WASHINGTON, D.C. 20549
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
B: Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2016 and 2015
1. DESCRIPTION OF THE PLAN
The Berkshire Bank 401(k) Plan (the "Plan") was established on April 11, 1993.
The following brief description of the Plan is provided for general information purposes only. Participants should refer to the Plan Agreement for a more complete description of the Plan's provisions.
General
The Plan is a defined contribution plan covering all eligible employees of Berkshire Bank and subsidiaries (the "Bank" or the "Plan Sponsor"). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Vanguard Fiduciary Trust Company serves as the Trustee of the Plan. The Vanguard Group ("Vanguard" or the "Custodian") is the financial advisor, record keeper, and custodian of the Plan.
Contributions
Each year, participants may contribute a percent of pretax annual compensation, excluding certain types of restricted compensation, subject to certain limitations as defined by the Plan and the Internal Revenue Code ("IRC"). The maximum participant deferral was $18,000 for the Plan years ended December 31, 2016 and 2015. In addition, all employees who are eligible to make salary reductions under the Plan and who have attained age 50 before the close of the Plan year are eligible to make catch-up contributions, as defined by the Economic Growth and Tax Relief Reconciliation Act of 2001. Participants may also contribute rollover amounts representing distributions from other qualified retirement plans and IRAs. Participants direct the investment of their contributions into various investment options offered by the Plan. Participants may change their rate of contribution each pay period.
Effective the first payroll in 2016, Berkshire Bank's 401(k) plan offered an after-tax Roth option as an additional deferral selection.
The Bank matches a portion of eligible employee contributions. During 2016 and 2015, the Bank matched 100% of eligible employee contributions up to 4% of the participant's pretax annual compensation.
In addition, the Bank makes a Safe Harbor non-elective contribution to the account of each eligible employee in an amount equal to 3% of the participant's pretax annual compensation, excluding certain types of restricted compensation. Beginning on January 1, 2015, the non-elective contribution is automatically invested in the Berkshire Bank Stock Fund; however, the participant may elect to direct this contribution to another fund at any time after the first contribution.
BERKSHIRE BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
DESCRIPTION OF THE PLAN (continued)
Plan Eligibility
Employees of the Bank are eligible to participate in the Plan after attaining twenty-one years of age and completing one year of service with 1,000 hours during their initial year of employment.
A break in eligibility service occurs if an employee works less than 500 hours. If the eligibility requirements had not yet been satisfied and there is a break in eligibility service, periods before the break in service will not be taken into account and the employee will have to satisfy the eligibility requirements following the break in service.
Periods during which an employee has a break in eligibility service will not count against the employee if the employee was absent because the employee was pregnant, had a child or adopted a child, was serving in the military, or provided service during a national emergency and re-employment is protected under federal or state law, and the employee returns to employment within the time required by law. Service credit is given to employees of certain predecessor employers as described in the Plan document for participation and vesting purposes. Employees may join the Plan on the first of the month following the month in which eligibility requirements are satisfied. Rehires may rejoin the Plan on the first day of the month following the month of rehire if they were previous participants of the Plan.
Participant Accounts
Each participant's account is credited with the participant's contribution and allocations of (a) the Bank's contributions, (b) the Plan's investment earnings, and (c) administrative expenses. Allocations are based on participant earnings or account balances, as defined by the Plan. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.
Investments
Participants direct the investment of their contributions into investment options offered by the Plan which include selected mutual funds of Vanguard and other financial advisors, and common shares of Berkshire Hills Bancorp, Inc., the parent company of the Bank. Participants electing the Vanguard Brokerage Option can transfer vested assets to their brokerage account and invest in additional options beyond the Plan's core lineup. Employer contributions are invested in each participant's account according to the participant's selected allocation. Participants may change or transfer their investment options at any time via an automated telephone system or the Custodian's website.
BERKSHIRE BANK 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
DESCRIPTION OF THE PLAN (continued)
Vesting
Participants are 100% vested in all contributions plus actual earnings thereon.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of $1,000 per loan up to a maximum amount, which is equal to $50,000 or 50% of their vested account balance, whichever is less. In addition, the $50,000 limit is reduced by the highest outstanding loan balance (of any previous loans made) in the previous twelve months. The loans are secured by the balance in the participant's accounts and bear interest at The Wall Street Journal prime rate plus one percentage point as of the loan application review date. Interest rates ranged from 4.25% to 4.50% and 4.25% to 9.25% as of December 31, 2016 and December 31, 2015, respectively. In general, principal and interest are paid ratably over a period not to exceed five years through regular payroll deductions. Loans used to finance the participant's principal residence are repaid over a period of time, up to 20 years.
If a participant fails to make a loan repayment by its due date, the total outstanding amount of the loan including any interest that has accrued will be defaulted and deemed a distribution to the participant on the date of default. There were no deemed loans for the year ended December 31, 2016, and no deemed loans for the year ended December 31, 2015. There were no loan defaults for terminated participants for the years ended December 31, 2016 and 2015.
Payment of Benefits
On termination of service due to death, disability, normal retirement, or attaining age 59½ a participant may elect to receive either a lump sum amount equal to the value of the participant's vested interest in their account, annual installments, or defer distribution until a later date. If the vested portion of a participant's account balance is $1,000 or less, and the participant does not provide alternative instructions to the Plan sponsor, this amount is paid as a lump sum distribution as soon as possible following termination, retirement, disability, or to the beneficiary following death.
Participants may request a benefit payment in the case of financial hardship, subject to certain limitations as defined by the Plan.
Plan Termination
Although it has not expressed any intent to do so, the Bank has the right under the Plan to discontinue its contributions at any time and to terminate the Plan, subject to the provisions of ERISA. In the event of Plan termination, the net assets of the Plan would be allocated as prescribed by ERISA and its related regulations.
BERKSHIRE BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
DESCRIPTION OF THE PLAN (concluded)
Forfeited Accounts
At December 31, 2016 and December 31, 2015, forfeited non-vested accounts totaled $3,207 and $5,545, respectively. These accounts will be used to reduce future employer contributions.
2.
SUMMARY OF ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.
Basis of Accounting
The accompanying financial statements have been prepared using the accrual method of accounting.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Shares of registered investment companies are valued at quoted market prices which represent the net asset value reported by the fund at year-end. Investments in Berkshire Hills Bancorp, Inc. common stock and other equities are valued at the closing market price as of the last trade date of the year.
Purchases and sales of investments are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Capital gain distributions are included in dividend income. Net appreciation/(depreciation) includes the Plan's gains and losses on investments bought and sold as well as held during the year.
The Plan groups assets and liabilities that are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
BERKSHIRE BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
SUMMARY OF ACCOUNTING POLICIES (continued)
Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Plan's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income is recorded on an accrual basis. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses have been recorded at December 31, 2016 and 2015. Delinquent participant loans are recorded as distributions based on the terms of the Plan document.
Benefits Paid
Benefits are recorded upon distribution.
Administrative Expenses
The Plan's administrative expenses are paid by either the Plan or the Plan Sponsor as provided by the Plan document. Administrative expenses paid by the Plan Sponsor were $16,391 and $16,770 for the years ended December 31, 2016 and 2015, respectively. Administrative fees charged to the Plan as shown on the statements of changes in net assets relate to fees charged to the participants for recordkeeping and information management or participant loan processing that are deducted from their asset balances. Investment related expenses are included in net appreciation / (depreciation) in fair value of investments on the Statement of Changes in Net Assets.
BERKSHIRE BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
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3.
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INVESTMENTS, AT FAIR VALUE
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The following table summarizes the valuation of the Plan's investments by the fair value hierarchy levels as of December 31, 2016 and 2015, respectively:
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December 31, 2016
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Level 1
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Level 2
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Level 3
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Fair Value
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|
|
|
|
|
|
|
|
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|
|
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Mutual Funds*
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$
|
83,294,676
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|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
83,294,676
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|
|
Common stock*
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|
|
10,401,056
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,401,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
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$
|
93,695,732
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|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
93,695,732
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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December 31, 2015
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|
Level 1
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|
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Level 2
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|
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Level 3
|
|
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Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Mutual Funds**
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|
$
|
74,700,232
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
74,700,232
|
|
|
Common stock**
|
|
|
7,133,238
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,133,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total investments
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$
|
81,833,470
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
81,833,470
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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* As of December 31, 2016, 85% of the VGI Brokerage Option was comprised of mutual funds
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and 15% was comprised of common stock.
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**As of December 31, 2015, 5% of the VGI Brokerage Option was comprised of mutual funds
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and 95% was comprised of common stock.
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There were no assets measured at fair value on a non-recurring basis at December 31, 2016 or 2015. There were no transfers between categories during 2016 or 2015.
4.
TAX STATUS
The Bank adopted a prototype plan whose most recent determination letter from the Internal Revenue Service, dated August 22, 2001, stated that the Plan and related Trust were designed in accordance with applicable sections of the IRC. The Plan has been amended since receiving this letter; however, the Plan Administrator believes the Plan is currently operated in compliance with the applicable requirements of the IRC.
The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan is no longer subject to income tax examinations for years prior to 2013.
BERKSHIRE BANK 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
TAX STATUS (continued)
The United States Generally Accepted Accounting Principles ("U.S. GAAP") requires plan management to evaluate tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. Plan management has analyzed the tax positions taken by the Plan and has concluded that there are no uncertain positions taken or expected to be taken as of December 31, 2016. The Plan did not have any uncertain positions at December 31, 2015 which required disclosure or accrual. The Plan has recognized no interest or penalties related to uncertain tax positions.
5.
ADMINISTRATION OF PLAN ASSETS
The Plan assets are held by Vanguard Fiduciary Trust Company, the Trustee of the Plan.
Bank contributions, participant elective deferrals, and participant accounts are held and administered by Vanguard Fiduciary Trust Company, who invests cash received, interest, and dividend income in accordance with participants' instructions and makes distributions to participants. The Trustee also administers the payment of interest and principle on participant's loan.
Certain administrative functions are performed by officers or employees of the Bank. No such officers or employees receive compensation for such functions from the Plan.
6.
RISKS AND UNCERTAINTIES
The Plan invests in a variety of investment vehicles. Investment securities are exposed to various risks, such as interest rate, market, and credit. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the statement of net assets available for benefits.
7.
RELATED PARTY AND PARTIES IN INTEREST TRANSACTIONS
The Bank contributed $3,942,836 and $3,637,960 to the Plan for the years ended December 31, 2016 and 2015, of which none was owed to the Plan at December 31, 2016 and December 31, 2015, respectively. In addition, the Bank paid expenses in connection with the administration of the Plan, totaling $16,391 and $16,770 for the years ended December 31, 2016 and 2015, respectively.
BERKSHIRE BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (Continued)
RELATED PARTY AND PARTIES IN INTEREST TRANSACTIONS
(continued)
The Plan has investments in common stock of Berkshire Hills Bancorp, Inc., the parent company of the Bank. At December 31, 2016 and 2015, the stock value was $10,349,284 and $6,949,742, respectively. For the years ended December 31, 2016 and 2015, the purchases of stocks amounted to $2,443,943 and $2,686,317 respectively and sales amounted to $1,424,369 and $689,154. Dividends earned were $197,690 and $141,832. In addition, certain of the investment options are managed by Vanguard. Transactions in such investments qualify as party-in-interest transactions. Notes receivable from participants also qualify as parties-in-interest transactions.
8.
ROLLOVER CONTRIBUTIONS
For the year ended December 31, 2016, the rollover contributions are made up of contributions from new employees rolling their assets over into the Plan and contributions from former employees of 44 Business Capital ("44BC"), Ronald N. Lazzaro, P.C. ("RNL"), and First Choice Bank ("First Choice"). New employees have the option to transfer their funds from a previous employer's retirement plan into the Plan. On April 29, 2016, the Bank acquired 44BC. Effective April 30, 2016, the employees of 44BC were given credit for hours of service with their previous employer and were able to participate in the Berkshire Bank 401(k) plan on May 1, 2016. The 44BC 401(k) Plan participants had the option to transfer their funds into the Berkshire Bank 401(k) Plan. On December 2, 2016, the Bank acquired RNL. Effective December 3, 2016, the employees of RNL were given credit for hours of service with their previous employer and were able to participate in the Berkshire Bank 401(k) Plan on January 1, 2017. The RNL 401(k) Plan participants had the option to transfer their funds into the Berkshire Bank 401(k) Plan. On December 2, 2016, the Bank acquired First Choice. Effective December 3, 2016, the employees of First Choice were given credit for hours of service with their previous employer and were able to participate in the Berkshire Bank 401(k) Plan on January 1, 2017. The First Choice 401(k) Plan participants had the option to transfer their funds into the Berkshire Bank 401(k) Plan.
Effective January 1, 2017, the Plan's eligibility requirements were updated and employees of the Bank are eligible to participate in the Plan after attaining 18 years of age and completing 90 days of service. Prior to this update, employees of the Bank were eligible to participate in the Plan after attaining 21 years of age and one year of service with 1,000 hours during the initial year of service. Also effective January 1, 2017, Participants are eligible to contribute a flat dollar amount or a percentage of their pretax annual compensation. Prior to the update, participants could only contribute a percentage of their pretax annual compensation.
Effective January 1, 2017, the Bank's Safe Harbor non-elective contribution of 3% was eliminated.
BERKSHIRE BANK 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS (Concluded)
SUBSEQUENT EVENTS (continued)
On May 22, 2017, the Bank announced an agreement to acquire Commerce Bancshares Corp. This acquisition is expected to be finalized within six to nine months.
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10.
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RECONCILIATION OF FORM 5500
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The following is a reconciliation of net assets available for benefits per the financial statements at December 31, 2016 and 2015 to Form 5500:
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|
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December 31,
|
|
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2016
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2015
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Net assets available for benefits per financial statements
|
|
$
|
95,977,348
|
|
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$
|
83,702,179
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Less: deemed distributed loans
(1)
|
|
|
1,909
|
|
|
|
1,909
|
|
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Net assets available for benefits per Form 5500
|
|
$
|
95,975,439
|
|
|
$
|
83,700,270
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The following is a reconciliation of the net increase in net assets available for benefits as presented in the statement of changes in net assets available for benefits to Form 5500 for the year ended December 31, 2016 and 2015:
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December 31,
|
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2016
|
|
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2015
|
|
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Net increase in net assets available for benefits per the
|
|
|
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financial statements
|
|
$
|
12,275,169
|
|
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$
|
10,841,589
|
|
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Less: deemed distributed loans
(1)
|
|
|
1,909
|
|
|
|
1,909
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|
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Plus: prior year distributions
(1)
|
|
|
1,909
|
|
|
|
16,136
|
|
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Net increase in net assets available for benefits per Form 5500
|
|
$
|
12,275,169
|
|
|
$
|
10,855,816
|
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(1)
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In the financial statements of the Plan, delinquent loans remain as assets of the Plan. However, for the Form 5500 reporting purposes delinquent loans are removed from plan assets and reported as a benefit paid to a participant. Any loans held by participants that were deemed in previous years where the participant distributes or terminates from the plan in the current year, the balances are applied against the current year's distribution balance.
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