Berkshire Hills Bancorp, Inc. (NYSE:BHLB) Q3 2021 Earnings Conference Call October 21, 2021 10:00 AM ET Company Participants Kevin Conn - IR and Corporate Development Officer Nitin Mhatre - President and CEO Subhadeep Basu - CFO Sean Gray - COO Greg Lindenmuth - CRO Conference Call Participants Mark Fitzgibbon - Piper Sandler David Bishop - Seaport Research Partners Steven Duong - RBC Capital Markets Laurie Hunsicker - Compass Point Operator Hello, and welcome to the Berkshire Hills Bancorp Q3 Earnings Rele ...

[Form 10-Q Information](index=1&type=section&id=Form%2010-Q%20Information) This section details the filing specifics for Berkshire Hills Bancorp, Inc.'s Form 10-Q for the quarterly period ended June 30, 2021 [General Filing Information](index=1&type=section&id=General%20Filing%20Information) This section details the filing specifics for Berkshire Hills Bancorp, Inc.'s Form 10-Q, including its NYSE listing, filer status, and common stock outstanding - Berkshire Hills Bancorp, Inc. is filing its Form 10-Q for the quarterly period ended June 30, 2021[2](index=2&type=chunk) - The company's common stock trades on The New York Stock Exchange under the symbol **BHLB**[1](index=1&type=chunk) - The registrant is classified as an 'Accelerated filer'[3](index=3&type=chunk) Common Stock Outstanding as of August 6, 2021 | Metric | Value | | :----- | :---- | | Common Stock Outstanding | 48,928,716 shares | | Par Value per Share | $0.01 | [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited consolidated financial statements and management's discussion and analysis [Item 1. Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited consolidated financial statements and detailed notes for Berkshire Hills Bancorp, Inc. [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202021%20and%20December%2031%2C%202020) The Consolidated Balance Sheets show a decrease in total assets from $12.84 billion at December 31, 2020, to $12.27 billion at June 30, 2021 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :------------------ | | Total Assets | $12,273,325 | $12,838,013 | | Total Liabilities | $11,097,936 | $11,650,240 | | Total Shareholders' Equity | $1,175,389 | $1,187,773 | | Cash and Cash Equivalents | $1,826,681 | $1,557,875 | | Net Loans | $7,113,547 | $7,954,217 | | Total Deposits | $9,913,900 | $10,215,808 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202021%20and%202020) The Consolidated Statements of Operations show a significant turnaround from a net loss in Q2 2020 to net income in Q2 2021, primarily due to the absence of goodwill impairment and a lower provision for credit losses Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest and Dividend Income | $85,364 | $103,688 | $173,517 | $219,883 | | Total Interest Expense | $9,971 | $26,098 | $23,031 | $55,865 | | Net Interest Income | $75,393 | $77,590 | $150,486 | $164,018 | | Total Non-Interest Income | $22,011 | $17,381 | $48,204 | $23,017 | | Provision for Credit Losses | $0 | $29,871 | $6,500 | $64,678 | | Total Non-Interest Expense | $68,872 | $624,275 | $147,026 | $695,600 | | Net Income/(Loss) | $21,636 | $(549,381) | $34,667 | $(569,251) | | Basic EPS | $0.43 | $(10.93) | $0.69 | $(11.33) | | Diluted EPS | $0.43 | $(10.93) | $0.69 | $(11.33) | [Consolidated Statements of Comprehensive Income/(Loss)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%2F(Loss)%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202021%20and%202020) The Consolidated Statements of Comprehensive Income/(Loss) reflect net income adjusted for other comprehensive income (OCI) items, primarily changes in unrealized gains/losses on debt securities available-for-sale Consolidated Statements of Comprehensive Income/(Loss) Highlights (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income/(Loss) | $21,636 | $(549,381) | $34,667 | $(569,251) | | Other Comprehensive Income/(Loss), before tax | $5,394 | $2,999 | $(21,619) | $28,614 | | Income Taxes related to OCI | $(1,343) | $(777) | $5,520 | $(7,368) | | Total Other Comprehensive Income/(Loss) | $4,051 | $2,222 | $(16,099) | $21,246 | | Total Comprehensive Income/(Loss) | $25,687 | $(547,159) | $18,568 | $(548,005) | [Consolidated Statements of Changes in Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202021%20and%202020) The Consolidated Statements of Changes in Shareholders' Equity show a slight decrease in total shareholders' equity from $1.188 billion at December 31, 2020, to $1.175 billion at June 30, 2021 Consolidated Statements of Changes in Shareholders' Equity Highlights (in thousands) | Metric | Balance at Dec 31, 2020 | Net Income (6M 2021) | Other Comprehensive (Loss) (6M 2021) | Cash Dividends (6M 2021) | Treasury Shares Repurchased (6M 2021) | Balance at June 30, 2021 | | :----------------------------------- | :---------------------- | :------------------- | :------------------------------------- | :----------------------- | :------------------------------------ | :----------------------- | | Common Stock | $528 | — | — | — | — | $528 | | Additional Paid-in Capital | $1,427,239 | — | — | — | — | $1,423,083 | | Unearned Compensation | $(6,245) | — | — | — | — | $(11,006) | | Retained Earnings (Deficit) | $(233,344) | $34,667 | — | $(12,224) | — | $(210,994) | | Accumulated Other Comprehensive Income | $30,871 | — | $(16,099) | — | — | $14,772 | | Treasury Stock, at cost | $(31,276) | — | — | — | $(20,750) | $(40,994) | | **Total Shareholders' Equity** | **$1,187,773** | **$34,667** | **$(16,099)** | **$(12,224)** | **$(20,750)** | **$1,175,389** | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202021%20and%202020) The Consolidated Statements of Cash Flows show a significant increase in net cash provided by operating activities for the six months ended June 30, 2021, compared to the prior year, primarily due to improved net income Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $63,735 | $177,156 | | Net Cash Provided by Investing Activities | $745,143 | $(16,793) | | Net Cash Used by Financing Activities | $(540,072) | $303,960 | | Net Change in Cash and Cash Equivalents | $268,806 | $464,323 | | Cash and Cash Equivalents at End of Period | $1,826,681 | $1,044,152 | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) The Notes to Consolidated Financial Statements provide detailed explanations of accounting policies, estimates, and financial instrument information [Note 1 Basis of Presentation](index=12&type=section&id=Note%201%20Basis%20of%20Presentation) This note outlines the basis for preparing the consolidated financial statements in conformity with GAAP, including the consolidation of subsidiaries and the use of estimates - The financial statements are prepared in conformity with U.S. GAAP and include the accounts of Berkshire Hills Bancorp, Inc. and its subsidiaries[21](index=21&type=chunk) - The adoption of ASU No. 2018-14 (Defined Benefit Plans), ASU No. 2019-12 (Income Taxes), ASU No. 2020-01 (Equity Securities), and ASU No. 2021-01 (Reference Rate Reform) did not have a material impact on the Company's Consolidated Financial Statements[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - The Company is currently evaluating the impact of adopting ASU No. 2020-04 (Reference Rate Reform) which provides temporary optional expedients for contract modifications and hedge accounting related to the transition from LIBOR[29](index=29&type=chunk) [Note 2 Discontinued Operations and Held for Sale](index=14&type=section&id=Note%202%20Discontinued%20Operations%20and%20Held%20for%20Sale) This note details the discontinued operations of First Choice Loan Services, Inc. (FCLS), which were fully wound down by Q4 2020, resulting in no related assets or liabilities as of June 30, 2021 - The Company completed the final wind-down of First Choice Loan Services, Inc. (FCLS) operations in Q4 2020; no related assets or liabilities as of June 30, 2021[32](index=32&type=chunk) Operating Results of Discontinued Operations (FCLS) (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Interest Income | $0 | $659 | $0 | $1,106 | | Total Net Revenue | $0 | $(4,588) | $0 | $(2,783) | | Net (Loss) from Discontinued Operations | $0 | $(6,336) | $0 | $(14,134) | - The Company has an agreement to sell its eight Mid-Atlantic branches, including **$253 million in loans** and **$633 million in deposits** as of June 30, 2021, targeted for completion in H2 2021[35](index=35&type=chunk) Assets and Liabilities Held for Sale (Mid-Atlantic Branches) (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :------------------- | :------------ | :------------------ | | Assets Held for Sale | $276,576 | $317,304 | | Liabilities Held for Sale | $646,688 | $630,065 | [Note 3 Trading Security](index=15&type=section&id=Note%203%20Trading%20Security) The Company holds a single tax-advantaged economic development bond as a trading security, accounted for at fair value - The Company holds one tax-advantaged economic development bond as a trading security, valued at fair value[37](index=37&type=chunk) Trading Security Fair Value (in thousands) | Date | Fair Value | | :----------- | :--------- | | June 30, 2021 | $8,853 | | Dec 31, 2020 | $9,708 | - A swap contract is used to exchange the fixed rate of the security for a variable rate[37](index=37&type=chunk) [Note 4 Securities Available for Sale, Held to Maturity, and Marketable Equity Securities](index=16&type=section&id=Note%204%20Securities%20Available%20for%20Sale%2C%20Held%20to%20Maturity%2C%20and%20Marketable%20Equity%20Securities) This note provides a summary of the Company's investment securities, including available-for-sale (AFS), held-to-maturity (HTM), and marketable equity securities Total Securities (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :------------------ | | Securities Available for Sale, at fair value | $1,640,512 | $1,695,232 | | Securities Held to Maturity | $665,786 | $465,091 | | Marketable Equity Securities, at fair value | $15,709 | $18,513 | | **Total Securities** | **$2,350,498** | **$2,223,417** | - Securities held to maturity increased by **$200 million**, or **43%**, in the first half of 2021[231](index=231&type=chunk) Allowance for Credit Losses on Held to Maturity Securities (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :------------------ | | Allowance for Credit Losses on HTM Securities | $130 | $104 | - As of June 30, 2021, none of the Company's investment securities were delinquent or in non-accrual status[45](index=45&type=chunk) - The Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios and does not intend to sell them prior to recovery[48](index=48&type=chunk) [Note 5 Loans and Allowance for Credit Losses](index=21&type=section&id=Note%205%20Loans%20and%20Allowance%20for%20Credit%20Losses) Total loans decreased by $849 million, or 11%, to $7.23 billion in the first half of 2021, primarily due to a $460 million decrease in PPP loans and reductions in residential mortgages and consumer loans Total Loans and Allowance for Credit Losses (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :------------------ | | Total Loans | $7,232,591 | $8,081,519 | | Allowance for Credit Losses on Loans | $119,044 | $127,302 | | Net Loans | $7,113,547 | $7,954,217 | | PPP Loans Outstanding | $173,200 | $633,300 | - Total loans decreased by **$849 million (11%)** in H1 2021, mainly due to a **$460 million decrease in PPP loans**[232](index=232&type=chunk) Allowance for Credit Losses for Loans Activity (in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Balance at Beginning of Period | $127,302 | $63,575 | | Charge-offs | $(18,708) | $(19,706) | | Recoveries | $3,976 | $5,217 | | Provision for Credit Losses | $6,474 | $64,874 | | Balance at End of Period | $119,044 | $139,394 | Nonaccrual and Past Due Loans (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :------------------ | | Nonaccrual Amortized Cost | $47,605 | $64,948 | | Past Due 90 Days or Greater and Accruing | $3,129 | $11,450 | | Total Criticized Loans | $327,627 | $359,454 | - The ratio of the allowance to total loans was **1.65%** at June 30, 2021, compared to **1.58%** at the start of the year[241](index=241&type=chunk) [Note 6 Deposits](index=35&type=section&id=Note%206%20Deposits) Total deposits decreased by $302 million to $9.91 billion in the first half of 2021, driven by a reduction in brokered deposits and customer time deposits Total Deposits (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :------------------- | :------------ | :------------------ | | Total Deposits | $9,913,900 | $10,215,808 | | Demand Deposits | $2,819,012 | $2,484,249 | | Money Market Deposits | $2,398,256 | $3,371,353 | | Time Deposits | $1,934,442 | $2,385,085 | | Brokered Deposits | $358,400 | $610,600 | | Reciprocal Deposits | $99,600 | $119,000 | - Total deposits decreased by **$302 million** in H1 2021, including a **$253 million decrease in brokered deposits**[245](index=245&type=chunk) - Demand deposits increased by **$335 million (13%)** in H1 2021, primarily due to federal stimulus payments and PPP loan fundings[245](index=245&type=chunk) - The cost of deposits decreased to **0.25%** in Q2 2021 from **0.47%** in Q4 2020[247](index=247&type=chunk) [Note 7 Borrowed Funds](index=35&type=section&id=Note%207%20Borrowed%20Funds) Total borrowed funds decreased significantly from $571.6 million at December 31, 2020, to $315.2 million at June 30, 2021, primarily due to the repayment of short-term FHLB advances and other long-term borrowings Borrowed Funds (in thousands) | Category | June 30, 2021 Principal | June 30, 2021 Weighted Average Rate | December 31, 2020 Principal | December 31, 2020 Weighted Average Rate | | :----------------------------------- | :---------------------- | :---------------------------------- | :-------------------------- | :---------------------------------- | | Short-term Borrowings | $0 | 0.00% | $40,000 | 1.05% | | Long-term FHLB Advances and Other | $217,847 | 1.92% | $434,357 | 1.89% | | Subordinated Borrowings | $74,500 | 7.00% | $74,411 | 7.00% | | Junior Subordinated Borrowing - Trust I | $15,464 | 2.00% | $15,464 | 2.06% | | Junior Subordinated Borrowing - Trust II | $7,432 | 1.82% | $7,405 | 1.92% | | **Total Borrowings** | **$315,243** | **3.12%** | **$571,637** | **2.50%** | - Total wholesale funds decreased by **43%** to **$673 million** in H1 2021[244](index=244&type=chunk) - Available borrowing capacity with the FHLB was **$1.5 billion** at June 30, 2021, and with the Federal Reserve Bank was **$550.4 million**[111](index=111&type=chunk)[112](index=112&type=chunk) [Note 8 Derivative Financial Instruments and Hedging Activities](index=37&type=section&id=Note%208%20Derivative%20Financial%20Instruments%20and%20Hedging%20Activities) The Company held derivatives with a total notional amount of $3.9 billion at June 30, 2021, primarily for economic hedges like interest rate swaps on loans and a tax-advantaged bond - As of June 30, 2021, the Company held derivatives with a total notional amount of **$3.9 billion**[119](index=119&type=chunk) Derivative Financial Instruments Fair Value (in thousands) | Category | Notional Amount (June 30, 2021) | Estimated Fair Value (June 30, 2021) | Notional Amount (Dec 31, 2020) | Estimated Fair Value (Dec 31, 2020) | | :----------------------------------- | :------------------------------ | :----------------------------------- | :----------------------------- | :----------------------------------- | | Total Economic Hedges | $3,884,027 | $65,495 | $3,817,016 | $93,578 | | Total Non-Hedging Derivatives | $19,142 | $261 | $40,099 | $735 | | **Total Derivatives** | **$3,903,169** | **$65,756** | **$3,857,115** | **$94,313** | - The decrease in fair value from **$94 million** at year-end 2020 to **$66 million** at June 30, 2021, was due to the impact of rising medium-term interest rates on commercial loan interest rate swaps[249](index=249&type=chunk) - The Company pledged **$53.9 million** in cash and **$36.2 million** in securities as collateral to derivative counterparties[121](index=121&type=chunk) [Note 9 Leases](index=43&type=section&id=Note%209%20Leases) The Company's leases primarily consist of real estate for branches, ATMs, and office space, mostly classified as operating leases - Substantially all of the Company's leases are for real estate (branches, ATMs, office space) and are classified as operating leases[141](index=141&type=chunk) Lease Right-of-Use Assets and Liabilities (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :------------------ | | Total Lease Right-of-Use Assets | $62,263 | $67,215 | | Total Lease Liabilities | $71,295 | $74,277 | | Weighted-Average Remaining Lease Term (Operating) | 9.9 years | 9.8 years | | Weighted-Average Discount Rate (Operating) | 2.80% | 2.81% | Operating Lease Expense (in thousands) | Period | Lease Expense | | :------------------------------- | :------------ | | Three Months Ended June 30, 2021 | $2,900 | | Six Months Ended June 30, 2021 | $5,700 | [Note 10 Other Commitments, Contingencies, Off- Balance Sheet Activities, and Pandemic Impact](index=45&type=section&id=Note%2010%20Other%20Commitments%2C%20Contingencies%2C%20Off-%20Balance%20Sheet%20Activities%2C%20and%20Pandemic%20Impact) This note discusses the ongoing impact of the COVID-19 pandemic on the Company's operations, financial condition, and estimates - The COVID-19 pandemic continues to adversely affect the Company's clients and economic activities, with uncertain ultimate impact on business, financial condition, and results of operations[150](index=150&type=chunk)[152](index=152&type=chunk) - As of June 30, 2021, the Company had **71 active COVID-19 modified loans** outstanding with a carrying value of **$98 million**, a significant decrease from **746 loans with $316 million** at December 31, 2020[153](index=153&type=chunk) - These short-term deferrals are not considered troubled debt restructurings (TDRs) unless the borrower was previously experiencing financial difficulty, in accordance with interagency guidance and the CARES Act[153](index=153&type=chunk) [Note 11 Capital Ratios and Shareholders' Equity](index=46&type=section&id=Note%2011%20Capital%20Ratios%20and%20Shareholders%27%20Equity) Both the Company and Berkshire Bank exceeded all regulatory capital requirements at June 30, 2021, with the Bank classified as 'well capitalized' - Both the Company and Berkshire Bank met all minimum capital requirements and the Bank was classified as 'well capitalized' at June 30, 2021[156](index=156&type=chunk)[158](index=158&type=chunk) Capital Ratios (Company Consolidated) | Capital Ratio | June 30, 2021 | December 31, 2020 | Minimum Capital Requirement | | :----------------------------------- | :------------ | :------------------ | :-------------------------- | | Total Capital to Risk-Weighted Assets | 16.7% | 16.1% | 8.0% | | Common Equity Tier 1 Capital to Risk-Weighted Assets | 14.3% | 13.8% | 4.5% | | Tier 1 Capital to Risk-Weighted Assets | 14.6% | 14.1% | 6.0% | | Tier 1 Capital to Average Assets | 9.5% | 9.4% | 4.0% | Accumulated Other Comprehensive Income (in thousands) | Component | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :------------------ | | Net Unrealized Holding Gain on AFS Securities (before tax) | $23,369 | $44,988 | | Net Unrealized Holding (Loss) on Pension Plans (before tax) | $(3,511) | $(3,511) | | Income Taxes related to AOCI | $(5,086) | $(10,606) | | **Accumulated Other Comprehensive Income** | **$14,772** | **$30,871** | - The **$16 million decrease** in accumulated other comprehensive income in H1 2021 was due to the after-tax impact of a reduction in unrealized debt security gains resulting from the increase in medium-term interest rates[250](index=250&type=chunk)[268](index=268&type=chunk) [Note 12 Earnings/(Loss) per Share](index=50&type=section&id=Note%2012%20Earnings%2F(Loss)%20per%20Share) This note details the calculation of basic and diluted earnings per common share Earnings/(Loss) per Common Share | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income/(Loss) | $21,636 | $(549,381) | $34,667 | $(569,251) | | Basic EPS - Continuing Operations | $0.43 | $(10.80) | $0.69 | $(11.05) | | Diluted EPS - Continuing Operations | $0.43 | $(10.80) | $0.69 | $(11.05) | | Basic EPS - Total | $0.43 | $(10.93) | $0.69 | $(11.33) | | Diluted EPS - Total | $0.43 | $(10.93) | $0.69 | $(11.33) | | Weighted Average Basic Shares Outstanding (thousands) | 50,321 | 50,246 | 50,327 | 50,228 | | Weighted Average Diluted Shares Outstanding (thousands) | 50,608 | 50,246 | 50,588 | 50,228 | - For the three and six months ended June 30, 2020, all unvested restricted stock and options outstanding were considered anti-dilutive and excluded from EPS calculation[165](index=165&type=chunk) [Note 13 Stock-Based Compensation Plans](index=51&type=section&id=Note%2013%20Stock-Based%20Compensation%20Plans) This note summarizes activity in the Company's stock award and stock option plans Stock-Based Compensation Plan Activity (Shares in thousands) | Metric | Non-Vested Stock Awards (Number of Shares) | Stock Options (Number of Shares) | | :----------------------------------- | :----------------------------------------- | :------------------------------- | | Balance at December 31, 2020 | 517 | 112 | | Granted | 439 | — | | Stock Options Exercised | — | (7) | | Stock Awards Vested | (79) | — | | Forfeited | (62) | — | | Expired | — | (10) | | Balance at June 30, 2021 | 815 | 95 | Stock-Based Compensation Expense (in thousands) | Period | Expense | | :------------------------------- | :-------- | | Three Months Ended June 30, 2021 | $1,600 | | Three Months Ended June 30, 2020 | $1,400 | | Six Months Ended June 30, 2021 | $2,300 | | Six Months Ended June 30, 2020 | $2,800 | [Note 14 Fair Value Measurements](index=52&type=section&id=Note%2014%20Fair%20Value%20Measurements) This note details the valuation methodologies and hierarchy for financial assets and liabilities measured at fair value on a recurring and non-recurring basis - The Company's financial assets and liabilities are measured at fair value using a hierarchy (Level 1, 2, or 3) based on the observability of inputs[168](index=168&type=chunk)[169](index=169&type=chunk) Recurring Fair Value Measurements (in thousands) - June 30, 2021 | Category | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | | :----------------------------------- | :------------- | :------------- | :------------- | :--------------- | | Trading Security | $0 | $0 | $8,853 | $8,853 | | Securities Available for Sale | $0 | $1,695,412 | $0 | $1,695,412 | | Marketable Equity Securities | $15,037 | $672 | $0 | $15,709 | | Loans Held for Investment at Fair Value | $0 | $0 | $1,260 | $1,260 | | Loans Held for Sale | $0 | $4,334 | $2,160 | $6,494 | | Derivative Assets | $0 | $112,508 | $353 | $112,861 | | Capitalized Servicing Rights | $0 | $0 | $2,356 | $2,356 | | Derivative Liabilities | $0 | $47,105 | $0 | $47,105 | - Loans held for investment at fair value, commitments to lend, forward commitments, and capitalized servicing rights are classified as **Level 3** due to unobservable inputs like discount rates, collateral values, closing ratios, and prepayment rates[173](index=173&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[186](index=186&type=chunk) Non-Recurring Fair Value Measurements (Level 3 Inputs) (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :------------------ | | Individually Evaluated Loans | $21,135 | $28,028 | | Capitalized Servicing Rights | $13,835 | $13,315 | | Other Real Estate Owned | $85 | $149 | | **Total** | **$35,055** | **$41,492** | [Note 15 Net Interest Income after Provision for Credit Losses](index=61&type=section&id=Note%2015%20Net%20Interest%20Income%20after%20Provision%20for%20Credit%20Losses) This note presents net interest income from continuing operations after accounting for the provision for credit losses Net Interest Income After Provision for Credit Losses (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Interest Income from Continuing Operations | $75,393 | $77,590 | $150,486 | $164,018 | | Provision for Credit Losses | $0 | $29,871 | $6,500 | $64,678 | | **Net Interest Income after Provision for Credit Losses** | **$75,393** | **$47,719** | **$143,986** | **$99,340** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=62&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and operating results for the three and six months ended June 30, 2021 [Selected Financial Data](index=62&type=section&id=Selected%20Financial%20Data) This section presents key financial and performance data, showing a significant improvement in net income and EPS for Q2 and H1 2021 compared to the prior year's losses Selected Financial Data Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Earnings/(Loss) per Common Share, Diluted | $0.43 | $(10.93) | $0.69 | $(11.33) | | Adjusted Earnings/(Loss) per Common Share, Diluted (non-GAAP) | $0.44 | $(0.13) | $0.75 | $(0.20) | | Net Income/(Loss) | $21,636 | $(549,381) | $34,667 | $(569,251) | | Total Assets (period-end) | $12,273,000 | $13,063,000 | $12,273,000 | $13,063,000 | | Total Loans (period-end) | $7,233,000 | $9,370,000 | $7,233,000 | $9,370,000 | | Total Deposits (period-end) | $9,914,000 | $10,776,000 | $9,914,000 | $10,776,000 | | Return on Equity | 7.37% | (131.17)% | 5.95% | (66.79)% | | Net Interest Margin, FTE | 2.62% | 2.62% | 2.62% | 2.82% | | Common Equity Tier 1 Capital to Risk Weighted Assets | 14.3% | 12.7% | 14.3% | 12.7% | [Average Balances and Average Yields/Rates](index=64&type=section&id=Average%20Balances%20and%20Average%20Yields%2FRates) This section provides a detailed breakdown of average balances and corresponding yields/rates for interest-earning assets and interest-bearing liabilities Average Balances and Yields/Rates (Three Months Ended June 30, 2021 vs. 2020) (Dollars in millions) | Category | 2021 Average Balance | 2021 Yield/Rate (FTE) | 2020 Average Balance | 2020 Yield/Rate (FTE) | | :----------------------------------- | :------------------- | :-------------------- | :------------------- | :-------------------- | | Total Loans | $7,416 | 3.84% | $9,476 | 3.83% | | Total Interest-Earning Assets | $11,694 | 2.96% | $11,966 | 3.50% | | Total Interest-Bearing Deposits | $7,207 | 0.35% | $8,156 | 1.01% | | Total Interest-Bearing Liabilities | $8,105 | 0.49% | $9,098 | 1.16% | | Net Interest Spread | | 2.47% | | 2.34% | | Net Interest Margin | | 2.62% | | 2.62% | | Cost of Funds | | 0.36% | | 0.92% | | Cost of Deposits | | 0.25% | | 0.79% | - The average loan portfolio yield improved to **3.84%** in Q2 2021, benefiting from deferred PPP fees[235](index=235&type=chunk) - The cost of deposits decreased to **0.25%** in Q2 2021 from **0.47%** in Q4 2020 due to lower higher-cost time accounts and increased non-interest bearing demand deposits[247](index=247&type=chunk) [Non-GAAP Financial Measures](index=66&type=section&id=Non-GAAP%20Financial%20Measures) This section provides a reconciliation of non-GAAP financial measures to GAAP, offering supplemental perspectives on operating results - Non-GAAP measures are used to provide additional supplemental perspectives on operating results, performance trends, and financial condition, excluding items unrelated to normalized operations[208](index=208&type=chunk)[209](index=209&type=chunk) - Excluded items primarily include securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations[209](index=209&type=chunk) Reconciliation of Non-GAAP Financial Measures (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | GAAP Net Income/(Loss) | $21,636 | $(549,381) | $34,667 | $(569,251) | | Adj: Net Losses/(Gains) on Securities | $484 | $(822) | $515 | $8,908 | | Adj: Goodwill Impairment | — | $553,762 | — | $553,762 | | Adj: Restructuring and Other Expense | $6 | — | $3,492 | — | | Adj: Loss/(Income) from Discontinued Operations before Income Taxes | — | $8,635 | — | $19,264 | | Adj: Income Taxes | $(22) | $(18,658) | $(555) | $(22,792) | | **Total Adjusted Income/(Loss) (non-GAAP)** | **$22,104** | **$(6,464)** | **$38,119** | **$(10,109)** | [General](index=69&type=section&id=General) This section provides an overview of Berkshire Hills Bancorp, Inc., a Delaware corporation headquartered in Boston, and its subsidiary Berkshire Bank, a Massachusetts-chartered trust company established in 1846 - Berkshire Hills Bancorp, Inc. is a Delaware corporation headquartered in Boston, operating Berkshire Bank, a Massachusetts-chartered trust company[216](index=216&type=chunk) - The Bank's vision is to be the leading socially responsible omni-channel community bank, empowering financial potential in its communities[217](index=217&type=chunk) Company Overview | Metric | Value | | :----- | :---- | | Total Assets | $12.3 billion | | Banking Offices | 115 | | Primary Operating Regions | New England and New York | [Summary](index=70&type=section&id=Summary) Berkshire reported net income of $22 million ($0.43 per share) in Q2 2021 and $35 million ($0.69 per share) in H1 2021, a significant recovery from losses in 2020 due to goodwill impairment and elevated credit loss provisions Net Income and EPS Summary | Period | Net Income | EPS | | :----- | :--------- | :-- | | Q2 2021 | $22 million | $0.43 | | H1 2021 | $35 million | $0.69 | | Q2 2020 | $(549) million | $(10.93) | | H1 2020 | $(569) million | $(11.33) | - The efficiency ratio improved to **67.8%** in Q2 2021 from **71.0%** in Q2 2020[219](index=219&type=chunk) - Second quarter 2021 return on tangible common equity measured **7.9%**[219](index=219&type=chunk) [Second Quarter Financial Highlights](index=73&type=section&id=Second%20Quarter%20Financial%20Highlights) Key financial highlights for Q2 2021 include a 27% increase in non-interest income, an 89% decrease in non-interest expense, and no provision for credit losses on loans - Non-interest income increased by **27%** year-over-year[220](index=220&type=chunk) - Non-interest expense decreased by **89%** (operating non-interest expense decreased by **2%**)[220](index=220&type=chunk) - No provision for credit losses on loans was recorded, compared to **$30 million** in Q2 2020[220](index=220&type=chunk) - Wholesale funding was reduced by **43%** to **5% of assets** during H1 2021[220](index=220&type=chunk) - Deposit costs decreased to **25 basis points** from **79 basis points** in Q2 2020[220](index=220&type=chunk) - The Company repurchased **745,000 shares (1.5% of outstanding stock)** and returned **$26.8 million** to shareholders through buybacks and dividends, equivalent to **124% of Q2 GAAP net income**[220](index=220&type=chunk)[223](index=223&type=chunk) [Investments](index=72&type=section&id=Investments) Short-term investments increased by $262 million to $1.73 billion in H1 2021, providing liquidity for a planned branch sale and wholesale fund payoffs - Short-term investments increased by **$262 million** to **$1.73 billion** in H1 2021[230](index=230&type=chunk) - The investment securities portfolio increased by **$127 million (6%)** to **$2.35 billion**[231](index=231&type=chunk) - Held-to-maturity securities increased by **$200 million (43%)** in H1 2021[231](index=231&type=chunk) Investment Securities Unrealized Gain (in millions) | Date | Unrealized Gain | % of Cost | | :----------- | :-------------- | :-------- | | June 30, 2021 | $40 | 1.7% | | Dec 31, 2020 | $68 | 3.2% | [Loans](index=72&type=section&id=Loans) Total loans decreased by $849 million (11%) to $7.23 billion in H1 2021, primarily due to a $460 million decrease in PPP loans - Total loans decreased by **$849 million (11%)** to **$7.23 billion** in H1 2021[232](index=232&type=chunk) - PPP loans decreased by **$460 million** due to SBA loan forgiveness[232](index=232&type=chunk) - Residential mortgage balances decreased by **$254 million (14%)**, and consumer loan balances decreased by **$100 million (15%)**[233](index=233&type=chunk) - The Q2 2021 average loan portfolio yield was **3.84%**, up from **3.62%** in Q4 2020, primarily due to deferred PPP fees[235](index=235&type=chunk) - Commercial loans to COVID-19 sensitive industries totaled **$822 million** at period-end, with hospitality loans at **$317 million** and Firestone specialty equipment lending at **$207 million**[236](index=236&type=chunk) [Asset Quality and Credit Loss Allowance](index=73&type=section&id=Asset%20Quality%20and%20Credit%20Loss%20Allowance) Asset quality metrics improved significantly in H1 2021, trending towards pre-pandemic levels - Accruing delinquent loans decreased to **$19 million (0.26% of total loans)** at midyear 2021[237](index=237&type=chunk) - Non-accruing loans decreased to **$48 million (0.66% of total loans)** at midyear 2021[237](index=237&type=chunk) - First half net loan charge-offs totaled **$15 million**, or **0.39% of average loans**, down from **0.80%** in Q4 2020[237](index=237&type=chunk) - Total COVID-19 loan modifications decreased to **$98 million (1.4% of loans)** at midyear 2021, from **$350 million** at year-end 2020[238](index=238&type=chunk) - Criticized loans decreased to **$328 million (4.6% of total loans excluding PPP loans)**, and classified loans decreased to **$195 million (2.8% of total loans excluding PPP loans)**[239](index=239&type=chunk) - The allowance for credit losses to total loans ratio was **1.65%** at midyear 2021, remaining higher than the **0.94%** ratio prior to the pandemic[241](index=241&type=chunk)[242](index=242&type=chunk) [Deposits and Borrowings](index=74&type=section&id=Deposits%20and%20Borrowings) Berkshire continued its strategy of reducing higher-cost wholesale funds, decreasing brokered deposits by $253 million and borrowings by $256 million in H1 2021 - Brokered deposits decreased by **$253 million** to **$358 million**, and borrowings decreased by **$256 million** to **$315 million** in H1 2021[244](index=244&type=chunk) - Total wholesale funds decreased by **43%** to **$673 million**[244](index=244&type=chunk) - Demand deposits increased by **$335 million (13%)**, driven by federal stimulus and PPP loan fundings[245](index=245&type=chunk) - Customer time deposit balances decreased by **$191 million** as higher-cost accounts matured[246](index=246&type=chunk) Cost of Deposits and Borrowings | Metric | Q2 2021 | Q4 2020 | | :------------------- | :------ | :------ | | Cost of Deposits | 0.25% | 0.47% | | Cost of Borrowings | 3.12% | 2.50% | | Total Cost of Funds | 0.36% | 0.60% | [Derivative Financial Instruments](index=74&type=section&id=Derivative%20Financial%20Instruments) The portfolio of outstanding derivative financial instruments remained stable at $3.9 billion in notional amount at period-end - The notional amount of outstanding derivative financial instruments totaled **$3.9 billion** at period-end[249](index=249&type=chunk) Derivative Instruments Fair Value (in millions) | Date | Estimated Fair Value (Net Asset) | | :----------- | :------------------------------- | | June 30, 2021 | $66 | | Dec 31, 2020 | $94 | - The decrease in fair value was primarily due to rising medium-term interest rates impacting commercial loan interest rate swaps[249](index=249&type=chunk) [Shareholders' Equity](index=74&type=section&id=Shareholders%27%20Equity) Total shareholders' equity decreased by $12 million (1%) to $1.175 billion in H1 2021, influenced by net income, capital returns, and a $16 million decrease in accumulated other comprehensive income - Total shareholders' equity decreased by **$12 million (1%)** to **$1.175 billion** in H1 2021[250](index=250&type=chunk) - The Company earned **$35 million** in net income and returned **$33 million** in capital to shareholders[250](index=250&type=chunk) - A **$16 million decrease** in accumulated other comprehensive income was recorded due to unrealized debt security losses from rising interest rates[250](index=250&type=chunk) - **745 thousand shares** were repurchased at an average price of **$27.85**, totaling **$20.8 million**[251](index=251&type=chunk) Key Equity Metrics | Metric | June 30, 2021 | Dec 31, 2020 | | :----------------------------------- | :------------ | :----------- | | Book Value per Share | $23.30 | $22.79 | | Tangible Book Value per Share (non-GAAP) | $22.66 | $21.94 | | Equity/Assets | 9.6% | 9.2% | | Tangible Equity/Tangible Assets (non-GAAP) | 9.3% | 8.6% | | Common Equity Tier 1 Ratio | 14.3% | 13.8% | [Comparison of Operating Results](index=75&type=section&id=Comparison%20of%20Operating%20Results%20for%20Three%20Months%20and%20Six%20Months%20Ended%20June%2030%2C%202021%20and%20June%2030%2C%202020) Berkshire returned to profitability in Q2 and H1 2021, reporting net income of $22 million and $35 million, respectively, a significant improvement from 2020 losses [Summary](index=78&type=section&id=Summary_78) Berkshire achieved net income in Q2 and H1 2021, reversing significant losses from 2020 caused by goodwill impairment and elevated credit loss provisions - Net income of **$22 million ($0.43 per share)** in Q2 2021 and **$35 million ($0.69 per share)** in H1 2021, reversing 2020 losses[254](index=254&type=chunk) - The efficiency ratio improved to **67.8%** from **71.0%** year-over-year in Q2 2021[255](index=255&type=chunk) - Earnings in 2021 benefited from the completion of the liquidation of discontinued national mortgage banking operations at the end of 2020[254](index=254&type=chunk) [Revenue](index=78&type=section&id=Revenue) Total revenue increased by $2 million (3%) in Q2 2021 and $12 million (6%) in H1 2021 year-over-year - Total revenue increased by **$2 million (3%)** in Q2 2021 and **$12 million (6%)** in H1 2021 year-over-year[256](index=256&type=chunk) - Revenue growth was driven by higher fee income from recovering business activity and the resumption of certain waived charges[256](index=256&type=chunk) - Improved fair value-related charges compared to 2020 also contributed to revenue growth[256](index=256&type=chunk) [Net Interest Income](index=78&type=section&id=Net%20Interest%20Income) Net interest income decreased by $2 million (3%) in Q2 2021 and $14 million (8%) in H1 2021 year-over-year, primarily due to lower loan balances and a decrease in the net interest margin - Net interest income decreased by **$2 million (3%)** in Q2 2021 and **$14 million (8%)** in H1 2021 year-over-year[257](index=257&type=chunk) - Decreases were due to lower loan balances and a decrease in net interest margin, influenced by asset mix shift and liability maturity lengthening[257](index=257&type=chunk) - Net interest income and margin have been generally stable since Q3 2020, supported by reduced wholesale funding and PPP loan forgiveness[257](index=257&type=chunk)[258](index=258&type=chunk) - The net interest margin benefited by **0.11%** in Q1 and Q2 2021 from deferred PPP fees[258](index=258&type=chunk) [Non-Interest Income](index=78&type=section&id=Non-Interest%20Income) Non-interest income increased by $5 million (27%) in Q2 2021 and $25 million (109%) in H1 2021 year-over-year - Non-interest income increased by **$5 million (27%)** in Q2 2021 and **$25 million (109%)** in H1 2021 year-over-year[260](index=260&type=chunk) - H1 2021 improvement was partly due to the absence of a **$9 million securities loss** and **$5 million in fair value charges** from H1 2020[261](index=261&type=chunk) - SBA loan origination revenue reached a quarterly record of **$5.3 million** in Q2 2021[261](index=261&type=chunk) - The Company recorded **$2 million** in PPP referral fees in H1 2021[261](index=261&type=chunk) [Credit Loss Provision Expense](index=79&type=section&id=Credit%20Loss%20Provision%20Expense) Credit loss provision expense declined significantly in 2021, with no provision recorded in Q2 2021, compared to $30 million in Q2 2020 and $65 million in H1 2020 - No provision for credit losses was recorded in Q2 2021, compared to **$30 million** in Q2 2020[262](index=262&type=chunk) - H1 2021 provision expense was **$6 million**, down from **$65 million** in H1 2020[262](index=262&type=chunk) - The reduction reflects improved portfolio performance, better economic outlook, and decreased loan outstandings[262](index=262&type=chunk) [Non-Interest Expense and Tax Expense](index=79&type=section&id=Non-Interest%20Expense%20and%20Tax%20Expense) Non-interest expense in 2020 included a $554 million goodwill impairment charge, leading to significantly higher total non-interest expense compared to 2021 - Non-interest expense in 2020 included a **$554 million goodwill impairment charge**[263](index=263&type=chunk) Non-Interest Expense (in millions) | Period | Total Non-Interest Expense | Operating Non-Interest Expense (non-GAAP) | | :------------------------------- | :------------------------- | :---------------------------------------- | | Q2 2021 | $69 | $69 | | Q2 2020 | $624 | $71 | | H1 2021 | $147 | $144 | | H1 2020 | $696 | $142 | - The H1 2021 increase in operating non-interest expense was primarily due to **$3 million in professional expenses**[265](index=265&type=chunk) - The Company completed the consolidation of **15 branch offices** in H1 2021, reducing the total branch count to **115**[266](index=266&type=chunk) - The 2021 effective tax rate was **24%** in Q2 and **23%** for H1[266](index=266&type=chunk) [Discontinued Operations](index=79&type=section&id=Discontinued%20Operations_79) The Company completed the exit of its national mortgage banking operations in Q4 2020 - The Company completed the exit of its national mortgage banking operations in Q4 2020[267](index=267&type=chunk) Net Loss from Discontinued Operations (in millions) | Period | Net Loss | | :----- | :------- | | Q2 2020 | $6 | | H1 2020 | $14 | [Total Comprehensive Income](index=79&type=section&id=Total%20Comprehensive%20Income) Total comprehensive income includes net income and other comprehensive income (OCI), primarily unrealized gains/losses on available-for-sale debt securities - Total comprehensive income includes net income and other comprehensive income (OCI)[268](index=268&type=chunk) - A **$16 million other net comprehensive loss** was recorded in 2021 due to increasing medium-term interest rates[268](index=268&type=chunk) - In 2020, decreasing interest rates resulted in **$21 million in other net comprehensive income**[268](index=268&type=chunk) [Liquidity and Cash Flows](index=80&type=section&id=Liquidity%20and%20Cash%20Flows) In H1 2021, liquidity increased due to decreased total loans and increased demand deposits, with cash primarily used to reduce wholesale funds and increase short-term investments - Liquidity increased in H1 2021 due to decreased total loans and increased demand deposits[269](index=269&type=chunk) - Short-term investments increased to **14% of total assets**, and total investments to **33% of assets**[269](index=269&type=chunk) Liquidity Ratios | Metric | June 30, 2021 | Year-End 2020 | | :------------------- | :------------ | :------------ | | Loans to Deposits Ratio | 73% | 79% | | Wholesale Funds to Assets Ratio | 5% | 9% | - The Company expects to use approximately **$350 million** in liquidity for a planned branch sale and repay **$493 million** in maturing wholesale funds in H2 2021[270](index=270&type=chunk) - Unused borrowing capacity at FHLBB was **$1.5 billion**, and at the Fed discount window was **$0.6 billion** at period-end[271](index=271&type=chunk) [Capital Resources](index=80&type=section&id=Capital%20Resources) The Company maintains strong regulatory capital measures, providing a cushion of excess capital compared to its operating condition and risk profile - The Company views its regulatory capital measures as providing a cushion of excess capital[273](index=273&type=chunk) - The Company is no longer required to seek non-objection from the Federal Reserve Board for routine dividend payments after achieving four consecutive quarters of positive retained earnings[273](index=273&type=chunk) - Additional stock repurchase authorizations and capital distributions from the Bank to the parent still require pre-approval by the Federal Reserve Board, FDIC, and the State of Massachusetts[273](index=273&type=chunk) [Off-Balance Sheet Arrangements and Contractual Obligations](index=80&type=section&id=Off-Balance%20Sheet%20Arrangements%20and%20Contractual%20Obligations) Berkshire engages in various off-balance sheet transactions, such as loan commitments and lines of credit, to manage customer funding requests, which involve credit, interest rate, and liquidity risks - The Company engages in off-balance sheet transactions like loan commitments and lines of credit[274](index=274&type=chunk) - These transactions involve elements of credit, interest rate, and liquidity risk[274](index=274&type=chunk) - No major changes in off-balance sheet arrangements and contractual obligations occurred during H1 2021[274](index=274&type=chunk) [Fair Value Measurements](index=80&type=section&id=Fair%20Value%20Measurements) Fair value measurements for financial instruments, primarily securities available for sale, loans held for sale, and derivative instruments, are generally based on Level 2 market-based inputs - Fair value measurements for significant financial instruments are primarily based on **Level 2 market-based inputs**[275](index=275&type=chunk) - The premium value of the loan portfolio, a Level 3 estimate, decreased to **$220 million (3.1% of loans)** at period-end[275](index=275&type=chunk) - This decrease from **$289 million (3.6% of loans)** at year-end 2020 was due to the increase in medium-term interest rates[275](index=275&type=chunk) [LIBOR BASED INSTRUMENTS](index=81&type=section&id=LIBOR%20BASED%20INSTRUMENTS) The Company holds over $5 billion in notional balances of LIBOR-based instruments, mainly related to commercial banking operations, including loans and interest rate swap contracts - The Company has over **$5 billion** in notional balances of LIBOR-based instruments, primarily in commercial banking operations[277](index=277&type=chunk) - The FCA plans to continue publishing most LIBOR indices through June 2023 for legacy instruments[278](index=278&type=chunk) - Berkshire is actively planning and executing the transition of LIBOR-based instruments to alternative reference rates, with new instruments after year-end 2021 expected to use different pricing indices[278](index=278&type=chunk) [CORPORATE RESPONSIBILITY UPDATE](index=81&type=section&id=CORPORATE%20RESPONSIBILITY%20UPDATE) Berkshire Bank is committed to purpose-driven, community-dedicated banking, focusing on Environmental, Social, and Governance (ESG) factors - Berkshire Bank is committed to purpose-driven, community-dedicated banking, integrating ESG factors into its vision, mission, and risk management[280](index=280&type=chunk)[282](index=282&type=chunk) - Launched new socially responsible financial solutions: **MyCheck** (check cashing service for underbanked) and **MyFreedom** (checking account with no overdraft/maintenance fees, BankOn certified)[285](index=285&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk) - Continued commitment to Equity, Inclusion & Culture, including **PRIDE LGBTQIA+ Employee Resource Group** and a paid floating holiday for **Juneteenth**[288](index=288&type=chunk) - Received awards for Corporate Social Responsibility and leadership in Diversity, Equity and Inclusion[289](index=289&type=chunk) - ESG ratings generally outperform peers, with **MSCI ESG-BBB**, **ISS ESG Quality Score (Environment: 2, Social: 1, Governance: 2)**, and **Bloomberg ESG Disclosure- 47.81** as of June 30, 2021[290](index=290&type=chunk) [APPLICATION OF CRITICAL ACCOUNTING POLICIES](index=82&type=section&id=APPLICATION%20OF%20CRITICAL%20ACCOUNTING%20POLICIES) The Company's critical accounting policies, which require significant management judgment and estimates, are identified as the Allowance for Credit Losses and Fair Value of Financial Instruments - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts[291](index=291&type=chunk) - The most critical accounting policies are related to the Allowance for Credit Losses and Fair Value of Financial Instruments[292](index=292&type=chunk) - These policies are critical due to their importance to financial condition and results, and the need for subjective and complex judgment[292](index=292&type=chunk) [ENTERPRISE RISK MANAGEMENT](index=83&type=section&id=ENTERPRISE%20RISK%20MANAGEMENT) The Company's Enterprise Risk Management (ERM) is overseen by the Chief Risk Officer and the Board's Risk Management and Capital Committee - Enterprise Risk Management is overseen by the Chief Risk Officer and the Board's Risk Management and Capital Committee[293](index=293&type=chunk) - The high-level corporate risk assessment focuses on credit risk (highest weighting), interest rate risk, price risk, liquidity risk, operational risk, compliance risk, strategic risk, and reputation risk[293](index=293&type=chunk) - All risks were within corporate appetites, and residual risk was viewed as medium/low to medium due to mitigating controls[293](index=293&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=81&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Berkshire aims to maintain a neutral or asset-sensitive interest rate risk profile - Berkshire's objective is to maintain a neutral or asset-sensitive interest rate risk profile[295](index=295&type=chunk) - The Company was positively sensitive to upward interest rate shocks at midyear 2021[296](index=296&type=chunk) - A **200 basis point upward parallel ramp** in interest rates is projected to result in an **11% change in net interest income** in the second year[296](index=296&type=chunk) - Net interest income is positively sensitive to a steepening yield curve and an overall increase in interest rates[296](index=296&type=chunk) [Item 4. Controls and Procedures](index=82&type=section&id=Item%204.%20Controls%20and%20Procedures) The principal executive and financial officers concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021 - The Company's disclosure controls and procedures were effective as of June 30, 2021[298](index=298&type=chunk) - No material changes in internal control over financial reporting occurred during the last fiscal quarter[299](index=299&type=chunk) [PART II. OTHER INFORMATION](index=83&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity security sales, defaults, and exhibits [Item 1. Legal Proceedings](index=83&type=section&id=Item%201.%20Legal%20Proceedings) As of June 30, 2021, the Company was not involved in any material legal proceedings - No material legal proceedings were pending as of June 30, 2021[301](index=301&type=chunk) - The Bank filed a complaint against Pioneer Bank seeking **$16.0 million** for breach of loan participation agreements; a motion to dismiss was partially denied, allowing most claims to proceed[301](index=301&type=chunk) - A class action complaint was filed against the Bank regarding mortgage discharge fees, with a pre-negotiated settlement agreement for approximately **$510,000** expected[302](index=302&type=chunk) - A wrongful termination complaint against FCLS was dismissed in favor of arbitration[303](index=303&type=chunk) [Item 1A. Risk Factors](index=84&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive discussion of risk factors in the Company's most recent Annual Report on Form 10-K - Readers should consider risk factors discussed in the most recent Annual Report on Form 10-K[304](index=304&type=chunk) - Additional unknown or currently immaterial risks may adversely affect the Company[304](index=304&type=chunk) - No other major changes in risk factors were identified during the first half of 2021[304](index=304&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=85&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company did not engage in any unregistered sales of equity securities during the three months ended June 30, 2021, or 2020 - No unregistered sales of equity securities occurred during Q2 2021 or Q2 2020[306](index=306&type=chunk) Shares Repurchased in Q2 2021 | Period | Total Shares Purchased | Total Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs | | :------------------- | :--------------------- | :------------------------------------------------------------------- | :--------------------------------------------------------------------------- | | June 1-30, 2021 | 744,942 | 744,942 | 1,755,058 | | **Total** | **744,942** | **744,942** | **1,755,058** | - A stock repurchase program approved on April 28, 2021, authorizes repurchases of up to **2,500,000 shares** through April 30, 2022[307](index=307&type=chunk) [Item 3. Defaults Upon Senior Securities](index=85&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities - There were no defaults upon senior securities[308](index=308&type=chunk) [Item 4. Mine Safety Disclosures](index=85&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - This item is not applicable[309](index=309&type=chunk) [Item 5. Other Information](index=85&type=section&id=Item%205.%20Other%20Information) The Company reported no other information - No other information was reported[309](index=309&type=chunk) [Item 6. Exhibits](index=86&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications from the CEO and CFO, and financial statements formatted in Inline XBRL - Exhibits include Amended and Restated Certificate of Incorporation and Bylaws[310](index=310&type=chunk) - Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[310](index=310&type=chunk) - Financial statements for the quarter ended June 30, 2021, are provided in Inline XBRL format[310](index=310&type=chunk) [Signatures](index=87&type=section&id=Signatures) The Form 10-Q was duly signed on August 9, 2021, by Nitin J. Mhatre, President and Chief Executive Officer, and Subhadeep Basu, Senior Executive Vice President and Chief Financial Officer - The report was signed by Nitin J. Mhatre, President and Chief Executive Officer[313](index=313&type=chunk) - The report was signed by Subhadeep Basu, Senior Executive Vice President, Chief Financial Officer[313](index=313&type=chunk) - The signing date was August 9, 2021[313](index=313&type=chunk)

BERKSHIRE HILLS BANCORP 2Q 2021 EARNINGS PRESENTATION July 21, 2021 F ORWAR D -L OOK I N G S TAT E M E N T S 2 This document contains "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our outlook for earnings, net interest margin, fees, expenses, tax rates, capital and liquidity levels and other matters regarding or affecting Berkshire and its future busi ...

Berkshire Hills Bancorp, Inc. (NYSE:BHLB) Q2 2021 Earnings Conference Call July 21, 2021 10:00 AM ET Company Representatives Nitin Mhatre - President, Chief Executive Officer of Berkshire Hills Bancorp Subhadeep Basu - Chief Financial Officer Sean Gray - Chief Operating Officer Greg Lindenmuth - Chief Risk Officer Kevin Conn - Investor Relations, Corporate Development Officer Conference Call Participants Mark Fitzgibbon - Sandler O'Neill Laurie Hunsicker - Compass Point Jake Civiello - Janney Operator Good ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2021, along with market risk disclosures and controls [Item 1. Consolidated Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20%28unaudited%29) This section presents the unaudited consolidated financial statements of Berkshire Hills Bancorp, Inc. for the quarter ended March 31, 2021, including the balance sheets, statements of operations, comprehensive loss, changes in shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's consolidated balance sheets, detailing assets, liabilities, and shareholders' equity at specific reporting dates Consolidated Balance Sheet Highlights (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | **Assets** | | | | Total cash and cash equivalents | $1,899,608 | $1,557,875 | | Net securities | $2,291,687 | $2,223,313 | | Net loans | $7,534,978 | $7,954,217 | | Assets held for sale | $303,697 | $317,304 | | Total assets | $12,757,343 | $12,838,013 | | **Liabilities** | | | | Total deposits | $10,244,370 | $10,215,808 | | Total borrowings | $448,692 | $571,637 | | Liabilities held for sale | $659,310 | $630,065 | | Total liabilities | $11,582,204 | $11,650,240 | | **Shareholders' Equity** | | | | Total shareholders' equity | $1,175,139 | $1,187,773 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section outlines the company's revenues, expenses, and net income or loss from continuing operations for the reported periods Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Total interest and dividend income | $88,153 | $116,195 | | Total interest expense | $13,060 | $29,767 | | Net interest income from continuing operations | $75,093 | $86,428 | | Total non-interest income | $26,193 | $5,636 | | Total net revenue from continuing operations | $101,286 | $92,064 | | Provision for credit losses | $6,500 | $34,807 | | Total non-interest expense | $78,154 | $71,325 | | Net income/(loss) from continuing operations | $13,031 | $(12,072) | | Net income/(loss) | $13,031 | $(19,870) | | Income/(loss) available to common shareholders | $13,031 | $(19,995) | Earnings/(Loss) Per Common Share (Three Months Ended March 31) | Metric | March 31, 2021 | March 31, 2020 | | :----- | :------------- | :------------- | | Basic EPS (Total) | $0.26 | $(0.40) | | Diluted EPS (Total) | $0.26 | $(0.40) | [Consolidated Statements of Comprehensive (Loss)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29) This section details the company's net income or loss and other comprehensive income or loss components, leading to total comprehensive loss Consolidated Statements of Comprehensive (Loss) Highlights (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Net income/(loss) | $13,031 | $(19,870) | | Total other comprehensive (loss)/income | $(20,150) | $19,024 | | Total comprehensive (loss) | $(7,119) | $(846) | [Consolidated Statements of Changes in Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) This section tracks the changes in the company's total shareholders' equity over the reporting period, including net income and other comprehensive loss - Total shareholders' equity decreased from **$1,187,773 thousand** at December 31, 2020, to **$1,175,139 thousand** at March 31, 2021, primarily due to a **$20,150 thousand** other comprehensive loss, partially offset by **$13,031 thousand** in net income[11](index=11&type=chunk)[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash flows from operating, investing, and financing activities for the reported periods Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Net cash provided by operating activities | $23,574 | $35,052 | | Net cash provided by investing activities | $353,103 | $160,324 | | Net cash used by financing activities | $(34,944) | $(169,785) | | Net change in cash and cash equivalents | $341,733 | $25,591 | | Cash and cash equivalents at end of period | $1,899,608 | $605,420 | [Notes to Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section provides detailed explanations and disclosures supporting the consolidated financial statements, including accounting policies and specific financial instrument details [Note 1 Basis of Presentation](index=11&type=section&id=Note%201%20Basis%20of%20Presentation) This note describes the basis of financial statement preparation, compliance with GAAP, and the impact of recently adopted accounting principles - The financial statements are prepared in conformity with GAAP, with certain information and footnote disclosures omitted as per Form 10-Q and Article 10 of Regulation S-X. Interim results are not necessarily indicative of full-year results[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - Recently adopted accounting principles (ASU No. 2018-14, ASU No. 2019-12, ASU No. 2020-01, ASU No. 2021-01) did not have a material impact on the Company's Consolidated Financial Statements[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - The Company is evaluating the impact of ASU No. 2020-04 (Reference Rate Reform) on its financial statements, which is anticipated to simplify modifications related to LIBOR transition[28](index=28&type=chunk) [Note 2 Discontinued Operations and Held for Sale](index=13&type=section&id=Note%202%20Discontinued%20Operations%20and%20Held%20for%20Sale) This note details the financial impact of discontinued operations and assets/liabilities classified as held for sale - The Company completed the final wind-down of First Choice Loan Services, Inc. (FCLS) operations in Q4 2020, with no related assets or liabilities as of March 31, 2021[30](index=30&type=chunk)[31](index=31&type=chunk) Operating Results of Discontinued Operations (FCLS) (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Net interest income | $— | $447 | | Total net revenue | $— | $1,805 | | Net (loss) from discontinued operations | $— | $(7,798) | - The Company entered an agreement to sell its eight Mid-Atlantic branches, including **$284 million** in loans and **$647 million** in deposits as of March 31, 2021, with completion targeted for H1 2021[34](index=34&type=chunk)[35](index=35&type=chunk) [Note 3 Trading Security](index=14&type=section&id=Note%203%20Trading%20Security) This note provides information on the company's trading securities, including fair value and changes over the period - The Company holds one tax-advantaged economic development bond as a trading security, with a fair value of **$9.3 million** at March 31, 2021, down from **$9.7 million** at December 31, 2020[36](index=36&type=chunk) [Note 4 Securities Available for Sale, Held to Maturity, and Marketable Equity Securities](index=15&type=section&id=Note%204%20Securities%20Available%20for%20Sale%2C%20Held%20to%20Maturity%2C%20and%20Marketable%20Equity%20Securities) This note details the company's investment securities portfolio, including available-for-sale, held-to-maturity, and marketable equity securities Total Securities Portfolio (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total securities available for sale (Fair Value) | $1,627,330 | $1,695,232 | | Total securities held to maturity (Fair Value) | $627,297 | $491,855 | | Marketable equity securities (Fair Value) | $15,801 | $18,513 | | Total Fair Value | $2,270,428 | $2,205,600 | - The allowance for credit losses on held-to-maturity securities increased slightly to **$111 thousand** at March 31, 2021, from **$104 thousand** at December 31, 2020[40](index=40&type=chunk) - As of March 31, 2021, none of the Company's investment securities were delinquent or in non-accrual status, and the Company expects to recover its amortized cost basis on all debt securities in its AFS and HTM portfolios[42](index=42&type=chunk)[45](index=45&type=chunk) [Note 5 Loans and Allowance for Credit Losses](index=19&type=section&id=Note%205%20Loans%20and%20Allowance%20for%20Credit%20Losses) This note provides detailed information on the company's loan portfolio, including the allowance for credit losses and loan quality metrics Total Loans and Allowance for Credit Losses (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total loans | $7,658,778 | $8,081,519 | | Allowance for credit losses on loans | $123,800 | $127,302 | | Net loans | $7,534,978 | $7,954,217 | - Outstanding SBA Paycheck Protection Program (PPP) loans totaled **$444.2 million** as of March 31, 2021, fully guaranteed by the SBA[53](index=53&type=chunk) - The allowance for credit losses for loans decreased to **$123,800 thousand** at March 31, 2021, from **$127,302 thousand** at December 31, 2020, with a provision for credit losses of **$6,493 thousand** for the quarter[60](index=60&type=chunk) - Total criticized loans decreased slightly to **$356,404 thousand** at March 31, 2021, from **$359,454 thousand** at December 31, 2020[89](index=89&type=chunk) - Troubled Debt Restructuring (TDR) loans increased to **$21,481 thousand** at March 31, 2021, from **$20,548 thousand** at the beginning of the period, with **4** newly identified TDRs totaling **$690 thousand**[94](index=94&type=chunk)[96](index=96&type=chunk) [Note 6 Deposits](index=31&type=section&id=Note%206%20Deposits) This note details the composition of the company's deposits, including time deposits and brokered deposits Time Deposits (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Time less than $100,000 | $630,244 | $663,324 | | Time $100,000 through $250,000 | $999,329 | $1,219,210 | | Time more than $250,000 | $473,649 | $502,551 | | Total time deposits | $2,103,222 | $2,385,085 | - Brokered deposits decreased to **$431.5 million** at March 31, 2021, from **$610.6 million** at December 31, 2020[99](index=99&type=chunk) [Note 7 Borrowed Funds](index=31&type=section&id=Note%207%20Borrowed%20Funds) This note outlines the company's borrowed funds, including short-term and long-term borrowings and available borrowing capacity Borrowed Funds (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 Principal | March 31, 2021 Wtd. Avg. Rate | December 31, 2020 Principal | December 31, 2020 Wtd. Avg. Rate | | :-------------------- | :----------------------- | :---------------------------- | :-------------------------- | :------------------------------- | | Short-term borrowings | $— | —% | $40,000 | 1.05% | | Long-term borrowings | $448,692 | 2.73% | $531,637 | 2.61% | | Total | $448,692 | 2.73% | $571,637 | 2.50% | - The Bank's available borrowing capacity with the FHLB was **$1.4 billion** at March 31, 2021, down from **$1.6 billion** at December 31, 2020[100](index=100&type=chunk) - The Bank's available borrowing capacity with the Federal Reserve Bank was **$596.8 million** at March 31, 2021, down from **$815.6 million** at December 31, 2020[101](index=101&type=chunk) [Note 8 Derivative Financial Instruments and Hedging Activities](index=33&type=section&id=Note%208%20Derivative%20Financial%20Instruments%20and%20Hedging%20Activities) This note describes the company's derivative instruments, their notional amounts, fair values, and collateral arrangements - As of March 31, 2021, the Company held derivatives with a total notional amount of **$3.8 billion**, including **$3.8 billion** in economic hedges and **$10.3 million** in non-hedging derivatives[108](index=108&type=chunk) Derivative Assets and Liabilities (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 Fair Value | December 31, 2020 Fair Value | | :-------------------- | :------------------------ | :--------------------------- | | Total economic hedges | $59,776 | $93,578 | | Total non-hedging derivatives | $185 | $735 | | Total Fair Value | $59,961 | $94,313 | - The Company pledged **$70.3 million** in cash and **$37.1 million** in securities as collateral to derivative counterparties as of March 31, 2021[110](index=110&type=chunk) [Note 9 Leases](index=39&type=section&id=Note%209%20Leases) This note provides details on the company's lease right-of-use assets, lease liabilities, and operating lease expenses Lease Right-of-Use Assets and Liabilities (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Total Lease Right-of-Use Assets | $63,770 | $67,215 | | Total Lease Liabilities | $71,733 | $74,277 | - Operating lease expense for the three months ended March 31, 2021, was **$2.8 million**, down from **$3.5 million** in the prior year, with a weighted-average remaining lease term of **9.8 years**[135](index=135&type=chunk)[136](index=136&type=chunk) [Note 10 Other Commitments, Contingencies, Off- Balance Sheet Activities, and Pandemic Impact](index=41&type=section&id=Note%2010%20Other%20Commitments%2C%20Contingencies%2C%20Off-%20Balance%20Sheet%20Activities%2C%20and%20Pandemic%20Impact) This note discusses the company's other commitments, contingencies, off-balance sheet activities, and the ongoing impact of the COVID-19 pandemic - The COVID-19 pandemic continues to impact the Company's clients and operations, with the ultimate extent of the impact remaining uncertain[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - As of March 31, 2021, the Company had **337** active COVID-19 modified loans outstanding with a carrying value of **$173 million**, a significant decrease from **746** loans totaling **$316 million** at December 31, 2020[143](index=143&type=chunk) [Note 11 Capital Ratios and Shareholders' Equity](index=42&type=section&id=Note%2011%20Capital%20Ratios%20and%20Shareholders%27%20Equity) This note presents the company's regulatory capital ratios, compliance status, and components of shareholders' equity Company Capital Ratios (March 31, 2021 vs. December 31, 2020) | Metric | March 31, 2021 | December 31, 2020 | Minimum Capital Requirement | | :----- | :------------- | :---------------- | :-------------------------- | | Total capital to risk weighted assets | 16.6% | 16.1% | 8.0% | | Common equity tier 1 capital to risk weighted assets | 14.2% | 13.8% | 4.5% | | Tier 1 capital to risk weighted assets | 14.4% | 14.1% | 6.0% | | Tier 1 capital to average assets | 9.5% | 9.4% | 4.0% | - Both the Company and the Bank exceeded all regulatory capital requirements and the Bank was classified as 'well capitalized' at March 31, 2021[146](index=146&type=chunk)[148](index=148&type=chunk) Accumulated Other Comprehensive Income (March 31, 2021 vs. December 31, 2020) | Metric (in thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Accumulated other comprehensive income | $10,721 | $30,871 | - Net unrealized holding loss on AFS securities of **$(20,150) thousand** was recognized during the three months ended March 31, 2021, compared to a gain of **$19,024 thousand** in the prior year[150](index=150&type=chunk)[151](index=151&type=chunk) [Note 12 Earnings/(Loss) per Share](index=46&type=section&id=Note%2012%20Earnings%2F%28Loss%29%20per%20Share) This note details the calculation of basic and diluted earnings per common share for the reported periods Earnings/(Loss) Per Common Share (Three Months Ended March 31) | Metric | March 31, 2021 | March 31, 2020 | | :----- | :------------- | :------------- | | Basic EPS (Total) | $0.26 | $(0.40) | | Diluted EPS (Total) | $0.26 | $(0.40) | | Average number of basic shares outstanding (thousands) | 50,330 | 50,204 | | Average number of diluted shares outstanding (thousands) | 50,565 | 50,204 | [Note 13 Stock-Based Compensation Plans](index=47&type=section&id=Note%2013%20Stock-Based%20Compensation%20Plans) This note provides information on the company's stock-based compensation expense and activity under its stock award and option plans - Stock-based compensation expense totaled **$0.7 million** for the three months ended March 31, 2021, a decrease from **$1.5 million** in the prior year[156](index=156&type=chunk) Stock Award and Stock Option Plan Activity (Three Months Ended March 31, 2021) | Metric (in thousands) | Non-Vested Stock Awards | Stock Options | | :-------------------- | :---------------------- | :------------ | | Balance at Dec 31, 2020 | 517 | 112 | | Granted | 210 | — | | Exercised | — | (5) | | Vested | (44) | — | | Forfeited | (52) | — | | Expired | — | (10) | | Balance at Mar 31, 2021 | 631 | 97 | [Note 14 Fair Value Measurements](index=48&type=section&id=Note%2014%20Fair%20Value%20Measurements) This note describes the company's fair value measurements for financial instruments, categorized by valuation input levels Recurring Fair Value Measurements (March 31, 2021) | Instrument (in thousands) | Level 1 | Level 2 | Level 3 | Total Fair Value | | :------------------------ | :------ | :------ | :------ | :--------------- | | Trading security | $— | $— | $9,350 | $9,350 | | Securities available for sale | $— | $1,627,330 | $— | $1,627,330 | | Marketable equity securities | $15,129 | $672 | $— | $15,801 | | Loans held for investment at fair value | $— | $— | $1,448 | $1,448 | | Loans held for sale | $— | $8,877 | $— | $8,877 | | Derivative assets | $— | $106,665 | $511 | $107,176 | | Capitalized servicing rights | $— | $— | $2,968 | $2,968 | | Derivative liabilities | $— | $47,215 | $— | $47,215 | - The fair value of loans held for investment decreased from **$2,265 thousand** at December 31, 2020, to **$1,448 thousand** at March 31, 2021, with all these loans being nonperforming[163](index=163&type=chunk)[164](index=164&type=chunk) - Non-recurring fair value measurements for individually evaluated loans, capitalized servicing rights, and other real estate owned totaled **$35,674 thousand** at March 31, 2021[179](index=179&type=chunk) [Note 15 Net Interest Income after Provision for Credit Losses](index=57&type=section&id=Note%2015%20Net%20Interest%20Income%20after%20Provision%20for%20Credit%20Losses) This note presents the company's net interest income from continuing operations after accounting for the provision for credit losses Net Interest Income After Provision for Credit Losses (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | Net interest income from continuing operations | $75,093 | $86,428 | | Provision for credit losses | $6,500 | $34,807 | | Net interest income from continuing operations after provision for credit losses | $68,593 | $51,621 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=58&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion of Berkshire Hills Bancorp, Inc.'s financial condition and operating results for the three months ended March 31, 2021, compared to December 31, 2020, and March 31, 2020. It highlights key financial data, performance ratios, asset quality, and the impact of strategic initiatives and the COVID-19 pandemic [Selected Financial Data](index=58&type=section&id=Selected%20Financial%20Data) This section presents key financial and performance metrics for the company over the reported periods Key Financial and Performance Data (Three Months Ended March 31) | Metric | March 31, 2021 | March 31, 2020 | | :------------------------------------ | :------------- | :------------- | | Net earnings/(loss) per common share, diluted | $0.26 | $(0.40) | | Adjusted earnings/(loss) per common share, diluted (non-GAAP) | $0.32 | $(0.07) | | Net income/(loss) (thousands) | $13,031 | $(19,870) | | Total assets (millions) | $12,757 | $13,122 | | Total loans (millions) | $7,659 | $9,303 | | Total deposits (millions) | $10,244 | $10,072 | | Return on equity | 4.50% | (4.58)% | | Net interest margin, fully taxable equivalent (FTE) | 2.62% | 3.04% | | Efficiency ratio | 71.32% | 66.92% | | Non-performing loans/total loans | 0.73% | 0.55% | [Average Balances and Average Yields/Rates](index=60&type=section&id=Average%20Balances%20and%20Average%20Yields%2FRates) This section provides average balances for interest-earning assets and interest-bearing liabilities, along with their corresponding yields and rates Average Balances and Yields/Rates (Three Months Ended March 31) | Metric (in millions) | March 31, 2021 Average Balance | March 31, 2021 Yield/Rate (FTE) | March 31, 2020 Average Balance | March 31, 2020 Yield/Rate (FTE) | | :------------------- | :----------------------------- | :------------------------------ | :----------------------------- | :------------------------------ | | Total loans | $7,869 | 3.73% | $9,372 | 4.33% | | Total interest-earning assets | $11,710 | 3.07% | $11,492 | 4.08% | | Total interest-bearing deposits | $7,396 | 0.48% | $8,092 | 1.18% | | Total interest-bearing liabilities | $8,414 | 0.63% | $9,041 | 1.33% | | Net interest spread | | 2.44% | | 2.75% | | Net interest margin | | 2.62% | | 3.04% | | Cost of funds | | 0.48% | | 1.11% | | Cost of deposits | | 0.36% | | 0.96% | [Non-GAAP Financial Measures](index=62&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles GAAP financial measures to non-GAAP measures, providing supplemental insights into the company's operating performance - The Company uses non-GAAP measures like adjusted earnings and adjusted EPS to provide supplemental perspectives on operating results, excluding items such as securities gains/losses, merger costs, restructuring costs, goodwill impairment, and discontinued operations[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) Reconciliation of GAAP to Non-GAAP Financial Measures (Three Months Ended March 31) | Metric (in thousands) | March 31, 2021 | March 31, 2020 | | :-------------------- | :------------- | :------------- | | GAAP Net income/(loss) | $13,031 | $(19,870) | | Total adjusted income/(loss) (non-GAAP) | $16,015 | $(3,645) | | GAAP Total revenue | $101,286 | $92,064 | | Total operating revenue (non-GAAP) | $101,317 | $101,794 | | GAAP Total non-interest expense | $78,154 | $71,325 | | Operating non-interest expense (non-GAAP) | $74,668 | $71,325 | | Adjusted earnings per common share, diluted (non-GAAP) | $0.32 | $(0.07) | [Summary of Financial Performance and Strategic Initiatives](index=69&type=section&id=SUMMARY) This section summarizes the company's financial performance for the quarter and outlines key strategic initiatives and leadership changes - Berkshire recorded first quarter 2021 net income of **$13 million** (**$0.26 per share**) and adjusted earnings of **$16 million** (**$0.32 per share**), with a return on tangible common equity of **5.0%** (adjusted **6.0%**)[210](index=210&type=chunk) - The Company consolidated **nine** branch offices in Q1 2021 and is progressing on the sale of **eight** Mid-Atlantic branches, aiming to reduce total branch count from **130** to **106** offices[211](index=211&type=chunk) - Key leadership changes include the appointment of Nitin J. Mhatre as President and CEO in January 2021 and Subhadeep Basu as SEVP and CFO in March 2021[213](index=213&type=chunk) - The Board approved a one-year authorization for the repurchase of approximately **5%** of common stock in April 2021 and plans an investor strategic plan update (BEST) on May 18, 2021[215](index=215&type=chunk) [First Quarter Financial Highlights](index=70&type=section&id=FIRST%20QUARTER%20FINANCIAL%20HIGHLIGHTS) This section lists key financial achievements and performance indicators for the first quarter - 2% increase in net revenue; 6% increase excluding gains/(losses) - 13% decrease in GAAP income; 14% increase in adjusted income (non-GAAP) - Net interest margin stable at 2.62% for the last four quarters - 35% reduction in provision for credit losses on loans - 42% reduction in annualized net loan charge-offs to 0.51% of loans - 86% decrease in COVID-19 loan modifications compared to June 30, 2020 - 26% reduction in wholesale funding to 7% of assets - Book value per share: $23.05; Tangible book value per share (non-GAAP): $22.39 [Comparison of Financial Condition (March 31, 2021 vs. December 31, 2020)](index=71&type=section&id=COMPARISON%20OF%20FINANCIAL%20CONDITION%20AT%20MARCH%2031%2C%202021%20AND%20DECEMBER%2031%2C%202020) This section compares the company's financial position, including assets, liabilities, and equity, between the two reporting periods - Total assets remained steady at **$12.8 billion**, with improvements in balance sheet structure, asset quality, liquidity, and capital metrics[219](index=219&type=chunk) - Short-term investments increased by **$352 million** to **$1.82 billion**, while the investment securities portfolio grew by **$68 million** to **$2.29 billion**[220](index=220&type=chunk)[221](index=221&type=chunk) - Total loans decreased by **$423 million** (**5%**) to **$7.7 billion**, including a **$189 million** reduction from PPP loan forgiveness. **$284 million** in Mid-Atlantic loans are held for sale[222](index=222&type=chunk) - Net loan charge-offs decreased by **42%** to **$10 million**, and non-performing loans decreased by **$9 million** (**14%**) to **$56 million**[226](index=226&type=chunk)[227](index=227&type=chunk) - Total deposits were unchanged at **$10.2 billion**, with a **$266 million** increase in demand deposits offsetting reductions in brokered and maturing retail time deposits. Borrowings decreased by **$123 million** to **$449 million**[233](index=233&type=chunk) - Total shareholders' equity decreased by **$13 million** (**1%**) to **$1.175 billion**, primarily due to a **$20 million** decrease in accumulated other comprehensive income[235](index=235&type=chunk) [Comparison of Operating Results (Three Months Ended March 31, 2021 vs. 2020)](index=73&type=section&id=COMPARISON%20OF%20OPERATING%20RESULTS%20FOR%20THE%20THREE%20MONTHS%20ENDED%20MARCH%2031%2C%202021%20and%20MARCH%2031%2C%202020) This section analyzes the company's operating performance, including net income, revenue, and expenses, for the reported quarterly periods - Net income improved by **$31 million** year-over-year, from a **$20 million** loss in Q1 2020 to a **$13 million** profit in Q1 2021, driven by a **$28 million** reduction in credit loss provision[236](index=236&type=chunk) - Total net revenue from continuing operations increased by **$9 million** year-over-year, primarily due to the absence of a **$10 million** loss on equity securities recorded in Q1 2020[238](index=238&type=chunk) - Net interest income decreased by **10%** from **$86 million** in Q1 2020 to **$76 million** in Q2 2020, remaining stable at **2.62%** since then. Q1 2021 net interest income was **$75 million**, including a **$3.5 million** benefit from PPP loan forgiveness[239](index=239&type=chunk) - Non-interest income, excluding gains and losses, increased by **$11 million** year-over-year to **$26 million**, mainly due to an **$8 million** swing in fair value changes of financial instruments[241](index=241&type=chunk) - Credit loss provision expense decreased significantly to **$6.5 million** in Q1 2021 from **$35 million** in Q1 2020[242](index=242&type=chunk) - Total non-interest expense increased by **$7 million** year-over-year to **$78 million**, with adjusted expense rising by **$4 million** to **$75 million**, mainly due to higher professional services and compensation[243](index=243&type=chunk) - The Company completed the exit of its national mortgage banking operations in Q4 2020, which generated an **$8 million** loss in Q1 2020[245](index=245&type=chunk) - Liquidity improved, with short-term investments increasing to **14%** of total assets and total investments to **32%** of assets. The loans to deposits ratio decreased to **75%** from **79%**[247](index=247&type=chunk) [Off-Balance Sheet Arrangements and Contractual Obligations](index=76&type=section&id=Off-Balance%20Sheet%20Arrangements%20and%20Contractual%20Obligations) This section discusses the company's off-balance sheet transactions and contractual obligations, primarily related to loan commitments - Berkshire engages in off-balance sheet transactions, primarily loan commitments and lines of credit, to manage customer funding requests. No major changes occurred in Q1 2021[252](index=252&type=chunk) [Fair Value Measurements](index=76&type=section&id=Fair%20Value%20Measurements) This section details the company's fair value measurements for financial instruments and the valuation inputs used - The most significant recurring fair value measurements relate to securities available for sale, loans held for sale, and derivative instruments, generally based on Level 2 market-based inputs[253](index=253&type=chunk) - The premium value of the loan portfolio decreased to **$243 million** (**3.2%** of loans) at March 31, 2021, from **$289 million** (**3.6%** of loans) at year-end 2020, due to rising medium-term interest rates[253](index=253&type=chunk) [Corporate Responsibility Update](index=76&type=section&id=CORPORATE%20RESPONSIBILITY%20UPDATE) This section provides an update on the company's corporate responsibility initiatives and achievements - Released 2020 Corporate Responsibility Report, 'Meaningful Moments: Answering the Call' - Appointed Angela Dixon as Chief Diversity Officer - Included in the 2021 Bloomberg Gender-Equality Index for the second consecutive year - Received top adjusted score of 100 on the Human Rights Campaign Foundation's 2021 Corporate Equality Index for LGBTQ equality [Application of Critical Accounting Policies](index=77&type=section&id=APPLICATION%20OF%20CRITICAL%20ACCOUNTING%20POLICIES) This section highlights the company's critical accounting policies, particularly those requiring significant management judgment - The Company's most critical accounting policies are related to the Allowance for Credit Losses and Fair Value of Financial Instruments, both requiring significant management judgment due to inherent uncertainties[257](index=257&type=chunk) [Enterprise Risk Management](index=77&type=section&id=ENTERPRISE%20RISK%20MANAGEMENT) This section describes the company's enterprise risk management framework and the assessment of various risk categories - Enterprise risk management, overseen by the Chief Risk Officer, focuses on credit, interest rate, price, liquidity, operational, compliance, strategic, and reputation risks. All risks were within corporate appetites, with credit and compliance risks increasing due to the pandemic, while liquidity risks declined[258](index=258&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the Company's market risk, particularly interest rate risk, and its objective to maintain a neutral or asset-sensitive profile. It highlights an increase in asset sensitivity during Q1 2021 due to loan portfolio runoff and increased demand deposits - The Company's asset sensitivity increased in Q1 2021, with the percentage change in net interest income in the second year of a **200 basis point** upward parallel ramp in interest rates increasing to **10.8%** (from **4.0%** at year-end 2020)[260](index=260&type=chunk) - The Company is positively sensitive to upward interest rate shocks and a steepening yield curve[260](index=260&type=chunk) [Item 4. Controls and Procedures](index=76&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2021, and reports no material changes in internal control over financial reporting during the last fiscal quarter - The Company's disclosure controls and procedures were effective as of March 31, 2021[262](index=262&type=chunk) - There were no material changes in the Company's internal control over financial reporting during the last fiscal quarter[263](index=263&type=chunk) [PART II. OTHER INFORMATION](index=77&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=77&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal proceedings involving the Company, including a complaint against Pioneer Bank for approximately $16.0 million in credit losses, a demand letter under the Massachusetts Consumer Protection Act regarding mortgage fees, and a wrongful termination complaint against a former subsidiary and its officers - The Company is involved in a lawsuit against Pioneer Bank seeking approximately **$16.0 million** for breach of loan participation agreements, with a partial recovery of **$1.7 million** recognized in Q2 2020[265](index=265&type=chunk) - A demand letter was served under the Massachusetts Consumer Protection Act alleging impermissible mortgage discharge preparation fees and untimely provision of discharge copies, potentially on behalf of a putative class[266](index=266&type=chunk) - A former employee of the Bank's subsidiary FCLS filed a wrongful termination complaint alleging whistleblower retaliation and New Jersey state employment law violations[267](index=267&type=chunk) [Item 1A. Risk Factors](index=78&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive risk factors discussed in the Company's most recent Annual Report on Form 10-K, noting no other major changes in identified risk factors during the first quarter of 2021 - No other major changes in risk factors were identified during the first quarter of 2021, beyond those discussed in the most recent Annual Report on Form 10-K[269](index=269&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=79&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities during the three months ended March 31, 2021, and details the Company's newly approved stock repurchase program authorizing the repurchase of up to 2,500,000 shares through April 30, 2022 - No shares were transferred as unregistered securities during the three months ended March 31, 2021 and 2020[271](index=271&type=chunk) - The Board approved a stock repurchase program on April 28, 2021, authorizing the repurchase of up to **2,500,000 shares** (approximately **5%** of outstanding shares) through April 30, 2022[272](index=272&type=chunk) [Item 3. Defaults Upon Senior Securities](index=79&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[273](index=273&type=chunk) [Item 4. Mine Safety Disclosures](index=79&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[273](index=273&type=chunk) [Item 5. Other Information](index=79&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information to report[273](index=273&type=chunk) [Item 6. Exhibits](index=80&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, cooperation agreements, certifications, and XBRL formatted financial statements - Amended and Restated Certificate of Incorporation and Bylaws - Employment Agreement with Nitin J. Mhatre dated January 21, 2021 - Cooperation Agreement with HoldCo Asset Management, LP dated March 7, 2021 - Certifications of CEO and CFO pursuant to Sections 302 and 906 of Sarbanes-Oxley Act of 2002 - Financial statements formatted in Inline XBRL

Berkshire Hills Bancorp, Inc. (NYSE:BHLB) Q1 2021 Earnings Conference Call April 29, 2021 10:00 AM ET Corporate Participants Kevin Conn - Head of Investor Relations and Corporate Development Nitin Mhatre - Chief Executive Officer Subhadeep Basu - Senior Executive Vice President and Chief Financial Officer Shaun Dwyer - Chief Operating Officer Conference Call Participants Laurie Hunsicker - Compass Point Mark Fitzgibbon - Piper Sandler Operator Good morning, and welcome to the Berkshire Hills Bancorp First Q ...

B E R K S H I R E B AN K 1 Q 2 0 2 1 E AR N I N G S P R E S E N TAT I O N APRIL 28, 2021 ＸBerkshireHillsBancorp F ORWAR D -L OOK I N G S TAT E M E N T S This document contains "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements from the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "int ...

Table of Contents Title of each class Trading Symbol(s) Name of Exchange on which registered Common stock, par value $0.01 per share BHLB New York Stock Exchange UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission ...

| --- | --- | --- | --- | |------------------------------------------------|-------|-------|-------| | | | | | | | | | | | | | | | | Berkshire Hills Bancorp | | | | | Investor Information Presentation January 2021 | | | | | | | | | | | | | | Forward-Looking Statements This document contains "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. You can identify these statements from the use ...

Berkshire Hills Bancorp, Inc. (NYSE:BHLB) Q4 2020 Earnings Conference Call January 26, 2021 10:00 AM ET Executives David Gonci - IR Manager Bill Dunleavy - Chairman of the Board of Directors Sean Gray - Acting CEO Jamie Moses - CFO Georgia Melas - Chief Credit Officer George Bacigalupo - Commercial Banking Leader Greg Lindenmuth - Chief Risk Officer Analysts Mark Fitzgibbon - Piper Sandler Laurie Hunsicker - Compass Point Operator Good morning, and welcome to the Berkshire Hills Bancorp Q4 Earnings Release ...