About Berkshire Hills Bancorp

Berkshire Hills Bancorp, Inc. operates as the bank holding company for Berkshire Bank that provides commercial banking, retail banking, consumer lending, private banking and wealth management services. The company has full-service financial centers in Massachusetts, New York, Connecticut, Rhode Island, and Vermont. Lending Activities The company originates loans in the basic portfolio categories discussed below. Lending activities are limited by federal and state laws and regulations. Loan interest rates and other key loan terms are affected principally by the company’s credit policy, asset/liability strategy, loan demand, competition, and the supply of money available for lending purposes. These factors, in turn, are affected by general and economic conditions, monetary policies of the federal government, including the Federal Reserve, legislative tax policies, and governmental budgetary matters. Most of the company’s loans held for investment are made in its market areas and are secured by real estate located in its market areas. Lending is therefore affected by activity in these real estate markets. The company monitors and manages the amount of long-term fixed-rate lending volume. The company generally originates loans for investment except for residential mortgages, which are sometimes originated for sale on a servicing released basis. Additionally, the company also originates Small Business Administration (SBA) 7A loans for sale to investors. The company also conducts loan participations generally with other banks doing business in its markets, including selected national banks. Commercial Real Estate: The company originates commercial real estate loans on properties used for business purposes, such as retail, multifamily, office, healthcare, hospitality, industrial, and manufacturing facilities. Commercial real estate loans are provided on owner-occupied properties and on investor-owned properties and also include construction loans. Loans may generally be made with amortizations of up to 30 years and with final maturities of 10 years or less. As part of its business activities, the company also enters into commercial loan participations and interest rate swaps. Commercial real estate is generally managed within federal regulatory monitoring guidelines of 300% of capital, with construction loans within 100% of capital, as defined in the guidance. The company has hold limits for numerous categories of commercial lending including healthcare, hospitality, retail, and construction. Commercial real estate loans are among the largest of its loans, and may have higher credit risk than the overall credit portfolio. The company generally requires that borrowers have debt service coverage ratios (the ratio of available cash flows before debt service to debt service) of at least 1.25 times based on stabilized cash flows of leases in place, with some exceptions for national credit tenants. For adjustable rate loans, the company’s underwriting stresses debt service coverage to interest rate shocks of 400 basis points or higher based on a minimum of 1.0 times coverage and it uses loan maturities to manage risk based on the lease base and interest sensitivity. Generally, commercial real estate loans are supported by full or partial personal guarantees by the principals. The company has a diversified commercial real estate portfolio primarily located in suburban markets in its footprint. The company offers interest rate swaps to certain larger commercial mortgage borrowers. These swaps allow the company to originate a mortgage based on a floating rate of interest and allow the borrower to swap into a fixed rate. The company then concurrently enters into offsetting positions with third-party financial institutions. The company originates construction loans to developers and commercial borrowers in its footprint. The maximum loan to value limits for construction loans follow Federal Deposit Insurance Corporation (FDIC) supervisory limits, up to a maximum of 85 percent. The company commits to provide the permanent mortgage financing on most of its construction loans on income-producing property. Construction loans include land acquisition loans up to a maximum 50 percent loan to value on raw land. Commercial and Industrial Loans (C&I): C&I loans are mostly managed through the company’s commercial middle market banking organization, as well as its Asset Based Lending Group, its Small Business Banking Group, and 44 Business Capital. The company offers secured commercial term loans with repayment terms which are normally limited to the expected useful life of the asset being financed, and generally not exceeding ten years. The company also offers revolving loans, lines of credit, letters of credit, time notes and SBA guaranteed loans. Business lines of credit have interest rates that adjust, and are generally subject to annual review and renewal. Commercial and industrial loans are generally secured by a variety of collateral such as accounts receivable, inventory and equipment, and are generally supported by personal guarantees. Loan-to-value ratios depend on the collateral type and generally do not exceed 80 percent of orderly liquidation value or net book value as reported on the borrower’s financial statements. Some commercial loans may also be secured by liens on real estate. The company considers commercial and industrial loans, together with its owner-occupied commercial real estate loans, as constituting the primary relationship based component of its commercial lending activities. Commercial and industrial loans are commonly structured as variable rate loans, and are accordingly impacted by the recent environment of rising interest rates. The Asset Based Lending Group serves the commercial middle market in New England, as well as the company’s market in northeastern New York and in the Mid-Atlantic. The group expands the company’s business lending offerings to include revolving lines of credit and term loans secured by accounts receivable, inventory, and other assets to manufacturers, distributors and select service companies experiencing seasonal working capital needs, rapid sales growth, a turnaround, buyout or recapitalization with credit needs generally ranging from $2 million to $25 million. Small Business Banking Group handles most business relationships which are smaller than the middle market category. Additionally, some smaller business needs are handled through the company’s retail branch system. Berkshire Bank also owns Firestone Financial LLC. (Firestone), which originated loans secured by business-essential equipment throughout the U.S. Key customer segments included the fitness, carnival, gaming, and entertainment industries. 44 Business Capital is a dedicated SBA 7A program lending team based in the Philadelphia area. This team originates loans in the Northeast, Mid-Atlantic and nationally. 44 Business Capital also works with business banking and small business teams to provide SBA guaranteed loans to Business Banking Customers in Berkshire’s footprint. This team generally sells the guaranteed portions of these loans with servicing retained and the company retains the unguaranteed portions of the loans in its C&I loan portfolio. The unguaranteed loan balances are participated pari-passu with the SBA and are generally collateralized and supported by recourse to business principals. The company is a preferred SBA lender and closely manages the servicing portfolio pursuant to SBA requirements. This team is the company’s largest source of commercial lending fee revenue. 44 Business Capital is one of the top 20 bank originators of SBA 7A loans in the U.S. Residential Mortgages: Through its mortgage banking operations, the company offers fixed-rate and adjustable-rate residential mortgage loans to individuals with maturities of up to 30 years that are fully amortizing with monthly loan payments. The majority of loans have been originated for investment, although the company targets more held for sale originations in the future. The company buys and sells seasoned mortgages primarily with smaller financial institutions operating in its markets. Mortgage loan originations often include rate lock features intended to cover normal processing times. These rate locks introduce price risk into the company’s operations and cause mortgage origination yields to lag market interest rates. The company also originates construction loans which generally provide 15-month construction periods followed by a permanent mortgage loan, and follow its normal mortgage underwriting guidelines. Mortgage banking also requires flexible and scalable operations due to the volatility of mortgage demand over time. Investor management is integral to maintaining the secondary market support that is a component for these operations. Consumer Loans: The company’s consumer loans are centrally underwritten and processed by its experienced consumer lending team. The company engages in prime home equity lending, following its conforming mortgage underwriting guidelines with more streamlined verifications and documentation. Most of these outstanding loans are prime based home equity lines with a maximum combined loan-to-value of 85 percent. Home equity line credit risks include the risk that higher interest rates will affect repayment and possible compression of collateral coverage on second lien home equity lines. Investment Securities Activities The company has historically maintained a high-quality portfolio of managed duration residential and commercial mortgage-backed securities, together with a portfolio of state and municipal bonds and obligations of national and local issuers. All of the mortgage-backed securities are issued by Fannie Mae, Ginnie Mae, or Freddie Mac. The company generally designates debt securities as available for sale, but sometimes designates securities as held to maturity based on its intent. The company periodically invests in corporate bonds, investment grade and non-rated fixed-income capital instruments issued by local and regional financial institutions, and funds financing community reinvestment projects. Deposit Activities Deposits are the major source of funds for the company’s lending and investment activities. The company serves personal, commercial, non-profit, and municipal deposit customers. The company offers a wide variety of deposit accounts with a range of interest rates and terms. The company may also periodically offer promotional interest rates and terms for limited periods of time. The company’s deposit accounts consist of demand deposits (non-interest-bearing checking), NOW (interest-bearing checking), regular savings, money market savings, and time certificates of deposit. Additionally, the company offers a variety of retirement deposit accounts to personal and business customers. The company emphasizes its transaction deposits – checking and NOW accounts – for personal accounts and checking accounts promoted to businesses. The company offers a courtesy overdraft program to improve customer service, and also provides debit cards and other electronic fee producing payment services to transaction account customers. The company offers targeted online and mobile deposit account opening capabilities for personal accounts. The company promotes remote deposit capture devices so that commercial accounts can make deposits from their place of business. Deposit related fees include overdraft fees, interchange fees related to debit card usage, service charges, and other miscellaneous transactions and convenience services sold to customers through the branch system as part of an overall service relationship. The company offers compensating balance arrangements for larger business customers as an alternative to fees charged for checking account services. In addition to providing service through its branches, the company provides services to deposit customers through its private bankers, MyBankers, commercial/small business relationship managers, and call center representatives. Commercial cash management services are an important commercial service offered to commercial and governmental depositors and a fee income source to the bank. The company also operates a commercial payment processing business that serves regional and national payroll service bureau customers. These payroll deposits often fluctuate daily by hundreds of millions of dollars depending on payroll cycles. The company has partnered with a third party fintech company to provide enhanced online deposit account opening services and new online and mobile banking platform developed in partnership with this provider as an important milestone in its Digitouch strategy. The company also is monitoring the development of payment services which are growing in their importance in the personal and commercial deposit markets. Derivative Financial Instruments The company offers interest rate swaps to commercial loan customers who wish to fix the interest rate on their loans, and concurrently enters into offsetting positions with third-party financial institutions. The company may also enter into risk participation agreements with other lending institutions for customer related positions. On a limited basis, it offers foreign exchange services to customers on both a spot and forward basis. The company may also use derivative financial instruments to manage its interest rate risk associated with its loan portfolios and borrowings. All derivative financial instruments eligible for clearing are cleared through the Chicago Mercantile Exchange (“CME”). Wealth Management Services The company’s Wealth Management Group provides consultative investment management, trust administration, and financial planning to individuals, businesses, and institutions, with an emphasis on personal investment management. The Wealth Management Group has built a track record over more than a decade with its dedicated in-house investment management team. The company also provides a full line of investment products, financial planning, and brokerage services through BerkshireBanc Investment Services utilizing Commonwealth Financial Network as the broker/dealer. The company is integrating with its growing private banking and MyBanker teams to further develop wealth management account generation. Subsidiary Activities The company operates as a commercial bank under a Massachusetts trust company charter. The bBank owns Firestone Financial, LLC which is a Massachusetts limited liability company, as well as consolidated subsidiaries operated as Massachusetts securities corporations and other subsidiary entities. The company also owns all of the common stock of Delaware statutory business trusts, Berkshire Hills Capital Trust I and SI Capital Trust II. Regulation and Supervision The company is a Delaware corporation and a bank holding company that has elected financial holding company status within the meaning of the Bank Holding Company Act of 1956, as amended. It is registered with, supervised by and required to comply with the rules and regulations of the Federal Reserve Board. The Federal Reserve Board requires the company to file various reports and also conducts examinations of the company. The company must receive the approval of the Federal Reserve Board to engage in certain transactions, such as acquisitions of additional banks and savings associations, and the company must seek nonobjection for various capital actions, including stock repurchases. The bank is a Massachusetts-chartered trust company and its deposits are insured up to applicable limits by the FDIC. The bank is subject to extensive regulation by the Massachusetts Commissioner of Banks (the Commissioner), as its chartering agency, and by the FDIC, as its deposit insurer. The bank is required to file reports with the Commissioner and the FDIC concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other depository institutions or branches of other institutions. Under specified conditions, the bank must also seek regulatory approval of capital distributions to the Company, its sole shareholder. The Commissioner and the FDIC conduct periodic examinations to test the bank’s safety and soundness and compliance with various regulatory requirements. The regulatory structure gives the regulatory authorities extensive discretion in connection with supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the Commissioner, the Massachusetts legislature, the FDIC, the Federal Reserve Board, or Congress, could have a material adverse impact on the company, the bank, and their operations. As a Massachusetts-chartered depository institution, the bank is subject to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings and payment of dividends. In addition, the bank is subject to Massachusetts consumer protection and civil rights laws and regulations. The approval of the Commissioner is required for a Massachusetts-chartered institution to establish or close branches, merge with other financial institutions, issue stock, and undertake certain other activities. The Federal Deposit Insurance Act generally limits the types of equity investments an FDIC-insured state-chartered bank, such as the bank, may make and the kinds of activities in which such a bank may engage, as a principal, to those that are permissible for national banks. Federal law permits an institution, such as the bank, to acquire another institution by merger in a state other than Massachusetts unless the other state has opted out. Federal law, as amended by the Dodd-Frank Act, authorizes de novo branching into another state to the extent that the target state allows its state-chartered banks to establish branches within its borders. As of December 31, 2023, the bank operated branches in New York, Vermont, Connecticut and Rhode Island, as well as Massachusetts. At its interstate branches, the Bank may conduct any activity authorized under Massachusetts law that is permissible either for an institution chartered in that state (subject to applicable federal restrictions) or a branch in that state of an out-of-state national bank. The New York State Superintendent of Banks, the Vermont Commissioner of Banking and Insurance, the Connecticut Commissioner of Banking and the Director of the Rhode Island Department of Business Regulation may exercise certain regulatory authority over the bank’s branches in their respective states. The bank’s deposit accounts are insured by the Deposit Insurance Fund of the FDIC up to applicable limits. The FDIC insures deposits up to the standard maximum deposit insurance amount (SMDIA) of $250,000. The bank is a member of the Federal Home Loan Bank system, which consists of 12 regional Federal Home Loan Banks that provide a central credit facility primarily for member institutions. The Bank, as a member, is required to acquire and hold shares of capital stock in the FHLBB. The company is subject to examination, regulation, and periodic reporting as a bank holding company under the Bank Holding Company Act of 1956, as amended. The company is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any other bank or bank holding company. The company is subject to the Federal Reserve Board’s capital adequacy requirements for bank holding companies. The status of the company as a registered bank holding company under the Bank Holding Company Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws. The company and the bank have authority to engage, and have engaged, in acquisitions of other depository institutions. Such transactions are subject to a variety of conditions including, but not limited to, required stockholder approvals and the receipt of all necessary regulatory approvals. Necessary regulatory approvals include those required by the federal Bank Holding Company Act and/or Bank Merger Act, Massachusetts law and, if the target institution is located in a state other than Massachusetts, the law of that state. The bank is subject to federal and state consumer protection statutes and regulations applicable to depository institutions. These include the Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; Home Mortgage Disclosure Act, requiring financial institutions to provide certain information about home mortgage and refinance loans; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited bases in extending credit; the Fair Credit Reporting Act, governing the provision of consumer information to credit reporting agencies and the use of consumer information; the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and the Electronic Funds Transfer Act, governing automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. Since the bank has exceeded $10 billion of consolidated assets, compliance with such federal consumer protection statutes and regulations is examined for and enforced by the Consumer Finance Protection Bureau. The bank also is subject to Massachusetts and federal laws protecting the confidentiality of consumer financial records, and limiting the ability of the institution to share non-public personal information with third parties. As of the most recent CRA examination by the FDIC, the bank’s CRA rating was satisfactory. History Berkshire Hills Bancorp, Inc. was founded in 1846. The company was incorporated in 2000.