~~relies on the measures of adjusted revenue and adjusted expense already used in the Company's continued effort to create efficiencies in operations through calculated adjustments to the branch banking footprint. Expense adjustments include variable rate compensation related to non-operating items.Company’s calculation of its efficiency ratio.

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

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


	At or For the Years Ended
(Dollars in thousands)		December 31, 2020			December 31, 2019			December 31, 2018
GAAP Net (loss)/income		$	(533,017)		$	97,450		$	105,765
Non-GAAP measures
Adj: Loss/(gain) on securities, net		7,520			(4,389)			3,719
Adj: Goodwill impairment		553,762			—			—
Adj: Net gains on sale of business operations		(1,240)			—			(460)

Adj: Acquisition, restructuring, conversion, and other related expenses (1)		5,839			28,046			10,752

Adj: Legal settlements		—			—			3,000
Adj: Systems vendor restructuring costs		—			—			8,379

Adj: Loss from discontinued operations before income taxes		26,855			5,539			4,767
Adj: Income taxes		(29,342)			(7,799)			(7,102)

Net non-operating charges		563,394			21,397			23,055
Total adjusted net income (non-GAAP)		$	30,377		$	118,847		$	128,820


GAAP Total revenue from continuing operations		$	383,089		$	449,260		$	430,524
Adj: Loss/(gain) on securities, net		7,520			(4,389)			3,719
Adj: Net gains on sale of business operations		(1,240)			—			(460)


Total adjusted operating revenue (non-GAAP)		$	389,369		$	444,871		$	433,783


GAAP Total non-interest expense from continuing operations		$	840,239		$	289,857		$	266,893
Less: Total non-operating expense (see above)		(5,839)			(28,046)			(10,752)

Less: Goodwill impairment		(553,762)			—			—
Less: Legal settlements		—			—			(3,000)
Less: Systems vendor restructuring costs		—			—			(8,379)
Adjusted operating non-interest expense (non-GAAP)		$	280,638		$	261,811		$	244,762

(in millions, except per share data)
Total average assets		$	12,861		$	12,961		$	11,769
Total average shareholders' equity		1,421			1,694			1,546
Total average tangible shareholders equity		1,105			1,116			991
Total average tangible common shareholders equity		1,088			1,076			950
Total tangible shareholders’ equity, period-end		1,153			1,159			1,001
Total tangible common shareholders’ equity, period-end		1,153			1,119			961
Total tangible assets, period-end		12,803			12,613			11,660
Total common shares outstanding, period-end (thousands)		50,833			49,585			45,417
Average diluted shares outstanding (thousands)		50,308			49,421			46,231




(Loss)/earnings per share, diluted		$	(10.60)		$	1.97		$	2.29
Plus: Net adjustments per share, diluted		11.20			0.43			0.50
Adjusted earnings per share, diluted		0.60			2.40			2.79
Book value per common share, period-end		23.37			34.65			33.30
Tangible book value per common share, period-end		22.68			22.56			21.15
Total shareholders' equity/total assets		9.25			13.31			12.72
Total tangible shareholders' equity/total tangible assets		9.01			9.19			8.59


	At or For the Years Ended
(Dollars in thousands)		December 31, 2020			December 31, 2019			December 31, 2018
Performance Ratios
GAAP return on assets		(4.15)		%	0.75		%	0.90		%
Adjusted return on assets		0.24			0.93			1.12
GAAP return on equity		(37.50)			5.75			6.84
Adjusted return on equity		2.14			7.01			8.33
Adjusted return on tangible common equity		3.18			11.35			13.48
Efficiency ratio (2)		68.53			55.63			53.64

Supplementary Data (in thousands)
Tax benefit on tax-credit investments		$	4,699		$	7,950		$	5,876
Non-interest income charge on tax-credit investments		(3,645)			(6,455)			(4,822)
Net income on tax-credit investments		1,054			1,495			1,054
Intangible amortization		6,181			5,783			4,934
Fully taxable equivalent income adjustment		6,402			7,451			7,423

(1)Acquisition, restructuring, conversion, and other related expenses included no merger and acquisition expenses for the year-ended December 31, 2020. For the year-ended 2019, these expenses included $18.7 million in merger and acquisition expenses and $9.3 million of restructuring expenses. For the year-ended 2018, these expenses included $8.9 million in merger and acquisition expenses and $1.8 million of restructuring, conversion, and other expenses.

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

At or For the Years Ended
(Dollars in thousands) December 31, 2017 December 31, 2016 December 31, 2015
GAAP Net income $ 55,247
$ 58,670
$ 49,518
Non-GAAP measures

Adj: Gain on sale of securities, net (12,598 ) 551
(2,110 )
Adj: Net gains on sale of business operations (296 ) (1,085 ) —
Adj: Loss on termination of hedges 6,629
—
—
Adj: Acquisition, restructuring, conversion, and other related expenses (1) 31,558
15,761
17,611
Adj: Employee and Community Investment 3,400
—
—
Adj: Deferred tax asset impairment 18,145
—
—
Adj: Income taxes (11,277 ) (5,455 ) (5,409 )
Net non-operating charges 35,561
9,772
10,092
Total adjusted net income (non-GAAP) $ 90,808
$ 68,442
$ 59,610
GAAP Total revenue $ 420,484
$ 298,118
$ 268,137
Adj: Gain on sale of securities, net (12,598 ) 551
(2,110 )
Adj: Net gains on sale of business operations (296 ) (1,085 ) —
Adj: Loss on termination of hedges 6,629
—
—
Total adjusted operating revenue (non-GAAP) $ 414,219
$ 297,584
$ 266,027
GAAP Total non-interest expense $ 299,710
$ 203,302
$ 196,830
Less: Total non-operating expense (see above) (31,558 ) (15,761 ) (17,611 )
Less: Employee and Community Reinvestment (3,400 ) —
—
Adjusted operating non-interest expense (non-GAAP) $ 264,752
$ 187,541
$ 179,219
(in millions, except per share data)
Total average assets $ 9,815
$ 7,958
$ 7,249
Total average shareholders' equity 1,244
911
805
Total average tangible shareholders equity 793
563
494
Total average tangible common shareholders equity 784
563
494
Total tangible shareholders’ equity, period-end 939
671
553
Total tangible common shareholders’ equity, period-end 898
671
553
Total tangible assets, period-end 11,013
8,740
7,496
Total common shares outstanding, period-end (thousands) 45,290
35,673
30,974
Average diluted shares outstanding (thousands)
39,695
31,167
28,564
Earnings per share, diluted $ 1.39
$ 1.88
$ 1.73
Plus: Net adjustments per share, diluted 0.90
0.32
0.36
Adjusted earnings per share, diluted 2.29
2.20
2.09
Book value per common share, period-end 32.14
30.65
28.64
Tangible book value per common share, period-end 19.83
18.81
17.84
Total shareholders' equity/total assets 12.93
11.93
11.33
Total tangible shareholders' equity/total tangible assets 8.52
7.68
7.37
Average operating diluted shares outstanding (thousands)
39,695
31,167
28,564
Performance Ratios
GAAP return on assets 0.56
0.74
0.68
Adjusted return on assets 0.93
0.86
0.82
GAAP return on equity 4.45
6.44
6.15
Adjusted return on equity 7.31
7.51
7.40
Adjusted return on tangible common equity 11.82
12.47
12.49
Efficiency ratio 59.97
58.27
60.88
Supplementary Data (in thousands)

Tax benefit on tax-credit investments 10,182
11,134
16,127
Non-interest income charge on tax-credit investments (8,693 ) (8,993 ) (11,406 )
Net income on tax-credit investments 1,489
2,143
4,721
Intangible amortization 3,493
2,927
3,563
Fully taxable equivalent income adjustment 11,227
8,098
6,354

~~(1)~~

Acquisition, restructuring, conversion, and other related expenses included $24.9 million of merger and acquisition expenses and $6.7 million of restructuring expenses for the year-ended December 31, 2017. For the year-ended 2016, these expenses included $13.5 million in merger and acquisition expenses and $2.3 million of restructuring expenses. For the year-ended 2015, these expenses included $13.2 million in merger and acquisition expenses and $4.5 million of restructuring, conversion, and other expenses.

Table of Contents

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

GENERAL

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

The objectives of this section are:

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

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

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

This discussion includes the following sections:

•Summary of recent events and strategic initiatives

•Comparison of Financial Condition at December 31, 2020 and 2019

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

•Comparison of Operating Results for the Years Ended December 31, 2019 and 2018

•Liquidity and Cash Flows

•Capital Resources

•Off-Balance Sheet Arrangements

•Discussion of accounting policies and pronouncements

The following discussion and analysis should be read in conjunction with the ~~Consolidated Financial Statements "financial statements"~~Company’s financial statements and ~~accompanying~~the notes ~~contained~~thereto appearing in Item 8 of this ~~report.~~

~~SUMMARY~~

~~2017 was a transformational~~document. In the following discussion, income statement comparisons are against the previous year ~~for Berkshire. Major accomplishments included:~~

~~Growing revenue by more than 40%~~

~~Gaining a major position in Worcester - an important regional market~~

~~Moving~~and balance sheet comparisons are against the ~~corporate headquarters to Boston and expanding the Boston market team~~

~~Crossing the $10 billion threshold for total assets~~

~~Completing the largest acquisition and largest public stock offering since its initial public offering~~

~~Critical components~~previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the ~~year’s progress~~results for the year 2021 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable. Tax-equivalent adjustments are the result of increasing income from tax-advantaged loans and securities by an amount equal to the taxes that would be paid if the income were fully taxable based on a 26% marginal rate (including state income taxes net of federal benefit). In the ~~acquisition~~discussion, unless otherwise specified, references to earnings per share and "EPS" refer to diluted earnings per common share, including the dilutive impact of ~~Worcester-based Commerce Bancshares Corp. (“Commerce”) in October and~~ the ~~integration of Princeton, NJ area First Choice Bank (“First Choice”) acquired in December 2016.~~ convertible preferred shares.

Berkshire is ~~now the largest regional banking company~~a Delaware corporation headquartered in Boston and the ~~third largest~~holding company for Berkshire Bank (“the Bank”) and Berkshire Insurance Group, Inc. Established in ~~New England.~~ 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter.

BE FIRST CULTURE & CORPORATE RESPONSIBILITY

Berkshire Bank is a purpose and values-driven community bank. We believe that everyone, from every neighborhood, should be able to bank with dignity. We're committed to providing an ecosystem of socially responsible financial solutions to meet our customers’ needs, engaging with communities to ensure access and upward economic mobility, addressing racial equity and fostering a workplace culture where everyone belongs. Our Be FIRST values of Belonging, Focusing, Inclusion, Respect, Service, and Teamwork guide us as we evolve and navigate our environment to create long-term sustainable value for our stakeholders.

The ~~Company views itself~~spirit and work ethic that began 175 years ago when Berkshire Bank first opened its doors to meet the working class and entrepreneurs’ financial needs is still at the core of our company today. As the COVID-19 pandemic ravaged communities and shuttered businesses, we answered the call to assist our neighbors. We ensured our employees, customers, and communities' health, safety, and economic resiliency was the priority.We created the You FIRST employee assistance fund to help employees impacted by unexpected financial hardships. We assisted small businesses and consumers with loan forbearances and government assistance programs and we launched a

Table of Contents

fund to assist black and brown owned businesses most impacted by the pandemic.We also faced the stark reality that systematic racism continues to exist throughout the country. While many companies that had been on the sidelines stepped-up, Berkshire leaned in and responded with continued focus, commitment, and intentionality.

We continue to build on our Be FIRST Commitment, our roadmap for purpose-driven, socially responsible community banking. Our strong foundation of governance systems, including our Corporate Responsibility & Culture Committee of our Board of Directors, Diversity & Inclusion Employee Committee, Responsible & Sustainable Business Policy, and Social & Environmental Responsibility Risk Management practices collectively integrate social, environmental, cultural, and reputational considerations through all aspects of the company. Berkshire Bank continues to offer services to the underbanked through the Reevx Labs™ platform at reevxlabs.com.

We engage directly with our stakeholders and populate several communications channels with strategic content including our Corporate Responsibility website www.berkshirebank.com/csr, annual report, and proxy statement to highlight our commitment to disclosure, transparency and socially responsible performance. Our annual Corporate Responsibility Report, which is aligned with Sustainability Accounting Standards Board (“SASB”) commercial bank disclosure topics, details the company's environmental, social, governance, and cultural programs as well ~~positioned~~as our progress on The Be FIRST Commitment. We are also incredibly proud to ~~serve~~be recognized for our leadership and performance, including local, regional, national, and international awards. Among these honors The North American Inspiring Workplaces Award, Communitas Award for Leadership in Corporate Social Responsibility, Listing in the Bloomberg Gender-Equality Index and achieving a perfect score in the Human Rights Campaign Corporate Equality Index.

SUMMARY

The emergence of the COVID-19 global pandemic dominated the Company’s activities and results in 2020.Berkshire adjusted its business model to manage pandemic related impacts to its operations, its customers, and its operating profitability.The Company’s markets became a national and global disease hotspot early in the pandemic, in the second quarter.Government authorities shut down much societal and economic activity in March. Conditions improved in the third quarter, but another wave of disease incidence slowed further improvement, and economic conditions remained stressed through year-end.During the year, unprecedented federal fiscal and monetary stimulus was deployed nationally.The Federal Reserve Board of Governors lowered short-term interest rates by approximately 1.50% in the first quarter, and further actions by the Federal Reserve resulted in rates coming down across all maturities, resulting in a parallel downward rate shock of approximately 1.50%.Following an unprecedented economic contraction in the second quarter, the economy had partially recovered by the end of 2020.

The rollout of vaccinations and further federal and monetary support were expected to gradually further normalize conditions in 2021.

The Bank initially closed its branches except for drive-through tellers, and most back-office staff moved to work from home status. The Bank was able to resume most branch activities in the third quarter, while back-office staff continue to telecommute. Business activities shifted during this period to provide expedited support for supporting stimulus programs and servicing the needs of customers and communities arising from the emergency conditions. Numerous programs were developed to provide support and assistance to the ~~growth~~Bank’s staff and communities, including granting of ~~Greater Boston,~~loan payment modifications pursuant to government guidelines and the ~~sixth largest combined statistical area in~~origination of commercial Paycheck Protection Program (“PPP”) SBA guaranteed loans to support employment during the ~~country. Throughout the year, the Company maintained a focus on improving profitability through scale, business mix selection, and ongoing management of expenses.~~

~~Total revenue increased by 41% in 2017 and reached an annualized level of $463 million~~shutdown.Branch access restrictions were reintroduced in the fourth quarter ~~which included~~and some government restrictions were resumed due to worsening public health.

Table of Contents

Changes in the ~~newly acquired Commerce operations. Full~~Company’s financial condition and results were primarily due to the pandemic and the related changes in financial market conditions and economic expectations. Due to these downturns, the Company recorded large non-cash charges for goodwill impairment and the current expected credit loss provision during the year. These charges resulted in losses for the first and second quarters, but did not materially affect most regulatory capital measures, cash flows, or liquidity. Among the most significant financial impacts from the pandemic were the following:

•Goodwill impairment: In the second quarter, the Company recorded a $554 million noncash expense representing the full impairment and write-off of the carrying value of goodwill due to the impact of the COVID-19 disease on economic and financial market conditions resulting in a lower fair value of the Company’s equity.

•Credit Loss Provision: A $65 million noncash credit loss provision expense was recorded in the first half of 2020 primarily representing projected pandemic related current expected credit losses in future periods under the new Current Expected Credit Losses (“CECL”) accounting standard.The full year ~~pre-tax earnings increased~~provision was $76 million.

•Reduced Revenue: Net revenue from continuing operations decreased year-over-year by ~~29%~~15% due primarily to ~~$100 million. Federal income tax reform near year-end lowered the future statutory tax rate but necessitated a write-down~~compression of the net ~~deferred tax asset.~~ interest margin resulting from the near zero interest rate policy implemented by the Federal Reserve Board of Governors, and reflecting the Company’s asset sensitive interest rate risk profile.The margin change also reflected a change in asset mix from loans and into lower yielding short-term investments and investment securities.

•Loan Modifications: Short-term loan payment deferrals were granted in accordance with terms established by bank regulators to lessen borrower hardship.Initial payment deferrals totaled $1.6 billion. The balance of active and in-process deferrals declined to $350 million at year-end.

•Balance Sheet Changes: A pandemic related deposit surge was primarily invested in short-term investment reserves held at the Federal Reserve Bank of Boston. The Company originated $708 million in PPP loans to support employment, and these loans partially offset reductions in other loan categories due to reduced economic activity, liquidity from government stimulus, and accelerated prepayments. Demand deposits increased as borrowers stored liquidity resulting from government stimulus and reduced economic activity. Total equity decreased but most regulatory capital ratios improved, and measures of liquidity improved due to reduced usage of wholesale funding and due to higher short-term investment balances.

Reflecting the above activity, the Company recorded a loss of $569 million, or $11.33 per share for the first six months of 2020.This ~~resulted~~loss was a result of noncash charges for goodwill impairment and the provision for current expected credit losses on loans. Results returned to profitability in ~~an $18~~the second half of the year, with second half earnings totaling $36 million, ~~provisional non-cash charge~~or $0.73 per share. Full year results were a loss of $533 million, or $10.60 per share.

In conformance with the industry guidelines issued by the Federal Reserve at the outset of the pandemic, the Company ceased repurchases of common stock in the first quarter, and let its outstanding repurchase authorization expire at the end of ~~2017 which~~the first quarter. Also, the Company reduced ~~income after taxes~~its shareholder dividend by 50% in the third quarter of 2020. This reduction was made to ~~$55~~better align the dividend payout and dividend yield with the reduced level of operating earnings in the current environment.

In October 2020, the Company announced the launch of best-in-class digital account opening technology.This platform provides benefits to the customer experience, to revenue generation, and to the Company’s operating efficiency. The company also enhanced its customer experience by upgrading its call center and rolling out its e-signature platform. These enhanced capabilities are significantly more valuable in today’s environment as a result of the customer needs and accelerated digital transformation resulting from the pandemic.

Table of Contents

Also in October 2020, the Company announced a strategic goal to pursue expense management initiatives, due in part to the long-term revenue impacts of the near zero interest rate environment.Expense management also recognizes long-term changes in customer behaviors and the Bank’s operating model based on the accelerated transition to the digital economy resulting from the pandemic. In December 2020, as part of these initiatives, the Company announced a branch optimization plan. The Company announced that it had entered into an agreement for the sale of its 8 Mid-Atlantic branches, including the transfer of more than $600 million in ~~2017 from $59~~deposits and $300 million in loans. Additionally, the ~~prior year.~~

Company announced a plan to consolidate 16 branches in its New England/New York footprint. Both of these initiatives are targeted for completion in the first half of 2021. The Company ~~uses~~expects to recognize a net gain on the ~~non-GAAP measure~~sale of ~~adjusted earnings, and related metrics, to evaluate~~ the ~~results of its operations.~~ Mid-Atlantic branches, as well as charges in conjunction with the branch consolidations.

In addition to ~~charges related~~reshaping the branch office network, the Company is pursuing possibilities for identifying and releasing surplus corporate real estate, and making other operational adjustments to ~~tax reform, adjusting items~~its business model. The Company also plans to formalize cost save opportunities arising from work from home as well as changes in ~~2017 included merger costs, securities gains,~~procurement processes in the current environment.The Company’s goal is to streamline its business model in its core markets and leverage organic growth around that foundation. Two critical enablers are the technology that the Company has invested in and its personalized banking services program, MyBanker. Berkshire has been successfully deploying these mobile personal bankers for a number of years to bring service to customers where and when they need it and they remain integral to the distinctive customer experience that the Bank is developing as a 21st century community bank.

On August 10, 2020, the Company announced that, pursuant to a separation agreement, Richard M. Marotta had stepped down from his position as President and Chief Executive Officer of the Company and CEO of the Bank, as well as from his role as a Director to pursue new opportunities. Working within its leadership succession planning process, the Board appointed Sean A. Gray, to serve as Acting President and CEO for the Company. The Board initiated a CEO search process to consider a national search for candidates inside and outside of Berkshire.The Board established a working committee to oversee the search process and retainedthe firm of Spencer Stuart as its executive search consulting firm.On January 25, 2021 the Board announced the appointment of Nitin J. Mhatre as President and Chief Executive Officer of the Company and the ~~termination~~Bank effective January 29, 2021.With the appointment of ~~contracts related~~Mr. Mhatre, Mr. Gray resumed his ongoing duties as President and Chief Operating Officer of Berkshire Bank and Senior Executive Vice President of Berkshire Hills Bancorp, Inc.

Mr. Mhatre is a senior banking executive with 25 years of community and global banking experience. Most recently, as Executive Vice President, Community Banking at Webster Bank, Mr. Mhatre was a member of Webster Bank's executive team and led its consumer and business banking businesses. In this role, he was responsible for profitable growth of the Community Banking segment at the $31 billion bank and led a diverse team of more than 1,500 employees. Previously, he spent more than 13 years at Citi Group in various leadership roles across consumer-related businesses globally. Mr. Mhatre served on the Board of the Consumer Bankers Association headquartered in Washington D.C. since 2014 and was Chairman of the Board from 2019 to ~~premises~~2020. He also serves on the Board of Junior Achievement of Southwest New England headquartered in Hartford, CT.

The Board and ~~interest rate hedges. GAAP earnings per share declined~~management team are fully aligned on the Company's long-term strategic direction.That strategy focuses on improving core operating performance with a relationship banking model that serves Berkshire’s communities and clients in its footprint. Berkshire’s brand name and franchise in its markets, its differentiated customer service and culture, and its purpose-based values are all targeted to ~~$1.39~~support meaningful improvement in ~~2017~~shareholder returns.The Company has five current key initiatives:

•Optimizing Berkshire’s branch footprint through the announced branch sales and consolidations

•Rationalizing the balance sheet to maintain strong liquidity and capital metrics and support improvedprofitability and shareholder return

•Further implementing digitization and automation to improve customer engagement and operational efficiencies

•Focusing on core products and services to enhance customer relationships and the customer experience while exiting non-strategic products & business lines

•Continuing proactive management of asset quality through the pandemic cycle

Table of Contents

Berkshire continues to pursue its ongoing transformation into an innovative 21st century community bank, which has gained heightened relevance to stakeholders and the Company’s long-term opportunity as a result of this year’s events. Guided by its Be FIRST principles, the Company continues to foster a more inclusive, innovative and supportive culture, which is positioning Berkshire to deliver a differentiated and compelling community banking experience to everyone in its communities, including those who have been traditionally underbanked. Following its principles, the Company’s COVID-19 response included:

Table of Contents

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2020 AND DECEMBER 31, 2019

Summary: The major balance sheet changes were the result of the COVID-19 pandemic and its impacts on the economy and federal fiscal and monetary policy. Total loans decreased and demand deposits increased due to the slowdown in economic activity, resulting in less credit demand and the accumulation of customer liquidity – both of which benefited from ~~$1.88~~federal stimulus. The funds from loan payoffs were primarily invested into short and long-term investments and demand deposit growth was primarily used to reduce wholesale funding sources and for short-term investments. The Company’s operating focus was on meeting customer needs and further strengthening its capital and liquidity in the ~~prior~~face of unknown pandemic impacts on its markets.

Anticipated higher credit losses from the economic impacts of the pandemic resulted in higher loan loss provisions in the first half of the year, while adjusted EPS improved by 4% to $2.29 from $2.20. Similarly, the GAAP return on assets decreased to 0.56% from 0.74%, whereas the adjusted ROA improved by 8% to 0.93% from 0.86%. The Company is targeting to improve this measure to over 1.00% and views its 2017 results as strong progress towards this goal. The GAAP return on equity measured 4.45% in 2017, and the non-GAAP measure of adjusted return on tangible common equity measured 11.82%.

~~Berkshire’s primary~~although traditional metrics of loan performance did not begin to significantly worsen until the fourth quarter.Loan performance was aided by loan modifications and SBA guaranteed PPP loans which were implemented pursuant to federal bank supervisory guidelines in an unprecedented response to supporting the economy and financial ~~condition generally~~system.

The long-term impacts of the pandemic drove bank stock prices sharply lower, and in the second quarter the Company wrote-off the full $554 million balance of goodwill which had been accumulated over the past decade principally from bank acquisitions when stock prices were higher.This was the principal reason for the $378 million, or 3%, decrease in total assets to $12.8 billion in 2020.Excluding this write-off, total assets increased by $176 million, or 1%, due to demand deposit growth invested into short-term investments. Largely due to this impairment charge, shareholders’ equity decreased by $571 million, or 32%, to $1.19 billion.The goodwill impairment charge was non-cash and had no material impact on the Company’s tangible equity or regulatory capital metrics, which improved ~~during~~continuously through the year including capital, liquidity, and asset quality. While the economic climate has been supportive, the Company remains vigilant with its financial disciplines with a goal to maintain our operations and soundness when industry circumstances become more challenging. The Federal Reserve Bank increased short term interest rates during the year, which also resulted in a flattening of the yield curve. The Company estimated that these movements were positive for its financial results. Business development resulted in 8% organic loan growth and 6% organic deposit growth, measured before the Commerce impact. Driven by fee income, non-interest income grew by 91%, reaching 30% of total revenue, and including the benefit of specialty lending and mortgage banking operations acquired in 2016.

~~Due~~due to the ~~shares issued as merger consideration for Commerce, together with shares issued~~reduction in ~~a public offering for general corporate purposes in May, total year-end common shares outstanding increased by 27%~~risk weighted assets resulting from the proportional shift from loans to ~~45.3 million, and year-end shareholders’ equity increased by 37% to $1.5 billion. The increase in equity included 522 thousand preferred shares with a book value of $41 million. Both book~~investments. Book value per common share measured $23.37 at period-end and the non-GAAP measure of tangible book value per share ~~increased~~measured $22.68 per share.

The Company's goal is to provide a strong foundation for supporting growth in its customer accounts and revenue drivers across its major markets and business lines based on improvement in forecasted public health and market conditions.The majority of the $633 million of year-end PPP loans is expected to be forgiven by 5%the SBA in 2021, contributing to a potential decrease in total loans during the year ~~including the benefit~~2021.The sale of ~~new shares issued.~~

~~Table of Contents~~

~~Berkshire increased the quarterly common dividend by 5% in January 2017, and this was followed by another increase of 5% declared in January 2018.~~

Berkshire relocated its corporate headquarters to 60 State Street in Boston, which is well located in the downtown financial hub. It now has four offices serving Boston and a total of 19 offices in the Greater Boston area, including Worcester. Berkshire recruited commercial and private banking leadership for this market, along with commercial leadership for the Mid-Atlantic ~~operations,~~branches is also expected to result in a decrease in interest bearing assets and ~~seasoned specialists in international and government banking. Berkshire continues~~liabilities.

Investments: Due to ~~expand its virtual teller and MyBanker resources to cost-effectively strengthen its sales and service channels.~~

The Company consolidated three branch offices and opened two new branches during the year. By year-end, full time equivalent staff totaled nearly 2,000 positions. In conjunction with the federal tax reform, Berkshire announced additional investments in its team and communities, including an increase in the minimum wage, bonuses for most employees, investments in training at AMEBU (America’s Most Exciting Bank University), and a $2 million contribution to Berkshire’s foundation which provides community charitable support. Berkshire crossed the $10 billion regulatory threshold for total assets with a goal that future Commerce-related earnings accretion will more than offset higher regulatory costs and will provide support for further profitability improvement.

~~COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2017 AND 2016~~

~~Summary:~~ ~~Berkshire offers a competitive mix of~~ loan runoff and deposit products to serve the retail and commercial markets in its regions, and in certain national specialty lending markets. Net interest income from these products is its primary revenue source; the related staff, facilities, and systems are its primary operating expenses. The Company emphasizes services and fee revenue business to deepen market and wallet share and to diversify revenues. Additionally, increasing regulatory requirements related to capital and liquidity have led to more emphasis on products and services that do not require balance sheet resources. The Company has expanded its wholesale lending and deposit practices to provide more product and balance sheet flexibility.

~~Berkshire continued to extend, deepen, and diversify its banking footprint in 2017, with~~growth, total ~~assets of $11.6 billion at year-end. Total assets~~short-term investments increased by ~~$2.4 billion, or 26%, including $1.8 billion acquired with Commerce. Most categories of assets~~$992 million in 2020, and liabilities increased due to this merger. Excluding acquired Commerce balances, organic loan growth from business activities was $0.5 billion, or 8%, and organic deposit growth was $0.4 billion, or 6%.

Shareholders’ equity increased by $0.4 billion, or 37%, mostly due to the stock issued in the stock offering and as merger consideration. Berkshire also benefited from strong internal capital generated from operations. There was improvement in most primary metrics related to capital, liquidity, and asset quality.

~~Investment Securities.~~ Berkshire’s goal is to maintain a high quality portfolio consisting primarily of liquid investment securities with managed durations, supported primarily by wholesale funds. The portfolio generates interest income and provides additional liquidity and interest rate risk management flexibility. The portfolio is managed to contribute to earnings per share and return on equity, taking into account regulatory risk classifications.

~~The Company continuously evaluates the portfolio’s size, yield, diversification, risk, and duration.~~

In 2017, the portfolio average yield increased despite ongoing interest rate pressures in medium term instruments. Due to its size, Berkshire created earnings synergy by restructuring the mix of acquired Commerce short and long term investments - contributing to the targeted earnings accretion of that acquisition. Portfolio growth was also targeted to leverage the excess capital from the May common stock offering, reducing the near-term EPS dilution from the new shares while the Commerce acquisition was pending, and to supplement loan growth as a use of this capital.

~~Total~~total investment securities increased by ~~$270 million, or 17%, to $1.9 billion in 2017, including a $114 million balance contributed by~~$454 million.Most short-term investments were held at the ~~Commerce acquisition.~~ Federal Reserve Bank of Boston.The ~~portfolio increase included a $199 million~~ increase in ~~available~~investment securities was concentrated in Available for ~~sale~~Sale ("AFS") agency ~~collateralized~~mortgage-backed securities and agency commercial mortgage-backed securities. There have been accelerated prepayments of mortgage ~~obligations and~~related securities as a ~~$74 million increase in held to maturity municipal bonds, as these remain the primary components~~result of the ~~portfolio, balancing~~low interest rate ~~sensitivity and yield.~~environment. The Company purchased $894 million in AFS securities in 2020, accepting lower yields in order to maintain and increase the size of the portfolio.In the current environment of low interest rates, a generally flat yield curve, and low credit spreads, the Company has been judicious about redeploying short-term investments into longer term structures while also ~~increased~~maintaining balance sheet flexibility due to the general uncertainties of the current environment. The fourth quarter securities portfolio yield decreased year-over-year by 0.62% to 2.69%, reflecting ongoing rolldown of asset yields due to low rates.

The Company managed down the size of the corporate bond portfolio and has carefully monitored its ~~investment~~exposure to credit risk in ~~available for sale~~ corporate ~~bonds by $55 million, with~~and municipal obligations during the ~~growth concentrated in financial institution subordinated~~pandemic induced recession. At period-end, there were no delinquent or non-accruing debt securities.

~~Table of Contents~~

The Company ~~sold~~liquidated most of its portfolio of corporate equity securities ~~producing a $20 million net reduction in these~~during the fourth quarter.These securities ~~and realizing $13 million in total net securities gains. These gains~~ were ~~already included as~~ a component of ~~shareholders’ equity in accumulated other comprehensive income. This sale took advantage of strong market conditions for bank stocks and the realized~~its capital gains ~~contributed~~management strategy related to ~~the Company’s~~ tax ~~management objectives.~~ credit investments; this strategy was no longer operative in 2020.The ~~Company’s available for sale equities portfolio totaled $45 million~~remaining equity securities at year-end 2017, consisting mostly of northeast bank stocks and high yield equities. The adoption of ASU 2016-01 requires that current period unrealized gains and losses on these securities be recognized in income beginning in 2018. were primarily bond mutual funds targeted toward Community Reinvestment Act eligible investments.The Company ~~is assessing its strategies~~recorded $8 million in ~~light of these requirements.~~

The fourth quarter portfolio yield decreased slightly to 3.55% from 3.58% from year-to-year, while the full year yield increased to 3.43% from 3.28%. Due to the federal tax reform, the Company estimated that the fully taxable equivalent yield of thenet securities ~~portfolio would decrease by approximately 0.15% in future periods. This is~~losses during 2020 primarily due to the ~~municipal bond portfolio, which continues to meet the Company’s profitability objectives despite the lower taxable equivalent yield.~~

~~The year-end weighted average life of the bond portfolio decreased slightly to 5.5 years from 5.9 years. The Company estimates that the average life of the portfolio would increase to 8.7 years~~decline in the event of a 300 basis point increase in interest rates. Debt securities not meeting investment grade criteria totaled $70 million at year-end 2017 and consisted primarily of unrated bank debt securities acquired in the Commerce merger, as well as certain high yield corporate bonds. There were no impairments recorded during the year or at year-end, and all securities were performing during the year and at year-end. For securities available for sale and held to maturity, the fair value of bank stocks which were a significant component of its equities portfolio.The portfolio of investment securities ~~with unrealized losses exceeding one year was 13%~~had

Table of total securities at year-end 2017, compared to 2% at the prior year-end. The total unrealized loss on these securities was 3% of fair value at year-end 2017. This generally reflected lower market prices resulting from higher market rates rather than credit changes in the portfolio. The netContents

an unrealized gain ~~on investment securities decreased to $11~~of $68 million, or ~~0.6% of cost,~~3.2%, at year-end 2017, compared to $20 million, or 1.3% of cost, at year-end 2016. This change primarily reflected the equity securities gains recognized on sale, as well as lower bond prices related to higher medium term interest rates at the end of 2017.

~~Loans.~~ Berkshire is expanding and deepening retail and commercial lending activities through organic growth and acquisitions, including a focus on specialized lending. The Company uses secondary markets and a growing network of financial institution partners in managing and diversifying its portfolio, as well as supporting its fee income objectives and managing its capital and liquidity.

Total loans increased by $1.75 billion, or 27%, to $8.3 billion in 2017. The Commerce acquisition added $1.24 billion in balances, including $1.09 billion in commercial loans split between commercial real estate and commercial and industrial loans. Most of the Commerce loan portfolio is located in the Eastern Massachusetts markets. The Commerce loans were preliminarily valued at a $102 million, or 7.6%, discount, which was primarilyperiod-end due to the ~~Commerce portfolio of taxi medallion~~gain in debt security fair values resulting from the decrease in interest rates.

Loans: Total loans ~~located~~decreased by $1.42 billion, or 15%, to $8.08 billion in ~~Boston and Cambridge and reflects~~2020.During the ~~adverse conditions in this business due to ride-sharing competition. Commerce also engaged in other specialty and non-conforming commercial lending activities which contributed to~~year, the ~~discount.~~

~~Excluding the Commerce acquisition, loans increased by $509 million, or 8% in 2017. This growth included $223~~Company originated $708 million in commercial PPP loans, of which $633 million remained outstanding at year-end.The Company also reclassified $301 million in loans to assets held for sale, due to the pending agreement for the sale of the Mid-Atlantic branches.Excluding these loans and ~~industrial~~the PPP loans, ~~$72 million~~total loans decreased by $1.80 billion, or 18%.This included a 5% reduction in commercial real estate, a 39% reduction C&I loans, a 30% reduction in residential mortgages, and ~~$162~~a 26% reduction in consumer balances.In the commercial markets, borrower demand decreased significantly due to the pandemic and the Company adjusted its business solicitation during the height of the economic shutdowns, while focusing its resources on the operational demands of supporting the PPP program and managing requests for loan modifications pursuant to government guidelines in support of its markets.Slower business activity led many borrowers to reduce C&I borrowings and to instead build liquidity.The Company curtailed business solicitation in certain COVID-19 sensitive industries, and trimmed its exposure to commercial wholesale and participation balances, while also allowing non-relationship exposures to runoff.The Company continued to see activity in its commercial lending channels and it remained disciplined in its selection, pricing, and underwriting processes.Based on market activity and forecast market conditions, the Company is targeting to grow its middle market commercial business, with a focus on asset based lending and small business banking, and selected opportunities in commercial real estate.The Company expects overall commercial borrowing demand to improve as pandemic conditions subside and forecast economic growth emerges.

The decrease in residential mortgages reflected heightened loan prepayments and refinancings due to the drop in interest rates.Additionally, the Company focused on completing the disposition of discontinued national mortgage banking operations, and also the supply of secondary market mortgages from area correspondent banks decreased as all banks coped with higher runoff.Home equity loans outstanding decreased due to reduced borrowing demand and the portfolio of indirect auto loans continued to runoff in accordance with the Company’s strategy.The fourth quarter yield on the loan portfolio decreased year-over-year by 0.90% to 3.62% in 2020 from 4.52% in 2019.This decrease reflected pandemic related impacts, including the decrease in market interest rates, higher prepayments of higher yielding loans, and the effect of the lower yielding PPP loans.Loans repricing within one year totaled $3.8 billion, or 46% of total loans at year-end 2020.

The majority of PPP loans were originated in the second quarter to existing borrowers to provide payroll support during the pandemic shutdown. These loans bear interest at 1% and most were primarily written with two year maturities. They are guaranteed by the SBA and most are expected to be repaid by the SBA as loans are forgiven.The PPP fees received from the SBA approximated 3% of the loan amounts. At year-end, the Company had a balance of $13 million in net ~~growth~~deferred PPP loan fees paid by the SBA which is being amortized into net interest income based on the approximate two year expected lives of the loans. The unamortized deferred balance is recognized in ~~residential mortgages. Total~~net interest income at the time each loan is forgiven.The Company originated $708 million of PPP loans in 2020, of which $633 million remained outstanding at year-end.With the issuance of additional forgiveness guidelines around year-end, the Company expects that the majority of PPP loans will be forgiven in the first half of 2021.

Based on its experience with borrowers during the pandemic, the Company has thoroughly assessed its commercial loan portfolio to determine the most significant sensitive industries based on exposure, risk rating, and use of federally supported lending and loan modification programs. The Company has focused on hospitality, Firestone (specialty equipment lending), restaurants, and nursing/assisted living facilities, which collectively totaled $868 million at year-end. The Company has evaluated the loans in these industries and has expanded its review of other commercial loans ~~increased organically by 8%~~to broaden the scope and frequency of risk assessments. The Company initially identified a larger group of borrowers as potentially COVID-19 sensitive, including retail, arts and entertainment, medical, and construction.Based on its experience during the ~~Commerce~~year, the Company has narrowed its focus of COVID-19 sensitivity to the four groups mentioned above. The Company views these COVID-19 sensitive loans as generally conforming to its longstanding financial disciplines for loan/value, debt service coverage, and recourse in conformity with customary industry practices. Based on its longstanding disciplines, the Company believes its exposures within these industries are reasonably diversified and structured to accomplish overall risk management objectives. The

Table of Contents

Company also monitors its outstanding loans to small business borrowers. Loans with balances of $1 million or less totaled $773 million at year-end. Some smaller balance commercial loans ~~increased~~are monitored primarily based on payment status, with less availability of current borrower financial information. Small businesses and SBA borrowers have benefited from various government support programs and may be more vulnerable in future periods if government support programs are not continued.

Asset Quality: Most asset performance measures remained within risk ranges viewed by the Company as moderate during the first nine months of 2020, including charge-offs, delinquencies, non-accruals, and troubled debt restructurings. Some measures moved adversely in the fourth quarter as pandemic impacts on loan performance emerged more clearly, particularly in COVID sensitive commercial industries. It is anticipated that some measures will remain elevated in 2021 as some borrowers experience impairment of their liquidity and capital resulting from accumulating economic impacts of the pandemic. Due to ~~61%~~loan payment modifications granted pursuant to government guidelines, many borrowers did not make a full year of scheduled loan payments during 2020 but continued to accrue interest and were not reported as delinquent at year-end.

Asset quality benefited in 2020 from the PPP loans, which are intended to support payrolls and therefore support business operations and employment despite the contraction in the economy. Other federal stimulus measures included one-time payments issued to most taxpayers and supplemental unemployment insurance. Monetary actions drove interest rates to near zero, reducing debt service costs and supporting asset values in the public equities and credit markets. Under year-end legislation approved by Congress, further fiscal economic support was approved for disbursement in 2021.

Additionally, federal bank regulatory authorities encouraged banks to work with affected borrowers to provide loan payment modifications to protect liquidity and support solvency. Forbearances made before year-end in accordance with CARES Act guidelines are not reported as delinquencies and are not required to be analyzed as troubled debt restructurings. In 2020, loans with conforming loan modifications totaled $1.6 billion, with the majority of modifications consisting of payment deferrals to commercial customers. The Bank was initially proactive in reaching out to commercial customers to offer conforming modifications within regulatory guidelines. Most initial deferrals were 90 day deferrals of principal and interest payments, with deferred payments often added to the end of the loan term. While the majority of customers returned to scheduled payments during the year, some customers were provided additional deferrals during the year. In the fourth quarter, the majority of commercial loans receiving additional deferrals beyond 2020 agreed to pay current period interest during the deferral period. In most cases, commercial customers requesting further deferrals were individually underwritten, negotiated, and approved. Many in the hospitality segment and the Firestone segment were provided with fourth quarter deferrals beyond 90 days to reflect seasonal and specialty operations.Many hospitality modifications included interest reserves established by project sponsors.At year-end, loans with payment deferrals (including in-process deferrals) totaled $350 million, of which $331 million were commercial loans.Year-end deferrals measured 4.7% of total loans excluding PPP loans.

In part because of the loan deferral program, accruing delinquent loans did not increase during the year, reaching a quarterly low of 0.34% of total loans at year-end 2020, compared to 0.54% at year-end 2019.The deferral periods for the majority of deferred loans were scheduled to expire in the first four months of 2021.Under revised legislation passed by Congress at year-end 2020, banks can continue to provide qualifying loan modifications including payment deferrals throughout 2021 without reporting these loans as delinquent or as troubled debt restructurings.Under accounting principles, loans cannot be maintained as accruing interest if the bank does not expect to collect the full contractual amount of principal and interest from ~~56%~~a borrower.Non-accruing loans remained little changed during the first nine months of the year, but increased to 0.80% of total loans as of year-end 2021, compared to 0.42% at the start of the year. ~~The~~This increase was largely due to two commercial relationships which were identified as substandard prior to the pandemic.One of these was a purchased credit deteriorated credit to a nursing/assisted living facility acquired in the 2019 bank merger, and one was a hospitality relationship in a market that became overbuilt.During the fourth quarter, the Company ~~views its commercial~~sold $22 million in hospitality loans which deteriorated during the pandemic.The Company continues to evaluate potential opportunities to sell deteriorated loans. Net loan charge-offs totaled $38 million in 2020 and ~~industrial~~$33 million in 2019. Charge-offs in 2020 included $12 million in hospitality loans ~~and its owner occupied commercial real estate loans as an important element of its~~written down in the fourth quarter due to pandemic related weaknesses. Charge-offs in 2019 included a $16 million charge in the third quarter for one commercial relationship strategies. These loans increased by 44% to $2.35 billion in 2017 and advanced to 46% of total commercial loans at year-end 2017. Berkshire also engages in commercial loan participations and other wholesale activities as part of its balance sheet management objectives. Berkshire recruited commercial banking leadership for its expanding Greater Boston region and in its new Mid-Atlantic markets. The Company’s goal is to gain market share based on its expansion into these large and growing markets, including its positioning as the largest regional bank with ~~corporate headquarters in Boston.~~

alleged fraud.

Table of Contents

~~Due~~During 2020, the Company identified certain commercial segments which were determined to ~~its asset management strategies~~be COVID-19 sensitive.The Company refined this group during the year.The two primary segments deemed COVID-19 sensitive were hospitality loans and loans in ~~recent years, Berkshire has been positioned~~the Company’s Firestone Financial specialty equipment lending group.Borrowers in both of these segments were more at risk of significant revenue declines due to ~~support its markets while also managing well within regulatory guidelines~~mandated reductions in travel and social activity.Hospitality loans totaled $301 million and Firestone loans totaled $246 million at year-end.These two segments accounted for ~~commercial real estate lending. Berkshire’s total non-owner occupied commercial real estate exposure measured 270% of regulatory capital at period-end, compared to 265% at the start~~$225 million of the ~~year~~$331 million in total commercial active and ~~compared to the 300% regulatory monitoring guidelines (based on regulatory definitions). Construction loan exposure was 40% of bank regulatory capital~~in process deferrals at year-end ~~both~~2020. They accounted for $158 million of the $338 million in ~~2017~~year-end commercial criticized assets.For the hospitality loans, 91% of the year-end deferrals were scheduled for current interest payments and ~~2016, compared to~~many of these were supported by interest reserve accounts.For the ~~100% regulatory guideline. Berkshire monitors its commercial real estate lending~~Firestone loans, the business lines with the most demonstrated COVID-19 risk ~~using~~were fitness ($71 million year-end balance) and location based entertainment such as bowling alleys and family oriented arcades ($44 million year-end balance).Together, these business lines comprised 68% of the ~~enhanced processes required for banks exceeding~~Firestone deferrals and 58% of the ~~monitoring thresholds even though it is well margined below those thresholds.~~

Berkshire’s commercial specialty lending includes asset based lending, business equipment lending, and SBA lending. ABL outstandings totaled $306 million at year-end 2017. Business equipment loans, through Berkshire’s Firestone ~~division, totaled $227 million at that date. The Bank originates SBA 7(a) loans for sale through its 44 Business Capital division (primarily~~criticized loans.Most of the borrowers in the ~~mid-Atlantic area), as well as direct loans by its business banking teams throughout its regions. Based on the annual SBA national originations rankings as of September 30, Berkshire placed 17~~^th ~~nationally by SBA loan count~~hospitality and ~~it placed 32~~^nd ~~nationally for total amount loaned. Most earnings related~~Firestone segments were expected to ~~SBA lending are included in loan fee income, from the sale of guaranteed portions of SBA loans.~~

Residential mortgages increased by $210 million, or 11%, in 2017 including $48 million contributed by the Commerce acquisition. Organic growth measured 9%. Conforming mortgage originations are produced by Berkshire’s national mortgage banking operationbe able to resume operations and ~~are generally held for sale~~scheduled debt service if public health and social conditions allowed more normal revenue production to the secondary market. Mortgage banking income and activity are addressed in the later fee income section of this discussion. Loans held for investment are primarily jumbo loans for which there is a more limited secondary market. Residential mortgage balances were also affected by opportunistic wholesale activity of seasoned loans, with purchases totaling $125 million and sales totaling $294 million. Consumer loan growth in 2017 totaled $150 million, or 15%, including $100 million in acquired Commerce consumer loans. Berkshire produced $59 million, or 10%, growth in auto and other loans, which was concentrated in prime indirect auto loans originated by the Company’s team in its regional markets.

The average fourth quarter loan yield increased to 4.47% in 2017 from 4.00% in 2016, reflecting the benefit of short term rate increases as well as the contributions from the fair value marked First Choice and Commerce loans and the favorable shift in mix towards higher yielding commercial loans. The fourth quarter yield increased in all major loan categories. The contribution to the net interest margin from purchased loan accretion was 0.21% and 0.10% in the above two periods respectively. The repricing terms of the total loan portfolio shortened modestly in 2017, with 42% repricing in one year, 22% in one to five years, and 36% over five years. This reflects the shift in mix towards shorter duration commercial loans. As of year-end 2016, 40% of the portfolio was scheduled to reprice within one year, 20% in one to five years, and 40% over five years.

~~Asset Quality.~~ Berkshire’s Chief Risk Officer and a Risk Management and Capital Committee of the Board oversee risk management and asset quality. This includes setting loan portfolio objectives, maintaining sound underwriting, close portfolio oversight, and careful management of problem assets and potential problem assets. Additionally, merger due diligence is an integral component of maintaining asset quality. Acquired loans are recorded at fair value and are deemed performing regardless of their payment status. Therefore, some overall portfolio measures of asset quality are not comparable between years or among institutions as a result of recent business combinations. A general goal is to achieve significant resolutions of impaired loans acquired in bank mergers generallyresume in the first two years following the acquisition date. Berkshire’s asset quality has reflected its strong credit disciplines together with the generally favorable economic environment in the extended U.S. recovery and asset values supported by the low inflation environment.

~~Asset quality metrics remained favorable and generally improved in 2017. Net loan charge-offs measured 0.19%. At period-end, non-performing assets were 0.21%~~half of ~~total assets. At year-end, the total contractual balance of purchased credit impaired~~2021.Non-accruing loans ~~was $209 million, with a $97 million carrying value, representing a $112 million discount, which is a 54% discount from the contractual amount. Due~~ to ~~the Commerce acquisition, the contractual balance more than doubled from $87~~these segments totaled $18 million at ~~the start of the year, and the carrying balance more than doubled from $47 million. Included~~year-end.

Year-end criticized loans increased in ~~this amount at year-end 2017 was a $12 million accretable balance including $11 million added with the Commerce acquisition.~~

~~Table of Contents~~

The Company views its problem asset metrics as generally low and benefiting from the extended period of national economic recovery and monetary stimulus following the 2008 financial crisis. Net loan charge-offs were 0.19% of average loans in 2017, compared2020 to ~~0.21% in the prior year. Year-end 2017 non-performing assets totaled $24~~$359 million, or ~~0.21%~~2.8% of total assets, compared to ~~$22~~$237 million or ~~0.24% of total assets,~~1.8% at ~~the start of the year. For loans from business activities, net loan charge-offs measured 0.19% of average loans in 2017, while this measure~~year-end 2019.This increase was ~~0.17% for average loans acquired in business combinations.~~

~~Loan Loss Allowance~~. The determination of the allowance for loan losses is a critical accounting estimate. The Company’s methodologies for determining the loan loss allowance are discussed in Item 1 of this report, and Item 8 includes further information about the accounting policy for the loan loss allowance and the Company’s accounting for the allowance in the Consolidated Financial Statements.

~~The Company considers the allowance for loan losses appropriate~~mainly due to cover probable incurred losses which can be reasonably estimated and which are inherent in the loan portfolio as of the balance sheet date. Under accounting standards for business combinations, acquired loans are recorded at fair value with no loan loss allowance on the date of acquisition. The fair value of acquired loans includes the impact of ~~estimated~~the pandemic on the commercial loan ~~losses for the life~~portfolio.Approximately half of the ~~portfolio, including subjective assessments of risk. A loan loss allowance is recorded by~~$331 million in commercial deferred loans was rated criticized at year-end, and the ~~Company for~~pandemic impacts on these loans were the ~~emergence of new probable and estimable losses relating to acquired loans which were not impaired as~~main driver of the ~~acquisition date. In the first period of combined operations, the Company may also establish an environmental component of the allowance related to newly acquired~~growth in total criticized loans. ~~Because of the accounting for acquired~~For similar reasons, classified loans ~~some measures of the loan loss allowance~~(which are not comparable to periods prior to the acquisition date or to other financial institutions. Due to the Commerce acquisition, loans acquired in business combinations totaled $2.2 billion, or 26% of total loans at year-end 2017, compared to $1.3 billion, or 20% of total loans at year-end 2016.

The loan loss allowance increased by $8 million, or 18%, to $52 million in 2017. Due to the addition of the Commerce loans at fair value with no allowance on the merger date, this ratio decreased to 0.62% at year-end 2017 compared to 0.67% at year-end 2016. For business activities loans, the ratio of the allowance remained unchanged at 0.75%. For acquired loans, due to the addition of Commerce at fair value, this ratio decreased to 0.27% from 0.33%, and net charge-offs totaled $3 million. The year-end allowance provided 3.9X coverage of total net charge-offs, compared to 3.5X coverage in 2016. The allowance provided 2.3X coverage of year-end non-accrual loans in 2017 compared to 2.0X in 2016.

The credit risk profile of the Company’s loan portfolio is described in Note 7 - Loan Loss Allowance of the Consolidated Financial Statements. The Company’s risk management process focuses primary attention on loans with higher than normal risk, which includesthose criticized loans rated ~~special mention and classified (substandard and~~substandard or lower)~~. These~~ increased to $250 million from $162 million, including growth in non-accruing loans ~~are referred~~ to $65 million from $40 million.Loans rated as criticized ~~loans. Including acquired loans,~~before the pandemic remained criticized despite any deferrals they totaled $188 million, or 1.6% of total assets at year-end 2017, compared to $129 million, or 1.4% of total assets at year-end 2016. Acquired criticized loans increased by $54 million due to the Commerce acquisition. Criticized loans from business activities increased by $5 million and there was a significant shift from substandard to special mention loans, indicating improved condition of the portfolio. may have been granted.The Company ~~views~~has traditionally viewed its potential problem loans as those loans from business activities which are rated as classified and continue to accrue interest. These loans have a possibility of loss if weaknesses are not corrected. ~~Classified~~Accruing classified loans ~~acquired~~totaled $185 million at year-end 2020.Due to the circumstances of the pandemic, the Company also views deferred special mention loans as having elevated risk of becoming substandard due to uncertainties related to public health. These loans totaled $49 million at year-end 2020.

Allowance for Credit Losses on Loans: The Company implemented the Current Expected Credit Losses (“CECL”) accounting standard on January 1, 2020. The standard changed the basis of loss recognition from incurred to expected, and expanded the covered financial instruments. The allowance for credit losses on loans replaces the previous allowance for loan losses. The allowance balance increased by $63 million from $64 million at year-end 2019 to $127 million at year-end in ~~business combinations~~2020.

The allowance increased by $25 million to $89 million on January 1, 2020 due to the adoption of CECL. The Company established a $15 million reserve related to loan credit marks, and the amortized cost basis of purchased credit deteriorated loans was increased by this same $15 million amount. The remaining implementation increase was due to the recognition of additional expected losses over the life of the loan portfolio compared to those already incurred under the previous method.The allowance measured 0.94% of total loans at the adoption of CECL.

Excluding the impact of purchased credit deteriorated loans, the allowance measured 0.78% of total loans.The Company viewed this as its reasonable supportable estimate of expected credit losses over the expected future life of the portfolio.The estimate is based on a methodology which considers historic loss rates for loans by collateral type and includes components for the impact of forecast economic conditions on loss rates, as well as an evaluation of qualitative factors including current period loan performance metrics and consideration of the benefit of expected future government support in reducing possible loss rates.The economic forecast utilizes third party base case projections and estimates credit loss impacts for the next seven quarters.The allowance does not include reserves for interest receivable.An allowance for losses on credit commitments is included in other liabilities, and measured $8 million at year-end 2020.

The allowance increased by $38 million from January 1, 2020 to $127 million at December 31, 2020.The allowance at year-end measured 1.58% of total loans and 1.71% of total loans excluding the PPP and mid-Atlantic loans.The 0.77% increase from 0.94% at the date of CECL adoption primarily reflected the projected economic

Table of Contents

impacts of the pandemic on estimated future loan losses and was driven both by the changed economic outlook and by the qualitative impact of the emergence of higher non-accruing loans.At year-end, the economic baseline expected confirmed COVID-19 cases to reach 47 million in 2021, with the daily case rate peaking in December 2020 and abating by September 2021.GDP was projected to increase by 4.1% in 2021 after declining by 3.5% in 2020.Unemployment was expected improve to 6.9% in 2021, supported by a $2.8 trillion federal deficit spending projection. The 0.77% increase in the allowance from the CECL adoption date is equivalent to approximately $60 million in net loan losses as the Company’s general estimate of future pandemic related loan losses in addition to the annual net loan loss rate when the economy is healthy. If conditions were to remain unchanged, the Company would anticipate that charge-offs would reduce the balance of the allowance as they emerge, and that the ratio of the allowance to total loans would move towards the level before the emergence of the pandemic. Future loan loss provisions could result from adverse changes in conditions or from loan portfolio growth. No allowance is provided for PPP loans which are guaranteed by the SBA. Additionally, no allowance is provided on the loans held for sale as part of the pending mid-Atlantic branch sale.

Goodwill and Other Assets:The sustained decrease in the price of the Company’s stock in the first half of 2020 was a basis for triggering an analysis of goodwill for impairment. Additionally, the annual impairment analysis was scheduled for the second quarter. Berkshire’s stock price was $11.02 at midyear, compared to $32.88 at year-end 2019. A goodwill impairment analysis was completed according to Accounting Standards Codification Section 350. Based on this analysis, the Company recorded ata $554 million impairment charge during the second quarter to fully write-off the carrying balance of goodwill. This analysis was based on an estimate of the fair value of the company’s equity as one reporting unit. Fair value was estimated based on an income approach and ~~are classified as performing~~a market approach, which were equally weighted in the analysis. Both valuation approaches supported a conclusion of full impairment. The goodwill balance had resulted primarily from a series of bank acquisitions which consisted primarily of an exchange of shares recorded based on stock market valuations at the time of ~~acquisition~~acquisition. Over this time, bank stocks were generally valued at a premium to the net fair value of assets, resulting in the recording of goodwill for these premiums. Due to the pandemic recession and ~~therefore are not generally viewed as potential problem loans. In 2017, potential problem loans decreased~~federal monetary actions reducing interest rates, the outlook for banking industry earnings contracted in 2020, and a number of bank stocks were trading at a discount to ~~$37 million from $51 million~~book value at midyear.The impairment analysis concluded that the ~~start~~fair value of the ~~year.~~Company’s equity was lower than its carrying value, indicating a goodwill impairment.

~~As discussed in Note 1 - Summary of Significant Accounting Policies~~The assets held for sale at year-end 2020 consisted mainly of the ~~Consolidated Financial Statements, in June 2016,~~loans and fixed assets tied to the ~~FASB issued ASU No. 2016-13, “Measurement~~pending agreement for the sale of ~~Credit Losses on Financial Instruments.” The ASU requires companies~~the Mid-Atlantic branches. This sale is targeted to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Forward-looking information will now be used in credit loss estimates. ASU No. 2016-13 is effective for interim and annual periods beginning after December 15, 2019. Early application will be permitted for interim and annual periods beginning after December 15, 2018. The Company is evaluating the provisions of ASU No. 2016-13, and will closely monitor developments and additional guidance to determine the potential impact on the Company's consolidated financial

~~Table of Contents~~

~~statements. The Company is~~completed in the ~~process~~first half of ~~identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact~~2021. The carrying amount of this new accounting guidance, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings. It is anticipated that banks will generally carry higher loan loss allowance estimates as a result of this change and that loan loss estimates will be made at acquisition date for loans acquired in business combinations.

Other ~~Assets.~~ ~~Short term investments~~Assets increased by ~~$116~~$98 million primarily due to the ~~overnight liquidity needed~~increased net fair value of commercial loan interest rate swaps and related economic hedges, reflecting the market value changes resulting from the pandemic impact on market interest rates.

Deposits:Total deposits decreased by $120 million, or 1%, to $10.2 billion in 2020.Due to the pending agreement for the ~~acquired Commerce payroll processing business. Bank owned life insurance~~sale of the Mid-Atlantic branches, the Company reclassified $617 million in deposits as liabilities held for sale.Adjusting for this reclassification, total deposits increased by ~~$52~~$497 million, or 5%.This included a $302 million increase in the year-end balance of payroll deposits, which fluctuate daily.Total brokered deposit balances decreased by $597 million to $611 million in 2020 as the Company continued to reduce wholesale funding with proceeds from loan runoff and demand deposit growth. There was growth in demand deposits, as customers maintained higher liquidity during the pandemic, including the impacts of federal support and lower spending.Additionally, some funds shifted from higher rate maturing time deposits into money market balances as customers focused on shorter maturities due to the ~~purchase of additional policies, together with the Commerce acquisition. Total goodwill~~low and intangible assets increased by $135 million which was also due to Commerce. The net deferred tax asset increased by $6 million to $47 million, with the $18 million year-end provisional write-down resulting from federal tax reform mostly offsetting the increase resulting from the Commerce acquisition.

~~Deposits.~~ Berkshire views its deposit programs as central to it funding and market management goals. Retail and commercial strategies focus on transaction accounts as being key to customer relationships. Interest bearing deposit products are positioned to be competitive while offering local convenience and the safety of FDIC insurance. Due to the impacts of technology on mobile and electronic banking, preferred customer channels are shifting and the Company seeks to maximize the benefits it offers as a local provider with the scale to compete with the delivery channels of national bank and nonbank competitors. The Company has been active in shifting the number, location, and configuration of its offices and customer facing staff in order to move with its markets and to reduce overhead related to older channels that are now less favored. Current initiatives include the expansion of virtual tellers and MyBankers. The Company has also utilized brokered time deposits as an additional funds source to complement its other strategies, manage its funding costs, and to support interest rate risk management goals. With the Commerce acquisition, the Company has added a specialty payroll processing business line that processes payments for payroll service bureau customers. In 2017, Berkshire added a senior government banking professional to provide more outreach to municipal accounts in the Company’s regions. The Company has also added a senior international banking professional who is augmenting the Company’s payments related business.

Berkshire’s deposits increased in 2017 by $2.1 billion, or 32%, to $8.7 billion. The Commerce acquisition added $1.7 billion, including $0.5 billion in demand deposits, $0.8 billion in money market balances, and $0.3 billion in time deposits. Excluding Commerce, business activities resulted in 6% organic growth totaling $0.4 billion, including $0.1 billion, or 8% organic growth in money market balances and $0.3 billion, or 12% organic growth in time deposits. Time deposit growth included a $0.3 billion increase in brokered time deposits which were used to replace $0.2 billion in short term debt. Payroll deposits totaled $0.5 billion at year-end, including $0.1 billion in demand deposits and $0.4 billion in money market accounts. These balances fluctuate daily generally within a range of $0.2 - $0.5 billion, and totaled $0.3 billion at the time of the Commerce acquisition.

The Commerce acquisition added 16 branches in the Greater Boston area, including Worcester. Berkshire consolidated three branch offices in 2017, while opening two more, with another two scheduled to open in the first quarter of 2018. Excluding nonreciprocal brokered balances, average deposits per branch totaled $67 million at year-end 2017, compared to $60 million at the start of the year. The Bank is deploying its virtual teller technology in new offices and targeted existing offices. Berkshire continues to diversify its distribution network, including expanding its MyBanker and private banking teams and integrating more closely with its wealth management, investment services, small business, insurance, and other business lines. At year-end, the Bank had four offices operating in metro Boston, which serve the expanding regional team located at the new corporate headquarters on State Street.

The Commerce acquisition provided additional liquidity to Berkshire’s combined operations, as reflected in the loan/deposit ratio, which decreased to 95% at the end of the year from 99% at the start of the year. Berkshire uses brokered deposits flexibly in combination with short term borrowings in managing its liquidity position and earnings objectives. Brokered deposits totaled $1.2 billion at year-end 2017, measuring 14% of total deposits at the start of the year. Commercial deposits increased to 29% from 26% of deposits due to the commercial orientation of Commerce. At year-end, estimated uninsured deposits totaled $2.0 billion, or 27% of total nonbrokered deposits, compared to $1.4 billion, or 24%, at the start of the year.

~~Table of Contents~~

relatively flat yield curve.The cost of deposits ~~increased~~decreased to ~~0.66%~~0.47% in the fourth quarter of ~~2017, compared to 0.56%~~2020 from 1.11% in the fourth quarter of 2019.This reflected the ~~prior year. While all major~~pronounced decrease in short-term market interest rates, together with the unusual growth in demand deposit ~~categories had increases,~~balances and the ~~total increase was primarily driven by a 0.18% increase~~reduction in ~~the~~higher cost brokered time deposits.

Table of money market accounts and a 0.11% increase in the cost of time deposit accounts. Time deposit costs benefited from the amortization of purchased deposit discount related to the Commerce acquisition. Average one month treasury rates increased by 0.77% in the fourth quarter of 2017 compared to 2016. The 10 basis point increase in deposit costs has been more modest than the Company’s models, which assume that total deposit costs will increase over time by 40% of changes in market rates. The interest sensitivity of deposits in the current environment of expected future rate increases is a significant uncertainty in the banking industry, following the years of unusually low interest rates. The Company believes that it can benefit from the diverse regional conditions in which it operates, and also continues to emphasize relationship and transactions accounts to manage potential future deposit cost increases.Contents

Borrowings and Other ~~Liabilities~~. Nearly all of Berkshire’s senior borrowings at year-end were provided by the Federal Home Loan Bank of Boston under established relationship programs. The FHLBB is secured by a general pledge of assets primarily consisting of mortgage backed securities and residential mortgages. The Bank uses FHLBB borrowings to manage overnight liquidity and generally to provide funding for its investment portfolio. Other components of the Bank’s wholesale funding program include correspondent banks and brokerages, and brokered deposits. For contingency liquidity purposes, the Bank has short term credit arrangements with the Federal Reserve Bank and with certain national banks and brokerages, and the holding company maintains a line of credit. There has been no regular ongoing use of these arrangements. The Company evaluates its use of borrowings and of wholesale funds in general in managing its liquidity and strategic growth plans. This is further discussed in the following section on Liquidity.

Liabilities:Total borrowings decreased by ~~$177~~$256 million, or ~~13%~~31%, in ~~2017, due~~2020 as part of the Company’s strategy to ~~increased utilization~~deleverage and reduce reliance on higher cost wholesale funding sources.Including brokered deposits, total wholesale funding sources decreased by $854 million, or 43%, to $1.18 billion during 2020.The fourth quarter cost of ~~better priced brokered time deposits~~borrowings decreased to ~~provide wholesale funding. Most borrowings are short term. The weighted average rate on borrowings was 1.81% in~~2.50% from 2.77%, while the fourth quarter cost of ~~2017, compared~~all funds decreased to ~~1.63% in~~0.60% from 1.23%.As previously noted, the ~~fourth quarter of 2016.~~Mid-Atlantic deposits were reclassified as held for sale, and total liabilities held for sale related to this pending transaction measured $630 million at year-end 2020. The Company ~~terminated its~~expects to settle this sale with loans and cash flow hedges in February 2017 as further described in the following section. The benefit to interest expense of this termination was more than offset by the market interest rate increases which increased the cost of borrowings during the year.from short-term investments.

Derivative Financial ~~Instruments and Hedging Activities.~~ Berkshire utilizes derivative financial instruments to manage the interest rate risk of its borrowings, to offer these instruments to commercial loan customers for similar purposes, and as part of its residential mortgage banking activities. Instruments: The instruments sold to commercial and residential mortgage customers are an important source of fee income and generally represent fixed rate contracts purchased by customers which are sold or offset by the Company with national counterparties. Derivatives related to mortgage banking vary seasonally and were not significantly changed at year-end 2017 compared to the start of the year.

~~The~~$3.9 billion period-end notional balance of derivative financial instruments ~~increased to $2.5 billion at year-end 2017, compared to $2.2~~was down slightly from $4.1 billion at the start of the year. ~~The increase~~This notional balance includes $1.7 billion in ~~economic hedges related to commercial loan~~ interest rate swaps ~~was partially offset by the termination of $300 million in cash flow hedges which were fixing the cost of variable rate borrowings. The~~with commercial loan ~~interest rate swap derivatives include~~customers and an equal balance of offsetting back to back ~~hedges~~swaps with national ~~bank counterparties, along with~~financial counterparties.The Company also has $0.3 billion in risk ~~participation agreements~~participations with dealer ~~banks. This represents a 43% increase~~banks related to ~~strong customer demand during the year.~~

The cash flow hedges were terminated in early February in conjunction with the integration of the acquired First Choice balance sheet, including excess deposits. The Company retired the one month rolling FHLB loans that were hedged by the terminated fixed payment interest rate ~~swaps.~~ swaps where another bank is the lead.The Company recorded a $7 million loss on this termination; this loss was already a component of shareholders’ equity in accumulated other comprehensive income. The swaps had a fixed pay rate of 2.3% with a remaining maturity of 2.3 years at the start of the year.

~~The~~estimated net fair value of ~~derivatives improved~~the derivative financial instruments increased from ~~a $3~~approximately zero to $94 million ~~liability at year-end 2016 to a $3 million premium at year-end 2017. This was primarily~~ due to the ~~realization~~higher value of ~~the $7 million loss on the termination of the cash flow~~

~~Table of Contents~~

hedges. The $3 million premium at year-end 2017 included a $5 million premium in the mortgage pipeline (most of which has already been recognized in revenues), offset by a $2 million liability on the interestfixed rate ~~swap related to the economic development bond.~~

~~Stockholders’ Equity.~~Berkshire pursues a balance of capital to maintain financial soundness while using common equity efficiently with the goal to produce a strong return on equity and a strong return on tangible equity to support opportunities for franchise growth. Long run growth in dividends and in both book value and tangible book value per share are also viewed as elements for shareholder value creation. A sound capital structure reduces risk and enhances shareholder return and access to capital markets to support the Company’s banking activities and the markets that it serves. In its payment of dividends, management of treasury shares, issuance of equity compensation, and balancing of capital sources, the Company strives to achieve a capital structure that is attractive to the investment community and which satisfies the policy and supervision purposes of the Company’s regulators. When Berkshire negotiates business combinations, it generally targets to use its common shares as a significant component of merger consideration and to balance the mix of cash and stock to arrive at targeted capital metrics based on the characteristics of the combined banks. The Company’s common stock is listed on the New York Stock Exchange. Its preferred shares are non-voting conditionally convertible stock owned by one individual who is also the Company’s largest holder of common stockcustomer swaps as a result of the ~~Commerce acquisition. These holdings are restricted pursuant~~decrease in interest rates. This asset is included in other assets on the balance sheet. The Company delivered cash to ~~an agreement filed~~the clearing house as a result of its increased obligation to national swap counterparties which is reported as a use of cash from financing activities in the cash flow statement.

Shareholders' Equity: Total shareholders’ equity decreased by $571 million, or 32%, to $1.19 billion in 2020 due to the income impact of the noncash charges of $554 million for goodwill impairment and $76 million for credit loss provision expense recorded during that time. The balance of retained earnings decreased from $361 million to ($233) million.The $41 million year-end 2019 balance of preferred stock was converted to common equity in accordance with the ~~SEC.~~

In May 2017, Berkshire completed its first public common stock offering since 2009, in the amount of $153 million (net of offering costs). This offering was for general corporate purposes and was conducted under the Company’s universal shelf registration statement with the SEC. The offering resultedterms these securities, resulting in the issuance of 4.64 million shares at $34.50 per share ($32.98 per share net of costs). Also, in October, the Company completed the acquisition of Commerce Bancshares for total consideration of $229 million in a stock for stock exchange. The Company issued 4.84 million522 thousand common shares ~~and 522 thousand shares of a new Series B non-voting conditionally convertible preferred~~from treasury stock, in this exchange, and the consideration was valued based on the $38.95 closing price of Berkshire common stock on October 13, 2017. During 2017, the Company reinvested $100 million of the stock offering proceeds in Berkshire Bank as additional paid-in capital, with the remainder held in cash at the holding company at the end of 2017. The Company considered the equity-down streamed to the bank as offsetting most of the tangible equity dilution from the Commerce merger due to the $135 million increase in goodwill and intangible assets. The Company considered the equity retained at the holding company as providing an additional capital buffer and as a source of investment in the bank to support future growth as appropriate.

Total shareholders’ equity increased by $403 million, or 37%, to $1.5 billion in 2017. This included the benefit of the $382 million in stock issuances discussed above, together with retained earnings. Total common shares outstanding increased by 9.6 million shares, or 27%, to 45.3 million shares. Preferred stock was issued in the form of 522,000 shares, which ~~are conditionally convertible into 1,044,000 common shares and bearing a dividend as preferred shares equal to twice the per share common dividend.~~

~~Berkshire’s return on equity~~ decreased to ~~4.5% in 2017 due primarily to the provisional write-down of the deferred tax asset as a result of tax reform. The non-GAAP measure of adjusted return on tangible common equity decreased to 11.8%~~$31 million from 12.5% primarily due to the excess equity during the year between the May stock offering and the completion of the Commerce acquisition in October. The Company focuses on its internal generation of tangible equity to support growth and dividends, as well as to support merger and other non-operating charges.$70 million.

~~Berkshire’s capital metrics increased during the year due to the excess capital from the stock offering.~~ The ratio of equity to assets ~~increased to 12.9% from 11.9%, while~~stood at 9.3% at period-end, and the non-GAAP measure of tangible equity to tangible assets ~~increased to 8.5% from 7.7%~~stood at 9.0%.The Company ~~generally targets~~uses the non-GAAP measure of tangible equity which excludes goodwill and intangible assets and which is an important focus for the investment community.Tangible equity decreased by $6 million, or 1%, to ~~operate with this ratio~~$1.15 billion for the year.

All of the Company's measures of regulatory capital in relation to risk weighted assets improved during the ~~7-8% range.~~ year due to the runoff of non-PPP related loans and the zero risk weighting assigned to PPP loans because of the SBA guarantee, as well as due to the lower risk ratings of investments.The ~~consolidated~~Company conducts equity stress analyses, including severe adverse pandemic loan loss scenarios based on forecasts provided by third parties. The Company believes that its capital is well cushioned above the Well Capitalized metrics in all of the adverse modeling scenarios based on the assumptions utilized.The Company’s total risk based capital ratio ~~increased~~measured 16.1% at year-end 2020, compared to ~~12.4% from 11.9% including~~ the ~~excess cash held at the holding company.~~ 10% Well Capitalized standard for banks.The ~~Bank’s risk based~~Company’s Tier 1 capital ratio ~~remained unchanged~~stood at ~~11.2%. Book value~~14.1% at that date, compared to the 8% Well Capitalized standard for banks.

The Company repurchased $53 million of common stock in 2019.The Company’s plan had been to continue repurchasing shares to return capital to shareholders which was released by the balance sheet restructuring. The repurchase plan was suspended in the first quarter of 2020 as the pandemic emerged, and the existing authorization for share repurchases was allowed to expire at its March 31, 2020 maturity. During the first quarter, the Company filed a universal securities shelf registration for the routine purpose of renewing the shelf registration that expired in November 2019. The Company increased its quarterly dividend by $0.01 to $0.24 per ~~common~~ share ~~increased~~in the first quarter before the pandemic, in line with previous annual dividend increases. The Company decreased its dividend to $0.12 per share in the third quarter, to better align the dividend payout and dividend yield with its operating earnings as a result of the pandemic. Due to the loss recorded in 2020, any dividends intended by 5%the Bank’s board of directors are presently subject to ~~$32.14~~regulatory approval by the Massachusetts Banking Department and ~~tangible book value also increased~~any shareholder dividends intended by 5%the Company’s board of directors are subject to ~~$19.83 per common share.~~non-objection by the Federal Reserve.

Table of Contents

~~One~~The change in retained earnings due to the operating loss and the common dividend accounted for most of the ~~requirements of the $10 billion Dodd Frank threshold is increased capital stress testing processes.~~net change in equity. The Company ~~has invested~~recorded a $19 million benefit to equity from other comprehensive income which mostly offset a $24 million reduction in ~~staff and resources~~equity due to ~~develop these processes. Based~~the adoption of CECL. The other comprehensive income benefit was due to after-tax unrealized gains in the bond portfolio due to lower interest rates. The CECL adoption impact on ~~its most recent internal modeling~~equity was principally due to the increase in the allowance for credit losses on loans on the date of ~~financial condition~~adoption due to the recognition of expected future losses in addition to incurred losses, as well as the increase in the allowance to offset the increase in the gross carrying value of year-end 2016, the Company expected to remain well capitalized under the most severe stress test assumptions based on its capital and dividend structure at that date. The Company plans to informally submit to regulators a stress test based on year-end 2017 data during the year 2018. The Company’s first formal submission of a stress test is planned for 2019.

purchased credit deteriorated loans.

Table of Contents

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, ~~2017~~2020 AND ~~2016~~2019

Summary: ~~Berkshire’s results in 2017~~Revenue and expense included growth from acquisitions and a significant amount of charges, viewed as non-operating, which depressed GAAP results. Based on its adjusted measures, discussed further below, Berkshire produced improvement in its earnings per share and ROA measures, which are its primary strategic focus.

~~Berkshire’s 2017 results include~~ the ~~First Choice~~SI Financial operations acquired on May 17, 2019. Additionally, due to the COVID-19 pandemic Berkshire reported losses in ~~December 2016, including~~ the ~~targeted efficiencies which resulted from~~first half of 2020 due to non-cash charges of $554 million for goodwill impairment and $65 million for the integration of these operations in 2017. Results also included the Commerce operations acquired in October 2017, and the Company is targeting efficiencies in 2018 from the planned integration of those operations. Due to these business combinations, most measuresprovision for credit losses.As a result, many categories of revenue and expense ~~income,~~are not directly comparable year-over-year for the first half of the year.Parts of this discussion focus on the second half of the year, where year-over-year results are more comparable and ~~average balances increased in 2017 compared to 2016. Additionally, per share measures were~~less affected by the ~~issuance~~merger and the pandemic.

Reflecting the above activity, the Company recorded a loss of shares as merger consideration, together with the stock offering in May 2017 which was simultaneous with the Commerce announcement. All acquisitions were targeted to be accretive to earnings and earnings$569 million, or $11.33 per share ~~when fully integrated,~~for the first six months of 2020.This loss was a result of noncash charges for goodwill impairment and the provision for credit losses on loans. Results returned to ~~provide a long term double digit return on equity.~~profitability in the second half of the year, with second half earnings totaling $36 million, or $0.73 per share. For the year, the Company lost $533 million, or $10.60 per share.In 2019, the Company recorded earnings for the year of $97 million, or $1.97 per share.For the second half of 2019, the Company’s earnings were $48 million, or $0.95 per share.

~~As noted previously, Berkshire uses a~~The Company calculates the non-GAAP financial measure of adjusted ~~net income~~earnings to ~~supplement its evaluation of its operating results. Adjusted net income excludes certain amounts not viewed as~~focus on earnings related to ~~normalized operations. These~~ongoing operations and excluding items ~~are~~described in the reconciliation of non-GAAP financial measures which was set forth in an earlier section of this report.Second half adjusted earnings were $40 million, or $0.80 per share, in 2020 compared to $59 million, or $1.15 per share in 2019.Adjusting items after-tax in the second half of 2020 totaled $4 million and were primarily related to ~~acquisition expenses. Berkshire views its net acquisition~~the loss on discontinued operations and the CEO separation.Adjusting items for the second half of 2019 totaled $11 million after-tax and were primarily related ~~costs as part of the economic investment for its acquisitions. These investments are intended~~ to ~~contribute to long term~~merger and restructuring expense.

The decrease in earnings ~~growth~~ and ~~franchise value. Other significant charges excluded in 2017 from the~~ adjusted earnings measure included contract termination costs for premises restructuring and the termination of hedges. These were mostly offset by the realization of gains on the sale of equity securities. The Company also recorded an $18 million charge for the provisional write-down of its net deferred tax asset following the enactment of federal tax reform near year-end. This reform is believed to contribute positively to shareholder valuewas primarily due to pandemic related impacts on net interest income, which declined sequentially over the ~~reduction~~last five quarters to $76 million in the ~~federal statutory tax rate beginning in 2018. Berkshire also makes references to adjusted revenues and adjusted expenses in its discussion~~fourth quarter of operating results. Please see the Non-GAAP reconciliation section of this report for more discussion and information about adjusted net income and other non-GAAP financial measures discussed in this report.

~~Net income decreased in 2017 by 6% to $55 million, while adjusted net income increased by 33%~~2020, compared to $91 ~~million. On a per share basis, net income decreased by 26% to $1.39, while adjusted net income increased by 4% to $2.29.~~ million in the fourth quarter of 2019.The ~~Company targets ongoing improvement in this measure to benefit from its investments in organic growth and acquisitions, and to improve profitability. Return~~return on assets decreased ~~by 24%~~ to ~~0.56%, while adjusted return on assets increased by 8% to 0.93% as the Company moved closer to its target of 1.00% or higher. The federal tax reform and efficiencies~~0.48% from ~~the Commerce integration are targeted to support further improvement in this measure in 2018.~~

0.78% for these respective periods.The return on equity decreased to 5.2% from 5.9%; this measure was impacted in 2020 by the write-off of goodwill, which measured 31% ~~to 4.5% while the adjusted return on~~of equity decreased by 3% to 7.3% due to the excess equity on hand in 2017 while the Commerce merger was pending. The return on tangible common equity decreased by 5% to 11.8% due to the excess equity but continued to be important as a source of internal capital generation to support organic growth and dividends. The efficiency ratio increased by 3% to 60.0% due to the first full year including the acquired First Choice mortgage banking operations, which operate with narrower margins common to this business. Berkshire estimated that the efficiency of operations excluding mortgage banking improved to approximately 56%. This reflected the benefit of ongoing scale efficiencies and was achieved despite the higher regulatory cost burden as the Company crossed the $10 billion regulatory asset threshold.at year-end 2019.

~~Total Net Revenue.~~ ~~Berkshire evaluates its top line with the measure of net revenue, which is the sum of net interest income and non-interest income.~~ The Company ~~also measures adjusted net revenue and adjusted net revenue per share in evaluating~~has established a provision for credit losses on loans which it views as adequate to cover its ~~growth strategies, operations, and strategies for generating positive operating leverage.~~

~~Total net revenue increased in 2017 by $122 million, or 41% to $420 million. On a pro-forma basis, as set forth in the consolidated financial statements, total 2017 revenue~~reasonable estimate of expected credit losses, including the Commerce operations reached $480 million, with non-interest income providing 28% of total revenue. Revenue growth in 2017 included a 27% increase in net interest income and a 79% increase in fee income. Total revenue per share increased by 11% to $10.59, and on a pro forma basis with Commerce this measure increased to $10.81. These changes indicate the combined impact of the Commerce and First Choice acquisitions on Berkshire’s scale and business mix.

~~Table of Contents~~

~~Net Interest Income.~~ ~~Net interest income is the primary contributor to revenue. Berkshire targets growth in net interest income~~pandemic related losses, based on ~~increased business volumes related to market share gains~~forecast conditions at year-end.It is anticipated that net loan charge-offs will remain elevated in ~~its markets. Pricing disciplines for~~2021 as predicted losses emerge and are recorded.Loan loss provision expense may be modest unless health and economic expectations change adversely. PPP loans and deposits target a balance of market share and profitability objectives, while taking into account credit, liquidity, and interest rate sensitivity objectives. The Company also borrows to fund an investment portfolioare expected to contribute to income and profitability, together with other balance sheet objectives. Assets and liabilities acquired in business combinations are marked to market for carrying value and yield, and balance sheet adjustments are often made at or following the acquisition date to integrate the acquired balance sheet with the Company’s balance sheet. Net interest income includes significant components related to the amortization of purchase accounting adjustments and deferred items. The most significant component is purchased loan accretion related to recoveries on the resolution of acquired impaired assets, where Berkshire has regularly posted significant gains that are included in net interest income. These gains are difficult to forecast and are highly variable from quarter to quarter, and generally reflect the Company’s strong asset management capabilities and continued demand for higher yielding assets in the ongoing low rate environment. The chief focus of the Company’s market risk assessment in the sensitivity of interest income to changes in interest rates.

Annual net interest income increased by $63 million, or 27%, in 2017. As noted in the pro-forma statements in the Company’s SEC filings, the business combinations in 2016 were estimated to add $36 million in net interest income in the first ~~year~~half of ~~combined operations based on~~2021 but this benefit is expected to decline in the ~~assumptions set forth therein.~~ second half of 2021.Benefits from the Company’s branch initiatives are initially expected to mostly be offset by pandemic related loan workout costs and strategic investments in core operations.The ~~Commerce pro forma estimated that it would add up~~Company benefited from an income tax credit in 2020 due to ~~$20 million per quarter in revenue~~the large pandemic credit loss provision in the first ~~year; the Company owned Commerce operations for most~~half of the ~~fourth quarter of 2017. Interest income also increased as a result of 8% organic increase in loans, funded primarily~~year.

Revenue:Revenue was adversely impacted by the ~~6% organic increase~~pandemic in ~~deposits.~~ 2020, including the impact of lower business volumes, fee waivers, and tighter margins.Net revenue from continuing operations decreased by $66 million, or 15%, to $383 million in 2020.Revenue in 2020 included a full year of revenue from SI Financial operations acquired in May 2019.The ~~27% increase~~full year decrease included a $48 million decrease in net interest income, a $7 million decrease in fee income, and a $12 million adverse swing in net securities gains/losses.Second half revenue decreased by $37 million, or 16% to $196 million; this comparison fully includes acquired operations in both periods.

Net Interest Income:Net interest income from continuing operations decreased by $48 million, or 13% in 2020.This was ~~attributable to~~ the ~~23% increase in average earning assets and the 3% increase~~result of a 14% decrease in the net interest ~~margin.~~

margin to 2.72% from 3.17%.The fourth quarter 2020 net interest margin ~~increased throughout 2017~~was 2.61%. Quarterly net interest income peaked at $97 million in the third quarter of 2019, including the first full quarter of benefit from ~~3.21%~~the acquired SI Financial operations.Net interest income decreased to $91 million in the fourth quarter of ~~2016~~2019 and then decreased sequentially in 2020 to ~~3.50%~~$76 million in the ~~fourth quarter~~final quarter.

Table of ~~2017.~~ Contents

The margin ~~for the year improved to 3.40% in 2017 from 3.31% in 2016. Factors that contributed~~was under pressure coming into 2020 due to the ~~improvement in the margin included the mix shift towards higher yielding commercial loans, the increase in interest rates, the termination~~anticipated loss of the fixed payment cash flow hedges, generally low deposit betas (indicating low sensitivity to interest rate changes), and the benefit of purchase accounting initially related to First Choice and then to Commerce. The yield on earning assets increased for the year to 4.16% from 3.93%, while there was a smaller increase in the cost of funds to 0.77% from 0.69%. Berkshire’s sensitivity to interest rates is discussed in Item 7A. Generally, itspurchased loan assets tied to LIBOR and prime adjust quickly to interest rate increases, as do short term borrowings, while deposit rates move in line with market forces which have been slower to react than expected. Lending spreads in some areas were pressured by slower demand in 2017. The Company will be monitoringaccretion income, including the impact of the ~~tax reform for any competitive impacts~~CECL accounting standard. The Company’s interest rate risk profile is asset sensitive, and is structurally sensitive both to the decrease in interest rates and to the low and relatively flat yield curve.The approximate 1.50% decrease in short-term interest rates resulting from the Federal Reserve Bank’s near zero interest rate policy response to the pandemic was adverse to the Company’s net interest margin.Additionally, the Company took on ~~loan yields or deposit costs that might affect~~higher cost funds at the ~~margin~~start of the pandemic to further strengthen liquidity in the ~~future.~~national emergency as part of its risk management protocol.Also, the decline in higher yielding loans has reduced this yield as the primary source of interest revenue.

~~The~~Based on conditions at year-end, the Company measures the impact of purchased loan accretion on the net interest margin. This accretion totaled $15 million and contributed 0.17% to the margin in 2017, compared to $8 million and 0.11% in 2016. The recognition of accretion depends on strategies for managing purchased credit impairedis targeting that PPP loans ~~which have significantly benefited~~will support net interest income ~~but which are uncertain and may vary from quarter to quarter. The Company has also benefited from the amortization of discount on purchased time deposits, which is mostly recognized~~ in the first ~~year or two following a merger.~~

~~Non-Interest Income. Most~~half of Berkshire’s non-interest income is fee income, including various revenue sources related to its operations. As previously discussed, Berkshire focuses on fee income to build more enduring customer relationships and to diversify away from potential volatility in net interest income. Fee income is the primary revenue source for two of the Company’s national lending businesses - mortgage banking and specialty equipment lending. Many fee income sources do not require as much investment in assets and consequently do not require as much support from regulatory capital. These revenues therefore have the potential to increase the Company’s return on assets and return on equity towards its long-term goals.

Fee income increased by $54 million, or 79% in 2017, and totaled $123 million for the year. Mortgage banking fees increased by $47 million to $54 million, representing the first full year of the acquired First Choice national

~~Table of Contents~~

mortgage banking operations. The First Choice mortgage banking business ranks among the top 50 U.S. mortgage banking originators. Berkshire originated $2.4 billion in total held for sale mortgages in 2017. Revenue recognition is based on interest rate lock commitments which generally are entered into before mortgages are originated. The Company targets approximately a 0.3% pre-tax profit margin measured as a percentage of total originations volume. The mortgage banking unit operates with a high percentage of variable costs, to support earnings during periods when volume declines. Direct costs of originations are netted against the total fee revenue reported.

Loan fees increased by $5 million to $21 million. Loan fees in 2017 included $9 million in SBA loan sale gains, $5 million in commercial loan interest rate swap fees, $3 million in gains on the sale of seasoned mortgages, and $2 million in asset based lending fees. The increase was primarily due to higher SBA loan volumes, and included increased cross-sale activities among the lending groups. Deposit related fees increased by $2 million, or 9%, to $27 million2021, including the ~~First Choice and Commerce contributions. Deposit related fees decreased to 0.38%~~recognition of ~~average deposits in 2017, compared to 0.43% in the prior year. This reflected the lower fee penetration of the acquired banks~~deferred revenues as ~~well as the shift in mix towards commercial balances. Deposit fees in 2017 included $8 million in overdraft fees, $9 million in bank card fees, and $7 million in other service charge income.~~ these loans are forgiven.The Company expects that ~~its card fee income~~the majority of these loans will be ~~reduced by $5-6 million per year based on~~forgiven in the ~~Durbin amendment to the Dodd Frank Act, as a result~~first half of ~~crossing the $10 billion asset threshold. This reduction~~2021 and that earning assets will ~~begin~~decrease in the second half of ~~2018.~~

~~Non-interest~~the year.The sale of the Mid-Atlantic deposits and loans is also expected to contribute to a decrease in earning assets.Excluding the impact of PPP loans, the Company is targeting that, based on rate conditions at year-end, there will be further roll down of deposit costs in 2021 due to maturities of higher rate time deposits and of promotional rates previously offered on targeted money market deposits.The Company’s goal is that these lower costs will more than offset the margin impact of asset yields continuing to price down in the current low interest rate environment.Any margin benefit in the second half is not expected to offset the impact of lower earning assets, and therefore there may be continued pressure on net interest income in ~~2017~~the second half of 2021.

Non-Interest Income:Fee income decreased year-over-year $7 million, or 9% due to pandemic impacts on deposit and loan fees.Deposit related fees decreased by $3 million, or 11%, due to a decrease in overdraft fee income totaling $4 million or 33%.This decrease was due to pandemic impacts which resulted in less consumer spending and higher household liquidity.Additionally, overdraft fees and other deposit fees reflected increased fee waivers, which were granted programmatically by the Company as part of its support to its communities during initial lockdowns.The $8 million, or 31%, decrease in loan related fees included ~~$13~~a $4 million reduction in commercial swap fee income due to lower demand, along with impacts from market value adjustments to the carrying value of commercial loan swaps.Other pandemic related market value adjustments affecting 2020 results related to charges against mortgage servicing rights and fair valued loans.The Company has $54 million in ~~securities gains,~~contractual balances on taxi medallion loans which are carried at a $7$2 million ~~charge for the loss~~fair value.Recoveries on ~~the termination of hedges, and $3 million~~these assets are included in other income.Other non-interest income also includes securities gains/losses, which the Company does not view as related to its ongoing operations. The $10 million net ~~charges. The~~ securities ~~gains were~~loss in the first quarter of 2019 was due to the ~~equity securities sales described previously in~~impact of the ~~investment securities section. The loss~~stock market selloff on the ~~termination~~carrying value of ~~hedges was described previously in the derivative securities section. The $3~~equity securities. Non-interest income is net of charges totaling $4 million in ~~other net charges was due to a $9~~2020 and $6 million ~~charge~~in 2019 for ~~the~~ amortization of tax credit investments, which was more than offset by ~~benefits to~~ income tax expense ~~as further discussed below. This charge was partially offset by $4~~credits of $5 million and $8 million in ~~accrued income on bank owned life insurance contracts.~~those respective years.

Provision for ~~Loan Losses.~~ ~~The provision for loan losses is a charge~~Credit Losses: In adopting the CECL accounting model, the Company moved from an incurred loss methodology to ~~earnings in~~ an ~~amount sufficient~~expected loss methodology.Due to ~~maintain~~ the ~~allowance for loan losses at a level deemed adequate by the Company. The level~~emergence of the allowance is a critical accounting estimate, which is subject to uncertainty. The level of the allowance was included in the discussion of financial condition. The provision for loan losses increased by $4 million, or 21%, to $21 million in 2017. The provision for loan losses exceeded net loan charge-offs and resulted in an increase in the loan loss allowance due to portfolio growth.

~~Non-Interest Expense.~~ Berkshire’s goal is to generate positive operating leverage, growing revenues through business expansion and maintaining expense management disciplines. Non-interest expense increases have generally been related to the Company’s growth, including the impact of acquisitions. The Company also invests in building its infrastructure and adding to its market teams, with a focus on fee generating business lines, as part of its long term strategy to occupy a leading position as a regional provider in its footprint. Additionally, the Company has invested in the increased compliance and risk management resources required for banks at the $10 billion threshold established in the Dodd Frank Act.

Non-interest expense includes amounts viewed by the Company as not related to recurring operations. These expenses are excluded from the Company’s non-GAAP measure of adjusted expense. The primary component of these expenses is merger related expense, which totaled $25 million in 2017 and $14 million in 2016. These expenses related mostly to the Commerce and First Choice acquisitions. Most First Choice merger related expenses have been recorded. The Company has targeted $32 million in Commerce merger related expenses, of which $21 million was recorded in 2017 and the remainder is expected to be recorded in 2018. The Company recorded restructuring and other expense totaling $7 million in 2017 and $2 million in 2016, which was primarily related to premises lease terminations as the Company has right sized its facilities. In 2017,pandemic, the Company recorded $3future expected pandemic losses as provision expense against current period operations.Accordingly, provision expense increased year-over-year to $76 million from $35 million.The provision in ~~employee and community investment~~2019 included a component recognizing the incurred expense ~~for initiatives undertaken~~related to a $16 million charge-off in a fraud related commercial situation.The provision expense in 2020 was primarily due to the ~~federal tax reform. Total expenses excluded from~~emergence of expected future loan losses as described in the ~~measure~~earlier discussion of ~~adjusted expenses totaled $35 million in 2017 compared to $16 million in 2016.~~the Allowance for Credit Losses on Loans.

Non-Interest Expense:Total non-interest expense increased by ~~$96~~$550 million to $840 million in 2020 from $290 million in 2019.This was due to the $554 million second quarter write-off of goodwill described in the earlier discussion of financial condition.Second half non-interest expense increased by 2% to $145 million in 2020 compared to 2019. The Company utilizes the non-GAAP financial measure of adjusted non-interest expense to assess its expenses related to ongoing operations. These adjustments in 2020 were primarily related to the CEO separation, and in 2019 they were primarily related to merger and restructuring charges.

Second half adjusted non-interest expense increased by $7 million, or ~~47%~~6%, to ~~$300~~$139 million.This included a $2 million increase in ~~2017. Adjusted~~FDIC insurance premium expense ~~excluding items discussed above, increased by $77 million, or 41%,~~due to ~~$265 million. The largest expense growth was~~credits received in

the second half of 2019.Technology

Table of Contents

~~compensation (46%), premises and~~spending increased by $3 million to enhance the Company’s technology ~~(30%), and marketing (276%). The compensation and marketing expense changes were affected by~~infrastructure. Additionally, expenses in the ~~mortgage banking expense structure, which has higher variable compensation expense and marketing payments~~second half of 2020 included $3 million in charges related to ~~designated business channels. Expenses benefited from the First Choice integration,~~a lending operations project which was targeted to result in $15 million in annualized cost savings on completion of integration. The Commerce integration in 2018 is targeted to result in $8 million in such annualized savings. Expenses in 2017 also benefited fromcompleted during the ~~restructuring initiatives early in the year which reduced ongoing overhead costs.~~

The efficiency ratio increased to 59.97% in 2017 from 58.27% in 2016. The acquired mortgage banking business operates with lower margins and therefore a higher efficiency ratio. The Company estimates that it operated with an efficiency ratio of approximately 56% in 2017 excluding mortgage banking. This demonstrates the ongoing benefit of the Company’s growth strategies. Berkshire had full time equivalent staff totaling 1,992 at year-end 2017, including the Commerce positions which were reported at 226 as of September 30, 2017. Berkshire reported 1,788 full time equivalent staff as of that date. period.Full time equivalent staff in continuing operations at year-end totaled ~~1,731~~1,505, compared to 1,550 positions asat the start of ~~year-end 2016.~~the year.The Company has announced strategic initiatives for the sale and consolidation of branches in the first half of 2021.The Company expects to recognize a noncore net gain on the sale of these operations and non-core charges in conjunction through these consolidations.

Income Tax ~~Expense.~~ Expense:Income taxes are discussed in a note to the ~~consolidated~~ financial statements; this note is important to an understanding of ~~this discussion.~~

the results of operations. The Company recorded a tax benefit of $27 million in 2020 compared to a tax expense of $21 million in 2019. The Company recorded a $20 million benefit on 2020 continuing operations, resulting in a 4% benefit from the loss on continuing operations. The $20 million dollar benefit included a $15 million benefit from the $59 million deductible portion of goodwill related expense, as well as from $3.5 million in tax credit benefits. The tax rate on 2020 adjusted earnings was 8% due to the lower earnings. In 2019, the Company’s effective tax rate ~~increased to 45% in 2017~~was 18% on pre-tax income from 24% in 2016. This included the $18 million charge to write-down the net deferred tax assets as a result of the federal income tax reform near year-end. Before this charge, the effective tax rate in 2017 was 26%.

continuing operations. The Company ~~also measures its~~received tax benefits at an effective ~~tax~~ rate of 26% on ~~adjusted income as a non-GAAP measure.~~ pre-tax losses of $27 million and $6 million on discontinued operations in 2020 and 2019, respectively.

Discontinued Operations: The Company ~~excluded~~completed the ~~$18 million deferred tax provisional write-down~~exit from its ~~tax expense~~discontinued national mortgage banking operations in ~~this analysis.~~the final quarter of 2020.These operations recorded losses of $20 million and $4 million in 2020 and 2019, respectively. The ~~adjusted effective tax rate on adjusted pre-tax income measured 29% in 2017. This adjusted rate exceeded~~losses included write-downs of related mortgage servicing rights which reflected the ~~26% GAAP rate before~~impact of higher mortgage prepayments as well as lower market pricing for the ~~deferred tax charge due~~subject rights.Other factors contributing to the ~~total net adjustments to GAAP income, primarily~~loss in 2020 were severance, contract, and hedge termination costs.Discontinued operations are excluded from merger charges. These charges resulted in lower GAAP pre-tax income, compared to adjusted pre-tax income. As a result, the GAAP tax rate (before the deferred tax charge) had a higher proportionate benefit from tax advantaged revenues, and therefore was lower than the adjusted rate. This is a normal occurrence for the Company due to its record of acquisitions which result in merger costs that reduce GAAP earnings.

The 29% adjusted income tax rate on adjusted income in 2017 increased from 26% in 2016. This increase primarily reflects the increase in pre-tax adjusted income and the proportionately lower benefit of slower growing tax advantaged sources and a decrease in the benefit from investment tax credit programs. As the Company has grown, ongoing earnings growth has been a normal contributor to changes in the tax rate.

The 29% adjusted effective tax rate on adjusted income in 2017 was 6% lower than the 35% federal statutory rate due to the benefit of items listed in the effective tax rate table in the consolidated financial statements. Federal tax reform reduced the future federal statutory tax rate to 21%, and also adjusted certain other deductions and benefits that impact the overall effective tax rate. The Company estimates that federal tax reform results in a projected effective tax rate of 22-24%, taking into account anticipated changes in earnings and revenue/expense mix. As previously noted, the Company expects to record Commerce merger expenses in 2018 and therefore anticipates that GAAP income may be lower than adjusted income and the GAAP tax rate may be lower than the adjusted tax rate. The actual rates recognized will depend on business, market, and tax developments in 2018.

~~The Company’s report on Form 10-K in 2016 commented on potential tax reform, and the actual reform and its impacts were consistent with~~ the Company’s ~~analysis when this reform was under discussion at the start~~measure of ~~the year.~~adjusted income.

The Company had accumulated a net deferred tax asset totaling $41 million at the start of the year. This tax asset was further increased due to the Commerce acquisition. This asset represented the benefit of future tax deductions resulting from differences between GAAP and tax accounting based on an assumption about future earnings levels. Because tax reform reduced the future statutory tax rate, the benefit of these future deductions was reduced, and necessitated a 28% write-down of the net tax asset at year-end. As noted in the consolidated financial statement, this asset was primarily composed of items related to the allowance for loan losses and purchase accounting adjustments, and was net of liabilities consisting primarily of intangible amortization. The $18 million net write-down was the result of the tax reform impacts on these and other component items of the net deferred tax asset. Many banks reported write-downs due to the accumulation of tax assets with similar components.

~~Table of Contents~~

The deferred tax asset at year-end 2017 includes a $7 million balance related to unrealized capital losses on tax credit investments. The realization of these assets depends on the Company’s ability to generate future capital gains. The Company generated capital gain income from the sale of equity securities in 2017 which will be available to significantly offset these losses when they are realized in the future. The company expects to generate additional future capital gain income from a variety of sources, and has established a small $200 thousand state tax reserve on this component of the deferred tax asset.

The benefit to the overall effective rate from tax credit related investments decreased to 5% in 2017 from 8% in 2016 and 15% in 2015. The market benefit of these investments decreased in July 2016 based on updated IRS guidance, and investment supply was lower in 2017. Net of amortization charges recorded as a component of non-interest income, these investments contributed $0.04 to EPS in 2017, compared to $0.07 in 2016 and $0.17 in 2015. The Company anticipates that the supply of these investments may continue to decrease as the overall marginal corporate tax rate declines in the country.

Total Comprehensive ~~Income.~~ Income: Total comprehensive (loss)/income includes net (loss)/income together with other comprehensive ~~income. Comprehensive~~ income, ~~totaled $50 million~~which primarily consists of unrealized gains/losses on debt securities available for sale, after tax. Due to falling interest rates in ~~2017 compared to $72 million~~2020 and 2019, Berkshire recorded unrealized debt securities gains in ~~the prior year. This $22 million decrease was mainly due to the $19 million change in other~~both years.As a result, comprehensive ~~income to~~results were a ~~loss of $6 million in 2017 from income of $13 million in 2016. The $6~~($514) million loss ~~is due to the realization~~ in ~~net~~2020 and $123 million income of the prior unrealized equity securities gains which were partially offset by the prior unrealized loss on cash flow hedges. In 2016, other comprehensive income of $13 million resulted from the impact of lower long term interest rates, increasing the unrealized securities gain and decreasing the unrealized loss on derivative hedges.in 2019.

~~Commerce Acquisition.~~ At the close of business on October 13, 2017, the Company completed the acquisition of Commerce Bancshares Corp. and the merger of Commerce Bank and Trust into Berkshire Bank. With this acquisition, Berkshire gained the leading deposit market share in Worcester, the second largest city in New England. This business combination was the catalyst for Berkshire’s corporate headquarters relocation to Boston and it filled in the Company’s Massachusetts footprint west of Boston. This merger allowed Berkshire to strategically cross the $10 billion asset threshold with the goal of absorbing the additional regulatory burden with offsets from the accretive earnings benefits of the acquisition. The Commerce acquisition included deposit balances which supplemented Berkshire’s liquidity. At the time of the merger announcement, the Company also conducted a public stock offering which had the effect of offsetting the goodwill and costs of the merger when completed, as well as providing additional capital to support future growth including targeted expansion in Greater Boston.

The consideration for the Commerce acquisition was $229 million and deal costs were estimated at $20 million after-tax ($32 million pre-tax). The stock consideration included 4.842 million common shares valued at $188 million and 522 thousand preferred shares valued at $41 million, based on the $38.95 closing price of Berkshire common stock at the closing date. The preferred stock is non-voting and convertible under certain conditions into two common shares for each preferred share. It was issued to one shareholder interest, who also acquired common shares in the merger totaling 9.9% of total Berkshire common shares outstanding at the merger date.

~~The merger was announced in May and closed in October. Systems integration is targeted for March 2018.~~

Berkshire acquired net tangible assets with a fair value of $91 million as of the merger date, including a $35 million net deferred tax asset which was subsequently written down due to federal tax reform. The Company recorded $116 million in goodwill and $22 million in intangible assets, consisting primarily of the core deposit intangible asset.

The Company included $100 million of the equity from the common stock offering in its analysis of the Commerce acquisition. This analysis also assumed that the preferred stock would be converted to common stock and assumed that transaction costs were an initial adjustment to equity. The Company filed a Form 8-K/A with the SEC on December 29, 2017 which included a combined pro forma balance sheet, and purchase accounting adjustments in Note 2 of the Consolidated Financial Statements were not materially changed from this filing. Including the above stated assumptions, the pro forma total dilution to tangible book value per share related to the Commerce acquisition was estimated at less than 1%. The Company targeted a double digit return on equity for this acquisition based on its analysis. The actual acquisition cost was higher than original estimates due to a higher stock price on

~~Table of Contents~~

Berkshire shares at closing. The acquisition was analyzed based on the existing tax code, and the year-end federal tax reform is expected to benefit the future earnings stream targeted to payback the higher deal cost.

~~Pro Forma Acquisition Analysis.~~ Note 2 - Acquisitions of the Consolidated Financial Statements includes pro forma summary financial information assuming that the Commerce acquisition had been completed as of January 1, 2016. Pursuant to accounting principles, this pro forma financial information is based on the actual financial information of Berkshire and the acquired entity, and it includes purchase accounting adjustments but does not include targeted expense reductions or actual deal costs recorded.

The pro forma increase in revenue in 2016, the first year of acquisition, was $81 million, or 27%. The pro forma increase in net income available to common shareholders was $20 million, or 34%, while the pro forma increase in earnings per common share was $0.27, or 14%. This analysis did not include the $8 million, or 20%, in annual Commerce cost savings originally targeted on completion of integration. It also did not include the 3.03 million common shares representing the $100 million portion of the public stock offering that the Company analyzed in conjunction with the acquisition. These two factors were generally offsetting in their impact on pro forma earnings per share. This analysis did not include the future benefit of the year-end federal tax reform or revenue synergies from changes in balance sheet management that Berkshire began undertaking subsequent to the acquisition. It also did not project a lower provision for loan losses on Commerce operations due to the fair value accounting recorded on the merger date. The $0.27 pro forma EPS accretion did not include incremental operating cost and revenue impacts of crossing the Dodd Frank threshold. The pro forma analysis for 2017, the second year of acquisition, also indicated increases in revenue, earnings, and earnings per share.

Quarterly Results.Quarterly results for ~~2017~~2019 and ~~2016~~2020 are presented in a note to the ~~consolidated~~ financial statements. Results for all of these periods have been discussed in previous SEC Forms 10-Q and 10-K, except for operations in the fourth quarter of 2017. The first quarter of 2017 was the first full quarter including the First Choice operations acquired in December 2016. Berkshire produced steady growth in earnings and earnings per share through the first nine months of the year, including the benefits from the integration of First Choice operations which were completed during this period. First quarter results included several items that were viewed as not related to ongoing operations including realized equity gains which largely offset charges for terminating hedging and premises contracts, as well as merger costs. Revenues in the second2020.Second and third quarter ~~included seasonally~~results are often the strongest quarterly results due to higher ~~mortgage banking revenue. A loss~~business activity during the spring and summer.In 2020, economic activity declined at an unprecedented rated due to the pandemic. This was ~~recorded~~followed by a partial rebound in the third quarter, but disease resurgence resulted in further government restrictions in the fourth quarter.Third quarter results were the strongest in terms of operating income.Results in the first half of 2020 were a loss due to pandemic impacts on the provision for credit losses on loans and the goodwill write-down.Pandemic impacts contributed to fourth quarter 2020 results declining from the third quarter due to ~~the $18 million charge~~lower operating revenue, higher operating expense, and a higher provision for the deferred tax asset write-down resulting from federal tax reform and related charges for investment in employees and community giving. The fourth quarter also had elevated merger costs due to the Commerce acquisition. The Company viewed all of the above fourth quarter items as not related to ongoing operations, and its measure of adjusted earnings per share was generally stable through the final three quarters of the year. Per share results were impacted by the common stock offering in May which was dilutive to per share earnings until these shares, as well as the shares issued for Commerce merger consideration, obtained the benefit of Commerce operations acquired in October.credit losses on loans.

Table of Contents

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, ~~2016~~2019 AND ~~2015~~2018

~~Summary:~~ ~~Berkshire’s 2016 results~~

Summary: Revenue and expense in 2019 included the ~~44 Business Capital~~SI Financial operations acquired ~~in April and the First Choice Bank operations acquired in December. Berkshire’s 2015 results included the Hampden operations acquired in April and the Firestone operations acquired in August.~~on May 17, 2019. As a result, ~~most measures~~many categories of revenue ~~expense, income,~~ and ~~average balances~~expense increased in ~~2016 compared~~2019 over the same period of 2018. Additionally, operations in 2019 included the benefit of restructuring actions in both years, and the benefit of the acquired Commerce Bank operations which were being fully integrated in the first half of 2018. Earnings per share reflected the shares issued as merger consideration for the SI Financial acquisition. References to ~~2015 -- including~~revenue and expense in this discussion are generally related to continuing operations unless otherwise noted. Year-over-year profitability declined primarily due to the $16 million charge related to the write-off of one commercial loan due to alleged fraud. Profitability was also adversely impacted by a lower net interest margin due to the decline in purchased loan accretion, which had been anticipated, as well as the impact of ~~acquired operations~~lower interest rates on the Company’s asset sensitive balance sheet. Total purchase accounting accretion decreased to $14 million in ~~both years. Additionally, per share measures~~2019 from $23 million in 2018. The Company undertook various initiatives following its strategic review to help mitigate these margin impacts. Results were affected by the issuance of common shares as merger consideration. All acquisitions were targeted to be accretive to earnings and earnings per share when fully integrated, and to provide a long term double digit return on equity.

~~Results in 2016 continued the trend of improving profitability and further demonstrated a rebound from~~also lower profitability in 2014. The GAAP return on assets increased by 9% to 74 basis points and the adjusted return on assets increased by 5% to 86 basis points. This was driven by the improvement in the efficiency ratio to 58.3% from 60.9%, which more than offset compression in the net interest margin and lower net tax credit benefits. The efficiency improvement resulted from positive operating leverage driven by revenue growth in conjunction with disciplined expense management. The improved return on assets contributeddue to higher ~~return on equity. Internal capital generation was viewed as providing support for~~merger charges related to the ~~dividend payout~~completion and ~~organic business growth as well as contributing to improvement in capital metrics. In 2016,~~integration of the SI Financial acquisition.The Company’s return on equity ~~measured 6.4% and~~was 5.7% in 2019, compared to 6.8% in the prior year. Its non-GAAP measure of adjusted return on tangible common equity ~~measured 12.5%.~~was 11.3% compared to 13.5% for these respective periods.

~~Total~~Revenue: Net ~~Revenue.~~ ~~Total~~revenue from continuing operations increased in 2019 by $19 million, or 4%, to $449 million in 2019 compared to the prior year, including acquired SI Financial operations.This increase was divided between net ~~revenue~~interest income and non-interest income.

Net Interest Income: Net interest income from continuing operations increased by ~~$30~~$9 million, or ~~11%~~3%, in 2019 compared to ~~$298 million in 2016, reaching $304 million annualized in the fourth quarter including the new First Choice operations. Revenue~~2018. This growth ~~included~~was due to a 9% increase in net interest income and a 19% increase in fee income. Fourth quarter fee income increased to 26% of total revenue including First Choice mortgage banking revenues. Total revenue per share increased by 2% to $9.57 for the year 2016.

~~Net Interest Income.~~ ~~Annual net interest income increased by $18 million, or 9%, in 2016. This included the benefit of a 10% increase in~~ average ~~earnings asset from business expansion and~~earning assets, which was partially offset by a 1% decrease in the net interest margin. The increase in average earning assets included the impact of approximately $1.48 billion in earning assets acquired from SI Financial on May 17. This was offset by a net decline in other average earning assets due to the Company’s strategic initiative to reduce less strategically important loans and investments in order to decrease expensive wholesale funding sources and related leverage. The net interest margin decreased year-over-year to ~~3.31%~~3.17% from ~~3.34%~~3.40%, and the contribution from purchase accounting accretion decreased to 0.12% from 0.22%. The ~~decrease in~~ margin ~~during 2016 primarily reflected an increase in the cost of funds during the year~~decreased further to ~~0.73%~~3.11% in the final quarter of ~~2016~~the year, including a 0.17% contribution from ~~0.56%~~purchase accounting accretion. The benefit of purchase accounting accretion decreased primarily due to the seasoning of purchased credit impaired loans from prior bank acquisitions. Purchase accounting accretion also benefited from accretion related to acquired SI Financial time deposits, which are contributing approximately 7 basis points per quarter accretion benefit which matured in the second quarter of 2020.

Non-Interest Income: Non-interest income from continuing operations increased by $10 million, or 13%, in 2019 compared to 2018 due primarily to an $8 million swing in unrealized securities gains/losses which the Company views as non-operating in nature. Fee income increased by $3 million, or 4%, including the benefit of acquired operations.

Provision for Loan Losses. The provision increased year-over-year by $10 million, or 39%, including the impact of one fraud related commercial loan loss in the third quarter.

Non-Interest Expense: Non-interest expense from continuing operations increased year-over-year by $23 million, or 9%, including acquired operations. Merger related expense included the completion of the SI Financial merger.The Company focuses on its non-GAAP financial measure of adjusted expense which excludes merger charges and other items set forth in the reconciliation of non-GAAP measures. Adjusted expense increased by $17 million, or 7%.Expenses in 2019 benefited from $3 million in FDIC premium rebates as a result of a return of FDIC reserves to smaller U.S. banks. The full efficiencies from the merger were not achieved until the fourth quarter of ~~2015.~~2019.

Income Tax Expense: The effective tax rate measured 18% in 2019, compared to 21% in 2018. This ~~included~~reflected the ~~fixed rate interest rate swaps that became active~~proportionate benefit of tax advantaged income on lower pretax earnings, along with structural changes in the ~~first half~~Company’s tax position, including the impacts of the ~~year, the impact~~SI Financial acquisition.

Table of higher short term interest rates on wholesale funding, the lengthening of time deposit maturities, and the higher cost of acquired First Choice deposits. The fourth quarter yield on earning assets was unchanged in 2016 compared to 2015. Loan yield compression was offset by higher securities yields and the benefit of the First Choice mortgage loans held for sale. The contribution of purchased loan accretion to net interest income was $8 million in both 2016 and 2015.Contents

~~Non-Interest Income. Fee income increased by $11 million, or 19%, in 2016 and totaled $69 million. Loan related income grew by $8 million, or 101%, and mortgage banking income by $3 million, or 83%.~~ Discontinued Operations:These revenues benefited from the ongoing low interest rate environment through much of the year. Loan related income included SBA loan sale gains of $3 million, interest rate swap fee income of $5 million, and portfolio loan sale gains of $5 million. SBA loan sales increased due primarily to the contribution of the new 44 Business Capital team.

~~The increase in mortgage banking income was primarily due to the inclusion of First Choice~~national mortgage banking operations became unprofitable in ~~December. Deposit related fees were flat~~2018 as a result of depressed industry conditions due to lower market demand for mortgages as interest rates rose in that period. While industry conditions improved in 2019 as interest rates moved downwards during the year, these operations continued to operate at ~~$25 million and decreased~~a loss. The net loss was equivalent to ~~0.43% of average deposit balances~~$0.08 per share in ~~2016~~2019, compared to ~~0.49%~~$0.07 per share in ~~the prior year. Deposit fees in 2016 included $7~~2018. Total revenue improved to $41 million in ~~consumer overdraft income, $8~~2019 from $39 million in ~~card related fees, and $10~~2018, but remained below the $55 million recorded during the profitable year of 2017. Most of the $5.5 million pretax loss in ~~service charges and other income.~~

Non-interest income in 2016 included a $1 million net gain on the sale of business operations. Berkshire recorded a charge of $3 million for all other non-interest income in 2016, compared to a charge of $5 million in the prior year. This2019 was due to ~~charges for the amortization of tax credit related investments, which were more than offset by benefits~~a $4.5 million charge to income tax expense, as further discussed below. This amortization charge totaled $9 million in 2016 and $11 million in 2015. This charge was partly offset by income accrued on bank owned life insurance, which totaled $4 million both in 2016 and in 2015.

~~Table of Contents~~

~~Provision for Loan Losses.~~ The provision for loan losses totaled $17 million in both 2016 and 2015. The provision for loan losses exceeded net loan charge-offs in both years, and resulted in an increase in the allowance for loan losses related primarily to growth in the loan portfolio during the year.

~~Non-Interest Expense.~~ Total non-interest expense increased by $6 million, or 3%, in 2016. Excluding merger and restructuring costs, adjusted expenses increased by $8 million, or 5%. In comparison, total revenue increased by $30 million, or 11% and adjusted revenue increased by $32 million, or 12%. The resulting positive operating leverage improved the efficiency ratio to 58.3% in 2016 from 60.9% in 2015. This in turn led to the increases in return on assets and return on equity previously discussed. Expense growth in 2016 was mostly in the primary operating expense components of compensation, and technology due to the acquisitions and growth in business activities. Full time equivalent staff increased by 510 positions to 1,731 positions at year-end 2016 from 1,221 at the start of the year. Staff growth included 505 positions which were added with the First Choice acquisition in December.

Expense results also include merger and restructuring costs which the Company excludes from its measure of adjusted earnings. The Company views merger related costs as part of the economic investment in acquired businesses. Merger related costs totaled $14 million in 2016, including $12 million related to the First Choice acquisition. Merger related costs totaled $13 million in 2015, including $11 million related to the Hampden acquisition. Merger related costs primarily consist of severance costs, contract termination charges, professional fees, and variable compensation costs. Restructuring costs have included the write-off of uneconomic contracted costs, as well as restructuring costs to optimize the branch network in light of market changes for branch serviceswrite-down mortgage servicing rights based on ~~the emergence of mobile banking as well as changes in customer access patterns. Restructuring and other expense totaled $2 million in 2016 and $4 million in 2015.~~market indications at year-end.

~~Income Tax Expense~~. The effective income tax rate increased to 24% in 2016 from 9% in 2015. This 15% increase in the tax rate included 7% less benefit from tax credits, 4% higher state income tax net impacts, and 4% all other changes, which primarily were due to the higher pretax income in 2016.

The benefit to the overall effective rate from tax credit related investments decreased to 8% in 2016 from 15% in the prior year. In July, 2016 the IRS provided updated guidance that reduced the benefits of certain entity structures related primarily to commercial historic rehabilitation projects. For 2016, the Company netted $0.07 in benefit to earnings per share from these programs, as compared to $0.17 per share in 2015 (net of amortization charges recorded in non-interest income).

The impact on the overall effective rate from net state income taxes was 2% in 2016 compared to (2%) in 2015. Normally state income taxes increase the overall effective income tax rate. The impact in 2015 was a decrease due to the mix of items affecting New York state taxes; this is not expected to reoccur. The increase in the overall effective tax rate due to higher pretax income reflected the lower proportionate benefit from tax-exempt securities and bank owned life insurance income. These benefits increased by only 10% in 2016, compared to the 42% increase in total pretax income.

~~Table of Contents~~

LIQUIDITY AND CASH FLOWS

Liquidity is the ability to meet cash needs at all times with available cash and established external liquidity sources or by conversion of other assets to cash at a reasonable price and in a timely manner. Berkshire evaluates liquidity at the holding company and on a consolidated basis, which is primarily a function of the Bank’s liquidity.

Total cash and cash equivalents increased to $1.6 billion at year-end 2020, compared to $0.6 billion at year-end 2019.Net cash provided by operating activities of continuing operations decreased slightly to $124 million in 2020 from $130 million in 2019.Net cash provided by operating activities of discontinued operations increased to $104 million from a use of $19 million in 2019 as these operations were liquidated during 2020.

The ~~primary~~Company’s liquidity ~~need~~strengthened substantially in 2020.A $1.4 billion reduction in loans was primarily reinvested in investments.Short-term investments increased by $1.0 billion and investment securities increased by $0.5 billion.A $0.6 billion increase in demand deposits was used primarily to reduce wholesale funds, which decreased to $1.2 billion from $2.0 billion.The ratio of wholesale funds to assets decreased to 9% from 15%.The ratio of loans/deposits decreased to 79% from 92%.

The Company has an agreement to sell its 8 Mid-Atlantic branches, which is expected to be completed by midyear 2021.The Company is expected to provide in excess of $300 million in funds to complete this sale, which is expected to be funded from short-term investments.The planned consolidation of 16 additional branches in the first half of 2021 is targeted to be completed with strong deposit retention and no material reduction in total deposits.The Company may see some outflows of demand deposit balances which have accumulated during the pandemic and which may be drawn down by customers if economic conditions improve as expected.Any net outflows would most likely be funded from the excess levels of short-term investments that were built up in 2020.The Company also expects to use these funds to pay down maturing wholesale funds from brokered deposits and borrowings if conditions remain as anticipated.Due to the decrease in market interest rates in 2020, loan prepayment speeds increased, maturing time deposits tended to roll into money market deposits, and generally interest sensitive assets and liabilities both trended towards lower expected average lives, and therefore increased the potential of larger movements in loan and deposit balances depending on future conditions.

The Bank had unused FHLBB borrowing capacity totaling $1.0 billion at year-end, compared to $1.6 billion at the ~~holding company is~~start of the year.The Bank also had available borrowing capacity of $816 million with the Federal Reserve Bank at period-end, compared to support its capital structure, including shareholder dividends and debt service. Additionally, the holding company uses cash to support certain organizational expenses, stock purchases and buybacks, merger related costs, and limited business functions that cannot be performed$201 million at the ~~Bank or~~end of 2019.There were no PPP loans pledged at year-end 2020, and the ~~insurance subsidiary.~~Company did not make any material use of the Federal Reserve’s PPP Liquidity Facility during the year. The ~~holding company primarily relies~~combination of on-balance sheet liquidity and off-balance sheet liquidity described above are viewed as strong support for any emerging liquidity needs.

Subsequent to first quarter-end, KBRA (the Kroll Bond Rating Agency) reaffirmed the Company’s and the Bank’s existing bond ratings, including the Bank’s A- ratings on ~~dividends~~deposits and senior debt. The ratings were affirmed with a negative outlook on the long-term ratings due to the uncertain economic impacts from the pandemic. The Company maintains ongoing relationships with correspondents and investment banks which provide further potential options for financial support to the Bank ~~to meet its ongoing~~and the Company.At period-end, the Company had $84 million in cash ~~needs.~~at the parent held on deposit in the Bank. The holding company generally expects to maintain cash on hand equivalent to normal cash uses, including common stock dividends, for at least a one year period. ~~Sources~~Beginning in the third quarter of 2020, the Company cut its cash dividend to shareholders in half, reducing the quarterly cash dividend

Table of Contents

requirement from $12 million to $6 million.Over the long-term, the Company relies on cash dividends from the Bank to provide operating cash and ~~uses~~cash for shareholder dividends.Due to the second quarter loss, the Bank was no longer in compliance with Massachusetts banking regulations which generally require positive retained earnings over the prior three years in order to pay cash dividends to the parent.The Company made application to the Massachusetts Division of ~~cash at~~Banks near year-end 2020 to approve a routine bank dividend to the parent ~~are reported~~to cover the quarterly shareholder dividend, and this application was approved by the Division Banks after year-end.The Bank’s goal is to continue to apply for approval of routine quarterly Bank dividends to the parent in the ~~condensed statements of the parent company included in the notes to the Consolidated Financial Statements. There are certain restrictions on the payment of~~future.Total cash dividends paid by the Bank ~~as discussed~~to the parent in Note 18 - Shareholders' Equity and Earnings Per Common Share of the Consolidated Financial Statements. As of year-end 2017, the state statutory limit on future dividend payments by the Bank totaled $53 million. This amount is based on retained earnings of the Bank and is expected2020 were $44 million due to ~~be supplemented by future bank earnings in accordance with the statutory formula. Dividends by the holding company require notice and non-objection from the Federal Reserve Bank~~amounts paid in the ~~event that earnings are not sufficient to cover the dividend. There was no objection to the dividend declared on fourth~~first quarter ~~operations~~in anticipation of share repurchases, which ~~resulted in a loss~~were suspended due to the ~~charge recorded due to federal tax reform.~~

~~At year-end 2017, the holding company had $83 million in cash and equivalents, compared to $43 million at the start~~onset of the year. The Parent’s cash is held on deposit in the Bank. The Parent raised $153 million in a public stock offering in May and invested $100 million into the Bank in conjunction with the Commerce acquisition in October, with the remaining cash supplementing regular liquidity held at the Parent. The Bank paid $39 million in dividends to the holding company in 2017, which was an increase from $33 million in 2016. The holding company has a $5 million unsecured line of credit, which was unused at year-end 2017 and which was reduced from $15 million during the year after the stock raise. The holding company manages a portfolio of equity securities in support of the consolidated strategy for investments and asset liability management. In 2017, the Company acquired Commerce, and all merger consideration was stock, so there was no impact on holding company liquidity, and the Commerce parent had no significant liquidity. Most merger and integration related costs are being incurred at the Bank level.pandemic.

The Bank’s primary ongoing source of liquidity is customer deposits and the main use of liquidity is the funding of loans and lending commitments. Additional routine sources are borrowings, repayments of loans and investment securities, and the sale of investment securities. The Bank targets to grow customer deposits by increasing its market share among its regions in order to sustain loan growth as a primary component of its strategy. Deposit strategies also consider relative deposit costs as well as relationship and market share objectives. The Bank’s acquisition strategy is also targeted to supplement business activities including bank acquisitions and acquisitions of branches. The Commerce acquisition provided additional liquidity, as demonstrated by a decrease in Berkshire’s loans/deposits ratio to 95% at year-end 2017 from a quarter-end high of 102% during the year. The First Choice acquisition in December 2016 also improved liquidity at year-end 2016 compared to earlier levels during that year. Additionally, the Bank utilizes wholesale funding sources, including borrowings and brokered time deposits. Around year-end 2017, the Bank recruited government banking and international banking professionals who will be pursuing opportunities to develop municipal, institutional, and commercial deposit sources in the future.

The Company ~~monitors~~maintains a contingency funding plan based on its assessment of the ~~loans/deposits ratio in assessing directional changes in its~~ liquidity stress environment. Contingency funding information, reporting, and assessment were intensified in the ~~past has allowed this metric to reach levels near 110% depending~~first quarter when financial markets began signaling distress. Primary liquidity data is reported on ~~the timing of business activity.~~daily, and thirty day stress analytics are maintained on an updated basis. The Company ~~also monitors~~maintains monthly and quarterly cash flow forecasts. A one year forward liquidity stress test evaluates stress across a variety of stress scenarios, including severe adverse loan loss scenarios due to the ~~levels of its wholesale~~pandemic. The Company has defined strategic options which allow it to meet funding needs in relationship to total assets. Brokered deposits can be more volatile than customer deposits depending on Company and economic events. FHLBB borrowings are in the context of standard, long-term FHLB programs but overall availability is constrained by collateral tests.all stress scenarios.

The ~~Company also monitors the~~Company’s guidelines allow it to respond to liquidity ~~of investment securities and portfolio loans and has increased its active management of the loan portfolio to accomplish Company objectives, including~~stress by placing higher emphasis when necessary on liquidity goals. The Bank relies on its borrowings availability with the FHLBB for routine operating liquidity, and has other overnight borrowing relationships for contingency liquidity purposes. The Bank has improved its collateral management to improve its

versus margin expansion.

Table of Contents

credit availability with the FHLBB and the Federal Reserve Bank of Boston. The Bank has also expanded its interest rate swaps with national counterparties to provide fixed interest instruments to large commercial borrowers. The Company has strengthened its liquidity planning and management processes in conjunction with its overall growth and regulatory expectations.

In 2017, the Bank’s primary use of funds was loan growth and the primary source of funds was deposit growth. The Bank’s balance sheet management in 2017 included the integration of the $1.8 billion Commerce balance sheet, which resulted in changes in certain asset management and funding strategies compared to the history of those operations. The Bank’s total FHLBB unused borrowing availability was $1.11 billion at year-end 2017 compared to $559 million at year-end 2016. The Bank is also expanding its list of approved correspondent banks and the availability of federal funds lines to the Company, although there has been no regular use of those lines historically or contemplated.

In acquiring Commerce, the Bank acquired their payroll deposit and transfer service, which works with payroll service bureau clients to accept their deposits and process ACH payments to their commercial customer employee accounts. The balances in this business fluctuate daily based on payroll cycles. As a result, the Bank’s daily cash management has expanded and it maintains additional focus on overnight liquidity and the management of daily cash clearing activity. During the fourth quarter, these payroll deposits averaged $242 million, with a high of $620 million and a low of $81 million.

The Bank utilizes the mortgage secondary market as a source of funds for residential mortgages which are sold into that market. Secondary market counterparties include federal mortgage agencies and selected U.S. financial institutions. The Bank works with third parties in hedging interest rate locks with to-be-announced mortgage backed securities and arranging commitments for the sale of individual loans to approved secondary market investors. Most sales are on a servicing released basis. Mortgage loans originated for sale in 2017 totaled $2.4 billion.

Berkshire has additionally developed financial institution banking relationships in and around its regions for the wholesale purchase and sale of seasoned loans. Berkshire’s financial institution banking has also expanded wholesale transactions of commercial loans, including purchases and sales of whole loans and participations in syndicated loan transactions.

The greatest sources of uncertainty affecting liquidity are deposit withdrawals and usage of loan commitments, which are influenced by interest rates, economic conditions, and competition. Due to the unusual and prolonged low interest rate environment, there is uncertainty about the behavior of deposits if interest rates increase at some future time as is anticipated. The Company believes that its market positioning and relationship focus will generally enhance the stability of its deposits, and it also models various scenarios for the purpose of contingency liquidity planning. The Bank manages the concentration of deposits from customers and in various regions and product types. The Bank relies on competitive rates, customer service, and long-standing relationships with customers to manage deposit and loan liquidity. Based on its historical experience, management believes that it has adequately provided for deposit and loan liquidity needs. Both liquidity and capital resources are managed according to policies approved by the Board of Directors and executive management and the Board reviews liquidity metrics and contingency plans on a regular basis. The Bank actively manages all aspects of its balance sheet to achieve its objectives for earnings, liquidity, asset quality, interest rate risk, and capital.

~~Table of Contents~~

CAPITAL RESOURCES

The Company and the Bank target to maintain sufficient capital to qualify for the “Well Capitalized” designation by federal regulators. Berkshire’s ~~long term~~long-term goal is to use capital efficiently to achieve its objective to become a higher performance company with a targeted return on equity exceeding 10%. A double digit return on equity is used to benchmark all lending and investment programs, together with all acquisition analyses. The Company seeks to maintain a competitive cost of capital and capital structure. The Company generally targets to maintain a ratio of tangible equity/tangible assets in the range of 7-8%. This ratio increased in 2017 due primarily to the benefit of the common stock offerings.performing company.

Berkshire views its adjusted internal return on tangible capital as ~~the~~a primary capital resource of the Company. ~~The return~~This non-GAAP financial measure is based on ~~tangible equity averaged over 12% for~~ the ~~three years 2015-2017.~~Company’s measure of adjusted earnings, which excludes net charges viewed as not related to ongoing operations. The Company focuses on internal capital generation to support shareholder dividends and ~~targeted~~ organic growth and also to support non-operating charges and/or improvement in its capital ratios. The Company maintains a universal shelf registration of capital securities with the SEC. The shelf was used to support the $153 million public offering of common stock in May 2017. The Company sometimes uses issuances of unregistered stock for targeted small contractual payments. The Company has an approved stock repurchase program for 500,000 shares. There have been no recent repurchases under this program and no specific repurchases are presently contemplated. The Company normally uses common stock as a significant component consideration for business combinations. The resulting stock issuances have meaningfully increased the float and market capitalization of the Company, which exceeded $1.5 billion for the first time in 2017.

Due to the stock issuances in 2017, the Company has utilized most of its authorized common and preferred shares. Shareholder approval to amend the Certificate of Incorporation is required to increase authorized shares. The Company is assessing potential future actions to increase its authorized shares to support its potential future strategic growth.

The Company regularly evaluates the markets for capital instruments and views itself as well positioned to access additional capital in various ways if appropriate based on future changes in conditions. Additional discussion of the Company’s capital management is contained in the Shareholders’ Equity section of the discussion of Changes in Financial Condition in this ~~report.~~report and in the Shareholders’ Equity note to the financial statements.

~~AVERAGE BALANCES, INTEREST, AVERAGE YIELDS/COST AND RATE/VOLUME ANALYSIS~~The Company has investment grade debt ratings and monitors capital market conditions. The Company views its regulatory capital as well cushioned above the “Well Capitalized” levels, and the Company believes that its plans are consistent with maintaining proper strong cushions above these levels. The Company conducts equity stress analyses, including severe adverse pandemic loss scenarios provided by third parties, in addition to Dodd-Frank stress testing. The Company believes that its capital is well cushioned above the Well Capitalized metrics in the adverse modeling scenarios based on the assumptions utilized.

~~Tables~~

Dividends by the holding company require notice and non-objection from the Federal Reserve Bank in the event that earnings are not sufficient to cover the dividend in the current period or for the four trailing quarters.The holding company also requires such notice and non-objection in order to conduct stock buybacks in a quarter which would reduce outstanding shares below the balance at the start of the quarter.In the first quarter, due to the pandemic, the Company allowed its existing board stock repurchase authorization and the related regulatory approval to expire without repurchasing additional shares which were contemplated at the start of the year and which were funded to the parent from the Bank during the first quarter.Due to the second quarter loss, the Company initiated a quarterly application process to the Federal Reserve Bank for notice and nonobjection for the routine quarterly dividend beginning in the third quarter. The amount of the dividend was cut in half based on considerations of Federal Reserve supervisory guidance and based on adjusting the dividend yield and payout ratio as a result the reduction in earnings. The Company expects to continue to provide notice and seek non-objection from the Federal Reserve Bank on a quarterly basis until it achieves four trailing quarters of income sufficient to cover dividends in those quarters. As discussed in the preceding section on Liquidity and Cash Flows, dividends from the Bank to the holding company are currently also subject to a procedure with the ~~above information are presented in Item 6~~Massachusetts Division of ~~this report.~~Banks pursuant to state statute.

Table of Contents

CONTRACTUAL OBLIGATIONS

The year-end ~~2017~~2020 contractual obligations were as follows:

Item 7-7A - Table ~~1 -~~4 Contractual Obligations

(In thousands) Total
Less than One
Year

One to Three
Years

Three to Five
Years

After Five
Years
FHLBB borrowings (1) $ 1,047,736
$ 836,115
$ 204,183
$ 7,438
$ —
Subordinated notes 89,339
—
—
—
89,339
Operating lease obligations (2) 96,356
12,830
20,080
15,859
47,587
Purchase obligations (3) 102,002
16,321
31,086
27,507
27,088
Total Contractual Obligations $ 1,335,433
$ 865,266
$ 255,349
$ 50,804
$ 164,014

~~Acquisition related obligations are not included.~~


			Less than One		One to Three		Three to Five		After Five
(In thousands)	Total		Year		Years		Years		Years
FHLBB borrowings (1)	$	474,357	$	395,475	$	69,405	$	6,014	$	3,463
Subordinated notes	97,280		—		—		—		97,280
Operating lease obligations (2)	63,894		9,214		16,086		11,258		27,336
Total Contractual Obligations	$	635,531	$	404,689	$	85,491	$	17,272	$	128,079

(1) Consists of borrowings from the Federal Home Loan Bank. The maturities extend through ~~2027~~2040 and the rates vary by borrowing.

(2) Consists of leases, bank branches, and ATMs through 2039.

~~(3) Consists of obligations with multiple vendors to purchase a broad range of services.~~

Further information about borrowings and lease obligations is disclosed in Note 1211 - Borrowed Funds and Note 1716 - ~~Other Commitments, Contingencies, and Off-Balance Sheet Activities~~Leases of the Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, Berkshire engages in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in the Company’s financial statements. The Company views these transactions as ordinary to its business activities and its assessment is that there are no material changes in these arrangements at year-end 2017 compared to year-end 2016. Contractual obligations totaled $1.3 billion at year-end 2017, compared to $1.5 billion at year-end 2016. This decrease was primarily due to the lower balance of FHLBB borrowings at year-end 2017. As previously reported in the discussion of changes in financial condition, Berkshire has outstanding derivative financial instruments and engages in hedging activities, and the fair value of these contracts is recorded on the balance ~~sheet.~~sheet.The Company’s agreement to sell its Mid-Atlantic branches is an off-balance sheet arrangement which is expected to be completed in the first half of 2021.

FAIR VALUE MEASUREMENTS

The most significant fair value measurements recorded by the Company are those related to assets and liabilities acquired in business combinations. These measurements are discussed further in the mergers and acquisitions note to the financial statements. The premium or discount value of acquired loans has historically been the most significant element of this presentation.

Berkshire provides a summary of estimated fair values of financial instruments at each period-end. The premium or discount value of loans has historically been the most significant element of this presentation. This discount is a Level 3 estimate and reflects management’s subjective judgments. At year-end 2017, the premium value of the loan portfolio was $175 million, or 2.1% of carrying value, compared to $27 million, or 0.4% of carrying value at year-end 2016. This increase included the impact of tighter lending spreads at year-end 2017 reflecting competitive factors, along with ongoing improvements in overall asset quality.

The Company makes further measurements of fair value of certain assets and liabilities, as described in the related note in the financial statements. The most significant measurements of recurring fair values of financial instruments primarily relate to securities available for sale, marketable equity securities, and derivative instruments. These measurements were included in the previous discussion of changes in financial condition, and were generally based on Level 2 market based inputs. Non-recurring fair value measurements primarily relate to certain corporate bonds, impaired loans, capitalized mortgage servicing rights, and other real estate owned. When measurement is required, these measures are generally based on Level 3 inputs. Acquired corporate bonds and industrial development bonds are valued based on Level 3 inputs.

~~Financial instruments comprise the majority~~Berkshire provides a summary of ~~the Company assets and liabilities. The net combined~~estimated fair ~~value of those instruments contributes to the economic value of the Company’s equity. The net premium value~~values of financial instruments ~~increased in 2017, reflecting~~at each period-end. The premium or discount value of loans has historically been the ~~benefit~~most significant element of ~~the common stock offering plus the contribution of retained~~this presentation. This amount is a Level 3 estimate and reflects management’s subjective judgments.

Table of Contents

earnings, together with the growth in the premium value of loans as discussed above. Instruments acquired in business combinations were recorded at fair value at acquisition date. These measures do not take into account the non-interest income generated by these customer relationships or the long term intangible value of the Company’s franchise in its markets.

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and related financial data presented in this Form 10-K have been prepared in conformity with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike many industrial companies, substantially all of the assets and liabilities of the Bank are monetary in nature. As a result, interest rates have a more significant impact on the Bank’s performance than the general level of inflation. Interest rates may be affected by inflation, but the direction and magnitude of the impact may vary. A sudden change in inflation (or expectations about inflation), with a related change in interest rates, would have a significant impact on our operations.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

Please refer to the notes on Recently Adopted Accounting Principles and Future Application of Accounting Pronouncements in Note 1 - Summary of Significant Accounting Policies of the Consolidated Financial Statements.

~~Table of Contents~~

APPLICATION OF CRITICAL ACCOUNTING POLICIES ~~AND ACCOUNTING ESTIMATES~~

The Company’s significant accounting policies are described in Note 1 ~~- Summary of Significant Accounting Policies~~to the financial statements. Modifications to significant accounting policies made during the year are also described in Note 1 to the financial statements. The preparation of the ~~Consolidated Financial Statements. Please see those policies~~financial statements in ~~conjunction~~accordance with ~~this discussion. The accounting~~GAAP and ~~reporting policies followed by the Company conform, in all material respects,~~practices generally applicable to ~~accounting principles generally accepted in the United States and to general practices within~~ the financial services ~~industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States~~industry requires management to make estimates and assumptions that affect the reported amounts ~~reported in the financial statements~~of assets, liabilities, revenues, and ~~accompanying notes. While the Company bases estimates on historical experience, current information~~expenses, and ~~other factors deemed~~ to ~~be relevant, actual~~disclose contingent assets and liabilities. Actual results could differ from those estimates.

~~The SEC defines “critical~~Management has identified the Company's most critical accounting ~~policies”~~policies as ~~those~~related to:

•Allowance for Credit Losses

•Goodwill and Identifiable Intangible Assets

•Fair Value of Financial Instruments

These particular significant accounting policies are considered most critical in that they are important to the Company’s financial condition and results, and they require ~~application of~~ management’s ~~most difficult,~~ subjective orand complex ~~judgments, often~~judgment as a result of the need to make estimates about the ~~effect~~effects of matters that are inherently ~~uncertain and may change in future periods. Please see those~~uncertain. All of these most critical accounting policies ~~in conjunction with this discussion. Management believes that the following policies would be considered critical under the SEC’s definition:~~

~~Allowance for Loan Losses.~~ The allowance for loan losses represents probable credit losses that are inherent in the loan portfolio at the financial statement date and which may be estimated. Management uses historical information, as well as current economic data, to assess the adequacy of the allowance for loan losses as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. Although management believes that it uses appropriate available information to establish the allowance for loan losses, future additions to the allowance may be necessary if certain future events occur that cause actual results to differ from the assumptions used in making the evaluation. Conditions in the local economy and real estate values could require the Company to increase provisions for loan losses, which would negatively impact earnings.

~~Acquired Loans.~~ Loans that the Company acquired in business combinations are initially recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. Going forward, the Company continues to evaluate reasonableness of expectations for the timing and the amount of cash to be collected. Subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired. For collateral dependent loans with deteriorated credit quality, the Company estimates the fair value of the underlying collateral of the loans. These values are discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.

~~Income Taxes.~~ ~~Significant management judgment is required~~were significant in determining income ~~tax expense~~ and deferred tax assets and liabilities. The Company uses the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. The realization of the net deferred tax asset generally depends upon future levels of taxable ordinary income, taxable capital gain income, and the existence of prior years' taxable income, to which "carry back" refund claims could be made. A valuation allowance is maintained for deferred tax assets that management estimates are more likely than not to be unrealizablecondition based on ~~available evidence at~~events in 2020.

ENTERPRISE RISK MANAGEMENT

Following sections of this report on Form 10-K include discussion of market risk and risk factors. Risk management is overseen by the ~~time~~Company’s Chief Risk Officer, who reports directly to the ~~estimate is made. In determining~~CEO. This position oversees compliance, information security, risk management policy, and coordinates with the ~~valuation allowance,~~strategic services function which monitors most aspects of credit quality. Enterprise risk assessments are brought to the ~~Company uses historical~~Company’s Enterprise Risk Management Committee, and ~~forecasted future operating results, including a review of~~then are reported to the ~~eligible carry-forward periods, tax planning opportunities~~Board’s Risk Management and ~~other relevant considerations. In particular, income tax benefits~~Capital Committee. The high level corporate risk assessment focuses on the following material business risks: credit risk, interest rate risk, price risk, liquidity risk, operational risk, compliance risk, strategic risk, and ~~deferred tax assets generated from tax-advantaged commercial development projects are based~~reputation risk. The credit risk category has the highest weighting. Based on management's ~~assessment~~recent review, all risks were within corporate appetites. Trends toward increasing risk were noted for credit risk and ~~interpretation of applicable tax law~~compliance risk due largely to the pandemic; liquidity risks were declining due to elevated liquid assets. For all material business risks, the inherent risk was viewed as ~~it currently stands. These underlying assumptions can change from period~~heightened due to ~~period. For example, tax law changes or variances in projected taxable ordinary income or taxable capital gain income could result in a change~~the environment, but the residual risk was viewed as medium/low to medium due to mitigating controls functioning in the deferred tax asset or the valuation allowance. Should actual factors and conditions differ materially from those considered by management, the actual realization of the net deferred tax asset could differ materially from the amounts recorded in the financial statements. If the Company is not able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset in excess of the valuation allowance would be charged to income tax expense in the period such determination is made.Company.

Table of Contents

~~Goodwill and Identifiable Intangible Assets.~~ Goodwill and identifiable intangible assets are recorded as a result of business acquisitions and combinations. These assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable. When these assets are evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income. The fair value is based on observable market prices, when practicable. Other valuation techniques may be used when market prices are unavailable, including estimated discounted cash flows and analysis of market pricing multiples. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. In the event of future changes in fair value, the Company may be exposed to an impairment charge that could be material.

~~Determination of Other-Than-Temporary Impairment of Securities.~~ The Company evaluates debt and equity securities within the Company's available for sale and held to maturity portfolios for other-than-temporary impairment ("OTTI"), at least quarterly. If the fair value of a debt security is below the amortized cost basis of the security, OTTI is required to be recognized if any of the following are met: (1) the Company intends to sell the security; (2) it is "more likely than not" that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the loss is recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt securities is recognized through earnings. Noncredit related OTTI for such debt securities is recognized in other comprehensive income, net of applicable taxes. In evaluating its marketable equity securities portfolios for OTTI, the Company considers its intent and ability to hold an equity security to recovery of its cost basis in addition to various other factors, including the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer. Any OTTI on marketable equity securities is recognized immediately through earnings. Should actual factors and conditions differ materially from those expected by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

~~Fair Value of Financial Instruments.~~ The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Trading assets, securities available for sale, and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, or to establish a loss allowance or write-down based on the fair value of impaired assets. Further, the notes to financial statements include information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used and its impact to earnings. For financial instruments not recorded at fair value, the notes to financial statements disclose the estimate of their fair value. Due to the judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.

~~Table of Contents~~

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS

Qualitative Aspects of Market Risk. The Company’s most significant form of market risk is interest rate risk. The Company seeks to avoid fluctuations in its net interest income and to maximize net interest income within acceptable levels of risk through periods of changing interest rates. The Company also seeks to manage the risk of interest rate changes to its net income and the economic value of equity. ~~Further, where prudent, the Company seeks to be positioned to benefit from expected interest rate changes, within its risk parameters.~~

The Company maintains an Enterprise Risk Management/Asset-Liability Committee (ERM/ALCO) that is responsible for reviewing its asset-liability policies and interest rate risk position. This Committee meets regularly, and the Chief Financial Officer and Treasurer report trends and interest rate risk position to the Risk Management and Capital Committee of the Board of Directors on at least a quarterly basis. The manner and extent of the movement of interest rates is an uncertainty that could have a negative impact on the Company’s net interest income and earnings.

The Company manages its interest rate risk by analyzing the sensitivities and adjusting the mix of its assets and liabilities, including derivative financial instruments. The Company also uses secondary markets, brokerages, and counterparties to accommodate customer demand for ~~long term~~long-term fixed rate loans and to provide it with flexibility in managing its balance sheet positions. When the Company enters into business combinations, it considers interest rate risk as part of its merger analysis and it integrates existing and acquired operations as appropriate to achieve its objectives for the combined businesses.

Quantitative Aspects of Market Risk. ~~Berkshire has a targeted position to maintain a neutral or asset sensitive interest rate risk profile, as measured by the sensitivity of net interest income to market interest rate changes.~~ The Company measures ~~this~~its interest rate sensitivity primarily by evaluating models of net interest income over one year, two years, and three year time ~~horizons~~.horizons. The Company generally models a base case assuming no changes in interest rates or balance sheet composition and then assuming various scenarios of ramped interest rate changes, shocked interest rate changes, ~~changes predicted by the forward yield curve,~~ and changes involving twists in the yield curve. ~~The primary focus is on a two-year scenario where interest rates ramp up by 200 basis points in the first year.~~ The Bank also evaluates its equity at risk from interest rate changes through discounted cash flow analysis. This measure assesses the present value of changes to equity based on ~~long term~~long-term impacts of rate changes beyond the time horizons evaluated for net interest income at risk.

The Company uses a simulation model to measure the changes in net interest income. The chart below shows the analysis of the ~~ramped change described above,~~scenario where interest rates ramp up in the first year compared to a base case of flat interest rates, assuming a parallel shift in the yield curve. Loans, deposits, and borrowings ~~were~~are modeled expected to reprice at the repricing or maturity date. Pricing caps and floors are included in the simulation model. The Company uses prepayment guidelines set forth by market sources as well as Company generated data where applicable. ~~Cash~~Generally, cash flows from loans and securities are assumed to be reinvested to maintain a static balance sheet. Other assumptions about balance sheet mix are generally held constant. There were no material changes to the way that the Company measures market risk in ~~2017.~~2020. The model at year-end 2020 included two adjustments reflecting conditions at that date.The modeled balance sheet excluded the assets and liabilities related to the Mid-Atlantic branch sale, including loans and deposits held for sale, with a reduction in short-term investments sufficient to fund the sale.The model also assumed that the balance of PPP loans expected to be repaid were not reinvested and these funds are modeled to payoff the corresponding wholesale funding as it matures.Neither of these adjustments was viewed as material to the projection results, and both of these items are targeted to be substantially completed by midyear 2021.

Table of Contents

Item 7-7A - Table 2 - Qualitative Aspects of Market Risk


Change in Interest Rates-Basis Points (Rate Ramp)
	1- 12 Months				13- 24 Months
	$ Change		% Change		$ Change		% Change
(In thousands)
At December 31, 2020
+300	$	5,578	1.78	%	$	27,942	9.17	%
+200	(108)		(0.03)		12,199		4.01
+100	(3,090)		(0.99)		(943)		(0.31)
-100	5,408		1.73		6,769		2.22

At December 31, 2019
+300	$	17,080	4.70	%	$	28,003	7.60	%
+200	11,070		3.00		19,589		5.30
+100	5,107		1.40		10,289		2.80
-100	(6,559)		(1.80)		(13,611)		(3.70)

Change in
Interest Rates-Basis
Points (Rate Ramp)

1- 12 Months 13- 24 Months
$ Change % Change $ Change % Change
(In thousands)
At December 31, 2017

+300 $ 9,806
2.95 % $ 11,193
3.40 %
+200 7,940
2.39
9,374
2.85
+100 4,683
1.41
5,890
1.79
-100 (6,424 ) (1.93 ) (12,532 ) (3.81 )

At December 31, 2016

+300 $ 9,904
3.96 % $ 7,659
3.07 %
+200 7,497
3.00
6,527
2.62
+100 4,632
1.85
4,448
1.78
-100 (5,853 ) (2.34 ) (10,100 ) (4.05 )

~~There were no significant changes in~~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 a lookback on 2020 positioning and market events, the Company was positioned to expect a decrease in net interest income in the unexpected event of a downward shift in interest rates, which is what happened early in 2020.A downward shock of 100 basis points was expected to result in approximately a 4% decrease in net interest income in the first year.Following the downward shock of approximately 150 basis points near the end of the first quarter, net interest income decreased sequentially by 10% in the second quarter.

The Company’s asset sensitivity roughly doubled over the first nine months of the year. This was due to the influx of non-interest bearing demand deposit balances, the growth in short-term investments, the initial lengthening of wholesale fund maturities, runoff of higher rate fixed rate assets, and the assumed higher prepayment speeds of the remaining portfolio. Also, the reduction in base case net interest income increases the relative impact of changes due to interest rate sensitivity. In line directionally with this modeled sensitivity, at ~~year-end 2017, compared to~~ the start of the ~~year.~~ year, the sharp decrease in interest rates in the first quarter resulted in compression of the Company’s net interest margin in the first half of 2020. Also in line directionally with the model, the margin stabilized in the second half of the year as deposit pricing began to catch up with loan yield compression.

The Company’s interest rate sensitivity decreased significantly in the final quarter of the year, with net interest income sensitivity moving to nearly neutral at year-end.Contributing factors were the branch sale agreement, an increase in investment securities, and accumulating impacts of payoffs of LIBOR based loans and shortening of the liability maturity ladder. In the first year of the four modeled scenarios, the impact of the modeled change in net interest income was less than 2% in all four scenarios. In the second modeled year, the percentage change in net interest income was less than the sensitivity shown at year-end 2019 for all scenarios except the +300 basis point scenario. At year-end 2020, the greatest modeled sensitivity was in the second year of the +200 basis point and +300 basis point scenarios, where the positive interest sensitivity exceeded $10 million in annual net interest income based on the modeled parallel shifts in interest rates.

Due to the low level of interest rates, the modeled sensitivity of a downward shift in interest rates is affected by assumptions related to market influences on spreads and floors applied to zero rate indicates.Prime, mortgage rates, and deposits are floored. All other rates are zero bound. Measures of risk in an upward rate environment were close to neutral at year-end 2020 in both year one and year two of the 100 basis point upward scenarios, and in the first year of a 200 basis point increase.The Company ~~is positioned~~also models sensitivity to ~~modestly benefit from parallel upward shifts in~~yield curve twists. A steepening of the yield curve inis more asset sensitive than the scenario of a ~~ramped scenario.~~ parallel shift.The acquisition of Commerce, with its commercial loans and deposits, was estimated to be positive for Berkshire’s asset sensitivity. This offsets the liability sensitivity introduced by the termination of Berkshire’s cash flow hedges.

~~In a flat rate scenario, the Company anticipates that there would be modest margin pressure on the year-end balance sheet,~~above sensitivities are compared to ~~fourth quarter results including Commerce. This is due to some asset repricings~~the baseline static model and the lagged nature of deposit repricings, along with anticipated decreases in the accretive benefits of purchase accounting. The interest sensitivity analyses are in comparison to this flat rate base case. The Company also analyzes its interest sensitivity based on ~~the forward yield curve. At year-end 2017, the markets expected short term~~current interest rates ~~to increase more than long term rates in 2018, pushing~~and modeling assumptions. Further flattening of the yield curve ~~up and flattening it. In this scenario, asset sensitivity remains positive, but closer to neutral~~also presents the possibility of compressing the margin, including the impact of tighter market spreads due to competitive factors in such environments.

Table of Contents

In addition to modeling the ~~more modest increase in long term~~sensitivity of net interest ~~rates implied by~~income, the ~~forward curve.~~

~~The~~ Company also ~~evaluates~~models the sensitivity of net income and of equity at risk in the event of rate changes.The dollar amount of net income at risk ~~taking into account primarily changes~~was modeled to generally be the same as the amount of net-interest income at risk in ~~fee income that may result from interest rate changes. In dollar terms,~~ the asset sensitivity of the Company’s net income is less than its interest income, due to the negative impact of higher rates on fee income. In percentage terms, the net income sensitivity is greater since net income is a lower base compared to net interest income. Generally, fee income is viewed as negatively correlated with changes in interest rates. Higher rates can depress demand for fixed rate products that are the chief source of loan sale gains in mortgage banking and SBA lending, as well as interest rate swap income. Higher rates also are related to higher earnings credit rates on commercial transactions accounts, which reduces deposit service charges.

two percent ramp up scenario.The Company’s equity at risk is normally modeled as liability sensitive, due to the overall shorter duration of its ~~funds~~funding sources compared to ~~its loans~~earning assets.This liability sensitivity had shifted to near neutral at year-end 2019, and ~~investments. The Company estimated that~~equity at risk was asset sensitive at year-end 2020, increasing by approximately 3% in the ~~economic value~~event of ~~its equity was 5% negatively impacted by~~ a ~~modeled~~ 200 basis point upward shock.

Modeled interest rate ~~shock at year-end 2017, which was not significantly different from~~sensitivity depends on material assumptions. Additionally, market risk exposure is affected by the ~~4% risk estimated at the start~~level and shape of the ~~year. The Company believes that~~yield curve in markets for financial instruments including U.S. Treasury obligations, forward interest rate derivatives, the ~~Commerce acquisition was beneficial~~U.S. prime interest rate, and LIBOR rates. Also, the economic impact on customer and market behaviors of the COVID-19 pandemic remains uncertain and may cause actual events to ~~its equity at risk due to the shorter duration of its earning assets and the higher concentration of transactions accounts. This benefit was offset by a change in the modeling~~differ from assumptions.

A critical component of the Company’s ~~deposit decay timing, with no change in modeled deposit average lives. This change was facilitated by recent systems enhancements.~~

~~A key sensitivity~~modeling is the assumption of ~~the Company’s~~deposit interest rate ~~risk analysis is~~sensitivity, which the Company continues to model at a 40% beta level. Results in 2020 for non-brokered deposits were generally consistent with this assumption.The behavior of ~~deposit costs as short term rates increase. The numerous~~markets under the historically unusual conditions currently prevailing may be different from modeling assumptions, ~~about~~and the ~~sensitivity of deposits result~~Company continues to monitor the markets and the assumptions in an estimated deposit beta of about 40%, which means that a 100 basis point increase in interest rates will translate into a 40 basis point increase in deposit costs after the lagging response is fully realized. The Company estimates that the deposit beta of interest bearing deposits was 47% at year-end 2017. The Company believes that its ~~experience in 2017 was less sensitive~~model.

Table of Contents

than its assumptions. Deposit activity in the banking industry is beginning to react to the trend of increasing short term rates following the prolonged time when rates were very low. Uncertainties also exist regarding the impact of lower federal income taxes on industry pricing competition. The Company believes that its diversified markets and sources may provide it with comparative benefit in managing its deposit pricing to achieve its market, earnings, and risk objectives.

~~Table of Contents~~

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and supplementary data required by this item are presented elsewhere in this report beginning on page F-1, in the order shown below:



Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, ~~2017~~2020 and ~~2016~~2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive (Loss)/Income for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015~~2018
~~Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, and 2015~~
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015~~2018
Consolidated Statements of Cash Flows for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015~~2018
Notes to Consolidated Financial Statements

~~Table of Contents~~

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On August 3, 2017, the Audit Committee (the "Committee") of the Board of Directors of Berkshire Hills Bancorp, Inc. (the "Company") notified PricewaterhouseCoopers, LLP ("PwC") of its dismissal as the Company's independent registered public accounting firm. The dismissal was effective on August 9, 2017, with PwC having served as the Company's principal accountants for the first two quarters of the fiscal year ended December 31, 2017. The Committee participated in, and approved the decision to change its independent registered public accounting firm.None.

PwC's audit reports on the Company's consolidated financial statements as of and for the years ended December 31, 2016 and December 31, 2015 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During the two fiscal years ended December 31, 2016 and December 31, 2015 and the subsequent interim period through August 9, 2017, there were (i) no disagreements between the Company and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which, if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in their reports on the consolidated financial statements for such years, and (ii) no "reportable events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

Also on August 3, 2017, the Committee completed a competitive selection process and selected Crowe Horwath LLP ("Crowe") as the Company's independent registered public accounting firm, effective August 10, 2017. During the two fiscal years ended December 31, 2016 and December 31, 2015 and the subsequent interim period preceding the selection of Crowe, the Company did not consult with Crowe regarding: (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Company's financial statements, and Crowe did not provide any written report or oral advice that Crowe concluded was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue; or (iii) any matter that was either the subject of a disagreement with PwC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure or the subject of a reportable event.

ITEM 9A. CONTROLS AND PROCEDURES

The Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a and 15(d) -15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of December 31, ~~2017.~~2019. Based upon their evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”): (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company evaluated changes in its internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the last fiscal quarter. The Company determined that there were no changes that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s report on internal control over financial reporting and the independent registered public accounting firm’s report on the Company’s internal control over financial reporting are contained in “Item 8 — Consolidated Financial Statements and Supplementary Data.”

~~Table of Contents~~

ITEM 9B. OTHER INFORMATION

None.

Table of Contents

PART III

Table of Contents

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

For information concerning the directors of the Company, the information contained under the sections captioned ~~“Proposals to be Voted on by Stockholders - Proposal~~“Proposal 1 - Election of ~~Directors”~~Directors for a One-Year Term” in Berkshire’s Proxy Statement for the ~~2018~~2021 Annual Meeting of Stockholders (“Proxy Statement”) is incorporated by reference. The following table sets forth certain information regarding the executive officers of the Company.



Name			Age		Position
~~Michael P. Daly~~Nitin J. Mhatre			5650		President and Chief Executive Officer of the Company; Chief Executive Officer - Berkshire Bank; Director of Berkshire Hills Bancorp and Berkshire Bank
~~Richard M. Marotta~~Sean A. Gray			5945		Senior Executive Vice President of the Company; President - Berkshire Bank
~~Sean A. Gray~~			42	~~Senior Executive Vice President of the Company; Chief Operating Officer - Berkshire Bank~~
James M. Moses	4144			Senior Executive Vice President, Chief Financial Officer of the Company; Senior Executive Vice President, Chief Financial Officer - Berkshire Bank
George F. Bacigalupo			6366		Senior Executive Vice President, Head of Commercial Banking - Berkshire Bank
~~Michael D. Carroll~~Tami F. Gunsch			5658		Senior Executive Vice President, ~~Commercial Banking and Specialty Lending - Berkshire Bank~~
~~Tami F. Gunsch~~	55	~~Executive Vice President & Director~~Head of ~~Relationship~~Consumer Banking - Berkshire Bank
Gregory D. Lindenmuth			5053		Senior Executive Vice President, Chief Risk Officer -– Berkshire Bank
~~Allison P. O'Rourke~~Deborah A. Stephenson			4250		Senior Executive Vice President, ~~Finance~~Regulatory & ~~Investor Relations~~Compliance- Berkshire Bank
Jennifer M. Carmichael			44		Executive Vice President, Chief Internal Audit Officer - Berkshire Bank
Jacqueline Courtwright			57		Executive Vice President, Chief Human Resources and Culture Officer – Berkshire Bank
Georgia Melas			57		Executive Vice President, Chief Credit Officer – Berkshire Bank
Wm. Gordon Prescott			59		Executive Vice President, General Counsel and Corporate Secretary - Berkshire Bank
Jason T. White			46		Executive Vice President , Chief Information Officer – Berkshire Bank

The executive officers are elected annually and hold office until their successors have been elected and qualified or until they are removed or replaced. ~~Mr. Daly is employed pursuant to a three-year employment agreement which renews automatically if not otherwise terminated pursuant to its terms.~~

BIOGRAPHICAL INFORMATION



			~~Michael P. Daly.~~Nitin J. Mhatre. Age ~~56.~~ 50. Mr. ~~Daly has served as~~Mhatre was appointed to the role of President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank ~~since October 2002. Before these appointments, he served as Executive Vice President and Senior Loan Officer of the Bank.~~in January 2021. He ~~has been an employee since 1986. He has served~~was also appointed as a Director of the Company and the Bank. Prior to joining the Company, Mr. Mhatre was Executive Vice President, Community Banking, at Webster Bank, ~~since 2002.~~where he led consumer and business banking businesses. Before joining Webster in 2009, Mr. Mhatre spent 13 years at Citi Group in various leadership roles across consumer-related businesses globally.



	~~Richard M. Marotta.~~Sean A. Gray. Age ~~59.~~ 45. Mr. ~~Marotta~~Gray was ~~promoted~~appointed to the role of Senior Executive Vice President and Chief Operating Officer of the Company and President of the Bank in ~~September 2015, having previously served as Executive Vice President, Chief Risk Officer since January 2010, as well as Chief Administrative Officer since July 2013.~~November 2018. He ~~is responsible for overall risk management, compliance, human resources, information technology, legal, and strategic services, and oversees audit, which reports to the Board. Mr. Marotta~~ was previously ~~Executive Vice President and Group Head, Asset Recovery at KeyBank.~~

~~Table of Contents~~



	~~Sean A. Gray. Age 42. Mr. Gray was promoted to~~ Senior Executive Vice President of the Company and Chief Operating Officer of the Bank ~~in September 2015, having previously served as Executive Vice President, Retail Banking~~ since 2010 and as a Senior Vice President since April 2008. Mr. Gray is responsible for the operating teams of the bank, including retail banking, commercial banking, specialty lending, mortgage banking, wealth management, insurance, and marketing.2015. Mr. Gray joined the Company in ~~January~~retail banking in 2007 ~~as First~~and attained the positon of Executive Vice President, Retail Banking. ~~Prior to joining the Bank, Mr. Gray~~Previously, he was Vice President and Consumer Market Manager at Bank of America, in Waltham, Massachusetts.

Table of Contents



			James M. Moses. Age ~~41.~~44. Mr. Moses is Senior Executive Vice President, Chief Financial Officer of the Company and the Bank, since joining the Bank in July 2016. ~~He is responsible for the accounting, treasury, tax, and capital markets functions.~~ Mr. Moses previously served at Webster Bank as Senior Vice President and Asset/Liability Manager. Mr. Moses joined Webster Bank in 2011 from M&T Bank where he spent four years in various roles including head mortgage trader, deposit products pricing manager, and consumer credit card product manager.



	George F. Bacigalupo. Age ~~63.~~ 66.Mr. Bacigalupo was promoted to Senior Executive Vice President, Head of Commercial Banking, Berkshire Bank in September 2015, having previously served as an Executive Vice President since October 2013 and Senior Vice President, Chief Credit Officer since 2011. ~~Mr. Bacigalupo is responsible for commercial banking, including the middle-market, business banking and asset based lending teams in Eastern and Central Massachusetts and Connecticut.~~ Previously, Mr. Bacigalupo was EVP of Specialty Lending at TD Banknorth, where he established the ABL and other middle-market lending groups. Subsequently, at TD Bank, he was the Senior Lender for New England.



	~~Michael D. Carroll. Age 56.~~ Mr. Carroll is Executive Vice President, Commercial Banking and Specialty Lending of Berkshire Bank, a position he was promoted to in October 2017. Mr. Carroll has previously held the positions of EVP, Chief Risk Officer and SVP, Chief Credit Officer managing the risk and credit departments of the Bank. In his role as EVP, Commercial Banking and Specialty Lending he is responsible for Firestone Financial (equipment leasing) and 44 Business Capital (SBA Lending) and is the executive leader of the regional commercial teams in Berkshire County, Vermont, Albany, Syracuse, and the Mid-Atlantic region. He joined the company in 2009 as SVP, New York Regional Commercial Leader. Previously, Mr. Carroll was Senior Vice President, Middle Market banking at KeyBank.



	Tami F. Gunsch. Age ~~55.~~58. Ms. Gunsch is Senior Executive Vice President, ~~& Director~~Head of ~~Relationship~~Consumer Banking, ~~a position she was promoted to in January 2018. In this role,~~Berkshire Bank. Ms. Gunsch ~~will develop and lead the relationship banking strategy across all lines of business. She~~ is ~~further~~ responsible for all aspects of the retail banking consumer ~~experience, including branch operations, consumer lending, call center, and electronic/mobile banking.~~experience. Ms. Gunsch has previously held the positions of EVP, Retail Banking and Senior Vice ~~President since October 2011.~~President. Ms. Gunsch joined Berkshire from Citizens Bank in 2009 as First VP of Retail Banking.

~~Table of Contents~~



	Gregory D. Lindenmuth. Age ~~50.~~53. Mr. Lindenmuth is ~~the~~Senior Executive Vice President, Chief Risk Officer of ~~Berkshire Bank.~~the Bank, a position he was promoted to in October 2018. Mr. Lindenmuth ~~is responsible~~joined Berkshire in 2016 from the FDIC where he was employed for ~~Credit, credit/risk administration,~~24 years and ~~loan workout. Mr. Lindenmuth previously served as~~held multiple positions including Senior Risk Examiner for the Division of Risk Management Supervision ~~with~~and Acting Regional Manager for the ~~FDIC, where he was employed for 24 years.~~Division of Insurance and Research. With the FDIC, Mr. Lindenmuth was also a Capital Markets, Mortgage Banking, and Fraud ~~Specialist~~Specialist.
			Deborah Stephenson. Age 50. Senior Executive Vice President, Compliance and ~~a member~~Regulatory of Berkshire Bank. Ms. Stephenson joined the Company in 2014. She was previously Senior Vice President at Country Bank where she managed retail banking and human resources.
			Jennifer M. Carmichael, Age 44. Ms. Carmichael was promoted to Executive Vice President, Chief Internal Audit Officer of Berkshire Bank in November 2020. She reports to the Audit Committee of the ~~National Examination Procedures Committee.~~Board and administratively to the CEO. Ms. Carmichael previously served as Senior Vice President and Audit Manager. She joined the Bank in 2016 from Accume Partners where she served as Senior Audit Manager to several clients in the New York and New England regions, including Berkshire.

Table of Contents



			~~Allison P. O’Rourke.~~Jacqueline Courtwright, Age ~~42.~~ 57.Ms. ~~O’Rourke~~Courtwright was promoted in September 2020 to Executive Vice President, Chief Human Resources and Culture Officer at Berkshire Bank. She had been appointed as Senior Vice President, Chief Human Resources Officer in July 2019. Prior to joining Berkshire in 2012, Ms. Courtwright was VP, Human Resources Business Partner at Citizen Bank and also held senior human resource roles during her 20 years at KeyBank.
			Georgia Melas. Age 57. Ms.Melas is Executive Vice President, ~~Finance & Investor Relations,~~Chief Credit Officer of Berkshire Bank, a position she ~~assumed~~was promoted to in ~~January 2017, having~~October 2018. Ms. Melas joined Berkshire as Senior Vice President, Chief Credit Officer in 2015 from Key Bank where she held multiple positions including Senior Credit Officer, Commercial Banking.
			Wm. Gordon Prescott, Age 59. Mr. Prescott is Executive Vice President, General Counsel and Corporate Secretary of the Bank, a position he was promoted to in October 2018. Mr. Prescott joined Berkshire in 2008 as VP, General Counsel and Corporate Secretary. Mr. Prescott has 30 plus years of experience in the legal profession, including extensive experience as in-house corporate counsel, most recently with KB Toys Inc. prior to joining the Bank.
			Jason T. White, Age 46. Mr. White was promoted to Executive Vice President, Chief Information Officer of Berkshire Bank in November 2020. He previously served as ~~Executive~~Senior Vice President, ~~Investor Relations~~Chief Technology Officer ~~and Financial Institutions Banking. She joined the Company in 2013 and is responsible for investor relations, financial institutions banking, and financial planning and analysis. Ms. O’Rourke~~since May 2019 when he joined the Bank following the acquisition of Savings Institute Bank & Trust, where he served as ~~Vice President in 2013 from the NYSE Euronext~~Chief Information Officer and ~~previously worked in securities brokerage with Goldman Sachs and Speer Leeds and Kellogg.~~Information Security Officer.

Table of Contents

Reference is made to the cover page of this report and to the section captioned ~~“Other~~“Additional Information - Other Information Relating to Directors and Executive Officers - Delinquent Section 16(a) ~~Beneficial Ownership Reporting Compliance”~~Reports” in the Proxy Statement for information regarding compliance with Section 16(a) of the Exchange Act. For information concerning the audit committee and the audit committee financial expert, reference is made to the section captioned ~~“Corporate~~“Proposal 1 - Election of Directors for a One-Year Term", "Proposal 1 - Election of Directors for One Year Term - Corporate Governance - Committees of the Board of Directors”, and ~~“Corporate Governance~~“Proposal 1 - ~~Audit Committee”~~Election of Directors for a One Year Term - Board Committees and Responsibilities" in the Proxy Statement.

For information concerning the Company’s code of ethics, the information contained under the section captioned ~~“Corporate~~“Proposal 1 - Election of Directors for a One Year Term - Corporate Governance - Code of Business Conduct and Anonymous Reporting Line Policy” in the Proxy Statement is incorporated herein by reference.

A copy of the Company’s code of ethics is available to stockholders on the Company’s website atat:

http://ir.berkshirebank.com.

ITEM 11. EXECUTIVE COMPENSATION

For information regarding executive compensation, the sections captioned ~~“Director Compensation”~~“Proposal 1 - Election of Directors for a One-Year Term”, ~~“Compensation Discussion~~“Proposal 1 - Election of Directors of a One Year Term - Corporate Governance - Committees of the Board of Directors”, and ~~Analysis,”~~“Proposal 1 - Election of Directors for a One Year Term - Board Committees and ~~“Executive Compensation”~~Responsibilities” in the Proxy Statement are incorporated herein by reference.

For information regarding the Compensation Committee Report, the section captioned “Compensation ~~Committee Report”~~Discussion and Analysis” in the Proxy Statement is incorporated herein by reference.

~~Table of Contents~~

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

(a)Security Ownership of Certain Beneficial Owners

Information required by this item is incorporated herein by reference to the section captioned ~~“Stock~~“Additional Information - Stock Ownership” in the Proxy Statement.

(b)Security Ownership of Management

Information required by this item is incorporated herein by reference to the section captioned ~~“Stock~~“Additional Information - Stock Ownership” in the Proxy Statement.

(c)Changes in Control

Management of Berkshire knows of no arrangements, including any pledge by any person of securities of Berkshire, the operation of which may at a subsequent date result in a change in control of the registrant.

(d)Equity Compensation Plan Information

The following table sets forth information, as of December 31, ~~2017,~~2020, about Company common stock that may be issued upon exercise of options under stock-based benefit plans maintained by the Company, as well as the number of securities available for issuance under equity compensation plans:


Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders	112,280	$	22.95	898,483
Equity compensation plans not approved by security holders	—	—		—

Total	112,280	$	22.95	898,483

Plan category
Number of securities
to be issued upon
exercise of
outstanding options, warrants and rights

Weighted-average
exercise price of
outstanding options, warrants and rights

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities reflected in the first column)
Equity compensation plans approved by security holders 75,589
$ 13.59
389,536
Equity compensation plans not approved by security holders —
—
—
Total 75,589
$ 13.59
389,536

Table of Contents

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the sections captioned ~~“Other~~“Additional Information - Other Information Relating to Directors and Executive Officers —- Transactions with Related ~~Persons”~~Persons" and ~~“Procedures~~“Additional Information - Other Information Relating to Directors and Executive Officers - Procedures Governing Related Persons Transactions” in the Proxy Statement. Information regarding director independence is incorporated herein by reference to the section ~~“Proposals to be Voted on by Shareholders — Proposal~~“Proposal 1 —- Election of ~~Directors”~~Directors for a One Year Term” in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the section captioned ~~“Proposals to be Voted on by Shareholders — Proposal 6~~“Proposal 3 — Ratification of the Appointment of the Independent Registered Public Accounting Firm” in the Proxy Statement.

Table of Contents

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

~~(a)~~

~~[1]~~ ~~Consolidated Financial Statements~~

(a) [1] Consolidated Financial Statements

•Report of Independent Registered Public Accounting Firm

•Consolidated Balance Sheets as of December 31, 2020 and 2019

•Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019, and 2018

•Consolidated Statements of Comprehensive (Loss)/Income for the Years Ended December 31, 2020, 2019, and 2018

•Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2020, 2019, and 2018

•Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018

•Notes to Consolidated Financial Statements


•	~~Report of Independent Registered Public Accounting Firm~~


•	~~Consolidated Balance Sheets as of December 31, 2017 and 2016~~


•	~~Consolidated Statements of Income for the Years Ended December 31, 2017, 2016, and 2015~~


•	~~Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016, and 2015~~


•	~~Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2017, 2016, and 2015~~


•	~~Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015~~


•	~~Notes to Consolidated Financial Statements~~

The Consolidated Financial Statements required to be filed in our Annual Report on Form 10-K are included in Part II, Item 8 hereof.


~~[2]~~	~~Financial Statement Schedules~~

[2] Financial Statement Schedules

All financial statement schedules are omitted because the required information is either included or is not applicable.

7978

Table of Contents

[3] Exhibits


~~[3]~~	~~Exhibits~~



3.1		Certificate of Incorporation of Berkshire Hills Bancorp, Inc. (1)
3.2		Amended and Restated Bylaws of Berkshire Hills Bancorp, Inc. (2)
3.3		Certificate of Amendment to the Certificate of Incorporation of Berkshire Hills Bancorp, Inc. (3)
3.4		Certificate of Designations of the Series B Non-Voting Preferred Stock (4)
4.1		Form of Common Stock Certificate of Berkshire Hills Bancorp, Inc. (1)
4.2		Note Subscription Agreement by and among Berkshire Hills Bancorp, Inc. and certain subscribers dated September 20, 2012 (5)
~~10.1~~4.3		~~Amended and Restated~~Description of Berkshire Hills Bancorp, Inc. Securities (16)
10.1		Three-Year Employment Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc., and ~~Michael P. Daly~~Richard M. Marotta (6)
10.2		~~Amended~~Separation Agreement between Berkshire Hills Bancorp, Inc., Berkshire Bank and ~~Restated~~ Richard M. Marotta (11)
10.3		Supplemental Executive Retirement Agreement between Berkshire Bank and ~~Michael P. Daly (7)~~Sean A. Gray (6)
~~10.3~~10.4		Three Year Executive Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc., and George F. Bacigalupo ~~(8)~~(7)
~~10.4~~10.5		Three-Year Executive Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc., and James M. Moses ~~(9)~~(8)
~~10.5~~10.6		~~Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and Richard M. Marotta (10)~~
~~10.6~~	~~Supplemental Executive Retirement Agreement between Berkshire Bank and Richard M. Marotta (11)~~
~~10.7~~	Amended and Restated Three Year Change in Control Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc., and Sean A. Gray ~~(12)~~(9)
~~10.8~~10.7		Berkshire Bank Enhanced Change in Control Severance Plan (Gregory Lindenmuth and Tami Gunsch) (16)
10.8		Form of Split Dollar Agreement entered into with ~~Michael P. Daly,~~ Sean A. Gray ~~and Richard M. Marotta (13)~~(10)
10.9		~~Endorsement~~Three Year Employment Agreement by and among Berkshire Bank, Berkshire Hills Bancorp, Inc. and ~~Geno Auriemma dated as of May 14, 2012 (14)~~Nitin Mhatre (12)
10.10		~~Berkshire Hills Bancorp, Inc. 2011 Equity Incentive Plan (15)~~
~~10.11~~	~~Berkshire Hills Bancorp, Inc. 2013 Equity Incentive Plan (16)~~
~~10.12~~	Berkshire Bank Executive Long-Term Care Insurance Plan ~~(17)~~(13)
~~10.13~~10.11		Berkshire ~~Bank 2017~~Hills Bancorp, Inc. 2018 Equity Incentive Plan (14)
10.12		Senior Executive Short Term Incentive Plan (15)
~~11.0~~21.0		~~Statement re: Computation of Per Share Earnings is incorporated herein by reference to Part II, Item 8, “Consolidated Financial Statements and Supplementary Data”~~Subsidiary Information
~~21.0~~23.1		~~Subsidiary Information~~
~~23.1~~	Consent of Crowe ~~Horwath~~ LLP
~~23.2~~31.1		~~Consent of PricewaterhouseCoopers LLP~~
~~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		Interactive data files pursuant to Rule 405 of Regulation S-T: (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 in detail

8079

Table of Contents



(1)
~~(1)~~	Incorporated herein by reference from the Exhibits to Form S-1, Registration Statement and amendments thereto, initially filed on March 10, 2000, Registration No. 333-32146.
(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 10-Q as filed on November 9, 2017.
(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 26, 2012.
(6)		Incorporated herein by reference from the Exhibits to the Form 8-K as filed on ~~January 6, 2009.~~February 22, 2019.
(7)		Incorporated herein by reference from the Exhibits ~~to Form 10-K as filed on March 16, 2009.~~
~~(8)~~	~~Incorporated herein by reference from the Exhibit~~ to the Form 10-K as filed on March 17, 2014.
~~(9)~~(8)		Incorporated herein by reference from the Exhibits to the Form 8-K as filed on September 23, 2016.
~~(10)~~(9)		~~Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2010.~~
~~(11)~~	~~Incorporated herein by reference from the Exhibits to the Form 8-K as filed on June 29, 2016.~~
~~(12)~~	Incorporated herein by reference from the Exhibits to the Form 10-K as filed on March 16, 2011.
~~(13)~~(10)		Incorporated herein by reference from the Exhibit to the Form 8-K as filed on January 19, 2011.
~~(14)~~(11)		~~Incorporated by reference from Exhibit 10.16 to the Form 10-Q as filed on August 9, 2012.~~
~~(15)~~	Incorporated herein by reference from the ~~Appendix~~Exhibit to the ~~Proxy Statement~~Form 8-K as filed on ~~March 24, 2011.~~August 13, 2020
~~(16)~~(12)		Incorporated herein by reference from the ~~Appendix~~Exhibit to the ~~Proxy Statement~~Form 8-K as filed on ~~April 2, 2013.~~January 26, 2021.
~~(17)~~(13)		Incorporated herein by reference from the Exhibits to the Form 8-K as filed on January 23, 2015.
(14)		Incorporated herein by reference from the Appendix to the Proxy Statement as filed on April 6, 2018.
(15)		Incorporated herein by reference from the Exhibits to the Form 10-Q as filed on May 10, 2019.
(16)		Incorporated herein by reference from the Exhibit to the Form 10-K as filed on February 28, 2020.

ITEM 16. FORM 10-K SUMMARY

None.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 1, ~~2018~~2021	By:	/s/ ~~Michael P. Daly~~Nitin J. Mhatre
		~~Michael P. Daly~~Nitin J. Mhatre
		President & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ ~~Michael P. Daly~~Nitin J. Mhatre

Director, President, & Chief Executive Officer

March 1, ~~2018~~2021

~~Michael P. Daly~~Nitin J. Mhatre

(principal executive officer)

/s/ James M. Moses

Senior Executive Vice President, Chief Financial Officer

March 1, ~~2018~~2021

James M. Moses

(principal financial and accounting officer)

/s/ J. Williar Dunlaevy

Chairman

March 1, 2021

J. Williar Dunlaevy

/s/ ~~William J. Ryan~~Baye Adofo-Wilson

~~Non-Executive Chairman~~Director

March 1, ~~2018~~2021

~~William J. Ryan~~Baye Adofo-Wilson

/s/ Rheo A. Brouillard

Director

March 1, 2021

~~/s/ Paul T. Bossidy~~Rheo A. Brouillard

~~Director~~

~~March 1, 2018~~

~~Paul T. Bossidy~~

/s/ David M. Brunelle

Director

March 1, ~~2018~~2021

David M. Brunelle

/s/ Robert M. Curley

Director

March 1, ~~2018~~2021

Robert M. Curley

/s/ John B. Davies

Director

March 1, ~~2018~~2021

John B. Davies

/s/ William H. Hughes, III

Director

March 1, 2021

~~/s/ J. Williar Dunlaevy~~William H. Hughes, III

~~Director~~

~~March 1, 2018~~

~~J. Williar Dunlaevy~~

/s/ Cornelius D. Mahoney

Director

March 1, ~~2018~~2021

Cornelius D. Mahoney

/s/ Sylvia Maxfield

Director

March 1, 2021

~~/s/ Pamela A. Massad~~Sylvia Maxfield

~~Director~~

~~March 1, 2018~~

~~Pamela A. Massad~~

/s/ Laurie Norton Moffatt

Director

March 1, ~~2018~~2021

Laurie Norton Moffatt

/s/ Jonathan I. Shulman

Director

March 1, 2021

~~/s/ Richard J. Murphy~~Jonathan I. Shulman

~~Director~~

~~March 1, 2018~~

~~Richard J. Murphy~~

~~/s/ Patrick J. Sheehan~~

~~Director~~

~~March 1, 2018~~

~~Patrick J. Sheehan~~

/s/ D. Jeffrey Templeton

Director

March 1, ~~2018~~2021

D. Jeffrey Templeton

Table of Contents

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s Consolidated Financial Statements for external reporting purposes in accordance with generally accepted accounting principles.

As of December 31, ~~2017,~~2020, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control—Integrated Framework issued in 2013, by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, ~~2017~~2020 was effective.

Management has excluded Commerce Bancshares Corp. and subsidiaries ("Commerce") from its assessment of internal control over financial reporting as of December 31, 2017 because this entity was acquired in a business combination in 2017. Commerce represents 17% of total assets and less than 1% of total revenue, respectively, of the related Consolidated Financial Statement amounts as of and for the year ended December 31, 2017.

The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2017~~2020 has been audited by Crowe ~~Horwath~~ LLP, an independent registered public accounting firm, as stated in their report, which follows. This report expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2017.~~2020.



/s/ ~~Michael P. Daly~~Nitin J. Mhatre						/s/ James M. Moses
~~Michael P. Daly~~Nitin J. Mhatre						James M. Moses
President & Chief Executive Officer						Senior Executive Vice President & Chief Financial Officer
March 1, ~~2018~~2021						March 1, ~~2018~~2021

F-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of

of Berkshire Hills Bancorp, Inc.

Boston, Massachusetts

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance ~~sheet~~sheets of Berkshire Hills Bancorp, Inc. (the "Company") as of December 31, ~~2017,~~2020 and 2019, the related consolidated statements of ~~income,~~operations, comprehensive (loss)/income, changes in shareholders’ equity, and cash flows for each of the ~~year~~years in the three-year period ended December 31, ~~2017,~~2020, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, ~~2017,~~2020, based on criteria established in Internal Control -– Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017,~~2020 and 2019, and the results of its operations and its cash flows for each of the ~~year~~years in the three-year period ended December 31, ~~2017~~2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017,~~2020, based on criteria established in Internal Control -– Integrated Framework issued in 2013 by COSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (“ASC 326”). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material

F-1

Table of Contents

misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our ~~audit~~audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our ~~audit~~audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

As permitted, the Company has excluded the operations of Commerce Bancshares Corp. and subsidiaries (“Commerce”), acquired during 2017 and which is described in Note 2 of the financial statements, from the scope of management’s report on internal control over financial reporting. As such, Commerce has also been excluded from the scope of our audit of internal control over financial reporting.

Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

~~F-2~~

~~Table of Contents~~

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Reasonable and Supportable Forecast

The Company adopted ASC 326 (“CECL”) on January 1, 2020 as described in Note 1 and referred to in the change in accounting principle explanatory paragraph above. The estimates of expected credit losses under the CECL methodology required under ASC 326 are based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts. In order to estimate the expected credit losses for loans, the Company utilized a static loss closed pool model which calculated a historical loss rate for each of the identified loan segments. The historical loss rates were then adjusted, as necessary, for current and asset specific characteristics (also referred to as “qualitative adjustments”) and for expected changes to current conditions over the reasonable and supportable forecast period (also referred to as “forecast”).

The forecast methodology employed by the Company is complex and involves significant management judgement along with a high degree of data input and manual intervention.

F-2

Table of Contents

Given that the estimation of credit losses significantly changes under the CECL methodology, including the application of new accounting policies, the use of new subjective judgments, and changes made to the loss estimation models, performing audit procedures to evaluate the implementation and subsequent application of ASC 326, in particular relating to reasonable and supportable forecast, for loans involved a high degree of auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel and firm valuation specialists.

The primary procedures we performed to address this critical audit matter included:

Testing the effectiveness of controls over management’s allowance for credit loss forecast including controls addressing:

•Testing the design and operating effectiveness of controls pertaining to the development of the reasonable and supportable forecast.

•Testing the design and operating effectiveness of controls pertaining to the completeness and accuracy of the data utilized in developing the reasonable and supportable forecast.

•Testing the design and operating effectiveness of controls pertaining to the key assumptions and expert judgments applied in the development of the reasonable and supportable forecast.

•Testing the design and operating effectiveness of the controls around the mathematical accuracy of the forecast within the allowance for credit loss calculation.

Substantively testing management’s estimate, including evaluating their judgements and assumptions, for estimating the allowance for credit loss forecast:

•We tested the reasonable and supportable forecast for compliance with ASC 326, which included the use of firm valuation specialist.

•We tested the completeness and accuracy of the underlying data utilized in developing the reasonable and supportable forecast.

•We tested the reasonableness of key assumptions and expert judgements applied in the development of the reasonable and supportable forecast, which included the use of firm valuation specialist.

•We tested the mathematical accuracy of the forecast within the allowance for credit loss calculation.

/s/ Crowe ~~Horwath~~ LLP

We have served as the Company's auditor since ~~2017~~2017.

New York, New York

March 1, ~~2018~~2021

F-3

Table of Contents

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and Shareholders of~~

~~Berkshire Hills Bancorp, Inc.~~

In our opinion, the consolidated balance sheet as of December 31, 2016 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2016 present fairly, in all material respects, the financial position of Berkshire Hills Bancorp, Inc. and its subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~/s/ PricewaterhouseCoopers LLP~~

~~Boston, Massachusetts~~

~~March 1, 2017~~

~~F-4~~

~~Table of Contents~~

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS


	December 31,							December 31,
(In thousands, except share data)	2017			2016			(In thousands, except share data)	2020		2019
Assets							Assets
Cash and due from banks	$	91,122		$	71,494		Cash and due from banks	$	91,219	$	105,447
Short-term investments	157,641			41,581			Short-term investments	1,466,656		474,382
Total cash and cash equivalents	248,763			113,075			Total cash and cash equivalents	1,557,875		579,829

Trading security	12,277			13,229			Trading security	9,708		10,769
Marketable equity securities, at fair value							Marketable equity securities, at fair value	18,513		41,556
Securities available for sale, at fair value	1,426,099			1,209,537			Securities available for sale, at fair value	1,695,232		1,311,555
Securities held to maturity (fair values of 405,276 in 2017 and $337,680 in 2016)	397,103			334,368
Securities held to maturity (fair values of $491,855 in 2020 and $373,277 in 2019)							Securities held to maturity (fair values of $491,855 in 2020 and $373,277 in 2019)	465,091		357,979
Federal Home Loan Bank stock and other restricted securities	63,085			71,112			Federal Home Loan Bank stock and other restricted securities	34,873		48,019
Total securities	1,898,564			1,628,246			Total securities	2,223,417		1,769,878
Less: Allowance for credit losses on investment							Less: Allowance for credit losses on investment	(104)		0
Net Securities							Net Securities	2,223,313		1,769,878

Loans held for sale, at fair value	153,620			120,673
Loans held for sale							Loans held for sale	17,748		36,664

Commercial real estate	3,264,742			2,616,438
Commercial and industrial loans	1,803,939			1,062,038
Residential mortgages	2,102,807			1,893,131
Consumer loans	1,127,850			978,180

Total loans	8,299,338			6,549,787			Total loans	8,081,519		9,502,428
Less: Allowance for loan losses	(51,834		)	(43,998		)
Less: Allowance for credit losses on loans							Less: Allowance for credit losses on loans	(127,302)		(63,575)
Net loans	8,247,504			6,505,789			Net loans	7,954,217		9,438,853

Premises and equipment, net	109,352			93,215			Premises and equipment, net	112,663		120,398
Other real estate owned	—			151			Other real estate owned	149		0
Goodwill	519,287			403,106			Goodwill	0		553,762
Other intangible assets	38,296			19,445			Other intangible assets	34,819		45,615
Cash surrender value of bank-owned life insurance	191,221			139,257			Cash surrender value of bank-owned life insurance	232,695		227,894
Deferred tax assets, net	47,061			41,128

Other assets	117,083			98,457			Other assets	387,230		288,945
Assets held for sale							Assets held for sale	317,304		0
Assets from discontinued operations							Assets from discontinued operations	0		154,132
Total assets	$	11,570,751		$	9,162,542		Total assets	$	12,838,013	$	13,215,970

Liabilities							Liabilities
Demand deposits	$	1,667,323		$	1,278,875		Demand deposits	$	2,484,249	$	1,884,100
NOW deposits	673,891			570,583
NOW and other deposits							NOW and other deposits	1,003,005		1,492,569
Money market deposits	2,776,157			1,781,605			Money market deposits	3,371,353		2,528,656
Savings deposits	741,954			657,486			Savings deposits	972,116		841,283
Time deposits	2,890,205			2,333,543			Time deposits	2,385,085		3,589,369
Total deposits	8,749,530			6,622,092			Total deposits	10,215,808		10,335,977
Short-term debt	667,300			1,082,044			Short-term debt	40,000		125,000
Long-term Federal Home Loan Bank advances	380,436			142,792			Long-term Federal Home Loan Bank advances	434,357		605,501
Subordinated notes	89,339			89,161			Subordinated notes	97,280		97,049
Total borrowings	1,137,075			1,313,997			Total borrowings	571,637		827,550
Other liabilities	187,882			133,155			Other liabilities	232,730		267,398
Liabilities held for sale							Liabilities held for sale	630,065		0
Liabilities from discontinued operations							Liabilities from discontinued operations	0		26,481
Total liabilities	10,074,487			8,069,244			Total liabilities	11,650,240		11,457,406

(continued)


								December 31,
(In thousands, except share data)							(In thousands, except share data)	2020		2019
Shareholders’ equity							Shareholders’ equity
Preferred Stock (Series B non-voting convertible preferred stock - $0.01 par value; 1,000,000 shares authorized, 521,607 shares issued and outstanding in 2017; 1,000,000 shares authorized, no shares issued and outstanding in 2016)	40,633			—
Common stock ($.01 par value; 50,000,000 shares authorized, 46,211,894 shares issued, and 45,290,433 shares outstanding in 2017; 50,000,000 shares authorized, 36,732,129 shares issued, and 35,672,817 shares outstanding in 2016)	460			366
Preferred Stock (Series B non-voting convertible preferred stock - $0.01 par value; 2,000,000 shares authorized, 0 shares issued and outstanding in 2020; 2,000,000 shares authorized, 521,607 shares issued and outstanding in 2019)							Preferred Stock (Series B non-voting convertible preferred stock - $0.01 par value; 2,000,000 shares authorized, 0 shares issued and outstanding in 2020; 2,000,000 shares authorized, 521,607 shares issued and outstanding in 2019)	0		40,633
Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 50,833,087 shares outstanding in 2020; 100,000,000 shares authorized; 51,903,190 shares issued, and 49,585,143 shares outstanding in 2019)							Common stock ($0.01 par value; 100,000,000 shares authorized and 51,903,190 shares issued and 50,833,087 shares outstanding in 2020; 100,000,000 shares authorized; 51,903,190 shares issued, and 49,585,143 shares outstanding in 2019)	528		517
Additional paid-in capital - common stock	1,242,487			898,989			Additional paid-in capital - common stock	1,427,239		1,422,441
Unearned compensation	(6,531		)	(6,374		)	Unearned compensation	(6,245)		(8,465)
Retained earnings	239,179			217,494
Accumulated other comprehensive income (loss)	4,161			9,766
Treasury stock, at cost (921,461 shares in 2017 and 1,059,312 shares in 2016)	(24,125		)	(26,943		)
Retained (deficit) earnings							Retained (deficit) earnings	(233,344)		361,082
Accumulated other comprehensive income/(loss)							Accumulated other comprehensive income/(loss)	30,871		11,993
Treasury stock, at cost (1,070,103 shares in 2020 and 2,318,047 shares in 2019)							Treasury stock, at cost (1,070,103 shares in 2020 and 2,318,047 shares in 2019)	(31,276)		(69,637)
Total shareholders’ equity	1,496,264			1,093,298			Total shareholders’ equity	1,187,773		1,758,564
Total liabilities and shareholders’ equity	$	11,570,751		$	9,162,542		Total liabilities and shareholders’ equity	$	12,838,013	$	13,215,970

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

F-4

~~F-5~~

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

Years Ended December 31,
(In thousands) 2017 2016 2015
Interest and dividend income

Loans $ 308,099
$ 242,600
$ 211,347
Securities and other 52,159
37,839
35,683
Total interest and dividend income 360,258
280,439
247,030
Interest expense

Deposits 43,855
30,883
22,948
Borrowings and subordinated notes 21,608
17,289
10,233
Total interest expense 65,463
48,172
33,181
Net interest income 294,795
232,267
213,849
Non-interest income

Mortgage banking income 54,251
7,555
4,133
Loan related income 21,401
16,694
8,310
Deposit related fees 27,165
24,963
25,084
Insurance commissions and fees 10,589
10,477
10,251
Wealth management fees 9,395
8,917
9,702
Total fee income 122,801
68,606
57,480
Other (3,377 ) (3,289 ) (5,302 )
Gain (Loss) on securities, net 12,598
(551 ) 2,110
Gain on sale of business operations, net 296
1,085
—
Loss on termination of hedges (6,629 ) —
—
Total non-interest income 125,689
65,851
54,288
Total net revenue 420,484
298,118
268,137
Provision for loan losses 21,025
17,362
16,726
Non-interest expense

Compensation and benefits 152,979
104,600
97,370
Occupancy and equipment 35,422
27,220
28,486
Technology and communications 25,900
19,883
16,881
Marketing and promotion 11,877
3,161
3,306
Professional services 9,165
6,199
5,172
FDIC premiums and assessments 6,457
5,066
4,649
Other real estate owned and foreclosures 44
691
833
Amortization of intangible assets 3,493
2,927
3,563
Merger, restructuring and conversion related expenses 31,558
15,461
17,611
Other 22,815
18,094
18,958
Total non-interest expense 299,710
203,302
196,829
Income from continuing operations before income taxes 99,749
77,454
54,582
Income tax expense 44,502
18,784
5,064
Net income $ 55,247
$ 58,670
$ 49,518
Preferred stock dividend 219
—
—
Income available to common shareholders $ 55,028
$ 58,670
$ 49,518

Earnings per common share:
Basic $ 1.40
$ 1.89
$ 1.74
Diluted $ 1.39
$ 1.88
$ 1.73
Weighted average common shares outstanding:

Basic 39,456
30,988
28,393
Diluted 39,695
31,167
28,564

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

~~F-6~~

~~Table of Contenets~~

~~BERKSHIRE HILLS BANCORP, INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

Years Ended December 31,
(In thousands) 2017 2016 2015
Net income $ 55,247
$ 58,670
$ 49,518
Other comprehensive income (loss), before tax:

Changes in unrealized gains and losses on securities available-for-sale (15,142 ) 18,859
(9,677 )
Changes in unrealized gains and losses on derivative hedges 6,573
1,959
(5,232 )
Changes in unrealized gains and losses on pension (94 ) 515
(1,177 )
Total other comprehensive income (loss), before tax (8,663 ) 21,333
(16,086 )
Income taxes related to other comprehensive income (loss):

Changes in unrealized gains and losses on securities available-for-sale 5,610
(7,199 ) 3,640
Changes in unrealized gains and losses on derivative hedges (2,589 ) (835 ) 2,094
Changes in unrealized gains and losses on pension 37
(228 ) 468
Total income tax (expense) benefit related to other comprehensive income (loss) 3,058
(8,262 ) 6,202
Total other comprehensive income (loss) (5,605 ) 13,071
(9,884 )
Total comprehensive income $ 49,642
$ 71,741
$ 39,634


	Years Ended December 31,
(In thousands)	2020		2019		2018
Interest and dividend income
Loans	$	358,015	$	448,927	$	406,222
Securities and other	51,767		60,586		59,672
Total interest and dividend income	409,782		509,513		465,894
Interest expense
Deposits	72,715		115,193		78,364
Borrowings and subordinated notes	20,285		29,062		31,330
Total interest expense	93,000		144,255		109,694
Net interest income	316,782		365,258		356,200
Non-interest income
Mortgage banking income	5,190		788		635
Loan related income	16,840		24,374		23,155
Deposit related fees	27,905		31,352		29,806
Insurance commissions and fees	10,770		10,957		10,983
Wealth management fees	9,285		9,353		9,447
Total fee income	69,990		76,824		74,026
Other	2,597		1,438		3,557
(Loss)/gain on securities, net	(7,520)		4,389		(3,719)
Gain on sale of business operations and assets, net	1,240		1,351		460

Total non-interest income	66,307		84,002		74,324
Total net revenue	383,089		449,260		430,524
Provision for credit losses	75,878		35,419		25,451
Non-interest expense
Compensation and benefits	147,840		140,906		134,019
Occupancy and equipment	43,359		39,586		36,927
Technology and communications	32,364		26,523		27,147
Marketing and promotion	3,703		4,474		4,697
Professional services	11,907		10,798		7,343
FDIC premiums and assessments	5,876		3,861		5,734
Other real estate owned and foreclosures	125		154		68
Amortization of intangible assets	6,181		5,783		4,934
Goodwill impairment	553,762		0		0
Merger, restructuring and conversion related expenses	5,839		28,046		22,144
Other	29,283		29,726		23,880
Total non-interest expense	840,239		289,857		266,893
(Loss)/income from continuing operations before income taxes	(533,028)		123,984		138,180
Income tax (benefit)/expense from continuing operations	(19,853)		22,463		28,961
Net (loss)/income from continuing operations	(513,175)		101,521		109,219

(Loss) from discontinued operations before income taxes	(26,855)		(5,539)		(4,767)
Income tax (benefit) from discontinued operations	(7,013)		(1,468)		(1,313)
Net (loss) from discontinued operations	(19,842)		(4,071)		(3,454)

Net (loss)/income	$	(533,017)	$	97,450	$	105,765
Preferred stock dividend	313		960		918
(Loss)/income available to common shareholders	$	(533,330)	$	96,490	$	104,847

	Years Ended December 31,
(in thousands, except per share data)	2020		2019		2018
Basic (loss)/earnings per share:
Continuing Operations	$	(10.21)	$	2.06	$	2.38
Discontinued operations	(0.39)		(0.08)		(0.08)
Total basic (loss)/earnings per share	$	(10.60)	$	1.98	$	2.30

Diluted (loss)/earnings per share:
Continuing Operations	$	(10.21)	$	2.05	$	2.36
Discontinued operations	(0.39)		(0.08)		(0.07)
Total diluted (loss)/earnings per share	$	(10.60)	$	1.97	$	2.29

Weighted average common shares outstanding:
Basic	50,270		49,263		46,024
Diluted	50,270		49,421		46,231

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

F-5

Table of Contenets

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME


	Years Ended December 31,
(In thousands)	2020		2019		2018
Net (loss)/income	$	(533,017)	$	97,450	$	105,765
Other comprehensive income (loss), before tax:
Changes in unrealized gains and losses on securities available-for-sale	25,726		34,530		(16,923)


Changes in unrealized gains and losses on pension	(489)		(270)		336
Total other comprehensive income/(loss), before tax	25,237		34,260		(16,587)
Income taxes related to other comprehensive income (loss):
Changes in unrealized gains and losses on securities available-for-sale	(6,471)		(8,873)		4,421


Changes in unrealized gains and losses on pension	112		76		(108)
Total income tax (expense) benefit related to other comprehensive income (loss)	(6,359)		(8,797)		4,313
Total other comprehensive income/(loss)	18,878		25,463		(12,274)
Total comprehensive (loss)/income	$	(514,139)	$	122,913	$	93,491

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

~~F-7~~

F-6

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Preferred Stock Common Stock Additional paid-in Unearned Retained Accumulated other comprehensive Treasury
(In thousands, except per share data) Shares Amount Shares Amount capital compensation earnings (loss) income stock Total
Balance at January 1, 2015 —
—
25,183
$ 265
$ 585,289
$ (6,147 ) $ 156,446
$ 6,579
$ (33,145 ) $ 709,287
Comprehensive income:

Net income —
—
—
—
—
—
49,518
—
—
49,518
Other net comprehensive (loss) —
—
—
—
—
—
—
(9,884 ) —
(9,884 )
Total comprehensive income =sum(J5:J6)
=sum(J5:J6)
=sum(J5:J6)
=sum(J5:J6)
=sum(J5:J6)
=sum(J5:J6)
49,518
(9,884 ) —
39,634
Acquisition of Hampden Bancorp, Inc —
—
4,186
42
114,562
—
—
—
—
114,604
Acquisition of Firestone Financial —
—
1,442
15
42,092
—
—
—
—
42,107
Cash dividends declared on common shares ($0.76 per share) —
—
—
—
—
—
(21,903 ) —
—
(21,903 )
Treasury stock purchased —
—
(18 ) —
—
—
—
—
(550 ) (550 )
Forfeited shares —
—
(20 ) —
47
509
—
—
(556 ) —
Exercise of stock options —
—
16
—
—
—
(176 ) —
415
239
Restricted stock grants —
—
226
—
440
(6,029 ) —
—
5,589
—
Stock-based compensation —
—
—
—
—
4,670
—
—
—
4,670
Net tax benefit related to stock-based compensation —
—
—
—
167
—
—
—
—
167
Other, net —
—
(41 ) —
22
—
—
—
(1,088 ) (1,066 )
Balance at December 31, 2015 —
—
30,974
$ 322
$ 742,619
$ (6,997 ) $ 183,885
$ (3,305 ) $ (29,335 ) $ 887,189
Comprehensive income: 0

Net income —
—
—
—
—
—
58,670
—
—
58,670
Other net comprehensive income —
—
—
—
—
—
—
13,071
—
13,071
Total comprehensive income —
—
—
—
—
—
58,670
13,071
—
71,741
Acquisition of 44 Business Capital —
—
45
—
—
—
—
—
1,217
1,217
Acquisition of First Choice Bank —
—
4,410
44
151,004
—
—
—
—
151,048
Cash dividends declared on common shares ($0.80 per share) —
—
—
—
—
—
(24,916 ) —
—
(24,916 )
Treasury stock adjustment (1) —
—
—
—
4,632
—
—
—
(4,632 ) —
Forfeited shares —
—
(70 ) —
148
1,789
—
—
(1,937 ) —
Exercise of stock options —
—
151
—
—
—
(145 ) —
3,857
3,712
Restricted stock grants —
—
211
—
575
(5,787 ) —
—
5,212
—
Stock-based compensation —
—
—
—
—
4,621
—
—
—
4,621
Net tax benefit related to stock-based compensation —
—
—
—
(1 ) —
—
—
—
(1 )
Other, net —
—
(48 ) —
12
—
—
—
(1,325 ) (1,313 )
Balance at December 31, 2016 —
—
35,673
$ 366
$ 898,989
$ (6,374 ) $ 217,494
$ 9,766
$ (26,943 ) $ 1,093,298
Comprehensive income:

Net income —
—
—
—
—
—
55,247
—
—
55,247
Other net comprehensive (loss) —
—
—
—
—
—
—
(5,605 ) —
(5,605 )
Total comprehensive income —
—
—
—
—
—
55,247
(5,605 ) —
49,642
Acquisition of Commerce Bank 522
40,633
4,842
48
188,552
—
—
—
—
229,233
Common stock issued, net of $7.1 million offering costs —
—
4,638
46
152,938
—
—
—
—
152,984
Cash dividends declared on common shares ($0.84 per share) —
—
—
—
—
—
(33,022 ) —
—
(33,022 )
Cash dividends declared on preferred shares ($0.42 per share) —
—
—
—
—
—
(219 ) —
—
(219 )
Forfeited shares —
—
(17 ) —
102
516
—
—
(618 ) —
Exercise of stock options —
—
19
—
—
—
(158 ) —
487
329
Restricted stock grants —
—
161
—
1,650
(5,775 ) —
—
4,125
—
Stock-based compensation —
—
—
—
—
5,102
—
—
—
5,102
Other, net —
—
(26 ) —
256
—
(163 ) —
(1,176 ) (1,083 )
Balance at December 31, 2017 522
40,633
45,290
$ 460
$ 1,242,487
$ (6,531 ) $ 239,179
$ 4,161
$ (24,125 ) $ 1,496,264

~~(1)Treasury stock adjustment represents the extinguishment of 168,931 shares of Berkshire Hills Bancorp stock held by the Company's subsidiary.~~


	Preferred Stock			Common Stock			Additional paid-in		Unearned		Retained (deficit)		Accumulated other comprehensive		Treasury
(In thousands, except per share data)	Shares	Amount		Shares	Amount		capital		compensation		earnings		(loss) income		stock		Total
Balance at January 1, 2018	522	$	40,633	45,290	$	460	$	1,242,487	$	(6,531)	$	239,179	$	4,161	$	(24,125)	$	1,496,264

Comprehensive income:
Net income	—	—		—	—		—		—		105,765		—		—		105,765
Other net comprehensive (loss)	—	—		—	—		—		—		—		(12,274)		—		(12,274)
Total comprehensive income	—	—		—	—		—		—		105,765		(12,274)		—		93,491
Adoption of ASU No 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Liabilities	—	—		—	—		—		—		6,253		(6,253)		—		0
Adoption of ASU No 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income	—	—		—	—		—		—		(896)		896		—		0
Cash dividends declared on common shares ($0.88 per share)	—	—		—	—		—		—		(39,966)		—		—		(39,966)
Cash dividends declared on preferred shares ($1.76 per share)	—	—		—	—		—		—		(918)		—		—		(918)
Forfeited shares	—	—		(65)	—		90		2,189		—		—		(2,279)		0
Exercise of stock options	—	—		33	—		—		—		(578)		—		904		326
Restricted stock grants	—	—		185	—		2,157		(7,011)		—		—		4,854		0
Stock-based compensation	—	—		—	—		—		4,759		—		—		—		4,759

Other, net	—	—		(26)	—		279		—		0		—		(1,317)		(1,038)
Balance at December 31, 2018	522	$	40,633	45,417	$	460	$	1,245,013	$	(6,594)	$	308,839	$	(13,470)	$	(21,963)	$	1,552,918

Comprehensive income:		0
Net income	—	—		—	—		—		—		97,450		—		—		97,450
Other net comprehensive income	—	—		—	—		—		—		—		25,463		—		25,463
Total comprehensive income	—	—		—	—		—		—		97,450		25,463		—		122,913
Acquisition of SI Financial Group, Inc.	—	—		5,691	57		176,655		—		—		—		—		176,712
Cash dividends declared on common shares ($0.92 per share)	—	—		—	—		—		—		(44,147)		—		—		(44,147)
Cash dividends declared on preferred shares ($1.84 per share)	—	—		—	—		—		—		(960)		—		—		(960)
Treasury stock purchased	—	—		(1,726)	—		—		—		—		—		(52,746)		(52,746)
Forfeited shares	—	—		(65)	—		(251)		2,160		—		—		(1,909)		0
Exercise of stock options	—	—		11	—		—		—		(100)		—		288		188
Restricted stock grants	—	—		299	—		932		(8,843)		—		—		7,911		0
Stock-based compensation	—	—		—	—		—		4,812		—		—		—		4,812

Other, net	—	—		(42)	—		92		—		—		—		(1,218)		(1,126)
Balance at December 31, 2019	522	$	40,633	49,585	$	517	$	1,422,441	$	(8,465)	$	361,082	$	11,993	$	(69,637)	$	1,758,564

Comprehensive income:
Net loss	—	—		—	—		—		—		(533,017)		—		—		(533,017)
Other net comprehensive income	—	—		—	—		—		—		—		18,878		—		18,878
Total comprehensive income	—	—		—	—		—		—		(533,017)		18,878		—		(514,139)
Impact of ASC 326 Adoption	—	—		—	—		—		—		(24,380)		—		—		(24,380)
Conversion of preferred stock to common stock	(522)	(40,633)		1,043	11		10,395		—		—		—		30,227		0
Cash dividends declared common shares ($0.72 per share)	—	—		—	—		—		—		(36,251)		—		—		(36,251)
Cash dividends declared ($1.20 per share)	—	—		—	—		—		—		(313)		—		—		(313)
Treasury stock purchased	—	—		(14)	—		—		—		—		—		(473)		(473)
Forfeited shares	—	—		(91)	—		(1,570)		2,727		—		—		(1,157)		0
Exercise of stock options	—	—		37	—		—		—		(465)		—		1,129		664
Restricted stock grants	—	—		314	—		(4,121)		(5,234)		—		—		9,355		0
Stock-based compensation	—	—		0	—		—		4,727		—		—		—		4,727
Other, net	—	—		(41)	—		94		—		—		—		(720)		(626)
Balance at December 31, 2020	0	$	0	50,833	$	528	$	1,427,239	$	(6,245)	$	(233,344)	$	30,871	$	(31,276)	$	1,187,773

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

F-7

~~F-8~~

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,
(In thousands)	2020		2019		2018
Cash flows from operating activities:
Net (loss)/income from continuing operations	(513,175)		101,521		109,219
Net (loss) from discontinued operations	(19,842)		(4,071)		(3,454)
Net (loss)/income	$	(533,017)	$	97,450	$	105,765
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	75,878		35,419		25,451
Net amortization of securities	2,513		2,407		2,837
Change in unamortized net loan origination costs and premiums	21,856		12,759		(1,004)
Premises and equipment depreciation and amortization expense	11,919		10,921		10,442
Stock-based compensation expense	4,727		4,812		4,759
Accretion of purchase accounting entries, net	(10,377)		(14,813)		(24,000)
Amortization of other intangibles	6,181		5,783		4,934

Income from cash surrender value of bank-owned life insurance policies	(5,354)		(5,349)		(6,232)
Securities losses/(gains), net	7,576		(4,389)		3,719
Net change in loans held-for-sale	(4,267)		(5,137)		1,460


Loss on disposition of assets	327		3,443		152
Loss on sale of real estate	13		5		0
Amortization of interest in tax-advantaged projects	3,645		6,455		4,618

Goodwill impairment	553,762		0		0
Net change in other	(31,247)		(23,418)		30,601
Net cash provided by operating activities of continuing operations	123,977		130,419		166,956
Net cash provided/(used) by operating activities of discontinued operations	103,664		(18,894)		55,298
Net cash provided by operating activities	227,641		111,525		222,254

Cash flows from investing activities:
Net decrease in trading security	734		701		665
Purchases of marketable equity securities	(17,631)		(23,841)		(24,538)
Proceeds from sales of marketable equity securities	33,928		43,075		38,104
Purchases of securities available for sale	(885,182)		(119,671)		(257,547)
Proceeds from sales of securities available for sale	69,337		136,229		499
Proceeds from maturities, calls, and prepayments of securities available for sale	457,586		240,586		188,076
Purchases of securities held to maturity	(144,651)		(7,260)		(15,391)
Proceeds from maturities, calls, and prepayments of securities held to maturity	35,331		21,602		36,746
Net change in loans	1,054,029		694,657		(801,876)
Acquisitions, net of cash paid	0		110,774		0
Proceeds from surrender of bank-owned life insurance	553		2,451		854

Purchase of Federal Home Loan Bank stock	(6,741)		(112,208)		(76,090)
Proceeds from sales of Federal Home Loan Bank stock	19,887		149,455		61,831
Net investment in limited partnership tax credits	(7,280)		(4,387)		(4,724)
Purchase of premises and equipment, net	(7,208)		(10,565)		(9,349)
(Continued)

F-8

Years Ended December 31,
(In thousands) 2017 2016 2015
Cash flows from operating activities:

Net income $ 55,247
$ 58,670
$ 49,518
Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses 21,025
17,362
16,726
Net amortization of securities 1,678
4,052
3,010
Net change in unamortized loan origination costs and premium 2,232
(4,138 ) (961 )
Premises and equipment depreciation and amortization expense 9,916
8,393
8,594
Stock-based compensation expense 5,102
4,621
4,686
Accretion of purchase accounting entries, net (18,189 ) (9,407 ) (10,074 )
Amortization of other intangibles 3,493
2,927
3,563
Write down of other real estate owned 10
395
480
Excess tax loss from stock-based payment arrangements —
(105 ) (167 )
Income from cash surrender value of bank-owned life insurance policies (3,615 ) (3,913 ) (3,356 )
(Loss) gain on sales of securities, net (12,598 ) 551
(2,110 )
Net (increase) decrease in loans held for sale (32,947 ) 5,185
(3,212 )
Loss on disposition of assets 912
1,318
3,514
(Gain) loss on sale of real estate (51 ) 40
191
Amortization of tax credits 8,477
8,882
11,428
Remeasurement of deferred tax asset 18,145
—
—
Net change in other 19,254
3,309
4,458
Net cash provided by operating activities 78,091
98,142
86,288

Cash flows from investing activities:

Net decrease in trading security 632
599
570
Proceeds from sales of securities available for sale 188,921
421,843
41,169
Proceeds from maturities, calls and prepayments of securities available for sale 206,648
166,736
184,753
Purchases of securities available for sale (498,646 ) (400,053 ) (285,637 )
Proceeds from maturities, calls and prepayments of securities held to maturity 12,600
7,734
8,534
Purchases of securities held to maturity (77,208 ) (7,115 ) (62,274 )
Net change in loans (468,331 ) (334,347 ) (388,091 )
Acquisitions, net of cash paid 374,611
(48,180 ) 74,324
Net cash used for branch sale —
—
(11,715 )
Proceeds from surrender of bank-owned life insurance 310
258
554
Purchase of bank-owned life insurance (20,000 ) —
—
Proceeds from sale of Federal Home Loan Bank stock 96,378
19,461
2,357
Purchase of Federal Home Loan Bank stock (88,351 ) (19,555 ) (10,706 )
Proceeds from premises and equipment —
226
2,261
Purchase of premises and equipment, net (12,528 ) (9,101 ) (7,340 )
Net investment in limited partnership tax credits (5,102 ) (7,616 ) (5,105 )
Payment to terminate cash flow hedges 6,573
—
—
Proceeds from sale of other real estate 590
1,515
1,854
Net cash used in investing activities (282,903 ) (207,595 ) (454,492 )

~~(continued)~~

~~F-9~~

Table of Contents

BERKSHIRE HILLS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)


	Years ended December 31,										Years ended December 31,
(In thousands)	2017			2016			2015			(In thousands)	2020		2019		2018
Proceeds from sales of seasoned commercial loan portfolios										Proceeds from sales of seasoned commercial loan portfolios	37,988		81,147		0

Proceeds from sales of other real estate owned										Proceeds from sales of other real estate owned	171		150		1,600
Net investing cash flows provided/(used) by discontinued operations										Net investing cash flows provided/(used) by discontinued operations	252		(313)		(377)
Net cash provided/(used) by investing activities										Net cash provided/(used) by investing activities	641,103		1,202,582		(861,517)

Cash flows from financing activities:										Cash flows from financing activities:
Net increase in deposits	$	418,550		$	140,730		$	475,823		Net increase in deposits	$	499,657	$	23,996	$	233,704
Proceeds from Federal Home Loan Bank advances and other borrowings	5,978,358			9,364,599			8,566,300			Proceeds from Federal Home Loan Bank advances and other borrowings	326,277		5,384,982		4,767,766
Repayments of Federal Home Loan Bank advances and other borrowings	(6,174,781		)	(9,365,159		)	(8,620,064		)	Repayments of Federal Home Loan Bank advances and other borrowings	(582,648)		(6,228,780)		(4,387,223)
Issuance of common stock, net of $7.1 million offering costs	152,985			—			—

Purchase of treasury stock	—			—			(550		)	Purchase of treasury stock	(473)		(52,746)		0
Exercise of stock options	329			3,712			239			Exercise of stock options	664		188		326
Excess tax loss from stock-based payment arrangements	—			—			167
Cash dividends paid	(33,241		)	(24,916		)	(21,903		)
Acquisition contingent consideration paid	(1,700		)	—			—
Net cash provided by financing activities	340,500			118,966			400,012
Common and preferred stock cash dividends paid										Common and preferred stock cash dividends paid	(36,564)		(45,107)		(40,884)
Settlement of derivative contracts with financial institution counterparties										Settlement of derivative contracts with financial institution counterparties	(97,611)		0		0

Net cash provided/(used) by financing activities										Net cash provided/(used) by financing activities	109,302		(917,467)		573,689

Net change in cash and cash equivalents	135,688			9,513			31,808			Net change in cash and cash equivalents	978,046		396,640		(65,574)

Cash and cash equivalents at beginning of year	113,075			103,562			71,754			Cash and cash equivalents at beginning of year	579,829		183,189		248,763

Cash and cash equivalents at end of year	$	248,763		$	113,075		$	103,562		Cash and cash equivalents at end of year	$	1,557,875	$	579,829	$	183,189

Supplemental cash flow information:										Supplemental cash flow information:
Interest paid on deposits	$	43,133		$	28,777		$	22,130		Interest paid on deposits	$	82,319	$	119,695	$	74,565
Interest paid on borrowed funds	21,336			16,674			9,974			Interest paid on borrowed funds	21,277		33,406		32,274
Income taxes paid, net	18,323			16,229			429
Income taxes (refunded)/paid, net										Income taxes (refunded)/paid, net	(13,864)		19,818		3,029

Acquisition of non-cash assets and liabilities:										Acquisition of non-cash assets and liabilities:
Assets acquired	1,584,786			1,169,086			948,796			Assets acquired	0		1,595,054		0
Liabilities assumed	(1,959,489		)	(965,529		)	(762,261		)	Liabilities assumed	0		(1,530,010)		0

Other non-cash changes:										Other non-cash changes:
Other net comprehensive (loss) income	(5,605		)	13,071			(9,884		)
Other net comprehensive income/(loss)										Other net comprehensive income/(loss)	18,878		25,463		(12,274)
Impact to retained earnings from adoption of ASC 326, net of tax										Impact to retained earnings from adoption of ASC 326, net of tax	24,380		—		—
Mid-Atlantic assets reclassified to held for sale										Mid-Atlantic assets reclassified to held for sale	317,304		0		0
Mid- Atlantic liabilities reclassified to held for sale										Mid- Atlantic liabilities reclassified to held for sale	630,065		0		0
Reclass of seasoned loan portfolios to held-for-sale, net										Reclass of seasoned loan portfolios to held-for-sale, net	14,845		120,307		0
Real estate owned acquired in settlement of loans	490			340			2,085			Real estate owned acquired in settlement of loans	224		0		1,600

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

F-9

~~F-10~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015~~2018

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The ~~consolidated financial statements~~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 ~~Boston, Mass.~~Pittsfield, Massachusetts, and Berkshire Insurance Group, Inc. 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.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation. ~~The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.~~

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 17 – Other Commitments, Contingencies, and Off-Balance Sheet Activities for pandemic related risks and uncertainties.

Business Combinations

Business combinations are accounted for using the acquisition method of accounting. Under this method, the accounts of an acquired entity are included with the acquirer’s accounts as of the date of acquisition with any excess of purchase price over the fair value of the net assets acquired (including identifiable intangibles) capitalized as goodwill.

To consummate an acquisition, the Company will typically issue common stock and/or pay cash, depending on the terms of the acquisition agreement. The value of common shares issued is determined based upon the market price of the stock as of the closing of the acquisition.

Cash and Cash equivalents

Cash and cash equivalents include cash, balances due from banks, and short-term investments, all of which had an original maturity within 90 days. Due to the nature of cash and cash equivalents and the near term maturity, the Company estimated that the carrying amount of such instruments approximated fair value. The nature of the Bank’s business requires that it maintain amounts due from banks which at times, may exceed federally insured limits. The Bank has not experienced any losses on such amounts and all amounts are maintained with well-capitalized institutions.

Trading Security

The Company accounts for a tax advantaged economic development bond originated in 2008 at fair value, in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 320. The bond has been designated as a trading account security and is recorded at fair value, with changes in unrealized gains and losses recorded through earnings each period as part of non-interest income.

~~F-11~~F-10

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities

Debt securities that management has the intent and ability to hold to maturity are classified as held to maturity and carried at amortized cost. All other debt securities ~~including equity securities with readily determinable fair values,~~ are classified as available for sale and carried at fair value, with unrealized gains and losses reported as a component of other net comprehensive income. Equity securities are carried at fair value, with changes in fair value reported in net income. Management determines the appropriate classification of securities at the time of purchase. Restricted equity securities, such as stock in the Federal Home Loan Bank of Boston (“FHLBB”) are carried at cost. There are no quoted market prices for the Company’s restricted equity securities. The Bank is a member of the FHLBB, which requires that members maintain an investment in FHLBB stock, which may be redeemed based on certain conditions. The Bank reviews for impairment based on the ultimate recoverability of the cost bases in the FHLBB stock.

Purchase premiums and discounts are recognized in interest income using the interest method, without anticipating prepayments, except mortgage-backed securities where prepayments are anticipated, over the terms of the securities. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

The Company measures expected credit losses on held to maturity debt securities on a collective basis. Accrued interest receivable on held to maturity debt securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Company evaluates ~~debt and equity securities within the Company’s~~ available for sale ~~and held to maturity portfolios for other-than-temporary impairment (“OTTI”), at least quarterly. If the fair value of a~~ debt ~~security is below the amortized cost basis of the security, OTTI is required to be recognized if any of the following are met: (1) the Company~~securities in an unrealized loss position by first assessing whether it intends to sell ~~the security; (2)~~or it is ~~“more~~more likely than ~~not”~~not that ~~the Company~~it will be required to sell the security before recovery of its amortized cost ~~basis;~~basis. If either the criteria regarding intent or ~~(3)~~requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of ~~expected~~ cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is ~~not sufficient to recover~~less than the ~~entire~~amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. ~~For all impaired debt securities~~Any impairment that ~~the Company intends to sell, or more likely than~~has not ~~will be required to sell, the full amount of the depreciation is recognized as OTTI~~been recorded through ~~earnings. Credit-related OTTI~~an allowance for ~~all other impaired debt securities is recognized through earnings. Non-credit related OTTI for such debt securities~~credit losses is recognized in other comprehensive income, net of applicable taxes. In evaluating its marketable equity securities portfolios for OTTI, the Company considers its intent and ability to hold an equity security to recovery of its cost basis in addition to various other factors, including the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer. Any OTTI on marketable equity securities is recognized immediately through earnings.income.

Loans Held for Sale

Loans originated with the intent to be sold in the secondary market are accounted for under the fair value option. Non-refundable fees and direct loan origination costs related to residential mortgage loans held for sale are recognized in non-interest income or non-interest expense as earned or incurred. Fair value is primarily determined based on quoted prices for similar loans in active markets. Gains and losses on sales of residential mortgage loans (sales proceeds minus carrying value) are recorded in non-interest income.

Loans that were previously held for investment that the Company has an active plan to sell are transferred to loans held for sale at the lower of cost or market (fair value). The market price is primarily determined based on quoted prices for similar loans in active markets or agreed upon sales prices. Gains are recorded in non-interest income at sale to the extent that the sale price of the loan exceeds carrying value. Any reduction in the loan’s value, prior to being transferred to loans held for sale, is reflected as a charge-off of the recorded investment in the loan resulting in a new cost basis, with a corresponding reduction in the allowance for loan losses. Further ~~changes~~decreases in the fair value of the loan are recognized in non-interest ~~income or expense, accordingly.~~expense.

F-11

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans

Loans are reported at their amortized cost. Amortized cost is the principal balance outstanding, ~~unpaid principal balances adjusted for charge-offs, the allowance for loan losses,~~net of the unamortized balance of any deferred fees or costs ~~on originated loans~~ and the unamortized balance of any premiums or discounts on loans purchased or acquired through mergers. Interest income is accrued on the unpaid principal balance. Interest income includes net accretion or amortization of deferred fees or costs and of premiums or discounts. Direct loan origination costs, net of any origination fees, in addition to premiums and discounts on loans, are deferred and recognized as an adjustment of the related loan yield using the interest method. Interest on loans, excluding automobile loans, is generally not accrued on loans which are ninety days or more past due unless the loan is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. Automobile loans generally continue accruing until one hundred and twenty days delinquent, at which time they are

~~F-12~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

charged off. All interest accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income, except for certain loans designated as well-secured. The interest on non-accrual loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. ~~All payments received on non-accrual loans are applied against the principal balance of the loan.~~ Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

~~Acquired~~Purchase Credit Deteriorated (PCD) Loans

Loans that the Company acquired in acquisitions include some loans that have experienced more than insignificant credit deterioration since origination. PCD loans are ~~initially~~ recorded at ~~fair value with no carryover of~~ the ~~related~~amount paid. An allowance for credit ~~losses. Determining~~losses is determined using the ~~fair~~same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

Allowance for Credit Losses for Loans

The allowance for credit losses for loans ~~involves estimating~~(“ACLL”) is comprised of the ~~amount~~allowance for loan losses and ~~timing of principal and interest cash flows initially~~the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on the consolidated balance sheet. The ACLL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the ~~loans and discounting those cash flows at an appropriate market rate of interest.~~

~~For loans that meet the criteria stipulated in ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,~~” the Company recognizes the accretable yield, which is defined as the excess of all cash flows expected at acquisition over the initial fair value of the loan, as interest income on a level-yield basis over the expected remaining life of the loan. The excess of the loan’s contractually required payments over the cash flows expected to be collected is the nonaccretable difference. The nonaccretable difference is not recognized as an adjustment of yield, a loss accrual, or a valuation allowance.

~~For ASC 310-30 loans, the expected cash flows reflect anticipated prepayments, determined on a loan by loan basis according to the anticipated collection plan of these~~ loans. The expected prepayments used to determine the accretable yield are consistent between the cash flows expected to be collected and projections of contractual cash flows so as to not affect the nonaccretable difference. For ASC 310-30 loans, prepayments result in the recognition of the nonaccretable balance as current period yield. Changes in prepayment assumptions may change the amount of interest income and principal expected to be collected. Interest income is also net of recoveries recorded on acquired impaired loans. ASC310-30 loans that have similar risk characteristics, primarily credit risk, collateral type and interest rate risk, and are homogenous in size, are pooled and accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. ASC 310-30 loans that cannot be aggregated into a pool are accounted for individually.

After we acquire loans determined to be accounted for under ASC 310-30, actual cash collections are monitored to determine if they conform to management’s expectations. Revised cash flow expectations are prepared each quarter. A decrease in expected cash flows in subsequent periods may indicate impairment and would require us to establish an allowance for loan and lease losses (“ALLL”) by recording a charge to the provision for loan and lease losses. An increase in expected cash flows in subsequent periods initially reduces any previously established ALLL by the increase in the present value of cash flows expected to be collected, and requires us to recalculate the amount of accretable yield for the ASC 310-30 loan or pool. The adjustment of accretable yield due to an increase in expected cash flows is accounted for as a change in estimate. The additional cash flows expected to be collected are reclassified from the nonaccretable difference to the accretable yield, and the amount of periodic accretion is adjusted accordingly over the remaining life of the ASC 310-30 loan or pool.

An ASC 310-30 loan may be derecognized either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, foreclosure of the collateral, or charge-off. If one of these events occurs, the loan is removed from the loan pool, or derecognized if it is accounted for as an individual loan. ASC 310-30 loans subject to modification are not removed from an ASC 310-30 pool even if those loans would otherwise be deemed troubled debt restructurings (“TDRs”) since the pool, and not the individual loan, represents the unit of account. Individually accounted for ASC 310-30 loans that are modified in a TDR are no longer classified as ASC 310-30 loans and are subject to TDR recognition.

Acquired loans that met the criteria for nonaccrual of interest prior to the acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans. As such, the Company may no longer consider the loan to be nonaccrual

~~F-13~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

or nonperforming and may accrue interest on these loans, including the impact of any accretable yield. The Company has determined that the Company can reasonably estimate future cash flows on the Company’s current portfolio of acquired loans that are past due 90 days or more and on which the Company is accruing interest and the Company expects to fully collect the carrying value of the loans.

For loans that do not meet the ASC 310-30 criteria, the Company accretes interest income based on the contractually required cash flows. Subsequent to the purchase date, the methods utilized to estimate the required allowance for loan losses for these loans is similar to originated loans.

~~Allowance for Loan Losses~~

~~The allowance for loan losses is established based upon the level of estimated probable incurred losses in the current loan portfolio. Loan losses~~Loans are charged off against the allowance when management believes the ~~collectability~~uncollectibility of a loan balance is ~~doubtful. Subsequent recoveries, if any, are credited~~confirmed. Accrued interest receivable is excluded from the estimate of credit losses.

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 ~~allowance.~~ 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 ~~losses includes allowance allocations calculated in accordance with ASC 310, “Receivables,”~~commitments and ~~allowance allocations calculated in accordance with ASC 450, “Contingencies.”~~ letters of credit).

The ~~allowance for loan losses~~ACLL is ~~allocated to loan types using both~~measured on a ~~formula-based approach applied to groups~~collective (pool) basis when similar risk characteristics exist. The Company evaluates its risk characteristics of loans and an analysis of certain individual loans for impairment. The formula-based approach emphasizes loss factors derived from actual historical and industry portfolio loss rates, which are combined with an assessment of certain qualitative factors to determine the allowance amounts allocated to the various loan categories. Allowance amounts are based on ~~an estimate of historical average annual percentage rate of~~regulatory call report code with sub-segmentation based on underlying collateral for certain loan loss for each loan segment, a temporal estimate of the incurred loss emergence and confirmation period for each loan category, and certain qualitative risk factors considered in the computation of the allowance for loan losses.

~~Qualitative risk factors impacting the inherent risk of loss within the portfolio include the following:~~

~~National and local economic conditions, regulatory/legislative changes, or other competitive factors affecting the collectability of the portfolio~~

~~Trends in underwriting characteristics, composition of the portfolio, and/or asset quality~~

~~Changes in underwriting standards and/or collection, charge off, recovery, and account management practice~~

~~The existence and effect of any concentrations of credit~~

types. Risk characteristics relevant to each portfolio segment are as follows:

F-12

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 this segment 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. In addition, 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 and industrial loans — – Loans in this segment are made to businesses and are generally secured by assets of the ~~business.~~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 inof this segment.

Residential ~~mortgage —~~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.

~~Consumer~~Home equity and other consumer loans — – Loans in this segment are primarily home equity lines of credit, ~~and second mortgages, together with~~ 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.

~~F-14~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The Company utilizes a blend of historical and industry portfolio loss rates for commercial real estate and commercial and industrial loans~~Loans that do not share risk characteristics are ~~assessed by internal risk rating. Historical loss rates for residential mortgages, home equity and other consumer loans are not risk graded but are assessed based~~evaluated on the total of each loan segment. This approach incorporates qualitative adjustments based upon management’s assessment of various market and portfolio specific risk factors into its formula-based estimate. Due to the imprecise nature of the loan loss estimation process and ever changing conditions, the qualitative risk attributes may not adequately capture amounts of incurred loss in the formula-based loan loss components used to determine allocations in the Company’s analysis of the adequacy of the allowance for loan losses.

The Company evaluates certain loans individually for specific impairment. Large groups of small balance homogeneous loans such as the residential mortgage, home equity, and other consumer portfolios are collectively evaluated for impairment. A loan is considered impaired when, based on current information and events, it is probable thatan individual basis, which the Company ~~will~~has determined to be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Loans are selected for evaluation based upon a change in internal risk rating, occurrence of delinquency, loan classification, or non-accrual status. The evaluation of certain loans individually for specific impairment includes non-accrual loans over a threshold, ~~and~~ loans that were determined to be Troubled Debt Restructurings (“TDRs”)~~. A~~ and PCD loans. Loans evaluated individually are not also included in the collective evaluation. Estimates of specific allowance ~~amount is allocated to an individual loan when such loan has been deemed impaired and when the amount of the probable loss is able to be estimated. Estimates of loss~~ may be determined by the present value of anticipated future cash flows or the loan’s observable fair market value, or the fair value of the collateral less costs to sell, if the loan is collateral dependent. However, for collateral dependent loans, the amount of the ~~recorded investment~~amortized cost in a loan that exceeds the fair value of the collateral is charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount has been identified definitively as uncollectible.

Regarding acquired loans, the Company subjects loans that do not meet the ASC 310-30 criteria to ASC 450-20 by collectively evaluating these loans for an allowance for loan loss. The Company applies a methodology similar to the methodology prescribed for business activities loans, which includes the application of environmental factors to each category of loans. The methodology to collectively evaluate the acquired loans outside the scope of ASC 310-30 includes the application of a number of environmental factors that reflect management’s best estimate of the level of incremental credit losses that might be recognized given current conditions. This is reviewed as part of the allowance for loan loss adequacy analysis. As the loan portfolio matures and environmental factors change, the loan portfolio will be reassessed each quarter to determine an appropriate reserve allowance.

Additionally, the Company considers the need for an additional reserve for acquired loans accounted for outside of the scope of ASC 310-30 under ASC 310-20. At acquisition date, the Bank determined a fair value mark with credit and interest rate components. Under the Company’s model, the impairment evaluation process involves comparing the carrying value of acquired loans, including the unamortized premium or discount, to the calculated reserve allowance. If necessary, the Company books an additional reserve to account for shortfalls identified through this calculation. A decrease in the expected cash flows in subsequent periods requires the establishment of an allowance for loan losses at that time for ASC 310-30 loans.

Bank-Owned Life Insurance

Bank-owned life insurance policies are reflected on the ~~consolidated~~Consolidated Balance Sheets at the amount that can be realized under the insurance contract at the balance ~~sheets at~~sheet date which is the cash surrender value. Changes in the net cash surrender value of the policies, as well as insurance proceeds received, are reflected in non-interest income on the ~~consolidated statements~~Consolidated Statements of ~~operations~~Operations and are not subject to income taxes.

Foreclosed and Repossessed Assets

Other real estate owned is comprised of real estate acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Repossessed collateral is primarily comprised of ~~aircraft, motor vehicles, and~~ taxi medallions. Both other real estate owned and repossessed collateral are held for sale and are initially recorded at the fair value less estimated costs to sell at the date of foreclosure or repossession, establishing a new cost basis. The

~~F-15~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

shortfall, if any, of the loan balance over the fair value of the property or collateral (excluding taxi medallions), less cost to sell, at the time of transfer from loans to other real estate owned or repossessed collateral is charged to the allowance for loan losses. Subsequent to transfer, the asset is carried at lower of cost or fair value less cost to sell and periodically evaluated for impairment. The shortfall, if any, of the loan balance over the fair value of the collateral comprised of taxi medallions at the time of transfer from loans to repossessed collateral is charged to non-interest income. Subsequent impairments in the fair value of other real estate owned and repossessed collateral are charged to expense in the period incurred. Net operating income or expense related to other real estate owned and repossessed collateral is included in operating expenses in the accompanying ~~consolidated statements~~Consolidated Statements of ~~income.~~Operations. Because of changing market conditions, there are inherent uncertainties in the assumptions with respect to the estimated fair value of other real estate owned and repossessed collateral. Because of these inherent uncertainties, the amount ultimately

F-13

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

realized on other real estate owned and repossessed collateral may differ from the amounts reflected in the ~~consolidated~~ financial statements.

Capitalized Servicing Rights

Capitalized servicing rights are included in “other assets” in the ~~consolidated balance sheet.~~Consolidated Balance Sheets. Servicing assets are initially recognized as separate assets at fair value when rights are acquired through purchase or through sale of financial assets with servicing retained.

The Company's servicing rights accounted for under the fair value method are carried on the ~~consolidated balance sheet~~Consolidated Balance Sheets at fair value with changes in fair value recorded in income in the period in which the change occurs. Changes in the fair value of servicing rights are primarily due to changes in valuation ~~inputs,~~ assumptions, such as discount rates and prepayment speeds, and the collection and realization of expected cash flows.

The Company’s servicing rights accounted for under the amortization method are initially recorded at fair value. Under that method, capitalized servicing rights are charged to expense in proportion to and over the period of estimated net servicing income. Fair value of the servicing rights is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, prepayment speeds and default rates and losses. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranches. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income.

Premises and Equipment

Land is carried at cost. Buildings, improvements, and equipment are carried at cost less accumulated depreciation and amortization computed on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on the straight-line method over the shorter of the lease term, plus optional terms if certain conditions are met, or the estimated useful life of the asset.

F-14

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is assessed annually for impairment, and more frequently if events or changes in circumstances indicate that there may be an impairment. Adverse changes in the economic environment, declining operations, unanticipated competition, loss of key personnel, or other factors could result in a decline in the implied fair value of goodwill. ~~If the implied fair value of goodwill is less than the carrying amount, a loss would be recognized in other non-interest expense to reduce the carrying amount to the implied fair value of goodwill.~~

The Company performs an annual qualitative assessment of whether it is more likely than not that the reporting unit's fair value is less than its carrying amount. If the results of the qualitative assessment suggest goodwill impairment, the Company would perform a two-step impairment test through the application of various quantitative valuation methodologies. Step 1, used to identify instances of potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount, including goodwill, exceeds its fair value, the second step of the goodwill impairment analysis is performed to measure the amount of impairment loss, if any. Step 2 of the goodwill impairment analysis compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of goodwill for the reporting unit exceeds the implied fair value of the reporting unit’s goodwill, an impairment loss is recognized in an amount equal to that

~~F-16~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~excess.~~ Subsequent reversals of goodwill impairment are prohibited. ~~The Company may elect to bypass the qualitative assessment and begin with Step 1.~~

Other Intangibles

Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability.

The fair values of these assets are generally determined based on appraisals and are subsequently amortized on a straight-line basis or an accelerated basis over their estimated lives. Management assesses the recoverability of these intangible assets at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount exceeds fair value, an impairment charge is recorded to income.

Transfers of Financial Assets

Transfers of an entire financial asset, group of entire financial assets, or a participating interest in an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets.

Income Taxes

Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable for future years to differences between financial statement and tax bases of existing assets and liabilities. The effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. A tax valuation allowance is established, as needed, to reduce net deferred tax assets to the amount expected to be realized. In the event it becomes more likely than not that some or all of the deferred tax asset allowances will not be needed, the valuation allowance will be adjusted.

In the ordinary course of business there is inherent uncertainty in quantifying the Company’s income tax

positions. Income tax positions and recorded tax benefits are based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have determined the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is more-likely-than-not that a tax benefit will not be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest and penalties have also been recognized. We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Insurance Commissions

Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later, net of return commissions related to policy cancellations. Policy cancellation is a variable consideration that is not deemed significant and thus, does not impact the amount of revenue recognized.

In addition, the Company may receive additional performance commissions based on achieving certain sales and loss experience measures. Such commissions are recognized when determinable, which is generally when such commissions are received or when the Company receives data from the insurance companies that allows the reasonable estimation of these amounts.

~~Advertising Costs~~

~~Advertising costs are expensed as incurred.~~

Stock-Based Compensation

The Company measures and recognizes compensation cost relating to share-based payment transactions based on the grant-date fair value of the equity instruments issued. The fair value of restricted stock is recorded as unearned

F-15

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

compensation. The deferred expense is amortized to compensation expense based on one of several permitted attribution methods over the longer of the required service period or performance period. For performance-based restricted stock awards, the Company estimates the degree to which performance conditions will be met to

~~F-17~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

determine the number of shares that will vest and the related compensation expense. Compensation expense is adjusted in the period such estimates change.

Income tax benefits and/or tax deficiencies related to stock compensation determined as the difference between compensation cost recognized for financial reporting purposes and the deduction for tax, are recognized in the income statement as income tax expense or benefit in the period in which they occur.

Wealth Management

Wealth management assets held in a fiduciary or agent capacity are not included in the accompanying ~~consolidated balance sheets~~Consolidated

Balance Sheets because they are not assets of the Company. ~~Fees~~

Wealth management fees is primarily comprised of fees earned from ~~wealth~~consultative investment management, ~~activities~~trust administration, tax return preparation, and financial planning. The Company’s performance obligation is generally satisfied over time and the resulting fees are ~~amortized over~~recognized monthly, based on the ~~period~~daily accrual of the ~~service performed.~~market value of the investment accounts and the applicable fee rate.

Derivative Instruments and Hedging Activities

The Company enters into interest rate swap agreements as part of the Company’s interest rate risk management strategy for certain assets and liabilities and not for speculative purposes. Based on the Company’s intended use for the interest rate swap at inception, the Company designates the derivative as either an economic hedge of an asset or liability or a hedging instrument subject to the hedge accounting provisions of ASC 815, “Derivatives and Hedging.”

Interest rate swaps designated as economic hedges are recorded at fair value within other assets or liabilities. Changes in the fair value of these derivatives are recorded directly through earnings.

For interest rate swaps that management intends to apply the hedge accounting provisions of ASC 815, the Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking the various hedges. Additionally, the Company uses dollar offset or regression analysis at the hedge’s inception and for each reporting period thereafter, to assess whether the derivative used in its hedging transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of the hedged item. The Company discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.

The Company has characterized its interest rate swaps that qualify under ASC 815 hedge accounting as cash flow hedges. Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate fluctuations, and are recorded at fair value in other assets or liabilities within the Company’s balance sheets. Changes in the fair value of these cash flow hedges are initially recorded in accumulated other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. Any hedge ineffectiveness assessed as part of the Company’s quarterly analysis is recorded directly to earnings.

The Company enters into commitments to lend with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed bonds to investors to hedge against the inherent interest rate and pricing risk associated with selling loans. The commitments to lend generally terminate once the loan is funded, the lock period expires or the borrower decides not to contract for the loan. The forward commitments generally terminate once the loan is sold, the commitment period expires or the borrower decides not to contract for the loan. These commitments are considered derivatives which are accounted for by recognizing their estimated fair value on the Consolidated Balance Sheets as either a freestanding asset or liability. See Note 16 15 - Derivative Instruments and Hedging Activitiesto the ~~Consolidated Financial Statements~~financial statements for more information on commitments to lend and forward commitments.

F-16

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company enters into off-balance sheet financial instruments, consisting primarily of credit related financial instruments. These financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received.

~~F-18~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Fair Value Hierarchy

The Company groups assets and liabilities that are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Employee Benefits

The Company maintains an employer sponsored 401(k) plan to which participants may make contributions in the form of salary deferrals and the Company provides matching contributions in accordance with the terms of the plan. Contributions due under the terms of the defined contribution plans are accrued as earned by employees.

Due to the Rome Bancorp acquisition in 2011, the Company inherited a noncontributory, qualified, defined benefit pension plan for certain employees who met age and service requirements; as well as other post-retirement benefits, principally health care and group life insurance. The Rome pension plan and postretirement benefits that were acquired in connection with the whole-bank acquisition ~~in the second quarter of 2011~~ were frozen prior to the close of the transaction. The pension benefit in the form of a life annuity is based on the employee’s combined years of service, age, and compensation. The Company also has a long-term care post-retirement benefit plan for certain executives where upon disability, associated benefits are funded by insurance policies or paid directly by the Company.

In order to measure the expense associated with the Plans, various assumptions are made including the discount rate, expected return on plan assets, anticipated mortality rates, and expected future healthcare costs. The assumptions are based on historical experience as well as current facts and circumstances. The Company uses a December 31 measurement date for its ~~Plans.~~plans. As of the measurement date, plan assets are determined based on fair value, generally representing observable market prices. The projected benefit obligation is primarily determined based on the present value of projected benefit distributions at an assumed discount rate.

Net periodic pension benefit costs include interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial losses. Net periodic postretirement benefit costs include service costs, interest costs based on an assumed discount rate, and the amortization of prior service credits and net actuarial gains. Differences between expected and actual results in each year are included in the net actuarial gain or loss amount, which is recognized in other comprehensive income. The net actuarial gain or loss in excess of a 10% corridor is amortized in net periodic benefit cost over the average remaining service period of active participants in the Plans. The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits.

The Company recognizes in its statement of condition an asset for a plan’s overfunded status or a liability for a plan’s underfunded status. The Company also measures the Plans’ assets and obligations that determine its funded status as of the end of the fiscal year and recognizes those changes in other comprehensive income, net of tax.

F-17

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Due to the SI Financial acquisition in 2019, the Company inherited a tax-qualified defined benefit pension plan. The plan was frozen effective September 6, 2013 and SI Financial recorded a contingent obligation to settle the plan at a future date, which was assumed by the Company. The plan is a single plan under the Internal Revenue Code and, as a result, all of the assets stand behind all of liabilities. Accordingly, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.

Operating Segments

The Company operates as ~~one~~1 consolidated reportable segment. The chief operating decision-maker evaluates consolidated results and makes decisions for resource allocation on this same data. Management periodically reviews and redefines its segment reporting as internal reporting practices evolve and components of the business

~~F-19~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

change. The ~~consolidated~~ financial statements reflect the financial results of the Company's ~~one~~1 reportable operating segment.

Recently Adopted Accounting Principles

~~Effective January 1, 2017, the following new accounting guidance was adopted by the Company:~~

~~ASU No. 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships;~~

~~ASU No. 2016-06, Contingent Put and Call Options in Debt Instruments;~~


~~��~~	~~ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting~~

~~ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments; and~~

~~ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities~~

~~The adoption of these accounting standards did not have a material impact on the Company's financial statements.~~

~~Future Application of Accounting Pronouncements~~

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This ASU provides a revenue recognition framework for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are within the scope of other accounting standards. The standard permits the use of either the retrospective or cumulative effect transition method. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2017. This ASU impacts the Company’s wealth management fees, insurance commissions and fees, administrative services for customer deposit accounts, interchange fees, and sale of owned real estate properties. ASU 2014-09, as amended, became effective for the Company on January 1, 2018. The adoption of ASU 2014-09 on January 1, 2018 was not material to our consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires an entity to: i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available-for-sale debt securities in combination with other deferred tax assets. The guidance provides an election to subsequently measure certain non-marketable equity investments at cost less any impairment and adjusted for certain observable price changes. The guidance also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The guidance is effective for annual periods beginning after December 15, 2017. ASU 2016-01 became effective for the Company on January 1, 2018. The adoption will increase the volatility of other income (expense), net, as a result of the re-measurement of our equity and cost method investments. The adoption of ASU 2016-01 on January 1, 2018 was not material to our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases”. The new pronouncement improves the transparency and comparability of financial reporting around leasing transactions and more closely aligns accounting for leases with the recently issued International Financial Reporting Standard. The pronouncement affects all entities that are participants to leasing agreements. From a lessee accounting perspective, the ASU requires a lessee to recognize assets and liabilities on the balance sheet for operating leases and changes many key definitions, including the definition of a lease. The ASU includes a short-term lease exception for leases with a term of twelve months or less, in which a lessee can make an accounting policy election not to recognize lease assets and lease liabilities. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases, using classification criteria that are substantially similar to the previous guidance. For lessees, the recognition, measurement, and presentation of expenses and cash flows arising from a lease have not significantly changed from previous GAAP. From a lessor accounting perspective, the guidance is largely unchanged, except for targeted improvements to align with new terminology under lessee accounting and with the updated revenue recognition guidance in Topic 606. For sale-leaseback transactions, for a sale to occur the transfer must meet the sale criteria under the new revenue standard, ASC 606. Entities will not be required to reassess transactions previously accounted under then existing guidance.

~~F-20~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

Additionally, the ASU includes additional quantitative and qualitative disclosures required by lessees and lessors to help users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years beginning after December 31, 2018, and interim periods within those fiscal years. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply as well as transition guidance specific to nonstandard leasing transactions. The Company is currently evaluating the provisions of ASU No. 2016-02 to determine the potential impact the new standard will have on the Company's consolidated financial statements. It is expected that assets and liabilities will increase based on the present value of remaining lease payments for leases in place at the adoption date; however, this is not expected to be material to the Company's results of operations or financial position. The Company continues to evaluate the extent of potential impact the new guidance will have on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. The ASU requires companies to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Forward-looking information will now be used in credit loss estimates. The ASU requires enhanced disclosures to provide better understanding surrounding significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of a company’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Most debt instruments will require a cumulative-effect adjustment to retained earnings on the statement of financial position as of the beginning of the first reporting period in which the guidance is adopted (modified retrospective approach). However, there is instrument-specific transition guidance. ASU No. 2016-13 is effective for interim and annual periods beginning after December 15, 2019. Early application will be permitted for interim and annual periods beginning after December 15, 2018. The Company is evaluating the provisions of ASU No. 2016-13, and will closely monitor developments and additional guidance to determine the potential impact on the Company's consolidated financial statements. The Company expects the primary changes to be the application of the expected credit loss model to the financial statements. In addition, the Company expects the guidance to change the presentation of credit losses within the available-for-sale fixed maturities portfolio through an allowance method rather than as a direct write-down. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected. The allowance method for available-for-sale debt securities will allow the Company to record reversals of credit losses if the estimate of credit losses declines. The Company is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting guidance, which at the date of adoption is expected to increase the allowance for credit losses with a resulting negative adjustment to retained earnings.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles: Goodwill and ~~Other:~~Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The ASU simplifies the test for goodwill impairment by eliminating the second step of the current two-step method. Under the new accounting guidance, entities will compare the fair value of a reporting unit with its carrying amount. If the carrying amount exceeds the reporting unit’s fair value, the entity is required to recognize an impairment charge for this amount. Current guidance requires an entity to proceed to a second step, whereby the entity would determine the fair value of its assets and liabilities. The new method applies to all reporting units. The performance of a qualitative assessment is still allowable. This accounting guidance is effective prospectively for interim and annual reporting periods beginning after December 15, 2019. The adoption of ASU No. 2017-04 did not impact the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds, and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Entities are also allowed to elect early adoption for the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018-13 only revises disclosure requirements, it did not have a material impact on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU No. 2018-15 clarifies certain aspects of ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” which was issued in April 2015. Specifically, ASU No. 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU No. 2018-15 does not affect the accounting for the service element of a hosting arrangement that is a service contract. ASU No. 2018-15 is effective for interim and annual reporting periods beginning after December 15, 2019. The adoption did not have a material impact on the Company's Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and related subsequent amendments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected losses under the CECL methodology is applicable to financial assets measured at amortized cost, as well as unfunded commitments that are considered off-balance sheet credit exposures at the reporting date. The measurement is based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to enhance their credit loss estimates. The update requires enhanced disclosures to help investors and

F-18

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For available for sale debt securities with unrealized losses, Topic 326 requires credit losses to be recognized as an allowance rather than a reduction in the amortized cost of the securities. As a result, improvements to estimated credit losses are recognized immediately in earnings rather than as interest income over time. The current expected credit loss measurement will be used to estimate the allowance for credit losses (“ACL”) over the life of the financial assets. The amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2019.

As previously disclosed, the Company assembled a cross-functional working group that met regularly to oversee the implementation plan which included assessment and documentation of processes and internal controls, model development and documentation, assessing existing loan and loss data, assessing models for default and loss estimates, and conducting parallel runs and reviews through December 31, 2019.

Under CECL the Company determines its allowance for credit losses on loans using pools of assets with similar risk characteristics. The Company evaluates its risk characteristics of loans based on regulatory call report code with sub-segmentation based on underlying collateral for certain loan types. Loans that no longer match the risk profile of the pool are individually assessed for credit losses. The Company’s lifetime credit loss models are based on historical data and incorporate forecasts of macroeconomic variables, expected prepayments and recoveries. Enhancements were made in the third quarter of 2020 to the Company’s economic adjustment calculation. The Company implemented segment-level loss calculations based on the equation of the fit line which replaced the previous calculation using a range. This allows the model to calculate a specific point estimate for the loss rate as compared to using a mid-point of a range. Additionally, the Company utilized actual loan runoff by segment whereas previously a calculation was utilized for the weighted average life period. The enhancements to the economic adjustment calculation were accounted for as a change in estimate and were not considered material to the overall calculation. Outside of the model, non-economic qualitative factors are applied to further refine the expected loss calculation for each portfolio. A seven quarter reasonable and supportable forecast period with a 1 year reversion period is currently used for all loan portfolios. When the risk characteristics of a loan no longer match the characteristics of the collective pool, the loan is removed from the pool and individually assessed for credit losses. Generally, non-accrual loans above a threshold deemed appropriate by management, TDRs, potential TDRs, and collateral dependent loans are individually assessed.

The individual assessment for credit impairment is generally based on a discounted cash flow approach unless the asset is collateral dependent. A loan is considered collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually assessed and the expected credit loss is based on the fair value of the collateral. The fair value is reduced for estimated costs to sell if the value of the collateral is expected to be realized through sale.

The Company has elected to present accrued interest receivable separately from the amortized cost basis on the balance sheet and is not currently estimating an allowance for credit loss on accrued interest. This election applies to loans as well as debt securities. The Company's non-accrual policies have not changed as a result of adopting CECL.

The Company adopted CECL on January 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for the reporting periods after January 1, 2020 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. On the adoption date, the Company increased the allowance for credit losses for loans by $25.4 million and increased the allowance for credit losses for unfunded loan commitments by $8.0 million (in other liabilities). The increase related to the Company's acquired loan portfolio totaled $15.3 million. Under the previously applicable accounting guidance, any remaining unamortized loan discount on an individual loan could be used to offset a charge-off for that loan, so the allowance for loan losses needed for the acquired loans was reduced by the remaining loan discounts. The new ASU removes the ability to offset a charge-off against the remaining loan

F-19

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

discount and requires an allowance for credit losses to be recognized in addition to the loan discount. The impact of adopting the ASU, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of our loans and available-for-sale securities portfolio, along with other management judgments. The FASB provided transition relief, allowing entities to irrevocably elect, upon adoption of CECL, the fair value option (FVO) on financial instruments that were previously recorded at amortized cost and are within the scope of ASC 326-20 if the instruments are eligible for the FVO under ASC 825-10. It is applied through a cumulative-effect adjustment to retained earnings. The Company elected the FVO for the taxi medallion portfolio resulting in a $15.3 million reduction in loan valuation. As of January 1, 2020, the Company recorded a cumulative-effect adjustment of $24.4 million decrease in retained earnings, net of deferred tax balances of $9.0 million.

The Company recorded an allowance for credit losses as of January 1, 2020 on its securities held to maturity of $0.3 million.

The Company adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired and accounted for under ASC 310-30. In accordance with the standard, Berkshire did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption. On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $15.3 million to the allowance for credit losses for loans which is net of $11.9 million adjustment for confirmed losses. The remaining noncredit discount in the amount of $3.2 million will be accreted into interest income at the effective interest rate as of January 1, 2020.

The impact of the January 1, 2020, adoption entry is summarized in the table below:


(in thousands)	December 31, 2019 Pre-ASC 326 Adoption	Impact of Adoption	January 1, 2020 Post-ASC 326 Adoption
Assets:
Loans	9,502,428	—	9,502,428
PCD gross up	—	15,326	15,326
Fair value option	—	(15,291)	(15,291)
Total loans	9,502,428	35	9,502,463
Allowance for credit losses on loans	63,575	25,434	89,009
Allowance for credit losses on securities	—	309	309
Deferred tax assets, net	51,165	8,993	60,158

Liabilities and shareholders' equity:
Other liabilities (ACL unfunded loan commitments)	100	7,993	8,093
Retained earnings	361,082	(24,380)	336,702

In December 2018, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company is adopting the capital transition relief over the permissible five-year period.

On March 27, 2020, the Coronavirus, Aid, Relief, and Economic Security ("CARES") Act, which provides relief from certain requirements under GAAP, was signed into law. Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings ("TDRs") under

F-20

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASC 310-40 in certain situations. In addition, on April 7, 2020, certain regulatory banking agencies issued an interagency statement that offers practical expedients for evaluating whether loan modifications in response to the COVID-19 pandemic are TDRs. The interagency statement was originally issued on March 22, 2020, but was revised to address the relationship between their original TDR guidance and the guidance in Section 4013 of the CARES Act. To qualify for TDR accounting and disclosure relief under the CARES Act, the applicable loan must not have been more than 30 days past due as of December 31, 2019, and the modification must be executed during the period beginning on March 1, 2020, and ending on the earlier of December 31, 2020, or the date that is 60 days after the termination date of the national emergency declared by the president on March 13, 2020, under the National Emergencies Act related to the outbreak of COVID-19. The CARES Act applies to modifications made as a result of COVID-19, including forbearance agreements, interest rate modifications, repayment plans, and other arrangements to defer or delay payment of principal or interest. The interagency statement does not require the modification to be completed within a certain time period if it is related to COVID-19 and the loan was not more than 30 days past due as of the date of the Company’s implementation of its modification programs. Moreover, the interagency statement applies to short-term modifications including payment deferrals, fee waivers, extensions of repayment terms, or other insignificant payment delays as a result of COVID-19. The Company will apply Section 4013 of the CARES Act and the interagency statement in connection with applicable modifications. For modifications that qualify under either the CARES Act or the interagency statement, TDR accounting and reporting is suspended through the period of the modification; however, the Company will continue to apply its existing non-accrual policies including consideration of the loan's past due status which is determined on the basis of the contractual terms of the loan. Once a loan has been contractually modified, the past due status is generally based on the updated terms including payment deferrals.

Future Application of Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU amends and modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments in this update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. As ASU No. 2018-14 only revises disclosure requirements, it will not have a material impact on the Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU No. 2019-12 removes specific exceptions to the general principles in FASB ASC Topic 740. It eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also improves financial statement preparers’ application of income tax-related guidance and simplifies: (1) franchise taxes that are partially based on income; (2) transactions with a government that result in a step up in the tax basis of goodwill; (3) separate financial statements of legal entities that are not subject to tax; and (4) enacted changes in tax laws in interim periods. The amendments in this ASU become effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The adoption is not expected to have a material impact on the Company's Consolidated Financial Statements.

In January 2020, the FASB issued ASU No. 2020-01, “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force)”. ASU No. 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. In addition, this ASU provides direction that a company should not consider whether the underlying securities would be accounted for under the equity method or the fair

F-21

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise. The amendments in this ASU become effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, and the amendments are to be applied prospectively. The adoption is not expected to have a material impact on the Company's Consolidated Financial Statements.

In March 2020, the FASB issued ASU No. 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as SOFR. For instance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. Finally, entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. It is anticipated that this ASU will simplify any modifications that are executed between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. The Company is ~~in the process of~~currently evaluating the impact of adopting the new ~~accounting~~ guidance ~~but it is not expected to have a material impact.~~on the Consolidated Financial Statements.

In ~~August 2017,~~January 2021, the FASB issued ASU No. ~~2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.~~2021-01, “Reference Rate Reform (Topic 848): Scope.” ~~The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities.~~ ASU No. ~~2017-12 is~~2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU No. 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU No. 2021-01 was effective ~~for public business entities for fiscal years beginning after~~upon issuance and generally can be applied through December ~~15, 2018, with early~~31, 2022. The adoption ~~including adoption in an interim~~

of ASU 2021-01 did not significantly impact the Company’s Consolidated Financial Statements.

~~F-21~~

F-22

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. DISCONTINUED OPERATIONS AND HELD FOR SALE

~~period, permitted. ASU 2017-12 requires a modified retrospective transition method in which~~

During the first quarter of 2019, the Company ~~will recognize~~reached the ~~cumulative effect~~decision to pursue the sale of the ~~change on the opening balance~~national mortgage banking operations of ~~each affected component of equity in the consolidated balance sheet as~~First Choice Loan Services, Inc. (“FCLS”) – a subsidiary of the ~~date~~Bank. The decision was based on a number of ~~adoption. While~~strategic priorities and other factors, including the competitiveness of the mortgage industry. As a result of these actions, the Company ~~continues~~classified the operations of FCLS as discontinued under ASC 205-20. The Consolidated Balance Sheets, Consolidated Statements of Operations, and Consolidated Statements of Cash Flows present discontinued operations retrospectively for current and prior periods.

On May 7, 2020, the Company completed a transaction to ~~assess all potential impacts~~sell certain assets and liabilities related to the operations of FCLS. During the ~~standard, we currently expect adoption to have an immaterial impact on our consolidated financial statements.~~

~~In February 2018, the FASB issued ASU No. 2018-02, “Income statement - Reporting Comprehensive Income (Topic 220) Reclassification~~fourth quarter of Certain Tax Effects from Accumulated Other Comprehensive Income” which will allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. These amendments are effective for all entities for fiscal years beginning after December 15, 2018. For interim periods within those fiscal years, early adoption of the amendment is permitted including public business entities for reporting periods for which financial statements have not yet been issued. The Company will reclassify the stranded tax effect in accumulated other comprehensive income to retained earnings as required under the new accounting guidance beginning March 31, 2018.

~~F-22~~

~~Table of Contents~~

~~NOTE 2. ACQUISITIONS~~

~~Commerce Bank~~

~~At the close of business on October 13, 2017,~~2020, the Company completed the ~~acquisition~~final wind-down of ~~Commerce Bancshares Corp. (“Commerce”),~~ the ~~parent company~~operations of Commerce Bank & Trust Company (“Commerce Bank”). Commerce Bank also merged with and into Berkshire Bank. Headquartered in Worcester, Mass., Commerce Bank operated 16 branch banking offices providing a range of services in Central Massachusetts and greater Boston. With this agreement, the Company established a market position in Worcester, New England’s second largest city. Additionally, this acquisition was a catalystFCLS. Operating results for the Company’s decision to relocate its corporate headquarters to Boston and to expand its Greater Boston market initiatives. This acquisition also increased the Company’s total assets over the $10 billion Dodd Frank Act threshold for additional regulatory requirements.

As established by the merger agreement, each of the 6.328 million outstanding shares of Commerce common stock was converted into the right to receive 0.93 shares of the Company's common stock, plus cash in lieu of fractional shares. Certain Commerce common stock was instead converted into the right to receive 0.465 shares of new Series B preferred stock (non-voting) issued by the Company, pursuant to limited circumstances established by the merger agreement. Each preferred share is convertible into two shares of the Company's common stock under specified conditions. As of close of business on October 13, 2017, the Company issued 4.842 million common shares and 522 thousand preferred shares as merger consideration, pursuantyear ended December 31, 2020, include expenses related to the ~~merger agreement. The value~~wind-down of ~~this consideration was measured at $188.6 million for the common stock and $40.6 million for the preferred stock based on the $38.95 closing price of the Company’s common stock on the issuance date.~~operations.

Pursuant to the Merger Agreement, the Commerce Bancshares 2010 Long-Term Incentive Plan was terminated prior to the acquisition date and the holder of a phantom stock award, whether or not vested, received an amount of cash determined by multiplying (i) the excess, if any, of $34.00 less the applicable per share exercise price of that Commerce phantom stock award by (ii) the number of shares of Commerce common stock subject to that Commerce phantom stock award, less any required tax withholding. Prior to the effective time of the merger, Commerce accelerated and repaid in full the Commerce subordinated debt per the merger agreement.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Accordingly, the Company recognizes amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair value, with any excess of purchase consideration over the net assets being reported as goodwill. Due to the complexity in valuing the acquired loans and the significant amount of data inputs required, the valuation of the loans is not yet final. Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to the closing date fair values becomes available. Management continues to review initial estimates on certain areas such as loan valuations and the deferred tax asset.

~~F-23~~

~~Table of Contents~~

The following ~~table provides~~is a summary of the assets ~~acquired~~ and liabilities ~~assumed~~of the discontinued operations of FCLS at December 31, 2020 and December 31, 2019:


(in thousands)	December 31, 2020		December 31, 2019
Assets
Loans held for sale, at fair value	$	0	$	132,655
Premises and equipment, net	0		1,073
Mortgage servicing rights, at fair value	0		12,299
Mortgage banking derivatives	0		2,329

Right-of-use asset	0		3,462
Deferred tax	0		(3,418)
Other assets	0		5,732
Total assets	$	0	$	154,132
Liabilities
Customer payments in process	$	0	$	15,372

Lease liability	0		3,494
Other liabilities	0		7,615
Total liabilities	$	0	$	26,481

FCLS funded its lending operations and maintained working capital through an intercompany line-of-credit with the Bank. Although the wind-down of FCLS resulted in settlement of these borrowings, debt was not allocated to discontinued operations due to the intercompany nature of the borrowings.

F-23

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following presents operating results of the discontinued operations of FCLS for the years ended December 31, 2020, 2019, and 2018:


	Years Ended December 31,
(in thousands)	2020		2019		2018
Interest income	$	1,525	$	6,085	$	5,267
Interest expense	391		3,372		2,131
Net interest income	1,134		2,713		3,136
Non-interest (loss)/income	(4,740)		38,517		35,574
Total net revenue	(3,606)		41,230		38,710
Non-interest expense	23,249		46,769		43,477
(Loss) from discontinued operations before income taxes	(26,855)		(5,539)		(4,767)
Income tax (benefit)	(7,013)		(1,468)		(1,313)
Net (loss) from discontinued operations	$	(19,842)	$	(4,071)	$	(3,454)

FCLS also originated mortgages designated as held-for-investment. This component of FCLS’s operations was not considered discontinued, since the Company expects to continue to originate mortgages designated as held-for-investment in its footprint on a small scale through processes considered as continuing operations.

Mid-Atlantic Branch Sale

The Company has entered into an agreement to sell its 8 Mid-Atlantic branches to Investors Bank of Short Hills, New Jersey, subject to customary regulatory approvals. The transfer is targeted for completion in the first half of 2021. The branch sale includes loans with a total balance of $301 million and deposit accounts with a total balance of $617 million as of December 31, 2020. These balances are included in assets held for sale and liabilities held for sale on the Consolidated Balance Sheets. The buyer has agreed to pay a premium equal to 3.0% of the final deposit balance transferred. The sale includes all branch premises and equipment, and the agreement provides that the buyer intends to offer employment to all associated ~~fair value adjustments as recorded by~~staff. Berkshire expects to complete the ~~Company~~net transfer with funds from short-term investments. The branch sale will have no effect on Berkshire’s Mid-Atlantic specialized commercial lending operations, including SBA lending at ~~acquisition:~~its 44 Business Capital Division and its asset-based lending relationships.

Fair Value As Recorded by
(in thousands) As Acquired Adjustments the Company
Consideration Paid:
Company common stock issued to Commerce common shareholders $ 188,599
Company preferred stock issued to certain Commerce shareholders 40,633
Cash in lieu paid to Commerce shareholders
1
Total consideration paid $ 229,233
Recognized amounts of identifiable assets acquired and (liabilities) assumed, at fair value:
Cash and short-term investments $ 374,611
$ —
$ 374,611
Investment securities 115,274
(1,427 ) (a) 113,847
Loans, net 1,327,256
(86,505 ) (b) 1,240,751
Premises and equipment 8,931
5,346
(c) 14,277
Core deposit intangibles —
22,400
(d) 22,400
Deferred tax assets, net 7,956
26,580
(e) 34,536
Goodwill and other intangibles 11,233
(11,233 ) (f) —
Other assets 52,709
(3,664 ) (g) 49,045
Deposits (1,710,872 ) (1,180 ) (h) (1,712,052 )
Borrowings (19,542 ) —

(19,542 )
Other liabilities (5,086 ) 265

(4,821 )
Total identifiable net assets $ 162,470
$ (49,418 ) $ 113,052

Goodwill $ 116,181

~~Explanation~~The following is a summary of ~~Certain Fair Value Adjustments~~the assets and liabilities related to the branch sale at December 31, 2020:


~~(a)~~(in thousands)			~~The adjustment represents the write down of the book value of securities to their estimated fair value at the date of acquisition.~~			December 31, 2020

Assets
~~(b)~~Loans			The adjustment represents the write-off of $15.0 million in allowance for loan and lease losses and the write down of the book value of loans to their estimated fair value based on interest rates and expected cash flows as of the acquisition date, which includes an estimate of expected loan loss inherent in the portfolio. The valuation of the loans is provisional. Loans with evidence of credit deterioration at acquisition are accounted for under ASC 310-30 and had a book value of $163.1 million and had a fair value of $71.1 million. Non-impaired loans accounted for under ASC 310-20 had a book value of $1.18 billion and have a fair value of $1.17 billion. ASC 310-30 loans have a $10.8 million fair value adjustment that is accretable in earnings. ASC 310-20 loans have a $4.0 million fair value adjustment premium that is amortized over the remaining term of the loans using the effective interest method, or a straight-line method if the loan is a revolving credit facility.			$	300,599

Other assets		16,705

~~(c)~~	The adjustment represents an increased fair value based on the appraised value of Commerce’s owned branches and headquarters comprised of $5.7 million for buildings and $0.7 million for land. This was offset by a $1.0 million reduction of the book value of furniture, fixtures, and equipment, to their estimated fair value and the immediate expensing of equipment not meeting the thresholds for capitalization in accordance with Company policy. The adjustments will be depreciated over the remaining estimated economic lives of the assets.


~~(d)~~			The adjustment represents the value of the core deposit base assumed in the acquisition. The core deposit asset was recorded as an identifiable intangible asset and will be amortized over the estimated useful life of the deposit base (10 years).


~~(e)~~Total assets			~~Represents net deferred tax assets resulting from the fair value adjustments related to the acquired assets and liabilities, identifiable intangibles, and other purchase accounting adjustments.~~			$	317,304

Liabilities
~~(f)~~Deposits			~~Represents the write-off of goodwill and intangible assets from a prior Commerce acquisition.~~

$	617,377
~~(g)~~Other liabilities			~~The adjustment includes a $3.5 million write-down of repossessed assets based on market report data.~~

12,688
~~(h)~~Total liabilities			The adjustment is necessary because the weighted average interest rate of time deposits exceeded the cost of similar funding at the time of acquisition. The amount will be amortized over the estimated useful life of nine months.			$	630,065

F-24

Table of Contents

Except for collateral dependent loans with deteriorated credit quality, the fair values for loans acquired were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. For collateral dependent loans with deteriorated credit quality, the Company estimated fair value by analyzing the value of the underlying collateral of the loans, assuming the fair values of the loans were derived from the eventual sale of the collateral. Those values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of the seller’s allowance for credit losses associated with the loans acquired, as the loans were initially recorded at fair value. Provisional information about the Commerce Bank acquired loan portfolio subject to ASC 310-30 as of October 13, 2017 is as follows (in thousands):

ASC 310-30 Loans
Gross contractual receivable amounts at acquisition $ 163,125
Contractual cash flows not expected to be collected (nonaccretable discount) (81,205 )
Expected cash flows at acquisition 81,920
Interest component of expected cash flows (accretable discount) (10,815 )
Fair value of acquired loans $ 71,105

~~Capitalized goodwill, which is not amortized for book purposes, is not deductible for tax purposes.~~

Direct acquisition and integration costs of the Commerce Bank acquisition were expensed as incurred, and totaled $17.8 million during the twelve months ending December 31, 2017 and there were none for the same period of 2016.

~~F-25~~

~~Table of Contents~~

~~Pro Forma Information (unaudited)~~

The following table presents selected unaudited pro forma financial information reflecting the acquisition of Commerce assuming the acquisition was completed as of January 1, 2016. The unaudited pro forma financial information includes adjustments for scheduled amortization and accretion of fair value adjustments. These adjustments would have been different if they had been recorded on January 1, 2016, and they do not include the impact of prepayments. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the combined financial results of the Company and the acquisition had the transaction actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period. The unaudited pro forma information is based on the actual financial statements of Berkshire and the acquired business for the periods shown until the dates of acquisition, at which time the acquired business operations became included in Berkshire’s financial statements.

For whole-bank acquisitions, the Company has determined it is impractical to report the amounts of revenue and earnings of each entity since acquisition date. Due to the integration of their operations with those of the organization, the Company does not record revenue and earnings separately. The revenue and earnings of Commerce’s operations are included in the Consolidated Statement of Income.

The unaudited pro forma information, for the twelve months ended December 31, 2017 and 2016, set forth below reflects adjustments related to (a) amortization and accretion of purchase accounting fair value adjustments; (b) amortization of core deposit and customer relationship intangibles; and (c) an estimated tax rate of 40 percent. Direct acquisition expenses incurred by the Company during 2017, as noted above, are reversed for the purposes of this unaudited pro forma information. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing or anticipated cost-savings that could occur as a result of the acquisition.

~~Information in the following table is shown in thousands, except earnings per share:~~

Pro Forma (unaudited)
Years ended December 31,
2017 2016
Net interest income $ 344,797
$ 302,012
Non-interest income 134,818
77,192
Income available to common shareholders 77,340
78,859

~~F-26~~

~~Table of Contents~~

NOTE 3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, amounts due from banks, and short-term investments with original maturities of 90 days or less. Short-term investments included ~~$2.1~~$75.1 million and ~~$0.9~~$96.3 million pledged as collateral support for derivative financial contracts at year-end ~~2017~~2020 and ~~2016,~~2019, respectively. The Federal Reserve Bank requires the Bank to maintain certain reserve requirements of vault cash and/or deposits. As of December 31, 2020, the reserve requirement was 0. The reserve requirement, included in cash and equivalents, as of December 31, 2019 was ~~$20.4 million and $17.0 million at year-end 2017 and 2016, respectively.~~$18.3 million.

NOTE 4. TRADING SECURITY

The Company holds a tax advantaged economic development bond that is being accounted for at fair value. The security had an amortized cost of ~~$10.8~~$8.7 millionand ~~$11.4~~$9.4 million and a fair value of ~~$12.3~~$9.7 million and ~~$13.2~~$10.8 million at year-end ~~2017~~2020 and ~~2016,~~2019, respectively. Unrealized ~~(losses) gains~~losses recorded through income on this security totaled ~~($0.3)~~$0.3 million, ~~($0.4)~~$0.3 million, and ~~($0.2)~~$0.4 million for ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, respectively. As discussed further in Note 1615 - Derivative Instruments and Hedging Activities, the Company has 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 are no other debt securities in the trading portfolio at year-end ~~2017~~2020 and ~~2016.~~

2019.

~~F-27~~

F-25

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. SECURITIES

The following is a summary of securities available for sale (“AFS”) ~~and securities~~, held to maturity (“HTM”):, and marketable equity securities:


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance
December 31, 2020
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	90,273	$	7,530	$	0	$	97,803	$	0
Agency collateralized mortgage obligations	740,225		16,836		(235)		756,826		0
Agency mortgage-backed securities	433,311		4,954		(133)		438,132		0
Agency commercial mortgage-backed securities	278,990		9,835		(175)		288,650		0
Corporate bonds	59,098		942		(10)		60,030		0

Other bonds and obligations	52,080		1,719		(8)		53,791		0
Total securities available for sale	1,653,977		41,816		(561)		1,695,232		0
Securities held to maturity
Municipal bonds and obligations	246,520		20,106		0		266,626		64
Agency collateralized mortgage obligations	153,561		5,989		(171)		159,379		0
Agency mortgage-backed securities	35,865		198		(29)		36,034		0
Agency commercial mortgage-backed securities	25,481		590		(12)		26,059		0
Tax advantaged economic development bonds	3,369		93		0		3,462		40
Other bonds and obligations	295		0		0		295		0
Total securities held to maturity	465,091		26,976		(212)		491,855		104

Marketable equity securities	18,061		767		(315)		18,513		—
Total	$	2,137,129	$	69,559	$	(1,088)	$	2,205,600	$	104

December 31, 2019
Securities available for sale
Debt securities:
Municipal bonds and obligations	$	104,325	$	5,813	$	0	$	110,138	$	0
Agency collateralized mortgage obligations	742,550		6,431		(169)		748,812		0
Agency mortgage-backed securities	146,589		1,515		(360)		147,744		0
Agency commercial mortgage-backed securities	148,066		176		(1,146)		147,096		0
Corporate bonds	115,395		1,788		(607)		116,576		0

Other bonds and obligations	40,414		780		(5)		41,189		0
Total securities available for sale	1,297,339		16,503		(2,287)		1,311,555		0
Securities held to maturity
Municipal bonds and obligations	252,936		13,095		(5)		266,026		0
Agency collateralized mortgage-backed securities	69,667		2,870		(50)		72,487		0
Agency mortgage-backed securities	6,271		29		0		6,300		0
Agency commercial mortgage-backed securities	10,353		51		0		10,404		0
Tax advantaged economic development bonds	18,456		218		(910)		17,764		0
Other bonds and obligations	296		0		0		296		0
Total securities held to maturity	357,979		16,263		(965)		373,277		0

Marketable equity securities	37,138		5,147		(729)		41,556		—
Total	$	1,692,456	$	37,913	$	(3,981)	$	1,726,388	$	0

F-26

(In thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
December 31, 2017

Securities available for sale

Debt securities:

Municipal bonds and obligations $ 113,427
$ 5,012
$ (206 ) $ 118,233
Agency collateralized mortgage obligations 859,705
397
(8,944 ) 851,158
Agency mortgage-backed securities 218,926
279
(2,265 ) 216,940
Agency commercial mortgage-backed securities 64,025
41
(1,761 ) 62,305
Corporate bonds 110,076
882
(237 ) 110,721
Trust preferred securities 11,334
343
—
11,677
Other bonds and obligations 9,757
154
(31 ) 9,880
Total debt securities 1,387,250
7,108
(13,444 ) 1,380,914
Marketable equity securities 36,483
9,211
(509 ) 45,185
Total securities available for sale 1,423,733
16,319
(13,953 ) 1,426,099
Securities held to maturity

Municipal bonds and obligations 270,310
8,675
(90 ) 278,895
Agency collateralized mortgage obligations 73,742
1,045
(486 ) 74,301
Agency mortgage-backed securities 7,892
—
(164 ) 7,728
Agency commercial mortgage-backed securities 10,481
—
(268 ) 10,213
Tax advantaged economic development bonds 34,357
596
(1,135 ) 33,818
Other bonds and obligations 321
—
—
321
Total securities held to maturity 397,103
10,316
(2,143 ) 405,276
Total $ 1,820,836
$ 26,635
$ (16,096 ) $ 1,831,375
December 31, 2016

Securities available for sale

Debt securities:

Municipal bonds and obligations $ 117,910
$ 2,955
$ (1,049 ) $ 119,816
Agency collateralized mortgage obligations 652,680
2,522
(3,291 ) 651,911
Agency mortgage-backed securities 230,308
557
(2,181 ) 228,684
Agency commercial mortgage-backed securities 65,673
229
(1,368 ) 64,534
Corporate bonds 56,320
408
(722 ) 56,006
Trust preferred securities 11,578
368
(59 ) 11,887
Other bonds and obligations 10,979
195
(16 ) 11,158
Total debt securities 1,145,448
7,234
(8,686 ) 1,143,996
Marketable equity securities 47,858
19,296
(1,613 ) 65,541
Total securities available for sale 1,193,306
26,530
(10,299 ) 1,209,537
Securities held to maturity

Municipal bonds and obligations 203,463
3,939
(2,416 ) 204,986
Agency collateralized mortgage-backed securities 75,655
1,281
(411 ) 76,525
Agency mortgage-backed securities 9,102
—
(243 ) 8,859
Agency commercial mortgage-backed securities 10,545
—
(434 ) 10,111
Tax advantaged economic development bonds 35,278
1,596
—
36,874
Other bonds and obligations 325
—
—
325
Total securities held to maturity 334,368
6,816
(3,504 ) 337,680
Total $ 1,527,674
$ 33,346
$ (13,803 ) $ 1,547,217

~~F-28~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At year-end ~~2017~~2020 and ~~2016,~~2019, accumulated net unrealized ~~gains~~gains/(losses) on AFS securities included in accumulated other comprehensive ~~income~~income/(loss) were ~~$2.3~~$41.3 million and ~~$16.2~~$14.2 million, respectively. At year-end ~~2017~~2020 and ~~2016,~~2019, accumulated net unrealized gains on HTM securities included in accumulated other comprehensive ~~income~~income/(loss) were ~~$7.7~~$3.7 million and ~~$9.0~~$5.0 million respectively. The year-end ~~2017~~2020 and ~~2016~~2019 related income tax (liability)/benefit of ~~$4.0~~$(11.5) million and ~~$9.6~~$(5.1) million, respectively, was also included in accumulated other comprehensive ~~income.~~income/(loss).

The following table summarizes the activity in the allowance for credit losses for debt securities held to maturity by security type for the year ended December 31, 2020:


(In thousands)	Municipal bonds and obligations		Tax advantaged economic development bonds		Total
Balance at December 31, 2019	$	0	$	0	$	0
Impact of ASC 326 adoption	83		226		309
Provision for credit losses- reversal	(19)		(186)		(205)
Balance at December 31, 2020	$	64	$	40	$	104

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 December 31, 2020, none of the Company's investment securities were delinquent or in non-accrual status.

The amortized cost and estimated fair value of ~~available for sale (AFS)~~AFS and ~~held to maturity (HTM)~~HTM securities, segregated by contractual maturity at year-end ~~2017~~2020 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities and collateralized mortgage obligations are shown in total, as their maturities are highly variable. ~~Equity securities have no maturity and are also shown in total.~~


	Available for sale				Held to maturity					Available for sale				Held to maturity
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within 1 year	$	622	$	623	$	1,261	$	1,261	Within 1 year	$	33,248	$	33,265	$	1,950	$	1,952
Over 1 year to 5 years	32,659		32,972		25,892		26,422		Over 1 year to 5 years	8,148		8,276		3,216		3,233
Over 5 years to 10 years	75,261		76,745		8,752		8,917		Over 5 years to 10 years	67,952		69,619		23,050		24,026
Over 10 years	136,052		140,171		269,083		276,434		Over 10 years	92,103		100,464		221,968		241,172
Total bonds and obligations	244,594		250,511		304,988		313,034		Total bonds and obligations	201,451		211,624		250,184		270,383

Marketable equity securities	36,483		45,185		—		—
Mortgage-backed securities	1,142,656		1,130,403		92,115		92,242		Mortgage-backed securities	1,452,526		1,483,608		214,907		221,472
Total	$	1,423,733	$	1,426,099	$	397,103	$	405,276	Total	$	1,653,977	$	1,695,232	$	465,091	$	491,855

At year-end ~~2017~~2020 and ~~2016,~~2019, the Company had pledged securities as collateral for certain municipal deposits and for interest rate swaps with certain counterparties. The total amortized cost and fair values of these pledged securities follows. Additionally, there is a blanket lien on certain securities to collateralize borrowings from the FHLBB, as discussed further in Note 1211 - Borrowed Funds.

F-27

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	2017				2016					2020				2019
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities pledged to swap counterparties	$	24,410	$	24,240	$	51,292	$	51,290	Securities pledged to swap counterparties	$	37,532	$	37,815	$	25,728	$	25,828
Securities pledged for municipal deposits	210,382		214,513		147,950		148,435		Securities pledged for municipal deposits	156,047		166,570		168,740		175,719

Total	$	234,792	$	238,753	$	199,242	$	199,725	Total	$	193,579	$	204,385	$	194,468	$	201,547

Purchases of AFS securities totaled $885 million in 2020 and $120 million in 2019. Proceeds from the sale of AFS securities totaled $69 million in ~~2017, 2016,~~2020 and ~~2015 were $188.9~~$136 million ~~$421.8 million, and $41.2 million, respectively.~~in 2019. The ~~components of net realized gains and losses on~~amounts for the sale of AFS securities ~~are as follows. These amounts~~ were reclassified out of accumulated other comprehensive income and into ~~earnings:~~earnings. The components of net recognized gains and losses on the sale of AFS securities and the fair value change of marketable equities are as follows:

(In thousands) 2017 2016 2015
Gross realized gains $ 13,877
$ 2,762
$ 4,567
Gross realized losses (1,279 ) (3,313 ) (2,457 )
Net realized gains/(losses) $ 12,598
$ (551 ) $ 2,110


(In thousands)	2020		2019		2018
Gross recognized gains	$	4,602	$	7,492	$	3,256
Gross recognized losses	(11,133)		(3,103)		(6,975)

Net recognized gains/(losses)	$	(6,531)	$	4,389	$	(3,719)

~~F-29~~F-28

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Securities~~Debt securities 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
(In thousands)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
December 31, 2020

Securities available for sale
Debt securities:

Agency collateralized mortgage obligations	$	235	$	77,898	$	0	$	0	$	235	$	77,898
Agency mortgage-backed securities	131		39,939		2		256		133		40,195
Agency commercial mortgage-back securities	175		51,435		0		0		175		51,435
Corporate bonds	10		4,875		0		0		10		4,875

Other bonds and obligations	0		0		8		1,030		8		1,030


Total securities available for sale	$	551	$	174,147	$	10	$	1,286	$	561	$	175,433

Securities held to maturity

Agency collateralized mortgage obligations	171		25,048		0		0		171		25,048
Agency mortgage-backed securities	29		20,710		0		0		29		20,710
Agency commercial mortgage-back securities	12		10,216		0		0		12		10,216

Total securities held to maturity	212		55,974		0		0		212		55,974

Total	$	763	$	230,121	$	10	$	1,286	$	773	$	231,407

December 31, 2019
Securities available for sale
Debt securities:

Agency collateralized mortgage obligations	$	127	$	52,623	$	42	$	6,267	$	169	$	58,890
Agency mortgage-backed securities	59		10,640		301		23,404		360		34,044
Agency commercial mortgage-backed securities	1,097		116,324		49		11,250		1,146		127,574
Corporate bonds	0		0		607		42,823		607		42,823

Other bonds and obligations	4		1,239		1		29		5		1,268


Total securities available for sale	$	1,287	$	180,826	$	1,000	$	83,773	$	2,287	$	264,599

Securities held to maturity
Municipal bonds and obligations	5		800		0		0		5		800
Agency collateralized mortgage obligations	50		9,778		0		0		50		9,778


Tax advantaged economic development bonds	0		0		910		6,925		910		6,925
Total securities held to maturity	55		10,578		910		6,925		965		17,503

Total	$	1,342	$	191,404	$	1,910	$	90,698	$	3,252	$	282,102

Less Than Twelve Months Over Twelve Months Total
(In thousands) Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses Fair
Value
December 31, 2017

Securities available for sale

Debt securities:

Municipal bonds and obligations $ —
$ —
$ 206
$ 8,985
$ 206
$ 8,985
Agency collateralized mortgage obligations 6,849
655,479
2,095
80,401
8,944
735,880
Agency mortgage-backed securities 765
95,800
1,500
65,323
2,265
161,123
Agency commercial mortgage-back securities 334
17,379
1,427
39,268
1,761
56,647
Corporate bonds 1
328
236
15,769
237
16,097
Trust preferred securities —
—
—
—
—
—
Other bonds and obligations 11
1,096
20
2,004
31
3,100
Total debt securities 7,960
770,082
5,484
211,750
13,444
981,832
Marketable equity securities 509
3,731
—
—
509
3,731
Total securities available for sale $ 8,469
$ 773,813
$ 5,484
$ 211,750
$ 13,953
$ 985,563
Securities held to maturity

Municipal bonds and obligations 35
10,213
55
2,059
90
12,272
Agency collateralized mortgage obligations —
—
486
12,946
486
12,946
Agency mortgage-backed securities —
—
164
7,728
164
7,728
Agency commercial mortgage-back securities —
—
268
10,213
268
10,213
Tax advantaged economic development bonds 1,135
7,305
—
—
1,135
7,305
Total securities held to maturity 1,170
17,518
973
32,946
2,143
50,464
Total $ 9,639
$ 791,331
$ 6,457
$ 244,696
$ 16,096
$ 1,036,027

December 31, 2016

Securities available for sale

Debt securities:

Municipal bonds and obligations $ 1,049
$ 13,839
$ —
$ —
$ 1,049
$ 13,839
Agency collateralized mortgage obligations 3,291
319,448
—
—
3,291
319,448
Agency mortgage-backed securities 2,153
130,766
28
2,061
2,181
132,827
Agency commercial mortgage-backed securities 1,368
44,860
—
—
1,368
44,860
Corporate bonds 11
4,780
711
19,655
722
24,435
Trust preferred securities —
—
59
1,204
59
1,204
Other bonds and obligations 15
3,014
1
27
16
3,041
Total debt securities 7,887
516,707
799
22,947
8,686
539,654
Marketable equity securities 157
6,600
1,456
5,927
1,613
12,527
Total securities available for sale $ 8,044
$ 523,307
$ 2,255
$ 28,874
$ 10,299
$ 552,181
Securities held to maturity

Municipal bonds and obligations 2,416
69,308
—
—
2,416
69,308
Agency collateralized mortgage obligations 411
14,724
—
—
411
14,724
Agency mortgage-backed securities 243
8,859
—
—
243
8,859
Agency commercial mortgage-back securities 434
10,111
—
—
434
10,111
Total securities held to maturity 3,504
103,002
—
—
3,504
103,002
Total $ 11,548
$ 626,309
$ 2,255
$ 28,874
$ 13,803
$ 655,183

~~F-30~~

~~Table of Contents~~

~~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 December 31, ~~2017,~~2020, 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 historical low portfolio turnover.~~positions.

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 did not maintain other-than-temporary impairment ("OTTI") at year-end ~~2017:~~2020:

~~AFS municipal bonds and obligations~~

F-29

Table of Contents

At year-end 2017, 6 out of the total 260 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 2.3% 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 that the bonds in this portfolio carry minimal risk of default and that the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during 2017. All securities are performing.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AFS collateralized mortgage obligations

At year-end ~~2017, 179~~2020, 12 out of ~~the total 234~~225 securities in the Company’s portfolio of AFS collateralized mortgage obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~1.2%~~0.3% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), and Government National Mortgage Association ("GNMA") guarantee the contractual cash flows of all of the Company's collateralized residential mortgage obligations. The securities are investment grade rated and there were no material underlying credit downgrades during ~~2017.~~2020. All securities are performing.

AFS commercial and residential mortgage-backed securities

At year-end ~~2017, 58~~2020, 17 out of ~~the total 103~~125 securities in the Company’s portfolio of AFS mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented ~~1.8%~~0.3% 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 ~~2017.~~2020. All securities are performing.

AFS corporate bonds

At year-end ~~2017,~~2020, 1 out of ~~the total 20~~15 securities in the Company’s portfolio of AFS corporate bonds were in unrealized loss positions. The aggregate unrealized loss represents ~~1.5%~~0.2% of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength 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 year-end ~~2017, 6~~2020, 3 out of ~~the total 9~~7 securities in the Company’s portfolio of other bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~1.0%~~0.8% of the amortized cost of securities in unrealized loss positions. The securities are all investment grade rated, and there were no material underlying credit downgrades during ~~2017.~~2020. All securities are performing.

HTM ~~Municipal bonds and~~collateralized mortgage obligations

At year-end ~~2017, 12~~2020, 2 out of ~~the total 231~~13 securities in the Company’s portfolio of HTM ~~municipal bonds and~~collateralized mortgage obligations were in an unrealized loss ~~positions.~~position. Aggregate unrealized losses represented 0.7% of the amortized cost of ~~securities~~the security in an 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 that the bonds in this portfolio carry minimal risk of default and that the Company is appropriately compensated for that risk. There were no material underlying credit downgrades during 2017. All securities are performing.

~~F-31~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~HTM collateralized mortgage obligations~~

At year-end 2017, 1 out of the total 9 securities in the Company’s portfolio of HTM collateralized mortgage obligations was in unrealized loss positions. Aggregate unrealized losses represented 3.6% of the amortized cost of securities in unrealized loss positions.position. 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 ~~2017.~~2020. All securities are performing.

HTM commercial and residential mortgage-backed securities

At year-end ~~2017,~~2020, 2 out of ~~the total 2~~6 securities in the Company’s portfolio of HTM mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented ~~2.4%~~0.1% of the amortized cost of securities in unrealized loss positions. The FNMA, FHLMC, and GNMA ~~guarantees~~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 ~~2017.~~2020. All securities are performing.

~~HTM tax-advantaged economic development bonds~~

At year-end 2017, 1 out of the total 7 securities in the Company’s portfolio of tax advantaged economic development bonds were in an unrealized loss position. Aggregate unrealized losses represented 13.4% of the amortized cost of the security in an unrealized loss position. The above mentioned tax advantaged economic bond was downgraded to special mention during the year. The Company believes that more likely than not all the principal outstanding will be collected. All securities are performing.

~~Marketable Equity Securities~~

In evaluating its marketable equity securities portfolio for OTTI, the Company considers its ability to more likely than not hold an equity security to recovery. The Company additionally considers other various factors including the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer. Any OTTI is recognized immediately through earnings.

At year-end 2017, 2 out of the total 20 securities in the Company’s portfolio of marketable equity securities were in unrealized loss positions. The unrealized loss represented 11.3% of the amortized cost of the securities. The Company has the ability and intent to hold the securities until a recovery of their cost basis and does not consider the securities other-than-temporarily impaired at year-end 2017. As new information becomes available in future periods, changes to the Company’s assumptions may be warranted and could lead to a different conclusion regarding the OTTI of these securities.

~~F-32~~

F-30

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

~~The Company’s loan portfolio is segregated into~~Upon adoption of ASC 326, the following segments: commercial real estate, commercial and industrial, residential mortgage, and consumer. Commercial real estate loans include construction, single and multi-family, and other commercial real estate classes. Residential mortgage loans include classes for 1-4 family owner occupied and construction loans. Consumer loans include home equity, direct and indirect auto, and other consumer loan classes. These portfolio segments each have uniqueCompany evaluates its risk characteristics ~~that are considered when determining~~of loans based on regulatory call report code with sub-segmentation based on underlying collateral for certain loan types. Prior to the ~~appropriate level for~~adoption of ASC 326, under the ~~allowance for loan losses.~~

~~A substantial portion~~incurred loss model, the Company evaluated its risk characteristics of loans based on purpose of the ~~loan~~loans. The composition of loans by portfolio ~~is secured by real estate in Massachusetts, southern Vermont, northeastern New York, New Jersey,~~segment as of December 31, 2020 and ~~in the Bank’s other New England lending areas. The ability~~January 1, 2021 follows:


(In thousands)	December 31, 2019 Statement Balance		Impact of ASC 326 Adoption		January 1, 2020 Post-ASC 326 Adoption
Loans:
Construction	$	448,452	$	187	$	448,639
Commercial multifamily	631,740		252		631,992
Commercial real estate owner occupied	673,308		3,185		676,493
Commercial real estate non-owner occupied	2,189,780		6,540		2,196,320
Commercial and industrial	1,843,683		(12,212)		1,831,471

Residential real estate	2,853,385		1,868		2,855,253
Home equity	378,793		10		378,803
Consumer other	483,287		205		483,492
Total	$	9,502,428	$	35	$	9,502,463

Allowance:
Construction	$	2,713	$	(342)	$	2,371
Commercial multifamily	4,413		(1,842)		2,571
Commercial real estate owner occupied	4,880		6,062		10,942
Commercial real estate non-owner occupied	16,344		11,201		27,545
Commercial and industrial	20,099		(2,189)		17,910

Residential real estate	9,970		6,799		16,769
Home equity	1,470		4,884		6,354
Consumer other	3,686		861		4,547
Total	$	63,575	$	25,434	$	89,009

F-31

Table of ~~many of the Bank’s borrowers to honor their contracts is dependent, among other things, on the specific economy and real estate markets of these areas.~~Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total loans include business activity loans and acquired loans. Acquired loans are those loans acquired from Commerce Bank, First Choice Bank, Parke Bank, Firestone Financial Corp., Hampden Bancorp, Inc., the New York branch acquisition, Beacon Federal Bancorp, Inc., The Connecticut Bank and Trust Company, Legacy Bancorp, Inc., and Rome Bancorp, Inc. Once the full integration of the acquired entity is complete, acquired and business activity loans are serviced, managed, and accounted for under the Company's same control environment. The following is a summary of total ~~loans:~~loans by regulatory call report code with sub-segmentation based on underlying collateral for certain loan types:


(In thousands)	December 31, 2020		December 31, 2019
Construction	$	454,513	$	448,452
Commercial multifamily	483,350		631,740
Commercial real estate owner occupied	552,413		673,308
Commercial real estate non-owner occupied	2,119,263		2,189,780
Commercial and industrial	1,943,164		1,843,683

Residential real estate	1,931,681		2,853,385
Home equity	293,981		378,793
Consumer other	303,154		483,287
Total loans	$	8,081,519	$	9,502,428

Allowance for credit losses	127,302		63,575
Net loans	$	7,954,217	$	9,438,853

December 31, 2017 December 31, 2016
(In thousands) Business Activities Loans Acquired Loans Total Business Activities Loans Acquired Loans Total
Commercial real estate:

Construction $ 181,371
$ 84,965
$ 266,336
$ 253,302
$ 34,207
$ 287,509
Single and multi-family 217,083
206,082
423,165
191,819
125,672
317,491
Other commercial real estate 1,819,253
755,988
2,575,241
1,481,223
530,215
2,011,438
Total commercial real estate 2,217,707
1,047,035
3,264,742
1,926,344
690,094
2,616,438

Commercial and industrial loans 1,182,569
621,370
1,803,939
908,102
153,936
1,062,038

Total commercial loans 3,400,276
1,668,405
5,068,681
2,834,446
844,030
3,678,476

Residential mortgages:

1-4 family 1,808,024
289,373
2,097,397
1,583,794
297,355
1,881,149
Construction 5,177
233
5,410
11,178
804
11,982
Total residential mortgages 1,813,201
289,606
2,102,807
1,594,972
298,159
1,893,131

Consumer loans:

Home equity 294,954
115,227
410,181
313,521
80,279
393,800
Auto and other 603,767
113,902
717,669
478,368
106,012
584,380
Total consumer loans 898,721
229,129
1,127,850
791,889
186,291
978,180

Total loans $ 6,112,198
$ 2,187,140
$ 8,299,338
$ 5,221,307
$ 1,328,480
$ 6,549,787

~~F-33~~

~~Table~~As of ~~Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Total unamortized net costs~~December 31, 2020, loans originated under the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") totaled $633.3 million. These loans are 100% guaranteed by the SBA and ~~premiums~~the full principal amount of the loan may qualify for forgiveness. These loans are included in ~~the year-end total loans for business activity loans were the following:~~commercial and industrial.

(In thousands) December 31, 2017 December 31, 2016
Unamortized net loan origination costs $ 24,669
$ 21,972
Unamortized net premium on purchased loans 4,311
4,849
Total unamortized net costs and premiums $ 28,980
$ 26,821

The Company occasionally transfers a portion of its originated commercial loans to participating lending partners. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying consolidated balance sheets. The Company and its lending partners share proportionally in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans, collects cash payments from the borrowers, remits payments (net of servicing fees), and disburses required escrow funds to relevant parties. At year-end 2017 and 2016, the Company was servicing loans for participants totaling $1.8 billion and $0.5 billion, respectively.

In ~~2017,~~2020, the Company purchased loans aggregating ~~$500.9~~$98 million and sold loans aggregating ~~$514.5~~$415 million. In ~~2016,~~2019, the Company purchased loans aggregating ~~$190.8~~$432 million and sold loans aggregating ~~$307.7~~$310 million. Net gains ~~(losses)~~ on sales of loans were ~~$11.7~~$10.6 million, ~~$8.0~~$12.0 million, and ~~$6.0~~$9.3 million for the years ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, respectively. These amounts are included in Loan Related Income on the Consolidated ~~Statement~~Statements of ~~Income.~~Operations.

Most of the Company’s lending activity occurs within its primary markets in Massachusetts, Southern Vermont, and Northeastern New York. Most of the loan portfolio is secured by real estate, including residential mortgages, commercial mortgages, and home equity loans. Year-end loans to operators of non-residential buildings totaled ~~$1.3~~$1.5 billion, or ~~15.8%~~19.0%, and ~~$1.1~~$1.7 billion, or ~~16.8%~~18.1% of total loans in ~~2017~~2020 and ~~2016,~~2019, respectively. There were no other concentrations of loans related to any single industry in excess of 10% of total loans at year-end ~~2017~~2020 or ~~2016.~~2019.

As of December 31, 2020, the Company maintained foreclosed residential real estate property with a fair value of $149 thousand. As of December 31, 2019, the Company maintained no foreclosed residential real estate property. Additionally, residential mortgage loans collateralized by real estate property that are in the process of foreclosure as of December 31, 2020 and December 31, 2019 totaled $3.3 million and $6.5 million, respectively, including sold loans serviced by the Company.

At year-end ~~2017,~~2020, the Company had pledged loans totaling ~~$350.7~~$925 million to the Federal Reserve Bank of Boston as collateral for certain borrowing arrangements. Also, residential first mortgage loans are subject to a blanket lien for FHLBB advances. See Note 1211 - Borrowed Funds.

At year-end ~~2017~~2020 and ~~2016,~~2019, the Company’s commitments outstanding to related parties totaled ~~$50.8~~$2.0 million and ~~$38.7~~$1.8 million, respectively, and the loans outstanding against these commitments totaled ~~$44.1~~$1.1 million and ~~$25.6~~$1.0 million, respectively. Related parties include directors and executive officers of the Company and its subsidiaries, as well as their respective affiliates in which they have a controlling interest and immediate family members. For the years ~~2017~~2020 and ~~2016,~~2019, all related party loans were performing.

The carrying amount of the acquired loans at December 31, 2017 totaled $2.2 billion. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $97.3 million. These loans are evaluated for impairment through the quarterly reforecasting of expected cash flows. Of the $97.3 million, $53.3 million are Commercial Real Estate, $34.6 million are Commercial and Industrial loans, $7.0 million are Residential Mortgages, and $2.4 million are Consumer loans.

The carrying amount of the acquired loans at December 31, 2016 totaled $1.3 billion. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30. These purchased credit-impaired loans maintained a carrying value of $46.8 million. Of the $46.8 million, $34.8 million were Commercial Real Estate, $3.4 million were Commercial and Industrial loans, $7.3 million were Residential Mortgages, and $1.3 million were Consumer loans.

~~F-34~~

F-32

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Credit Losses for Loans

The Company’s activity in the allowance for credit losses for loans for the year ended December 31, 2020 was as follows:


(In thousands)	Balance at Beginning of Period		Impact of Adopting ASC 326		Sub-total		Charge-offs		Recoveries		Provision for Credit Losses		Balance at End of Period
Year ended December 31, 2020
Construction	$	2,713	$	(342)	$	2,371	$	(834)	$	0	$	3,574	$	5,111
Commercial multifamily	4,413		(1,842)		2,571		(100)		100		3,345		5,916
Commercial real estate owner occupied	4,880		6,062		10,942		(8,686)		1,053		9,071		12,380
Commercial real estate non-owner occupied	16,344		11,201		27,545		(11,653)		307		19,651		35,850
Commercial and industrial	20,099		(2,189)		17,910		(19,328)		4,285		22,146		25,013

Residential real estate	9,970		6,799		16,769		(2,285)		1,359		12,648		28,491
Home equity	1,470		4,884		6,354		(347)		292		183		6,482
Consumer other	3,686		861		4,547		(2,562)		609		5,465		8,059
Total allowance for credit losses	$	63,575	$	25,434	$	89,009	$	(45,795)	$	8,005	$	76,083	$	127,302

The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liability on consolidated balance sheet), with adjustments to the reserve recognized in other noninterest expense in the Consolidated Statements of Operations. The Company’s activity in the allowance for credit losses on unfunded commitments for the year ended December 31, 2020 was as follows:


(In thousands)	Total
Balance at December 31, 2019	$	100
Impact of adopting ASC 326	7,993
Sub-Total	8,093
Release of expense for credit losses	(464)
Balance at December 31, 2020	$	7,629

F-33

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit Quality Information

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

For commercial credits, the Company assigns an internal risk rating at origination and reviews the rating annually, 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.

F-34

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table ~~summarizes activity in~~presents the ~~accretable yield for the acquired~~Company’s loans by risk category:


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2020
Construction
Risk rating
Pass	$	38,374	$	255,377	$	114,690	$	28,474	$	9,519	$	2,766	$	1,000	$	0	$	450,200
Special Mention	0		0		313		0		0		0		0		0		313
Substandard	0		0		0		4,000		0		0		0		0		4,000
Total	$	38,374	$	255,377	$	115,003	$	32,474	$	9,519	$	2,766	$	1,000	$	0	$	454,513

Commercial multifamily:
Risk rating
Pass	$	31,438	$	57,659	$	74,932	$	77,746	$	81,066	$	153,818	$	20	$	0	$	476,679
Special Mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		47		6,479		145		0		6,671
Total	$	31,438	$	57,659	$	74,932	$	77,746	$	81,113	$	160,297	$	165	$	0	$	483,350

Commercial real estate owner occupied:
Risk rating
Pass	$	58,327	$	84,839	$	104,797	$	64,693	$	44,300	$	169,197	$	1,194	$	0	$	527,347
Special Mention	535		2,569		1,136		1,009		800		2,579		0		0		8,628
Substandard	0		1,266		3,597		1,685		1,439		8,451		0		0		16,438
Total	$	58,862	$	88,674	$	109,530	$	67,387	$	46,539	$	180,227	$	1,194	$	0	$	552,413

Commercial real estate non-owner occupied:
Risk rating
Pass	$	180,520	$	292,386	$	435,440	$	223,935	$	303,221	$	497,066	$	15,393	$	0	$	1,947,961
Special Mention	0		279		2,068		6,958		11,798		44,961		1,068		0		67,132
Substandard	7,804		3,529		4,235		19,632		2,124		66,651		195		0		104,170
Total	$	188,324	$	296,194	$	441,743	$	250,525	$	317,143	$	608,678	$	16,656	$	0	$	2,119,263

Commercial and industrial:
Risk rating
Pass	$	754,260	$	159,046	$	205,651	$	130,985	$	48,326	$	148,222	$	368,769	$	0	$	1,815,259
Special Mention	1,467		5,753		5,267		2,851		1,601		65		12,408		0		29,412
Substandard	7,392		39,822		24,951		7,765		3,504		5,630		9,099		0		98,163
Doubtful	0		0		0		0		0		0		330		0		330
Total	$	763,119	$	204,621	$	235,869	$	141,601	$	53,431	$	153,917	$	390,606	$	0	$	1,943,164









Residential real estate
Risk rating
Pass	$	150,583	$	146,142	$	272,399	$	320,384	$	333,159	$	691,078	$	3,281	$	0	$	1,917,026
Special Mention	384		0		454		1,430		0		362		0		0		2,630
Substandard	991		39		703		902		417		8,964		9		0		12,025
Total	$	151,958	$	146,181	$	273,556	$	322,716	$	333,576	$	700,404	$	3,290	$	0	$	1,931,681

F-35

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For home equity and consumer other loan portfolio ~~that falls under~~segments, Berkshire evaluates credit quality based on the ~~purview~~aging status of ~~ASC 310-30,~~ ~~Loans~~the loan and ~~Debt Securities Acquired with Deteriorated Credit Quality~~: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)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2020
Home equity:
Payment performance
Performing	$	2,445	$	1,960	$	316	$	1,859	$	499	$	1,882	$	282,123	$	0	$	291,084
Nonperforming	0		0		1		0		0		0		2,896		0		2,897
Total	$	2,445	$	1,960	$	317	$	1,859	$	499	$	1,882	$	285,019	$	0	$	293,981

Consumer other:
Payment performance
Performing	$	15,193	$	35,317	$	101,730	$	69,366	$	35,421	$	31,327	$	9,339	$	0	$	297,693
Nonperforming	39		316		1,511		1,599		1,585		407		4		0		5,461
Total	$	15,232	$	35,633	$	103,241	$	70,965	$	37,006	$	31,734	$	9,343	$	0	$	303,154

F-36

(In thousands) 2017 2016 2015
Balance at beginning of period $ 8,738
$ 6,925
$ 2,541
Acquisitions 10,815
6,125
4,777
Reclassification from nonaccretable difference for loans with improved cash flows (23 ) 2,488
3,640
Changes in expected cash flows that do not affect nonaccretable difference (2,380 ) (3,018 ) —
Reclassification to TDR —
(185 ) —
Accretion (5,589 ) (3,597 ) (4,033 )
Balance at end of period $ 11,561
$ 8,738
$ 6,925

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of loans by past due ~~loans~~status at December 31, ~~2017 and 2016:~~2020:

~~Business Activities Loans~~


(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, 2020
Construction	$	0	$	0	$	0	$	0	$	454,513	$	454,513
Commercial multifamily	0		0		757		757		482,593		483,350
Commercial real estate owner occupied	809		631		4,894		6,334		546,079		552,413
Commercial real estate non-owner occupied	315		168		38,389		38,872		2,080,391		2,119,263
Commercial and industrial	3,016		3,259		12,982		19,257		1,923,907		1,943,164

Residential real estate	2,068		2,630		11,115		15,813		1,915,868		1,931,681
Home equity	244		284		2,897		3,425		290,556		293,981
Consumer other	2,109		777		5,364		8,250		294,904		303,154
Total	$	8,561	$	7,749	$	76,398	$	92,708	$	7,988,811	$	8,081,519

F-37

(in thousands) 30-59 Days
Past Due 60-89 Days
Past Due >90 Days Past Due Total Past
Due Current Total Loans Past Due >
90 days and
Accruing
December 31, 2017

Commercial real estate:

Construction $ —
$ —
$ —
$ —
$ 181,371
$ 181,371
$ —
Single and multi-family —
—
451
451
216,632
217,083
—
Commercial real estate 1,925
48
5,023
6,996
1,812,257
1,819,253
457
Total 1,925
48
5,474
7,447
2,210,260
2,217,707
457
Commercial and industrial loans

Total 4,031
1,912
6,023
11,966
1,170,603
1,182,569
128
Residential mortgages:

1-4 family 2,412
242
2,186
4,840
1,803,184
1,808,024
520
Construction —
—
—
—
5,177
5,177
—
Total 2,412
242
2,186
4,840
1,808,361
1,813,201
520
Consumer loans:

Home equity 444
1,235
1,747
3,426
291,528
294,954
120
Auto and other 3,389
599
1,597
5,585
598,182
603,767
143
Total 3,833
1,834
3,344
9,011
889,710
898,721
263
Total $ 12,201
$ 4,036
$ 17,027
$ 33,264
$ 6,078,934
$ 6,112,198
$ 1,368

~~F-35~~

Table of Contents

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 December 31, 2020:

~~Business Activities Loans~~


	January 1, 2020		December 31, 2020
(In thousands)	Nonaccrual Amortized Cost		Nonaccrual Amortized Cost		Nonaccrual With No Related Allowance		Past Due 90 Days or Greater and Accruing		Interest Income Recognized on Nonaccrual
Construction	$	0	$	0	$	0	$	0	$	0
Commercial multifamily	811		757		591		0		0
Commercial real estate owner occupied	15,389		4,509		2,290		385		0
Commercial real estate non-owner occupied	1,031		29,572		13,912		8,817		0
Commercial and industrial	11,218		12,441		4,725		541		0

Residential real estate	6,411		9,711		5,739		1,404		0
Home equity	1,798		2,654		159		243		0
Consumer other	2,982		5,304		2		60		0
Total	$	39,640	$	64,948	$	27,418	$	11,450	$	0

(in thousands) 30-59 Days
Past Due 60-89 Days
Past Due >90 Days Past Due Total Past
Due Current Total Loans Past Due >
90 days and
Accruing
December 31, 2016

Commercial real estate:

Construction $ —
$ —
$ —
$ —
$ 253,302
$ 253,302
$ —
Single and multi-family 618
110
624
1,352
190,467
191,819
155
Commercial real estate 481
2,243
4,212
6,936
1,474,287
1,481,223
—
Total 1,099
2,353
4,836
8,288
1,918,056
1,926,344
155
Commercial and industrial loans

Total 3,090
1,301
6,290
10,681
897,421
908,102
5
Residential mortgages:

1-4 family 1,393
701
4,179
6,273
1,577,521
1,583,794
1,956
Construction 10
—
—
10
11,168
11,178
—
Total 1,403
701
4,179
6,283
1,588,689
1,594,972
1,956
Consumer loans:

Home equity 99
—
2,981
3,080
310,441
313,521
306
Auto and other 2,483
494
968
3,945
474,423
478,368
16
Total 2,582
494
3,949
7,025
784,864
791,889
322
Total $ 8,174
$ 4,849
$ 19,254
$ 32,277
$ 5,189,030
$ 5,221,307
$ 2,438
The commercial and industrial loans nonaccrual amortized cost as of December 31, 2020 included medallion loans with a fair value of $2.3 million and a contractual balance of $53.9 million.

~~Acquired Loans~~

The following table summarizes information about total loans rated Special Mention or lower at December 31, 2020. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity.

(in thousands) 30-59 Days
Past Due 60-89 Days
Past Due >90 Days Past Due Total Past
Due Acquired
Credit
Impaired Total Loans Past Due >
90 days and
Accruing
December 31, 2017

Commercial real estate:

Construction $ —
$ —
$ —
$ —
$ 7,655
$ 84,965
$ —
Single and multi-family 671
—
203
874
2,846
206,082
—
Commercial real estate 816
1,875
2,156
4,847
42,801
755,988
109
Total 1,487
1,875
2,359
5,721
53,302
1,047,035
109
Commercial and industrial loans

Total 1,252
268
1,439
2,959
34,629
621,370
23
Residential mortgages:

1-4 family 957
2,581
1,247
4,785
6,974
289,373
30
Construction —
—
—
—
—
233
—
Total 957
2,581
1,247
4,785
6,974
289,606
30
Consumer loans:

Home equity 286
40
1,965
2,291
1,956
115,227
—
Auto and other 346
135
430
911
483
113,902
38
Total 632
175
2,395
3,202
2,439
229,129
38
Total $ 4,328
$ 4,899
$ 7,440
$ 16,667
$ 97,344
$ 2,187,140
$ 200


(In thousands)	December 31, 2020
Non-Accrual	$	64,948
Substandard Accruing	185,207
Total Classified	250,155
Special Mention	109,299
Total Criticized	$	359,454

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:

~~F-36~~

F-38

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Type of Collateral
(In thousands)	Real Estate		Investment Securities/Cash		Other
December 31, 2020

Commercial multifamily	$	591	$	0	$	0
Commercial real estate owner occupied	5,714		0		0
Commercial real estate non-owner occupied	30,950		0		0
Commercial and industrial	973		36		3,758

Residential real estate	5,081		0		0
Home equity	145		0		0
Consumer other	51		0		0
Total loans	$	43,505	$	36	$	3,758

~~Acquired Loans~~

(in thousands) 30-59 Days
Past Due 60-89 Days
Past Due >90 Days Past Due Total Past
Due Acquired
Credit
Impaired Total Loans Past Due >
90 days and
Accruing
December 31, 2016

Commercial real estate:

Construction $ —
$ —
$ —
$ —
$ 47
$ 34,207
$ —
Single and multi-family 2
—
437
439
4,726
125,672
—
Commercial real estate 1,555
—
765
2,320
30,047
530,215
—
Total 1,557
—
1,202
2,759
34,820
690,094
—
Commercial and industrial loans:

Total 1,850
15
1,262
3,127
3,369
153,936
24
Residential mortgages:

1-4 family 321
343
2,015
2,679
7,283
297,355
443
Construction —
—
—
—
—
804
—
Total 321
343
2,015
2,679
7,283
298,159
443
Consumer loans:

Home equity 753
—
870
1,623
957
80,279
353
Auto and other 542
314
1,686
2,542
387
106,012
791
Total 1,295
314
2,556
4,165
1,344
186,291
1,144
Total $ 5,023
$ 672
$ 7,035
$ 12,730
$ 46,816
$ 1,328,480
$ 1,611

~~The following is summary information pertaining to non-accrual loans at year-end 2017 and 2016:~~

F-39

December 31, 2017 December 31, 2016
(In thousands) Business Activities
Loans Acquired Loans (1) Total Business Activities
Loans Acquired Loans (2) Total
Commercial real estate:

Construction —
—
—
—
—
—
Single and multi-family 451
203
654
469
437
906
Other commercial real estate 4,566
2,047
6,613
4,212
765
4,977
Total 5,017
2,250
7,267
4,681
1,202
5,883
Commercial and industrial loans:

Total 5,895
1,333
7,228
6,285
1,155
7,440

Residential mortgages:

1-4 family $ 1,666
$ 1,217
$ 2,883
$ 2,223
$ 1,572
$ 3,795
Construction —
—
—
—
—
—
Total 1,666
1,217
2,883
2,223
1,572
3,795
Consumer loans:

Home equity 1,627
1,965
3,592
2,675
517
3,192
Auto and other 1,454
392
1,846
952
895
1,847
Total 3,081
2,357
5,438
3,627
1,412
5,039

Total non-accrual loans $ 15,659
$ 7,157
$ 22,816
$ 16,816
$ 5,341
$ 22,157

~~(1) At year-end 2017, acquired credit impaired loans account for $83 thousand of loans greater than 90 days past due that are not presented in the above table.~~

~~(2) At year-end 2016, acquired credit impaired loans account for $83 thousand of loans greater than 90 days past due that are not presented in the above table.~~

~~F-37~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Loans evaluated for impairment as of December 31, 2017 and 2016 were as follows:~~

~~Business Activities Loans~~

(In thousands)
2017 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Loans receivable:

Balance at end of year

Individually evaluated for impairment $ 33,732
$ 5,761
$ 3,872
$ —
$ 43,365
Collectively evaluated 2,183,975
1,176,808
1,809,329
898,721
6,068,833
Total $ 2,217,707
$ 1,182,569
$ 1,813,201
$ 898,721
$ 6,112,198

~~Business Activities Loans~~

(In thousands)
2016 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Loans receivable:

Balance at end of year

Individually evaluated for impairment $ 25,549
$ 5,705
$ 2,775
$ 2,703
$ 36,732
Collectively evaluated 1,900,795
902,397
1,592,197
789,186
5,184,575
Total $ 1,926,344
$ 908,102
$ 1,594,972
$ 791,889
$ 5,221,307

~~Acquired Loans~~

(In thousands)
2017 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Loans receivable:

Balance at end of year

Individually evaluated for impairment $ 4,244
$ 421
$ 2,617
$ 27
$ 7,309
Purchased credit-impaired loans 53,302
34,629
6,974
2,439
97,344
Collectively evaluated 989,489
586,320
280,015
226,663
2,082,487
Total $ 1,047,035
$ 621,370
$ 289,606
$ 229,129
$ 2,187,140

~~Acquired Loans~~

(In thousands)
2016 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Loans receivable:

Balance at end of year

Individually evaluated for impairment $ 4,256
$ 635
$ 308
$ 406
$ 5,605
Purchased credit-impaired loans 34,820
3,369
7,283
1,344
46,816
Collectively evaluated 651,018
149,932
290,568
184,541
1,276,059
Total $ 690,094
$ 153,936
$ 298,159
$ 186,291
$ 1,328,480

~~F-38~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following is a summary of impaired loans at year-end 2017 and 2016 and for the years then ended:~~

~~Business Activities Loans~~

At December 31, 2017
(In thousands) Recorded Investment (1) Unpaid Principal
Balance (2) Related Allowance
With no related allowance:

Commercial real estate - construction $ —
$ —
$ —
Commercial real estate - single and multifamily 1,077
3,607
—
Other commercial real estate 18,285
18,611
—
Other commercial and industrial loans 2,060
2,629
—
Residential mortgages - 1-4 family 660
1,075
—
Consumer - home equity 867
1,504
—
With an allowance recorded:

Commercial real estate - construction $ 159
$ 159
$ 1
Commercial real estate - single and multifamily 159
171
1
Other commercial real estate 14,321
15,235
227
Other commercial and industrial loans 3,716
4,249
66
Residential mortgages - 1-4 family 1,344
1,446
130
Consumer - home equity 1,014
999
34
Consumer - other 17
17
1

Total

Commercial real estate $ 34,001
$ 37,783
$ 229
Commercial and industrial 5,776
6,878
66
Residential mortgages 2,004
2,521
130
Consumer 1,898
2,520
35
Total impaired loans $ 43,679
$ 49,702
$ 460

(1) The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on the Consolidated Balance Sheet.

~~(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.~~

~~F-39~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Business Activities Loans~~

At December 31, 2016
(In thousands) Recorded Investment (1) Unpaid Principal
Balance (2) Related Allowance
With no related allowance:

Other commercial real estate $ 18,905
$ 18,905
$ —
Other commercial and industrial loans 382
382
—
Residential mortgages - 1-4 family 2,101
2,101
—
Consumer - home equity 1,605
1,605
—
With an allowance recorded:

Commercial real estate - single and multifamily $ 179
$ 181
$ 2
Other commercial real estate 6,306
6,462
156
Other commercial and industrial loans 5,060
5,324
264
Residential mortgages - 1-4 family 538
674
136
Consumer - home equity 942
1,098
156
Total

Commercial real estate $ 25,390
$ 25,548
$ 158
Commercial and industrial 5,442
5,706
264
Residential mortgages 2,639
2,775
136
Consumer 2,547
2,703
156
Total impaired loans $ 36,018
$ 36,732
$ 714

~~(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.~~

~~F-40~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Acquired Loans~~

At December 31, 2017
(In thousands) Recorded Investment (1) Unpaid Principal
Balance (2) Related Allowance
With no related allowance:

Commercial real estate - single and multifamily $ 204
$ 290
$ —
Other commercial real estate loans 1,123
2,794
—
Other commercial and industrial loans 255
310
—
Residential mortgages - 1-4 family 658
671
—
Consumer - home equity 1,374
1,654
—
Consumer - other 27
27
—

With an allowance recorded:

Commercial real estate - single and multifamily $ 887
$ 880
$ 18
Other commercial real estate loans 2,043
1,661
38
Other commercial and industrial loans 165
166
1
Residential mortgages - 1-4 family 166
185
9
Consumer - home equity 433
540
45

Total

Commercial real estate $ 4,257
$ 5,625
$ 56
Commercial and industrial 420
476
1
Residential mortgages 824
856
9
Consumer 1,834
2,221
45
Total impaired loans $ 7,335
$ 9,178
$ 111

~~(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.~~

~~F-41~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Acquired Loans~~

December 31, 2016
(In thousands) Recorded Investment (1) Unpaid Principal
Balance (2) Related Allowance
With no related allowance:

Other commercial real estate loans $ 547
$ 547
$ —
Residential mortgages - 1-4 family 208
208
—
Consumer - home equity —
—
—
Consumer - other —
—
—

With an allowance recorded:

Commercial real estate - single and multifamily $ 1,250
$ 1,358
$ 108
Other commercial real estate loans 2,209
2,351
142
Other Commercial and industrial loans 576
635
59
Residential mortgages - 1-4 family 89
100
11
Consumer - home equity 292
406
114

Total

Commercial real estate $ 4,006
$ 4,256
$ 250
Commercial and industrial 576
635
59
Residential mortgages 297
308
11
Consumer 292
406
114
Total impaired loans $ 5,171
$ 5,605
$ 434

~~(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.~~

~~F-42~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~The following is a summary of the average recorded investment and interest income recognized on impaired loans as of December 31, 2017, 2016 and 2015:~~

~~Business Activities Loans~~

December 31, 2017 December 31, 2016 December 31, 2015
(in thousands) Average Recorded
Investment Cash Basis Interest
Income Recognized Average Recorded
Investment Cash Basis Interest
Income Recognized Average Recorded
Investment Cash Basis Interest
Income Recognized
With no related allowance:

Commercial real estate - construction $ —
$ —
$ —
$ —
$ 2,245
$ 92
Commercial real estate - single and multifamily 341
214
36
1
60
—
Other commercial real estate 20,867
1,123
6,463
1,155
12,487
302
Other commercial and industrial 4,437
265
3,349
131
3,870
177
Residential mortgages - 1-4 family 1,128
31
2,403
91
1,353
38
Consumer-home equity 1,291
30
612
5
442
13
Consumer-other 72
3
2
—
—
—

With an allowance recorded:

Commercial mortgages - construction $ 41
$ 3
$ —
$ —
$ —
$ —
Commercial real estate - single and multifamily 169
12
15
6
—
—
Other commercial real estate 11,372
520
7,576
349
3,214
132
Other commercial and industrial 3,251
267
2,002
225
810
37
Residential mortgages - 1-4 family 1,289
59
682
26
1,704
72
Consumer-home equity 1,007
29
999
35
83
—
Consumer - other 4
1
103
4
112
4

Total

Commercial real estate $ 32,790
$ 1,872
$ 14,090
$ 1,511
$ 18,006
$ 526
Commercial and industrial 7,688
532
5,351
356
4,680
214
Residential mortgages 2,417
90
3,085
117
3,057
110
Consumer loans 2,374
63
1,716
44
637
17
Total impaired loans $ 45,269
$ 2,557
$ 24,242
$ 2,028
$ 26,380
$ 867

~~F-43~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~Acquired Loans~~

December 31, 2017 December 31, 2016 December 31, 2015
(in thousands) Average Recorded
Investment Cash Basis Interest
Income Recognized Average Recorded
Investment Cash Basis Interest
Income Recognized Average Recorded
Investment Cash Basis Interest
Income Recognized
With no related allowance:

Commercial real estate - construction $ —
$ —
$ —
$ —
$ 445
$ 60
Commercial real estate - single and multifamily 342
82
—
—
2,014
57
Other commercial real estate 487
239
521
20
1,721
37
Other commercial and industrial 581
43
492
9
—
—
Residential mortgages - 1-4 family 390
28
293
12
463
6
Consumer - home equity 773
22
—
—
152
5
Consumer - other 7
1
105
1
59
5

With an allowance recorded:

Commercial real estate - construction $ —
$ —
$ —
$ —
$ —
$ —
Commercial real estate - single and multifamily 903
47
1,064
115
623
33
Other commercial real estate 1,719
91
2,618
165
1,384
96
Other commercial and industrial 47
13
369
17
31
3
Residential mortgages - 1-4 family 173
9
214
25
304
9
Consumer - home equity 400
21
—
—
195
7

Total

Commercial real estate $ 3,451
$ 459
$ 4,203
$ 300
$ 6,187
$ 283
Commercial and industrial 628
56
861
26
31
3
Residential mortgages 563
37
507
37
767
15
Consumer loans 1,180
44
105
1
406
17
Total impaired loans $ 5,822
$ 596
$ 5,676
$ 364
$ 7,391
$ 318

~~No additional funds are committed to be advanced in connection with impaired loans.~~

~~F-44~~

~~Table of Contents~~

~~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)~~("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 ~~tables include~~table presents activity in TDRs for the ~~recorded investment and number of modifications for modified loans identified during the years-ended~~year ended December 31, 2017, 2016, and 2015 respectively. The tables include the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. The modifications for the year-ended December 31, 2017 were attributable to interest rate concessions, principal concessions, maturity date extensions, modified payment terms, reamortization, and accelerated maturity. The modifications for the year-ended December 31, 2016 were attributable to interest rate concessions, maturity date extensions, modified payment terms, reamortization, and accelerated maturity.2020:


(In thousands)	Balance at Beginning of Period		Principal Payments		TDR Status Change		Other Additions/(Reductions)		Newly Identified TDRs		Balance at End of Period
Year ended December 31, 2020

Commercial multifamily	$	793	$	(39)	$	0	$	0	$	0	$	754
Commercial real estate owner occupied	13,331		(5,734)		0		(5,884)		18		1,731
Commercial real estate non-owner occupied	1,373		(1)		0		1,719		10,593		13,684
Commercial and industrial	1,449		(289)		0		(60)		1,586		2,686

Residential real estate	2,045		(160)		0		(361)		0		1,524
Home equity	277		(22)		0		(122)		0		133
Consumer other	48		(12)		0		0		0		36
Total	$	19,316	$	(6,257)	$	0	$	(4,708)	$	12,197	$	20,548

F-40

Modifications by Class
For the twelve months ending December 31, 2017
Number of
Modifications Pre-Modification
Outstanding Recorded
Investment (In thousands) Post-Modification
Outstanding Recorded
Investment
Troubled Debt Restructurings

Commercial - Single and multifamily 1
$ 235
$ 235
Commercial - Other 15
13,445
11,718
Commercial and industrial - Other 12
3,507
3,507
Residential - 1-4 Family 4
331
314
Consumer - Home Equity 3
122
122
35
$ 17,640
$ 15,896

Modifications by Class
For the twelve months ending December 31, 2016
Number of
Modifications Pre-Modification
Outstanding Recorded
Investment (In thousands) Post-Modification
Outstanding Recorded
Investment
Troubled Debt Restructurings

Commercial - Single and multifamily 5
$ 437
$ 437
Commercial - Other 5
16,651
16,651
Commercial and industrial - Other 4
555
555
Residential - 1-4 Family 2
5
5
Consumer - Home Equity 1
117
117
17
$ 17,765
$ 17,765

Modifications by Class
For the twelve months ending December 31, 2015
Number of
Modifications Pre-Modification
Outstanding Recorded
Investment (In thousands) Post-Modification
Outstanding Recorded
Investment
Troubled Debt Restructurings

Commercial - Construction 1
$ 123
$ 123
Commercial - Single and multifamily 2
307
307
Commercial - Other 4
8,577
7,274
Commercial and industrial - Other 6
9,041
8,904
Consumer - Other 1
999
999
14
$ 19,047
$ 17,607

~~F-45~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents loans modified as TDRs that occurred during the years ended December 31, 2020, 2019, and 2018:


(dollars in thousands)	Total
Year ended December 31, 2020
TDR:
Number of loans	16
Pre-modification outstanding recorded investment	$	12,197
Post-modification outstanding recorded investment	$	12,197

Year ended December 31, 2019
TDR:
Number of loans	13
Pre-modification outstanding recorded investment	$	2,063
Post-modification outstanding recorded investment	$	2,063

Year ended December 31, 2018
TDR:
Number of loans	10
Pre-modification outstanding recorded investment	$	2,685
Post-modification outstanding recorded investment	$	2,685

The following ~~tables disclose~~table discloses the ~~recorded investment and number of~~ modifications for TDRs ~~for the prior years~~ where a concession ~~was~~has been made ~~and~~within the ~~borrower subsequently~~previous 12 months, that then defaulted in the respective reporting period. There were 0 TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2020. For the year ended ~~2017,~~2019, there ~~were three loans~~was 1 loan that ~~were~~was restructured that had subsequently defaulted during the reporting period. ~~For~~


(dollars in thousands)	Number of Loans	Recorded Investment
Year ended December 31, 2019
Commercial and industrial - other	1	$	195
Total	1	$	195

Beginning in March 2020, the ~~period ended 2016, there~~Company has offered three-month payment deferrals for customers with a current payment status who were nonegatively impacted by economic disruption caused by the COVID-19 pandemic. These loans ~~that~~ were ~~restructured that had subsequently defaulted during the period. For the year ended 2015, there were eight loans that were restructured that had subsequently defaulted during the period.~~not recorded as TDRs. Refer to Note 17 - Other Commitments, Contingencies, and Off-Balance Sheet Activities for more information regarding these modifications.

F-41

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Modifications that subsequently defaulted
for the twelve months ending December 31, 2017
Number of Contracts Recorded Investment
Troubled Debt Restructurings

Commercial - Single and multifamily —
$ —
Commercial - Other 1
113
Commercial and industrial - Other 2
492
Residential - 1-4 Family —
—
3
$ 605
Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated allowance for loan losses using incurred losses methodology. The following tables are disclosures related to loans in prior periods.

The following is a summary of total loans as of December 31, 2019:


	December 31, 2019
(In thousands)	Business Activities Loans		Acquired Loans		Total
Commercial real estate:
Construction	$	382,014	$	47,792	$	429,806

Other commercial real estate	2,414,942		1,189,521		3,604,463
Total commercial real estate	2,796,956		1,237,313		4,034,269

Commercial and industrial loans:	1,442,617		397,891		1,840,508




Total commercial loans	4,239,573		1,635,204		5,874,777

Residential mortgages:
1-4 family	2,143,817		533,536		2,677,353
Construction	4,641		3,478		8,119
Total residential mortgages	2,148,458		537,014		2,685,472

Consumer loans:
Home equity	273,867		106,724		380,591
Auto and other	504,599		56,989		561,588
Total consumer loans	778,466		163,713		942,179

Total loans	$	7,166,497	$	2,335,931	$	9,502,428

F-42

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Modifications that subsequently defaulted
for the twelve months ending December 31, 2015
Number of Contracts Recorded Investment
Troubled Debt Restructurings

Commercial - Single and multifamily 1
$ —
Commercial - Other 1
373
Commercial and industrial - Other 4
6,579
Residential - 1-4 Family 2
169
8
$ 7,121
Total unamortized net costs and premiums included in the December 31, 2019 total loans for business activity loans were the following:


(In thousands)	December 31, 2019
Unamortized net loan origination costs	$	13,259
Unamortized net premium on purchased loans	2,643
Total unamortized net costs and premiums	$	15,902

The following table summarizes activity in the accretable yield for the acquired loan portfolio that falls under the purview of ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality:


(In thousands)	2019		2018
Balance at beginning of period	$	2,840	$	11,561
Acquisitions	4,200		0
Accretion	(9,619)		(23,109)
Net reclassification from nonaccretable difference	7,430		17,347
Payments received, net	(837)		(2,878)
Reclassification to TDR	9		0
Disposals	0		(81)
Balance at end of period	4,023		2,840

The following is a summary of past due loans at December 31, 2019:

Business Activities Loans


(in thousands)	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
December 31, 2019
Commercial real estate:
Construction	$	0	$	0	$	0	$	0	$	382,014	$	382,014	$	0

Commercial real estate	423		89		15,623		16,135		2,398,807		2,414,942		0
Total	423		89		15,623		16,135		2,780,821		2,796,956		0
Commercial and industrial loans


Total	2,841		2,033		10,662		15,536		1,427,081		1,442,617		122
Residential mortgages:
1-4 family	1,669		714		3,350		5,733		2,138,084		2,143,817		800
Construction	0		0		0		0		4,641		4,641		0
Total	1,669		714		3,350		5,733		2,142,725		2,148,458		800
Consumer loans:
Home equity	149		0		1,147		1,296		272,571		273,867		52
Auto and other	4,709		990		2,729		8,428		496,171		504,599		1
Total	4,858		990		3,876		9,724		768,742		778,466		53
Total	$	9,791	$	3,826	$	33,511	$	47,128	$	7,119,369	$	7,166,497	$	975

F-43

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquired Loans


(in thousands)	30-59 Days Past Due		60-89 Days Past Due		>90 Days Past Due		Total Past Due		Acquired Credit Impaired		Total Loans		Past Due > 90 days and Accruing
December 31, 2019
Commercial real estate:
Construction	$	0	$	0	$	0	$	0	$	1,396	$	47,792	$	0

Commercial real estate	3,907		245		10,247		14,399		21,639		1,189,521		5,751
Total	3,907		245		10,247		14,399		23,035		1,237,313		5,751
Commercial and industrial loans


Total	888		299		1,275		2,462		26,718		397,891		442
Residential mortgages:
1-4 family	745		491		932		2,168		10,840		533,536		139
Construction	0		0		0		0		0		3,478		0
Total	745		491		932		2,168		10,840		537,014		139
Consumer loans:
Home equity	346		222		789		1,357		540		106,724		72
Auto and other	120		22		265		407		286		56,989		0
Total	466		244		1,054		1,764		826		163,713		72
Total	$	6,006	$	1,279	$	13,508	$	20,793	$	61,419	$	2,335,931	$	6,404

The following is summary information pertaining to non-accrual loans at December 31, 2019:


	December 31, 2019
(In thousands)	Business Activities Loans		Acquired Loans		Total
Commercial real estate:
Construction	$	0	$	0	$	0

Other commercial real estate	15,623		4,496		20,119
Total	15,623		4,496		20,119
Commercial and industrial loans:


Total	10,540		833		11,373

Residential mortgages:
1-4 family	2,550		793		3,343
Construction	0		0		0
Total	2,550		793		3,343
Consumer loans:
Home equity	1,095		717		1,812
Auto and other	2,728		265		2,993
Total	3,823		982		4,805

Total non-accrual loans	$	32,536	$	7,104	$	39,640

F-44

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans evaluated for impairment as of December 31, 2019 were as follows:

Business Activities Loans


(In thousands)	Commercial real estate		Commercial and industrial		Residential mortgages		Consumer		Total
Loans receivable:
Balance at end of year
Individually evaluated for impairment	$	19,192	$	9,167	$	3,019	$	630	$	32,008
Collectively evaluated	2,777,764		1,433,450		2,145,439		777,836		7,134,489
Total	$	2,796,956	$	1,442,617	$	2,148,458	$	778,466	$	7,166,497

Acquired Loans


(In thousands)	Commercial real estate		Commercial and industrial		Residential mortgages		Consumer		Total
Loans receivable:
Balance at end of year
Individually evaluated for impairment	$	4,241	$	464	$	372	$	575	$	5,652

Purchased credit-impaired loans	23,035		26,718		10,840		826		61,419
Collectively evaluated	1,210,037		370,709		525,802		162,312		2,268,860
Total	$	1,237,313	$	397,891	$	537,014	$	163,713	$	2,335,931

The following is a summary of impaired loans at December 31, 2019:

Business Activities Loans


	December 31, 2019
(In thousands)	Recorded Investment (1)		Unpaid Principal Balance (2)		Related Allowance
With no related allowance:


Other commercial real estate loans	$	18,676	$	37,493	$	—
Commercial and industrial loans	4,805		10,104		—
Residential mortgages - 1-4 family	433		699		—
Consumer - home equity	32		238		—
Consumer - other	0		0		—

With an allowance recorded:


Other commercial real estate loans	$	550	$	1,411	$	20
Commercial and industrial loans	4,166		12,136		122
Residential mortgages - 1-4 family	2,615		2,924		109
Consumer - home equity	594		614		42
Consumer - other	8		8		1

Total
Commercial real estate	$	19,226	$	38,904	$	20
Commercial and industrial loans	8,971		22,240		122
Residential mortgages	3,048		3,623		109
Consumer	634		860		43
Total impaired loans	$	31,879	$	65,627	$	294

(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.

F-45

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquired Loans


	December 31, 2019
(In thousands)	Recorded Investment (1)		Unpaid Principal Balance (2)		Related Allowance
With no related allowance:


Other commercial real estate loans	$	3,200	$	6,021	$	—
Other commercial and industrial loans	437		532		—
Residential mortgages - 1-4 family	292		293		—
Consumer - home equity	416		844		—
Consumer - other	0		0		—

With an allowance recorded:

Other commercial real estate loans	$	1,033	$	1,050	$	97
Commercial and industrial loans	28		30		1
Residential mortgages - 1-4 family	84		110		8
Consumer - home equity	121		123		6
Consumer - other	39		37		6

Total
Commercial real estate	$	4,233	$	7,071	$	97
Commercial and industrial loans	465		562		1
Residential mortgages	376		403		8
Consumer	576		1,004		12
Total impaired loans	$	5,650	$	9,040	$	118

(2) The Unpaid Principal Balance represents the customer's legal obligation to the Company.

F-46

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the average recorded investment and interest income recognized on impaired loans as of December 31, 2019 and 2018:

Business Activities Loans


	December 31, 2019				December 31, 2018
(in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:


Other commercial real estate	$	19,805	$	586	$	24,078	$	373
Other commercial and industrial	3,165		523		914		245
Residential mortgages - 1-4 family	185		17		428		20
Consumer-home equity	148		3		107		10
Consumer-other	0		0		0		0

With an allowance recorded:


Other commercial real estate	$	374	$	107	$	555	$	30
Other commercial and industrial	2,533		793		1,259		139
Residential mortgages - 1-4 family	2,427		150		1,407		75
Consumer-home equity	349		32		98		6
Consumer - other	11		1		15		1

Total
Commercial real estate	$	20,179	$	693	$	24,633	$	403
Commercial and industrial	5,698		1,316		2,173		384
Residential mortgages	2,612		167		1,835		95
Consumer loans	508		36		220		17
Total impaired loans	$	28,997	$	2,212	$	28,861	$	899

F-47

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquired Loans


	December 31, 2019				December 31, 2018
(in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:


Other commercial real estate	$	1,603	$	117	$	3,280	$	263
Other commercial and industrial	441		51		428		68
Residential mortgages - 1-4 family	241		11		290		9
Consumer - home equity	475		23		635		4
Consumer - other	0		0		13		1

With an allowance recorded:


Other commercial real estate	$	1,005	$	59	$	950	$	53
Other commercial and industrial	29		2		197		41
Residential mortgages - 1-4 family	88		7		26		9
Consumer - home equity	68		6		89		12
Consumer - other	41		2		11		3

Total
Commercial real estate	$	2,608	$	176	$	4,230	$	316
Commercial and industrial	470		53		625		109
Residential mortgages	329		18		316		18
Consumer loans	584		31		748		20
Total impaired loans	$	3,991	$	278	$	5,919	$	463

NaN additional funds are committed to be advanced in connection with impaired loans.

The following table presents the Company’s TDR activity in ~~2017~~2019 and ~~2016:~~2018:


(In thousands)	2019		2018
Balance at beginning of year	$	27,415	$	41,990
Principal payments	(6,086)		(8,547)
TDR status change (1)	0		0
Other reductions (2)	(4,076)		(8,713)
Newly identified TDRs	2,063		2,685
Balance at end of year	$	19,316	$	27,415

(In thousands) 2017 2016 2015
Balance at beginning of year $ 33,829
$ 22,048
$ 16,714
Principal payments (3,213 ) (5,870 ) (5,460 )
TDR status change (1) —
2,235
—
Other reductions (2) (4,522 ) (2,349 ) (3,160 )
Newly identified TDRs 15,896
17,765
13,954
Balance at end of year $ 41,990
$ 33,829
$ 22,048
_____________________

~~________________________________~~ (1) TDR status change classification represents TDR loans with a specified interest rate equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan was on current payment status and not impaired based on the terms specified by the restructuring agreement.


~~(1)~~	TDR status change classification represents TDR loans with a specified interest rate equal to or greater than the rate that the Company was willing to accept at the time of the restructuring for a new loan with comparable risk and the loan was on current payment status and not impaired based on the terms specified by the restructuring agreement.

(2) Other reductions classification consists of transfer to other real estate owned, charge-offs to loans, and other loan sale payoffs.

~~The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.~~

As of December 31, 2017, the Company maintained no foreclosed residential real estate property. Additionally, residential mortgage loans collateralized by real estate property that are in the process of foreclosure as of December 31, 2017 and December 31, 2016 totaled $4.9 million and $4.8 million, respectively. As of December 31, 2016, foreclosed residential real estate property totaled $151 thousand.

~~F-46~~

F-48

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Loan Losses

~~NOTE 7. LOAN LOSS ALLOWANCE~~Prior to the adoption of ASC 326 on January 1, 2020, the Company calculated allowance for loan losses using incurred losses methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.

Activity in the allowance for loan losses for ~~2017, 2016,~~2019 and ~~2015~~2018 was as follows:


Business Activities Loans
(In thousands) 2019	Commercial real estate		Commercial and industrial loans		Residential mortgages		Consumer		Total
Balance at beginning of period	$	21,732	$	16,504	$	10,535	$	7,368	$	56,139
Charged-off loans	6,577		23,799		635		3,322		34,333
Recoveries on charged-off loans	570		1,012		57		253		1,892
Provision/(releases) for loan losses	9,033		25,404		(1,417)		458		33,478
Balance at end of period	$	24,758	$	19,121	$	8,540	$	4,757	$	57,176

Individually evaluated for impairment	20		122		109		43		294
Collectively evaluated	24,738		18,999		8,431		4,714		56,882
Total	$	24,758	$	19,121	$	8,540	$	4,757	$	57,176

~~Business Activities Loans~~


Business Activities Loans
(In thousands) 2018	Commercial real estate		Commercial and industrial loans		Residential mortgages		Consumer		Total
Balance at beginning of period	$	16,843	$	13,850	$	9,420	$	5,807	$	45,920
Charged-off loans	5,859		4,275		157		3,187		13,478
Recoveries on charged-off loans	50		620		114		363		1,147
Provision/(releases) for loan losses	10,698		6,309		1,158		4,385		22,550
Balance at end of period	$	21,732	$	16,504	$	10,535	$	7,368	$	56,139

Individually evaluated for impairment	9		49		128		11		197
Collectively evaluated	21,723		16,455		10,407		7,357		55,942
Total	$	21,732	$	16,504	$	10,535	$	7,368	$	56,139


Acquired Loans
(In thousands) 2019	Commercial real estate		Commercial and industrial loans		Residential mortgages		Consumer		Total
Balance at beginning of period	$	3,153	$	1,064	$	630	$	483	$	5,330
Charged-off loans	830		571		263		557		2,221
Recoveries on charged-off loans	672		438		116		123		1,349
Provision/(releases) for loan losses	1,111		126		365		339		1,941
Balance at end of period	$	4,106	$	1,057	$	848	$	388	$	6,399

Individually evaluated for impairment	97		1		8		12		118
Collectively evaluated	4,009		1,056		840		376		6,281
Total	$	4,106	$	1,057	$	848	$	388	$	6,399

F-49

(In thousands)
2017 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Balance at beginning of year $ 16,498
$ 9,447
$ 7,805
$ 5,479
$ 39,229
Charged-off loans 3,875
3,373
806
3,470
11,524
Recoveries on charged-off loans 170
179
270
270
889
Provision for loan losses 4,050
7,597
2,151
3,528
17,326
Balance at end of year $ 16,843
$ 13,850
$ 9,420
$ 5,807
$ 45,920
Individually evaluated for impairment 229
66
130
35
460
Collectively evaluated 16,614
13,784
9,290
5,772
45,460
Total $ 16,843
$ 13,850
$ 9,420
$ 5,807
$ 45,920

~~Business Activities Loans~~

(In thousands)
2016 Commercial real estate Commercial
and industrial Residential
mortgages Consumer Total
Balance at beginning of year $ 14,591
$ 7,385
$ 7,613
$ 4,985
$ 34,574
Charged-off loans 2,127
4,620
2,036
1,722
10,505
Recoveries on charged-off loans 243
123
159
267
792
Provision for loan losses 3,791
6,559
2,069
1,949
14,368
Balance at end of year $ 16,498
$ 9,447
$ 7,805
$ 5,479
$ 39,229
Individually evaluated for impairment 158
264
136
156
714
Collectively evaluated 16,340
9,183
7,669
5,323
38,515
Total $ 16,498
$ 9,447
$ 7,805
$ 5,479
$ 39,229

~~Business Activities Loans~~

(In thousands)
2015 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Balance at beginning of year $ 14,740
$ 5,246
$ 6,864
$ 5,945
$ 32,795
Charged-off loans 6,865
2,358
1,215
1,183
11,621
Recoveries on charged-off loans 164
169
141
285
759
Provision for loan losses 6,552
4,328
1,823
(62 ) 12,641
Balance at end of year $ 14,591
$ 7,385
$ 7,613
$ 4,985
$ 34,574
Individually evaluated for impairment 149
21
153
103
426
Collectively evaluated 14,442
7,364
7,460
4,882
34,148
Total $ 14,591
$ 7,385
$ 7,613
$ 4,985
$ 34,574

~~F-47~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Acquired Loans~~


Acquired Loans
(In thousands) 2018	Commercial real estate		Commercial and industrial loans		Residential mortgages		Consumer		Total
Balance at beginning of period	$	3,856	$	1,125	$	598	$	335	$	5,914
Charged-off loans	1,812		524		1,091		1,106		4,533
Recoveries on charged-off loans	294		286		51		417		1,048
Provision/(releases) for loan losses	815		177		1,072		837		2,901
Balance at end of period	$	3,153	$	1,064	$	630	$	483	$	5,330

Individually evaluated for impairment	9		4		36		48		97
Collectively evaluated	3,144		1,060		594		435		5,233
Total	$	3,153	$	1,064	$	630	$	483	$	5,330

F-50

(In thousands)
2017 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Balance at beginning of year $ 2,303
$ 1,164
$ 766
$ 536
$ 4,769
Charged-off loans 771
844
797
648
3,060
Recoveries on charged-off loans 65
245
43
153
506
Provision for loan losses 2,259
560
586
294
3,699
Balance at end of year $ 3,856
$ 1,125
$ 598
$ 335
$ 5,914
Individually evaluated for impairment 56
1
9
45
111
Collectively evaluated 3,800
1,124
589
290
5,803
Total $ 3,856
$ 1,125
$ 598
$ 335
$ 5,914

~~Acquired Loans~~

(In thousands)
2016 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Balance at beginning of year $ 1,903
$ 1,330
$ 976
$ 525
$ 4,734
Charged-off loans 977
1,095
829
620
3,521
Recoveries on charged-off loans 61
266
144
91
562
Provision for loan losses 1,316
663
475
540
2,994
Balance at end of year $ 2,303
$ 1,164
$ 766
$ 536
$ 4,769
Individually evaluated for impairment 250
59
11
114
434
Collectively evaluated 2,053
1,105
755
422
4,335
Total $ 2,303
$ 1,164
$ 766
$ 536
$ 4,769

~~Acquired Loans~~

(In thousands)
2015 Commercial
real estate Commercial
and industrial Residential
mortgages Consumer Total
Balance at beginning of year $ 790
$ 1,093
$ 615
$ 369
$ 2,867
Charged-off loans 681
752
642
992
3,067
Recoveries on charged-off loans 418
289
64
78
849
Provision for loan losses 1,376
700
939
1,070
4,085
Balance at end of year $ 1,903
$ 1,330
$ 976
$ 525
$ 4,734
Individually evaluated for impairment 43
—
30
25
98
Purchased credit-impaired loans 42
—
—
—
42
Collectively evaluated 1,818
1,330
946
500
4,594
Total $ 1,903
$ 1,330
$ 976
$ 525
$ 4,734

~~F-48~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Credit Quality Information~~

~~Business Activities Loans Credit Quality Analysis~~

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 and 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.

Ratings for other consumer loans, including auto loans, are based on a two rating system. Loans that are current within 119 days are rated Performing while loans delinquent for 120 days or more are rated Non-performing. Other consumer loans are placed on non-accrual at such time as they become Non-performing.

~~Acquired Loans Credit Quality Analysis~~

Upon acquiring a loan portfolio, our internal loan review function assigns risk ratings to the acquired loans, utilizing the same methodology as it does with business activities loans. This may differ from the risk rating policy of the predecessor bank. Loans which are rated Substandard or worse according to the rating process outlined below are deemed to be credit impaired loans accounted for under ASC 310-30, regardless of whether they are classified as performing or non-performing.

The Bank utilizes a loan risk rating system for acquired loans consistent with loans originated from business activities, as outlined in the Credit Quality Information section of this Note. The ratings system is similar to loans originated through business activities. The Company presented several tables within this footnote separately for business activity loans and acquired loans in order to distinguish the credit performance of the acquired loans from the business activity loans.

~~F-49~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following tables present the Company’s loans by risk rating at ~~year-end 2017 and 2016:~~December 31, 2019:

Business Activities Loans

Commercial Real Estate

Credit Risk Profile by Creditworthiness Category


	Construction				Single and multi-family				Real Estate				Total commercial real estate					December 31, 2019
(In thousands)	2017		2016		2017		2016		2017		2016		2017		2016		(In thousands)	Construction		Real Estate		Total Commercial Real Estate
Grade:																	Grade:
Pass	$	181,371	$	253,302	$	214,289	$	189,310	$	1,775,091	$	1,434,762	$	2,170,751	$	1,877,374	Pass	$	382,014	$	2,354,375	$	2,736,389
Special mention	—		—		504		334		12,999		5,827		13,503		6,161		Special mention	0		12,167		12,167
Substandard	—		—		2,290		2,175		31,163		40,598		33,453		42,773		Substandard	0		48,400		48,400
Doubtful	—		—		—		—		—		36		—		36
Total	$	181,371	$	253,302	$	217,083	$	191,819	$	1,819,253	$	1,481,223	$	2,217,707	$	1,926,344	Total	$	382,014	$	2,414,942	$	2,796,956

Commercial and Industrial Loans

Credit Risk Profile by Creditworthiness Category

Total comm. and industrial
(In thousands) 2017 2016
Grade:

Pass $ 1,156,240
$ 890,974
Special mention 12,806
123
Substandard 11,123
13,825
Doubtful 2,400
3,180
Total $ 1,182,569
$ 908,102


	December 31, 2019
(In thousands)	Total Commercial and Industrial Loans
Grade:
Pass	$	1,366,342
Special mention	50,072
Substandard	24,112
Doubtful	2,091
Total	$	1,442,617

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade


	1-4 family				Construction				Total residential mortgages					December 31, 2019
(In thousands)	2017		2016		2017		2016		2017		2016		(In thousands)	1-4 Family		Construction		Total Residential Mortgages
Grade:													Grade:
Pass	$	1,805,596	$	1,578,913	$	5,177	$	11,178	$	1,810,773	$	1,590,091	Pass	$	2,139,753	$	4,641	$	2,144,394
Special mention	242		701		—		—		242		701		Special mention	714		0		714
Substandard	2,186		4,179		—		—		2,186		4,179		Substandard	3,350		0		3,350
Total	$	1,808,024	$	1,583,793	$	5,177	$	11,178	$	1,813,201	$	1,594,971	Total	$	2,143,817	$	4,641	$	2,148,458

Consumer Loans

Credit Risk Profile Based on Payment Activity


	Home equity				Auto and other				Total consumer					December 31, 2019
(In thousands)	2017		2016		2017		2016		2017		2016		(In thousands)	Home Equity		Auto and Other		Total Consumer Loans
Performing	$	293,327	$	310,846	$	602,313	$	477,416	$	895,640	$	788,262	Performing	$	272,772	$	501,871	$	774,643
Nonperforming	1,627		2,675		1,454		952		3,081		3,627		Nonperforming	1,095		2,728		3,823
Total	$	294,954	$	313,521	$	603,767	$	478,368	$	898,721	$	791,889	Total	$	273,867	$	504,599	$	778,466

~~F-50~~

F-51

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquired Loans

Commercial Real Estate

Credit Risk Profile by Creditworthiness Category


	December 31, 2019
(In thousands)	Construction		Real Estate		Total Commercial Real Estate
Grade:
Pass	$	46,396	$	1,130,333	$	1,176,729
Special mention	0		5,993		5,993
Substandard	1,396		53,195		54,591
Total	$	47,792	$	1,189,521	$	1,237,313

Construction Single and multi-family Real Estate Total commercial real estate
(In thousands) 2017 2016 2017 2016 2017 2016 2017 2016
Grade:

Pass $ 76,611
$ 33,461
$ 203,624
$ 119,414
$ 684,846
$ 496,562
$ 965,081
$ 649,437
Special mention —
—
603
907
22,070
1,622
22,673
2,529
Substandard 8,354
746
1,855
5,351
49,072
32,031
59,281
38,128
Total $ 84,965
$ 34,207
$ 206,082
$ 125,672
$ 755,988
$ 530,215
$ 1,047,035
$ 690,094

Commercial and Industrial Loans

Credit Risk Profile by Creditworthiness Category

Total comm. and industrial
(In thousands) 2017 2016
Grade:

Pass $ 606,922
$ 147,102
Special mention 1,241
1,260
Substandard 13,207
5,574
Total $ 621,370
$ 153,936


	December 31, 2019
(In thousands)	Total Commercial and Industrial Loans
Grade:
Pass	$	373,744
Special mention	4,404
Substandard	19,743

Total	$	397,891

Residential Mortgages

Credit Risk Profile by Internally Assigned Grade


	1-4 family				Construction				Total residential mortgages					December 31, 2019
(In thousands)	2017		2016		2017		2016		2017		2016		(In thousands)	1-4 Family		Construction		Total Residential Mortgages
Grade:													Grade:
Pass	$	281,160	$	294,983	$	233	$	804	$	281,393	$	295,787	Pass	$	528,282	$	3,478	$	531,760
Special mention	2,704		343		—		—		2,704		343		Special mention	592		0		592
Substandard	5,509		2,029		—		—		5,509		2,029		Substandard	4,662		0		4,662
Total	$	289,373	$	297,355	$	233	$	804	$	289,606	$	298,159	Total	$	533,536	$	3,478	$	537,014

Consumer Loans

Credit Risk Profile Based on Payment Activity


	Home equity				Auto and other				Total consumer					December 31, 2019
(In thousands)	2017		2016		2017		2016		2017		2016		(In thousands)	Home Equity		Auto and Other		Total Consumer Loans
Performing	$	113,262	$	79,762	$	113,510	$	105,117	$	226,772	$	184,879	Performing	$	106,007	$	56,724	$	162,731
Nonperforming	1,965		517		392		895		2,357		1,412		Nonperforming	717		265		982
Total	$	115,227	$	80,279	$	113,902	$	106,012	$	229,129	$	186,291	Total	$	106,724	$	56,989	$	163,713

~~F-51~~

F-52

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about total loans rated Special Mention or ~~lower.~~lower at December 31, 2019. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified in the above table as performing based on payment activity.


	December 31, 2019
(In thousands)	Business Activities Loans		Acquired Loans		Total
Non-Accrual	$	32,536	$	7,104	$	39,640
Substandard Accruing	49,293		73,131		122,424
Total Classified	81,829		80,235		162,064
Special Mention	63,943		11,341		75,284
Total Criticized	$	145,772	$	91,576	$	237,348

December 31, 2017 December 31, 2016
(In thousands) Business
Activities Loans Acquired Loans Total Business
Activities Loans Acquired Loans Total
Non-Accrual $ 15,659
$ 7,240
$ 22,899
$ 16,816
$ 5,424
$ 22,240
Substandard Accruing 36,846
73,412
110,258
51,125
44,177
95,302
Total Classified 52,505
80,652
133,157
67,941
49,601
117,542
Special Mention 28,387
26,802
55,189
7,479
4,323
11,802
Total Criticized $ 80,892
$ 107,454
$ 188,346
$ 75,420
$ 53,924
$ 129,344

NOTE 8.7. PREMISES AND EQUIPMENT

Year-end premises and equipment are summarized as follows:


(In thousands)	2020		2019		Estimated Useful Life
Land	$	17,716	$	17,816	N/A
Buildings and improvements	113,853		116,997		5 - 39 years
Furniture and equipment (1)	63,590		64,044		3 - 7 years
Construction in process (1)	4,035		1,580
Premises and equipment, gross	199,194		200,437
Accumulated depreciation and amortization (1)	(86,531)		(78,966)

Premises and equipment, net	$	112,663	$	121,471
Premises and equipment, net from discontinued operations	0		1,073
Premises and equipment, net from continuing operations	$	112,663	$	120,398

(In thousands) 2017 2016 Estimated Useful
Life
Land $ 14,177
$ 10,563
N/A
Buildings and improvements 99,821
85,319
5 - 39 years
Furniture and equipment 49,600
42,693
3 - 7 years
Construction in process 5,177
4,084

Premises and equipment, gross 168,775
142,659

Accumulated depreciation and amortization (59,423 ) (49,444 )
Premises and equipment, net $ 109,352
$ 93,215

(1) Includes premises and equipment classified as discontinued operations. See Note 2 - Discontinued Operations for more information.

Depreciation and amortization expense including discontinued operations for the years ~~2017, 2016,~~2020, 2019, and ~~2015~~2018 amounted to ~~$9.9~~$12.5 million, ~~$8.4~~$11.8 million,, and ~~$8.6~~$10.8 million, respectively.

~~F-52~~

F-53

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.8. GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangible assets are presented in the tables below. The Company ~~completed~~had 0 acquisition during 2020. There was one acquisition during ~~2017 which resulted in the capitalization of goodwill and other intangibles.~~2019. In accordance with applicable accounting guidance, the Company allocated the amount paid to the fair value of the net assets acquired, with any excess amounts recorded as goodwill. ~~There were three acquisitions during 2016.~~ The goodwill balance is allocated to the consolidated Company. The activity impacting goodwill in ~~2017~~2020 and ~~2016~~2019 is as follows:


(In thousands)	2017		2016			(In thousands)	2020		2019
Balance, beginning of the period	$	403,106	$	323,943		Balance, beginning of the period	$	553,762	$	518,325
Goodwill acquired and adjusted:						Goodwill acquired and adjusted:
Commerce Bank	116,181		—
44 Business Capital	—		15,892
Ronald N. Lazzaro, PC	—		5,492
First Choice Bank	—		58,036
SI Financial Group, Inc.						SI Financial Group, Inc.	0		36,379

Adjustments (1)	—		(257		)	Adjustments (1)	0		(942)
Impairment						Impairment	(553,762)		0
Balance, end of the period	$	519,287	$	403,106		Balance, end of the period	$	0	$	553,762


~~(1)~~	~~In 2016, goodwill related to the Hampden and Firestone acquisitions was adjusted since acquisition dates to reflect new information available during the one-year measurement period.~~

(1)In 2019, goodwill related to the SI Financial Group acquisition was adjusted to reflect new information available during the one-year measurement period.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is assessed annually for impairment and more frequently if events or changes in circumstances indicate that there may be an impairment. The Company tests goodwill impairment annually as of ~~September~~June 30 ~~2017~~ using ~~third~~second quarter data.

The ~~results~~Company compares the fair value of the ~~qualitative assessment indicated it is more likely than not that the~~ reporting ~~unit's fair value exceeds~~unit with its carrying amount, ~~and accordingly,~~including goodwill. If the ~~two-step~~carrying amount of a reporting unit exceeds its fair value, an impairment ~~test~~loss is recognized in an amount equal to that excess. The fair value of the reporting unit was ~~not performed. If events or changes in circumstances indicate that impairment is possible,~~determined using the guideline public company method. As a result of the assessment, the Company ~~will perform additional reviews. No~~recognized a full goodwill impairment during the year ended December 31, 2020. NaN impairment was recorded on goodwill for ~~2017, 2016~~2019.

The primary causes of the goodwill impairment were economic and ~~2015.~~industry conditions resulting from the COVID-19 pandemic that caused volatility and reductions in the market capitalization of the Company and its peer banks, increased loan provision estimates, increased discount rates and other changes in variables driven by the uncertain macro-environment that resulted in the estimated fair value of the reporting unit being less than the reporting unit’s carrying value.

F-54

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of other intangible assets are as follows:


(In thousands)	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
December 31, 2020
Non-maturity deposits (core deposit intangible) (1)	$	77,213	$	(45,257)	$	31,956
Insurance contracts	7,558		(7,558)		0
All other intangible assets	7,866		(5,003)		2,863
Total	$	92,637	$	(57,818)	$	34,819

December 31, 2019
Non-maturity deposits (core deposit intangible)	$	84,903	$	(42,663)	$	42,240
Insurance contracts	7,558		(7,553)		5
All other intangible assets	7,866		(4,496)		3,370
Total	$	100,327	$	(54,712)	$	45,615

(In thousands)
Gross Intangible
Assets

Accumulated
Amortization

Net Intangible
Assets
December 31, 2017

Non-maturity deposits (core deposit intangible) $ 66,923
$ (33,024 ) $ 33,899
Insurance contracts 7,558
(7,526 ) 32
All other intangible assets 7,810
(3,445 ) 4,365
Total $ 82,291
$ (43,995 ) $ 38,296
December 31, 2016

Non-maturity deposits (core deposit intangible) $ 44,523
$ (30,099 ) $ 14,424
Insurance contracts 7,558
(7,504 ) 54
All other intangible assets 7,866
(2,899 ) 4,967
Total $ 59,947
$ (40,502 ) $ 19,445
(1)As of December 31, 2020, the Company reclassified $4.6 million of net core deposit intangible to held-for-sale related to the assets and liabilities associated with the Mid-Atlantic branch sale.

Other intangible assets are amortized on a straight-line or accelerated basis over their estimated lives, which range from four to fifteen ~~years.~~years. Amortization expense related to intangibles totaled ~~$3.5~~$6.2 million in ~~2017, $2.9~~2020, $5.8 million in ~~2016,~~2019, and ~~$3.6~~$4.9 million in ~~2015.~~2018.

The estimated aggregate future amortization expense for intangible assets remaining at year-end ~~2017~~2020 is as follows: ~~2018- $4.9 million; 2019- $4.7 million; 2020- $4.4 million;~~ 2021- ~~$4.2~~$5.3 million; 2022- ~~$4.1~~$5.1 million; 2023- $4.8 million; 2024- $4.6 million; 2025- $4.5 million; and thereafter- ~~$16.0~~$10.6 million. For the years ~~2017, 2016,~~2020, 2019, and ~~2015, no~~2018, 0 impairment charges were identified for the Company’s intangible assets.

F-55

~~F-53~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~10.~~9. OTHER ASSETS

Year-end other assets are summarized as follows:


(In thousands)	2020		2019
Capitalized servicing rights (1)	$	16,348	$	26,451
Accrued interest receivable	46,919		36,462
Accrued federal and state tax receivable	40,751		23,786
Right-of-use assets (1)	60,018		76,332
Derivative assets (1)	160,071		80,190

Deferred tax asset	46,370		51,165
Other (1)	16,753		18,381
Total other assets	$	387,230	$	312,767
Total other assets from discontinued operations	0		23,822
Total other assets from continuing operations	$	387,230	$	288,945

(In thousands) 2017 2016
Capitalized servicing rights $ 16,361
$ 11,524
Accrued interest receivable 33,739
26,113
Accrued federal and state tax receivable (1) 33,101
19,076
Derivative assets 19,308
21,617
Assets held for sale 1,392
—
Other 13,182
20,127
Total other assets $ 117,083
$ 98,457
(1) Includes other assets classified as discontinued operations. See Note 2 - Discontinued Operations for more information.


~~(1)~~	Accrued federal and state tax receivable as of December 31, 2017 includes $4.3 million of New York State refundable tax credits from investment in historical tax credit partnerships in New York State. This balance was $5.9 million at year-end 2016.

The Bank sells loans in the secondary market and retains the ~~ability~~right to service many of these loans. The Bank earns fees for the servicing provided. Loans sold and serviced for others from continuing operations amounted to ~~$1.8~~$1.5 billion, ~~$1.3~~$1.7 billion, and $1.4 billion at year-end 2020, 2019, and 2018, respectively. Loans sold and serviced for others from discontinued operations amounted to $0.6 billion, $1.4 billion, and $0.8 billion at year-end ~~2017, 2016,~~2020, 2019, and ~~2015, respectively.~~2018. Loans serviced for others are not included in the accompanying ~~consolidated balance sheets.~~Consolidated Balance Sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates. Contractually specified servicing fees from continuing operations were ~~$4.6~~$5.5 million, ~~$3.2~~$5.6 million, and ~~$1.7~~$4.6 million for the years ~~2017, 2016,~~2020, 2019, and ~~2015,~~2018, respectively, and included as a component of loan related fees within non-interest income. ~~The~~Contractually specified servicing fees from discontinued operations were $2.1 million, $1.9 million, and $1.0 million for the years 2020, 2019, and 2018, respectively, and included as a component of other income in Note 2 - Discontinued Operations. Refer to Note 20 - Fair Value Measurements for significant assumptions and inputs used in the valuation at year-end ~~2017 included a weighted average discount rate of 10.4% and pre-payment speed assumptions ranging from 7.78% to 12.78%.~~2020.

Servicing rights activity was as follows:


(In thousands)	2020		2019
Balance at beginning of year	$	26,451	$	23,376


Additions	3,875		16,837
Amortization	(3,761)		(3,240)
Change in fair value	(9,266)		(5,822)
Allowance adjustment	(951)		(4,700)
Balance at end of year (1)	$	16,348	$	26,451

(1)As of December 31, 2020 and December 31, 2019, the servicing rights included in the total balance accounted for at fair value were $3.0 million and $12.3 million, respectively.

F-56

(In thousands) 2017 2016
Balance at beginning of year $ 11,524
$ 5,187
Acquired from 44 Business Capital —
3,489
Acquired from First Choice Bank (1) —
696
Additions 7,604
4,116
Amortization (2,446 ) (1,964 )
Change in fair value (221 ) —
Allowance adjustment (100 ) —
Balance at end of year $ 16,361
$ 11,524


~~(1)~~	~~Amounts acquired from First Choice Bank are accounted for at fair value. The balance as of December 31, 2017 and December 31, 2016 were $3.8 million and $0.8 million, respectively.~~

~~F-54~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~11.~~10. DEPOSITS

A summary of year-end time deposits is as follows:


(In thousands)	2017		2016		(In thousands)	2020		2019
Maturity date:					Maturity date:
Within 1 year	$	1,790,056	$	1,316,973	Within 1 year	$	1,582,492	$	2,734,870
Over 1 year to 2 years	546,381		582,764		Over 1 year to 2 years	545,100		582,622
Over 2 years to 3 years	268,897		142,160		Over 2 years to 3 years	171,810		145,976
Over 3 years to 4 years	161,314		150,388		Over 3 years to 4 years	32,358		90,731
Over 4 years to 5 years	121,400		137,845		Over 4 years to 5 years	51,073		33,754
Over 5 years	2,157		3,413		Over 5 years	2,252		1,416
Total	$	2,890,205	$	2,333,543	Total	$	2,385,085	$	3,589,369
Account balances:					Account balances:
Less than $100,000	$	733,785	$	656,055	Less than $100,000	$	663,324	$	905,190
$100,000 or more	2,156,420		1,677,488
$100,000 through $250,000					$100,000 through $250,000	1,219,210		2,027,717
$250,000 or more					$250,000 or more	502,551		656,462
Total	$	2,890,205	$	2,333,543	Total	$	2,385,085	$	3,589,369

Included in total deposits on the Consolidated Balance Sheets are brokered deposits of ~~$1.2~~$0.6 billion and ~~$0.9~~$1.2 billion at December 31, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. ~~Included~~Also included in total ~~brokered~~ deposits are reciprocal deposits of ~~$99.8~~$119.0 million and ~~$113.4~~$91.7 million at December 31, ~~2017~~2020 and December 31, ~~2016, respectively. Included in total deposits are~~2019, respectively, as well as related party deposits of ~~$36.0~~$177.2 million and ~~$17.2~~$63.9 million at December 31, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

F-57

~~F-55~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~12.~~11. BORROWED FUNDS

Borrowed funds at December 31, ~~2017~~2020 and ~~2016~~2019 are summarized, as follows:


	2017				2016					2020				2019
(in thousands, except rates)	Principal		Weighted Average Rate		Principal		Weighted Average Rate		(in thousands, except rates)	Principal		Weighted Average Rate		Principal		Weighted Average Rate
Short-term borrowings:									Short-term borrowings:
Advances from the FHLBB	$	667,300	1.48	%	$	1,072,044	0.71	%	Advances from the FHLBB	$	40,000	1.05	%	$	125,000	2.06	%
Other Borrowings	—		—		10,000		2.42

Total short-term borrowings:	667,300		1.48		1,082,044		0.72		Total short-term borrowings:	40,000		1.05		125,000		2.06
Long-term borrowings:									Long-term borrowings:
Advances from the FHLBB	380,436		1.54		142,792		1.53		Advances from the FHLBB	434,357		1.89		605,501		2.16
Paycheck Protection Program Liquidity Facility ("PPPLF")									Paycheck Protection Program Liquidity Facility ("PPPLF")	0		0		0		0
Subordinated notes	73,875		7.00		73,697		7.00		Subordinated notes	74,411		7.00		74,232		7.00
Junior subordinated notes	15,464		3.30		15,464		2.77
Junior subordinated borrowing - Trust I									Junior subordinated borrowing - Trust I	15,464		2.06		15,464		3.76
Junior subordinated borrowing - Trust II									Junior subordinated borrowing - Trust II	7,405		1.92		7,353		3.59
Total long-term borrowings:	469,775		2.46		231,953		3.35		Total long-term borrowings:	531,637		2.61		702,550		2.72
Total	$	1,137,075	1.88	%	$	1,313,997	1.19	%	Total	$	571,637	2.50	%	$	827,550	2.62	%

Short-term debt includes Federal Home Loan Bank of Boston (“FHLBB”) advances with an original maturity of less than one year. At year-end ~~2017,~~2020, the Company maintained a short-term line-of-credit ~~drawdown~~ through a correspondent ~~bank.~~bank with 0 balance outstanding. The Bank also maintains a $3.0 million secured line of credit with the FHLBB that bears a daily adjustable rate calculated by the FHLBB. There was no0 outstanding balance on the FHLBB line of credit for the periods ended December 31, ~~2017~~2020 and December 31, ~~2016.~~2019. The Bank's available borrowing capacity with the FHLB was $1.0 billion and $1.6 billion for the periods ended December 31, 2020 and December 31, 2019, respectively. The Company iswas in compliance with all debt covenants as of December 31, ~~2017.~~2020.

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. NoNaN borrowings with the Federal Reserve Bank of Boston took place for the periods ended December 31, ~~2017~~2020 and December 31, ~~2016.~~2019. 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 December 31, 2020, the Bank had no pledged PPP loans. The Bank's available borrowing capacity with the Federal Reserve Bank was $815.6 million and $201.3 million for the periods ended December 31, 2020 and December 31, 2019, respectively.

Long-term FHLBB advances consist of advances with an original maturity of more than one ~~year.~~year and are subject to

prepayment penalties. The advances outstanding at December 31, ~~2017 include~~2020 included callable advances totaling $10 million and amortizing advances totaling ~~$1.4~~$5.2 million. The advances outstanding at December 31, ~~2016 include~~2019 included callable advances totaling ~~$11.0~~$10 million and amortizing advances totaling ~~$1.2~~$4.4 million. All FHLBB 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.

F-58

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of maturities of FHLBB advances at year-end ~~2017~~2020 is as follows:


	2020
(In thousands)	Amount		Weighted Average Rate
Fixed rate advances maturing:
2021	$	395,475	1.80	%
2022	58,489		1.92
2023	10,916		2.17
2024	54		0
2025 and beyond	9,423		1.63










Total FHLBB advances	$	474,357	1.82	%

2017
(In thousands) Amount Weighted
Average Rate
Fixed rate advances maturing:

2018 $ 836,115
1.43 %
2019 150,082
1.64
2020 54,101
2.04
2021 220
3.21
2022 and beyond 7,218
2.64
Total fixed rate advances $ 1,047,736
1.50

Total FHLBB advances $ 1,047,736
1.50 %

~~F-56~~

~~Table of Contents~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The Company did ~~not~~0t have variable-rate FHLB advances for the period ended December 31, ~~2017~~2020 and December 31, ~~2016.~~2019.

In September 2012, the Company issued fifteen year subordinated notes in the amount of $75.0 million at a discount of 1.15%. The interest rate is fixed at 6.875% for the first ten years. After ten years, the notes become callable and convert to an interest rate of three month LIBOR plus 5.113%. The subordinated note includes reduction to the note principal balance of ~~$583~~$215 thousand and ~~$706~~$338 thousand for unamortized debt issuance costs as of December 31, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

The Company holds 100% of the common stock of Berkshire Hills Capital Trust I (“Trust I”) which is included in other assets with 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 ~~3.30%~~2.06% and ~~2.77%~~3.76% at December 31, ~~2017~~2020 and December 31, ~~2016,~~2019, 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 on each quarterly payment date. 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

with 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 1.92% and 3.59% at December 31, 2020 and December 31, 2019. 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.

F-59

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~13.~~12. OTHER LIABILITIES

Year-end other liabilities are summarized as follows:


(In thousands)	2020		2019
Derivative liabilities	$	65,758	$	80,681
Capital and financing lease obligations	10,383		10,883
Asset purchase settlement payable (1)	0		189
Employee benefits liability	38,830		44,781
Operating lease liabilities (1)	63,894		80,734
Accrued interest payable	3,867		11,625
Customer transaction clearing accounts	11,261		4,310
Other (1)	38,737		60,676
Total other liabilities	$	232,730	$	293,879
Total other liabilities from discontinued operations	0		26,481
Total other liabilities from continuing operations	$	232,730	$	267,398

(1) Includes other liabilities classified as discontinued operations. See Note 2 - Discontinued Operations for more information.

December 31,
(In thousands) 2017 2016
Derivative liabilities $ 15,838
$ 24,420
Capital lease obligation 11,323
11,639
Asset purchase settlement payable 70,637
29,158
Employee benefits liability 27,093
17,972
Level lease liability 5,766
6,997
Accrued interest payable 6,813
4,394
Customer transaction clearing accounts 9,118
1,786
Other 41,294
36,789
Total other liabilities $ 187,882
$ 133,155

~~F-57~~

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~14.~~13. EMPLOYEE BENEFIT PLANS

Pension Plan

The Company maintains a legacy, employer-sponsored defined benefit pension plan (the “Plan”) for which participation and benefit accruals were frozen on January 1, 2003. The Plan was assumed in connection with the Rome Bancorp acquisition in 2011. Accordingly, no0 employees are permitted to commence participation in the Plan and future salary increases and years of credited service are not considered when computing an employee’s benefits under the Plan. As of December 31, ~~2017,~~2020, all minimum Employee Retirement Income Security Act (“ERISA”) funding requirements have been met.

Information regarding the pension plan is as follows:


	December 31,
(In thousands)	2020		2019
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	5,848	$	5,669
Service Cost	66		72
Interest cost	178		228
Actuarial loss	519		542
Benefits paid	(337)		(333)
Settlements	(153)		(330)
Projected benefit obligation at end of year	6,121		5,848

Accumulated benefit obligation	6,121		5,848

Change in fair value of plan assets:
Fair value of plan assets at plan beginning of year	5,799		5,522
Actual return on plan assets	740		940
Contributions by employer	0		0
Benefits paid	(337)		(333)
Settlements	(153)		(330)
Fair value of plan assets at end of year	6,049		5,799

Underfunded status	$	72	$	49

December 31,
(In thousands) 2017 2016
Change in projected benefit obligation:

Projected benefit obligation at beginning of year $ 6,126
$ 6,585
Service Cost 66
76
Interest cost 237
267
Actuarial gain 309
(308 )
Benefits paid (324 ) (318 )
Settlements (61 ) (176 )
Projected benefit obligation at end of year 6,353
6,126
Accumulated benefit obligation 6,353
6,126

Change in fair value of plan assets:

Fair value of plan assets at plan beginning of year 5,121
5,211
Actual return on plan assets 710
404
Benefits paid (324 ) (318 )
Settlements (61 ) (176 )
Fair value of plan assets at end of year 5,446
5,121

Underfunded status $ 907
$ 1,005


Amounts Recognized on Consolidated Balance Sheets

Other Liabilities	$	72	$	49

Amounts Recognized in Consolidated Balance Sheet
Other Liabilities $ 907
$ 1,005

Net periodic pension cost is comprised of the following:


	December 31,							December 31,
(In thousands)	2017			2016			(In thousands)	2020		2019
Service Cost	$	66		$	76		Service Cost	$	66	$	72
Interest Cost	237			267			Interest Cost	178		228
Expected return on plan assets	(346		)	(361		)	Expected return on plan assets	(393)		(373)
Amortization of unrecognized actuarial loss	100			163			Amortization of unrecognized actuarial loss	94		117
Net periodic pension costs	$	57		$	145		Net periodic pension costs	$	(55)	$	44

~~F-58~~

F-61

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in plan assets and benefit obligations recognized in accumulated other comprehensive income are as follows:


	December 31,
(In thousands)	2020		2019
Amortization of actuarial (loss)	$	(94)	$	(117)
Actuarial (gain) loss	171		(25)
Settlement charge	0		(70)
Total recognized in accumulated other comprehensive income	77		(212)
Total recognized in net periodic pension cost recognized and other comprehensive income	$	22	$	(168)

December 31,
(In thousands) 2017 2016
Amortization of actuarial (loss) $ (100 ) $ (163 )
Actuarial (gain) loss (54 ) (351 )
Total recognized in accumulated other comprehensive income (154 ) (514 )
Total recognized in net periodic pension cost recognized and other comprehensive income $ (97 ) $ (369 )

The amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost are a net loss of $1.3 million and ~~$1.5~~$1.2 million in ~~2017~~2020 and ~~2016,~~2019, respectively.

The Company ~~expects to~~did not make noany cash contributions to the pension trust during ~~2018.~~2020 and 2019. The Company does 0t expect to make any cash contributions in 2021. The amount expected to be amortized from other comprehensive income into net periodic pension cost over the next fiscal year is ~~$83~~$103 thousand.

The principal actuarial assumptions used ~~were~~are as follows:


	December 31,					December 31,
	2017		2016			2020		2019
Projected benefit obligation					Projected benefit obligation
Discount rate	3.510	%	3.980	%	Discount rate	2.35	%	3.15	%
Net periodic pension cost					Net periodic pension cost
Discount rate	3.980	%	4.170	%	Discount rate	3.15	%	4.16	%
Long term rate of return on plan assets	7.000	%	7.000	%	Long term rate of return on plan assets	7.00	%	7.00	%

The discount rate that is used in the measurement of the pension obligation is determined by comparing the expected future retirement payment cash flows of the pension plan to the ~~Citigroup~~ Above Median ~~Double-A~~FTSE Pension Discount Curve as of the measurement date. The expected long-term rate of return on Plan assets reflects long-term earnings expectations on existing Plan assets and those contributions expected to be received during the current plan year. In estimating that rate, appropriate consideration was given to historical returns earned by Plan assets in the fund and the rates of return expected to be available for reinvestment. The rates of return were adjusted to reflect current capital market assumptions and changes in investment allocations.

The Company’s overall investment strategy with respect to the Plan’s assets is primarily for preservation of capital and to provide regular dividend and interest payments. The Plan’s targeted asset allocation is 65% equity securities via investment in the Long-Term Growth - Equity Portfolio ~~(‘LTGE’~~("LTGE"), 34% intermediate-term investment grade bonds via investment in the Long-Term Growth - Fixed-Income Portfolio ~~(‘LTGFI’~~("LTGFI"), and 1% in cash equivalents portfolio (for liquidity). Equity securities include investments in a diverse mix of equity funds to gain exposure in the US and international markets. The fixed income portion of the Plan assets is a diversified portfolio that primarily invests in intermediate-term bond funds. The overall rate of return is based on the historical performance of the assets applied against the Plan’s target allocation, and is adjusted for the long-term inflation rate.

The fair values for investment securities are determined by quoted prices in active markets, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

~~F-59~~F-62

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair ~~values~~value of the Plan’s assets by category ~~and level~~ within the fair value hierarchy are as follows at December 31, ~~2017:~~

December 31, 2017
Asset Category (In thousands) Total Level 1 Level 2
Equity Mutual Funds:

Large-Cap $ 1,820
$ —
$ 1,820
Mid-Cap 439
—
439
Small-Cap 438
—
438
International 893
—
893
Fixed Income Funds
Fixed Income - US Core 1,308
—
1,308
Intermediate Duration 437
—
437
Cash Equivalents - money market 111
29
82
Total $ 5,446
$ 29
$ 5,417

~~The fair values of the Plan’s assets by category~~2020 and ~~level within the fair value hierarchy are as follows at~~ December 31, ~~2016:~~

December 31, 2016
Asset Category (In thousands) Total Level 1 Level 2
Equity Mutual Funds:

Large-Cap $ 1,624
$ —
$ 1,624
Mid-Cap 401
—
401
Small-Cap 415
—
415
International 757
—
757
Fixed Income Funds

Fixed Income - US Core 1,378
—
1,378
Intermediate Duration 472
—
472
Cash Equivalents - money market 74
30
44
Total $ 5,121
$ 30
$ 5,091

2019. The Plan did not hold any assets classified as Level 3, ~~and~~nor were there ~~were no transfers between levels during 2017 or 2016.~~any transfers.


	December 31, 2020
Asset Category (In thousands)	Total		Level 1		Level 2
Equity Mutual Funds:
Large-Cap	$	1,996	$	0	$	1,996
Mid-Cap	519		0		519
Small-Cap	500		0		500
International	1,049		0		1,049

Fixed Income - US Core	1,403		0		1,403
Intermediate Duration	470		0		470
Cash Equivalents - money market	112		38		74
Total	$	6,049	$	38	$	6,011


	December 31, 2019
Asset Category (In thousands)	Total		Level 1		Level 2
Equity Mutual Funds:
Large-Cap	$	1,900	$	0	$	1,900
Mid-Cap	453		0		453
Small-Cap	429		0		429
International	828		0		828

Fixed Income - US Core	1,535		0		1,535
Intermediate Duration	517		0		517
Cash Equivalents - money market	137		60		77
Total	$	5,799	$	60	$	5,739

Estimated benefit payments under the ~~Company’s~~ pension plans over the next ~~ten~~10 years at December 31, ~~2017~~2020 are as follows:


Year						Payments (In thousands)
2021						370
2022						382
2023						367
2024						357
2025 - 2030						1,888

Year Payments (In thousands)
2018 343
2019 380
2020 372
2021 361
2022 386
2023 - 2027 1,792

Multi-Employer Pension Plan

As a result of the Company's acquisition of SI Financial Group, Inc. (“SIFI”), the Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (the “Plan”), a tax-qualified defined benefit pension plan. The Plan operates as a multiple-employer plan under ERISA and the Internal Revenue Code, and as a multi-employer plan for accounting purposes. The Plan was frozen effective September 6, 2013. The Company made contributions of $377 thousand in 2020. As of July 1, 2020, the Plan held assets with a market value of $4.5 million and liabilities with a market value of $7.9 million. The funded status (market value of plan assets divided by funding target) of the Plan, was greater than 80% as of July 1, 2020, as required by federal and state regulations. Market value of the Plan's assets reflects contributions received through June 30, 2020. There are no collective bargaining agreements in place that require contributions to the Plan by the Company. The Plan is a single plan under the Internal Revenue Code and, as a result, all of the assets stand behind all of the liabilities. Accordingly, contributions made by a participating employer may be used to provide benefits to participants of other participating employers.

~~F-60~~

F-63

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Postretirement Benefits

The Company ~~has~~maintains an unfunded ~~post-retirement~~postretirement medical plan ~~which was~~ assumed in connection with the Rome Bancorp acquisition in 2011. The postretirement plan has been modified so that participation is closed to those employees who did not meet the retirement eligibility requirements by March 31, 2011. The Company contributes partially to medical benefits and life insurance coverage for retirees. Such retirees and their surviving spouses are responsible for the remainder of the medical benefits, including increases in premiums levels, between the total premium and the Company’s contribution.

The Company also has an executive long-term care (“LTC”) postretirement benefit plan which started August 1, 2014. The LTC plan reimburses executives for certain costs in the event of a future chronic illness. Funding of the plan comes from Company paid insurance policies or direct payments. At plan’s inception, a $558 thousand benefit obligation was recorded against equity representing the prior service cost of plan participants.

Information regarding the ~~post-retirement plan~~postretirement plans is as follows:


	December 31,
(In thousands)	2020		2019
Change in accumulated postretirement benefit obligation:
Accumulated post-retirement benefit obligation at beginning of year	$	4,039	$	3,422

Service Cost	39		38
Interest cost	129		142
Participant contributions	0		0
Actuarial loss	507		565
Benefits paid	(73)		(128)

Accumulated post-retirement benefit obligation at end of year	$	4,641	$	4,039

Change in plan assets:
Fair value of plan assets at beginning of year	$	0	$	0
Contributions by employer	73		128
Contributions by participant	0		0
Benefits paid	(73)		(128)
Fair value of plan assets at end of year	$	0	$	0

December 31,
(In thousands) 2017 2016
Change in accumulated postretirement benefit obligation:

Accumulated post-retirement benefit obligation at beginning of year $ 3,249
$ 3,039
Service Cost 35
32
Interest cost 131
129
Participant contributions 46
47
Actuarial loss (gain) 326
130
Benefits paid (94 ) (128 )
Accumulated post-retirement benefit obligation at end of year $ 3,693
$ 3,249

Change in plan assets:

Fair value of plan assets at beginning of year $ —
$ —
Contributions by employer 48
81
Contributions by participant 46
47
Benefits paid (94 ) (128 )
Fair value of plan assets at end of year $ —
$ —


Amounts Recognized on Consolidated Balance Sheets
Other Liabilities	$	4,641	$	4,039

Amounts Recognized in Consolidated Balance Sheet

Other Liabilities $ 3,693
$ 3,249

Net periodic post-retirement cost is comprised of the following:


	December 31,
(In thousands)	2020		2019
Service cost	$	39	$	38
Interest costs	129		142
Amortization of net prior service credit	84		83
Amortization of net actuarial loss	12		0
Net periodic post-retirement costs	$	264	$	263

December 31,
(In thousands) 2017 2016
Service cost $ 35
$ 32
Interest costs 131
129
Amortization of net prior service credit 83
83
Amortization of net actuarial loss —
—
Net periodic post-retirement costs $ 249
$ 244

~~F-61~~

F-64

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in benefit obligations recognized in accumulated other comprehensive income are as follows:


	December 31,							December 31,
(In thousands)	2017			2016			(In thousands)	2020		2019
Amortization of actuarial loss	$	—		$	—

Amortization of prior service credit	(83		)	(83		)	Amortization of prior service credit	$	(84)	$	(83)
Net actuarial (gain) loss	199			(126		)
Net actuarial loss (gain)							Net actuarial loss (gain)	496		374
Total recognized in accumulated other comprehensive income	116			(209		)	Total recognized in accumulated other comprehensive income	412		291
Accrued post-retirement liability recognized	$	1,918		$	1,718		Accrued post-retirement liability recognized	$	4,641	$	4,039

The amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost are as follows:


	December 31,						December 31,
(In thousands)	2017		2016			(In thousands)	2020		2019
Net prior service cost (credit)	$	1,576	$	1,659		Net prior service cost (credit)	$	1,325	$	1,409
Net actuarial (gain) loss	199		(126		)
Net actuarial loss (gain)						Net actuarial loss (gain)	869		374
Total recognized in accumulated other comprehensive income	$	1,775	$	1,533		Total recognized in accumulated other comprehensive income	$	2,194	$	1,783

The amount expected to be amortized from other comprehensive income into net periodic postretirement cost over the next fiscal year is $83 thousand.

The discount rates used in the measurement of the postretirement ~~medical and LTC~~ plan obligations are determined by comparing the expected future retirement payment cash flows of the plans to the ~~Citigroup~~ Above Median ~~Double-A~~FTSE Pension Discount Curve as of the measurement date.

The assumed discount rates on a weighted-average basis were ~~3.44%~~2.16% and ~~3.91%~~3.06% as of December 31, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The ~~assumed health care cost trend~~Company has fixed contributions, therefore, the annual rate of increase in healthcare costs is not used in measuring the accumulated post-retirement benefit medical obligation is expected to be 7.75% for 2018, and is gradually expected to decrease to 3.89% by 2076. This assumption may have a significant effect on the amounts reported. However, as noted above, increases in premium levels are the financial responsibility of the plan beneficiary. Thus an increase or decrease in 1% of the health care cost trend rates utilized would have had an immaterial effect on the service and interest cost as well as the accumulated post-retirement benefit obligation for the postretirement plan as of December 31, 2017.obligation.

For participants in the LTC plan covered by insurance policies, no increase in annual premiums is assumed based on the history of the corresponding insurance provider.

Estimated benefit payments under the post-retirement benefit plan over the next ten years at December 31, ~~2017~~2020 are as follows:

Year Payments (In thousands)
2018 103
2019 103
2020 102
2021 106
2022 109
2023 - 2027 548


Year						Payments (In thousands)
2021						123
2022						121
2023						118
2024						117
2025 - 2030						642

~~F-62~~

F-65

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

401(k) Plan

The Company provides a 401(k) Plan in which most eligible employees participate. Expense related to the plan was ~~$3.4~~$3.5 million in ~~2017,~~2020, $4.1 million in 2019, and $3.9 million in ~~2016, and $3.6 million in 2015.~~2018.

Employee Stock Ownership Plan (“ESOP”)

As part of ~~acquisitions~~the SI Financial acquisition in ~~2015, 2012 and two during 2011,~~2019, the Company acquired an ESOP ~~plans~~plan that ~~were~~was frozen and terminated prior to the completion of ~~those transactions.~~the transaction. On ~~the~~ acquisition ~~dates,~~date, all amounts in the ~~plans~~plan were vested and the ~~loans~~loan under the plans ~~were~~was repaid from the sale proceeds of unallocated shares.

Other Plans

The Company maintains a supplemental executive retirement ~~plan~~plans (“~~SERP”~~SERPs”) for ~~a few~~ select current and former executives. Benefits generally commence no earlier than age sixty-two and are payable ~~at the executive’s option,~~ either as an annuity or as a lump ~~sum. Some~~sum at the executive’s option. Most of these SERPs were assumed in connection with ~~the Beacon acquisition in 2012. A SERP was acquired in connection with the Hampden Bank acquisition with an accrued liability of $1.4 million at acquisition date.~~acquisitions. At year-end ~~2017, the liability was $1.1 million~~2020 and ~~$1.2 million at year-end 2016.~~

~~At year-end 2017 and 2016,~~2019, the accrued liability for these SERPs ~~were $8.3~~was $20.1 million and ~~$7.4~~$20.3 million, respectively. SERP expense was ~~$968 thousand~~$2.0 million in ~~2017, $917 thousand~~2020, $0.9 million in ~~2016,~~2019, and ~~$752 thousand~~$0.6 million in ~~2015,~~2018, and is recognized over the required service period.

During 2020, the Company released $0.9 million of accrued SERP liability, following a transition in the Company's Chief Executive Officer position. The ~~Company assumed split-dollar life insurance agreements with~~separation agreement did not entitle the ~~acquisition of Hampden Bank with an accrued liability of $860 thousand at acquisition date~~former executive to any future benefits, including the associated SERP, other than those described in ~~April 2015. At year-end 2017,~~ the ~~liability was $1.2 million and $1.2 million as of year-end 2016.~~agreement.

The Company assumed split-dollar life insurance agreements with the acquisition of Commerce Bank with an accrued liability of $2.7 million at acquisition date in October 2017. At year-end 2017, the liability was $2.8 million.

The Company has endorsement split-dollar arrangements pertaining to certain current and ~~prior executives.~~former executives and directors. Under these arrangements, the Company purchased policies insuring the lives of the executives and directors, and separately entered into agreements to split the policy benefits with the ~~executive.~~individuals. There are no post-retirement benefits associated with these policies.

The Company also assumed split-dollar life insurance agreements from multiple prior acquisitions. The accrued liability for these split-dollar arrangements was $7.9 million as of year-end 2020 and $7.1 million as of year-end 2019.

~~F-63~~

F-66

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE ~~15.~~14. INCOME TAXES

Provision for Income Taxes

The components of the Company’s provision for income taxes for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015~~2018 were, as follows:


(In thousands)	2020		2019		2018
Current:
Federal tax (benefit)/expense	$	(19,889)	$	16,576	$	12,634
State tax (benefit)/expense	(3,976)		5,323		4,114
Total current tax (benefit)/expense (1)	(23,865)		21,899		16,748
Deferred:
Federal tax expense	2,048		908		8,443
State tax expense/(benefit)	1,964		(344)		3,770
Total deferred tax expense	4,012		564		12,213
Change in valuation allowance	0		0		0
Income tax (benefit)/expense from continuing operations	$	(19,853)	$	22,463	$	28,961
Income tax (benefit) from discontinued operations	(7,013)		(1,468)		(1,313)
Total	$	(26,866)	$	20,995	$	27,648

(In thousands) 2017 2016 2015
Current:

Federal tax expense $ 11,686
$ 6,758
$ 4,696
State tax expense 1,112
1,101
(1,631 )
Total current expense 12,798
7,859
3,065
Deferred:

Federal tax expense 29,824
9,438
2,023
State tax expense 1,805
1,591
(24 )
Total deferred tax expense (1) 31,629
11,029
1,999
Change in valuation allowance 75
(104 ) —
Total income tax expense $ 44,502
$ 18,784
$ 5,064
(1) On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act includes several provisions that temporarily modify the corporate net operating loss (“NOL”) carryback rules for federal income tax purposes. Specifically, the CARES Act allows a five-year carryback of any NOL generated in a taxable year beginning after December 31, 2017, and before January 1, 2021. The Company recorded a $6 million federal income tax benefit in 2020 resulting from the carryback of its 2020 NOL to recover federal income taxes paid in 2015 through 2017 at a 35% federal income tax rate.


~~(1)~~	2017 Deferred tax expense of $31.6 million includes an $18.1 million charge to re-measure the net deferred tax asset at December 31, 2017 pursuant to the reduction in the corporate income tax rate from 35% to 21%, effective January 1, 2018, per the Tax Cuts and Jobs Act enacted on December 22, 2017.

Effective Tax Rate

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, ~~2017, 2016,~~2020, 2019, and ~~2015:~~2018:


	2020				2019				2018
(In thousands, except rates)	Amount		Rate		Amount		Rate		Amount		Rate
Statutory tax rate	$	(111,936)	21.0	%	$	26,037	21.0	%	$	29,018	21.0	%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit	(1,589)		0.3		3,641		2.9		7,081		5.1
Tax exempt income - investments, net	(3,184)		0.6		(3,527)		(2.8)		(3,620)		(2.6)
Bank-owned life insurance	(1,283)		0.3		(1,305)		(1.1)		(1,337)		(1.0)
Goodwill impairment	103,912		(19.5)		0		0		0		0
Non-deductible merger costs	0		0		122		0.1		181		0.1

Tax credits, net of basis reduction	(1,812)		0.3		(3,531)		(2.8)		(3,574)		(2.6)

Tax rate benefit on net operating loss carryback	(6,040)		1.1		0		0		0		0
Other, net	2,079		(0.4)		1,026		0.8		1,212		0.9

Effective tax rate	$	(19,853)	3.7	%	$	22,463	18.1	%	$	28,961	20.9	%

2017 2016 2015
(In thousands, except rates) Amount Rate Amount Rate Amount Rate
Statutory tax rate $ 34,912
35.0 % $ 27,108
35.0 % $ 19,104
35.0 %
Increase (decrease) resulting from:

State taxes, net of federal tax benefit 2,232
2.2
1,675
2.2
(974 ) (1.8 )
Tax exempt income - investments, net (5,395 ) (5.4 ) (3,849 ) (5.0 ) (3,463 ) (6.3 )
Bank-owned life insurance (1,556 ) (1.6 ) (1,364 ) (1.8 ) (1,284 ) (2.4 )
Non-deductible merger costs 368
0.4
542
0.7
422
0.8
Non-deductible goodwill on disposal operations sale —
—
—
—
313
0.6
Tax credits, net of basis reduction (4,656 ) (4.7 ) (6,225 ) (8.0 ) (8,308 ) (15.2 )
Change in valuation allowance 75
0.1
125
0.2
—
—
Impact of federal tax reform enactment 18,145
18.2
—
—
—
—
Other, net 377
0.4
772
1.0
(746 ) (1.4 )
Effective tax rate $ 44,502
44.6 % $ 18,784
24.3 % $ 5,064
9.3 %

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of US GAAP in situations when a registrant does not have the necessary information available to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act (the "2017 Act"). SAB 118 allows for adjustments to the tax provision for up to one year from the enactment date (the measurement period). Any provisional amounts or adjustments to provisional amounts included in the Company’s financial statements during the measurement period will be included in income from continuing operations as an adjustment to tax expense or benefit in the reporting period the amounts are determined.

The Company recorded provisional amounts of deferred income taxes using reasonable estimates in five areas where the information necessary to determine the final deferred tax asset or liability was either not available, not prepared,

~~F-64~~

F-67

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

or not sufficiently analyzed as of the report filing date: 1) The deferred tax liability for temporary differences between the tax and financial reporting bases of fixed assets is awaiting completion and implementation of software updates to process the calculations associated with the Act's provisions allowing for direct expensing of qualified assets. 2) The net deferred tax asset for temporary differences associated with Commerce acquired tax attributes is awaiting final determinations of those amounts, some of which remain provisional. 3) The net deferred tax liability for loan servicing rights is awaiting formal approval from the Internal Revenue Service of a requested tax accounting method change with respect to these rights. 4) The net deferred tax asset for temporary differences associated with equity investments in partnerships is awaiting the receipt of Schedules K-1 from outside preparers, which is necessary to determine the 2017 tax impact from these investments.

In a fifth area, the Company made no adjustments to deferred tax assets representing future deductions for accrued compensation that may be subject to new limitations under Internal Revenue Code Section 162(m) which, generally, limits the annual deduction for certain compensation paid to certain employees to $1 million. As of the report filing date, there is uncertainty regarding how the newly-enacted rules in this area apply to existing contracts. Consequently, the Company is seeking further clarification of these matters before completing the analysis.

The Company will complete and record the income tax effects of these provisional items during the period the necessary information becomes available. This measurement period will not extend beyond December 22, 2018.

Deferred Tax ~~Liabilities~~Assets and ~~Assets~~Liabilities

As of December 31, ~~2017~~2020 and ~~2016,~~2019, significant components of the Company’s deferred tax assets and liabilities were, as follows:


(In thousands)	2017			2016			(In thousands)	2020		2019
Deferred tax assets:							Deferred tax assets:
Allowance for loan losses	$	14,578		$	17,747
Tax credit carryforwards	4,100			4,100
Allowance for credit losses							Allowance for credit losses	$	35,650	$	17,446

Unrealized capital loss on tax credit investments	6,502			6,999			Unrealized capital loss on tax credit investments	2,360		6,195

Employee benefit plans	4,983			7,813			Employee benefit plans	7,607		10,565
Purchase accounting adjustments	37,843			23,520			Purchase accounting adjustments	8,843		39,359
Net operating loss carryforwards	1,374			2,643			Net operating loss carryforwards	1,753		951

Lease liability							Lease liability	20,119		22,497
Premises and equipment							Premises and equipment	1,097		739
Nonaccrual interest							Nonaccrual interest	1,780		587
Other	2,332			4,997			Other	1,733		501
Deferred tax assets, net before valuation allowances	71,712			67,819			Deferred tax assets, net before valuation allowances	80,942		98,840
Valuation allowance	(200		)	(125		)	Valuation allowance	(200)		(200)
Deferred tax assets, net of valuation allowances	$	71,512		$	67,694		Deferred tax assets, net of valuation allowances	$	80,742	$	98,640

Deferred tax liabilities:							Deferred tax liabilities:
Net unrealized gain on swaps, securities available for sale, and pension in OCI	$	(1,888	)	$	(5,884	)
Premises and equipment	(1,126		)	(2,519		)

Net unrealized gain on securities available for sale and pension in OCI							Net unrealized gain on securities available for sale and pension in OCI	$	(10,602)	$	(4,244)

Loan servicing rights	(2,174		)	(4,546		)	Loan servicing rights	(1,674)		(4,669)
Deferred loan fees	(3,900		)	—			Deferred loan fees	(368)		(1,667)
Intangible amortization	(15,001		)	(11,543		)	Intangible amortization	(2,277)		(18,557)
Other	(362		)	(2,074		)
Unamortized tax credit reserve							Unamortized tax credit reserve	(1,086)		(1,142)
Right-of-use asset							Right-of-use asset	(18,365)		(20,614)
Deferred tax liabilities	$	(24,451	)	$	(26,566	)	Deferred tax liabilities	$	(34,372)	$	(50,893)
Deferred tax assets, net	$	47,061		$	41,128		Deferred tax assets, net	$	46,370	$	47,747

Deferred tax liabilities from discontinued operations							Deferred tax liabilities from discontinued operations	$	0	$	(3,418)
Deferred tax assets, net from continuing operations							Deferred tax assets, net from continuing operations	$	46,370	$	51,165



Delaware						04-3510455
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



ITEM 14.		PRINCIPAL ACCOUNTING FEES AND SERVICES	7877

PART IV			7978

ITEM 15.		EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	7978

ITEM 16.		FORM 10-K SUMMARY	8180

SIGNATURES			8281


TABLE INDEX

PART I			4

ITEM 1.			4

	ITEM 1 TABLE 1 — LOAN PORTFOLIO ANALYSIS		95

	ITEM 1 TABLE 2 — MATURITY AND SENSITIVITY OF LOAN PORTFOLIO		128

	ITEM 1 TABLE 3 — PROBLEM ASSETS ~~AND ACCRUING TDR~~		1410

	ITEM 1 TABLE 4 — ALLOWANCE FOR ~~LOAN LOSS~~CREDIT LOSSES		1512

	ITEM 1 TABLE 5 — ALLOCATION OF ALLOWANCE BY LOAN CATEGORY		1613

	ITEM 1 TABLE 6 — AMORTIZED COST AND FAIR VALUE OF SECURITIES		1714

	ITEM 1 TABLE 7 — WEIGHTED AVERAGE YIELD ON SECURITIES		1815

	ITEM 1 TABLE 8 — AVERAGE BALANCE AND WEIGHTED AVERAGE RATES FOR DEPOSITS		1816

	ITEM 1 TABLE 9 — MATURITY OF DEPOSITS > $100,000		1916

PART II			3839

ITEM 6			4041

	ITEM 6 TABLE 3 — AVERAGE BALANCES, INTEREST AND AVERAGE YIELD COSTS		4244

	ITEM 6 TABLE 4 — RATE VOLUME ANALYSIS		4446

ITEMS 7-7A.			4547

	ITEM 7 — 7A TABLE 1 — CONTRACTUAL OBLIGATIONS		6566

	ITEM 7 — 7A TABLE 2 — QUALITATIVE ASPECTS OF MARKET RISK		7069


Contractual Maturity	One Year		One to		More Than
(In thousands)	or Less		Five Years		Five Years		Total
Loans:
Construction	$	80,625	$	206,398	$	167,490	$	454,513
Commercial multifamily	32,296		191,876		259,178		483,350
Commercial real estate owner occupied	49,176		171,991		331,246		552,413
Commercial real estate non-owner occupied	187,556		1,062,087		869,620		2,119,263
Commercial and industrial	218,898		1,404,958		319,308		1,943,164

Residential real estate	12,308		37,218		1,882,155		1,931,681
Home equity	3,207		6,077		284,697		293,981
Consumer other	10,022		229,877		63,255		303,154
Total	$	594,088	$	3,310,482	$	4,176,949	$	8,081,519


(In thousands)	Fixed Interest Rate		Variable Interest Rate		Total
Loans:
Construction	$	2,969	$	370,919	$	373,888
Commercial multifamily	135,881		315,173		451,054
Commercial real estate owner occupied	165,731		337,506		503,237
Commercial real estate non-owner occupied	600,778		1,330,929		1,931,707
Commercial and industrial	1,042,474		681,792		1,724,266

Residential real estate	1,450,034		469,339		1,919,373
Home equity	6,100		284,674		290,774
Consumer other	288,582		4,550		293,132
Total	$	3,692,549	$	3,794,882	$	7,487,431



(In thousands)	2017			2016			2015			2014			2013
Non-accruing loans:
Commercial real estate	$	7,267		$	5,883		$	4,882		$	12,878		$	13,739
Commercial and industrial loans	7,311			7,523			8,259			1,705			2,355
Residential mortgages	2,883			3,795			3,966			3,908			7,868
Consumer	5,438			5,039			3,768			3,214			3,493
Total non-performing loans	22,899			22,240			20,875			21,705			27,455
Real estate owned	—			151			1,725			2,049			2,758
Repossessed assets	1,147			—			—			—			—
Total non-performing assets	$	24,046		$	22,391		$	22,600		$	23,754		$	30,213

Troubled debt restructurings (accruing)	$	36,172		$	28,241		$	12,497		$	12,612		$	8,344
Accruing loans 90+ days past due	$	16,480		$	9,863		$	5,229		$	4,568		$	9,223

Total non-performing loans/total loans	0.28		%	0.34		%	0.36		%	0.46		%	0.66		%
Total non-performing assets/total assets	0.21		%	0.24		%	0.29		%	0.37		%	0.53		%



PART I		4

ITEM 1.	BUSINESS	4

ITEM 1A.	RISK FACTORS	2928

ITEM 1B.	UNRESOLVED STAFF COMMENTS	3637

ITEM 2.	PROPERTIES	3637

ITEM 3.	LEGAL PROCEEDINGS	3738

ITEM 4.	MINE SAFETY DISCLOSURES	3738

PART II		3839

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	3839

ITEM 6.	SELECTED FINANCIAL DATA	4041

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4547

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6968

ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	7271

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	7371

ITEM 9A.	CONTROLS AND PROCEDURES	7371

ITEM 9B.	OTHER INFORMATION	7471

PART III		7572

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	7573

ITEM 11.	EXECUTIVE COMPENSATION	7776

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS	7876

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	7877


	One Year or Less				More than One Year to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
(In millions)	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
Municipal bonds and obligations	$	4.1	4.0	%	$	7.0	4.0	%	$	37.6	5.0	%	$	288.1	4.0	%	$	336.8	5.0	%
Mortgage-backed securities	—		—	%	11.2		2.0	%	154.6		2.0	%	1,501.6		2.0	%	1,667.4		2.0	%
Other bonds and obligations	31.1		—	%	4.4		5.0	%	53.3		5.0	%	26.0		3.0	%	114.8		3.0	%
Total	$	35.2	0.6	%	$	22.6	3.5	%	$	245.5	3.3	%	$	1,815.7	2.2	%	$	2,119.0	2.3	%


Maturity Period	Amount		Weighted Average Rate		Maturity Period	Amount		Weighted Average Rate
(In thousands)					(In thousands)
Three months or less	$	656,814	1.10	%	Three months or less	$	458,997	1.46	%
Over 3 months through 6 months	350,824		1.31		Over 3 months through 6 months	337,721		1.14
Over 6 months through 12 months	395,429		1.39		Over 6 months through 12 months	359,777		1.13
Over 12 months	753,353		1.72		Over 12 months	565,266		1.26
Total	$	2,156,420	1.40	%	Total	$	1,721,761	1.26	%



	Period Ending
Index	12/31/12	12/31/13	12/31/14	12/31/15	12/31/16	12/31/17
Berkshire Hills Bancorp, Inc.	100.00	117.53	118.35	132.76	173.10	175.94
NYSE Composite Index	100.00	126.06	134.62	129.40	144.72	171.66
PHLX KBW Regional Banking Index	100.00	146.30	149.67	158.62	219.27	223.02



	At or For the Years Ended
(Dollars in thousands)	December 31, 2017			December 31, 2016			December 31, 2015
GAAP Net income	$	55,247		$	58,670		$	49,518
Non-GAAP measures
Adj: Gain on sale of securities, net	(12,598		)	551			(2,110		)
Adj: Net gains on sale of business operations	(296		)	(1,085		)	—
Adj: Loss on termination of hedges	6,629			—			—
Adj: Acquisition, restructuring, conversion, and other related expenses (1)	31,558			15,761			17,611
Adj: Employee and Community Investment	3,400			—			—
Adj: Deferred tax asset impairment	18,145			—			—
Adj: Income taxes	(11,277		)	(5,455		)	(5,409		)
Net non-operating charges	35,561			9,772			10,092
Total adjusted net income (non-GAAP)	$	90,808		$	68,442		$	59,610
GAAP Total revenue	$	420,484		$	298,118		$	268,137
Adj: Gain on sale of securities, net	(12,598		)	551			(2,110		)
Adj: Net gains on sale of business operations	(296		)	(1,085		)	—
Adj: Loss on termination of hedges	6,629			—			—
Total adjusted operating revenue (non-GAAP)	$	414,219		$	297,584		$	266,027
GAAP Total non-interest expense	$	299,710		$	203,302		$	196,830
Less: Total non-operating expense (see above)	(31,558		)	(15,761		)	(17,611		)
Less: Employee and Community Reinvestment	(3,400		)	—			—
Adjusted operating non-interest expense (non-GAAP)	$	264,752		$	187,541		$	179,219
(in millions, except per share data)
Total average assets	$	9,815		$	7,958		$	7,249
Total average shareholders' equity	1,244			911			805
Total average tangible shareholders equity	793			563			494
Total average tangible common shareholders equity	784			563			494
Total tangible shareholders’ equity, period-end	939			671			553
Total tangible common shareholders’ equity, period-end	898			671			553
Total tangible assets, period-end	11,013			8,740			7,496
Total common shares outstanding, period-end (thousands)	45,290			35,673			30,974
Average diluted shares outstanding (thousands)	39,695			31,167			28,564
Earnings per share, diluted	$	1.39		$	1.88		$	1.73
Plus: Net adjustments per share, diluted	0.90			0.32			0.36
Adjusted earnings per share, diluted	2.29			2.20			2.09
Book value per common share, period-end	32.14			30.65			28.64
Tangible book value per common share, period-end	19.83			18.81			17.84
Total shareholders' equity/total assets	12.93			11.93			11.33
Total tangible shareholders' equity/total tangible assets	8.52			7.68			7.37
Average operating diluted shares outstanding (thousands)	39,695			31,167			28,564
Performance Ratios
GAAP return on assets	0.56			0.74			0.68
Adjusted return on assets	0.93			0.86			0.82
GAAP return on equity	4.45			6.44			6.15
Adjusted return on equity	7.31			7.51			7.40
Adjusted return on tangible common equity	11.82			12.47			12.49
Efficiency ratio	59.97			58.27			60.88
Supplementary Data (in thousands)
Tax benefit on tax-credit investments	10,182			11,134			16,127
Non-interest income charge on tax-credit investments	(8,693		)	(8,993		)	(11,406		)
Net income on tax-credit investments	1,489			2,143			4,721
Intangible amortization	3,493			2,927			3,563
Fully taxable equivalent income adjustment	11,227			8,098			6,354



(In thousands)	Total		Less than One Year		One to Three Years		Three to Five Years		After Five Years
FHLBB borrowings (1)	$	1,047,736	$	836,115	$	204,183	$	7,438	$	—
Subordinated notes	89,339		—		—		—		89,339
Operating lease obligations (2)	96,356		12,830		20,080		15,859		47,587
Purchase obligations (3)	102,002		16,321		31,086		27,507		27,088
Total Contractual Obligations	$	1,335,433	$	865,266	$	255,349	$	50,804	$	164,014



				Fair Value				As Recorded by
(in thousands)	As Acquired			Adjustments				the Company
Consideration Paid:
Company common stock issued to Commerce common shareholders								$	188,599
Company preferred stock issued to certain Commerce shareholders								40,633
Cash in lieu paid to Commerce shareholders								1
Total consideration paid								$	229,233
Recognized amounts of identifiable assets acquired and (liabilities) assumed, at fair value:
Cash and short-term investments	$	374,611		$	—			$	374,611
Investment securities	115,274			(1,427		)	(a)	113,847
Loans, net	1,327,256			(86,505		)	(b)	1,240,751
Premises and equipment	8,931			5,346			(c)	14,277
Core deposit intangibles	—			22,400			(d)	22,400
Deferred tax assets, net	7,956			26,580			(e)	34,536
Goodwill and other intangibles	11,233			(11,233		)	(f)	—
Other assets	52,709			(3,664		)	(g)	49,045
Deposits	(1,710,872		)	(1,180		)	(h)	(1,712,052		)
Borrowings	(19,542		)	—				(19,542		)
Other liabilities	(5,086		)	265				(4,821		)
Total identifiable net assets	$	162,470		$	(49,418	)		$	113,052

Goodwill								$	116,181



	ASC 310-30 Loans
Gross contractual receivable amounts at acquisition	$	163,125
Contractual cash flows not expected to be collected (nonaccretable discount)	(81,205		)
Expected cash flows at acquisition	81,920
Interest component of expected cash flows (accretable discount)	(10,815		)
Fair value of acquired loans	$	71,105



(In thousands) 2017	Commercial real estate		Commercial and industrial		Residential mortgages		Consumer		Total
Loans receivable:
Balance at end of year
Individually evaluated for impairment	$	33,732	$	5,761	$	3,872	$	—	$	43,365
Collectively evaluated	2,183,975		1,176,808		1,809,329		898,721		6,068,833
Total	$	2,217,707	$	1,182,569	$	1,813,201	$	898,721	$	6,112,198



(In thousands) 2016	Commercial real estate		Commercial and industrial		Residential mortgages		Consumer		Total
Loans receivable:
Balance at end of year
Individually evaluated for impairment	$	25,549	$	5,705	$	2,775	$	2,703	$	36,732
Collectively evaluated	1,900,795		902,397		1,592,197		789,186		5,184,575
Total	$	1,926,344	$	908,102	$	1,594,972	$	791,889	$	5,221,307



	At December 31, 2017
(In thousands)	Recorded Investment (1)		Unpaid Principal Balance (2)		Related Allowance
With no related allowance:
Commercial real estate - construction	$	—	$	—	$	—
Commercial real estate - single and multifamily	1,077		3,607		—
Other commercial real estate	18,285		18,611		—
Other commercial and industrial loans	2,060		2,629		—
Residential mortgages - 1-4 family	660		1,075		—
Consumer - home equity	867		1,504		—
With an allowance recorded:
Commercial real estate - construction	$	159	$	159	$	1
Commercial real estate - single and multifamily	159		171		1
Other commercial real estate	14,321		15,235		227
Other commercial and industrial loans	3,716		4,249		66
Residential mortgages - 1-4 family	1,344		1,446		130
Consumer - home equity	1,014		999		34
Consumer - other	17		17		1

Total
Commercial real estate	$	34,001	$	37,783	$	229
Commercial and industrial	5,776		6,878		66
Residential mortgages	2,004		2,521		130
Consumer	1,898		2,520		35
Total impaired loans	$	43,679	$	49,702	$	460



	At December 31, 2016
(In thousands)	Recorded Investment (1)		Unpaid Principal Balance (2)		Related Allowance
With no related allowance:
Other commercial real estate	$	18,905	$	18,905	$	—
Other commercial and industrial loans	382		382		—
Residential mortgages - 1-4 family	2,101		2,101		—
Consumer - home equity	1,605		1,605		—
With an allowance recorded:
Commercial real estate - single and multifamily	$	179	$	181	$	2
Other commercial real estate	6,306		6,462		156
Other commercial and industrial loans	5,060		5,324		264
Residential mortgages - 1-4 family	538		674		136
Consumer - home equity	942		1,098		156
Total
Commercial real estate	$	25,390	$	25,548	$	158
Commercial and industrial	5,442		5,706		264
Residential mortgages	2,639		2,775		136
Consumer	2,547		2,703		156
Total impaired loans	$	36,018	$	36,732	$	714



	Modifications by Class For the twelve months ending December 31, 2017
	Number of Modifications	Pre-Modification Outstanding Recorded Investment (In thousands)		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial - Single and multifamily	1	$	235	$	235
Commercial - Other	15	13,445		11,718
Commercial and industrial - Other	12	3,507		3,507
Residential - 1-4 Family	4	331		314
Consumer - Home Equity	3	122		122
	35	$	17,640	$	15,896



	Modifications that subsequently defaulted for the twelve months ending December 31, 2017
	Number of Contracts	Recorded Investment
Troubled Debt Restructurings
Commercial - Single and multifamily	—	$	—
Commercial - Other	1	113
Commercial and industrial - Other	2	492
Residential - 1-4 Family	—	—
	3	$	605



(In thousands) 2015	Commercial real estate		Commercial and industrial		Residential mortgages		Consumer			Total
Balance at beginning of year	$	14,740	$	5,246	$	6,864	$	5,945		$	32,795
Charged-off loans	6,865		2,358		1,215		1,183			11,621
Recoveries on charged-off loans	164		169		141		285			759
Provision for loan losses	6,552		4,328		1,823		(62		)	12,641
Balance at end of year	$	14,591	$	7,385	$	7,613	$	4,985		$	34,574
Individually evaluated for impairment	149		21		153		103			426
Collectively evaluated	14,442		7,364		7,460		4,882			34,148
Total	$	14,591	$	7,385	$	7,613	$	4,985		$	34,574



	Total comm. and industrial
(In thousands)	2017		2016
Grade:
Pass	$	1,156,240	$	890,974
Special mention	12,806		123
Substandard	11,123		13,825
Doubtful	2,400		3,180
Total	$	1,182,569	$	908,102



Amounts Recognized in Consolidated Balance Sheet
Other Liabilities	$	3,693	$	3,249


	Notional Amount		Weighted Average Maturity	Weighted Average Rate				Estimated Fair Value Asset (Liability)
December 31, 2020				Received		Contract pay rate
	(In thousands)		(In years)					(In thousands)





Economic hedges:
Interest rate swap on tax advantaged economic development bond	$	8,654	8.9	0.52	%	5.09	%	$	(1,778)
Interest rate swaps on loans with commercial loan customers	1,734,978		6.1	4.15	%	1.95	%	159,016
Reverse interest rate swaps on loans with commercial loan customers	1,734,978		6.1	1.95	%	4.15	%	(64,645)
Risk participation agreements with dealer banks	326,862		8.0					665
Forward sale commitments	11,544		0.2					320
Total economic hedges	3,817,016							93,578

Non-hedging derivatives:
Commitments to lend	40,099		0.2					735
Total non-hedging derivatives	40,099							735

Total	$	3,857,115						$	94,313


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statements of Condition		Net Amounts of Assets Presented in the Statements of Condition		Gross Amounts Not Offset in the Statements of Condition
							Financial Instruments		Cash Collateral Received
(in thousands)											Net Amount
As of December 31, 2020
Interest Rate Swap Agreements:
Institutional counterparties	$	1,124	$	(78)	$	1,046	$	0	$	0	$	1,046
Commercial counterparties	159,016		0		159,016		0		0		159,016
Total	$	160,140	$	(78)	$	160,062	$	0	$	0	$	160,062


		Gross Amounts of Recognized Liabilities				Gross Amounts Offset in the Statements of Condition			Net Amounts of Liabilities Presented in the Statement of Condition				Gross Amounts Not Offset in the Statements of Condition													Gross Amounts of Recognized Liabilities				Gross Amounts Offset in the Statements of Condition					Net Amounts of Liabilities Presented in the Statement of Condition					Gross Amounts Not Offset in the Statements of Condition
					Financial Instruments							Cash Collateral Received																Financial Instruments									Cash Collateral Received
(in thousands)								Net Amount							(in thousands)																	Net Amount
As of December 31, 2017
As of December 31, 2020																							As of December 31, 2020
Interest Rate Swap Agreements:	Interest Rate Swap Agreements:																						Interest Rate Swap Agreements:
Institutional counterparties					$	(8,777	)	$	2,835			$	(5,942	)		$	3,982		$	1,960			$	—	Institutional counterparties			$	(164,543)				$	97,740				$	(66,803)			$	37,815			$	75,070			$	46,082
Commercial counterparties		(5,375		)		2			(5,373		)		—				—			(5,373		)	Commercial counterparties			0				0					0					0				0				0
Total		$	(14,152	)		$	2,837		$	(11,315	)		$	3,982			$	1,960		$	(5,373	)	Total			$	(164,543)			$	97,740				$	(66,803)				$	37,815			$	75,070			$	46,082


	December 31, 2020		December 31, 2019
Weighted-Average Remaining Lease Term (in years)
Operating leases	9.8		10.3
Finance leases	13.8		14.8

Weighted-Average Discount Rate
Operating leases	2.81	%	3.36	%
Finance leases	5.00	%	5.00	%


					Minimum Capital Requirement				Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
	Actual
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2020
Company (Consolidated)
Total capital to risk-weighted assets	$	1,337,008	16.10	%	$	664,239	8.00	%	N/A		N/A
Common Equity Tier 1 Capital to risk weighted assets	1,145,329		13.79		373,634		4.50		N/A		N/A
Tier 1 capital to risk-weighted assets	1,167,512		14.06		498,179		6.00		N/A		N/A
Tier 1 capital to average assets	1,167,512		9.38		332,119		4.00		N/A		N/A
Bank
Total capital to risk-weighted assets	$	1,243,287	14.99	%	$	663,429	8.00	%	$	961,659	10.00	%
Common Equity Tier 1 Capital to risk weighted assets	1,148,205		13.85		373,179		4.50		625,079		6.50
Tier 1 capital to risk-weighted assets	1,148,205		13.85		497,572		6.00		769,327		8.00
Tier 1 capital to average assets	1,148,205		9.23		331,715		4.00		480,830		5.00
December 31, 2019
Company (Consolidated)
Total capital to risk-weighted assets	$	1,321,910	13.73	%	$	770,294	8.00	%	N/A		N/A
Common Equity Tier 1 Capital to risk weighted assets	1,161,800		12.07		433,290		4.50		N/A		N/A
Tier 1 capital to risk-weighted assets	1,183,932		12.30		577,720		6.00		N/A		N/A
Tier 1 capital to average assets	1,183,932		9.33		385,147		4.00		N/A		N/A
Bank
Total capital to risk-weighted assets	$	1,233,278	12.82	%	$	769,327	8.00	%	$	961,659	10.00	%
Common Equity Tier 1 Capital to risk weighted assets	1,169,535		12.16		432,747		4.50		625,079		6.50
Tier 1 capital to risk-weighted assets	1,169,535		12.16		576,996		6.00		769,327		8.00
Tier 1 capital to average assets	1,169,535		9.14		384,664		4.00		480,830		5.00


(In thousands)	Before Tax		Tax Effect		Net of Tax
Year Ended December 31, 2020
Net unrealized holding gain on AFS securities:
Net unrealized gain arising during the period	$	25,721	$	(6,470)	$	19,251
Less: reclassification adjustment for (losses) realized in net income	(5)		1		(4)
Net unrealized holding gain on AFS securities	25,726		(6,471)		19,255











Net unrealized holding (loss) on pension plans
Net unrealized (loss) arising during the period	(489)		112		(377)
Less: reclassification adjustment for (losses) realized in net income	0		0		0
Net unrealized holding (loss) on pension plans	(489)		112		(377)
Other comprehensive gain	$	25,237	$	(6,359)	$	18,878


(in thousands)	Net unrealized holding gain (loss) on AFS Securities		Net unrealized holding gain (loss) on pension plans		Total
Year Ended December 31, 2020
Balance at Beginning of Year	$	14,204	$	(2,211)	$	11,993
Other comprehensive gain/(loss) before reclassifications	19,251		(377)		18,874
Amounts reclassified from accumulated other comprehensive income	(4)		0		(4)
Total other comprehensive income/(loss)	19,255		(377)		18,878
Balance at End of Period	$	33,459	$	(2,588)	$	30,871

Year Ended December 31, 2019
Balance at Beginning of Year	$	(11,453)	$	(2,017)	$	(13,470)
Other comprehensive gain/(loss) before reclassifications	25,701		(194)		25,507
Amounts reclassified from accumulated other comprehensive income	44		0		44
Total other comprehensive income/(loss)	25,657		(194)		25,463
Balance at End of Period	$	14,204	$	(2,211)	$	11,993

Year Ended December 31, 2018
Balance at Beginning of Year	$	6,008	$	(1,847)	$	4,161
Other comprehensive (loss)/income before reclassifications	(12,498)		81		(12,417)
Amounts reclassified from accumulated other comprehensive income	4		(147)		(143)
Total other comprehensive (loss)/income	(12,502)		228		(12,274)
Less: amounts reclassified from accumulated other comprehensive income (loss) related to adoption of ASU 2016-01 and ASU 2018-02	4,959		398		5,357
Balance at End of Period	$	(11,453)	$	(2,017)	$	(13,470)



(in thousands)	Net unrealized holding gain (loss) on AFS Securities			Net loss on effective cash flow hedging derivatives			Net unrealized holding gain (loss) on pension plans			Total
Year Ended December 31, 2017
Balance at Beginning of Year	$	15,540		$	(3,984	)	$	(1,790	)	$	9,766
Other comprehensive gain (loss) before reclassifications	(1,469		)	(269		)	(187		)	(1,925		)
Amounts reclassified from accumulated other comprehensive income	8,063			(4,253		)	(130		)	3,680
Total Other Comprehensive (Loss) Income	(9,532		)	3,984			(57		)	(5,605		)
Balance at End of Period	$	6,008		$	—		$	(1,847	)	$	4,161

Year Ended December 31, 2016
Balance at Beginning of Year	$	3,880		$	(5,108	)	$	(2,077	)	$	(3,305	)
Other comprehensive gain (loss) before reclassifications	11,329			(1,268		)	196			10,257
Amounts reclassified from accumulated other comprehensive income	(331		)	(2,392		)	(91		)	(2,814		)
Total Other Comprehensive Income	11,660			1,124			287			13,071
Balance at End of Period	$	15,540		$	(3,984	)	$	(1,790	)	$	9,766

Year Ended December 31, 2015
Balance at Beginning of Year	$	9,916		$	(1,969	)	$	(1,368	)	$	6,579
Other comprehensive gain (loss) Before reclassifications	(4,774		)	(3,138		)	(864		)	(8,776		)
Amounts reclassified from accumulated other comprehensive income	1,263			—			(155		)	1,108
Total Other Comprehensive (Loss)	(6,037		)	(3,138		)	(709		)	(9,884		)
Balance at End of Period	$	3,880		$	(5,108	)	$	(2,077	)	$	(3,305	)


							Affected Line Item in the Statement Where Net Income Is Presented
	Years Ended December 31,
(in thousands)	2020		2019		2018
Realized (losses)/gains on AFS securities:
	$	(5)	$	61	$	6	Non-interest income
	1		(17)		(2)		Tax expense
	(4)		44		4













Realized (losses) on pension plans
	0		0		(201)		Non-interest expense
	0		0		54		Tax expense
	0		0		(147)
Total reclassifications for the period	$	(4)	$	44	$	(143)


	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
Balance, December 31, 2019	450	$	32.47	153	$	22.00
Granted	314	16.69		0	0
Acquired	—	—		0	0
Stock options exercised	—	—		(37)	17.85
Stock awards vested	(156)	33.18		—	—
Forfeited	(91)	29.86		0	0
Expired	—	—		(4)	11.99
Balance, December 31, 2020	517	$	28.35	112	$	22.95


	December 31, 2020
(In thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

Trading security	$	0	$	0	$	9,708	$	9,708
Available-for-sale securities:
Municipal bonds and obligations	0		97,803		0		97,803
Agency collateralized mortgage obligations	0		756,826		0		756,826
Agency residential mortgage-backed securities	0		438,132		0		438,132
Agency commercial mortgage-backed securities	0		288,650		0		288,650
Corporate bonds	0		45,030		15,000		60,030

Other bonds and obligations	0		53,791		0		53,791
Marketable equity securities	17,841		672		0		18,513
Loans held for investment	0		0		2,265		2,265
Loans held for sale	0		12,992		4,756		17,748
Derivative assets	0		159,016		1,055		160,071
Capitalized servicing rights	0		0		3,033		3,033
Derivative liabilities	0		65,758		0		65,758


	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
December 31, 2020 (In thousands)
Loans held for sale - continuing operations	$	12,992	$	12,639	$	353
Loans held for sale - discontinued operations	0		0		0
Loans held for sale	$	12,992	$	12,639	$	353


	Assets (Liabilities)
(In thousands)	Trading Security		Securities Available for Sale		Loans Held for Investment		Commitments to Lend (1)		Forward Commitments (1)		Capitalized Servicing Rights (1)

Balance as of December 31, 2018	$	11,212	$	0	$	0	$	3,927	$	0	$	11,485

Unrealized (loss), net recognized in other non-interest income	258		—		—		—		—		—
Unrealized gain/(loss), net recognized in discontinued operations	—		—		—		55,771		0		(10,322)
Unrealized gain included in accumulated other comprehensive loss	—		(162)		—		—		—		—
Transfers to Level 3	—		43,128		—		—		—		—
Paydown of trading security	(701)		—		—		—		—		—
Transfers to loans held for sale	—		—		—		(57,070)		—		—

Additions to servicing rights	—		—		—		—		—		11,136
Balance as of December 31, 2019	$	10,769	$	42,966	$	0	$	2,628	$	0	$	12,299
Adoption of ASC 326	—		—		7,660		—		—		0
Maturities, calls, and prepayments of AFS Security	—		(30,000)		—		—		—
Unrealized (loss) gain, net recognized in other non-interest income	(327)		—		(1,283)		—		—		(822)
Unrealized gain/(loss), net recognized in discontinued operations	—		—		—		16,565		320		(8,444)
Unrealized (loss) included in accumulated other comprehensive loss	—		2,034		—		—		—		—
Transfers to Level 3	—		0		—		—		—		—
Paydown of asset	(734)		—		(4,112)		—		—		—
Transfers to loans held for sale	—		—				(18,458)		—		—
Additions to servicing rights	—		—				—		—		0
Balance as of December 31, 2020	$	9,708	$	15,000	$	2,265	$	735	$	320	$	3,033

Unrealized gains/(losses) relating to instruments still held at December 31, 2020	$	1,053	$	287	$	0	$	735	$	320	$	0
Unrealized gains/(losses) relating to instruments still held at December 31, 2019	$	1,379	$	(162)	$	0	$	2,628	$	0	$	0