INDEPENDENT BANK CORP 10-Q

Item 1. Financial Statements INDEPENDENT BANK CORP. CONSOLIDATED BALANCE SHEETS (Unaudited—Dollars in thousands) June 30 2021 December 31 2020 Assets Cash and due from banks $ 141,953 $ 169,460 Interest-earning deposits with banks 2,114,477 1,127,176 Securities Trading 3,439 2,838 Equity 22,975 22,107 Available for sale (amortized cost $ 782,361 and $ 395,453 ) 794,516 412,860 Held to maturity (fair value $ 877,801 and $ 752,177 ) 861,821 724,512 Total securities 1,682,751 1,162,317 Loans held for sale (at fair value) 25,561 58,104 Loans Commercial and industrial 1,726,498 2,103,152 Commercial real estate 4,251,543 4,173,927 Commercial construction 496,539 553,929 Small business 182,863 175,023 Residential real estate 1,240,279 1,296,183 Home equity - first position 606,332 633,142 Home equity - subordinate positions 412,076 435,648 Other consumer 22,858 21,862 Total loans 8,938,988 9,392,866 Less: allowance for credit losses ( 102,357 ) ( 113,392 ) Net loans 8,836,631 9,279,474 Federal Home Loan Bank stock 9,079 10,250 Bank premises and equipment, net 117,435 116,393 Goodwill 506,206 506,206 Other intangible assets 20,370 23,107 Cash surrender value of life insurance policies 242,963 200,525 Other assets 496,781 551,289 Total assets $ 14,194,207 $ 13,204,301 Liabilities and Stockholders' Equity Deposits Noninterest-bearing demand deposits $ 4,370,852 $ 3,762,306 Savings and interest checking accounts 4,445,903 4,047,332 Money market 2,352,897 2,232,903 Time certificates of deposit of $ 100,000 and over 429,811 525,424 Other time certificates of deposits 387,508 425,205 Total deposits 11,986,971 10,993,170 Borrowings Federal Home Loan Bank borrowings 35,693 35,740 Long-term borrowings (less unamortized debt issuance costs of $ 13 and $ 40 ) 23,425 32,773 5 Table of Contents Junior subordinated debentures (less unamortized debt issuance costs of $ 36 and $ 37 ) 62,852 62,851 Subordinated debentures (less unamortized debt issuance costs of $ 257 and $ 304 ) 49,743 49,696 Total borrowings 171,713 181,060 Other liabilities 293,901 327,386 Total liabilities 12,452,585 11,501,616 Commitments and contingencies — — Stockholders' equity Preferred stock, $ 0.01 par value, authorized: 1,000,000 shares, outstanding: none — — Common stock, $ 0.01 par value, authorized: 75,000,000 shares, issued and outstanding: 33,037,859 shares at June 30, 2021 and 32,965,692 shares at December 31, 2020 (includes 137,005 and 135,205 shares of unvested participating restricted stock awards, respectively) 329 328 Value of shares held in rabbi trust at cost: 83,634 shares at June 30, 2021 and 84,126 shares at December 31, 2020 ( 3,116 ) ( 3,066 ) Deferred compensation and other retirement benefit obligations 3,116 3,066 Additional paid in capital 948,130 945,638 Retained earnings 763,596 716,024 Accumulated other comprehensive income, net of tax 29,567 40,695 Total stockholders’ equity 1,741,622 1,702,685 Total liabilities and stockholders' equity $ 14,194,207 $ 13,204,301 The accompanying condensed notes are an integral part of these unaudited consolidated financial statements. 6 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF INCOME (Unaudited—Dollars in thousands, except per share data) Three Months Ended Six Months Ended June 30 June 30 2021 2020 2021 2020 Interest income Interest and fees on loans $ 88,814 $ 91,634 $ 181,197 $ 190,656 Taxable interest and dividends on securities 7,184 7,831 13,811 15,788 Nontaxable interest and dividends on securities 5 9 10 18 Interest on loans held for sale 186 359 482 591 Interest on federal funds sold and short-term investments 513 132 839 292 Total interest and dividend income 96,702 99,965 196,339 207,345 Interest expense Interest on deposits 2,017 7,027 4,728 17,919 Interest on borrowings 1,331 1,840 2,673 4,024 Total interest expense 3,348 8,867 7,401 21,943 Net interest income 93,354 91,098 188,938 185,402 Provision for credit losses ( 5,000 ) 20,000 ( 7,500 ) 45,000 Net interest income after provision for credit losses 98,354 71,098 196,438 140,402 Noninterest income Deposit account fees 3,822 2,829 7,406 7,799 Interchange and ATM fees 3,068 5,214 5,788 10,110 Investment management 8,872 7,296 17,176 14,125 Mortgage banking income 2,705 5,005 8,445 5,866 Increase in cash surrender value of life insurance policies 1,589 1,312 2,912 2,588 Gain on life insurance benefits — 335 258 692 Loan level derivative income 116 2,864 289 6,461 Unrealized gain on equity securities 436 1,386 723 1,386 Other noninterest income 4,359 1,949 7,216 5,598 Total noninterest income 24,967 28,190 50,213 54,625 Noninterest expenses Salaries and employee benefits 42,635 37,269 82,524 74,618 Occupancy and equipment expenses 8,706 9,273 17,979 18,590 Data processing and facilities management 1,686 1,459 3,351 3,117 FDIC assessment 775 503 1,825 503 Consulting expense 1,492 1,603 3,883 2,939 Core deposit amortization 1,293 1,433 2,685 2,964 Merger and acquisition expense 1,731 — 1,731 — Software maintenance 1,915 1,780 3,885 3,465 Other noninterest expenses 13,069 13,287 25,121 27,251 Total noninterest expenses 73,302 66,607 142,984 133,447 Income before income taxes 50,019 32,681 103,667 61,580 Provision for income taxes 12,447 7,779 24,384 9,927 Net income $ 37,572 $ 24,902 $ 79,283 $ 51,653 Basic earnings per share $ 1.14 $ 0.76 $ 2.40 $ 1.54 Diluted earnings per share $ 1.14 $ 0.76 $ 2.40 $ 1.54 Weighted average common shares (basic) 33,033,578 32,944,761 33,014,561 33,564,596 Common share equivalents 21,270 28,098 25,085 31,991 Weighted average common shares (diluted) 33,054,848 32,972,859 33,039,646 33,596,587 Cash dividends declared per common share $ 0.48 $ 0.46 $ 0.96 $ 0.92 The accompanying condensed notes are an integral part of these unaudited consolidated financial statements. 7 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited—Dollars in thousands) Three Months Ended Six Months Ended June 30 June 30 2021 2020 2021 2020 Net income $ 37,572 $ 24,902 $ 79,283 $ 51,653 Other comprehensive income (loss), net of tax Net change in fair value of securities available for sale 3,793 1,695 ( 3,981 ) 11,042 Net change in fair value of cash flow hedges ( 1,593 ) 197 ( 8,176 ) 23,181 Net change in other comprehensive income for defined benefit postretirement plans 210 225 1,029 ( 547 ) Total other comprehensive income (loss) 2,410 2,117 ( 11,128 ) 33,676 Total comprehensive income $ 39,982 $ 27,019 $ 68,155 $ 85,329 The accompanying condensed notes are an integral part of these unaudited consolidated financial statements. 8 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Three Months Ended June 30, 2021 and 2020 (Unaudited—Dollars in thousands, except per share data) Common Stock Outstanding Common Stock Value of Shares Held in Rabbi Trust at Cost Deferred Compensation Obligation Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income Total Balance March 31, 2021 33,024,882 $ 329 $ ( 3,080 ) $ 3,080 $ 946,002 $ 741,883 $ 27,157 $ 1,715,371 Net income — — — — — 37,572 — 37,572 Other comprehensive income — — — — — — 2,410 2,410 Common dividend declared ($ 0.48 per share) — — — — — ( 15,859 ) — ( 15,859 ) Stock based compensation — — — — 1,610 — — 1,610 Restricted stock awards issued, net of awards surrendered 6,452 — — — ( 23 ) — — ( 23 ) Shares issued under direct stock purchase plan 6,525 — — — 541 — — 541 Deferred compensation and other retirement benefit obligations — — ( 36 ) 36 — — — — Balance June 30, 2021 33,037,859 $ 329 $ ( 3,116 ) $ 3,116 $ 948,130 $ 763,596 $ 29,567 $ 1,741,622 Balance March 31, 2020 33,260,005 $ 331 $ ( 4,604 ) $ 4,604 $ 962,513 $ 667,084 $ 49,728 $ 1,679,656 Net income — — — — — 24,902 — 24,902 Other comprehensive income — — — — — — 2,117 2,117 Common dividend declared ($ 0.46 per share) — — — — — ( 15,152 ) — ( 15,152 ) Proceeds from exercise of stock options, net of cash paid 873 — — — ( 26 ) — — ( 26 ) Stock based compensation — — — — 1,579 — — 1,579 Restricted stock awards issued, net of awards surrendered 6,761 — — — ( 51 ) — — ( 51 ) Shares issued under direct stock purchase plan 7,548 — — — 532 — — 532 Shares repurchased under share repurchase program ( 333,077 ) ( 3 ) ( 21,862 ) ( 21,865 ) Deferred compensation and other retirement benefit obligations — — ( 45 ) 45 — — — — Balance June 30, 2020 32,942,110 $ 328 $ ( 4,649 ) $ 4,649 $ 942,685 $ 676,834 $ 51,845 $ 1,671,692 9 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Six Months Ended June 30, 2021 and 2020 (Unaudited—Dollars in thousands, except per share data) Common Stock Outstanding Common Stock Value of Shares Held in Rabbi Trust at Cost Deferred Compensation Obligation Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balance December 31, 2020 32,965,692 $ 328 $ ( 3,066 ) $ 3,066 $ 945,638 $ 716,024 $ 40,695 $ 1,702,685 Net income — — — — — 79,283 — 79,283 Other comprehensive loss — — — — — — ( 11,128 ) ( 11,128 ) Common dividend declared ($ 0.96 per share) — — — — — ( 31,711 ) — ( 31,711 ) Proceeds from exercise of stock options, net of cash paid 4,744 — — — ( 57 ) — — ( 57 ) Stock based compensation — — — — 2,760 — — 2,760 Restricted stock awards issued, net of awards surrendered 54,558 1 — — ( 1,244 ) — — ( 1,243 ) Shares issued under direct stock purchase plan 12,865 — — — 1,033 — — 1,033 Deferred compensation and other retirement benefit obligations — — ( 50 ) 50 — — — — Balance June 30, 2021 33,037,859 329 ( 3,116 ) 3,116 948,130 763,596 29,567 1,741,622 Balance December 31, 2019 34,377,388 $ 342 $ ( 4,735 ) $ 4,735 $ 1,035,450 $ 654,182 $ 18,169 $ 1,708,143 Cumulative effect accounting adjustment (1) — — — — — 1,553 — 1,553 Net income — — — — — 51,653 — 51,653 Other comprehensive income — — — — — — 33,676 33,676 Common dividend declared ($ 0.92 per share) — — — — — ( 30,554 ) — ( 30,554 ) Proceeds from exercise of stock options, net of cash paid 873 — — — ( 26 ) — — ( 26 ) Stock based compensation — — — — 2,429 — — 2,429 Restricted stock awards issued, net of awards surrendered 49,292 1 — — ( 1,184 ) — — ( 1,183 ) Shares issued under direct stock purchase plan 14,557 — — — 1,092 — — 1,092 Shares repurchased under share repurchase program ( 1,500,000 ) ( 15 ) — — ( 95,076 ) — — ( 95,091 ) Deferred compensation and other retirement benefit obligations — — 86 ( 86 ) — — — — Balance June 30, 2020 32,942,110 328 ( 4,649 ) 4,649 942,685 676,834 51,845 1,671,692 (1) Represents adjustment needed to reflect the cumulative impact on retained earnings pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment presented includes $ 1.1 million ($ 817,000 , net of tax) attributable to the change in accounting methodology for estimating the allowance for credit losses and $ 1.0 million ($ 736,000 , net of tax) related to the reserve for unfunded commitments resulting from the Company's adoption of the standard. Amount shown in the table above is presented net of tax. The accompanying condensed notes are an integral part of these unaudited consolidated financial statements. 10 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited—Dollars in thousands) Six Months Ended June 30 2021 2020 Cash flow from operating activities Net income $ 79,283 $ 51,653 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization 16,354 14,112 Change in unamortized net loan costs and premiums ( 18,558 ) ( 4,064 ) Provision for credit losses ( 7,500 ) 45,000 Deferred income tax expense 469 3,045 Net (gain) loss on equity securities ( 864 ) 415 Net loss on bank premises and equipment 60 368 Realized gain on sale leaseback transaction ( 289 ) ( 289 ) Stock based compensation 2,760 2,429 Increase in cash surrender value of life insurance policies ( 2,912 ) ( 2,588 ) Gain on life insurance benefits ( 258 ) ( 692 ) Operating lease payments ( 6,088 ) ( 5,887 ) Operating lease termination payments ( 4,750 ) — Change in fair value on loans held for sale 1,459 ( 839 ) Net change in: Trading assets ( 601 ) ( 362 ) Loans held for sale 31,084 ( 11,249 ) Other assets 79,393 ( 191,261 ) Other liabilities ( 51,289 ) 86,847 Total adjustments 38,470 ( 65,015 ) Net cash provided by (used in) operating activities 117,753 ( 13,362 ) Cash flows used in investing activities Proceeds from sales of equity securities 1,164 — Purchases of equity securities ( 1,415 ) ( 212 ) Proceeds from maturities and principal repayments of securities available for sale 51,536 50,262 Purchases of securities available for sale ( 438,903 ) ( 30,095 ) Proceeds from maturities and principal repayments of securities held to maturity 137,258 105,272 Purchases of securities held to maturity ( 274,781 ) ( 95,017 ) Net redemption (purchases) of Federal Home Loan Bank stock 1,171 ( 666 ) Investments in low income housing projects ( 9,556 ) ( 14,008 ) Purchases of life insurance policies ( 40,102 ) ( 101 ) Proceeds from life insurance policies 576 2,629 Net (increase) decrease in loans 468,901 ( 481,372 ) Purchases of bank premises and equipment ( 6,970 ) ( 5,186 ) Proceeds from the sale of bank premises and equipment 4 23 Net cash used in investing activities ( 111,117 ) ( 468,471 ) Cash flows provided by financing activities Net decrease in time deposits ( 133,295 ) ( 302,738 ) Net increase in other deposits 1,127,111 1,872,552 11 Table of Contents Net advances of short-term Federal Home Loan Bank borrowings — 55,000 Repayments of long-term Federal Home Loan Bank borrowings — ( 25,000 ) Repayments of long-term debt, net of issuance costs ( 9,375 ) ( 37,500 ) Net payments for exercise of stock options ( 57 ) ( 26 ) Restricted stock awards issued, net of awards surrendered ( 1,243 ) ( 1,183 ) Proceeds from shares issued under direct stock purchase plan 1,033 1,092 Payments for shares repurchased under share repurchase program — ( 95,091 ) Common dividends paid ( 31,016 ) ( 30,527 ) Net cash provided by financing activities 953,158 1,436,579 Net increase in cash and cash equivalents 959,794 954,746 Cash and cash equivalents at beginning of year 1,296,636 150,974 Cash and cash equivalents at end of period $ 2,256,430 $ 1,105,720 Supplemental schedule of noncash activities Net increase in capital commitments relating to low income housing project investments $ 34,232 $ 27,937 Right-of-use assets obtained in exchange for new lease obligations $ 5,873 $ 5,356 The accompanying condensed notes are an integral part of these unaudited consolidated financial statements. 12 Table of Contents CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907. All material intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current year’s presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any other interim period. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (the "2020 Form 10-K"). NOTE 2 - RECENT ACCOUNTING STANDARDS UPDATES Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 848 "Reference Rate Reform" Update No. 2020-04. Update No. 2020-04 was issued in March 2020 to provide optional expedients and exceptions for applying GAAP to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The amendments will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022. FASB ASC Topic 848 "Reference Rate Reform" Update No. 2021-01 was subsequently issued in January 2021 and expanded application of the optional expedients to derivative transactions affected by the discounting transition. The Company has not yet adopted the amendments in these updates and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact of the transition away from LIBOR. 13 Table of Contents NOTE 3 - SECURITIES Trading Securities The Company had trading securities of $ 3.4 million and $ 2.8 million as of June 30, 2021 and December 31, 2020, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s non-qualified 401(k) Restoration Plan and Non-qualified Deferred Compensation Plan. Equity Securities The Company had equity securities of $ 23.0 million and $ 22.1 million as of June 30, 2021 and December 31, 2020, respectively. These securities consist primarily of mutual funds held in a rabbi trust and will be used for future payments associated with the Company’s supplemental executive retirement plans. The following table represents a summary of the gains and losses recognized within non-interest income and non-interest expense within the consolidated statements of income that relate to equity securities for the periods indicated: Three Months Ended Six Months Ended June 30 June 30 2021 2020 2021 2020 Dollars in thousands Net gains (losses) recognized during the period on equity securities $ 548 $ 1,386 864 ( 415 ) Less: net gains recognized during the period on equity securities sold during the period 112 — 141 6 Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date $ 436 $ 1,386 $ 723 $ ( 421 ) Available for Sale Securities The following table summarizes the amortized cost, allowance for credit losses, and fair value of available for sale securities and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated: June 30, 2021 December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for credit losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for credit losses Fair Value (Dollars in thousands) Available for sale securities U.S. government agency securities $ 192,829 $ 2,080 $ ( 867 ) $ — $ 194,042 $ 22,476 $ 1,640 $ — $ — $ 24,116 U.S. treasury securities 132,247 136 ( 32 ) — 132,351 — — — — — Agency mortgage-backed securities 308,670 7,256 ( 1,830 ) — 314,096 224,293 9,337 ( 1 ) — 233,629 Agency collateralized mortgage obligations 93,307 2,535 ( 5 ) — 95,837 88,687 3,083 ( 87 ) — 91,683 State, county, and municipal securities 541 14 — — 555 790 17 — — 807 Single issuer trust preferred securities issued by banks 489 1 — — 490 489 — ( 1 ) — 488 Pooled trust preferred securities issued by banks and insurers 1,409 — ( 348 ) — 1,061 1,429 — ( 373 ) — 1,056 Small business administration pooled securities 52,869 3,215 — — 56,084 57,289 3,792 — — 61,081 Total available for sale securities $ 782,361 $ 15,237 $ ( 3,082 ) $ — $ 794,516 $ 395,453 $ 17,869 $ ( 462 ) $ — $ 412,860 The Company did not record a provision for estimated credit losses on any available for sale securities during the three and six months ended June 30, 2021 and 2020. Excluded from the table above is accrued interest on available for sale securities of $ 2.1 million and $ 1.2 million as of June 30, 2021 and December 31, 2020, respectively, which is included within other assets on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities during the three and six months ended June 30, 2021 and 2020. Furthermore, no 14 Table of Contents securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status as of June 30, 2021 and December 31, 2020. When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of securities available for sale during the three or six months ended June 30, 2021 and 2020, and therefore no gains or losses were realized during the periods presented. The following tables show the gross unrealized losses and fair value of the Company’s available for sale securities in an unrealized loss position, and for which the Company has not recorded a provision for credit losses, as of the dated indicated. These available for sale securities are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position: June 30, 2021 Less than 12 months 12 months or longer Total # of holdings Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Dollars in thousands) U.S. government agency securities 4 $ 114,362 $ ( 867 ) $ — $ — $ 114,362 $ ( 867 ) U.S. treasury securities 1 35,115 ( 32 ) — — 35,115 ( 32 ) Agency mortgage-backed securities 9 134,589 ( 1,829 ) 287 ( 1 ) 134,876 ( 1,830 ) Agency collateralized mortgage obligations 1 7,240 ( 5 ) — — 7,240 ( 5 ) Pooled trust preferred securities issued by banks and insurers 1 — — 1,061 ( 348 ) 1,061 ( 348 ) Total impaired available for sale securities 16 $ 291,306 $ ( 2,733 ) $ 1,348 $ ( 349 ) $ 292,654 $ ( 3,082 ) December 31, 2020 Less than 12 months 12 months or longer Total # of holdings Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Dollars in thousands) Agency mortgage-backed securities 3 $ 437 $ ( 1 ) $ — $ — $ 437 $ ( 1 ) Agency collateralized mortgage obligations 2 23,323 ( 87 ) — — 23,323 ( 87 ) Single issuer trust preferred securities issued by banks and insurers 1 488 ( 1 ) — — 488 ( 1 ) Pooled trust preferred securities issued by banks and insurers 1 — — 1,056 ( 373 ) 1,056 ( 373 ) Total impaired available for sale securities 7 $ 24,248 $ ( 89 ) $ 1,056 $ ( 373 ) $ 25,304 $ ( 462 ) The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis. In addition, management does not believe that any of the securities are impaired due to reasons of credit quality. As a result, the Company did not recognize a provision for credit losses on these investments during the three and six months ended June 30, 2021 and 2020. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations. As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category were as follows at June 30, 2021: • U.S. Government Agency Securities, U.S. Treasury Securities, Agency Mortgage-Backed Securities and Agency Collateralized Mortgage Obligations: These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies. 15 Table of Contents • Pooled Trust Preferred Securities: This portfolio consists of one below investment grade security which is performing. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments. Held to Maturity Securities The following table summarizes the amortized cost, fair value and allowance for credit losses of held to maturity securities and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated: June 30, 2021 December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for credit losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for credit losses Fair Value (Dollars in thousands) U.S. government agency securities $ 33,853 $ — $ ( 123 ) $ — $ 33,730 $ — $ — $ — $ — $ — U.S. treasury securities 3,010 28 — — 3,038 4,017 60 — — 4,077 Agency mortgage-backed securities 381,030 12,507 ( 1,495 ) — 392,042 356,085 18,036 — — 374,121 Agency collateralized mortgage obligations 418,112 6,347 ( 2,618 ) — 421,841 335,993 8,466 ( 340 ) — 344,119 Single issuer trust preferred securities issued by banks 1,500 8 — — 1,508 1,500 — ( 2 ) — 1,498 Small business administration pooled securities 24,316 1,326 — — 25,642 26,917 1,445 — — 28,362 Total held to maturity securities $ 861,821 $ 20,216 $ ( 4,236 ) $ — $ 877,801 $ 724,512 $ 28,007 $ ( 342 ) $ — $ 752,177 The Company did not record a provision for estimated credit losses on any held to maturity securities during the three and six months ended June 30, 2021 and 2020. Excluded from the table above is accrued interest on held to maturity securities of $ 1.6 million and $ 1.5 million as of June 30, 2021 and December 31, 2020, respectively, which is included within other assets on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities during the three and six months ended June 30, 2021 and 2020. Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status as of June 30, 2021 and December 31, 2020. When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of held to maturity securities during the three and six months ended June 30, 2021 and 2020, and therefore no gains or losses were realized during the periods presented. The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. As of June 30, 2021, all held to maturity securities held by the Company were rated investment grade or higher. 16 Table of Contents The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of available for sale and held to maturity securities as of June 30, 2021 is presented below: Due in one year or less Due after one year to five years Due after five to ten years Due after ten years Total Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) Available for sale securities U.S. government agency securities $ 10,000 $ 10,123 $ — $ — $ 182,829 $ 183,919 $ — $ — $ 192,829 $ 194,042 U.S. treasury securities — — — — 132,247 132,351 — — 132,247 132,351 Agency mortgage-backed securities — — 80,105 82,563 97,297 97,247 131,268 134,286 308,670 314,096 Agency collateralized mortgage obligations — — — — — — 93,307 95,837 93,307 95,837 State, county, and municipal securities 350 351 — — 191 204 — — 541 555 Single issuer trust preferred securities issued by banks — — — — — — 489 490 489 490 Pooled trust preferred securities issued by banks and insurers — — — — — — 1,409 1,061 1,409 1,061 Small business administration pooled securities — — — — — — 52,869 56,084 52,869 56,084 Total available for sale securities $ 10,350 $ 10,474 $ 80,105 $ 82,563 $ 412,564 $ 413,721 $ 279,342 $ 287,758 $ 782,361 $ 794,516 Held to maturity securities U.S. government agency securities $ — $ — $ 33,853 $ 33,730 $ — $ — $ — $ — $ 33,853 $ 33,730 U.S. treasury securities 3,010 3,038 — — — — — — 3,010 3,038 Agency mortgage-backed securities — — 3,995 4,221 124,640 126,003 252,395 261,818 381,030 392,042 Agency collateralized mortgage obligations — — — — — — 418,112 421,841 418,112 421,841 Single issuer trust preferred securities issued by banks — — — — 1,500 1,508 — — 1,500 1,508 Small business administration pooled securities — — — — — — 24,316 25,642 24,316 25,642 Total held to maturity securities $ 3,010 $ 3,038 $ 37,848 $ 37,951 $ 126,140 $ 127,511 $ 694,823 $ 709,301 $ 861,821 $ 877,801 Total $ 13,360 $ 13,512 $ 117,953 $ 120,514 $ 538,704 $ 541,232 $ 974,165 $ 997,059 $ 1,644,182 $ 1,672,317 Included in the table above are $ 3.3 million of callable securities at June 30, 2021. The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $ 447.4 million and $ 419.6 million at June 30, 2021 and December 31, 2020, respectively. At June 30, 2021 and December 31, 2020, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated stockholders’ equity. 17 Table of Contents NOTE 4 - LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY Loans Held for Investment and Allowance for Credit Losses The following table summarizes the change in allowance for credit losses by loan category, and bifurcates the amount of loans allocated to each loan category for the period indicated: 18 Table of Contents Three Months Ended June 30, 2021 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for credit losses Beginning balance $ 20,207 $ 44,348 $ 5,268 $ 3,621 $ 12,956 $ 20,716 $ 433 $ 107,549 Charge-offs ( 142 ) — — ( 35 ) — ( 69 ) ( 235 ) ( 481 ) Recoveries 35 — — 4 — 45 205 289 Provision for credit loss expense ( 3,068 ) ( 23 ) ( 403 ) 22 ( 942 ) ( 605 ) 19 ( 5,000 ) Ending balance (1) $ 17,032 $ 44,325 $ 4,865 $ 3,612 $ 12,014 $ 20,087 $ 422 $ 102,357 Three Months Ended June 30, 2020 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for credit losses Beginning balance $ 21,649 $ 29,498 $ 3,747 $ 3,829 $ 14,847 $ 17,910 $ 896 $ 92,376 Charge-offs — — — ( 36 ) — ( 4 ) ( 670 ) ( 710 ) Recoveries 4 — — 3 — 95 408 510 Provision for credit loss expense 4,009 7,458 754 765 199 6,859 ( 44 ) 20,000 Ending balance (1) $ 25,662 $ 36,956 $ 4,501 $ 4,561 $ 15,046 $ 24,860 $ 590 $ 112,176 Six Months Ended June 30, 2021 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for credit losses Beginning balance $ 21,086 $ 45,009 $ 5,397 $ 5,095 $ 14,275 $ 22,060 $ 470 $ 113,392 Charge-offs ( 3,473 ) — — ( 101 ) — ( 69 ) ( 524 ) ( 4,167 ) Recoveries 99 57 — 15 1 58 402 632 Provision for credit loss expense ( 680 ) ( 741 ) ( 532 ) ( 1,397 ) ( 2,262 ) ( 1,962 ) 74 ( 7,500 ) Ending balance (1) $ 17,032 $ 44,325 $ 4,865 $ 3,612 $ 12,014 $ 20,087 $ 422 $ 102,357 Six Months Ended June 30, 2020 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for credit losses Beginning balance, pre adoption of ASU 2016-13 $ 17,594 $ 32,935 $ 6,053 $ 1,746 $ 3,440 $ 5,576 $ 396 $ 67,740 Cumulative effect accounting adjustment (2) ( 1,984 ) ( 13,048 ) ( 3,652 ) 495 9,828 7,012 212 ( 1,137 ) Cumulative effect accounting adjustment (3) 49 337 — — 423 319 29 1,157 Charge-offs — — — ( 145 ) — ( 142 ) ( 1,157 ) ( 1,444 ) Recoveries 46 — — 6 1 153 654 860 Provision for credit loss expense 9,957 16,732 2,100 2,459 1,354 11,942 456 45,000 Ending balance (1) $ 25,662 $ 36,956 $ 4,501 $ 4,561 $ 15,046 $ 24,860 $ 590 $ 112,176 19 Table of Contents (1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $ 29.9 million and $ 32.9 million as of June 30, 2021 and June 30, 2020, respectively. (2) Represents adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment represents a $ 1.1 million decrease to the allowance attributable to the change in accounting methodology for estimating the allowance for credit losses resulting from the Company's adoption of the standard. (3) Represents adjustment needed to reflect the day one reclassification of the Company's PCI loan balances to PCD and the associated gross-up, pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment represents a $ 1.2 million increase to the allowance resulting from the day one reclassification. The balance of allowance for credit losses of $ 102.4 million as of June 30, 2021 represents a decrease of $ 5.2 million, or 4.8 %, compared to March 31, 2021. The decrease in the allowance was primarily driven by $ 5.0 million of negative provision recorded during the quarter, reflecting improvements in overall macro-economic forecast assumptions, continued strong asset quality metrics, and modest overall loan growth (excluding the PPP loan activity.) While management is unable to know with certainty the direct, indirect, and future impacts of the COVID-19 pandemic, it is expected that the pandemic could have a significant adverse impact on future losses across a broad range of loan segments. As such, the allowance for credit losses at June 30, 2021 continues to reflect increased reserve allocations to loan segments that are considered to have elevated loss exposure associated with the COVID-19 pandemic. These loan segments primarily include commercial relationships within industries that have been subject to mandated closures and capacity limits that have impeded and could potentially impede the borrowers’ ability to make loan payments, including loans in the following industry sections: Accommodations, Food Services, Retail Trade, Other Services (excluding Public Administration), and Arts, Entertainment and Recreation. In addition to these industry exposures, additional risk of loss was attributable to non-owner occupied real estate borrowers with significant retail tenant exposure, as well as home equity loans within a junior lien position. Leveraging actual historical loss given default (LGD) rates combined with stressing of assumptions over probability of default rates over these higher risk segments, qualitative adjustments were made to the initially model-driven calculated loss reserves. For the purpose of estimating the allowance for credit losses, management segregated the loan portfolio into the portfolio segments detailed in the above tables. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. Some of the characteristics unique to each loan category include: Commercial Portfolio • Commercial and Industrial : Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant and equipment, or real estate, if applicable. Repayment sources consist of primarily, operating cash flow, and secondarily, liquidation of assets. • Commercial Real Estate : Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans are typically written with amortizing payment structures. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of, primarily, cash flow from operating leases and rents and, secondarily, liquidation of assets. • Commercial Construction : Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property. Project types include residential land development, 1-4 family, condominium, and multi-family home construction, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets. • Small Business: Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate if applicable. Repayment sources consist primarily of operating cash flows and, secondarily, liquidation of assets. For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests in the borrowing entities. 20 Table of Contents Consumer Portfolio • Residential Real Estate : Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral. Collateral consists of mortgage liens on 1-4 family residential properties. Residential mortgage loans also include loans to construct owner-occupied 1-4 family residential properties. • Home Equity : Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. The majority of home equity lines of credit have a variable rate and are billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued interest over a predetermined repayment period, as set forth in the note. Additionally, the Company has the option of renewing each line of credit for additional draw periods. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines. • Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. These loans may be secured or unsecured. Credit Quality The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as adversely risk-rated, delinquent, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point credit risk-rating system, which assigns a risk-grade to each loan obligation based on a number of quantitative and qualitative factors associated with a commercial or small business loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-rating categories for the commercial portfolio are defined as follows: • Pass: Risk-rating “1” through “6” comprises of loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing or above average leverage and/or weakening market fundamentals that indicate below average asset quality, margins and market share. Collateral coverage is protective. • Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Company’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned. • Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loans may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation. • Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. 21 Table of Contents • Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted. The Company utilizes a comprehensive, continuous strategy for evaluating and monitoring commercial credit quality. Initially, credit quality is determined at loan origination and is re-evaluated when subsequent actions, such as renewals, modifications or reviews, occur. Actively managed commercial borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by experienced credit professionals, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. Any changes in credit quality are reflected in risk-rating changes. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis. Commercial loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") have been assessed for potential downgrades of risk ratings. For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. As a result, for this portfolio the Company utilizes a pass/default risk-rating system, based on an age analysis (i.e., days past due) associated with each consumer loan. Under this structure, consumer loans less than 90 days past due are assigned a "pass" rating, while any consumer loans 90 days or more past due are assigned a "default" rating. Consumer loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the CARES Act were not categorized as delinquent loans. The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of the dates indicated below: June 30, 2021 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving converted to Term Total (1) (Dollars in thousands) Commercial and industrial Pass (2) $ 552,640 $ 296,008 $ 113,698 $ 83,243 $ 18,357 $ 20,908 $ 577,872 $ — $ 1,662,726 Potential weakness 4,726 11,553 3,292 1,772 1,141 2,531 8,596 — 33,611 Definite weakness - loss unlikely 18,026 338 1,023 1,105 2,714 244 6,711 — 30,161 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total commercial and industrial $ 575,392 $ 307,899 $ 118,013 $ 86,120 $ 22,212 $ 23,683 $ 593,179 $ — $ 1,726,498 Commercial real estate Pass $ 489,652 $ 1,029,017 $ 679,780 $ 373,916 $ 496,399 $ 862,508 $ 15,370 $ — $ 3,946,642 Potential weakness 15,416 29,480 54,436 32,476 18,923 86,135 13,614 — 250,480 Definite weakness - loss unlikely 9,505 22,090 3,665 2,210 9,874 7,077 — — 54,421 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total commercial real estate $ 514,573 $ 1,080,587 $ 737,881 $ 408,602 $ 525,196 $ 955,720 $ 28,984 $ — $ 4,251,543 Commercial construction Pass $ 63,620 $ 235,629 $ 107,190 $ 24,374 $ 22,951 $ 6,568 $ 16,232 $ 1,998 $ 478,562 Potential weakness — 17,560 — — — — 417 — 17,977 Definite weakness - loss unlikely — — — — — — — — — Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — 22 Table of Contents Total commercial construction $ 63,620 $ 253,189 $ 107,190 $ 24,374 $ 22,951 $ 6,568 $ 16,649 $ 1,998 $ 496,539 Small business Pass $ 29,131 $ 40,220 $ 23,870 $ 16,104 $ 11,712 $ 25,050 $ 33,588 $ — $ 179,675 Potential weakness 15 — 386 202 8 188 655 — 1,454 Definite weakness - loss unlikely — 657 44 45 11 289 688 — 1,734 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total small business $ 29,146 $ 40,877 $ 24,300 $ 16,351 $ 11,731 $ 25,527 $ 34,931 $ — $ 182,863 Residential real estate Pass $ 214,476 $ 201,684 $ 103,045 $ 109,323 $ 111,755 $ 496,981 $ — $ — $ 1,237,264 Default — — — 414 — 2,601 — — 3,015 Total residential real estate $ 214,476 $ 201,684 $ 103,045 $ 109,737 $ 111,755 $ 499,582 $ — $ — $ 1,240,279 Home equity Pass $ 46,378 $ 72,942 $ 45,918 $ 41,749 $ 45,468 $ 127,241 $ 633,065 $ 3,962 $ 1,016,723 Default — — — — — 34 1,651 — 1,685 Total home equity $ 46,378 $ 72,942 $ 45,918 $ 41,749 $ 45,468 $ 127,275 $ 634,716 $ 3,962 $ 1,018,408 Other consumer Pass $ 281 $ 400 $ 304 $ 108 $ 571 $ 6,179 $ 15,015 $ — $ 22,858 Default — — — — — — — — — Total other consumer $ 281 $ 400 $ 304 $ 108 $ 571 $ 6,179 $ 15,015 $ — $ 22,858 Total $ 1,443,866 $ 1,957,578 $ 1,136,651 $ 687,041 $ 739,884 $ 1,644,534 $ 1,323,474 $ 5,960 $ 8,938,988 June 30, 2020 2020 2019 2018 2017 2016 Prior Revolving Loans Revolving converted to Term Total (1) (Dollars in thousands) Commercial and industrial Pass (2) $ 911,414 $ 193,832 $ 129,199 $ 44,664 $ 27,640 $ 25,095 $ 565,953 $ 2,668 $ 1,900,465 Potential weakness 1,896 1,818 1,426 4,787 1,609 544 12,515 50 24,645 Definite weakness - loss unlikely 2,124 1,779 23,609 5,552 2,555 1,430 42,437 — 79,486 Partial loss probable — — — — — 49 — — 49 Definite loss — — — — — — — — — Total commercial and industrial $ 915,434 $ 197,429 $ 154,234 $ 55,003 $ 31,804 $ 27,118 $ 620,905 $ 2,718 $ 2,004,645 Commercial real estate Pass $ 490,280 $ 895,594 $ 546,513 $ 607,633 $ 438,455 $ 846,195 $ 48,889 $ 14,854 $ 3,888,413 Potential weakness 5,218 6,423 4,821 23,123 14,159 47,055 — — 100,799 Definite weakness - loss unlikely 3,747 2,992 37,155 21,091 4,525 12,325 — — 81,835 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total commercial real estate $ 499,245 $ 905,009 $ 588,489 $ 651,847 $ 457,139 $ 905,575 $ 48,889 $ 14,854 $ 4,071,047 Commercial construction Pass $ 91,981 $ 241,910 $ 95,253 $ 66,282 $ — $ 6,810 $ 32,012 $ 1,095 $ 535,343 Potential weakness — 367 382 — — — 177 — 926 Definite weakness - loss unlikely — — 1,519 — — — — — 1,519 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — 23 Table of Contents Total commercial construction $ 91,981 $ 242,277 $ 97,154 $ 66,282 $ — $ 6,810 $ 32,189 $ 1,095 $ 537,788 Small business Pass $ 14,711 $ 30,764 $ 22,702 $ 16,803 $ 16,109 $ 25,521 $ 39,804 $ — $ 166,414 Potential weakness — 11 17 12 748 246 563 — 1,597 Definite weakness - loss unlikely 186 444 80 173 114 447 833 — 2,277 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total small business $ 14,897 $ 31,219 $ 22,799 $ 16,988 $ 16,971 $ 26,214 $ 41,200 $ — $ 170,288 Residential real estate Pass $ 78,072 $ 185,896 $ 213,340 $ 187,713 $ 263,749 $ 495,816 $ — $ — $ 1,424,586 Default — — 427 939 369 4,808 — — 6,543 Total residential real estate $ 78,072 $ 185,896 $ 213,767 $ 188,652 $ 264,118 $ 500,624 $ — $ — $ 1,431,129 Home equity Pass $ 43,516 $ 70,369 $ 64,874 $ 64,569 $ 49,347 $ 130,900 $ 691,110 $ 2,635 $ 1,117,320 Default — — — 15 — 419 2,466 303 3,203 Total home equity $ 43,516 $ 70,369 $ 64,874 $ 64,584 $ 49,347 $ 131,319 $ 693,576 $ 2,938 $ 1,120,523 Other consumer Pass $ 451 $ 566 $ 266 $ 916 $ 836 $ 9,193 $ 11,965 $ — $ 24,193 Default — — — — — 35 — — 35 Total other consumer $ 451 $ 566 $ 266 $ 916 $ 836 $ 9,228 $ 11,965 $ — $ 24,228 Total $ 1,643,596 $ 1,632,765 $ 1,141,583 $ 1,044,272 $ 820,215 $ 1,606,888 $ 1,448,724 $ 21,605 $ 9,359,648 (1) Loan origination dates in the tables above reflect the original origination date, or the date of a material modification of a previously originated loan. (2) Loans originated as part of the Paycheck Protection Program ("PPP") established by the CARES Act are included within commercial and industrial under the 2021 and 2020 vintage year and "pass" category as these loans are 100% guaranteed by the U.S. Government. Outstanding PPP loans totaled $ 482.7 million as of June 30, 2021, including $ 112.2 million and $ 370.5 million originated in 2020 and 2021, respectively, while outstanding PPP loans as of June 30, 2020 totaled $ 793.0 million. For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios at the dates indicated below: June 30 2021 December 31 2020 Residential portfolio FICO score (re-scored)(1) 749 749 LTV (re-valued)(2) 56.6 % 57.4 % Home equity portfolio FICO score (re-scored)(1) 772 771 LTV (re-valued)(2)(3) 45.5 % 46.0 % (1) The average FICO scores at June 30, 2021 are based upon rescores from June 2021, as available for previously originated loans, or origination score data for loans booked in June 2021. The average FICO scores at December 31, 2020 were based upon rescores available from December 2020, as available for previously originated loans, or origination score data for loans booked in December 2020. (2) The combined LTV ratios for June 30, 2021 are based upon updated automated valuations as of May 2021, when available, and/or the most current valuation data available. The combined LTV ratios for December 31, 2020 were based upon updated automated valuations as of November 2020, when available, and/or the most current valuation data available as of such date. The updated automated valuations provide new information on loans that may be available since the previous valuation was obtained. If no new information is available, the valuation will default to the previously obtained data or most recent appraisal. 24 Table of Contents (3) For home equity loans and lines in a subordinate lien, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines. Unfunded Commitments Management evaluates the need for a reserve on unfunded lending commitments in a manner consistent with loans held for investment. At each of June 30, 2021, and December 31, 2020 the Company's estimated reserve for unfunded commitments amounted to $ 1.2 million. Asset Quality The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of collection specialists and the Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. The Company also may use discretion regarding other loans 90 days or more delinquent if the loan is well secured and/or in process of collection. In response to the COVID-19 pandemic, the Company has granted loan modifications to allow deferral of payments for borrowers negatively impacted by the pandemic. The balance of loans with active deferrals as of June 30, 2021 and December 31, 2020 was $ 233.8 million and $ 173.6 million, respectively. The majority of these loans with active deferrals as of June 30, 2021 continue to be characterized as current loans. In accordance with regulatory guidance, these modifications are not considered to be troubled debt restructures ("TDRs") if they were performing as of December 31, 2019. Additionally, a majority of these are modified loans are characterized as current and therefore are not impacting nonaccrual or delinquency totals as of June 30, 2021 and December 31, 2020. The Company does, however, consider all active deferrals when estimating loss reserves. As loans reach their deferral maturity date, consideration of TDR and delinquency status will resume in accordance with the Company's accounting policy. The following table shows information regarding nonaccrual loans as of the dates indicated: Nonaccrual Balances June 30, 2021 December 31, 2020 With Allowance for Credit Losses Without Allowance for Credit Losses Total With Allowance for Credit Losses Without Allowance for Credit Losses Total (Dollars in thousands) Commercial and industrial $ 3,465 $ 17,366 $ 20,831 $ 3,804 $ 30,925 $ 34,729 Commercial real estate 9,031 — 9,031 10,195 — 10,195 Small business 558 — 558 815 10 825 Residential real estate 8,952 3,834 12,786 10,935 4,593 15,528 Home equity 4,517 — 4,517 5,427 — 5,427 Other consumer 95 — 95 156 — 156 Total nonaccrual loans (1) $ 26,618 $ 21,200 $ 47,818 $ 31,332 $ 35,528 $ 66,860 (1) Included in these amounts were $ 20.2 million and $ 22.2 million of nonaccruing TDRs at June 30, 2021 and December 31, 2020, respectively. It is the Company's policy to reverse any accrued interest when a loan is put on nonaccrual status, and, as such, the Company did not record any interest income on nonaccrual loans during the six months ended June 30, 2021 and June 30, 2020. In accordance with government moratorium orders established in response to the COVID-19 pandemic, new foreclosures pursued by the Company have been on hold through June 30, 2021, and all loan foreclosures in process as of June 30, 2021 were in compliance with the orders. The following table shows information regarding foreclosed residential real estate property at the dates indicated: June 30, 2021 December 31, 2020 (Dollars in thousands) Foreclosed residential real estate property held by the creditor $ — $ — Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure $ 1,401 $ 1,750 25 Table of Contents The following tables show the age analysis of past due financing receivables as of the dates indicated: June 30, 2021 30-59 days 60-89 days 90 days or more Total Past Due Total Financing Receivables Amortized Cost >90 Days and Accruing Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Current (Dollars in thousands) Loan Portfolio Commercial and industrial 4 $ 1,384 — $ — — $ — 4 $ 1,384 $ 1,725,114 $ 1,726,498 $ — Commercial real estate 2 202 1 162 3 291 6 655 4,250,888 4,251,543 — Commercial construction — — — — — — — — 496,539 496,539 — Small business 4 18 1 61 4 32 9 111 182,752 182,863 — Residential real estate 9 1,167 2 153 22 3,223 33 4,543 1,235,736 1,240,279 — Home equity 12 572 7 520 20 1,684 39 2,776 1,015,632 1,018,408 — Other consumer (1) 233 173 — — 1 1 234 174 22,684 22,858 — Total 264 $ 3,516 11 $ 896 50 $ 5,231 325 $ 9,643 $ 8,929,345 $ 8,938,988 $ — December 31, 2020 30-59 days 60-89 days 90 days or more Total Past Due Total Financing Receivables Recorded Investment >90 Days and Accruing Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Current (Dollars in thousands) Loan Portfolio Commercial and industrial 2 $ 318 1 $ 672 8 $ 785 11 $ 1,775 $ 2,101,377 $ 2,103,152 $ — Commercial real estate 3 409 — — 4 515 7 924 4,173,003 4,173,927 — Commercial construction — — 2 2,794 — — 2 2,794 551,135 553,929 — Small business 14 421 6 273 4 59 24 753 174,270 175,023 — Residential real estate 12 2,150 8 5,507 27 3,648 47 11,305 1,284,878 1,296,183 — Home equity 10 733 5 203 33 2,633 48 3,569 1,065,221 1,068,790 — Other consumer (1) 260 137 3 1 6 138 269 276 21,586 21,862 1 Total 301 $ 4,168 25 $ 9,450 82 $ 7,778 408 $ 21,396 $ 9,371,470 $ 9,392,866 $ 1 (1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances. Troubled Debt Restructurings In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. 26 Table of Contents The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated: June 30, 2021 December 31, 2020 (Dollars in thousands) TDRs on accrual status $ 19,495 $ 16,983 TDRs on nonaccrual 20,212 22,209 Total TDRs $ 39,707 $ 39,192 Additional commitments to lend to a borrower who has been a party to a TDR $ 412 $ 263 The Company’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months subsequent to being modified before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Additionally, loans classified as TDRs are adjusted to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized. 27 Table of Contents The following table shows the TDRs which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring: Three Months Ended Six Months Ended June 30, 2021 June 30, 2021 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Troubled debt restructurings Commercial and industrial — $ — $ — 1 $ 14,148 $ 14,148 Commercial real estate — — — 5 3,964 3,964 Small business 1 89 89 2 189 189 Total (1) 1 $ 89 $ 89 8 $ 18,301 $ 18,301 Three Months Ended Six Months Ended June 30, 2020 June 30, 2020 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment (Dollars in thousands) Troubled debt restructurings Commercial and industrial 1 $ 40 $ 40 3 $ 308 $ 308 Commercial real estate 4 1,170 1,170 5 1,774 1,774 Small business 1 63 63 2 112 88 Residential real estate 1 382 433 2 559 642 Total (1) 7 $ 1,655 $ 1,706 12 $ 2,753 $ 2,812 (1) The pre-modification and post-modification balances represent the legal principal balance of the loan. Activity presented in the tables above includes no modifications on existing TDRs during the three months ended June 30, 2021, $ 14.3 million of modifications on existing TDRs during the six months ended June 30, 2021, and $ 510,000 and $ 1.4 million of modifications on existing TDRs during the three and six months ended June 30, 2020, respectively. The following table shows the Company’s post-modification balance of TDRs listed by type of modification for the periods indicated: Three Months Ended Six Months Ended June 30 June 30 2021 2020 2021 2020 (Dollars in thousands) Adjusted interest rate — — $ — $ 604 Combination rate and maturity — — 14,148 — Court ordered concession — — — 25 Extended maturity 89 1,706 4,153 2,183 Total 89 1,706 $ 18,301 $ 2,812 The Company considers a loan to have defaulted when it reaches 90 days past due. During the six months ended June 30, 2021 and June 30, 2020, there were no loans modified during the prior twelve months that subsequently defaulted during the respective periods. 28 Table of Contents NOTE 5 - STOCK BASED COMPENSATION During the six months ended June 30, 2021, the Company had the following activity related to stock based compensation: Time Vested Restricted Stock Awards The Company made the following awards of time vested restricted stock: Date Shares Granted Plan Grant Date Fair Value Per Share Vesting Period 2/18/2021 49,550 2005 Employee Stock Plan $ 81.84 Ratably over 5 years from grant date 5/25/2021 7,680 2018 Non-Employee Director Stock Plan $ 78.18 Shares vested immediately Performance-Based Restricted Stock Awards On February 18, 2021, the Company granted 18,900 performance-based restricted stock awards to certain executive level employees. These performance-based restricted stock awards were issued from the 2005 Employee Stock Plan and were determined to have a grant date fair value per share of $ 81.84 . The number of shares to be vested are contingent upon the Company's attainment of certain performance criteria to be measured at the end of a three year performance period, ending December 31, 2023. The awards will vest upon the earlier of the date on which it is determined if the performance goal is achieved subsequent to the performance period or March 31, 2024. On March 12, 2021, the performance-based restricted stock awards that were awarded on February 15, 2018 vested at 85 % of the maximum target shares awarded, or 13,005 shares. 29 Table of Contents NOTE 6 - DERIVATIVE AND HEDGING ACTIVITIES The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, the Company enters into interest rate derivatives, foreign exchange contracts and risk participation agreements to accommodate the business requirements of its customers (“customer related positions”). The Company minimizes the market and liquidity risks of customer related positions by entering into similar offsetting positions with broker-dealers. Derivative instruments are carried at fair value in the Company's financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship. The Company does not enter into proprietary trading positions for any derivatives. The Company is subject to over-the-counter derivative clearing requirements which require certain derivatives to be cleared through central clearing houses. Accordingly, the Company clears certain derivative transactions through the Chicago Mercantile Exchange Clearing House ("CME"). This clearing house requires the Company to post initial and variation margin to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts. Interest Rate Positions The Company may utilize various interest rate derivatives as hedging instruments against interest rate risk associated with the Company’s borrowings and loan portfolios. An interest rate derivative is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. 30 Table of Contents The following tables reflect the Company's derivative positions as of the dates indicated below for interest rate derivatives which qualify as cash flow hedges for accounting purposes: June 30, 2021 Weighted Average Rate Notional Amount Average Maturity Current Rate Received Pay Fixed Swap Rate Fair Value (in thousands) (in years) (in thousands) Interest rate swaps on borrowings $ 75,000 0.68 0.13 % 1.53 % $ ( 845 ) Current Rate Paid Receive Fixed Swap Rate Interest rate swaps on loans 550,000 3.08 0.09 % 2.16 % 20,985 Current Rate Paid Receive Fixed Swap Rate Cap - Floor Interest rate collars on loans 400,000 2.17 0.08 % 2.73 % - 2.20 % 15,964 Total $ 1,025,000 $ 36,104 December 31, 2020 Weighted Average Rate Notional Amount Average Maturity Current Rate Received Pay Fixed Swap Rate Fair Value (in thousands) (in years) (in thousands) Interest rate swaps on borrowings $ 75,000 1.18 0.22 % 1.53 % $ ( 1,341 ) Current Rate Paid Receive Fixed Swap Rate Interest rate swaps on loans 450,000 2.66 0.15 % 2.37 % 27,021 Current Rate Paid Receive Fixed Swap Rate Cap - Floor Interest rate collars on loans 400,000 2.66 0.15 % 2.73 % - 2.20 % 21,764 Total $ 925,000 $ 47,444 The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 7.7 years. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $ 19.3 million (pre-tax) to be reclassified as an increase to interest income and $ 713,000 (pre-tax) to be reclassified as an increase to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of June 30, 2021. The Company had no fair value hedges as of June 30, 2021 or December 31, 2020. 31 Table of Contents Customer Related Positions Loan level derivatives, primarily interest rate swaps, offered to commercial borrowers through the Company’s loan level derivative program do not qualify as hedges for accounting purposes. The Company believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an offsetting dealer transaction. Derivatives with dealer counterparties are then either cleared through a clearinghouse or settled directly with a single counterparty. The commercial customer derivative program allows the Company to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. The amounts relating to the notional principal amount are not actually exchanged. Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes. The Company acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions. The amounts relating to the notional principal amount are exchanged. The Company has entered into risk participation agreements with other dealer banks in commercial loan agreements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and, therefore, changes in fair value are recognized in earnings. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank. 32 Table of Contents The following table reflects the Company’s customer related derivative positions as of the dates indicated below for those derivatives not designated as hedging: Notional Amount Maturing Number of Positions (1) Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value June 30, 2021 (Dollars in thousands) Loan level swaps Receive fixed, pay variable 295 $ 53,462 $ 119,443 $ 139,057 $ 211,198 $ 1,083,785 $ 1,606,945 $ 78,200 Pay fixed, receive variable 295 53,462 119,443 139,057 211,198 1,083,785 1,606,945 ( 78,200 ) Foreign exchange contracts Buys foreign currency, sells U.S. currency 43 132,804 — — — — 132,804 ( 2,269 ) Buys U.S. currency, sells foreign currency 43 132,804 — — — — 132,804 2,273 Risk participation agreements Participation out 11 — — 2,655 31,761 67,927 102,343 275 Participation in 7 — 42,099 16,875 — 8,404 67,378 ( 76 ) Notional Amount Maturing Number of Positions (1) Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value December 31, 2020 (Dollars in thousands) Loan level swaps Receive fixed, pay variable 322 $ 102,999 $ 76,487 $ 149,265 $ 147,422 $ 1,222,557 $ 1,698,730 $ 127,226 Pay fixed, receive variable 313 102,999 76,487 149,265 147,422 1,222,557 1,698,730 ( 127,216 ) Foreign exchange contracts Buys foreign currency, sells U.S. currency 33 87,557 5,300 — — — 92,857 ( 4,214 ) Buys U.S. currency, sells foreign currency 33 87,557 5,300 — — — 92,857 4,224 Risk participation agreements Participation out 12 6,721 — 2,675 7,307 93,378 110,081 512 Participation in 8 — 30,649 29,072 — 15,844 75,565 ( 118 ) (1) The Company may enter into one dealer swap agreement which offsets multiple commercial borrower swap agreements. 33 Table of Contents Mortgage Derivatives The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that loans may be sold subsequently in the secondary market. Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. These commitments are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with changes in their fair values recorded within mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The fair value of loans held for sale increased by $ 305,000 and $ 583,000 for the three month periods ended June 30, 2021 and 2020, respectively. The fair value of loans held for sale decreased by $ 1.5 million and increased by $ 839,000 for the six month periods ended June 30, 2021 and 2020, respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives. Outstanding loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might change from inception of the rate lock to funding of the loan due to changes in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases. To protect against the price risk inherent in derivative loan commitments, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Mandatory delivery contracts are accounted for as derivative instruments. Included in the mandatory delivery forward commitments are To Be Announced securities ("TBAs"). Certain assumptions, including pull through rates and rate lock periods, are used in managing the existing and future hedges. The accuracy of underlying assumptions will impact the ultimate effectiveness of any hedging strategies. With mandatory delivery contracts, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a "pair-off" fee, based on then-current market prices, to the investor/counterparty to compensate the investor for the shortfall. Generally, the Company makes this type of commitment once mortgage loans have been funded and are held for sale, in order to minimize the risk of failure to deliver the requisite volume of loans to the investor and paying pair-off fees as a result. The Company also sells TBA securities to offset potential changes in the fair value of derivative loan commitments. Generally, the Company sells TBA securities by entering into derivative loan commitments for settlement in 30 to 90 days. The Company expects that mandatory delivery contracts, including TBA securities, will experience changes in fair value opposite to the changes in the fair value of derivative loan commitments. With best effort contracts, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, best efforts cash contracts have no pair off risk regardless of market movement. The price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these best efforts forward loan sale commitments will experience a net neutral shift in fair value with related derivative loan commitments. The aggregate amount of net realized gains or losses on sales of such loans included within mortgage banking income was $ 4.2 million and $ 6.1 million for the three month periods ended June 30, 2021 and 2020, respectively, and $ 12.3 million and $ 10.6 million for the six months ended June 30, 2021 and 2020, respectively. Balance Sheet Offsetting The Company does not offset fair value amounts recognized for derivative instruments. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be maintained at dealer banks by the Company is monitored and adjusted as necessary. A daily settlement occurs through the CME for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through the daily clearing agent. As a result, the total fair values of loan level derivative assets and liabilities recognized on the Company's financial statements are not equal and offsetting. 34 Table of Contents The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet and the potential effect of netting arrangements on its financial position, at the dates indicated: Asset Derivatives (1) Liability Derivatives (2) Fair Value at Fair Value at Fair Value at Fair Value at June 30 2021 December 31 2020 June 30 2021 December 31 2020 (Dollars in thousands) Derivatives designated as hedges Interest rate derivatives $ 37,046 (3) $ 48,786 (3) $ 942 (4) $ 1,342 (4) Derivatives not designated as hedges Customer Related Positions Loan level derivatives 85,193 (3) 127,228 (3) 85,193 (4) 127,218 (4) Foreign exchange contracts 2,459 4,359 2,455 4,349 Risk participation agreements 275 513 76 119 Mortgage Derivatives Interest rate lock commitments 2,071 6,513 — — Forward sale loan commitments — — 8 1 Forward sale hedge commitments — — 213 1,035 Total derivatives not designated as hedges 89,998 138,613 87,945 132,722 Total 127,044 187,399 88,887 134,064 Netting Adjustments (5) ( 4,021 ) 23 6,918 16,105 Net Derivatives on the Balance Sheet 123,023 187,422 81,969 117,959 Financial instruments (6) 40,457 48,786 40,457 48,786 Cash collateral pledged (received) — — 38,765 62,460 Net Derivative Amounts $ 82,566 $ 138,636 $ 2,747 $ 6,713 (1) All asset derivatives are located in other assets on the balance sheet. (2) All liability derivatives are located in other liabilities on the balance sheet. (3) Approximately $ 1.2 million and $ 1.6 million of accrued interest receivable is included in the fair value of the interest rate and loan level asset derivatives, respectively, as of June 30, 2021. Accrued interest receivable of approximately and $ 1.2 million and $ 2.0 million is included in the fair value of the interest rate and loan level asset derivatives, respectively, as of December 31, 2020. (4) Approximately $ 58,000 and $ 1.6 million of accrued interest payable is included in the fair value of the interest rate and loan level liability derivatives, respectively, as of June 30, 2021. Accrued interest payable of approximately $ 81,000 and $ 2.0 million is included in the fair value of the interest rate and loan level derivative liabilities, respectively, as of December 31, 2020. (5) Netting adjustments represent the amounts recorded to convert derivative assets and liabilities cleared through CME from a gross basis to a net basis, inclusive of the variation margin payments, in accordance with applicable accounting guidance. As displayed in the table above, derivatives that cleared through the CME were either in a net asset position or a net liability position as of June 30, 2021. (6) Reflects offsetting derivative positions with the same counterparty that are not netted on the balance sheet. 35 Table of Contents The table below presents the effect of the Company’s derivative financial instruments included in OCI and current earnings for the periods indicated: Three Months Ended Six Months Ended June 30 June 30 2021 2020 2021 2020 (Dollars in thousands) Derivatives designated as hedges Gain (loss) in OCI on derivatives (effective portion), net of tax $ ( 1,593 ) $ 197 $ ( 8,176 ) $ 23,181 Gain reclassified from OCI into interest income or interest expense (effective portion) $ 4,698 $ 3,976 $ 9,078 $ 5,562 Loss reclassified from OCI into noninterest expense (loss on termination) $ — $ — $ — $ — Interest expense $ — $ — $ — $ — Other expense — — — — Total $ — $ — $ — $ — Derivatives not designated as hedges Changes in fair value of customer related positions Other income $ 77 $ 3 $ 83 $ 25 Other expense ( 11 ) — ( 294 ) ( 24 ) Changes in fair value of mortgage derivatives Mortgage banking income ( 1,303 ) 3,347 ( 3,627 ) 2,626 Total $ ( 1,237 ) $ 3,350 $ ( 3,838 ) $ 2,627 The Company's derivative agreements with institutional counterparties contain various credit-risk related contingent provisions, such as requiring the Company to maintain a well-capitalized capital position. If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $ 42.2 million and $ 79.8 million at June 30, 2021 and December 31, 2020, respectively. Although none of the contingency provisions have applied as of June 30, 2021 and December 31, 2020, the Company has posted collateral to offset the net liability exposure with institutional counterparties. By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company's credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. Institutional counterparties must have an investment grade credit rating and be approved by the Company's Board of Directors. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. The Company's exposure relating to institutional counterparties was $ 40.5 million and $ 48.8 million at June 30, 2021 and December 31, 2020, respectively. The Company’s exposure relating to customer counterparties was approximately $ 81.7 million and $ 127.2 million at June 30, 2021 and December 31, 2020, respectively. Credit exposure may be reduced by the value of collateral pledged by the counterparty. NOTE 7 - FAIR VALUE MEASUREMENTS Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the assumptions applied by the Company when determining fair value reflect those that the Company determines market participants would use to price the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received if the asset were to be sold or that would be or paid if the liability were to be transferred in an orderly market transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When determining fair value, the Company considers pricing information and other inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and other inputs 36 Table of Contents may be reduced for certain instruments, or not available at all. The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another. The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below: Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation Techniques There have been no changes in the valuation techniques used during the six months ended June 30, 2021. Securities Trading and Equity Securities These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied. U.S. Government Agency and U.S. Treasury Securities Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2. Agency Mortgage-Backed Securities Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2. Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. State, County, and Municipal Securities The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transactions, and yield relationships. These securities are categorized as Level 2. Single and Pooled Issuer Trust Preferred Securities The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. 37 Table of Contents Loans Held for Sale The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2. Derivative Instruments Derivatives The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilizes. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Additionally, in conjunction with fair value measurement guidance, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate derivatives and risk participation agreements may also utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of June 30, 2021 and December 31, 2020, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are properly classified as Level 2. Mortgage Derivatives The fair value of mortgage derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified as Level 2 within the fair value hierarchy. Individually Assessed Collateral Dependent Loans In accordance with the CECL standard, expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost or fair value of the underlying collateral less costs to sell. The inputs used in the appraisals of the collateral are not always observable, and in such cases the loans may be classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. Other Real Estate Owned and Other Foreclosed Assets Other Real Estate Owned ("OREO") and Other Foreclosed Assets are valued at the lower of cost or fair value of the property, less estimated costs to sell. The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore OREO and Other Foreclosed Assets may be classified as Level 3 within the fair value hierarchy. Goodwill and Other Intangible Assets Goodwill and other intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and a discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3. 38 Table of Contents Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated: Fair Value Measurements at Reporting Date Using Balance Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) June 30, 2021 (Dollars in thousands) Recurring fair value measurements Assets Trading securities $ 3,439 $ 3,439 $ — $ — Equity securities 22,975 22,975 — — Securities available for sale U.S. government agency securities 194,042 — 194,042 — U.S. treasury securities 132,351 — 132,351 — Agency mortgage-backed securities 314,096 — 314,096 — Agency collateralized mortgage obligations 95,837 — 95,837 — State, county, and municipal securities 555 — 555 — Single issuer trust preferred securities issued by banks and insurers 490 — 490 — Pooled trust preferred securities issued by banks and insurers 1,061 — 1,061 — Small business administration pooled securities 56,084 — 56,084 — Loans held for sale 25,561 — 25,561 — Derivative instruments 127,044 — 127,044 — Liabilities Derivative instruments 88,887 — 88,887 — Total recurring fair value measurements $ 884,648 $ 26,414 $ 858,234 $ — Nonrecurring fair value measurements Assets Individually assessed collateral dependent loans (1) $ 30,276 $ — $ — $ 30,276 Total nonrecurring fair value measurements $ 30,276 $ — $ — $ 30,276 39 Table of Contents Fair Value Measurements at Reporting Date Using Balance Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2020 (Dollars in thousands) Recurring fair value measurements Assets Trading securities $ 2,838 $ 2,838 $ — $ — Equity securities 22,107 22,107 — — Securities available for sale U.S. government agency securities 24,116 — 24,116 — Agency mortgage-backed securities 233,629 — 233,629 — Agency collateralized mortgage obligations 91,683 — 91,683 — State, county, and municipal securities 807 — 807 — Single issuer trust preferred securities issued by banks and insurers 488 — 488 — Pooled trust preferred securities issued by banks and insurers 1,056 — 1,056 — Small business administration pooled securities 61,081 — 61,081 — Loans held for sale 58,104 — 58,104 — Derivative instruments 187,399 — 187,399 — Liabilities Derivative instruments 134,064 — 134,064 — Total recurring fair value measurements $ 549,244 $ 24,945 $ 524,299 $ — Nonrecurring fair value measurements: Assets Individually assessed collateral dependent loans (1) $ 31,510 $ — $ — $ 31,510 Total nonrecurring fair value measurements $ 31,510 $ — $ — $ 31,510 (1) The fair value of individually assessed collateral dependent loans is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. 40 Table of Contents The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated: Fair Value Measurements at Reporting Date Using Carrying Value Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) June 30, 2021 (Dollars in thousands) Financial assets Securities held to maturity (a) U.S. government agency securities $ 33,853 $ 33,730 $ — $ 33,730 $ — U.S. treasury securities $ 3,010 $ 3,038 $ — $ 3,038 $ — Agency mortgage-backed securities 381,030 392,042 — 392,042 — Agency collateralized mortgage obligations 418,112 421,841 — 421,841 — Single issuer trust preferred securities issued by banks 1,500 1,508 — 1,508 — Small business administration pooled securities 24,316 25,642 — 25,642 — Loans, net of allowance for credit losses (b) 8,806,355 8,782,780 — — 8,782,780 Federal Home Loan Bank stock (c) 9,079 9,079 — 9,079 — Cash surrender value of life insurance policies (d) 242,963 242,963 — 242,963 — Financial liabilities Deposit liabilities, other than time deposits (e) $ 11,169,652 $ 11,169,652 $ — $ 11,169,652 $ — Time certificates of deposits (f) 817,319 819,067 — 819,067 — Federal Home Loan Bank borrowings (f) 35,693 35,723 — 35,723 — Long-term borrowings (f) 23,425 23,095 — 23,095 — Junior subordinated debentures (g) 62,852 68,545 — 68,545 — Subordinated debentures (f) 49,743 47,146 — — 47,146 41 Table of Contents Fair Value Measurements at Reporting Date Using Carrying Value Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2020 (Dollars in thousands) Financial assets Securities held to maturity (a) U.S. treasury securities $ 4,017 $ 4,077 $ — $ 4,077 $ — Agency mortgage-backed securities 356,085 374,121 — 374,121 — Agency collateralized mortgage obligations 335,993 344,119 — 344,119 — Single issuer trust preferred securities issued by banks 1,500 1,498 — 1,498 — Small business administration pooled securities 26,917 28,362 — 28,362 — Loans, net of allowance for credit losses (b) 9,247,964 9,253,381 — — 9,253,381 Federal Home Loan Bank stock (c) 10,250 10,250 — 10,250 — Cash surrender value of life insurance policies (d) 200,525 200,525 — 200,525 — Financial liabilities Deposit liabilities, other than time deposits (e) $ 10,042,541 $ 10,042,541 $ — $ 10,042,541 $ — Time certificates of deposits (f) 950,629 955,598 — 955,598 — Federal Home Loan Bank borrowings (f) 35,740 35,885 — 35,885 — Long-term borrowings (f) 32,773 32,033 — 32,033 — Junior subordinated debentures (g) 62,851 70,238 — 70,238 — Subordinated debentures (f) 49,696 46,486 — — 46,486 (a) The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analysis. (b) Fair value of loans is measured using the exit price valuation method, determined primarily by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows, while incorporating liquidity and credit assumptions. Additionally, this amount excludes individually assessed collateral dependent loans, which are deemed to be marked to fair value on a nonrecurring basis. (c) Federal Home Loan Bank stock has no quoted market value and is carried at cost; therefore the carrying amount approximates fair value. (d) Cash surrender value of life insurance policies is recorded at its cash surrender value (or the amount that can be realized upon surrender of the policy), therefore, carrying amount approximates fair value. (e) Fair value of demand deposits, savings and interest checking accounts and money market deposits is the amount payable on demand at the reporting date. (f) Fair value was determined by discounting anticipated future cash payments using rates currently available for instruments with similar remaining maturities. (g) Fair value was determined based upon market prices of securities with similar terms and maturities. This summary excludes certain financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these may include cash and due from banks, federal funds sold and short-term investments. For financial liabilities, these may include federal funds purchased. These instruments would all be considered to be classified as Level 1 within the fair value hierarchy. Also excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described. The Company considers its current use of financial instruments to be the highest and best use of the instruments. 42 Table of Contents NOTE 8 - REVENUE RECOGNITION A portion of the Company's noninterest income is derived from contracts with customers, and as such, the revenue recognized depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance. To ensure its alignment with this core principle, the Company measures revenue and the timing of recognition by applying the following five steps: 1. Identify the contract(s) with customers 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Recognize revenue when (or as) the entity satisfies a performance obligation The Company has disaggregated its revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following table presents the revenue streams that the Company has disaggregated as of the periods indicated: Three Months Ended Six Months Ended June 30 2021 June 30 2020 June 30 2021 June 30 2020 (Dollars in thousands) Deposit account fees (inclusive of cash management fees) $ 3,822 $ 2,829 $ 7,406 $ 7,799 Interchange fees 2,141 4,536 4,044 8,640 ATM fees 735 525 1,360 1,164 Investment management - wealth management and advisory services 8,027 6,827 15,429 13,116 Investment management - retail investments and insurance revenue 845 469 1,747 1,009 Merchant processing income 339 277 659 670 Credit card income 313 151 549 334 Other noninterest income 1,245 534 2,370 1,746 Total noninterest income in-scope of ASC 606 17,467 16,148 33,564 34,478 Total noninterest income out-of-scope of ASC 606 7,500 12,042 16,649 20,147 Total noninterest income $ 24,967 $ 28,190 $ 50,213 $ 54,625 In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and service requirements are generally explicitly identified in the associated contracts. Additional information related to each of the revenue streams is further noted below. Deposit Account Fees The Company offers various deposit account products to its customers governed by specific deposit agreements applicable to either personal customers or business customers. These agreements identify the general conditions and obligations of both parties, and include standard information regarding deposit account related fees. Deposit account services include providing access to deposit accounts as well as access to the various deposit transactional services of the Company. These transactional services are primarily those that are identified in the standard fee schedule, and include, but are not limited to, services such as overdraft protection, wire transfer, and check collection. Revenue is recognized in conjunction with the various services being provided. For example, the Company may assess monthly fixed service fees associated with the customer having access to a deposit account, which can vary depending on the account type and daily account balance. In addition, the Company may also assess separate fixed fees associated with and at the time specific transactions are entered into by the customer. As such, the Company considers its performance obligations to be met concurrently with providing the account access or completing the requested deposit transaction. 43 Table of Contents Cash Management Cash management services are a subset of the deposit account fees revenue stream. These services primarily include ACH transaction processing, positive pay and remote deposit services. These services are also governed by separate agreements entered into with the customer. The fee arrangement for these services is structured to assess fees under one of two scenarios, either a per transaction fee arrangement or an earnings credit analysis arrangement. Under the per transaction fee arrangement, fixed fees are assessed concurrently with customers executing the transactions, and as such, the Company considers its performance obligations to be met concurrently with completing the requested transaction. Under the earnings credit analysis arrangement, the Company provides a monthly earnings credit to the customer that is negotiated and determined based on various factors. The credit is then available to absorb the per transaction fees that are assessed on the customer's deposit account activity for the month. Any amount of the transactional fees in excess of the earnings credit is recognized as revenue in that month. Interchange Fees The Company earns interchange revenue from its issuance of credit and debit cards granted through its membership in various card payment networks. The Company provides credit cards and debit cards to its customers which are authorized and settled through these payment networks, and in exchange, the Company earns revenue as determined by each payment network's interchange program. The revenue is recognized concurrently with the settlement of card transactions within each network. ATM Fees The Company deploys automated teller machines (ATMs) as part of its overall branch network. Certain transactions performed at the ATMs require customers to acknowledge and pay a fee for the requested service. Certain ATM fees are disclosed in the deposit account agreement fee schedules, whereas those assessed to non-Rockland Trust deposit holders are solely determined during the transaction at the machine. The ATM fee is a fixed dollar per transaction amount, and as such, is recognized concurrently with the overall daily processing and settlement of the ATM activity. Investment Management - Wealth Management and Advisory Services The Company offers investment management and trust services to individuals, institutions, small businesses and charitable institutions. Each investment management product is governed by its own contract along with a separate identifiable fee schedule unique to that product. The Company also offers additional services, such as estate settlement, financial planning, tax services and other special services quoted at the client's request. The asset management and/or custody fees are based upon a percentage of the monthly valuation of the principal assets in the customer's account, whereas fees for additional or special services are fixed in nature and are charged as services are rendered. As the fees are dependent on assets under management, which are susceptible to market factors outside of the Company's control, this variable consideration is constrained and therefore no revenue is estimated at contract initiation. As such, all revenue is recognized in correlation to the monthly management fee determinations or as transactional services are provided. Due to the fact that payments are primarily made subsequent to the valuation period, the Company records a receivable for revenue earned but not received. The following table provides the amount of investment management revenue earned but not received as of the dates indicated: June 30, 2021 December 31, 2020 (Dollars in thousands) Receivables, included in other assets $ 5,177 $ 4,636 Investment Management - Retail Investments and Insurance Revenue The Company offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance products through registered representatives who are both employed by the Company and licensed and contracted with various broker general agents to offer these products to the Company’s customer base. As such, the Company performs these services as an agent and earns a fixed commission on the sales of these products and services. To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds. 44 Table of Contents In general, the Company recognizes commission revenue at the point of sale, and for certain insurance products, may also earn and recognize annual residual commissions commensurate with annual premiums being paid. Merchant Processing Income The Company refers customers to third party merchant processing partners in exchange for commission and fee income. The income earned is comprised of multiple components, including a fixed referral fee per each referred customer, a rebate amount determined primarily as a percentage of net revenue earned by the third party from services provided to each referred customer, and overall production bonus commissions if certain new account production thresholds are met. Merchant processing income is recognized in conjunction with either completing the referral to earn the fixed fee amount or as the merchant activity is processed to derive the Company's rebate and/or production bonus amounts. Credit Card Income The Company provides consumer and business credit card solutions to its customers by soliciting new accounts on behalf of a third party credit card provider in exchange for a fee. The income earned is comprised of new account incentive payments as well as a percentage of interchange income earned by the third party provider offering the consumer and business purpose revolving credit accounts. The credit card income is recognized in conjunction with the establishment of each new credit card member or as the interchange is earned by the third party in connection with net purchase transactions made by the credit card member. Other Noninterest Income The Company earns various types of other noninterest income that fall within the scope of the new revenue recognition rules, and have been aggregated into one general revenue stream in the table noted above. This amount includes, but is not limited to, the following types of revenue with customers: Safe Deposit Rent The Company rents out the use of safe deposit boxes to its customers, which can be accessed when the bank is open for business. The safe deposit box rental fee is paid upfront and is recognized as revenue ratably over the annual term of the contract. 1031 Exchange Fee Revenue The Company provides like-kind exchange services pursuant to Section 1031 of the Internal Revenue Code. Fee income is recognized in conjunction with completing the exchange transactions. Foreign Currency The Company earns fee income associated with various transactions related to foreign currency product offerings, including foreign currency bank notes and drafts and foreign currency wires. The majority of this income is derived from commissions earned related to customers executing the above mentioned foreign currency transactions through arrangements with third party correspondents. 45 Table of Contents NOTE 9 - OTHER COMPREHENSIVE INCOME (LOSS) The following tables present a reconciliation of the changes in the components of other comprehensive income (loss) for the periods indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss): Three Months Ended June 30, 2021 Six Months Ended June 30, 2021 Pre Tax Amount Tax (Expense) Benefit After Tax Amount Pre Tax Amount Tax (Expense) Benefit After Tax Amount (Dollars in thousands) Change in fair value of securities available for sale $ 5,109 $ ( 1,316 ) $ 3,793 $ ( 5,252 ) $ 1,271 $ ( 3,981 ) Less: net security losses reclassified into other noninterest expense — — — — — — Net change in fair value of securities available for sale 5,109 ( 1,316 ) 3,793 ( 5,252 ) 1,271 ( 3,981 ) Change in fair value of cash flow hedges 2,481 ( 697 ) 1,784 ( 2,298 ) 647 ( 1,651 ) Less: net cash flow hedge gains reclassified into interest income or interest expense 4,698 ( 1,321 ) 3,377 9,078 ( 2,553 ) 6,525 Net change in fair value of cash flow hedges ( 2,217 ) 624 ( 1,593 ) ( 11,376 ) 3,200 ( 8,176 ) Net unamortized gain related to defined benefit pension and other postretirement adjustments arising during the period — — — 653 ( 184 ) 469 Amortization of net actuarial losses 249 ( 70 ) 179 691 ( 194 ) 497 Amortization of net prior service costs 43 ( 12 ) 31 87 ( 24 ) 63 Net change in other comprehensive income for defined benefit postretirement plans (1) 292 ( 82 ) 210 1,431 ( 402 ) 1,029 Total other comprehensive income (loss) $ 3,184 $ ( 774 ) $ 2,410 $ ( 15,197 ) $ 4,069 $ ( 11,128 ) Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 Pre Tax Amount Tax (Expense) Benefit After Tax Amount Pre Tax Amount Tax (Expense) Benefit After Tax Amount (Dollars in thousands) Change in fair value of securities available for sale $ 2,332 $ ( 637 ) $ 1,695 $ 14,455 $ ( 3,413 ) $ 11,042 Less: net security losses reclassified into other noninterest expense — — — — — — Net change in fair value of securities available for sale 2,332 ( 637 ) 1,695 14,455 ( 3,413 ) 11,042 Change in fair value of cash flow hedges 4,250 ( 1,195 ) 3,055 37,817 ( 10,638 ) 27,179 Less: net cash flow hedge gains reclassified into interest income or interest expense 3,976 ( 1,118 ) 2,858 5,562 ( 1,564 ) 3,998 Net change in fair value of cash flow hedges 274 ( 77 ) 197 32,255 ( 9,074 ) 23,181 Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period ( 1 ) — ( 1 ) ( 1,390 ) 391 ( 999 ) Amortization of net actuarial losses 246 ( 69 ) 177 491 ( 138 ) 353 Amortization of net prior service costs 69 ( 20 ) 49 138 ( 39 ) 99 Net change in other comprehensive income for defined benefit postretirement plans (1) 314 ( 89 ) 225 ( 761 ) 214 ( 547 ) Total other comprehensive income (loss) $ 2,920 $ ( 803 ) $ 2,117 $ 45,949 $ ( 12,273 ) $ 33,676 46 Table of Contents (1) The amortization of prior service costs is included in the computation of net periodic pension cost as disclosed in Note 15 "Employee Benefit Plans" within the Notes to the Consolidated Financial Statements included in Item 8 of the Company's 2020 Form 10-K. Information on the Company’s accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the dates indicated: Unrealized Gain (Loss) on Securities Unrealized Gain (Loss) on Cash Flow Hedge Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss) (Dollars in thousands) 2021 Beginning balance: January 1, 2021 $ 13,255 $ 33,276 $ ( 5,836 ) $ 40,695 Net change in other comprehensive income (loss) ( 3,981 ) ( 8,176 ) 1,029 ( 11,128 ) Ending balance: June 30, 2021 $ 9,274 $ 25,100 $ ( 4,807 ) $ 29,567 2020 Beginning balance: January 1, 2020 $ 4,398 $ 16,479 $ ( 2,708 ) $ 18,169 Net change in other comprehensive income (loss) 11,042 23,181 ( 547 ) 33,676 Ending balance: June 30, 2020 $ 15,440 $ 39,660 $ ( 3,255 ) $ 51,845 NOTE 10 - COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance Sheet Risk In the normal course of business, the Company enters into various transactions to meet the financing needs of its customers, which, in accordance with GAAP, are not included in its consolidated balance sheets. These transactions include commitments to extend credit and standby letters of credit, and loan exposures with recourse, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of these commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. The Company has certain loan exposures for which there is recourse. These loan relationships could require the Company to repurchase or cover certain losses per agreements for certain loans that are either sold or referred to third parties. Standby letters of credit are written conditional commitments issued to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements. The fees collected in connection with the issuance of standby letters of credit are representative of the fair value of the Company's obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees, fees collected in connection with the issuance of standby letters of credit are deferred. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement. The deferred standby letter of credit fees represent the fair value of the Company's potential obligations under the standby letter of credit guarantees. The following table summarizes the above financial instruments at the dates indicated: June 30, 2021 December 31, 2020 (Dollars in thousands) Commitments to extend credit $ 3,638,399 $ 3,301,692 Standby letters of credit 20,592 20,686 Deferred standby letter of credit fees 128 164 Loan exposures with recourse 233,167 303,265 47 Table of Contents Lease Commitments The Company leases office space, space for ATM locations, and certain branch locations under noncancellable operating leases. Se veral of these leases contain renewal options to extend lease terms for a period of 3 to 10 years. During the fourth quarter of 2020, the Company recognized $ 4.8 million in lease termination costs associated with two branch closure decisions. These termination fees were paid by the Company during the second quarter of 2021. There has been no significant change in the future minimum lease payments payable by the Company since December 31, 2020. See the Company's 2020 Form 10-K for information regarding leases and other commitments. Other Contingencies At June 30, 2021, the Bank was involved in pending lawsuits that arose in the ordinary course of business. Management has reviewed these pending lawsuits with legal counsel and has taken into consideration the view of counsel as to their outcome. In the opinion of management, the final disposition of pending lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations. Historically, the Bank was required to maintain certain reserve requirements of vault cash and/or deposits with the Federal Reserve Bank of Boston, however the reserve requirement was reduced to zero by the Federal Reserve during the first quarter of 2020 in response to the COVID-19 pandemic, and as such, there was no reserve requirement at June 30, 2021 or at December 31, 2020. 48 Table of Contents NOTE 11 - LOW INCOME HOUSING PROJECT INVESTMENTS The Company has invested in low income housing projects that generate Low Income Housing Tax Credits (“LIHTC”) which provide the Company with tax credits and operating loss tax benefits over a period of approximately 15 years. None of the original investment is expected to be repaid. The following table presents certain information related to the Company's investments in low income housing projects as of the dates indicated: June 30 2021 December 31 2020 (Dollars in thousands) Original investment value $ 162,984 $ 128,752 Current recorded investment 125,066 97,435 Unfunded liability obligation 74,262 49,586 Tax credits and benefits 14,477 (1) 9,404 Amortization of investments 12,526 (1) 7,552 Net income tax benefit 1,951 (1) 1,851 (1) Amounts shown represent the full year impact for the year ended December 31 , 2021.