UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.   )

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Soliciting Material Pursuant to §240.14a-12

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Berkshire Hills Bancorp, Inc.

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Notice of Annual Meeting
of Shareholders

We are holding this meeting for the following purposes:

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To elect as directors the nominees named in the Proxy Statement each to serve a one-year term or until their successors are duly elected and qualified;

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2.

To provide an advisory vote on executive compensation practices;

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3.

To ratify the appointment of the Company’s independent registered public accounting firm for fiscal year 2019; and

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4.

To transact any other Company business that may properly come before the meeting.

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The Board of Directors unanimously recommends that you vote “FOR” each of the proposed director nominees and “FOR” the proposals to be presented at the annual meeting.

Shareholders of record at the close of business on March 21, 2019 are entitled to vote at the meeting, either in person or by proxy. There are several ways to vote. You can vote your shares online, by telephone, by regular mail or in person at the annual meeting. To access your proxy materials and vote online, please visit www.proxyvote.com and follow the instructions. The notice provided to you contains the necessary codes required to vote online. If you wish to vote by telephone, please call 1-800-690-6903 using a touch-tone phone and follow the prompted instructions. You may also vote by mail by requesting a paper proxy card using the instructions provided to you in the notice. Finally, you may vote in person at the annual meeting, even if you have previously submitted a proxy.

Whatever method you choose, please vote in advance of the meeting to ensure that your shares will be voted as you direct.

Boston, Massachusetts
April 5, 2019
By order of the Board of Directors

Wm. Gordon Prescott
SEVP, General Counsel and Corporate Secretary

Admission Procedures

The meeting is open to shareholders of Berkshire Hills Bancorp, Inc. Everyone attending the meeting should bring a photo ID. If your shares are registered in the name of a bank, broker, or other holder of record, please also bring documentation of your stock ownership as of March 21, 2019 (such as a brokerage statement).

BERKSHIRE HILLS BANCORP, INC. | 2019 Proxy Statement

Table of Contents

Berkshire Hills Bancorp, Inc.

Proxy Statement

Proxy Summary

This summary gives you an overview of selected information in this year’s proxy. We encourage you to read the entire proxy statement carefully before voting. We have also provided you with the 2018 Summary Annual Report and the 2018 Annual Report on SEC Form 10-K.

Annual Meeting of Shareholders

Time and Date: 10:00 a.m. local time, Thursday, May 16, 2019

Place: Museum of African American History, 46 Joy Street, Boston, Massachusetts 02114

Record Date: Shareholders as of the close of business on March 21, 2019 are entitled to vote

Proposals to be Voted on by Shareholders

We are providing this proxy statement to you in connection with the solicitation of proxies for the 2019 Annual Meeting of Shareholders and to transact any other business that may properly come before the meeting. In this proxy statement, we also refer to Berkshire Hills Bancorp, Inc. as “Berkshire” or the “Company”. We also refer to its subsidiary, Berkshire Bank, as the “Bank”. We are mailing a notice of the annual meeting to shareholders of record as of March 21, 2019, beginning on April 5, 2019.

Proxy Statement • Proxy Summary

Summary of Proposals for 2019

1 — Election of Directors. The Company’s Board of Directors is presenting eleven (11) nominees for election as directors at our Annual Meeting. As of 2019, all Directors are elected on an annual basis. All nominees currently serve as directors on our Board of Directors. There are two directors, Messrs. Bossidy and Sheehan, who served in 2018 who have elected to not stand for re-election in 2019.

2 — Advisory Vote on Executive Compensation. This advisory vote is for the approval of the Company’s Named Executive Officer compensation as set forth within this proxy statement. Berkshire strives to promote shareholder value and sound risk management by aligning executive pay and company performance. The Compensation Discussion and Analysis (“CD&A”) explains the Board’s processes and decisions with respect to executive compensation. The CD&A Executive Summary begins on page 30. The CD&A also provides information about the CEO transition that occurred on November 26, 2018, on page 40. In 2018, 74% of the votes cast were in favor of the proposal “FOR” the advisory approval of our Executive Compensation.

3 — Ratification of Independent Registered Public Accounting Firm. This advisory vote ratifies the selection of Crowe LLP (“Crowe”) as the Company’s independent registered public accounting firm for fiscal year 2019. Crowe has served in this capacity since fiscal year 2017. In 2018, 99% of the votes cast were in favor of the proposal the appointment of Crowe. The firm changed its name in 2018 from Crowe Horwath LLP.

Corporate Governance Highlights

Our commitment to good corporate governance is illustrated as follows:

(1)

Current directors Paul T. Bossidy and Patrick J. Sheehan have chosen not to stand for re-election to the Board at the Company’s 2019 Annual Meeting. Following their retirement from the Board, 9 out of 11 of the remaining members will be designated as independent directors.

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Proxy Statement • Proxy Summary

Shareholder Engagement and Responsiveness

We have an active engagement program that focuses on gathering feedback from the governance teams of our largest institutional shareholders. Based on these ongoing discussions, in the last three years we have made several enhancements to our governance programs which include:

Over the past two years we have received a vote of approximately 75% in favor of the Company’s executive compensation. The Board and management continue to strive to improve the shareholder approval by proactively engaging with shareholders and specialists in order to better understand their views and best practices in the industry. As a result, the Board of Directors has taken action over the past year to further enhance our compensation and governance practices.

Some shareholders suggested adopting a proxy access provision, majority voting standards, and/or the right to call a special meeting in our bylaws.

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The Board has had extensive conversations about each of these items and will continue to evaluate potential future action.

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Proxy Statement • Proxy Summary

Our Compensation Philosophy and Practices

We seek to provide an executive compensation program that is consistent with promoting sound risk management and long-term value creation for our shareholders. The key principles that support our philosophy are:

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Attract and retain highly talented executives committed to our success

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Pay for performance

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Align executive interests with those of our shareholders

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Manage risk through oversight and compensation design features and practices

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The primary philosophy and objective of our compensation program is to align the interests of our executives with shareholders by rewarding performance against established corporate financial and strategic goals, solid executive leadership and strong individual executive performance. We strive to attract, motivate and retain a highly qualified and talented team of executives who will lead Berkshire to maximize long-term performance and earnings growth. The Compensation Committee regularly reviews executive compensation program elements to ensure they are consistent with safe and sound business practices, regulatory requirements, emerging industry best practices and shareholder interests.

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Align pay for performance

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Link performance measures with strategic objectives

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Hold an annual say-on-pay vote

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Leverage an independent compensation consultant

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Conduct annual shareholder engagement

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Maintain strict stock ownership guidelines

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Adhere to best practice clawback and anti-hedging and pledging restriction policies

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Incentivize sound risk management

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Withhold dividend payments on any restricted stock awards until vested

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Named Executive Officer direct compensation is made up of base salary, short term cash incentive and long term equity incentive. In 2018, the target mix was 46% performance-based for the Chief Executive Officer and 38% performance based for other NEOs. Long-term equity incentive awards are earned over a 3 year period. For the 2018 payments the awards were made up of 50% performance shares and 50% time-based shares; for the 2019 payments that split will be 60% performance and 40% time-based.

Proxy Statement • Proxy Summary

2018 Company Performance

Berkshire Bank is defined by our commitment to providing our customers and our communities with the scale and resources of a big bank but with local decision making. This is a model that engages our employees, supports our communities and creates enduring returns for our investors.

Our 2018 results reflect that commitment, hitting key earnings and operational targets and, achieving record return on assets; all important accomplishments during our first full year operating above the $10 billion asset mark. Additional highlights include:

For the full year, earnings per share increased by 65% to $2.29 and the non-GAAP financial measure of adjusted earnings per share increased by 18% to $2.71. Revenue grew 12% over the prior year driven by delivering more products and services to our Northeast markets. Return on assets improved by 61% to 0.90% and return on equity improved by 54% to 6.8%. In addition, the non-GAAP financial measure of adjusted return on tangible common equity improved by 14% to 13.5%.

When our people thrive, our company thrives. At the start of 2018, we implemented a new hourly minimum wage of $15, and during the year, implemented the new Massachusetts Equal Pay Act requirements. These measures help to ensure that women and men who have similar experience and do comparable work receive the same wage. While raising our minimum wage and working towards gender pay equity are the start, we must have a workforce that reflects the communities we serve. We grew quickly from a small community bank in western Massachusetts to a full-service financial institution with operations in six states and select national markets.

In 2018, we continued the expansion of our footprint with the seamless systems conversion and integration of Commerce Bank and Trust Company, including their 16 branches in central and eastern Massachusetts. This conversion allowed us to secure the leading deposit position in Worcester, New England’s second largest city and successfully cross the $10 billion asset threshold. We built on the success of the Commerce acquisition and our Boston corporate headquarters move by expanding our regional teams, creating opportunities to build both awareness and enduring relationships. Together, our Boston and Worcester teams increased our market share in Eastern Massachusetts, which is now the largest regional market we serve.

In December, we announced a definitive agreement to acquire SI Financial Group, with 23 branches serving eastern Connecticut and Rhode Island. This contiguous market expansion is a natural fit for our company, allowing us to bring big bank resources, local responsiveness and our distinctive culture to strengthen the capabilities and offerings of the SI Financial team.

Delivering returns for our shareholders is of the utmost importance. Berkshire Bank’s book value per share gained 4% during the year. We increased our quarterly cash dividend by 5% in January 2018, and then increased it by another 5% in January 2019. In June, Berkshire’s stock was added to the S&P SmallCap 600® index, widening our visibility. With our larger size, we implemented debt ratings from a recognized credit rating agency, earning an investment grade rating on our senior debt.

The Board of Directors evaluates performance primarily on the basis of non-GAAP core measures, and several of these measures are used to set performance targets for the short-term and long-term incentives for executive compensation. Please see the CD&A executive summary and discussion of incentive programs for further discussion of these measures. Several of these measures were at record levels in 2018, exceeding target, and signaling strong performance by management.

Election of Directors for a One-Year Term

The Company’s Board of Directors has nominated and recommends a vote “FOR” each of the eleven (11) nominees listed below for election as a director. Each nominee currently serves on the Company’s Board of Directors.

Background. The Company’s Board of Directors is presenting eleven (11) nominees for election as directors at our Annual Meeting. Messrs. Bossidy and Sheehan, who are currently members of the Company Board of Directors, have chosen not to stand for re-election at the 2019 Annual Meeting. All nominees currently serve as directors on the Company Board of Directors. Effective as of the 2017 Annual Meeting, the Board members are elected on an annual basis as their prior term expires. The 2019 Annual Meeting is the first year that all board members will stand for election on an annual basis. Each director elected at the meeting will serve for a one-year term until our 2020 annual meeting or until a successor is duly elected and qualified. Each director nominee has consented to being named in this proxy statement and to serving as a director if elected. If a nominee is unable to be a candidate when the election takes place, the shares represented by valid proxies will be voted in favor of the remaining nominees. The Board of Directors does not currently anticipate that any of the nominees will be unable to be a candidate for election.

Additional Information. Information regarding the director nominees is set forth below under the heading “— Information Regarding Directors and Director Nominees.”

The affirmative vote of a plurality of the Company’s outstanding common stock present in person or by proxy at the Annual Meeting is required to elect the nominees for directors; provided, however, in the case of an uncontested election of directors, it is the Company’s policy that if a director is elected by a plurality but not a majority of the votes cast for such director, such director must submit his or her resignation to the Board of Directors, which will be subject to review by the Corporate Governance/Nominating Committee of the Board of Directors. The Corporate Governance/Nominating Committee will then make a recommendation to the Board of Directors as to whether to accept or reject the director’s resignation. Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR” the election of the nominees as directors.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF ITS DIRECTOR NOMINEES.

Proposal 1: Election of Directors  • Information Regarding Directors and Director
Nominees

Information Regarding Directors and Director Nominees

Since our last annual meeting, the Board took actions to engage shareholders, advisors and other knowledgeable third-parties to discuss a number of important topics and better understand their views. We appreciate the honest feedback, open exchange of ideas and opportunity to learn from one another. In connection with these conversations the Board continues to review and assess disclosures and practices around governance matters. Enhancements to the governance program have included:

Of note, as of the date of this proxy statement Berkshire has a pending merger agreement to acquire SI Financial Group, Inc. based in Willimantic, Connecticut. Under the terms of this agreement SI Financial Director, President and CEO Rheo Brouillard is expected to join the Berkshire Board of Directors at the close of the transaction, which is anticipated to close during the second quarter of 2019. Mr. Brouillard has over 30 years’ experience in the financial services industry and has been a champion for non-profit organizations and community development associations throughout his storied career.

2019 Nominees for Election to the Board of Directors

Proposal 1: Election of Directors  • Information Regarding Directors and Director
Nominees

Proposal 1: Election of Directors  • Information Regarding Directors and Director
Nominees

Proposal 1: Election of Directors  • Information Regarding Directors and Director
Nominees

Proposal 1: Election of Directors  • Information Regarding Directors and Director
Nominees

Proposal 1: Election of Directors  • Information Regarding Directors and Director
Nominees

Proposal 1: Election of Directors  • Information Regarding Directors and Director
Nominees

2019 BOARD STRUCTURE

M = Management Director         I = Independent Director         C = Chair

Proposal 1: Election of Directors  • Information Regarding Directors and Director
Nominees

Proposal 1: Election of Directors  • Corporate Governance

Corporate Governance

The Company is committed to strong corporate governance policies, practices and procedures designed to make the Board more effective in exercising its oversight role. The following sections provide an overview of our corporate governance structure, including independence and other criteria we use in selecting director nominees, our Board leadership structure, and the responsibilities of the Board and each of its Committees. Our Corporate Governance Policy, among other key governance materials, help guide our Board and management in the performance of their duties and are regularly reviewed by the Board.

The Board and management regularly review best practices in corporate governance and are committed to a program that serves the long-term interests of our shareholders. We believe good governance strengthens accountability and promotes responsible corporate citizenship. Our current best practices are highlighted below:

(1)

Current directors Paul T. Bossidy and Patrick J. Sheehan have chosen not to stand for re-election to the Board at the Company’s 2019 Annual Meeting. Following their retirement from the Board, 9 out of 11 of the remaining members will be designated as independent directors.

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Proposal 1: Election of Directors  • Corporate Governance

Board of Directors

The primary functions of Berkshire’s Board of Directors are:

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To oversee management performance on behalf of shareholders;

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To ensure that the interests of the shareholders are being served;

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To monitor adherence to Berkshire’s standards and policies;

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To promote the exercise of responsible corporate citizenship; and

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To perform the duties and responsibilities assigned to the Board by the laws of Delaware, Berkshire’s state of incorporation.

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Board Meetings

During 2018, the Board of Directors held thirteen (13) meetings. The average attendance at meetings of the Board and Board Committees during 2018 was 98%. During this period, each of the current directors attended at least 75% of the aggregate of the total number of board meetings and committee meetings held on which such directors served.

In addition, the Board of Directors encourages each director to attend annual meetings of shareholders. Seven out of thirteen directors serving at that time attended the 2018 annual meeting of shareholders.

Board Leadership Structure

The Board has reviewed the current Board leadership structure of the Company, which consists of a separate Independent Chairman of the Board and a Chief Executive Officer. The Independent Chairman performs all duties and has all powers which are commonly incident to the office of Chairman of the Board or which are delegated to him by the Board of Directors, including presiding at all meetings of the Board of Directors. The Chief Executive Officer has responsibility for the management and control of the business and affairs of the Company and has general supervision of all other officers, employees and agents of the Company. The Board believes that separating these roles enhances the independence of the Board and its effectiveness in discharging its responsibilities and that this procedure is currently the most appropriate Board leadership structure for the Company.

Director Independence

The Company’s Board of Directors currently consists of 13 members, all of whom are independent under the listing requirements of The New York Stock Exchange (the “NYSE”), except for Messrs. Marotta and Curley, who are officers of the Company and the Bank. Additionally, all of the members of the Audit, Compensation and Corporate Governance/Nominating Committees are independent in accordance with the listing standards of the NYSE, and, in the case of members of the Audit and Compensation Committees, applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and the Federal Deposit Insurance Corporation (“FDIC”). In determining the independence of its directors, the Board considered transactions, relationships and arrangements between the Company and its directors that are not required to be disclosed in this proxy statement under the heading “Transactions with Related Persons,” including loans or lines of credit that the Bank has directly or indirectly made to Directors Mahoney, Massad, Moffatt, Murphy, Sheehan and Templeton. Directors Paul T. Bossidy and Patrick J. Sheehan have elected to retire from the Boards of Directors of the Company and the Bank, effective as of the 2019 Annual Meeting.

Corporate Governance Policy

The Board of Directors has adopted a corporate governance policy to govern certain activities, including: the duties and responsibilities of directors; the composition, responsibilities and operation of the Board of Directors; the selection of a Chairman of the Board of Directors; the operation of board committees; succession planning; convening executive sessions of independent directors; the Board of Directors’

Proposal 1: Election of Directors  • Corporate Governance

interaction with management and third parties; and the evaluation of the performance of the Board of Directors and of the Chief Executive Officer. A copy of the corporate governance policy is available in the Governance Documents portion of the Investor Relations section of the Company’s website (ir.berkshirebank.com).

Commitment to Corporate Social Responsibility and Culture

In 2018, Berkshire launched a corporate diversity and inclusion initiative partnering with prominent experts to expand and deepen these initiatives, with the ultimate goal of creating a culture that embodies diversity, inclusion, mutual respect and belonging. In order to take a top-down approach to this cause the Board recently established a Corporate Responsibility and Culture Committee, led by Laurie Norton Moffatt, which will provide oversight into these initiatives. The Board and senior leadership believe that a workforce that brings together diverse perspectives, ideas and experiences based on competencies, not backgrounds, leads to stronger financial performance, improved reputation, increased market share, reduced risk and the ability to attract and retain the best talent.

Berkshire also reaffirmed its commitment to corporate social responsibility by appointing a Senior Vice President, Corporate Responsibility & Culture to integrate and expand the Bank’s corporate social responsibility efforts into all areas of the business. Berkshire’s inaugural “Corporate Social Responsibility Report” summarizes many of the ways Berkshire strives to be a good corporate citizen by conducting business in a socially responsible manner, being a caring neighbor and employer, and being as transparent as possible in its governance. It may be found on our investor relations website (ir.berkshirebank.com).

Director Continuing Education

The Board of Directors conducts annual director education sessions, which include presentations by industry experts based on input from directors regarding topics of interest. This year’s topics included an information security incident response overview presented by Berkshire Bank’s internal information security officer. Directors also receive an annual update on trending compliance and regulatory matters and new developments from the Bank’s outside compliance advisory firm. Our senior management meets with the Board at every regularly scheduled board meeting and annually to review the Company’s strategic plan.

Board and Committee Self Evaluation

The Corporate Governance/Nominating Committee oversees the annual self-evaluation of the performance of the Board of directors and its committees, the results of which are discussed with the full Board and each individual committee, as appropriate. The purpose of the evaluations is to improve the performance of the overall Board and each specific committee. The evaluations include a review of any areas in which Board or committee members believes the Board and the committees can make a better contribution to the governance and oversight of the Company. The Corporate Governance/Nominating Committee also utilizes the results of the Board and committee evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board and appointment to each committee. The evaluation survey forms include opened-ended questions in which directors are invited to share their written comments on a confidential basis.

In concert with its other diversity and inclusion efforts cited above, the Board is committed to maintaining an appropriately sized membership comprised of diverse individuals from a wide range of backgrounds, experiences and perspectives. The Board is actively looking to build a strong pool of potential nominees with varied expertise and skill sets from which to draw to replace members who retire.

Proposal 1: Election of Directors  • Corporate Governance

Committees of the Board of Directors

The Board has six standing committees: the Audit Committee; the Compensation Committee; the Corporate Governance/Nominating Committee; the Corporate Responsibility and Culture Committee (established March 21, 2019); the Risk Management and Capital Committee; and the Compliance/Regulatory Committee. The Board has determined that all members of the Audit Committee, the Compensation Committee and the Corporate Governance/Nominating Committee are independent in accordance with the listing requirements of the NYSE. Each committee operates under a written charter approved by the Board of Directors that governs its composition, responsibilities and operation. Each committee reviews and reassesses the adequacy of its charter at least annually. The current charters of all six committees are available in the Governance Documents portion of the Investor Relations section of the Company’s website (ir.berkshirebank.com).

C

Denotes Committee Chairperson.

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(1)

In anticipation of Mr. Bossidy’s retirement from the Board as of the date of the 2019 Annual Meeting, on March 21, 2019, the Company and Bank Boards appointed Mr. Brunelle as the Chairperson of the Audit Committee.

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(2)

Mr. Sheehan has elected not to stand for re-election to the Board at the Company’s 2019 Annual Meeting.

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Proposal 1: Election of Directors  • Corporate Governance

Board Committees and Responsibilities

The primary functions of each of the board committees are described below.

Proposal 1: Election of Directors  • Corporate Governance

(1)

In anticipation of Paul T. Bossidy’s retirement from the Board as of the date of the 2019 Annual Meeting, on March 21, 2019, the Company and Bank Boards appointed Mr. Brunelle as the Chairperson of the Audit Committee.

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(2)

On March 21, 2019, the Comany and Bank Boards appointed Mr. Mahoney as the Chairperson of the Compensation & Regulatory Committee.

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Proposal 1: Election of Directors  • Corporate Governance

Audit Committee

For information about the audit committee and Bershire’s audit committee financial expert, please see table above and pages 66 - 68 in this proxy statement.

Identification and Evaluation of Director Candidates

The Corporate Governance/Nominating Committee is responsible for identifying and recommending to the Board of Directors candidates for Board membership. For purposes of identifying nominees, the Corporate Governance/Nominating Committee relies on personal contacts of the committee members and other members of the Board of Directors, as well as its knowledge of members of the communities served by the Company and its subsidiaries. The Corporate Governance/Nominating Committee will also consider director candidates recommended by shareholders in accordance with the policy and procedures set forth below. The Corporate Governance/Nominating Committee has not previously used an independent search firm to identify nominees.

In evaluating potential nominees, the Corporate Governance/Nominating Committee determines whether the candidate is eligible and qualified for service on the Board of Directors by evaluating the candidate under certain criteria, which are described below under “Director Eligibility Requirements.” If an individual fulfills these criteria, the Corporate Governance/Nominating Committee will conduct a background check and interview the candidate to further assess the qualities of the prospective nominee and the contributions they would make to the Board.

Criteria for Nomination to the Board of Directors

The Corporate Governance/Nominating Committee has adopted a set of criteria that it considers when it selects individuals to be nominated for election to the Board of Directors. A candidate must meet the eligibility requirements set forth in the Company’s bylaws, including a requirement that the candidate not have been subject to certain criminal or regulatory actions. A candidate also must meet any qualification requirements set forth in any Board or committee governing documents.

If the candidate is deemed eligible and qualified for election to the Board of Directors, the Corporate Governance/Nominating Committee will then evaluate the following criteria in selecting nominees:

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financial, regulatory and business experience;

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familiarity with and participation in the local communities;

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integrity, honesty and reputation in connection with upholding a position of trust with respect to customers;

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dedication to the Company and its shareholders; and

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independence.

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The Committee will consider a candidate’s background, training, leadership ability and related skills across a broad spectrum of business, professional, entrepreneurial, educational and creative endeavors, as well as technical skills, experience and know-how in fields and professions outside the financial services industry (such as, by way of example, but without limitation, cyber-security, information technology and management, marketing, business and human capital development) that may assist the Company in strengthening, protecting or promoting its business. The Committee also will consider any other factors the Corporate Governance/Nominating Committee deems relevant, including age, diversity, size of the Board of Directors and regulatory disclosure obligations. We do not maintain a specific diversity policy, but diversity is considered in our review of candidates. Diversity is considered in terms of how a candidate’s background, experience, qualifications, attributes and skills may complement, supplement or duplicate those of the Board.

With respect to nominating an existing director for re-election to the Board of Directors, the Corporate Governance/Nominating Committee will consider and review an existing director’s Board and committee attendance and performance; length of Board service; the experience, skills and contributions that the existing director brings to the Board; and independence.

Proposal 1: Election of Directors  • Corporate Governance

Director Eligibility Requirements:

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No person shall be eligible for election or appointment to the Board of Directors: (i) if such person has, within the previous ten years, been the subject of supervisory action by a financial regulatory agency that resulted in a cease and desist order or an agreement or other written statement subject to public disclosure under 12 U.S.C. 1818(u), or any successor provision; (ii) if such person has been convicted of a crime involving dishonesty or breach of trust which is punishable by imprisonment for a term exceeding one year under state or federal law; or (iii) if such person is currently charged in any information, indictment, or other complaint with the commission of or participation in such a crime.

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No person shall be eligible for election or appointment to the Board of Directors if such person is the nominee or representative of a company, as that term is defined in Section 10 of the Home Owners’ Loan Act or any successor provision, of which any director, partner, trustee or shareholder controlling more than 10% of any class of voting stock would not be eligible for election or appointment to the Board of Directors.

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No person may serve on the Board of Directors and at the same time be a director of more than two other public companies, or their subsidiaries.

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No person shall be eligible for election to the Board of Directors if such person is the nominee or representative of a person or group, or of a group acting in concert (as defined in 12 C.F.R Section 303.81(b)), that includes a person who is ineligible for election to the Board of Directors.

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The Board of Directors shall have the power to construe and apply the provisions of the Company’s bylaws and other governance documents, and to make all determinations necessary or desirable to implement such provisions, including but not limited to determinations as to whether a person is a nominee or representative of a person, a company or a group, whether a person or company is included in a group, and whether a person is the nominee or representative of a group acting in concert.

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Consideration of Recommendations by Shareholders. It is the policy of the Corporate Governance/​Nominating Committee of the Board of Directors of the Company to consider director candidates recommended by shareholders who appear to be qualified to serve on the Company’s Board of Directors. The Corporate Governance/Nominating Committee may choose not to consider an unsolicited recommendation if no vacancy exists on the Board of Directors and the Corporate Governance/​Nominating Committee does not perceive a need to increase the size of the Board of Directors. To avoid the unnecessary use of the Corporate Governance/Nominating Committee’s resources, the Corporate Governance/Nominating Committee will consider only those director candidates recommended in accordance with the procedures set forth below.

Procedures to be Followed by Shareholders. To submit a recommendation of a director candidate to the Corporate Governance/Nominating Committee, a shareholder must submit the following information in writing, addressed to the Chairman of the Corporate Governance/Nominating Committee, care of the Corporate Secretary, at 60 State Street, Boston, Massachusetts 02109:

1.

The name of the person recommended as a director candidate;

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2.

All information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934;

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3.

The written consent of the person being recommended as a director candidate to being named in the proxy statement as a nominee and to serving as a director if elected;

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4.

As to the shareholder making the recommendation, the name and address of such shareholder as it appears on the Company’s books; provided, however, that if the shareholder is not a registered holder of the Company’s common stock, the shareholder should submit their name and address along with a current written statement from the record holder of the shares that reflects ownership of the Company’s common stock; and

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5.

A statement disclosing whether such shareholder is acting with or on behalf of any other person and, if applicable, the identity of such person.

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Proposal 1: Election of Directors  • Corporate Governance

In order for a director candidate to be considered for nomination at the Company’s annual meeting of shareholders, the recommendation must be received by the Corporate Governance/Nominating Committee at least 120 calendar days before the date the Company’s proxy statement was released to shareholders in connection with the previous year’s annual meeting, advanced by one year. The Company has not received any recommendations from shareholders for director candidates to be considered for election at the Company’s 2019 Annual Meeting of Shareholders.

Board Risk Oversight

The Board oversees the Company’s risk profile and management’s processes for assessing and managing risk, both as a whole board and through its committees. At least annually, the Board reviews strategic risks and opportunities facing the company and certain of its businesses. Other important categories of risk are assigned to designated Board committees that report back to the full Board. In general, the committees oversee the following risks:

Code of Business Conduct and Anonymous Reporting Line Policy

The Company has adopted a Code of Business Conduct that is designed to promote the highest standards of ethical conduct by the Company’s directors, executive officers and employees. The Code of Business Conduct, sets forth the ethical rules and standards by which all employees, officers and directors of the Company and its subsidiaries must conduct themselves, and addresses, among other things, conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. The Code of Business Conduct, which also strictly prohibits harassment of any kind in the workplace, is designed to deter wrongdoing and promote honest and ethical conduct, the avoidance of conflicts of interest, a zero tolerance culture and safe environment free from harassment of any kind, full and accurate disclosure and compliance with all applicable laws, rules and regulations.

Paired with the Code of Business Conduct, the Company has also adopted a related Anonymous Reporting Line (also known as the Whistleblower Reporting Line) Policy, under which the Audit Committee maintains and monitors an anonymous “whistleblower” reporting hotline service that all Berkshire personnel are encouraged to use for reporting actual or potential wrongdoing, apparent or suspected violations of the

Proposal 1: Election of Directors  • Corporate Governance

Code of Business Conduct, or other misconduct by any corporate actors. Both the Code of Business Conduct and the Anonymous Reporting Line Policy are reviewed and acknowledged annually by all of Berkshire’s directors, officers and employees, and both are written and implemented to ensure that no retaliation is permitted against any Company personnel who report an incident of harassment or any other misconduct in good faith. Copies of the Company’s Code of Business Conduct and Anonymous Reporting Line (Whistleblower Reporting Line) Policy are available in the Governance Documents portion of the Investor Relations section of the Company’s website (ir.berkshirebank.com).

Anti-Hedging and Pledging Restriction Policy

The Company discourages the practices of hedging and/or pledging of Company common stock by officers and directors, and has policies relating to such practices. Pursuant to the Company’s insider trading policy and stock ownership guidelines, officers and directors of the Company are prohibited from engaging in any hedging transactions (which include short sale transactions, purchases of Company common stock on margin, and buying or selling any puts, calls or other options that have the effect of reducing the economic exposure to the shares of common stock). In addition, officers and directors are discouraged from pledging company securities as collateral for margin purchases or a loan. However, exceptions to this pledging limitation may be granted, if good cause is shown.

Proposal 1: Election of Directors  • Director Compensation

Director Compensation

The Company uses a combination of cash and restricted stock to attract and retain qualified candidates to serve on the Board. Restricted stock grants are intended to align directors’ interests with those of the Company’s shareholders. The Compensation and Corporate Governance/Nominating Committees review director compensation and benefits annually and make recommendations to the Board. The following table provides the compensation received by individuals who served as directors (except for Messrs. Marotta and Daly, whose compensation is reported in the Summary Compensation Table) of the Company during the 2018 fiscal year. The stock award amounts in 2018 were unchanged from the prior year. Messrs. Marotta and Daly did not receive separate compensation for their service on the Board. Mr. Daly resigned as President, Chief Executive Officer and Director of the Company, effective November 26, 2018. Concurrently, Mr. Marotta was appointed as President, Chief Executive Officer and Director of the Company.

(1)

Represents the grant date fair value of the restricted stock awards which has been computed in accordance with the stock based accounting rules under FASB ASC Topic 718. Amounts shown are the aggregate grant date fair value of restricted stock awards, with the grant date fair value based on the closing price of the Company’s common stock on the applicable grant date. See Note 19 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2018. Since January 30, 2004, no stock options have been granted to any directors. As of December 31, 2018, directors (except for Messrs. Marotta and Daly, whose compensation is reported in the Summary Compensation Table below) had the following number of unvested shares of restricted stock and stock options outstanding:

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(2)

Reflects dividends paid when restricted stock becomes vested.

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(3)

Messrs. Bossidy and Sheehan will retire from the Company and Bank Boards of Directors, effective as of the 2019 Annual Meeting.

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(4)

Includes $129 in imputed income on split dollar insurance recognized by Mr. Brunelle.

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Proposal 1: Election of Directors  • Director Compensation

(5)

The total amount included in “All Other Compensation” reflects Mr. Curley’s salary in the amount of  $180,513 as Chairman of the New York region of Berkshire Bank and club dues of  $3,433.

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(6)

Includes $125 in imputed income on split dollar insurance recognized by Mr. Dunlaevy.

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(7)

Includes $369 in imputed income on split dollar insurance recognized by Ms. Massad.

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Retainers for Non-Employee Directors. The following table sets forth the applicable retainers that will be paid to our non-employee directors for their service on our Board of Directors during 2019.

Advisory Vote on Executive Compensation

The Board of Directors recommends approval of its Named Executive Officer (“NEO”) compensation as set forth herein.

Background. In accordance with Section 14A of the Securities Exchange Act of 1934, shareholders are being given the opportunity to vote on an advisory (non-binding) resolution at the annual meeting to approve our executive compensation as described below in the Compensation Discussion and Analysis, compensation tables and narrative discussion of NEO compensation presented in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives shareholders the opportunity to endorse or not endorse the Company’s executive pay program.

The purpose of our compensation policies and procedures is to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and enhancement of shareholder value. The Board of Directors believes the Company’s compensation policies and procedures achieve this objective, and therefore recommend shareholders vote “FOR” the proposal.

“Resolved, that the compensation paid to the Company’s Named Executive Officers, as disclosed in this proxy statement pursuant to Item 402 of Securities and Exchange Commission Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.”

Is the Shareholder Vote Binding on the Company? This is an advisory vote only, and neither the Company nor the Board of Directors will be bound to take action based upon the outcome. The Compensation Committee will consider the vote of the shareholders when considering future executive compensation arrangements.

THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THIS PROPOSAL.

Compensation
Discussion and Analysis

In this section we explain our compensation philosophy, describe the material components of our executive compensation program, and review the 2018 compensation decisions for our Named Executive Officers (“NEOs”) listed below. Their compensation is set forth in the Summary Compensation Table and other compensation tables contained in this Proxy Statement. The following Compensation Discussion and Analysis (“CD&A”) focuses on the key factors we believe shareholders should focus on in their evaluation of our “Say-on-Pay” proposal.

(1)

The principal positions listed above represent the titles of each of the Named Executive Officers at Berkshire Bank, the wholly owned subsidiary of Berkshire Hills Bancorp, Inc. The principal position of each of the Named Executive Officers at Berkshire Hills Bancorp, Inc. is as follows: Mr. Marotta is President and Chief Executive Officer, Mr. Gray is Senior Executive Vice President, Mr. Moses is Senior Executive Vice President and Chief Financial Officer and Mr. Bacigalupo is Senior Executive Vice President.

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(2)

Mr. Marotta was appointed to Chief Executive Officer of the Bank and Mr. Gray was appointed to President and Chief Operating Officer of the Bank effective November 26, 2018. Prior to these appointments Mr. Marotta served as President of the Bank and Mr. Gray served as Chief Operating Officer of the Bank.

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(3)

Mr. Daly resigned from the Company and the Bank effective November 26, 2018. His principal position at Berkshire Hills Bancorp, Inc. had been Director, Chief Executive Officer and President. Ms. Johnston resigned from the Company and the Bank effective April 1, 2019. Her principal position at Berkshire Hills Bancorp, Inc. had been Senior Executive Officer.

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Table of Contents

Compensation Discussion and Analysis  

Executive Summary

Performance Overview

The Company achieved record revenue and earnings in 2018. It was also its first full year operating an institution with over $10 billion in assets and functioning under the expanded Dodd-Frank regulatory requirements at this size. Average assets increased by 48% and total revenues grew by 57% over the last two years.

Over the last four years we have grown our company through disciplined expansion from $6.5 billion to over $12 billion in total assets. In this time we have made key investments in people and infrastructure, including hiring seasoned lending teams across our market, expanding and upgrading our personnel and systems in compliance, risk and finance, and restructuring our executive team to include more diversity and better engagement and accountability. Through all of this we have continued to improve profitability, develop our revenue streams, and increased returns to our shareholders through four years of sequential dividend increases.

The Board utilizes non-GAAP financial measures as the focus of its assessment of management’s performance in achieving corporate objectives. These measures exclude items which are not viewed as related to ongoing performance, including merger related charges that the Company views as part of the economic investment in acquisitions. Three prominent measures are Core Earnings, Core EPS, and Core ROA. A reconciliation of non-GAAP charges is set forth in Appendix A. These Core measures are referred to as “Adjusted” in the accompanying Summary Annual Report and Annual Report on Form 10-K.

Executive Compensation Key Principles

Our philosophy is to provide an executive compensation program that rewards long-term value for our shareholders and promotes sound risk management. The key principles that support our philosophy are:

✓

Attract and retain highly talented executives committed to our success

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✓

Pay for performance

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✓

Align executive interests with those of our shareholders

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✓

Manage risk through oversight and compensation design features and practices

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Compensation Discussion and Analysis  

Summary Description of 2018 Compensation Results

The information below summarizes the Compensation Committee’s (“the Committee”) 2018 compensation actions, which were consistent with our long-standing commitment to provide pay commensurate with performance, align executive goals with shareholder interests, and provide compensation that is aligned with competitive market practices. For more details on the program design and decisions made in 2018, please see pages 41-51 in this CD&A. For reconciliation of non-GAAP measures to their most directly comparable GAAP financial measures, please see Appendix A.

Summary of Compensation Components

Compensation Discussion and Analysis  

CEO and NEO Pay-For-Performance Alignment

Performance in 2018 represented the fourth consecutive year of increasing core EPS and increasing core ROA. Although a stock market decline in 2018 resulted in a negative total shareholder return for the year, the Company’s core return on equity increased by 10% over the last three years even as our growth strategy and strategic crossing of the $10 billion asset threshold have required near term resources and management focus on infrastructure. The Company has achieved its long run objective to grow and improve profitability, exceeding most Board performance goals while creating the third largest regional banking franchise headquartered in New England, and the largest regional banking company headquartered in Boston. CEO and NEO pay has increased based on growth and performance, while increasing at a lower rate than the overall performance metrics achieved in recent years.

Compensation Discussion and Analysis  

(1)

Reflects the year-to-year performance indexed to a 2014 base year for performance metrics, at 100.

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(2)

Direct compensation totals are composed of base salary, short term incentive (“STI”) and long term incentive (“LTI”). This measure excludes sign-on bonuses and special grants, which were supported by specific events.

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(3)

For illustrative purposes, the CEO compensation bar for 2018 includes an annualized base salary of  $750,000, stock awards of $603,002 (which were granted to Mr. Daly in January 2018), and an assumed non-equity incentive of  $697,500 (taking into account a 75% STI target and payout at 124%, which is in line with the other NEOs’ payouts). The NEO compensation bar for 2018 includes actual compensation paid to Messrs. Marotta, Gray, Moses and Bacigalupo. Ms. Johnston is not included in the NEO bar in order to limit the compensation representation to four executive position as is reflected in prior years; NEO compensation is disclosed on page 56.

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(4)

Core EPS and Core ROA are Non-GAAP financial measures used by the compensation committee to make compensation decisions, a reconciliation of Non-GAAP financial measures is available in Appendix A.

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Compensation Discussion and Analysis  

Compensation Program Elements and Pay Mix

*

For reconciliation of non-GAAP measures to their most directly comparable GAAP financial measures, please see Appendix A.

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(1)

Targets were set in January 2018, when Mr. Daly was CEO and Ms. Johnston was not classified as a Named Executive Officer.

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(2)

Market target averages provided by independent compensation consultant and determined by using pay practices at peers listed elsewhere in this proxy statement.

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Compensation Discussion and Analysis  

Highlights of our Compensation and Governance Programs

Compensation Philosophy and Objectives

The primary philosophy and objective of our compensation program is to align the interests of our executives with shareholders by rewarding performance against established corporate financial and strategic goals, solid executive leadership and strong individual executive performance. We strive to attract, motivate and retain a highly qualified and talented team of executives who will lead Berkshire to maximize long-term performance and earnings growth. The Compensation Committee regularly reviews executive compensation program elements to ensure they are consistent with safe and sound business practices, regulatory requirements, emerging industry best practices and shareholder interests.

Compensation Discussion and Analysis  

Key Principles That Support Our Philosophy

Compensation Discussion and Analysis  

Decision-Making Process

Our Compensation Committee, which is composed solely of independent directors, is responsible for establishing, implementing and continually monitoring all elements of compensation for the Company’s CEO and NEOs.

Compensation Discussion and Analysis  

Factors Considered in Compensation Decision Process

The Compensation Committee considers many factors when making pay decisions throughout the year. In addition to the market data provided by the independent consultant, the Compensation Committee also considers various analyses, information and input including, but not limited to:

Overall operational and financial performance

Stock price performance and total shareholder return on an absolute and relative basis

Executive’s individual performance results relative to their individual financial and strategic goals

Strategic plan progress and performance relative to annual budget

Tally sheets

Demonstration of behaviors that support our culture and brand

Executive stock ownership levels

Qualitative input from the Compensation Committee and other independent directors

External influences, economic conditions and industry factors

Risk assessment considerations

Internal equity

Compensation trends and best practices

Compensation Discussion and Analysis  

Benchmarking Analysis — Compensation Peer Group

The Compensation Committee considers the structure of compensation programs and pay levels at other publicly traded banks similar in size and business model to Berkshire when evaluating our compensation program. Annually, the Compensation Committee’s independent compensation consultant conducts a comprehensive competitive market analysis using the peer group and other industry survey data. The peer group is developed by the independent compensation consultant, approved by the Compensation Committee and used as part of the perspective consideration by the Compensation Committee to analyze and set annual salaries and incentive target opportunities. The Compensation Committee annually reviews and updates the peer group, as necessary upon recommendation of the Compensation Consultant.

Peer Group Criteria: The peer group developed in 2017 to apply to 2018 pay program targets included banks nationwide ranging from $8 to $20 billion in assets, with similar business models, revenues and regulatory hurdles to Berkshire. Due to the large number of banks and to refine to a reasonable number of institutions, the peer group excluded banks located on the West Coast and in Texas.

The following group shows the peer companies identified in 2017 and used for 2018 pay program considerations:

(1)

Asset size and market cap as of 12/31/18; revenue FY2018; source: S&P Market Intelligence.

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The Compensation Consultant used the peer group and other published industry surveys to conduct the competitive review. They also used peer and their proprietary banking industry database to share general industry compensation trends.

Compensation Discussion and Analysis  

CEO Transition

On November 26, 2018, the Company and the Bank entered into a Resignation, Separation Agreement and Full and Final Release of Claims (the “Resignation and Separation Agreement”) with then CEO Michael Daly. Pursuant to this agreement, Mr. Daly resigned from his employment at Berkshire Hills Bancorp, Inc. and at Berkshire Bank and his employment contract was terminated. Mr. Daly had been serving as President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank. Also pursuant to this agreement, Mr. Daly resigned from his positions as a Director of the Company and the Bank. The Resignation and Separation Agreement was unanimously approved by the Boards of the Company and the Bank, with Mr. Daly abstaining from the vote. The Resignation and Separation Agreement included a release of claims, and noncompetition and non-solicitation covenants. Pursuant to the agreement, the Bank agreed to pay Mr. Daly $7.5 million, payable over time, including a $1.0 million payment shortly after execution. The Bank also agreed to provide certain future benefits to Mr. Daly and his dependents, including medical care insurance and long term care insurance. The total value of these benefits was established at $202,000. This amount and the $7.5 million separation payment were recorded as compensation expenses in the fourth quarter of 2018, and they were classified by the Company as noncore expenses. These amounts were unrelated to Mr. Daly’s employment compensation. Mr. Daly received his normal compensation in 2018 until November 26, 2018, including salary and a stock award under the Long Term Incentive plan which was made in January 2018. These amounts are reported in the Summary Compensation Table. Because Mr. Daly was not employed at year-end, no Short-term Incentive Plan cash compensation was paid to him in 2018.

Under the terms of the Resignation and Separation Agreement, Mr. Daly forfeited all pre-existing amounts owed to him by the Company and the Bank under his employment agreement and other pre-existing compensation arrangement, including the accumulated pension benefit.

As a result of these forfeitures and the reversal of related accrued liabilities as of November 26, 2018, the Company recorded a credit to compensation expense in 2018 which totaled $6.2 million. This credit was also classified by the Company as non-core credit, and it partially offset the non-core charges related to the Resignation and Separation agreement. The net non-core expense to 2018 earnings for the charges and credits related to Mr. Daly’s resignation and termination totaled $1.5 million. The Company does not expect any future charges to income related to the Resignation and Separation Agreement.

As provided for in the Company’s succession planning, as of November 26, 2018, Mr. Marotta was promoted to President and Chief Executive Officer of the Company and Chief Executive Officer of the Bank, and was named a Director of the Company and the Bank. Mr. Marotta had been serving as President of the Bank and Senior Executive Vice President of the Company. Mr. Gray was promoted to President and Chief Operating Officer of the Bank from Chief Operating Officer of the Bank, and he continues to serve as a Senior Executive Vice President of the Company. These promotions were unanimously approved by the Board of Directors.

The Committee sets target direct compensation in January of each year. In light of the transition, Mr. Marotta’s compensation was adjusted in 2019 based on his promotion to CEO. For 2019, Mr. Marotta’s base salary was increased to $675,000. His short-term cash incentive was set at 75% of salary, or $506,000 (subject to performance). His long term equity incentive award was granted in shares valued at $804,000, or 119% of salary, based on the share price on the grant date. His total 2019 direct compensation was set at $1.985 million (subject to performance). Additionally, the Company entered into an employment contract with Mr. Marotta as a result of his promotion.

As part of the transition and Mr. Gray’s promotion to President and Chief Operating Officer of the Bank, his 2019 compensation was increased to direct compensation totaling $1.353 million (subject to performance), including salary of  $550,000, a short-term cash incentive of  $302,500 (or 55% of salary), and a long term grant of shares valued at $500,000 (or 91% of salary). The Company also approved a Supplemental Employee Retirement Agreement for Mr. Gray based on his promotion to President and Chief Operating Officer of the Bank.

The Committee additionally made the salary and short term incentive increases for Mr. Marotta and Mr. Gray effective retroactively to December 1, 2018. These one month increases are included with 2018 information reported in the Summary Compensation Tables.

Compensation Discussion and Analysis  

2018 Compensation Program & Decisions

The Company’s compensation program consists of four main components: Base Salary, Short-term incentive (cash), Long-Term Incentive (equity), and Benefits and Perquisites. The following sections summarize the role of each component, how decisions are made and the resulting 2018 decision process as it relates to the NEOs.

Four of the NEOs are continuing from the prior year and are referred to in this discussion as Continuing NEOs. Mr. Daly resigned from the Company on November 26, 2018. At that time, Mr. Marotta was promoted to CEO and Mr. Gray was promoted to President and Chief Operating Officer. Ms. Johnston is the former Senior Executive Vice President, Chief Human Resources Officer and appears as an NEO for the first time in this report. Ms. Johnston has elected to retire from the Company and the Bank, effective April 1, 2019. The Company entered into a Separation Agreement with Ms. Johnston which included certain negotiated payments, which was filed by Form 8-K with the SEC on March 15, 2019.

Base Salary

When setting NEO base salary, the Compensation Committee aims to provide competitive and fair base compensation that reflects roles and contributions. The Committee considers competitive data provided by their independent compensation consultant. Salary increases in 2018 were made effective in January of that year.

2018 Salary Summary. Messrs. Marotta, Gray, Moses and Daly received salary increases in the range of 6 – 7% each, following 2017 in which no salary adjustments were made for these individuals. These increases were primarily due to the growth of the Company in recent years, and remained targeted within the range of market median. In December, following their promotions to CEO and President respectively, Mr. Marotta and Mr. Gray received promotional salary increases. Mr. Bacigalupo received no salary adjustment in 2018 or 2017 due to changes in commercial banking leadership responsibilities.

(1)

2018 salary for Messrs. Marotta and Gray is reflective of January 2018 annualized

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Short-Term Incentive Program and Awards (STI)

Compensation Discussion and Analysis  

Each year in January, prior year performance is assessed and the NEOs are then considered for short-term incentive awards based on achievement of those Company and individual goals. The Compensation Committee annually defines the corporate STI goals which serve as the basis for the granting of annual cash awards and approves the individual goals which will be used to determine the payout.

•

Rewards under this plan represent compensation that must be re-earned each year based on Company and individual performance results.

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•

The Compensation Committee approves the Chief Executive Officer’s individual goals based on the strategic plan/budget.

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•

The CEO prepares goals for NEOs that support our strategic plan and budget and reflect each NEO’s role. The Compensation Committee can modify the goals at their discretion and approves the final goals.

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•

NEO incentive award targets and pay-out ranges are reviewed and established annually by the Compensation Committee based on the Company’s overall performance and the independent compensation consultant’s benchmarking analysis.

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•

Award targets are designed to be in-line with our goal to provide a meaningful, but risk balanced, portion of total compensation that is based on annual results.

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•

Award targets are established as a percentage of base salary. Threshold and stretch adjustments are established in relationship to the target amount.

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•

Maximum incentive pool funding is capped at 150% of target. The maximum award for any participant (based on individual performance) is capped at 200% of target. In 2018, the Committee eliminated the optional strategic modifier to modify the pool by up to an additional +/- 15%.

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2018 STI Payments Summary. For 2018, the four Continuing NEOs received total STI payments which were 124% of target, based on our financial performance relative to Core Earnings, Expense Management, Asset Quality and Core Return on Assets. This was a decrease from 2017 payouts, including the impact of the Compensation Committee’s elimination of the Strategic Modifier as an element of the STI program, for 2018 and going forward.

2018 Target Opportunities. The Committee approved increases to the STI targets opportunities which were established to be competitive with peer practice and to align our target pay with market median as well as reflect our larger size. The target payout percentages were increased from 60% to 75% for Mr. Daly, 45% to 55% for Mr. Marotta, 40% to 50% for Mr. Gray, and 40% to 45% for Messrs. Moses and Bacigalupo. For Ms. Johnston, the target was 45% of salary.

Once the pool funding is known, individual performance is assessed to determine and allocate the actual awards from the amount that has been funded to the pool. The Compensation Committee retains the discretion to modify incentive payouts based on significant individual or Company performance shortfalls and/or regulatory and safety and soundness concerns and based on risk management considerations. The incentive plan traditionally incorporated a strategic modifier which provided the Committee the flexibility to adjust the award to reflect performance against the strategic plan. However, based on shareholder feedback, the Committee retroactively eliminated this component for 2018 and will formally eliminate it in 2019.

Compensation Discussion and Analysis  

Company Measures and Funding of the Incentive Pool

The Compensation Committee has established four performance goals that determine the pool that will be available for incentive awards. The Committee also established a minimum trigger or gate level of performance, which is defined at 75% of the targeted core earnings, which must be achieved in order for the plan to fund any awards. Once the minimum is achieved, the incentive pool funding is determined based on Company performance relative to the four performance goals, evenly weighted. These performance measures were unchanged from 2017:

*

For a summary of certain non-GAAP performance measures, please see Appendix A.

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Each goal has a defined range of acceptable performance; threshold funds the pool at 50%; target performance funds the pool at 100% and stretch performance funds at 150%. Funding is interpolated proportionally based on actual performance within these ranges. These ranges are unchanged from the prior year and are viewed as within a normal range among Company peers. The Committee will consider and discuss overall risk and can also adjust the pool downward to reflect any risk, regulatory or shareholder issues. The objective is to ensure our incentive plan is funded appropriately based on profits and strategic results.

2018 Corporate Scorecard Metrics, Goals and Results

Each Corporate performance measure has defined goals for threshold, target and stretch performance. The goals for threshold and stretch represents +/- 5% for Core Earnings and +/- 15% for Asset Quality, consistent with the performance range spread used in 2017. The goals for Expense Management were increased from +/- 2% to +/- 3% and the performance range for Core Return on Assets were increased from +/- .04% to +/0.05%. These changes were intended to challenge management to more substantially exceed the target in order to achieve the full stretch payment, and the threshold was adjusted as a result of the increased stretch requirement. A summary of how targets were set is discussed below. The Committee considered the benefit to company earnings from federal income tax reform in setting performance goals for 2018.

The considerations in setting the 2018 corporate targets and evaluating performance are shown below.

•

The core earnings target was established with a target increase of 38% over the prior year, to provide incentive for management to achieve the earnings targets for the Commerce acquisition, and to seek other earnings growth from organic and/or acquisition activities. The increase included recognition of the lower federal income tax rate resulting from income tax reform, and was consistent with other goals for improving profitability. Actual Results: Core earnings was $125MM, which resulted in a 99% funding on this measure.

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•

The expense management goal is efficiency ratio, and was targeted at 60%, which was unchanged from the prior year actual result. The achievement of this target includes a balancing of spending on current operations and on infrastructure development to support the Company’s growth. Actual Results: The

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Compensation Discussion and Analysis  

efficiency ratio achieved was 58.3%, which is favorable compared to target and resulted in a 128% funding on this measure. Management achieved its targets for achieving efficiencies from the Commerce acquisition and also closely managed expenses throughout the year.

•

The asset quality target measures the level of criticized assets in relation to capital. The target was set at 26%, compared to a 20% actual result in 2017. This target anticipated normalization of criticized assets from recent historically favorable levels. Nonperforming assets increased by 40% year-over-year due to one commercial relationship. The allowance for loan losses increased, including approximately a 10% impact from increased inherent credit risk. Due to strong credit management and asset recoveries, criticized asset levels were tightly controlled. Actual Results: The asset quality measure achieved in 2018 was 17% and resulted in a 150% funding on this measure.

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•

The core return on assets is a critical profitability measure that the Company is striving to improve. The target was set at 1.05% in 2018, compared to an actual result of 0.93% in 2017. Profitability improved in 2018 due to the benefit of federal income tax reform. Profitability was further targeted to improve based on the accretive benefits of the Commerce acquisition and organic growth. Actual Results: Core ROA in 2018 was 1.07%, which resulted in 120% funding on this measure.

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The table below summarizes the performance goals, results and incentive funding for 2018:

The above performance resulted in a total weighted funding of 124% of target in 2018 compared to 146% of target in 2017. Management essentially met the core earnings target and exceeded all of the other targets. The most critical accomplishment was the strong resolution of acquired impaired assets, which resulted in higher purchased loan accretion and contributed strongly to the achievement of all four measures. Results in 2018 also benefited from strong expense discipline which contributed to most of the measures as a result of successfully integrating Commerce and managing core expenses closely in light of mortgage banking revenue headwinds and ongoing pressure from higher borrowings costs in funding organic growth in the environment of rising interest rates and a flattening yield curve. The targets assumed a flat interest rate environment which would have been more favorable based on the Company’s growth targets in 2018, and compared to the flattening yield curve that was experienced during the year. The Committee considered any risk, regulatory or shareholder issues and there was no basis for adjusting the pool funding downward. Enterprise risk and regulatory measures remained favorable. Relative TSR was favorable for much of the year, although it became unfavorable in the fourth quarter due to lower earnings guidance and other corporate developments.

Following shareholder engagement during the year, the Committee decided to eliminate the strategic modifier that provided for +/- 15% of the calculated weighted payment for 2018 and beyond. This modifier has been awarded in recent years due to the many strategic achievements in building the Company to its current market position. In consideration of the Company’s current size and position and peer practices, and in recognition of shareholder feedback, the Committee determined that this modifier was not necessary for future incentive management. As a result, the Committee eliminated the multiplier for 2018 and retained the total funding of the STI pool at 124% of target in 2018, compared to 168% in the prior year, which included the full 15% modifier. This represented a 26% reduction in the pool funding ratio. Because of the resignation of the prior CEO, the total amount paid into the pool for the STI Plan was reduced by 30% in 2018 compared to 2017.

Compensation Discussion and Analysis  

Individual Performance

The Compensation Committee believes that our NEOs’ performance goals should support and help achieve the Company’s strategic objectives, support the Company’s culture and be tied to their areas of responsibility. Individual goals for the prior CEO were established by the Compensation Committee. Individual goals for the other executives were proposed by the prior CEO and reviewed and approved by the Compensation Committee.

Once the funding of the incentive pool is approved by the Compensation Committee, awards are then allocated based on each participant’s individual performance and contributions toward the Company’s strategic goals. This design is intended to provide a balance of  “team” through the overall plan funding, but allow actual allocation of the awards to reflect individual contributions toward the Company’s success.

At the end of the fiscal year, the Compensation Committee reviewed each NEO’s progress against his or her individual performance goals and contributions to overall company performance and strategic accomplishments. Based on this assessment, an NEO could receive an award from 0% to 200% of the targeted annual incentive, provided awards are within the funding cap. When making the award determinations, the Compensation Committee does not assign a specific weight to any individual goals, but instead reviews each NEO’s progress in aggregate. Due to the resignation of the prior CEO, most of the STI pool allocation related to that individual was removed from the total pool and the allocation related to Ms. Johnston was added. Since the CEO transition occurred late in the year, there were no adjustments to individual goals for the remaining NEOs for the year.

The 124% funding results could be adjusted up or down based on individual contribution, provided total awards do not exceed the incentive pool funding. Below is a summary of each NEO’s individual awards and the individual performance contributions considered by the Committee in determining the awards.