Beacon Financial Corp: Form 10-K for the period ended Dec 31, 2024

(In thousands)

The Bank’s deposits are insured by the FDIC. The Bank utilizes brokered certificates of deposits (CDs) to diversify its funding base, augment its interest rate risk management positioning, and to support loan growth. Brokered CDs are sourced through select approved brokers and are managed as a component of the Bank's Liquidity Policy. The Bank also offers brokered reciprocal money market arrangements to provide additional deposit protection to certain large commercial and institutional accounts. These balances are viewed as part of overall relationship balances with regional customers.

The Bank is a member of the Federal Home Loan Bank (‘‘FHLB’’) of Boston, which provides a source of funding for member institutions and is a tool to manage liquidity and interest rate risk. The Bank is subject to the rules and requirements of the FHLB, including the requirement to acquire and hold shares of capital stock in the FHLB. The Bank was in compliance with FHLB rules and requirements as of December 31, 2024. The Bank also has access to borrowings from the Federal Reserve Bank of Boston.

The Company had $100 million in subordinated notes, a $15 million trust preferred obligation and a $7 million trust preferred obligation outstanding at year-end 2024. The Company’s common stock is listed on the New York Stock Exchange under the ticker “BHLB”. Subject to certain limitations, the Company can also choose to issue common stock, preferred stock, subordinated debt, or senior debt in public stock offerings or private placements. The Company maintains a shelf registration as part of its routine capital management.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company offers interest rate swaps to commercial loan customers who wish to fix the interest rate on their loans, and concurrently enters into offsetting positions with third-party financial institutions. The Company may also enter into risk participation agreements with other lending institutions for customer related positions. On a limited basis, the Company offers foreign exchange services to customers on both a spot and forward basis. The Company may also use derivative financial instruments to manage its interest rate risk associated with the Company’s loan portfolios and borrowings. All derivative financial instruments eligible for clearing are cleared through the Chicago Mercantile Exchange (“CME”).

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 Bank is integrating with its growing private banking and MyBanker teams to further develop wealth management account generation. The Wealth Management Group reported $1.6 billion in total assets under management and $2.0 billion in assets under supervision at year-end 2024. The comparable totals at year-end 2023 were $1.5 billion and $1.9 billion, respectively.

HUMAN CAPITAL MANAGEMENT

Berkshire’s people are the driving force behind its progress on its strategic goals and ability to deliver tailored financial solutions for its clients. The Company’s approach to human capital management is grounded in its corporate values, business strategy and focuses on:

• Strong oversight and risk management practices
• Recruitment
• Compensation & Benefits
• Professional Development, Engagement & Retention
• Health & Wellness

In 2024, the company realigned its workforce to ensure its organizational structure supported its operating needs and strategic objectives while it continued to build on successful strategies to recruit, develop, engage and retain top talent. At year-end 2024, the Company had 1,216 full time equivalent staff, including 1,193 full-time positions and 45 part-time positions.

OVERSIGHT

The Compensation Committee of the Board of Directors oversees executive compensation, and the Corporate Responsibility & Culture committee oversees company culture and related human capital matters. The SEVP, Chief Human Resources & Culture Officer provides management oversight on human capital matters. The Company proactively identifies potential human capital related risks, such as the labor market shortage, skills gap, rising labor and health care costs, and employee retention and designs strategies to mitigate those risks. Strong human capital management is viewed as integral to the Company's ability to meet its strategic objectives, deliver a superior client experience and drive sustainable shareholder returns.

RECRUITMENT

Berkshire operates in a highly competitive labor market with strong competition for top talent. The Company relies on and continues to recruit employees with the right mix of skills, expertise and experiences. The Company forecasts its hiring needs based on attrition, skills assessments, market conditions, resource availability and strategic objectives. This helps inform corporate strategies to fill current and future open positions. The Company leverages several strategies to support its talent pipeline and talent acquisition activities including formal advertising, postings on targeted career sites, career events, internship placements, affinity group relationships, and the use of experienced external recruiters for key management and specialized positions. Berkshire also maintains a small internal team of talent recruitment professionals.

COMPENSATION & BENEFITS

The Company continually evaluates its compensation strategies and benefits programs, benchmarks to industry and peers and surveys the landscape of best practices to develop compensation and benefits packages that reward performance and retain top talent at all levels of the Company. Berkshire provides a robust incentive plan to reward performance, comprehensive medical coverage, paid vacation, personal and sick time, paid protective leave for gender-based violence, a 401(k) plan with employer match, long-term disability insurance, and group term life insurance. In addition, Berkshire offers a day care reimbursement program, a dependent care expense account, family and medical leave along with flexible work arrangements, including the ability to work remote dependent on the duties of one’s job. In addition to its compensation and health benefits, Berkshire offers a rewards and recognition program, wellness day, volunteer-time off, a matching-gift program, an employee assistance program, regular performance reviews, professional development and the You FIRST Fund to help employees impacted by personal financial hardships.

PROFESSIONAL DEVELOPMENT, ENGAGEMENT & RETENTION

Training and development programs provide employees with the knowledge and skills to succeed and have upward career mobility. They are critical components, along with competitive compensation and benefits programs, to having an engaged workforce. Ultimately an engaged workforce drives high levels of productivity and retention which reduces human capital risks, expense, and advances Berkshire’s performance.

The Company provides learning programs consistent with one’s job responsibilities, professional goals, and development plans. Employees have regular performance assessments to identify strengths, areas for further growth and career interests. Berkshire reskills and upskills employees from across the Company helping them advance along career paths by taking on expanded responsibilities and roles. The Company offers a mentoring program for high potential employees and encourages employees to pursue appropriate educational opportunities. Berkshire remains committed to providing pathways for its bankers to grow and maintains succession plans for key leadership positions.

Berkshire monitors the progress of its efforts to evaluate the effectiveness of programs and strategies through a comprehensive employee engagement survey and regular forums between employees and management. The Company believes that its programs and strategies have been a differentiator in the market. Further information on Berkshire Human Capital Management practices can be found in the Company’s most recent Sustainability Report.

SELECT HUMAN CAPITAL METRICS

*Workforce metrics reported are as of or for the year ended December 31, 2024

SUBSIDIARY ACTIVITIES

The Company wholly-owns Berkshire Bank. The Bank operates as a commercial bank under a Massachusetts trust company charter. Berkshire Bank owns Firestone Financial, LLC which is a Massachusetts limited liability company, as well as consolidated subsidiaries operated as Massachusetts securities corporations and other subsidiary entities. The Company also owns all of the common stock of Delaware statutory business trusts, Berkshire Hills Capital Trust I and SI Capital Trust II. The capital trusts are unconsolidated and their only material assets are trust preferred 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.

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. 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, and the Company must seek nonobjection for various capital actions, including stock repurchases.

The Bank is a Massachusetts-chartered trust company and its deposits are insured up to applicable limits by the FDIC. 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 primary regulator and 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. Under specified conditions, the Bank must also seek regulatory approval of capital distributions to the Company, its sole shareholder.

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.

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

• Massachusetts Banking Laws and Supervision
• Federal Banking 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 authorizes 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 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, over the preceding two years. The Bank was required to obtain the approval of the Commissioner to pay Bank dividends to the Company in 2024.

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.

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’ 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 damages 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.

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 ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. The definitions of these capital categories and the ratio metrics are set out in federal regulations. 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 assets above the amount necessary to meet its minimum risk-based capital requirements.

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.

The approval of the FDIC is required for the Bank to pay a dividend to the Company from its surplus account. FDIC approval was required for Bank dividend payments in 2024 and such approval is expected to be required in 2025.

Investment Activities. The Federal Deposit Insurance Act generally limits the types of equity investments an FDIC-insured state-chartered bank, such as the Bank, may make and the kinds of activities in which such a bank may engage, as a principal, to those that are permissible for national banks.

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. As of December 31, 2024, the Bank operated branches in New York, Vermont, Connecticut and Rhode Island, 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 Financial Services, the Vermont Commissioner of the Department of Financial Regulation, the Connecticut Commissioner of Banking 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.

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.

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 common equity Tier 1 ratio of 6.5% or greater, and a leverage ratio of 5.0% or greater. An institution is deemed to be “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 common equity Tier 1 ratio of 4.5% or greater, and a leverage ratio of 4.0% or greater. An institution is deemed to be “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 common equity Tier 1 ratio of less than 4.5%, or a leverage ratio of less than 4.0%. 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 common equity Tier 1 ratio of less than 3.0%, or a leverage 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 a capital restoration plan 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 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 they obtain such status.

At December 31, 2024, 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 and the Act’s implementing regulation, Regulation W. 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 with any one affiliate in “covered transactions,” such as loans, to 10% of such institution’s capital stock and surplus. There is also an aggregate limit on all such “covered transactions” with all affiliates to 20% of the institution’s capital stock and surplus. Loans to affiliates and certain other specified transactions must comply with specified collateralization requirements. Section 23B generally requires that transactions with affiliates be on terms and under circumstances that are substantially the same, or at least as favorable to the institution or its subsidiary, as comparable transactions with or involving non-affiliates.

Federal law also restricts an institution with respect to loans to the institution’s or its affiliates’ 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 insiders and their related interests, the institution’s unimpaired capital and surplus. Loans to insiders above specified amounts must receive the prior approval of the majority of the Board of Directors. Further, loans to insiders must be made on terms substantially the same as offered in comparable transactions to non-insiders, although insiders may receive 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 other 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.

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 per depositor for each account ownership category.

The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. Under the risk-based assessment system, institutions deemed less risky of failure pay lower assessments. The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective assessment rates for institutions of the Bank’s size range from 2.5 to 42 basis points.

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, 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.

Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank system, which consists of 11 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.

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 prescribed types of misconduct which caused or were likely to cause more than a minimal loss to, or a significant 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 can be assessed for a wide range of legal and regulatory violations and for unsafe or unsound practices, and are adjusted annually for inflation. Such penalties currently range up to more than $12 thousand per day or, in extreme cases, as high as $2.51 million per day.

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. Consolidated regulatory capital requirements identical to those applicable to the Bank apply also to the Company.

Federal Reserve Board policy requires that a bank holding company serve as a source of financial and managerial 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 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 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. The Federal Reserve Board guidance also provides for consultation and nonobjection for material increases in the amount of a bank holding company’s common stock dividend. 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 guidance provides for regulatory consultation and nonobjection under specified circumstances prior to a holding company redeeming or repurchasing regulatory capital instruments, including common stock, regardless of the applicability of the previously referenced notification requirement. Pursuant to regulatory policies, such circumstances include repurchasing common stock that would result in a net reduction as of the end of the quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter. In these circumstances, Federal Reserve nonobjection is required. The Company obtained such nonobjection for its repurchase program in 2024.

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 for this purpose, means the power, directly or indirectly, to direct the management or policies of an insured depository institution, or the ownership, control of or power to vote 25% or more of any class of voting stock. Acquisition of more than 10% of any class of a bank holding company’s voting stock constitutes a rebuttable presumption of control under the Change in Bank Control Act’s regulations under certain circumstances including where, as is the case with the Company, the issuer has registered securities under Section 12 of the Securities Exchange Act of 1934.

Massachusetts Holding Company Regulation. In addition to the federal bank 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 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 (“CRA”)), 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).

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; the 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 bases 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.

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.” On October 24, 2023, the FDIC, the Federal Reserve Board, and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations. Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The agencies will evaluate large banks under four performance tests: the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test. Under the CRA regulations, the applicability date for the majority of the provisions is January 1, 2026, and additional requirements will be applicable under the regulations on January 1, 2027. On March 29, 2024, a federal court in the Northern District of Texas issued a preliminary injunction of the new CRA regulations, enjoining the federal banking agencies from enforcing the regulations against the plaintiff bank industry trade groups, and extending the regulations’ implementation dates day-for-day for each day the injunction is in place.

Cybersecurity and Protection of Customers’ Personal Information. The provisions of Gramm-Leach-Bliley Act (GLBA) regarding privacy generally prohibit financial institutions from disclosing nonpublic personal financial information of consumer customers to third parties for certain purposes unless those customers have the opportunity to opt out. The Fair Credit Reporting Act (FCRA) restricts information sharing among affiliates for marketing purposes. Both the FCRA and Regulation V, the implementing regulation administered by the Consumer Financial Protection Bureau, govern the use and provision of information to consumer reporting agencies. In addition, federal banking regulators regularly issue guidance concerning cybersecurity standards to help enhance cyber risk management among financial institutions. Under these statutory frameworks and guidance, financial institutions such as ours are expected to implement layers of security controls designed to establish multiple lines of defense and to provide for risk management processes that address the risks posed by compromised customer credentials, including security measures to reliably authenticate customers when they access the financial institution’s internet-based services. Moreover, management of the financial institution is responsible for maintaining disaster and business continuity planning and processes designed to ensure speedy recovery and resumption of the institution’s operations after an intrusive cyber-attack or other type of compromise of customer data or information technology systems, including appropriate processes to address data and network restoration, if needed. The financial institution is also responsible for accounting for the disaster recovery and business continuity plans and processes of its critical third party service providers. Failing to observe its obligations under regulatory guidance could subject the Bank to regulatory sanctions such as financial penalties. For a further discussion of risks related to cybersecurity, see Item 1A “Risk Factors.”

As a banking organization, the Bank is required to notify its primary federal regulator as soon as possible but no later than 36 hours after the Bank’s discovery of a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the Bank’s: (1) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business; (2) business lines, including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value; or (3) operations, including associated services, functions, and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.

The Company also notes that in August 2023, the Securities and Exchange Commission adopted a final rule that requires registrants such as the Company to file a Form 8-K to disclose any material cybersecurity incident it suffers. If an event requiring disclosure under the final rule were to occur, the Company’s disclosure would need to include the impact of the incident on the Company, as well as the material aspects of the nature, scope, and timing of the incident. The final rule also requires registrants such as the Company to describe, on Form 10-K, their processes for assessing, identifying and managing material risks from cybersecurity threats and whether those risks have materially affected the registrant. The final rule also requires registrants such as the Company to describe Board oversight of risks emanating from cybersecurity threats and management’s role and expertise in assessing and managing material risks from cybersecurity threats. See Item 1C “Cybersecurity” for more information.

Finally, the Company notes that there has been a recent uptick in activity among state legislatures and regulators with respect to implementing privacy and cybersecurity standards and regulations. Some states have adopted laws and regulations requiring financial institutions to maintain cybersecurity programs and make details available regarding those programs. Also, some states have either implemented, or modified, their data breach notification and/or data privacy rules. While the Company cannot predict future legislative or regulatory actions of the various states, the Company expects continued activity in this area and will continue to monitor for developments in the states in which it and the Bank operate.

Anti-Money Laundering Laws. The Bank is subject to extensive anti-money laundering and countering the financing of terrorism (“AML/CFT”) statutes and regulations, which require the institution to have in place an AML/CFT compliance program and procedures and a customer identification program, among other things. 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 require information sharing with the U.S. government in certain circumstances. The Bank has established policies and procedures intended to comply with these statutes and regulations.

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 a note to the financial statements. The federal income tax laws apply to the Company in the same manner as to other corporations with some exceptions. 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.

Inflation Reduction Act of 2022. The Inflation Reduction Act, which was signed into law on August 16, 2022, among other things, implements a new alternative minimum tax of 15% on corporations with profits in excess of $1 billion, a 1% excise tax on stock repurchases, and several tax incentives to promote clean energy and climate initiatives. These provisions were effective beginning January 1, 2023.

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 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.

Risk Factors Summary

Merger-Related Risks

• Berkshire Will Be Subject to Business Uncertainties and Contractual Restrictions While the Mergers Are Pending.
• The Announcement of the Proposed Mergers Could Disrupt Berkshire’s Relationships with its Customers, Suppliers, Business Partners and Others, As Well As Its Operating Results and Business Generally.
• The Merger Agreement Limits Berkshire’s Ability to Pursue Alternatives to the Mergers and May Discourage Other Companies from Trying to Acquire Berkshire.
• In Connection with the Mergers, Berkshire Will Assume Brookline’s Outstanding Debt Obligations, and the Combined Company’s Level Of Indebtedness Following the Completion of the Mergers Could Adversely Affect the Combined Company’s Ability to Raise Additional Capital and Meet Its Obligations Under Existing Indebtedness.
• The Combined Company Will Incur Significant Transaction and Merger-Related Costs In Connection with the Mergers.
• If the Mergers Are Not Completed, Berkshire Will Have Incurred Substantial Expenses Without Its Stockholders Realizing The Expected Benefits of the Mergers.
• Berkshire and Brookline May Not Be Able to Successfully Integrate the Two Companies or to Realize the Anticipated Benefits of the Mergers.
• The Merger Agreement May Be Terminated In Accordance With Its Terms, and the Mergers May Not Be Completed.
• The Need for Regulatory Approvals May Delay the Date of Completion of the Mergers or May Diminish the Benefits of the Mergers.
• Litigation Against Berkshire or Brookline, or the Members of Berkshire’s or Brookline’s Board of Directors, Could Prevent or Delay the Completion of the Mergers.
• The Future Results of the Combined Company Following the Mergers May Suffer if the Combined Company Does Not Effectively Manage Its Expanded Operations.
• The Market Price of Berkshire’s Common Stock After the Mergers May Be Affected By Factors Different from Those Currently Affecting Berkshire’s Common Stock.
• Current Holders of Berkshire’s Common Stock Will Have a Significantly Reduced Ownership and Voting Interest in the Combined Company After the Mergers and Will Therefore Have Less Voting Influence Over the Combined Company.
• The Market Price of Berkshire Common Stock May Decline in the Future as a Result of the Mergers.

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.
• 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

• General Economic Conditions, Either Nationally or in Our Market Areas, Which May Be Affected by Macroeconomic Factors, Including Inflation, Unemployment, Government Policies, Supply Chain Issues, and Geopolitical Risks Associated with International Conflict, May Be Worse Than Expected.
• The Effects of any Public Health Emergencies and Pandemic Disease, Natural Disaster, War, Acts of Terrorism, Accident, or Similar Action or Event (collectively, "an Event") May 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, Ransomware, Hacking and Identity Theft that Could Result in the Disclosure of Sensitive 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.
• Tailoring The Bank's Delivery Model to Respond to Customer Preferences in Banking May Negatively Affect Earnings
• Development of New Products and Services May Impose Additional Costs on the Company and May Expose It to Increased Operational Risk.
• The Soundness of Other Financial Institutions Could Adversely Affect Us.
• Legal and Regulatory Proceedings and Related Matters Could Adversely Affect Us and the Banking Industry in General.
• Loss of Key Employees Could Disrupt Relationships With Certain Customers.
• Mergers, Acquisitions and Dispositions Involve Numerous Risks and Uncertainties.

Interest Rate Risks

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

Liquidity Risks

• Liquidity is Essential to the Company’s Business and a Lack of Liquidity Could Adversely Affect the Company’s Financial Condition and Results of Operations.
• Bank Failures and Stresses May Lead to Negative Depositor Confidence in Depository Institutions. Systemic Impacts May Have a Material Adverse Effect on our Financial Condition and Results of Operations and Stock Price.
• The Company's Wholesale Funding Sources May Prove Insufficient to Support Operations and Future Growth.
• The Company's Ability to Service Its 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.
• Secondary Mortgage Market Conditions Could Have a Material Impact on the Company’s Financial Condition and Results of Operations.

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.
• Changes in Tax Laws and Accounting Policies and Practices.

Significant Accounting Estimates Risks

• Various Factors May Cause Our Allowance for Credit Losses on Loans to Increase.
• Fair Value Measurements May Be Affected by Inherent Uncertainties.

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.

Other Risks

• Negative Public Opinion Could Damage the Company’s Reputation and Impact Business Operations and Revenues.

Merger-Related Risks

Berkshire Will Be Subject to Business Uncertainties and Contractual Restrictions While the Mergers Are Pending.

On December 16, 2024, Berkshire, Commerce Acquisition Sub, Inc., a direct, wholly-owned subsidiary of Berkshire (“Merger Sub”) and Brookline entered into a merger agreement (the “Merger Agreement”) pursuant to which Berkshire and Brookline have agreed to combine their respective businesses in a merger of equals. Under the Merger Agreement, Merger Sub will merge with and into Brookline, with Brookline as the surviving corporation (the “Merger”), immediately followed by the merger of Brookline with and into Berkshire, with Berkshire as the surviving corporation (the “Holdco Merger”). Immediately following the Merger and the Holdco Merger (collectively, the “Mergers”), Berkshire Bank, the wholly-owned subsidiary of Berkshire, as well as Brookline’s two other banking subsidiaries, PCSB Bank and Bank Rhode Island, will merge with and into Brookline Bank, the wholly-owned subsidiary of Brookline, with Brookline Bank as the surviving corporation (collectively, the “Bank Merger”).

Uncertainty about the effect of the Mergers on employees and customers may have an adverse effect on Berkshire. These uncertainties may impair Berkshire’s ability to attract, retain and motivate key personnel until the Mergers are completed, and could cause customers and others who deal with Berkshire to seek to change existing business relationships with Berkshire. In addition, the Merger Agreement requires that Berkshire conduct its business in the ordinary course of business consistent with past practice and restricts Berkshire from taking certain actions prior to the effective time or termination of the Merger Agreement without Brookline’s consent in writing. These restrictions may prevent Berkshire from pursuing attractive business opportunities that may arise prior to the completion of the Mergers.

The Announcement of the Proposed Mergers Could Disrupt Berkshire’s Relationships with its Customers, Suppliers, Business Partners and Others, As Well As its Operating Results and Business Generally.

Whether or not the Mergers are ultimately consummated, as a result of uncertainty related to the Mergers, risks relating to the impact of the announcement of the Mergers on Berkshire’s business include the following:

• employees may experience uncertainty about their future roles, which might adversely affect Berkshire’s ability to retain and hire key personnel and other employees;
• customers, suppliers, business partners and other parties with which Berkshire maintains business relationships may experience uncertainty about their respective futures and seek alternative relationships with third parties, seek to alter their business relationships with Berkshire or fail to extend an existing relationship with Berkshire; and
• Berkshire has expended and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Mergers.

If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact Berkshire’s results of operations and financial condition.

The Merger Agreement Limits Berkshire’s Ability to Pursue Alternatives to the Mergers and May Discourage Other Companies from Trying to Acquire Berkshire.

The Merger Agreement contains “no shop” covenants that restrict Berkshire’s ability to, directly or indirectly, among other things initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by Berkshire’s board of directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any alternative acquisition proposals. These provisions, which include a $45.0 million termination fee payable under certain circumstances, may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of Berkshire from considering or making that acquisition proposal.

In Connection with the Mergers, Berkshire Will Assume Brookline’s Outstanding Debt Obligations, and the Combined Company’s Level Of Indebtedness Following the Completion of the Mergers Could Adversely Affect the Combined Company’s Ability to Raise Additional Capital and Meet its Obligations Under Existing Indebtedness.

In connection with the Mergers, Berkshire has agreed to assume, or to cause its subsidiary to assume, Brookline’s outstanding indebtedness. Berkshire’s existing debt, together with any future incurrence of additional indebtedness, and the assumption of Brookline’s outstanding indebtedness, could have important consequences for the combined company’s creditors and the combined company’s stockholders. For example, it could:

• limit the combined company’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;
• restrict the combined company from making strategic acquisitions or cause the combined company to make non-strategic divestitures;
• restrict the combined company from paying dividends to its stockholders;
• increase the combined company’s vulnerability to general economic and industry conditions; and
• require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the combined company’s indebtedness, thereby reducing the combined company’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.

The Combined Company Will Incur Significant Transaction and Merger-Related Costs In Connection with the Mergers.

Berkshire and Brookline will incur costs to combine the operations of the two companies. Berkshire and Brookline are collecting information to formulate detailed integration plans to deliver planned synergies. Additional unanticipated costs may be incurred in the integration of the businesses of Berkshire and Brookline. Whether or not the Mergers are consummated, Berkshire will incur substantial expenses, such as legal, accounting, printing and financial advisory fees, in pursuing the Mergers. Although Berkshire expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transactions and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

If the Mergers Are Not Completed, Berkshire Will Have Incurred Substantial Expenses Without Its Stockholders Realizing The Expected Benefits of the Mergers.

Berkshire has incurred and will incur further substantial expenses in connection with the Mergers, which are charged to earnings as incurred. These costs include legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs and other related costs. If the Mergers are not completed, these expenses will still be charged to earnings even though Berkshire would not have realized the expected benefits of the Mergers. There can be no assurance that the Mergers will be completed.

Berkshire and Brookline May Not Be Able to Successfully Integrate the Two Companies or to Realize the Anticipated Benefits of the Mergers.

The Mergers involve the combination of two companies that previously have operated independently. A successful combination of the operations of the two entities will depend substantially on both parties’ ability to consolidate cultures, personnel, operations, systems and procedures and to eliminate redundancies and reduce costs of the combined operations. Berkshire may not be able to combine the operations of Brookline with Berkshire’s operations without encountering difficulties, such as:

• the loss of key employees and customers;
• the disruption of operations and business;
• the inability to maintain and increase competitive presence;
• those associated with entering a new geographic market;
• deposit attrition, customer loss and revenue loss;
• possible inconsistencies in standards, control procedures and policies;
• unexpected problems with costs, operations, personnel, technology and credit; and/or
• problems with the assimilation of new operations, sites or personnel, which could divert resources from regular banking operations.

Additionally, general market and economic conditions or governmental actions affecting the financial industry generally may inhibit the successful integration of Brookline.

Berkshire entered into the Merger Agreement with the expectation that the Mergers will result in various benefits including, among other things, enhanced revenues, a strengthened market position for the combined company, cross selling opportunities, improved technology, cost savings and operating efficiencies. Achieving the anticipated benefits of the Mergers are subject to a number of uncertainties, including whether Berkshire and Brookline integrate in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy and could materially adversely impact Berkshire’s business, financial condition and operating results. Finally, any cost savings that are realized may be offset by losses in revenues or other charges to earnings.

The Merger Agreement May Be Terminated In Accordance With Its Terms, and the Mergers May Not Be Completed.

The Merger Agreement is subject to a number of conditions that must be fulfilled to complete the Mergers. Those conditions include, among others, certain regulatory and stockholder approvals, the absence of orders prohibiting the completion of the Mergers, the effectiveness of a registration statement to be filed Berkshire, which will include a Joint Proxy Statement/Prospectus, the continued accuracy of the representations and warranties by both parties, the performance by both parties of their covenants and agreements, and the receipt by both parties of legal opinions from their respective tax counsels. Any of these conditions to closing of the Mergers may not be fulfilled, and as a result the Mergers may not be completed.

The Need for Regulatory Approvals May Delay the Date of Completion of the Mergers or May Diminish the Benefits of the Mergers.

Berkshire is required to obtain the approvals of certain regulatory agencies before completing the Mergers. Satisfying any requirements of these regulatory agencies may delay the date of completion of the Mergers. The requisite regulatory approvals may not be received at all (in which case the Mergers could not be completed), may not be received in a timely fashion, or may contain conditions or restrictions on completion of the Mergers that cannot be satisfied. In addition, any conditions or restrictions imposed could have the effect of imposing additional costs on or limiting the revenues of the combined company following the Mergers, which might have an adverse effect on the combined company following the Mergers. Further, it is possible that, among other things, restrictions on the combined operations of the two companies, including divestitures, may be sought by governmental agencies as a condition to obtaining the required regulatory approvals. This may diminish the benefits of the Mergers to the combined company or otherwise have an adverse effect on the combined company following the Mergers.

Litigation Against Berkshire or Brookline, or the Members of Berkshire’s or Brookline’s Board of Directors, Could Prevent or Delay the Completion of the Mergers.

Berkshire’s stockholders or Brookline’s stockholders may file lawsuits against Brookline, Berkshire, and/or the boards of directors of either company in connection with the Mergers. Such legal proceedings could delay or prevent the Mergers from being completed in a timely manner. The existence of litigation related to the Mergers could affect the likelihood of obtaining the required regulatory and stockholders approvals. Moreover, any litigation could be time-consuming and expensive and could divert Berkshire’s and Brookline’s management’s attention away from their regular business and their focus on a successful integration of the two companies. Any lawsuit adversely resolved against Brookline, Berkshire or members of their respective boards of directors could have a material adverse effect on each company’s business, financial condition and results of operations.

Moreover, one of the conditions to the completion of the Mergers is the absence of any restraining order, injunction or decree issued by a court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Mergers, and that no governmental authority or regulatory authority of competent jurisdiction shall have enacted, promulgated or enforced any statute, rule, regulation, judgment, decree, injunction or other order prohibiting consummation of the transactions contemplated by the Merger Agreement or making the Mergers illegal. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a governmental authority issues an order or other directive restricting, prohibiting or making illegal the consummation of the transactions contemplated by the Merger

Agreement (including the Mergers), then such injunctive or other relief may prevent the Mergers from becoming effective in a timely manner or at all.

The Future Results of the Combined Company Following the Mergers May Suffer if the Combined Company Does Not Effectively Manage Its Expanded Operations.

Following the Mergers, the size of the business of the combined company will increase beyond the current size of either Berkshire’s or Brookline’s business. The combined company’s future success will depend, in part, upon its ability to manage this expanded business, which may pose challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. The combined company may also face increased scrutiny from governmental authorities as a result of the increased size of its business. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, revenue enhancement or other benefits currently anticipated from the Mergers.

The Market Price of Berkshire’s Common Stock After the Mergers May Be Affected By Factors Different from Those Currently Affecting Berkshire’s Common Stock.

The results of operations of the combined company and the market price of Berkshire’s common stock after the completion of the Mergers may be affected by factors different from those currently affecting the independent results of operations of each of Berkshire and Brookline. In addition, the issuance of shares of Berkshire’s common stock in the Mergers could depress the market price for Berkshire’s common stock. For example, some Brookline stockholders may decide not to hold the shares of Berkshire’s common stock they receive as a result of the Mergers. Other Brookline stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of Berkshire’s common stock they receive as a result of the Mergers. Any such sales of Berkshire’s common stock could depress the market price for Berkshire’s common stock.

Current Holders of Berkshire’s Common Stock Will Have a Significantly Reduced Ownership and Voting Interest in the Combined Company After the Mergers and Will Therefore Have Less Voting Influence Over the Combined Company.

In the Mergers, each Brookline stockholder will become a holder of common stock of the combined company. As a result of the transaction and the $100 million common stock offering to support the transaction, Berkshire estimates that Berkshire shareholders will own approximately 55% and Brookline shareholders will own approximately 45% of the outstanding shares of the combined company. As a result, Brookline’s current stockholders will have less voting influence on the combined company and may have less influence on its management and policies than they now have.

The Market Price of Berkshire Common Stock May Decline in the Future as a Result of the Mergers.

The market price of Berkshire common stock may decline in the future as a result of the Mergers for a number of reasons, including:

• the unsuccessful integration of Brookline and Berkshire; and
• the failure of the combined company to achieve the perceived benefits of the Mergers, including financial results, as rapidly as or to the extent anticipated by financial or industry analysts.

Many of these factors are beyond the control of Berkshire. As a consequence, Berkshire stockholders could lose the value of their investment in Berkshire common stock.

Lending Risks

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. We have a geographic concentration of loans in our market areas. Adverse conditions in the Company's market areas could reduce growth rates, affect the ability of our customers to repay their loans and increase loan losses, and generally affect the Company's financial condition and results of operations. Potential increases in interest rates can lead to increased capitalization rates over time which could adversely affect commercial property appraisals and collateral value. Residential property values may be similarly adversely impacted.

As of December 31, 2024, commercial real estate loans comprised approximately 51% of our loan portfolio. Commercial real estate mortgage loans generally involve a greater degree of credit risk than residential real estate mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy, changes in government regulations and fiscal policy, or changes in the level of interest rates. Failures in our risk management policies, procedures and controls could adversely affect our ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which, accordingly, could have a material adverse effect on our business, financial condition and results of operations.

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, fraud, 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, as well as risks specific to individual properties and property types.

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

The Company routinely sells newly originated residential mortgage loans and SBA guaranteed business loans, and may also sell other loans or loans 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. 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 is Exposed to Risk of Environmental Liability When It Takes Title to 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 may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.

Operating Risks

General Economic Conditions, Either Nationally or in Our Market Areas, Which May Be Affected by Macroeconomic Factors, Including Inflation, Unemployment, Government Policies, Supply Chain Issues, and Geopolitical Risks Associated with International Conflict, May Be Worse Than Expected.

Generally, our financial performance, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of the collateral securing those loans, as well as demand for loans and other products and services we offer, is very dependent on the business environment in the markets we operate in locally and the United States as a whole. Adverse economic conditions may result from a variety of factors, including domestic and global economic and political developments, such as plateauing or decreasing economic growth and business activity, high unemployment rates, recessions, fluctuations in interest rates, inflation, pressures on the commercial real estate market, uncertainty regarding the U.S. government's debt limit, U.S. Government fiscal and monitory policy, a potential U.S. government shutdown, recent stress in the banking sector, international conflict, civil unrest, and natural disasters. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. The occurrence of any of these conditions could have a material adverse effect on our financial condition and results of operations.

The Effects of any Public Health Emergencies and Pandemic Disease, Natural Disaster, War, Acts of Terrorism, Accident, or Similar Action or Event (Collectively, "an Event") May Adversely Affect, the Company’s Business, Financial Condition, Liquidity, and Results of Operations.

Some of the risks the Company faces from an Event include, but are not limited to: the health and availability of our colleagues, the supply of labor, inflationary impacts on operating costs, the financial condition of our clients and the demand for our products and services, changes in interest rates, recognition of credit losses and increases in the allowance for credit losses, impacts if customers draw on their lines of credit or draw down deposits or seek additional loans to help finance their businesses, and a significant deterioration of business conditions in our markets. 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 an Event impacts our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of an Event, the continued effectiveness of our business continuity plan, the direct and indirect impact of an Event on our customers, colleagues, counterparties and service providers, and actions taken by governmental authorities and other third parties in response to an Event.

The length of a pandemic and the effectiveness of the measures being put in place to address it are unknown and we face possible continued impacts on liquidity, operating revenues, and credit performance. To the extent a pandemic adversely affects our business, financial condition, liquidity, or results of operations, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K.

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 sensitive 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 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 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. Implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, may have unintended consequences due to their limitations, potential manipulation, or our failure to use them effectively.

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

Increased levels of remote access resulting from more work from home employees may 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.

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 sensitive 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. Advancements in the use of artificial intelligence could lead to adversarial attacks by exploiting vulnerabilities to manipulate model outputs or bypass security controls.

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 sensitive 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.

Counterparties and 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, purchase loans, manages 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 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 with these providers. The Company's mortgage banking operations have exposed us to counterparty transactions including the use of third parties to participate in the management of interest rate risk and mortgage sales and hedging, as well as mortgage servicing. 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’s Business is Reliant on Outside Vendors.

The 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.

Tailoring The Bank’s Retail Delivery Model to Respond to Consumer Preferences in Banking May Negatively Affect Earnings.

The Company’s branch network continues to be a very significant source of new business generation, however, consumers continue to migrate much of their routine banking to self-service channels. In recognition of this shift in consumer patterns, we regularly review the branch network, which has resulted in branch consolidation accompanied by the enhancement of the Bank’s capabilities to serve its customers through alternate delivery channels. The benefits of this strategy will depend on our ability to realize expected benefits without experiencing significant customer attrition, unexpected costs, or unanticipated disruptions to 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 part, on its ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate its 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 artificial intelligence, blockchain applications, and 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 be developed and implemented, rapid technological change in the 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 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 to fraud and cybersecurity risks. Failure to successfully manage these risks in the development and implementation of new products or services 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 Soundness of Other Financial Institutions Could Adversely Affect Us.

Financial services institutions are interrelated as a result of clearing, trading, counterparty, or other relationships. We have exposure to many different counterparties and industries, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due us. Any such losses could have a material adverse effect on our financial condition and results of operations.

Additionally, in early 2023, the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank resulted in decreased confidence in banks among depositors, other counterparties and investors. Such events and developments could materially and adversely affect our business or financial condition, including through declines in deposits, increased costs of funds, potential liquidity pressures, increased regulation and enforcement activity, and declines and volatility in the price of our common stock.

Legal and Regulatory Proceedings and Related Matters Could Adversely Affect Us and the Banking Industry in General.

The Company has been, and in the future could be, subject to various regulatory and legal proceedings, including class action litigation. It is inherently difficult to gauge the result of these matters, and there can be no guarantee that we will prevail in any litigation or proceeding. Legal and regulatory matters of any degree of significance could result in significant costs and diversion of our efforts could have a material adverse effect on our financial condition and operating results.

As disclosed in Part I, Item 3, “Legal Proceedings,” we currently have ongoing proceedings. If we settle these claims or the litigation is not resolved in our favor, we could suffer reputational damage, incur legal costs, and settlements or judgments that may exceed amounts covered by our existing insurance policies. We cannot provide assurances that our insurer will cover all legal costs, settlements or judgments we incur. If we are not successful in defending ourselves from these claims, or if our insurer does not cover the full amount of legal costs we incur, the outcome could materially adversely affect our business, results of operations and financial condition. Furthermore, adverse determinations in such matters could result in actions by our regulators that could materially adversely affect our business, financial condition or results of operations. There can be no assurance that other proceedings, which may have a material adverse effect on our business, results of operations or financial condition will not arise in the near or long-term future.

Loss of Key Employees Could Disrupt Relationships With Certain Customers.

Our customer relationships are crucial to the success of our business, and the loss of key employees with significant customer relationships could lead to the loss of business if the customers were to follow that employee to a competitor. While we believe our relationships with key personnel are strong, we cannot guarantee that all of our key personnel will remain with us, which could result in the loss of some customers, which may have a negative impact on our business, financial condition, and results of operations.

Mergers, Acquisitions and Dispositions Involve Numerous Risks and Uncertainties.

In addition to the proposed Mergers, the Company has in the past and may in the future pursue mergers, acquisitions and disposition opportunities involving financial institutions and financial services companies. Mergers, acquisitions and dispositions involve a number of risks and challenges. Acquisition related risks include the expenses involved; potential diversion of management’s attention from other strategic matters; integration of branches and operations acquired; outflow of customers from the acquired branches; retention of personnel from acquired companies or branches; competing effectively in geographic areas not previously served; managing growth resulting from the transaction; and dilution in the acquirer's book and tangible book value per share. The Company continually looks to optimize its branch network and real estate. The disposition of branches or business operations could result in the loss of some customers or unanticipated costs related to deconversion and transfer. Such dispositions may have an unanticipated adverse impact on operations, earnings or liquidity.

Interest Rate Risks

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 amount of interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, which may affect our net interest margins 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, supply conditions in the U.S. financial and capital markets, loan prepayments, the Company’s ability to originate loans, the value of its assets, its ability to realize gains from the sale of assets, and loan delinquencies and defaults, all of which ultimately affect earnings. Changes in interest rates may also affect the market value of the Company’s investment securities portfolio, which may affect the level and adequacy of its regulatory capital.

During 2022 and 2023, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates. In 2024, however, the Federal Reserve implemented several decreased in the Federal Funds rate, resulting in an aggregate decrease of 100 basis points in the latter part of the year. Changes in interest rates are beyond the Company's control and may not be anticipated.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. In a rising rate environment, demand for loans may decrease and loans with adjustable interest rates are more likely to experience a higher rate of default. Conversely, if the interest rates received on loans and other investments decline faster than rates paid on deposits and other borrowings, our net interest income, and therefore earnings, could be similarly adversely affected. Changes in interest rates also affect the fair value of the securities portfolio. Generally, the value of securities moves inversely with changes in interest rates.

Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet.

Liquidity Risks

Liquidity is Essential to the Company’s Business and a Lack of Liquidity Could Adversely Affect the Company’s Financial Condition and Results of Operations.

Liquidity is essential to the Company’s business. The Company relies on its ability to generate deposits and effectively manage the repayment of its liabilities to ensure that there is adequate liquidity to fund operations. An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity. The Company’s most important source of funds is its deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk adjusted return, which are strongly influenced by such external factors as the direction of interest rates, local and national economic conditions and the availability and attractiveness of alternative investments. Further, the demand for deposits may be reduced due to a variety of factors such as negative trends in the banking sector, the level of and/or composition of our uninsured deposits, demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the Federal Reserve or regulatory actions that decrease customer access to particular products. If customers move money out of bank deposits and into other investments such as money market funds, the Company would lose a relatively low-cost source of funds, which would increase its funding costs and reduce net interest income. Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity. Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities and/or loans, brokered deposits, borrowings from the FHLB and/or and the Federal Reserve Bank of Boston discount window, and unsecured borrowings. The Company also may borrow funds from third-party lenders, such as other financial institutions. The Company’s access to funding sources in amounts adequate to finance or capitalize its activities, or on terms that are acceptable, could be impaired by factors that affect the Company directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry, a decrease in the level of the Company’s business activity as a result of a downturn in markets or by one or more adverse regulatory actions against the Company or the financial sector in general. Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations.

Bank Failures and Stresses May Lead to Negative Depositor Confidence in Depository Institutions. Systemic Impacts May have a Material Adverse Effect on our Financial Condition and Results of Operations and Stock Price.

In 2023, several large regional banks failed due to deposit runs and liquidity issues. These banks also had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions. In 2024, elevated commercial real estate losses at a large bank led to industry stock price declines.

Recent events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. Impacts on our liquidity, deposits, capital levels and interest rate risk may have a material adverse effect on our financial condition and results of operations.

The premiums of the FDIC’s deposit insurance program are subject to increases based on claims on the fund related to bank failures. Banking regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies. Changes resulting from these events could include increased regulatory oversight, higher capital requirements or changes in the way regulatory capital is calculated, and the impositions of additional restrictions through regulatory changes or supervisory or enforcement activities, each of which could have a material impact on our business.

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, issuance of brokered certificates of deposit, proceeds from the sale of loans, and liquidity resources at the holding company. 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 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. The Company’s Stock Repurchase Program is also Dependent on These Distributions.

A substantial source of holding company income is the receipt of dividends from the Bank, from which the Company services debt, pays obligations, and pays 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 from the Bank to the Company or other types of payments are considered 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 Company may also be unable to repurchase common stock under a then outstanding stock repurchase program.

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

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. Such declines can result from changes in interest rates and inflation. The Company’s investment in equity securities and non-investment grade or unrated debt securities present heightened credit and price risks. Under applicable 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.

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. The 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.

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.

With total assets over $10 billion, the Company and the Bank are 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 capital stress testing expectations which require significant 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 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.

Changes in Tax Laws and Accounting Policies and Practices.

We are subject to income taxes and complex tax regimes in the United States. We cannot predict future changes in the tax regulations that we are subject to, and any changes could have a material impact on our tax liability or result in increased costs of our tax compliance obligations. Additionally, from time to time, the regulatory agencies and other authoritative bodies, such as the Financial Accounting Standards Board ("FASB"), change the financial accounting and reporting standards that govern the preparation of the Company's financial statements. These changes can be hard to predict and can materially impact how management records and reports the Company's financial condition and results of operations.

Significant Accounting Estimates

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

The Company has an 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 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 undergo frequent and material changes. Changes in economic and other conditions affecting borrowers, including inflation and interest rates, along with new information regarding existing loans other factors, may indicate the need for a future increase in the allowance.

Fair Value Measurements May Be Affected by Inherent Uncertainties

The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, securities available for sale, and derivatives. Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as individually evaluated loans held for investment and capitalized servicing rights. Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements.

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.

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 and inflation; 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.

Other Risks

Negative Public Opinion Could Damage the Company’s Reputation and Impact Business Operations and Revenues.

As a financial institution, the Company’s earnings and capital are subject to risk associated with negative public opinion. Negative public opinion could result from the Company’s actual or alleged conduct in any number of activities, including but not limited to lending practices, failure to meet customer expectations, regulatory or legal issues, corporate governance, merger and acquisitions activity, social media and other marketing activities, or actions taken by government regulators and community organizations in response to any of the foregoing. Negative public opinion could adversely affect the Company’s ability to attract or retain clients, expose the Company to litigation and regulatory action, and have a material adverse effect on the Company’s stock price, result in heightened volatility or hinder efforts to raise capital or pursue strategic transactions.

The Company maintains a robust Information Security Program that sets forth the Company’s commitment to the continual review and improvement of policies, processes, procedures, and standards for evaluating electronic and physical methods of accessing, collecting, storing, using, transmitting, disposing, and protecting sensitive information including customer information under guidelines established as part of the Gramm Leach-Bliley Act (GLBA). The Company uses or adheres to relevant standards and frameworks from the Federal Financial Institutions Examination Council (FFIEC) and National Institute of Standards and Technology (NIST), among others, to assess information security risks and controls, as well as to assess the maturity and effectiveness of the Information Security Program.

The Board of Directors and Executive Management are responsible for ensuring that the Information Security Program within Enterprise Risk Management identifies, measures, monitors, controls, and reports risk according to significance. If risks are determined to be undesired and beyond stated and aggregated Risk Appetites, the Board of Directors and Executive Management take appropriate action to ensure that excessive risk is mitigated or eliminated, which may include reducing risk exposure. The Board of Directors has final responsibility, after consultation with management, for ensuring the Information Security Program aligns with the overall business strategy and provides oversight to protect the Company from ongoing and emerging threats, including those related to cybersecurity.

The Information Security Program is overseen by the Company’s Information Security Officer ("ISO"), who reports directly to the Chief Risk Officer. The ISO has held this position with the Company since May, 2024, and has worked at the Company in cybersecurity for almost 12 years and in the information technology industry for more than 16 years. The Chief Risk Officer has held the position at the Company since October 2016, when he joined the Company from the FDIC where he was employed for 24 years and held multiple positions including Senior Risk Examiner for the Division of Risk Management Supervision and Acting Regional Manager for the Division of Insurance and Research. During his tenure with the FDIC, the CRO served from time to time as the Examiner-in-Charge for Berkshire Bank and numerous other banks throughout New England. The ISO is responsible for the implementation, maintenance, and enforcement of the Information Security Program and related policies and standards. The program is evaluated and adjusted at least annually based on the results of testing, monitoring, and the adoption of best practices. Reporting occurs annually on the status of the Information Security Program to the Board’s Risk Management, Capital & Compliance Committee. Reporting includes the overall status of the program, material matters related to the program, Key Risk Indicators ("KRIs"), cyber risk assessments results, emerging risks, risk management and control decisions, control testing results, third party security assessments, penetration test results, security breaches or violations, and recommendations for changes to the program.

The Company maintains a robust Third-Party Risk Management program to manage risks related to third-party relationships in a manner that is consistent with the Company’s strategic goals, organizational objectives, and risk appetite. This includes comprehensive risk and control assessments to ensure sensitive information is safeguarded appropriately.

The Company has a dedicated internal Security Operations Center ("SOC") and a Managed Detection and Response ("MDR") third party service that provides 24/7/365 monitoring of its environment to investigate and respond to security alerts. Log sources are mapped to the MITRE ATT&CK framework to ensure appropriate security monitoring and gap analysis to detect and respond to attacks. Threat intelligence is used with contextual risk approaches to identify threats and prioritize response. Threat hunts operate both proactively and reactively to look for relevant behaviors and indicators of compromise from cybersecurity events or zero-day vulnerabilities. An Incident Response Plan is in place to ensure the timely and effective handing of security incidents. This includes providing the Company with a detailed outline of how to respond to a security incident, team responsibilities, contact information for key resources, definitions for determining the severity and escalation of security incidents, and pre-built playbooks to respond to the most common types of security incidents including ransomware. Incident response and escalation plans are tested and reviewed for improvements at least annually. An incident response retainer with an approved third party is contracted to assist in responding to security incidents and to conduct forensic investigations involving the potential compromise of sensitive data or information assets. All employees are required to complete privacy and information security awareness training upon joining the Company and on an annual basis. This includes incident response training on how to communicate potential or actual incidents.

The Company continues to face risks from cybersecurity threats that could have a material adverse effect on its business, financial condition, results of operations, or reputation. Although such risks have not materially affected us, we have experienced threats to and breaches of our data, including breaches caused by human error or breaches affecting third parties of the Company. For more information about the cybersecurity risks we face, see Item 1A-Risk Factors.

The Company's headquarters are located at 60 State Street in leased property in Boston, MA. The Bank's headquarters are located in owned and leased facilities located in Pittsfield, MA. The Company also owns or leases other facilities within its primary market areas: Greater Boston (including Worcester, MA); Pioneer Valley (Springfield area), Massachusetts; Berkshire County, Massachusetts; Southern Vermont; the Capital Region (Albany area), New York; Central New York; Central and Eastern Connecticut; and Southern Rhode Island. As of December 31, 2024 the Company had 83 full-service financial centers in Massachusetts, New York, Connecticut, Rhode Island, and Vermont.

The Company also has regional locations which are full-service commercial offices located in Boston, MA.; Pittsfield, MA.; Springfield, MA.; Albany, N.Y.; Glastonbury, CT.; Willimantic, CT. Worcester, MA.; Burlington, MA, and Providence RI. The Bank's 44 Business Capital lending division is headquartered in Blue Bell, Pennsylvania.

The Bank has made its workplace more flexible as certain designated functions are approved for telecommuting arrangements. As a result of its efficiency initiatives, the Bank has been in the process of identifying and reducing real estate utilized for its operations.

Due to the pandemic, the Company adapted its infrastructure and protocols to accommodate the shift of back office operations out of the office and continues to support this expanded capability and flexibility in pursuit of its strategies and human capital management.

As of December 31, 2024, neither the Company nor the Bank was involved in any pending legal proceedings believed by management to be material to the Company’s financial condition or results of operations. Periodically, there have been various claims and lawsuits involving the Bank, such as claims to enforce liens, condemnation proceedings on properties in which the Bank holds security interests, claims involving the making and servicing of real property loans, and other issues incident to the Bank’s business. A summary of certain legal matters involving unsettled litigation or pertaining to pending transactions are as follows:

On February 4, 2020, the Bank filed a complaint in the New York State Supreme Court for the County of Albany against Pioneer Bank (“Pioneer”) seeking damages of approximately $16.0 million. The complaint alleges that Pioneer is liable to the Bank for a credit loss of approximately $16.0 million suffered by the Bank in the third quarter of 2019 as a result of Pioneer’s breaches of a series of loan participation agreements executed in 2017, 2018 and 2019 in which it served as the lead bank, as well as constructive fraud, fraudulent concealment and/or negligent misrepresentation. Pioneer filed a motion to dismiss aspects of the Bank’s complaint, which motion was allowed in part by the court to dismiss the Bank’s negligent misrepresentation claim, and denied in part by the court to allow all other claims by the Bank to proceed. The Company wrote down the underlying credit loss in its entirety in the third quarter of 2019, but recognized a partial recovery of $1.7 million early in the second quarter of 2020. The Company has not accrued for any additional anticipated recovery at this time. Extensive discovery has taken place in this action. On November 30, 2022, the Bank filed an amended complaint in its action against Pioneer setting forth more detailed allegations of Pioneer’s breaches of the loan participation agreements and stating additional claims for fraudulent inducement to cause Berkshire to join the loan participation agreements, constructive fraud and fraudulent concealment. On January 30, 2023, as part of its response to the Bank’s amended complaint, Pioneer filed a counterclaim against the Bank alleging (i) certain breaches by the Bank of the 2019 loan participation agreement stemming from actions that the Bank took to protect its interests after it learned of the facts and circumstances that caused the underlying credit loss, and (ii) that as a result of accepting the partial recovery of approximately $1.7 million in the second quarter of 2020 the Bank should be deemed to have ratified the 2019 loan participation agreement and mooted its claims against Pioneer. Further discovery is continuing between the parties, and the Bank continues to actively build its case in this matter

On or about August 10, 2020, a former employee of the Bank’s subsidiary First Choice Loan Services Inc. (“FCLS”) filed a complaint in the Court of Common Pleas, Bucks County Pennsylvania against FCLS and two of its former senior corporate officers generally alleging wrongful termination as a result of purported whistleblower retaliation and other violations of New Jersey state employment law. The complaint also purports to name the Bank and the Company as additional defendants, even though neither entity ever employed, paid wages to or contracted with the plaintiff. On November 16, 2020, the plaintiff filed a First Amended Complaint reiterating the same claims against the same defendants. The Company's liability insurer has provided outside litigation counsel to defend the Company and the Bank in this matter, as well as FCLS and its former senior corporate officers. On December 7, 2020, defense counsel filed Preliminary Objections on behalf of the Company, the Bank, FCLS and FCLS’s former senior corporate officers denying the plaintiff’s claims and seeking dismissal of the case and an order that the plaintiff’s claims must proceed through arbitration in accordance with contractual obligations set forth in plaintiff’s previous employment agreement with FCLS. On June 30, 2021, the court dismissed the plaintiff’s complaint without prejudice in support of FCLS’s petition to compel arbitration. The parties are preparing for arbitration proceedings that are expected to occur no earlier than the second quarter of 2025. Discovery is continuing between the parties in preparation for final arbitration.

On or about May 13, 2024, a complaint was filed against the Bank in the United States District Court for the Northern District of New York, Syracuse Division by an individual who claims to have filed the complaint on behalf of a purported class of victims of an alleged Ponzi scheme perpetrated by a former Berkshire Bank customer. On October 31, 2024, the court dismissed the plaintiff’s complaint with prejudice for failure to state a claim upon which relief could be granted under Federal Rules of Civil Procedure 12(b)(6) and 9(b). In connection with bankruptcy proceedings involving the former customer and his operating entities, the Bank has received a Rule 2004 subpoena from the bankruptcy trustee seeking information related to the Ponzi scheme. At this time, no claim has been asserted against the Bank in the bankruptcy proceedings, nor has the trustee threatened to pursue litigation.

(In thousands)

52

NON-GAAP FINANCIAL MEASURES

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

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

In 2024, adjustments were primarily related to the pending merger, branch sales and consolidations, and loss on sale of AFS securities.

In 2023, adjustments were primarily related to branch consolidations, severance charges related to a workforce reduction, and loss on sale of AFS securities. Starting in 2023, fair value adjustments on securities are included in operating income.

In 2022, the restructuring expense adjustment primarily related to the termination of leasehold interests and the write-down of related right of use assets and leasehold improvements in conjunction with branch consolidations and real estate reductions.

The Company calculates certain profitability measures based on its operating revenue, expenses, and earnings. The Company also calculates operating 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 operating earnings and operating earnings per share may facilitate the comparison of the Company to other companies in the financial services industry.

Due to the anticipated earnings volatility resulting from loan loss provisions reflecting changes in estimates of uncertain future economic conditions under the 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 Operating Pre-Provision Net Revenue (“Operating PPNR”) which measures PPNR excluding adjustments for items not viewed as related to ongoing operations. This measure is now integral to the Company’s analysis of its operations, and 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 Operating PPNR/Assets in order to utilize the PPNR measure in assessing its comparative operating profitability. This measure primarily relies on the measures of operating revenue and operating expense already used in the 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:

(Dollars in thousands)

54

(Dollars in thousands)

(1) Starting in 2023, fair value adjustments on securities are included in operating income.

(2) Merger, restructuring, conversion, and other related expenses included $6.6 million of merger expenses for the year ended December 31, 2024. Merger, restructuring, conversion, and other related expenses included no merger and acquisition expenses for the years ended December 31, 2023 and 2022.

(3) Amortization of intangible assets is adjusted assuming a 27% marginal tax rate.

(4) 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 operating 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.

(5) Return on tangible common equity excluding AFS unrealized losses was 5.45%, 6.07%, and 8.26% for the years ended December 31, 2024, 2023, and 2022, respectively. Operating return on tangible common equity excluding AFS unrealized losses was 8.32%, 8.03%, and 8.94% for the years ended December 31, 2024, 2023, and 2022, respectively.

GENERAL

This discussion is intended to assist readers in understanding the financial condition and results of operations of 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’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
• Comparison of Operating Results for the Years Ended December 31, 2024 and 2023
• Comparison of Financial Condition at December 31, 2024 and 2023
• Liquidity and Cash Flows
• Capital Resources
• Application of Critical Accounting Policies
• Enterprise Risk Management
• Corporate Responsibility and Sustainability

The following discussion and analysis should be read in conjunction with the Company’s financial statements and the notes thereto appearing in Item 8 of this document. In the following discussion, income statement comparisons are against 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 2025 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 is a Delaware corporation headquartered in Boston and the holding company for the Bank. Established in 1846, the Bank operates as a commercial bank under a Massachusetts trust company charter. On December 16, 2024, the Company entered into a definitive agreement for a merger of equals with Brookline Bancorp, Inc., a Boston-based multi-bank holding company with $11.9 billion in assets and branches in Massachusetts, Rhode Island, and New York. This merger is targeted to be completed in the second half of 2025, subject to customary shareholder and regulatory approvals, and closing conditions.

SUMMARY

Berkshire reported 2024 net income of $61 million, or $1.43 per share, compared to $70 million, or $1.60 per share, in 2023. The decrease in 2024 was due primarily to higher non-operating losses on the sale of securities.

The Company’s non-GAAP measure of operating income totaled $95 million, or $2.22 per share in 2024, compared to $93 million, or $2.14 per share in 2023. The 4% increase in operating EPS included the benefit of lower credit loss provision expense and lower non-interest expense, together with a 2% reduction in average diluted shares due to ongoing share repurchases.

Berkshire’s 2024 return on assets was 0.52%; the operating return on assets was 0.81%. The return on tangible common equity was 6.3%; the operating return on tangible common equity was 9.6%. The efficiency ratio measured 63.9%. The 2024 shareholder dividend was $0.72 per share in 2024. Period-end book value per share increased 8% to $25.15 and the non-GAAP measure of tangible equity to tangible assets increased 9% to $24.82 for the year.

Operating income and profitability improved sequentially in every quarter of the year, reflecting the cumulative benefit of the Company’s ongoing growth initiatives together with strategic optimization programs. Results also benefited from strong credit discipline, rigorous expense management, investments in new client-facing bankers and enhancements to the digital platform and consumer product offerings. Strategic initiatives included:

• Network Optimization: The Company consolidated four branches in 2023 and three branches in 2024, and additionally exited surplus back-office premises. Staff count was reduced through a workforce realignment in the first half of 2024. The sale of ten New York branches was completed in the third quarter of 2024. The sale concentrated the Bank’s overall geographic footprint and reduced certain expenses. With the branch sale and consolidations, Berkshire’s total branch count was reduced to 83 offices in New England and New York, including 16 offices in its Albany and Rome/Utica markets.
• Sales of Securities: Investment securities were sold in the fourth quarter of 2023 and first quarter of 2024. This allowed the Company to reposition its balance sheet to improve net interest income and to fund the branch sale. The securities were carried at fair value on the Company’s balance sheet and the non-operating losses on sale therefore had no effect on shareholders’ equity.
• Sales of Targeted Loan Portfolios: The Company sold most of its remaining Upstart consumer loan portfolio, which was in run-off mode. In addition to this, the Company also sold a package of $47 million of seasoned residential mortgages.
• Growth Initiatives: During 2024, the Company announced the recruitment of commercial deposit relationship managers and private bankers. Additionally, it announced the planned move and expansion of a Boston branch to bolster its commercial and private banking teams serving the Greater Boston market.
• Digital Enhancements: In the third quarter, the Bank launched Berkshire One, its innovative suite of digital-first banking solutions to complement its branch and concierge banking channels.

Including the impact of branch and loan sales, in 2024 the Company recorded 4% loan growth and a 2% deposit decrease. Excluding the impact of these sales, Berkshire produced 5% loan growth and 1% deposit growth in 2024.

Measures of asset quality remained favorable in 2024. Delinquent and non-performing loans were 0.52% of total period-end loans; this was the lowest quarterly level in nearly two decades. Net loan charge-offs measured 0.16% of average total loans in 2024, compared to 0.26% in the prior year.

Liquidity remained satisfactory in 2024, with the year-end loans to deposits ratio measuring 90% in 2024 compared to 85% in 2023. Total shareholders’ equity increased by $155 million, or 15%, to $1.2 billion during the year, including the proceeds of a $100 million common stock placement in December in conjunction with the merger agreement. The common equity Tier 1 capital ratio stood at 13.0% at year-end 2024.

In response to persistent high inflation, the Federal Reserve Board increased the maximum target federal funds rate beginning in the first quarter of 2022. The rate increased from 0.25% in the first quarter of 2022 to 5.50% in the third quarter of 2023, increasing in each sequential quarter. The target rate remained unchanged until September

2024 and then was reduced by 1.00% in three steps to 4.50% at year-end. Some of the Bank’s loans are indexed to market rates and are the most immediately sensitive to rate changes. The upward move in federal funds in 2022 and 2023 contributed to inversion of the yield curve, which can negatively impact the net interest margin. This inversion began to correct in the second half of 2024, bringing more positive slope to portions of the yield curve.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

GAAP net income decreased $9 million, or 12%, year-over-year to $61 million in 2024 from $70 million in 2023. This was primarily due to a $25 million increase in non-operating securities losses offset in part by $16 million in non-operating gains on branch sales.

Berkshire improved operating profitability in 2024, with consecutive quarter-over-quarter improvement in operating results throughout the year. The non-GAAP measure of operating income increased $2 million, or 2%, to $95 million in 2024 from $93 million in 2023. A $17 million decrease in net interest income was mostly offset by an $8 million decrease in credit loss provision expense and an $8 million decrease in operating non-interest expense. The additional benefit of a $3 million increase in loan and SBA related revenue contributed to the $2 million increase in total operating income.

Effective January 1, 2024, the Company elected the proportional amortization method for its tax credit equity investments in public welfare investment projects which consist of Affordable Housing and New Market tax credit investments. This election had no material impact on net income. As a result of this election, certain noncash charges which had been posted to non-interest income are now posted to income tax expense. Therefore, non-interest income, total revenue, and tax expense are not comparable on a year-over-year basis. The amount charged against non-interest income in 2023 was $8.0 million compared to $2.5 million credited to non-interest income in 2024.

Year-to-year comparisons of revenue and expense were also impacted by the sale of ten branches toward the end of the third quarter and the sale of investment securities and reinvestment of proceeds into short-term investments in the first quarter to help fund the branch sale. The fourth quarter of 2024 was the first full quarter subsequent to completion of the branch sale.

Due to the change in tax accounting, the efficiency ratio was unchanged at 63.9% in both years. Excluding the impact of tax credits in 2023, the adjusted efficiency ratio was 65.3% in 2023. The improvement in 2024 compared to this adjusted ratio included the benefit of reinvestments of proceeds from securities sales and the reduction in operating expenses in 2024.

Net Interest Income

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

Net interest income decreased in 2024 by $17 million, or 5%, to $352 million. The net interest margin decreased by 11 basis points, or 3%, to 316 basis points in 2024 from 327 basis points in 2023. Average earning assets decreased by $0.2 billion, or 2%, to $11.2 billion. The decrease in average earning assets was primarily due to the sale of lower yielding investment securities to fund the branch sales and to pay down higher cost borrowings.

The 11 basis point decrease in the net interest margin was primarily due to the 57 basis point increase in the cost of funds, partially offset by the 37 basis point increase in the yield on earning assets. These changes resulted from the ongoing impact of repricings following federal funds rate increases in the period from January 2022 to July 2024.

The increase in the cost of funds was driven by the 75 basis point increase in the cost of deposits. This reflected ongoing repricings in the higher rate and competitive market conditions, and mix shifts from lower cost transaction accounts into higher cost money market and time deposit accounts.

The increase in the yield on earning assets was primarily due to a mix shift from lower yield investment securities to higher yielding loans and short term investments. The loan yield increased 18 basis points as a result of upward repricings of loans.

The net interest margin decreased sequentially on a quarterly basis in 2023, from 3.84% in the fourth quarter of 2022 to 3.11% in the fourth quarter of 2023. This primarily reflected deposit repricings catching up with loan repricings in 2022. It improved to 3.20% in the second quarter of 2024, including the benefit of securities sales and related balance sheet changes. The margin declined to 3.14% in the fourth quarter of 2024 as loan repricings adjusted quickly to the 100 basis reduction in the federal funds rate beginning in September. The margin measured 3.18% in December 2024, as deposit repricings began to accelerate. For the full year 2024, the net interest margin averaged 3.16%, down from 3.27% in 2023 due primarily to deposit repricings in the higher rate and competitive marketplace.

Non-Interest Income

Non-interest income was $48 million in 2024 and $43 million in 2023. As previously noted, due to the tax accounting methodology change, total non-interest income is not comparable between these years. This change is included in the category of other non-interest income, which increased by $12 million. Operating results benefited from a $3 million increase in revenues from loan related fees and gains on SBA loans. Non-interest income in 2024 included the $16 million gain on the branch sale and the $50 million loss on the first quarter sale of securities. In 2023, non-interest income included the $25 million loss on the fourth quarter sale of securities. The securities losses had no impact on total shareholders’ equity. These gains and losses are viewed by the Company as non-operating.

Provision for Credit Losses

Provision expense decreased year-over-year by $8 million, or 25%, to $24 million from $32 million. In part, this reflected a decrease in loan growth to 4% in 2024 from 8% in 2023. Additionally, it reflected an increase in the coverage ratio of the allowance for credit losses on loans to 1.22% at year-end 2024 compared to 1.17% at the prior year-end. Net loan charge-offs totaled $15 million in 2024 compared to $23 million in the prior year.

Non-Interest Expense

Non-interest expense decreased year-over year by $5 million, or 2%, to $296 million. The non-GAAP measure of operating non-interest expense decreased by $8 million, or 3%, to $287 million. This primarily reflected lower operating expenses due to branch sales and consolidations. Non-operating expenses of $9 million in 2024 and $6 million in 2023 included branch and facilities consolidations in both years, and 2024 expenses related to the pending merger.

The largest decrease in operating expense was occupancy and equipment expense, which decreased $4 million or 12%. This included the impact of four branch consolidations in 2023, three branch consolidations in 2024, and ten branches sold in 2024, together with dispositions of other excess properties. Of note, the sales of eight of the branches sold were completed near the end of the third quarter of 2024. All major categories of operating expenses declined year-over-year except for regulatory expense and compensation expense. The Company is focused on efficiencies to reduce overhead and to deepen its investment in frontline staff and customer engagement technology. Full year compensation expense increased 1% year-over-year. Fourth quarter compensation expense decreased 3% year-over-year. Year-end full time equivalent staff totaled 1,216 positions in 2024, a decrease of 124 positions, or 9%, from 1,340 positions at year-end 2023. This decrease included 40 positions which were transferred in the branch sale. All staff related to the ten branches sold were offered employment by the branch buyers. FTE staff was also reduced based on a workforce realignment in the first quarter of the year.

Income Tax Expense

As previously noted, income tax expense in 2024 is not comparable to 2023 and prior years due to the change in the accounting method for certain equity tax credit investments. In 2024, the effective income tax rate was 23%. Differences arising between Berkshire’s effective income tax rate and the U.S. federal statutory rate of 21% are primarily attributable to: (i) tax-exempt interest earned on certain investments; (ii) tax-exempt income from BOLI; (iii) non-deductible merger costs; and (iv) state income taxes.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2024 AND DECEMBER 31, 2023

General

Total assets decreased $0.2 billion, or 1%, to $12.3 billion in 2024. A $0.4 billion decrease in investment securities primarily funded the $0.4 billion sale of deposits. Loan growth of $0.2 billion from business activities was primarily funded by deposit growth from business activities. A $100 million common stock issuance offset a decrease in borrowings. With the stock offering and reduction in assets, the ratio of equity to assets increased to 9.5% from 8.1%. Primarily as a result of the deposit sale, the ratio of loans/deposits increased to 90% from 85%

Investment Securities

Investment securities decreased $419 million, or 26%, to $1.2 billion during 2024. This was primarily due to the sale of lower yielding securities near the end of the first quarter. This improved the Company’s liquidity in advance of the branch sale and benefited earnings as the sale proceeds were used to pay down higher cost funds. The yield on the securities portfolio was 2.66% in the fourth quarter of 2024 compared to 2.40% in the fourth quarter of 2023, reflecting the sale of lower coupon securities and the benefit of higher interest rates in the second half of 2024. The unrealized loss on available for sale securities decreased by $47 million in 2024 to $142 million at year-end 2024 due to the $50 million loss realized on the sale of securities in the first quarter.

Loans

Total loans increased $345 million, or 4%, to $9.4 billion in 2024, including commercial loan growth totaling $433 million, or 7%, which was partially offset by a $99 million, or 22%, reduction in consumer loans. During the year, the Company sold $47 million in seasoned residential mortgages and $47 million in consumer loans. Additionally, the Company sold $50 million in residential mortgage and consumer loans as part of the branch sale. Adjusted for these loans sold, total loans increased 5% for the year 2024. The yield on total loans was 5.88% in the most recent quarter, compared to 5.97% in the final quarter of 2023. At year-end 2024, loans repricing within three months were 43% of total loans.

Year-end commercial loans were 67% of total loans at year-end 2024 compared to 65% in 2023. Commercial loan growth was recorded in all major categories of commercial loans, including a 13% increase in construction loans and an 11% increase in owner-occupied commercial real estate loans. Based on the supervisory definition of commercial real estate loans which excludes owner-occupied properties, the supervisory measure of commercial real estate loans to total bank regulatory capital measured 292% at period-end, compared to 286% at year-end 2023. The supervisory measure of construction loans to bank regulatory capital measured 54% and 51% at the above respective dates.

The Company has a diversified commercial real estate portfolio primarily located in suburban markets in its footprint. The commercial real estate loan portfolio increased $353 million, or 8%, to $4.8 million in 2024, and constituted 51% of the total loan portfolio at period-end. There were $1.2 million in net charge-offs of commercial real estate loans in 2024, compared to net recoveries of $0.8 million in 2023. Non-accruing loans were 0.22% of total commercial real estate loans at period-end compared to 0.10% at year-end 2023. For commercial real estate loans, year-end loans rated as criticized increased to 2.93% from 2.44% while loans rated as classified decreased to 1.19% from 1.94% of total loans.

At period-end, the largest property type concentrations (over 5% of the portfolio and excluding construction loans) were retail trade (21%), multifamily (13%), office (10%), healthcare (9%), and hospitality (7%). The largest category, retail trade, was primarily comprised of properties anchored by strong grocery and big box tenants in suburban areas – with no significant tenant concentrations, and negligible indoor mall exposure. The $507 million office portfolio was approximately 71% composed of Class A properties and approximately 79% of the office portfolio was maturing after 2025. Boston properties were approximately 16% of the office portfolio, with no high-rise office buildings. Construction loans consisted primarily of multifamily (approximately 49%) and health care (approximately 13%) at period-end.

Residential mortgage loans comprised 30% of year-end 2024 loans and were up $11 million to $2.8 billion during the year. Consumer loans comprised 4% of loans and decreased 22% to $0.3 billion during the year. This was largely due to targeted run-off and sales of unsecured consumer installment loans.

Allowance for Credit Losses on Loans

Loan performance indicators remained at historically favorable levels in 2024. Total delinquent and non-performing loans measured 0.52% of loans at period-end, the lowest level in nearly two decades. It included non-performing loans measuring 0.26% of total loans at that date.

Net loan charge-offs totaled $15 million, measuring 0.16% of average loans in 2024 and totaled $23 million, measuring 0.26% of average loans in 2023. Consumer loan net charge-offs totaled $9 million in 2024 and $8 million in 2023. Excluding consumer loans, charge-offs of all other loans totaled $5 million and $14 million, measuring 0.06% and 0.17% of all other average loans in those respective years.

Year-end criticized loans/total loans decreased to 2.62% of total loans from in 2024 from 2.71% in 2023, including a reduction in classified loans to 1.20% of loans from 1.69%. Potential problems loans, which are defined as accruing classified loans, decreased to $88 million from $132 million. Improvements in borrower risk ratings have generally reflected borrowers adjusting operations to mitigate the impact of higher interest rates on variable rate loans and to the impact of changing supply/demand conditions.

The allowance for credit losses on loans increased by $9 million, or 9%, to $115 million during 2024. In addition to reflecting the 4% loan growth, this also reflected an increase in the ratio of the allowance to total loans to 1.22% from 1.17%. The increase in reserve coverage reflected increases in all major loan categories except non-owner occupied commercial real estate and other consumer loans. Regarding the former, coverage decreased to 1.39% from 1.47%. Regarding other consumer loans, coverage decreased to 5.11% from 5.46% and the total other consumer allowance decreased by $6 million to $3 million primarily as a result of the sale of Upstart loans. The remaining Upstart loan balance was $7.5 million at year-end 2024. The major contributor to the increase in the total allowance was the commercial and industrial loan portfolio, which accounted for $13 million, or 53%, of the total $24 million credit loss provision expense in 2024. Reflecting higher net loan losses of $6 million in this portfolio, the year-end allowance coverage of these loans was 1.78% at year-end 2024 compared to 1.37% at year-end 2023. Factors contributing to higher coverage in most portfolios included longer expected loan lives and increased qualitative reserves related to macroeconomic and federal policy uncertainties.

Deposits and Borrowings

For the year 2024, total deposits decreased by $258 million, or 2%, to $10.4 billion. This included the sale of $383 million in deposits due to the sale of ten branches in the third quarter. Average deposits in the fourth quarter of 2024 were $9.7 billion, decreasing $277 million, or 3%, from the same quarter of 2023 due to lower average transaction account balances. Excluding the deposits sold, average fourth quarter deposits increased $106 million, or 1%, year-over-year. In recent years, year-end balances included higher overnight balances related to the Company’s payroll deposit service.

The branch sale included $383 million in deposits, consisting of $77 million of non-interest bearing deposits, $25 million of NOW deposits, $77 million of money market deposits, $45 million of savings deposits, and $159 million of time deposits.

Fourth quarter average non-interest bearing deposits were 24% of average deposits in 2024 compared to 25% in 2023. All major categories of average deposits decreased between these two periods, primarily in transaction deposits. The fourth quarter cost of deposits was 2.30% in 2024 compared to 2.11% in 2023. The fourth quarter of 2024 marked the first decline in the cost of deposits since the first quarter of 2022, reflecting market changes following the reduction in the federal funds rate and other market interest rates beginning in the third quarter of 2024.

Total borrowings decreased year-over year by $68 million, or 14%, to $438 million at year-end 2024. The fourth quarter cost of borrowings was 5.20% in 2024 compared to 5.45% in 2023.

Derivative Financial Instruments

The notional amount of derivative financial instruments totaled $4.9 billion at period-end, compared to $4.8 billion at year-end 2023. The net fair value of these instruments at period-end was a liability of $31 million, compared to $30 million at year-end 2023. Included in derivative financial instruments are $800 million in cash flow hedges on commercial loans, of which $275 million mature in 2025, $425 million mature in 2026, and $100 million mature in 2027. The Company recorded a $632 thousand charge to interest expense for the realized loss on cash flow hedging instruments in both 2024 and 2023.

Shareholders’ Equity and Dividends

Total shareholders' equity increased $155 million, or 15%, to $1.2 billion in 2024. This included the benefit of the $100 million common stock placement in December 2024. Equity also benefited from operating income of $95 million and was reduced by $31 million in dividends declared and $18 million in stock repurchases. The $50 million loss on securities recorded in the first quarter of 2024 had no impact on shareholders’ equity, as the after-tax impact on retained earnings was offset by a reduction in the accumulated other comprehensive loss component of equity.

Book value per share increased in 2024 by $1.88, or 8%, to $25.15 at year-end 2024 compared to $23.27 at year-end 2023. The non-GAAP measure of tangible book value per share increased by $2.00, or 9%, to $24.82 from $22.82. Share repurchases in 2024 were accretive to book value measures, based on the average repurchase price of approximately $21.94. The share issuance in December was priced at $29.00 per share.

Reflecting primarily the increase in equity, the year-end ratio of equity to assets increased to 9.5% from 8.1% and the non-GAAP measure of tangible common equity to tangible assets increased to 9.4% from 8.0%. The common equity Tier 1 capital ratio increased to 13.0% from 12.0%.

LIQUIDITY AND CASH FLOWS

Liquidity is defined as the ability to generate sufficient cash flows to meet all present and future funding requirements at reasonable costs for the Company, including the Bank. Liquidity management addresses both the Company’s ability to fund new loans and investments pursuant to commitments and as opportunities arise, to meet customer deposit withdrawals and to repay borrowings and subordinated notes as they mature. The Company views its liquidity as satisfactory for current conditions as well as for stressed scenarios in its liquidity testing models.

At year-end 2024, liquid assets totaling $1.8 billion included cash and equivalents totaling $1.1 billion and securities available for sale totaling $0.7 billion. At year-end 2023 liquid assets were $2.2 billion, including $1.2 billion in cash and equivalents and $1.0 billion in securities available for sale. Year-end liquidity is elevated due to overnight payroll related deposit balances. Securities include assets pledged to support borrowings.

At year-end 2024 wholesale funds, consisting of borrowings and brokered deposits, totaled $0.9 billion, compared to $1.0 billion at year-end 2023.

Unused borrowing availability at period-end from the Federal Home Loan Bank of Boston “FHLBB” and the Federal Reserve Bank of Boston (“FRB”) totaled $4.1 billion at year-end 2024, compared to $4.0 billion at year-end 2023. Borrowings from these sources are supported by collateral, to the extent utilized. Cash balances at the holding company totaled $164 million at period-end.

During 2024, total cash and equivalents decreased to $1.1 billion from $1.2 billion. The primary sources of funds were securities sales, together with operating activities and the stock issuance. The primary uses of funds were the branch sale and loan growth.

CAPITAL RESOURCES

Please see the Note 17 - Shareholders’ Equity and Earnings per Common Share 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 Item 1 of this report.

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

As a result of rising interest rates, available for sale bond portfolios in banks are generally subject to unrealized losses which result in charges against accumulated 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. 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. The balance of AOCI was a loss of $106 million at period-end, compared to a loss of $143 million at year-end 2023. This reduction was primarily due to the after-tax realization of $50 million in losses with the securities sale in the first quarter of 2024.

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. This ratio measured 13.0% at year-end 2024 compared to 12.0% at year-end 2023. This improvement included the benefit of the $100 million capital placement in December 2024.

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.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies and modifications to significant accounting policies made during the year are described in Note 1 to the financial statements. The preparation of the financial statements is in accordance with GAAP and general practices applicable to the financial services industry. This preparation requires management to make estimates, assumptions, and judgements that affect the amounts reported in the financial statements and accompanying notes. The judgment and assumptions made are based upon historical experience, future forecasts, or other factors that management believes to be reasonable under the circumstances. Actual results could differ from those estimates, assumptions, and judgements.

Not all significant accounting policies require management to make difficult, subjective or complex judgments. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. The following significant accounting 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 most critical accounting policies were significant in determining income and financial condition based on events in 2024.

Allowance for Credit Losses on Loans

The allowance for credit losses on loans (“ACLL”) represents management’s estimate of expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the ACLL is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the ACLL in those future periods.

The estimate of expected credit losses is 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 evaluated on a pooled basis, the Company utilizes a static pool migration methodology which calculates a historical loss rate for each of the identified loan segments. The historical loss rates are then adjusted 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 appropriateness of the ACLL could change significantly because current economic conditions and forecasts can change and future events are inherently difficult to predict. It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. One of the most significant judgments used in determining the allowance for credit losses is the macroeconomic forecast provided by a third party. Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses.

While management utilizes its best judgment and information available, the ultimate adequacy of our ACLL is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, and changes in interest rates. For detailed information on the ACLL see Note 1- Summary of Significant Accounting Policies and Note 5 – Loans and Related Allowance for Credit Losses.

Fair Value Measurements

The Company uses fair value measurements to determine fair value disclosures and to record fair value adjustments to certain assets and liabilities, such as interest rate swaps, individually evaluated loans, securities available for sale, and derivatives. Our fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, from time to time, the Company may be required to record certain assets at fair value on a non-recurring basis, such as certain individually evaluated loans held for investment and capitalized servicing rights. These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting or other accounting standards.

Management has established and documented a process for determining fair value. The use of observable inputs is maximized and the use of unobservable inputs is minimized when developing fair value measurements. Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements. For detailed information on our use of fair value measurements and our related valuation methodologies, see Note 1 – Summary of Significant Accounting Policies and Note 19 – Fair Value Measurements for more information.

ENTERPRISE RISK MANAGEMENT

Other sections of this report on Form 10-K 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, credit, loan review, compliance, data governance, and information security. Enterprise risk assessments are brought to the Company’s Enterprise Risk Management Committee, and then are reported to the Board’s Risk Management, Capital & Compliance Committee.

The Company includes recessionary/inflationary risk overlays on all of the material business risks to capture the uncertainties of the economic environment. The Company has also developed recession toolkits and playbooks that outline mitigating factors and actions that strive to minimize losses under such scenarios. Both of these items are addressed throughout the assessments and dashboards provided to the above Committees.

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. For all material business risks, residual risk was viewed as medium/low to medium due to mitigating controls functioning in the Company. In 2024, price risk remained elevated in relation to the corporate appetite due to the impact of higher interest rates on the behavior and value of various interest sensitive instruments. Residual price risk was viewed as medium including the impact of mitigating factors and management actions in the risk management environment. Emerging risks affecting business risks included merger execution risk, fraud risk due to rising thefts targeting electronic platforms, and IT and cyber risks due to rising external threats and the emergence of artificial intelligence technology.

CORPORATE RESPONSIBILITY & SUSTAINABILITY

The Company’s longstanding commitment to operating responsibly and sustainably is interwoven into the company’s vision, mission, business practices, and strategic goals. Berkshire’s integrated approach to strong governance and managing environmental and social externalities helps reduce risk and unlock new business opportunities to create an ecosystem of positive impact and value, which in turn supports Berkshire’s commercial performance, creating capacity to invest more in its business, employees, customers, shareholders and communities.

The Company maintains a comprehensive governance system to oversee sustainability matters including a dedicated committee of its Board of Directors and a dedicated management committee, along with a network of policies including its Responsible & Sustainable Business Policy and Climate Risk Management Program. Berkshire was one of the first banks in the country to establish a dedicated committee of its Board of Directors to oversee these matters and became the first public U.S. community bank holding company with under $150 billion in assets to issue and successfully allocate a Sustainability Bond with a $100 million issuance.

Berkshire remains a leader among community banks in sustainability performance and regularly engages directly with its stakeholders to share information about its progress. The Company’s annual Sustainability Report, which is aligned with disclosure standards from Sustainability Accounting Standards Board (“SASB”) and Task Force on Climate-Related Financial Disclosure ("TCFD"), detail the Company's programs and performance.

Climate Impact

Climate change manifesting in the form of both physical or transition risks along with the Company’s mitigating practices could adversely, either directly or indirectly, affect Berkshire’s operations, businesses, customers, communities, and its stakeholders. As the transition to a low-carbon economy continues, new policy emerges, and market dynamics shift, Berkshire expects that its efforts to manage its environmental footprint, mitigate the risks associated with climate change, and support the transition will allow it to strengthen its long-term positioning. The Company’s Board of Directors Corporate Responsibility & Culture Committee provides oversight of sustainability and climate matters. Management and the board evaluate climate related risks and opportunities and incorporate the results of risk assessments and discussions into strategic planning, product development, programming and relevant risk mitigating measures. The Company expects to evolve its practices to align with risks, current and expected regulations as well as the size, scope, and complexity of its operations. Further details on Berkshire’s practices can be found in its most recent Sustainability Report.

Opportunity for All

Maintaining an inclusive workplace is essential to business success and an important enabler to advancing the Company’s strategic goals. By embracing and leveraging diverse backgrounds, cultures, skills, ideas and experiences, Berkshire is driving innovation, better decision-making and enhancing the bank’s ability to serve the evolving needs of its customers and communities. Berkshire remains committed to creating a culture of inclusivity in its workplace where every employee feels respected, valued and empowered to contribute their unique talents to the Company’s success.

Berkshire seeks to attract, engage and retain individuals, businesses and suppliers from a wide range of backgrounds, and experiences so that the workforce, clients and supplier base reflect the communities in which it operates. The Company approaches its efforts with strong governance practices, provides professional development for its employees, engages with its communities and offers employee resource groups, all aimed at ensuring accessibility and opportunity for all.

Awards & Recognition

Berkshire is proud to be recognized for its performance with local, regional, national, and international awards including:

• American Bankers Association Community Commitment Award
• America’s Most Trustworthy Companies – Newsweek
• America’s Best Regional Banks – Newsweek
• America’s Greatest Workplaces – Newsweek
• America’s Best Mid-Size Companies – TIME
• Communitas Award for Leadership in Corporate Social Responsibility
• Boston Business Journal Top Charitable Contributor
• Human Rights Campaign Equality 100

Market risk represents the risk of loss to earnings, capital and the economic values of certain assets and liabilities resulting from changes in interest rates and equity prices. The only significant market risk exposure for the Company is Interest Rate Risk (“IRR”). This is a result of the Company’s core business activities of making loans and accepting deposits, as well as investments and funding activities.

The effective management of IRR is essential to achieving the Company’s financial objectives. This responsibility resides with the Asset Liability Committee (“ALCO”). The ALCO’s role is to establish an effective asset/liability decision-making process to aid in managing risk exposures and achieving strategic objectives and corporate financial goals. The Company manages IRR by using two primary risk measurement techniques: simulation of net interest income and simulation of economic value of equity. These two measurements are complementary and provide both short-term and long-term risk profiles of the Company.

Net Interest Income (“NII”) at Risk Simulation is used to measure the sensitivity of net interest income to changes in market rates over a 12 month period assuming a static balance sheet. This simulation captures underlying product behaviors, such as asset and liability repricing dates, balloon dates, interest rate indices and spreads, rate caps and floors, as well as other behavioral attributes. The simulation of net interest income also requires a number of key assumptions such as (i) prepayment projections for loans and securities; (ii) new business loan spreads; and (iii) deposit pricing assumptions. Combined, these assumptions can be inherently uncertain, and as a result, actual results may differ from simulation forecasts due to the timing, magnitude and frequency of interest rate changes, future business conditions, as well as unanticipated changes in management strategies.

The Company uses two sets of standard scenarios to measure NII Sensitivity. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario, while twist scenarios assume the shape of the curve flattens or steepens instantaneously.

The following tables set forth the estimated percent change in the Company’s NII Sensitivity compared to the flat rate scenario over one-year simulation periods beginning December 31, 2024 and December 31, 2023.

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, 2024. 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.”