BERKSHIRE HILLS BANCORP INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

SELECTED FINANCIAL DATA
The following summary data is based in part on the consolidated financial
statements and accompanying notes and other information appearing elsewhere in
this or prior Forms 10-Q. Stock price information is for Berkshire's common
shares traded on the New York Stock exchange under the symbol "BHLB".

                                                                                         At or for the
                                                                                  Three Months Ended March,31,
                                                                                    2022                  2021
NOMINAL AND PER SHARE DATA
Net earnings per common share, diluted                                        $        0.42           $    0.26
Adjusted earnings per common share, diluted (1)(2)                                     0.43                0.32
Net income, (thousands)                                                              20,196              13,031
Adjusted net income, (thousands) (1)(2)                                              20,789              16,015
Total common shares outstanding, (thousands)                                         47,792              50,988
Average diluted shares, (thousands)                                                  48,067              50,565
Total book value per common share                                                     22.89               23.05
Tangible book value per common share (2)                                              22.30               22.39
Dividends per common share                                                             0.12                0.12
Full-time equivalent staff, continuing operations                                     1,333               1,467

PERFORMANCE RATIOS (3)
Return on equity                                                                       6.79   %            4.50  %
Adjusted return on equity (1)(2)                                                       6.99                5.53
Return on tangible common equity (1)(2)                                                7.29                4.98
Adjusted return on tangible common equity (1)(2)                                       7.49                6.04
Return on assets                                                                       0.70                0.42
Adjusted return on assets (1)(2)                                                       0.72                0.51
Net interest margin, fully taxable equivalent (FTE) (4)(6)                             2.61                2.62
Efficiency ratio (1)(2)                                                               72.61               71.32

FINANCIAL DATA (in millions, end of period)
Total assets                                                                  $      12,097           $  12,757
Total earning assets                                                                 11,401              12,071
Total loans                                                                           7,267               7,659

Total deposits                                                                       10,699              10,244
Loans/deposits (%)                                                                       68   %              75  %

ASSET QUALITY (5)
Allowance for credit losses, (millions)                                       $          99           $     124
Net charge-offs, (millions)                                                              (3)                (10)
Net charge-offs (QTD annualized)/average loans                                         0.15   %            0.51  %
Provision (benefit)/expense, (millions)                                     

$ (4) $ 7


Non-accruing loans/total loans                                                         0.41   %            0.73  %
Allowance for credit losses/non-accruing loans                                          335                 222
Allowance for credit losses/total loans                                                1.37                1.62

CAPITAL RATIOS
Common equity tier 1 capital to risk-weighted assets                                   13.9   %            14.2  %
Tier 1 capital leverage ratio                                                          10.3                 9.5
Tangible common shareholders' equity/tangible assets (2)                                8.8                 9.0


                                                                              54

——————————————————————————–

  Table of Contents
                                                            At or for the
                                                    Three Months Ended March 31,
                                                         2022                    2021
   FOR THE PERIOD: (In thousands)
   Net interest income                       $        69,063                  $ 75,093
   Non-interest income                                20,681                    26,193
   Net revenue                                        89,744                   101,286
   (Benefit)/provision for credit losses              (4,000)                    6,500
   Non-interest expense                               68,550                    78,154
   Net income                                         20,196                    13,031
   Adjusted income (1)(2)                             20,789                    16,015

____________________________________________________________________________________________

(1) Adjusted measurements are non-GAAP financial measures that are adjusted to
exclude net non-operating charges primarily related to acquisitions and
restructuring activities. Refer to the Reconciliation of non-GAAP Financial
Measures for additional information.
(2)   Non-GAAP financial measure. Refer to the Reconciliation of non-GAAP
Financial Measures for additional information.
(3) All performance ratios are annualized and are based on average balance sheet
amounts, where applicable.
(4) Fully taxable equivalent considers the impact of tax advantaged investment
securities and loans.
(5)  The effect of purchase accounting accretion for loans, time deposits, and
borrowings on the net interest margin was an increase in all periods presented.
The increase for the three months ended March 31, 2022 and 2021 was 0.03% and
0.05%, respectively.
                                                                            

55

——————————————————————————–

  Table of Contents
AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following table presents average balances and an analysis of average rates
and yields on an annualized fully taxable equivalent basis for the periods
included:

                                                                                          Three Months Ended March,31,
                                                                                      2022                              2021
(Dollars in millions)                                                     Average          Yield/Rate        Average       Yield/Rate
                                                                          Balance          (FTE basis)       Balance       (FTE basis)
Assets
Loans:
Commercial real estate                                                $       3,651                3.35  % $  3,630                3.27  %
Commercial and industrial loans                                               1,373                4.14       1,865                4.62
Residential mortgages                                                         1,436                3.56       1,740                3.71
Consumer loans                                                                  514                4.24         634                3.79
Total loans (1)                                                               6,974                3.61       7,869                3.73
Investment securities (2)                                                     2,649                1.95       2,195                2.36
Short-term investments & loans held for sale (3)                              1,202                0.17       1,351                0.13
Mid-Atlantic region loans held for sale(4)                                        -                   -         295                4.09
Total interest-earning assets                                                10,825                2.82      11,710                3.07
Intangible assets                                                                29                      X       34
Other non-interest earning assets                                               639                             724

Total assets                                                          $      11,493                        $ 12,468

Liabilities and shareholders' equity
Deposits:
NOW and other                                                         $       1,456                0.04  % $  1,325                0.15  %
Money market                                                                  2,871                0.16       2,802                0.27
Savings                                                                       1,117                0.03       1,003                0.08
Time                                                                          1,624                0.71       2,266                1.12
Total interest-bearing deposits                                               7,068                0.24       7,396                0.48
Borrowings and notes (5)                                                        122                5.21         511                2.78
Mid-Atlantic region interest-bearing deposits(4)                                  -                   -         518                0.60
Total interest-bearing liabilities                                            7,190                0.32       8,425                0.63
Non-interest-bearing demand deposits                                          2,968                           2,537
Other non-interest earning liabilities                                          146                             347
Liabilities from discontinued operations                                          -                               -
Total liabilities                                                            10,304                          11,309

Total common shareholders' equity                                             1,189                           1,159
Total shareholders' equity (2)                                                1,189                           1,159
Total liabilities and stockholders' equity                            $      11,493                        $ 12,468


                                                                              56

——————————————————————————–

  Table of Contents
                                                                             Three Months Ended March 31,
                                                                         2022                               2021
                                                              Average          Yield/Rate       Average       Yield/Rate
                                                              Balance          (FTE basis)      Balance       (FTE basis)
Net interest spread                                                                    2.50  %                        2.44  %
Net interest margin (6)                                                                2.61                           2.62
Cost of funds                                                                          0.23                           0.48
Cost of deposits                                                                       0.17                           0.36

Supplementary data
Total deposits (In millions)                             $       10,037                        $ 9,932
Fully taxable equivalent income adj. (In thousands) (7)           1,524                          1,494


____________________________________

(1)   The average balances of loans include nonaccrual loans and deferred fees
and costs.
(2)   The average balance for securities available for sale is based on
amortized cost. The average balance of equity also reflects this adjustment.
(3)   Interest income on loans held for sale is included in loan interest income
on the income statement.
(4)  The Mid-Atlantic region loans are not included in the loan yields; however
they are included in the total earning assets yield and the net interest margin.
The Mid-Atlantic region deposits are not included in the deposit costs; however,
they are included in the total interest-bearing liabilities cost and the net
interest margin.
(5)   The average balances of borrowings includes the capital lease obligation
presented under other liabilities on the consolidated balance sheet.
(6)   Purchase accounting accretion totaled $0.7 and $1.3 million for the three
months ended March 31, 2022 and 2021, respectively.
(7)  Fully taxable equivalent considers the impact of tax advantaged investment
securities and loans.
                                                                            

57

——————————————————————————–

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

The Company utilizes the non-GAAP measure of adjusted earnings in evaluating
operating trends, including components for operating revenue and expense. These
measures exclude amounts which the Company views as unrelated to its normalized
operations. These items primarily include securities gains/losses, merger costs,
restructuring costs, goodwill impairment, and discontinued operations. Merger
costs consist primarily of severance/benefit related expenses, contract
termination costs, systems conversion costs, variable compensation expenses, and
professional fees. Restructuring costs generally consist of costs and losses
associated with the disposition of assets and liabilities and lease
terminations, including costs related to branch sales. Restructuring costs also
include severance and consulting expenses related to the Company's strategic
review. For 2021, the net gains on sale of business operations and assets was
related to the sale of the insurance subsidiary and the Mid-Atlantic branch
operations.

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

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

58

——————————————————————————–

  Table of Contents
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table summarizes the reconciliation of non-GAAP items recorded for
the periods indicated:
                                                                                              At or for the Three Months
                                                                                                    Ended March 31,
(In thousands)                                                                                    2022            2021
GAAP Net income/(loss)                                                                      $    20,196      $    13,031
Adj: Net losses on securities (1)                                                                   745               31

Adj: Restructuring and other expense                                                                 18            3,486

Adj: Income taxes                                                                                  (170)            (533)
Total adjusted income/(loss) (non-GAAP) (2)                                             (A) $    20,789      $    16,015

GAAP Total revenue                                                                          $    89,744      $   101,286
Adj: Losses on securities, net (1)                                                                  745               31
Adj: Net (gains) on sale of business operations and assets                                            -                -
Total operating revenue (non-GAAP) (2)                                                  (B) $    90,489      $   101,317

GAAP Total non-interest expense                                                             $    68,550      $    78,154
Less: Total non-operating expense (see above)                                                       (18)          (3,486)

Operating non-interest expense (non-GAAP) (2)                                           (C) $    68,532      $    74,668

(In millions, except per share data)
Total average assets                                                                    (D) $    11,493      $    12,468
Total average shareholders' equity                                                      (E)       1,189            1,159
Total average tangible shareholders' equity (2)                                         (F)       1,160            1,125
Total average tangible common shareholders' equity (2)                                  (G)       1,160            1,125
Total tangible shareholders' equity, period-end (2)(3)                                  (H)       1,066            1,142
Total tangible common shareholders' equity, period-end (2)(3)                           (I)       1,066            1,142
Total tangible assets, period-end (2)(3)                                                (J)      12,069           12,724
Total common shares outstanding, period-end (thousands)                                 (K)      47,792           50,988
Average diluted shares outstanding (thousands)                                          (L)      48,067           50,565

Earnings per common share, diluted                                                          $      0.42      $      0.26
Adjusted earnings per common share, diluted (2)                                       (A/L)        0.43             0.32
Book value per common share, period-end                                                           22.89            23.05
Tangible book value per common share, period-end (2)                                  (I/K)       22.30            22.39
Total shareholders' equity/total assets                                                            9.04             9.21
Total tangible shareholder's equity/total tangible assets (2)                         (H/J)        8.83             8.98

Performance ratios (4)
GAAP return on equity                                                                              6.79    %        4.50  %
Adjusted return on equity (2)                                                         (A/E)        6.99             5.53
Return on tangible common equity (2)(5)                                                            7.29             4.98
Adjusted return on tangible common equity (2)(5)                                  (A+O)/(G)        7.49             6.04
GAAP return on assets                                                                              0.70             0.42
Adjusted return on assets (2)                                                         (A/D)        0.72             0.51
Efficiency ratio (2)                                                          (C-O)/(B+M+P)       72.61            71.32
(in thousands)
Supplementary data (In thousands)
Tax benefit on tax-credit investments (6)                                               (M) $       596      $        41
Non-interest income charge on tax-credit investments (7)                                (N)        (357)             (33)
Net income on tax-credit investments                                                  (M+N)         239                8

Intangible amortization                                                                 (O)       1,286            1,319
Fully taxable equivalent income adjustment                                              (P)       1,524            1,494


                                                                              59

——————————————————————————–

  Table of Contents
_________________________________________________________________________________________
(1)   Net securities losses/(gains) for the periods ending March 31, 2022 and
2021 include the change in fair value of the Company's equity securities in
compliance with the Company's adoption of ASU 2016-01.
(2)  Non-GAAP financial measure.
(3)  Total tangible shareholders' equity is computed by taking total
shareholders' equity less the intangible assets at period-end. Total tangible
assets is computed by taking total assets less the intangible assets at
period-end.
(4)   Ratios are annualized and based on average balance sheet amounts, where
applicable.
(5)   Adjusted return on tangible common equity is computed by dividing the
total adjusted income adjusted for the tax-affected amortization of intangible
assets, assuming a 27% marginal rate, by tangible equity.
(6)   The tax benefit is the direct reduction to the income tax provision due to
tax credits and deductions generated from investments in historic rehabilitation
and low-income housing.
(7)   The non-interest income charge is the reduction to the tax-advantaged
commercial project investments, which are incurred as the tax credits are
generated.

                                                                            

60

——————————————————————————–

  Table of Contents
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The following discussion and analysis
should be read in conjunction with the Company's consolidated financial
statements and the notes thereto appearing in Part I, Item 1 of this document
and with the Company's consolidated financial statements and the notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 2021 Annual Report on Form 10-K. In the following
discussion, income statement comparisons are against the same period of the
previous year and balance sheet comparisons are against the previous fiscal
year-end, unless otherwise noted. Operating results discussed herein are not
necessarily indicative of the results for the year 2022 or any future period. In
management's discussion and analysis of financial condition and results of
operations, certain reclassifications have been made to make prior periods
comparable. Tax-equivalent adjustments are the result of increasing income from
tax-advantaged loans and securities by an amount equal to the taxes that would
be paid if the income were fully taxable based on a 27% marginal rate (including
state income taxes net of federal benefit). In the discussion, unless otherwise
specified, references to earnings per share and "EPS" refer to diluted earnings
per common share.

Berkshire Hills Bancorp, Inc. ("Berkshire" or "the Company") is a Delaware
corporation headquartered in Boston and the holding company for Berkshire Bank
("the Bank"). Established in 1846, the Bank operates as a commercial bank under
a Massachusetts trust company charter. The Bank seeks to transform what it means
to bank its neighbors socially, humanly, and digitally to empower the financial
potential of people, families, and businesses in its communities as it pursues
its vision of being a leading socially responsible omni-channel community bank
in New England and beyond. Berkshire Bank provides business and consumer
banking, mortgage, wealth management, and investment services. Headquartered in
Boston, Berkshire has approximately $12.1 billion in assets and operates 105
branch offices in New England and New York.

FORWARD-LOOKING STATEMENTS


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

These forward-looking statements are subject to significant risks, assumptions
and uncertainties, including among other things, changes in general economic and
business conditions, increased competitive pressures, changes in the interest
rate environment, legislative and regulatory change, changes in the financial
markets, and other risks and uncertainties disclosed from time to time in
documents that Berkshire Hills Bancorp files with the Securities and Exchange
Commission, including the Risk Factors included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2021 and the Risk Factors in Item 1A
of this report.

Additionally, the COVID-19 pandemic may have further adverse impacts on the
Company, its customers, and the communities where it operates, with possible
adverse impacts on the Company's business, results of operations and financial
condition for an indefinite period of time. Because of these and other
uncertainties, Berkshire's actual results, performance or achievements, or
industry results, may be materially different from the results indicated by
these forward-looking statements.

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

61

——————————————————————————–

  Table of Contents
SUMMARY

Berkshire recorded $20 million in first quarter net income in 2022, which was a
55 percent increase over results in the first quarter of 2021. Results in 2021
reflected higher credit loss provisioning due to the pandemic and restructuring
charges. Results in 2022 included a provision benefit as pandemic related loss
reserves are being released, as well as financial benefits from the
restructuring actions in 2021.

First quarter financial highlights included:
•62% year-over-year increase in earnings per share, including the benefit of
share repurchases
•6% increase in total loans quarter-over-quarter
•2.61% net interest margin, stable year-over-year
•0.11% reduction in PPP loan contribution offset by reduction in cost of funds
•$4 million benefit to the credit loss provision due to a release of the credit
loss allowance
•0.41% non-accruing loans/loans - fifth sequential quarterly improvement
•6% reduction in period-end shares outstanding year-over-year reflecting stock
buybacks

Strong growth in loan balances benefited from higher loan originations from
existing and new bankers, and new bankers, and from new partnership channels
developed in the second half of 2021. Credit metrics remained strong and
improving, and earnings benefited from a release of the credit loss allowance,
which continues to provide comparatively strong coverage of the loan portfolio.
The Company's balance sheet positioning includes:

•Strong levels of liquidity available to support planned loan growth. Cash and
equivalents totaled 11% of average total assets in the most recent quarter
•Positive asset sensitivity to rising interest rates, with a 4% modeled benefit
to net interest income compared to a static scenario in the event of a 100 basis
point upward shock to net interest income
•Higher cost funds targeted to further reset down in 2022, including maturing
time deposits and callable subordinated debt
•Stock repurchase plan approved for $140 million
•Relatively strong regulatory capital metrics, with a 13.9% period-end common
equity tier 1 capital ratio

In accordance with its BEST plan, Berkshire continued recruiting front line
bankers and developing technology initiatives in the first quarter. The Company
continues to promote employees from within the organization and bring on board
knowledgeable bankers to deepen long-term relationships with its customers.
Berkshire Bank recently announced an expanded partnership with fintech Narmi to
create a best-in-class digital banking experience for consumers and small
businesses, which is targeted for implementation in 2023. During the quarter,
the Company announced the appointment of Dr. Mihir Desai to its board of
directors. Dr. Desai is a Professor of Finance at Harvard Business School and
Professor of Law at Harvard Law School. For more information about the BEST
plan, please see Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's most recent report on Form 10-K.

During the most recent quarter, the Federal Reserve Bank increased the target
Federal Funds rate by 25 basis points, which was the first increase since it was
dropped to near zero approximately two years ago at the start of the pandemic.
Inflation has reached a forty-year high, and labor and supply chain challenges
have been heightened by the global impacts of the Russian invasion of Ukraine.
During the quarter, the three-month treasury interest rate increased by 0.46% to
0.52%, the two year rate increased by 1.55% to 2.28%, and the ten year rate
increased by 0.80% to 2.32%.

GDP declined in the most recent quarter and the markets anticipate further
monetary tightening through rate hikes and quantitative tightening. The Company
is pursuing its plans for growth under its BEST plan based on its favorable
niche in a consolidating regional market and its distinctive strategy based on
its DigitouchSM approach to customer engagement and its community service
message that where you bank matters.


                                                                            

62

——————————————————————————–

  Table of Contents
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2022 AND DECEMBER 31, 2021

Summary: Total assets increased by $0.5 billion, or 5%, to $12.1 billion
primarily due to $0.4 billion in loan growth, reflecting increases in all major
loan categories. Deposits grew by $0.6 billion due to an increase in period-end
fluctuating payroll deposit balances.

The balance of cash and equivalents totaled $1.6 billion at period-end, and the
average cash and equivalents measured 11% of average total assets in the first
quarter.

Stock repurchases were resumed under a newly approved program to repurchase
approximately 9% of outstanding shares in 2022, with 2% repurchased during the
quarter. The common equity tier 1 capital ratio remained comparatively strong at
13.9% at period-end. Including the impact of unrealized bond losses resulting
from higher interest rates, the book value of shareholders' equity decreased by
8% during the quarter. Major measures of asset quality continued to strengthen
and generally were improved over pre-pandemic levels.

Investments: The portfolio of investment securities increased by $129 million,
or 5%, to $2.68 billion during the first quarter. The balance of shorter
duration treasury securities increased by $231 million as cash was invested to
earn higher yields pending reinvestment in planned future loan growth. This
increase was partially offset by unrealized losses in the fair value of
available-for-sale bonds, reflecting the impact of higher interest rates on
fixed rate bond values. The period-end net unrealized loss on available for sale
securities measured $105 million, or 4.9% of cost, compared to a net loss of $4
million, or 0.2% of cost, at year-end 2021. The first quarter yield on
investment securities declined to 1.95% compared to 2.04% in the linked quarter,
including the impact of the treasury securities purchased during the first
quarter. The average life of the portfolio increased during the quarter to 5.6
years from 4.6 years, primarily due to slower projected prepayment speeds in the
environment of higher interest rates.

Loans: Total loans increased by $441 million, or 6%, to $7.27 billion during the
first quarter, reflecting growth in all major categories. Commercial loans
benefited from strong growth in asset based lending, commercial multifamily, and
other commercial real estate loans. Loan production increased strongly quarter
over quarter, including contributions from new commercial bankers recruited in
the second half of 2021. Asset based lending growth was primarily driven by
higher line borrowings. The commercial pipeline at period-end reflected
continued strong demand.

Residential mortgage growth included contributions from the expanded
originations team along with higher wholesale volume including correspondent
banking. Consumer loan growth was primarily due to loans originated through
Berkshire’s partnership with fintech Upstart.


The loan yield decreased to 3.61% in the most recent quarter from 3.76% in the
linked quarter. Roll-off of higher yielding loans and lower yields on new
residential mortgages combined to reduce the overall portfolio yield. The
Company's loans repricing within three months totaled $3.76 billion at
quarter-end, measuring 52% of total loans. Increases in the prime and LIBOR
index rates late in the first quarter and anticipated in future quarters are
expected to contribute to higher loan yields in future periods.

On a year-over-year basis, total loans decreased 5%, due to payoffs and reduced
demand during the pandemic. Loan growth was positive before the impact of
planned or targeted reductions in certain runoff portfolios. The Company's
strong planned originations volume is targeted to result in solid future loan
growth, with diminished future impact from these run-off portfolios.

Asset Quality and Credit Loss Allowance: Major asset quality metrics improved in
the first quarter of 2022, with many metrics improving to better levels than
pre-pandemic. Non-accruing loans decreased quarter-over-quarter by 16%,
measuring 0.41% of period-end total loans. Annualized net loan charge-offs
measured 0.15% of average loans, down from 0.29% for the year 2021. Accruing
delinquent loans declined to a near five quarter low of 0.28% of total loans.
Accruing troubled debt restructurings improved to 0.24% of total loans.

The allowance for credit losses on loans decreased quarter-over-quarter by $7
million to $99 million, measuring 1.37% of total loans, which was a decrease
from 1.55% at the start of the year. This reflected improved credit
                                                                            

63

——————————————————————————–

  Table of Contents
metrics and internal forecasts as well as other qualitative factors. The Company
anticipates that the allowance ratio may decline in the current year, depending
on economic and qualitative factors, and depending on the portfolio mix.

Deposits and Borrowings: Period-end total deposits increased by $630 million, or
6%, to $10.7 billion in the first quarter of 2022. This increase was
concentrated in payroll deposits, which fluctuate daily. Shifts in balances
between the NOW and money market categories also relate to payroll deposits.
Total average deposits increased by 1% during this period. The Company has been
reducing higher cost time deposits, including brokered deposits, which declined
by 20% quarter-over-quarter based on average balances. Total average
non-maturity deposits increased by 3% quarter-over-quarter. The first quarter
2022 total cost of deposits decreased to 0.17%, compared 0.19% in the linked
quarter. There were no significant changes in borrowings during the quarter. The
Company has a $75 million subordinated debt obligation bearing interest at
6.875% which becomes callable in September 2022. The Company expects to explore
options for refinancing this obligation.

Derivative Financial Instruments: There were no material changes in the
portfolio of outstanding derivative financial instruments, which totaled $3.7
billion in notional amount at period-end. The estimated fair value of these
instruments was a liability of $4 million at period-end, which decreased from an
asset of $43 million at year-end 2021 due to the impact of changes in interest
rates on the value of outstanding commercial loan interest rate swaps. Please
see the Company's report on Form 10-K regarding the LIBOR transition.

Shareholders' Equity: Total shareholders' equity decreased by $89 million, or
7%, to $1.09 billion during the first quarter of 2022. This reflected the impact
of share repurchases and a $75 million reduction in the most recent quarter
reflecting the lower after-tax fair value of the available for sale bond
portfolio because of higher interest rates.

The Company returned a total of $35 million to shareholders during the quarter
through share repurchases and dividends, reducing excess capital while still
having a comparatively elevated 13.9% common equity tier 1 capital ratio at
period end. During the quarter, the Board approved a $140 million share
repurchase program, representing approximately 9% of outstanding shares when
approved. The Company repurchased approximately 2% of shares during the quarter.

The ratio of equity/assets decreased quarter-over- quarter to 9.0% from 10.2%.
This primarily reflected the increase in assets from loan growth and the impact
on accumulated other comprehensive income of the change in bond values. The
non-GAAP measure of tangible common equity to tangible assets decreased to 8.8%
from 10.0%. The Company monitors the impact of bond values on this ratio
considering projections of further interest rate increases. The fair value of
the high-quality liquid bond portfolio is expected to return to par as bonds
mature, with the current discount accreted back into comprehensive income over
time.

At quarter-end, book value per share was $22.89 and the non-GAAP measure of
tangible book value per share was $22.30

64

——————————————————————————–

  Table of Contents
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND
MARCH 31, 2021

Summary: Berkshire recorded net income of $20 million, or $0.42 per share, in
the first quarter of 2022. Net income increased by 55% from $13 million, or
$0.26 per share, in the first quarter of 2022. The improvement reflected a $11
million net change in the provision for credit losses on loans and a $3 million
reduction in restructuring and other expenses.

The Company uses the non-GAAP measure of adjusted earnings to assess its
performance. This measure excludes items not viewed as related to ongoing
operations, including restructuring and other expenses in 2021 and an equity
securities loss. First quarter adjusted earnings totaled $21 million, or $0.43
per share, in 2022 compared to $16 million, or $0.32 per share, in 2021.
Earnings per share in 2022 also benefited from share repurchases in both years,
with total average diluted shares decreasing year-over-year by 5%.

The first quarter efficiency ratio measured 72.6% in 2022, compared to 71.3% in
2021, primarily reflecting lower loan interest income. Revenue and expense in
2022 also include the impact of insurance and branch operations sold near the
end of the third quarter of 2021. The Company's overall strategy is to reinvest
expense savings into bankers and technology to support higher future revenue in
the context of its BEST plan.

The first quarter 2022 return on tangible common equity measured 7.3% and the
non-GAAP measure of adjusted return on tangible common equity measured 7.5%.


Net Interest Income: First quarter net interest income decreased year-over-year
by $6 million, or 8%, reflecting an 8% decrease in average earning assets,
primarily driven by PPP loan prepayments, as well as the sale of certain branch
operations, in 2021. The first quarter net interest margin was generally stable,
measuring 2.61% in 2022 compared to 2.62% in 2021.

The yield on PPP loans was elevated in 2021 due to the recognition of deferred
origination fees at the time of prepayment. PPP loans contributed 11 basis
points to the first quarter net interest margin in 2021, with no significant
contribution in 2022. Measured before this contribution, the net interest margin
increased by 10 basis points year-over-year, primarily reflecting the Company's
balance sheet restructuring to reduce higher cost wholesale funds.

The cost of funds decreased by 25 basis points year-over-year, to 0.23% from
0.48%. The cost of deposits decreased by 19 basis points, to 0.17% from 0.36%.
The cost of time deposits decreased quarter-over-quarter by 9 basis points to
0.71% in the most recent quarter and is anticipated to decline further due to
repricing of higher cost time deposits, most of which mature over the next year.

The Company's net interest income is modeled as positively sensitive to interest
rate increases, as the interest bearing assets are more sensitive to interest
rate increases, compared to liabilities. This is discussed further in the later
discussion of Market Risk Factors. Based on market forecasts of interest rate
increases throughout 2022, net interest income is modeled to benefit from these
increases. Additionally, the targeted reinvestment of cash and short-term
treasury securities into planned loan growth is also targeted to contribute to
future growth in net interest income.

Non-Interest Income: Non-interest income decreased year-over-year by $6 million,
or 21%. This largely reflected the sale of insurance operations, which produced
$3 million of income in the first quarter of 2021, and approximately $1.5
million in PPP referral fees earned in that period for originating PPP loan
referrals in the second phase of the PPP program. Mortgage banking revenue
decreased by $1 million as new loan originations were mostly held for investment
in 2022 rather than for sale in 2021.

Provision for Credit Losses on Loans: Berkshire recorded a $4 million benefit to
the first quarter 2022 provision, compared to a $6.5 million charge in the first
quarter of 2021. The $4 million benefit resulted from a $7 million release of
the credit loss allowance net of $3 million in net loan charge-offs. The
year-over-year improvement reflected improved credit metrics and internal
forecasts as well as other qualitative factors. Major asset quality metrics were
significantly improved year-over-year, including a reduction in first quarter
net loan charge-offs to $3
                                                                            

65

——————————————————————————–

  Table of Contents
million from $10 million. The Company continues to maintain a relatively higher
allowance compared to loans based on its methodology. If circumstances remain
supportive, the Company's methodology may result in a further reduction in the
level of the allowance compared to loans, with potential favorable impact on the
provision. This could be offset based on the volume and mix of loan
originations.

Non-Interest Expense and Tax Expense: Non-interest expense decreased
year-over-year by $10 million, or 12%. This included a $3 million reduction in
restructuring expense costs including borrowings prepayment fees, real estate
consolidation plans, and severance including costs related to branch
consolidations. There was
a $4 million reduction in professional services expense which was elevated in
2021 including legal, financial, and other advisory services related to
management and board matters during the quarter. Most other categories of
expense declined, including the impact of insurance and branch operations sold,
and the consolidation of 16 branch offices during 2021. Full-time equivalent
staff totaled 1,333 positions at period-end, compared to 1,319 positions at the
start of the 2022 and 1,505 positions at the start of 2021. The first quarter
effective tax rate was 20% in 2022, compared to 22% in 2021, and compared to 20%
for the full year 2021.

Total Comprehensive Income: Total comprehensive income includes net income
together with other comprehensive income, which primarily consists of unrealized
gains/losses on debt securities available for sale, after tax. Total
comprehensive income was a loss of $55 million in the first quarter of 2022,
compared to a loss of $7 million in the first quarter of 2021, reflecting the
impact in both periods of rising medium term interest rates on the bond
portfolio.

Liquidity and Cash Flows: Please see the discussion of Liquidity and Cash Flows
in the most recent report on Form10-K for a more expansive discussion of these
topics.

Growth in loans and investment securities were the primary uses of cash in the
most recent quarter, and the primary source was higher deposits. The increase in
deposits was mostly due to elevated payroll deposits at period-end. These
elevated balances were expected to normalize, with the reduction to be funded
from cash and cash equivalents, which totaled $1.6 billion at period-end. The
Company views itself as having strong liquidity to support loan growth during
2022.

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

During the first quarter of 2022, the Company initiated stock repurchases under
its newly approved $140 million stock repurchase plan, which was targeted to
repurchase approximately 9% of outstanding shares. The Company initiated
repurchases under this plan during the quarter and repurchased approximately 2%
of shares during the quarter.

As a result of rising interest rates, bond portfolios in banks are subject to
unrealized losses which result in charges against other comprehensive income
("AOCI") and reduce the book value of shareholders' equity. Like many of its
peers, the Company utilizes an option in reporting its regulatory equity which
excludes changes in AOCI in the calculation of regulatory capital. The
unrealized bond losses that arose in the most recent quarter had no impact on
regulatory capital metrics, which remain comparatively strong.

Reductions in bond valuations due to changes in market interest rates are
reversed as bonds approach maturity. These reversals are accreted to AOCI over
time, restoring the book value of equity. While the Company monitors the book
value of equity and related metrics, it primarily manages capital based on
regulatory capital measures, with a focus on the common equity tier 1 capital
ratio. The Company continues to view itself as having excess capital which it
plans to utilize to support loan growth as well as stock repurchases under its
approved repurchase plan.

The Company regularly evaluates the level of its quarterly cash dividend to
common shareholders. The dividend was cut in half in the third quarter of 2020
due to uncertainties related to the onset of the pandemic. The Company's long
run goal is to increase the dividend as profitability improves under its BEST
plan.
                                                                            

66

——————————————————————————–

Table of Contents


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

CORPORATE RESPONSIBILITY UPDATE


Our Commitment to Environmental, Social, Governance (ESG) & Corporate
Responsibility: Berkshire is committed to purpose-driven, community-centered
banking that enhances value for all stakeholders as it pursues its vision of
being a high performing, leading socially responsible community bank in New
England and beyond. Berkshire's goal is to provide an ecosystem of socially
responsible financial solutions, actively engages with its communities, and
harness the power of its business to fuel the economy, create thriving
neighborhoods, empower financial access and success, and invest in a low-carbon
future.

The Bank believes that where you bank matters and that building stronger
communities requires a better approach to banking. As such, ESG factors are
central to the Bank's vision, mission, risk management practices, and
Berkshire's Exciting Strategic Transformation (BEST). Berkshire was a leader
among community banks in establishing a dedicated committee of its Board of
Directors to oversee ESG matters and have been a leader as a community bank in
thoroughly integrating ESG standards into its business strategy and operations.

Berkshire shares information about its ESG performance, including through the
Bank's Corporate Responsibility website, corporate annual report, and proxy
statement. Additionally, the annual Corporate Responsibility Report, which is
aligned with Sustainability Accounting Standards Board ("SASB") commercial bank
disclosure topics, details the Company's ESG efforts and programs.

Climate Change & Sustainability: Climate change poses unprecedented risks and
opportunities to the world, including Berkshire, its customers and communities.
As the transition to a low-carbon economy accelerates, new policy emerges, and
market dynamics shift, Berkshire expects that its efforts to manage its
environmental footprint, mitigate the risks and impacts associated with climate
change, and finance the transition will allow it to strengthen its positioning
towards its goal of being high performing, leading socially responsible
community bank. The Company continues to evolve its practices to reflect its
community bank mission as well as the size, scope, and complexity of its
operations.

Key ESG & Corporate Responsibility Quarterly Developments
•BEST Community Comeback – Berkshire continues to deliver on its BEST Community
Comeback, a transformational multibillion commitment to empower our
stakeholders’ financial potential. Through this far-reaching initiative,
Berkshire aims to help create more businesses and jobs, help more families
achieve the dream of owning a home, and aid communities in becoming more
environmentally efficient and eco-friendly. Further information is provided
online at berkshirebank.com/comeback and in public relations announcements.


•Corporate Responsibility Report - In April 2022, the Company released its 2021
Corporate Responsibility Report, Empowering Community Comebacks. The report
highlights Berkshire's performance on environmental, social, and governance
matters along with its progress on its BEST Community Comeback. Detailed on the
pages of the report are examples of how the simple decision of where you bank
can have an outsized impact in your community.

•Standing with Ukraine: Berkshire took several actions along with its employees
and customers in response to the ongoing humanitarian crisis in Ukraine
including making a $50,000 contribution, through its Foundation, to the
Ukrainian Federation of America. In addition, Berkshire is refunding outgoing
wire transfer fees to individuals who are sending money to family and non-profit
organizations in Ukraine; matching employee contributions to non-profits working
to aid in relief efforts; and activating a virtual supply drive to provide
critical supplies to organizations working to assist in Ukraine and neighboring
countries.

                                                                              67

——————————————————————————–

  Table of Contents
•Awards & Recognition: The Company was named to Newsweek's list of America's
Most Trusted Companies 2022 and ranked #9 for banks. Earlier in the quarter
Berkshire was also listed in Bloomberg's Gender Equality Index and named a Best
Place to Work for LGBTQ+ Equality by the Human Rights Campaign. Finally,
Berkshire received a 2022 Communitas Award for Leadership in Corporate
Responsibility for its BEST Community Comeback program recognizing its early
progress on the multi-year commitment.

•Current ESG Performance: The Company moved into the top 22% of leading ESG
indexes in the U.S. for its Environmental, Social and Governance (ESG) ratings.
As of March 31, 2022 the Company received ratings of: MSCI ESG- BBB; ISS ESG
Quality Score - Environment: 3, Social: 1, Governance: 3; and Bloomberg ESG
Disclosure- 47.81. The Company is also rated by Sustainalytics.

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

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

• Allowance for Credit Losses on Loans

• Fair Value Measurements


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

ENTERPRISE RISK MANAGEMENT
Following sections of this report on Form 10-Q include discussion of market risk
and risk factors. Risk management is overseen by the Company's Chief Risk
Officer, who reports directly to the CEO. This position oversees risk
management policy, credit, compliance, and information security. Enterprise risk
assessments are brought to the
Company's Enterprise Risk Management Committee, and then are reported to the
Board's Risk Management and
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 reputation risk,
with the credit risk category having the highest weighting.



                                                                            

68

——————————————————————————–

Table of Contents

© Edgar Online, source Glimpses

Source link