| LOANS AND ALLOWANCE FOR CREDIT LOSSES | LOANS AND ALLOWANCE FOR CREDIT LOSSES The following is a summary of total loans by regulatory call report code with sub-segmentation based on underlying collateral for certain loan types: (In thousands) March 31, 2023 December 31, 2022 Construction $ 373,953 $ 319,452 Commercial multifamily 618,073 620,088 Commercial real estate owner occupied 695,890 640,489 Commercial real estate non-owner occupied 2,531,946 2,496,237 Commercial and industrial 1,517,556 1,445,236 Residential real estate 2,463,981 2,312,447 Home equity 222,393 227,450 Consumer other 258,175 273,910 Total loans $ 8,681,967 $ 8,335,309 Allowance for credit losses 97,991 96,270 Net loans $ 8,583,976 $ 8,239,039 During the three months ended March 31, 2023 and March 31, 2022, there were no loans reclassified to held for sale. Held for sale loans are not contained in the balances within this note and are accounted for at the lower of carrying value or fair market value within loans held for sale on the Consolidated Balance Sheet. Risk characteristics relevant to each portfolio segment are as follows: Construction - Loans in this segment primarily include real estate development loans for which payment is derived from sale of the property or long term financing at completion. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions. Commercial real estate multifamily, owner occupied and non-owner - Loans in these segments are primarily owner-occupied or income-producing properties throughout New England and Northeastern New York. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans. Commercial and industrial loans - Loans in this segment are made to businesses and are generally secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Repayment is expected from the cash flows of the business. Loans in this segment include asset based loans which generally have no scheduled repayment and which are closely monitored against formula based collateral advance ratios. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment. Residential real estate - All loans in this segment are collateralized by residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. Home equity and other consumer loans - Loans in this segment are primarily home equity lines of credit, automobile loans and other consumer loans. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. Allowance for Credit Losses for Loans The Allowance for Credit Losses for Loans (“ACLL”) is comprised of the allowance for loan losses, and the allowance for unfunded commitments is accounted for as a separate liability in other liabilities on the balance sheet. The level of the ACLL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company uses a static pool migration analysis method, applying expected historical loss trend and observed economic metrics. The level of the ACLL is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past and current events, utilizing a 7 quarter reasonable and supportable forecast period with a 1 year reversion period. The ACLL reserve is overlaid with qualitative factors based upon: • the existence and growth of concentrations of credit; • the volume and severity of past due financial assets, including nonaccrual assets; • the institutions lending and credit review as well as the experience and ability of relevant management and staff and; • the effect of other external factors such as regulatory, competition, regional market conditions, legal and technological environment and other events such as natural disasters; • the effect of other economic factors such as economic stimulus and customer forbearance programs. The allowance for unfunded commitments is maintained at a level by the Company to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in other liabilities on the consolidated balance sheet. The Company’s activity in the allowance for credit losses for loans for the three ended March 31, 2023 and March 31, 2022 was as follows: (In thousands) Balance at Beginning of Period Adoption of ASU No. 2022-02 Charge-offs Recoveries Provision for Credit Losses Balance at End of Period Three months ended March 31, 2023 Construction $ 1,227 $ — $ — $ — $ 309 $ 1,536 Commercial multifamily 1,810 — — 6 (118) 1,698 Commercial real estate owner occupied 10,739 24 (70) 45 (460) 10,278 Commercial real estate non-owner occupied 30,724 — — 95 2,589 33,408 Commercial and industrial 18,743 (23) (6,033) 305 7,172 20,164 Residential real estate 18,666 2 (31) 387 (1,434) 17,590 Home equity 2,173 — (10) 26 131 2,320 Consumer other 12,188 (404) (1,793) 176 830 10,997 Total allowance for credit losses $ 96,270 $ (401) $ (7,937) $ 1,040 $ 9,019 $ 97,991 (In thousands) Balance at Beginning of Period Charge-offs Recoveries Provision for Credit Losses Balance at End of Period Three months ended March 31, 2022 Construction $ 3,206 $ — $ — $ (701) $ 2,505 Commercial multifamily 6,120 — — (349) 5,771 Commercial real estate owner occupied 12,752 (130) 209 (1,333) 11,498 Commercial real estate non-owner occupied 32,106 (4,884) 1,266 (2,674) 25,814 Commercial and industrial 22,584 (653) 1,288 (270) 22,949 Residential real estate 22,406 (164) 388 (4,814) 17,816 Home equity 4,006 — 134 (837) 3,303 Consumer other 2,914 (216) 137 6,984 9,819 Total allowance for credit losses $ 106,094 $ (6,047) $ 3,422 $ (3,994) $ 99,475 The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other noninterest expense in the consolidated statement of income. The Company’s activity in the allowance for credit losses on unfunded commitments for the three months ended March 31, 2023 and 2022 was as follows: Three Months Ended (In thousands) 2023 2022 Balance at beginning of period $ 8,588 $ 7,043 Expense for credit losses 99 — Balance at end of period $ 8,687 $ 7,043 Credit Quality Information The Company monitors the credit quality of its portfolio by using internal risk ratings that are based on regulatory guidance. Loans that are given a Pass rating are not considered a problem credit. Loans that are classified as Special Mention loans are considered to have potential weaknesses and are evaluated closely by management. Substandard, including non-accruing loans, are loans for which a definitive weakness has been identified and which may make full collection of contractual cash flows questionable. Doubtful loans are those with identified weaknesses that make full collection of contractual cash flows, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. For commercial credits, the Company assigns an internal risk rating at origination and reviews the rating annual, semiannually, or quarterly depending on the risk rating. The rating is also reassessed at any point in time when management becomes aware of information that may affect the borrower’s ability to fulfill their obligations. The Company risk rates its residential mortgages, including 1-4 family and residential construction loans, based on a three rating system: Pass, Special Mention, and Substandard. Loans that are current within 59 days are rated Pass. Residential mortgages that are 60-89 days delinquent are rated Special Mention. Loans delinquent for 90 days or greater are rated Substandard and generally placed on non-accrual status. The following table presents the Company’s loans by risk category: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of March 31, 2023 Construction Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Risk rating Pass $ 14,566 $ 177,174 $ 152,773 $ 26,327 $ 2,967 $ 145 $ — $ — $ 373,952 Special Mention — — — — — 1 — — 1 Substandard — — — — — — — — — Total $ 14,566 $ 177,174 $ 152,773 $ 26,327 $ 2,967 $ 146 $ — $ — $ 373,953 Commercial multifamily: Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Risk rating Pass $ 3,938 $ 204,570 $ 57,851 $ 27,427 $ 99,583 $ 215,608 $ 990 $ — $ 609,967 Special Mention — — — — — — — — — Substandard — — — 2,609 — 5,497 — — 8,106 Total $ 3,938 $ 204,570 $ 57,851 $ 30,036 $ 99,583 $ 221,105 $ 990 $ — $ 618,073 Commercial real estate owner occupied: Current period gross write-offs $ — $ — $ — $ — $ — $ 70 $ — $ — $ 70 Risk rating Pass $ 25,216 $ 124,314 $ 127,750 $ 57,507 $ 102,523 $ 238,771 $ 3,002 $ — $ 679,083 Special Mention — 4,281 — 387 3,855 — — — 8,523 Substandard — 972 122 493 241 6,456 — — 8,284 Total $ 25,216 $ 129,567 $ 127,872 $ 58,387 $ 106,619 $ 245,227 $ 3,002 $ — $ 695,890 Commercial real estate non-owner occupied: Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Risk rating Pass $ 114,007 $ 630,920 $ 409,821 $ 173,271 $ 290,200 $ 818,573 $ 17,253 $ — $ 2,454,045 Special Mention — — — — 7,669 23,821 — — 31,490 Substandard — — 660 7,137 5,890 32,724 — — 46,411 Total $ 114,007 $ 630,920 $ 410,481 $ 180,408 $ 303,759 $ 875,118 $ 17,253 $ — $ 2,531,946 Commercial and industrial: Current period gross write-offs $ — $ — $ 191 $ 669 $ 580 $ 4,593 $ — $ — $ 6,033 Risk rating Pass $ 56,776 $ 279,856 $ 142,925 $ 49,172 $ 60,597 $ 169,281 $ 699,241 $ — $ 1,457,848 Special Mention 175 — 1,210 1,290 2,597 1,805 6,342 — 13,419 Substandard — 549 5,425 3,566 7,496 14,571 10,332 — 41,939 Doubtful — — — — — 51 4,299 — 4,350 Total $ 56,951 $ 280,405 $ 149,560 $ 54,028 $ 70,690 $ 185,708 $ 720,214 $ — $ 1,517,556 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Residential real estate Current period gross write-offs $ — $ 25 $ — $ — $ — $ 6 $ — $ — $ 31 Risk rating Pass $ 136,527 $ 1,008,711 $ 276,189 $ 94,488 $ 71,237 $ 862,274 $ 161 $ — $ 2,449,587 Special Mention — 43 371 — — 694 — — 1,108 Substandard — 159 331 434 1,485 10,877 — — 13,286 Total $ 136,527 $ 1,008,913 $ 276,891 $ 94,922 $ 72,722 $ 873,845 $ 161 $ — $ 2,463,981 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of December 31, 2022 Construction Risk rating Pass $ 153,393 $ 133,708 $ 25,634 $ 3,432 $ 1,361 $ 1,924 $ — $ — $ 319,452 Special Mention — — — — — — — — — Substandard — — — — — — — — — Total $ 153,393 $ 133,708 $ 25,634 $ 3,432 $ 1,361 $ 1,924 $ — $ — $ 319,452 Commercial multifamily: Risk rating Pass $ 205,124 $ 61,032 $ 27,583 $ 100,696 $ 67,675 $ 149,633 $ 205 $ — $ 611,948 Special Mention — — 2,628 — — — — — 2,628 Substandard — — — — 5,512 — — — 5,512 Total $ 205,124 $ 61,032 $ 30,211 $ 100,696 $ 73,187 $ 149,633 $ 205 $ — $ 620,088 Commercial real estate owner occupied: Risk rating Pass $ 131,096 $ 127,270 $ 58,835 $ 82,576 $ 75,322 $ 154,056 $ 3,464 $ — $ 632,619 Special Mention — — 387 — — — — — 387 Substandard 1,003 122 31 282 1,056 4,989 — — 7,483 Total $ 132,099 $ 127,392 $ 59,253 $ 82,858 $ 76,378 $ 159,045 $ 3,464 $ — $ 640,489 Commercial real estate non-owner occupied: Risk rating Pass $ 621,685 $ 410,359 $ 175,456 $ 333,783 $ 313,124 $ 530,322 $ 17,846 $ — $ 2,402,575 Special Mention — — — — 20,000 18,462 — — 38,462 Substandard — — 7,237 13,623 15,610 18,730 — — 55,200 Total $ 621,685 $ 410,359 $ 182,693 $ 347,406 $ 348,734 $ 567,514 $ 17,846 $ — $ 2,496,237 Commercial and industrial: Risk rating Pass $ 282,781 $ 147,070 $ 56,880 $ 67,975 $ 83,223 $ 99,367 $ 648,956 $ — $ 1,386,252 Special Mention — 5,811 1,290 1,332 11,502 912 2,632 — 23,479 Substandard 204 496 3,640 8,139 1,981 2,799 10,581 — 27,840 Doubtful — — — — — 56 7,609 — 7,665 Total $ 282,985 $ 153,377 $ 61,810 $ 77,446 $ 96,706 $ 103,134 $ 669,778 $ — $ 1,445,236 Residential real estate Risk rating Pass $ 997,981 $ 280,308 $ 96,548 $ 70,845 $ 138,894 $ 713,744 $ 165 $ — $ 2,298,485 Special Mention — 364 — 861 202 707 — — 2,134 Substandard — 284 448 267 1,857 8,972 — — 11,828 Total $ 997,981 $ 280,956 $ 96,996 $ 71,973 $ 140,953 $ 723,423 $ 165 $ — $ 2,312,447 For home equity and consumer other loan portfolio segments, Berkshire evaluates credit quality based on the aging status of the loan and by payment activity. The performing or nonperforming status is updated on an ongoing basis dependent upon improvement and deterioration in credit quality. The following table presents the amortized cost based on payment activity: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of March 31, 2023 Home equity: Current period gross write-offs $ — $ — $ — $ — $ — $ — $ 10 $ — $ 10 Payment performance Performing $ — $ — $ 111 $ 450 $ — $ 2,423 $ 217,685 $ — $ 220,669 Nonperforming — — — — — — 1,724 — 1,724 Total $ — $ — $ 111 $ 450 $ — $ 2,423 $ 219,409 $ — $ 222,393 Consumer other: Current period gross write-offs $ — $ 1,510 $ 181 $ 7 $ 21 $ 74 $ — $ — $ 1,793 Payment performance Performing $ 11,962 $ 148,658 $ 26,235 $ 7,661 $ 11,125 $ 41,923 $ 9,556 $ — $ 257,120 Nonperforming — 52 84 34 190 673 22 — 1,055 Total $ 11,962 $ 148,710 $ 26,319 $ 7,695 $ 11,315 $ 42,596 $ 9,578 $ — $ 258,175 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of December 31, 2022 Home equity: Payment performance Performing $ — $ 114 $ 454 $ — $ — $ 17 $ 224,746 $ — $ 225,331 Nonperforming — — — — — — 2,119 — 2,119 Total $ — $ 114 $ 454 $ — $ — $ 17 $ 226,865 $ — $ 227,450 Consumer other: Payment performance Performing $ 161,157 $ 28,279 $ 8,312 $ 12,670 $ 27,608 $ 24,682 $ 9,070 $ — $ 271,778 Nonperforming 588 137 44 280 477 567 39 — 2,132 Total $ 161,745 $ 28,416 $ 8,356 $ 12,950 $ 28,085 $ 25,249 $ 9,109 $ — $ 273,910 The following is a summary of loans by past due status at March 31, 2023 and December 31, 2022: (In thousands) 30-59 Days Past Due 60-89 Days Past Due 90 Days or Greater Past Due Total Past Due Current Total Loans March 31, 2023 Construction $ — $ 1 $ — $ 1 $ 373,952 $ 373,953 Commercial multifamily — 208 — 208 617,865 618,073 Commercial real estate owner occupied 265 — 2,785 3,050 692,840 695,890 Commercial real estate non-owner occupied 127 660 176 963 2,530,983 2,531,946 Commercial and industrial 2,174 2,555 13,596 18,325 1,499,231 1,517,556 Residential real estate 3,278 1,108 13,185 17,571 2,446,410 2,463,981 Home equity 599 172 2,093 2,864 219,529 222,393 Consumer other 1,982 1,082 2,093 5,157 253,018 258,175 Total $ 8,425 $ 5,786 $ 33,928 $ 48,139 $ 8,633,828 $ 8,681,967 (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, 2022 Construction $ — $ — $ — $ — $ 319,452 $ 319,452 Commercial multifamily — 214 — 214 619,874 620,088 Commercial real estate owner occupied 122 — 3,302 3,424 637,065 640,489 Commercial real estate non-owner occupied 143 — 191 334 2,495,903 2,496,237 Commercial and industrial 1,173 1,438 18,658 21,269 1,423,967 1,445,236 Residential real estate 3,694 2,134 11,724 17,552 2,294,895 2,312,447 Home equity 168 57 2,119 2,344 225,106 227,450 Consumer other 1,990 1,028 2,158 5,176 268,734 273,910 Total $ 7,290 $ 4,871 $ 38,152 $ 50,313 $ 8,284,996 $ 8,335,309 The following is a summary of loans on nonaccrual status and loans past due 90 days or more and still accruing as of March 31, 2023 and December 31, 2022: (In thousands) Nonaccrual Amortized Cost Nonaccrual With No Related Allowance Past Due 90 Days or Greater and Accruing Interest Income Recognized on Nonaccrual At or for the three months ended March 31, 2023 Construction $ — $ — $ — $ — Commercial multifamily — — — — Commercial real estate owner occupied 2,192 1,058 593 — Commercial real estate non-owner occupied 176 66 — — Commercial and industrial 12,124 7,917 1,472 — Residential real estate 9,720 6,120 3,465 — Home equity 1,724 461 369 — Consumer other 1,055 — 1,038 — Total $ 26,991 $ 15,622 $ 6,937 $ — The commercial and industrial loans nonaccrual amortized cost as of March 31, 2023 included medallion loans with a fair value of $0.5 million and a contractual balance of $10.2 million. (In thousands) Nonaccrual Amortized Cost Nonaccrual With No Related Allowance Past Due 90 Days or Greater and Accruing Interest Income Recognized on Nonaccrual At or for the three months ended December 31, 2022 Construction $ — $ — $ — $ — Commercial multifamily — — — — Commercial real estate owner occupied 2,202 1,411 1,100 — Commercial real estate non-owner occupied 191 73 — — Commercial and industrial 16,992 14,223 1,666 — Residential real estate 8,901 5,307 2,823 — Home equity 1,568 388 551 — Consumer other 1,260 2 898 — Total $ 31,114 $ 21,404 $ 7,038 $ — The commercial and industrial loans nonaccrual amortized cost as of December 31, 2022 included medallion loans with a fair value of $0.6 million and a contractual balance of $10.9 million. The following table summarizes information about total loans rated Special Mention or lower at March 31, 2023 and December 31, 2022. The table below includes consumer loans that are Special Mention and Substandard accruing that are classified as performing based on payment activity. (In thousands) March 31, 2023 December 31, 2022 Non-Accrual $ 26,991 $ 31,114 Substandard Accruing 99,551 88,665 Total Classified 126,542 119,779 Special Mention 55,751 68,127 Total Criticized $ 182,293 $ 187,906 A financial asset is considered collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. Expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Significant quarter over quarter changes are reflective of changes in nonaccrual status and not necessarily associated with credit quality indicators like appraisal value. The following table presents the amortized cost basis of individually analyzed collateral-dependent loans by loan portfolio segment: Type of Collateral (In thousands) Real Estate Investment Securities/Cash Other March 31, 2023 Construction $ — $ — $ — Commercial multifamily — — Commercial real estate owner occupied 1,066 — — Commercial real estate non-owner occupied 373 — — Commercial and industrial 185 — 8,946 Residential real estate 4,746 — — Home equity 462 — — Consumer other — — — Total loans $ 6,832 $ — $ 8,946 December 31, 2022 Construction $ — $ — $ — Commercial multifamily — — — Commercial real estate owner occupied 2,793 — — Commercial real estate non-owner occupied 384 — — Commercial and industrial 288 — 16,931 Residential real estate 3,910 — — Home equity 501 — — Consumer other 2 — — Total loans $ 7,878 $ — $ 16,931 Modified Loans Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. In some cases, the Company provides multiple types of concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the "combination" columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: a term extension and principal forgiveness, an other-than-insignificant payment delay and/or an interest rate reduction. The following table presents the amortized cost basis of loans at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below: (In thousands) Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Combination Term Extension and Principal Forgiveness Combination Term Extension and Interest Rate Reduction Total Class of Financing Receivable Three months ended March 31, 2023 Construction $ — $ — $ — $ — $ — $ — — % Commercial multifamily — — — — — — — Commercial real estate owner occupied — 387 — — — — 0.06 Commercial real estate non-owner occupied — — — — — — — Commercial and industrial — — — — 10 — — Residential real estate — — — — — — — Home equity — — — — — — — Consumer other — — — — — — — Total $ — $ 387 $ — $ — $ 10 $ — — % The Company has not committed to lend additional amounts to the borrowers included in the previous table. The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last twelve months. (In thousands) 30 - 59 Days Past Due 60 - 89 Days Past Due Greater Than 89 Days Past Due Total Past Due March 31, 2023 Construction $ — $ — $ — $ — Commercial multifamily — — — — Commercial real estate owner occupied — — — — Commercial real estate non-owner occupied — — — — Commercial and industrial — — — — Residential real estate — — — — Home equity — — — — Consumer other — — — — Total $ — $ — $ — $ — The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three months ended March 31, 2023: (In thousands) Principal Forgiveness Weighted Average Interest Rate Reduction Weighted Average Term Extension (months) March 31, 2023 Construction $ — — % 0 Commercial multifamily — — 0 Commercial real estate owner occupied — — 120 Commercial real estate non-owner occupied — — 0 Commercial and industrial — 1.25 87 Residential real estate — — 0 Home equity — — 0 Consumer other — — 0 There were no loans that had a payment default during the three months ended March 31, 2023 that were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. |
