What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-04 · 207 added, 194 removed, 906 unchanged (31% of the section changed)

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Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations.

These statements may be identified by forward-looking terminology such as “should,” “could,” “will,” “may,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” “intend,” or similar statements or variations of such terms.

These statements may be identified by forward-looking terminology such as “should,” “could,” “will,” “may,” “expect,” “believe,” “forecast,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” “intend,” or similar statements or variations of such terms.

Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements.

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the “Risk Factors” section of the 2020 Form 10-K and the Quarterly Report on Form 10-Q for the period ended March 31, 2021, include, but are not limited to:

• further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including future weakening caused by the COVID-19 pandemic, and any impact of inflationary pressure;

• the length and extent of economic contraction as a result of the COVID-19 pandemic;

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the “Risk Factors” section of the 2020 Form 10-K and the Quarterly Reports on Form 10-Q for the periods ended March 31, 2021 and June 30, 2021 include, but are not limited to:

• the length and extent of economic contraction as a result of the COVID-19 pandemic and variables such as global supply chain disruptions, labor shortages and stoppages and inflation (which could adversely impact us or our customers or suppliers);

• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;

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• adverse changes in asset quality and any unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;

• acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;

• failure to consummate or a delay in consummating the acquisition of Meridian Bancorp, Inc.

("Meridian"), which is subject to standard closing conditions, including the receipt of regulatory approvals;

• acquisitions, including the acquisition of Meridian, may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;

• additional regulatory oversight and related compliance costs, including the additional costs associated with the Company's increase in assets to over $10 billion;

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• electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;

• adverse changes in consumer spending and savings habits, including as a result of rising inflation;

• the failure to consummate or delay in consummating the acquisition of Meridian Bancorp, Inc.

("Meridian"), which is subject to certain standard closing conditions, including the receipt of required regulatory approvals, approval by the stockholders of Meridian and the shareholders of the Company, and other customary closing conditions;

• the possibility that the anticipated benefits of the Meridian acquisition are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company and Meridian do business;

• adverse changes in consumer spending and savings habits;

• the inability to retain customers and employees, including those of previous and pending mergers;

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• other unexpected material adverse changes in our operations or earnings.

Further, the foregoing factors may be exacerbated by the ultimate impact of the COVID-19 pandemic, which is unknown at this time, particularly given the recent rise in cases associated with the Delta variant in certain jurisdictions.

Further, the foregoing factors may be exacerbated by the ultimate impact of the COVID-19 pandemic, which is unknown at this time, particularly given the threats posed by the rise and spread of variants of the virus that causes COVID-19.

Statements about the COVID-19 pandemic and its potential impact on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that actual results may differ, possibly materially, from what is reflected in such statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the pandemic and any resurgences, vaccination rates, actions taken by governmental authorities in response to the pandemic and the direct and indirect impact on the Company’s employees, customers, business and third-parties with which the Company conducts business.

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Net interest margin (on a fully tax equivalent basis) 2.78 % 2.99 % 3.25 % 3.10 % 3.13 %

Equity to assets 12.27 % 12.45 % 12.89 % 12.83 % 12.84 %

Dividend payout ratio 39.64 % 42.19 % 36.35 % 43.76 % 43.45 %

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The Company is focused on organic growth, but will also consider acquisition opportunities that can provide a satisfactory financial return.

On April 22, 2021 the Company announced the signing of a definitive merger agreement under which the Company will acquire Meridian Bancorp, Inc.

("Meridian"), with the Company as the surviving entity, and East Boston Savings Bank will merger with and into Rockland Trust (the “Merger Agreement”).

On April 22, 2021 the Company announced the signing of a definitive merger agreement under which the Company will acquire Meridian, with the Company as the surviving entity, and East Boston Savings Bank will merge with and into Rockland Trust (the “Merger Agreement”).

Under the Merger Agreement, each share of Meridian common stock will be exchanged for 0.2750 shares of the Company’s common stock.

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Based upon the closing price of $79.57 per share of the Company’s common stock on April 21, 2021, the transaction is valued at approximately $1.15 billion.

The closing of the Meridian acquisition, which is expected to occur during the fourth quarter of 2021, is subject to certain conditions including approval of the transaction by Meridian’s stockholders and the Company's shareholders, receipt of required regulatory approvals, and other standard conditions.

The closing of the Meridian acquisition, which is expected to occur during the fourth quarter of 2021, was approved by the Company's shareholders and by Meridian's stockholders on August 5, 2021, and remains subject to required regulatory approvals and satisfaction of other customary closing conditions set forth in the Merger Agreement.

During the ongoing COVID-19 pandemic, the Company has been and remains committed to supporting and working with its customers as they navigate these unprecedented times.

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Management’s asset strategy typically emphasizes loan growth, however, the mix of interest earning assets has experienced volatility over the last five quarters due to the unique operating environment.

With significant growth in deposits over this time period, along with over $300 million of PPP loans being forgiven and repaid during the second quarter of 2021, securities and interest earning cash balances have increased significantly, while loan growth has been challenging.

However, during the second quarter of 2021, excluding PPP loans, loan balances increased $55.9 million, or 0.7%, driven primarily by growth in commercial real estate loans (see "Non-GAAP Measures" below for a reconciliation to the GAAP financial measure).

With significant growth in deposits over this time period, along with over $400 million of PPP loans being forgiven and repaid during the first three quarters of 2021, securities and interest earning cash balances have increased significantly, while loan growth has been challenging due to elevated payoffs and lower line utilization.

However, during the third quarter of 2021, the Company continued to execute its strategy to deploy excess cash balances into investment securities, resulting in net growth of the securities portfolio of $636.0 million, or 37.8%, from the prior quarter.

Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets.

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The Company's overall sources of funding reflect strong business and retail deposit growth with a management emphasis on core deposit growth to fund loans.

During the second quarter of 2021, the Company realized growth in deposits, which increased $393.4 million, or 3.4%, from March 31, 2021 to $12.0 billion at June 30, 2021, reflecting continued growth across all deposit products, as well as impacts from government stimulus payments.

Core deposits rose to 91.6% of total deposits at June 30, 2021, as higher-cost time deposits continued to run-off.

During the third quarter of 2021, the Company realized growth in deposits, which increased $273.2 million, or 2.3%, from June 30, 2021 to $12.3 billion at September 30, 2021, reflecting continued robust new account activity in both consumer and business products, as well as increases on existing balances.

Core deposits remained at 92.0% of total deposits at September 30, 2021, as higher-cost time deposits continued to run-off.

The following chart shows the sources of funding and the percentage of core deposits to total deposits for the trailing five quarters:

The 2021 second quarter net interest margin was heavily impacted by the increased excess liquidity position, decreasing by 26 basis points from the prior quarter to 2.99%.

Net interest income for the second quarter decreased to $93.4 million compared to $95.6 million for the prior quarter, driven in part by a reduction in PPP fee income recognition, with $7.2 million of PPP fee income recognized in the second quarter compared to $9.5 million in the prior quarter.

The table below illustrates the factors that contributed to the decrease in net interest margin for the second quarter of 2021:

Net interest margin for the three months ended March 31, 2021

Excess liquidity - cash and securities (0.19) %

Loan yields (0.03) %

PPP loan impact (0.06) %

Other noncore adjustments (0.01) %

Decreased cost of funds 0.03 %

Net interest margin for the three months ended June 30, 2021

The 2021 third quarter net interest margin continued to be heavily impacted by the increased excess liquidity position, decreasing by 21 basis points from the prior quarter to 2.78%.

Net interest income for the third quarter decreased to $90.1 million compared to $93.4 million for the prior quarter, driven by a $5.0 million reduction in PPP fee income as compared to the prior quarter, along with increases in balances of lower yielding, short term assets.

The following table shows the net interest margin and cost of deposits trends for the trailing five quarters:

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Noninterest income is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income.

The increases in deposit fees, interchange and ATM fees were offset by decreases in mortgage banking, which was driven by lower gain on sale margins and an increase in the percentage of closings retained in the balance sheet portfolio versus sold in the secondary market.

The increases in deposit fees, interchange and ATM fees for the three months ended September 30, 2021 were primarily volume driven and reflected a rise in customer spending.

Investment management income also increased for the third quarter, primarily attributable to increased insurance commissions.

The following chart shows the components of noninterest income over the past five quarters:

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The Company’s primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment.

Noninterest expense increased during the second quarter of 2021, primarily due to increases in incentive compensation and merger related costs, which, combined with lower total revenues, resulted in an elevated efficiency ratio for the three months ended June 30, 2021.

Noninterest expense decreased slightly during the third quarter of 2021, however when combined with lower total revenues, the efficiency ratio remained elevated for the three months ended September 30, 2021.

The following chart depicts the Company's efficiency ratio on a GAAP basis (calculated by dividing noninterest expense by the sum of noninterest income and net interest income), as well as the Company's efficiency ratio on a non-GAAP operating basis, if applicable (calculated by dividing noninterest expense, excluding certain noncore items, by the sum of noninterest income, excluding certain noncore items, and net interest income), over the past five quarters:

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*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

The Company declared quarterly cash dividends of $0.48 per share for each of the first two quarters of 2021, representing an increase of 4.3% from the 2020 quarterly dividend rate of $0.46 per share.

Second Quarter 2021 Results

Net income for the second quarter of 2021 was $37.6 million, or $1.14 on a diluted earnings per share basis, and increased 50.9% and 50.0%, respectively, as compared to $24.9 million, or $0.76 on a diluted earnings per share basis, for the prior year second quarter.

Second quarter 2021 results were positively impacted by a release of provision for credit losses of $5.0 million, in contrast to the prior year period results which included a provision for credit losses of $25 million reflecting management's assumptions and expectations related to the COVID-19 pandemic.

During the Company's second quarter 2021 earnings call, the Company's Chief Financial Officer provided the following key expectations regarding business activity to serve as near term guidance for the remainder of 2021:

• Anticipated continuation of healthy pipelines across all loan products should serve for low single digit annualized commercial loan growth moving forward, excluding the impact of PPP loans.

Mortgage retention and home equity utilization rates will continue to challenge net growth within consumer portfolios;

• Any future deposit growth will likely be more muted which, in turn, will affect the level of excess cash being deployed into securities;

• While deployment of cash into securities will provide some level of incremental interest income, a reduction in net interest income is expected as accelerated PPP fee income for the third quarter is anticipated to be approximately $5.5 million less than second quarter results, with any significant acceleration of PPP fee income from the second round not expected until 2022;

• Assuming an anticipated trend of improving general economic factors and no significant changes in overall asset quality, the Company's provision for credit losses will likely continue to track at levels below net charge-offs to serve as further reductions in the overall allowance;

• Overall noninterest income and noninterest expense is expected to remain relatively consistent with the second quarter 2021 results;

• The tax rate is expected to remain consistent for the remainder of the year.

The Company declared quarterly cash dividends of $0.48 per share for each of the first three quarters of 2021, representing an increase of 4.3% from the 2020 quarterly dividend rate of $0.46 per share.

Third Quarter 2021 Results

Net income for the third quarter of 2021 was $40.0 million, or $1.21 on a diluted earnings per share basis, and increased 14.7% and 14.2%, respectively, as compared to $34.9 million, or $1.06 on a diluted earnings per share basis, for the prior year third quarter.

Third quarter 2021 results were positively impacted by a release of provision for credit losses of $10.0 million, in contrast to the prior year period results, which included a provision for credit losses of $7.5 million reflecting management's assumptions and expectations related to the COVID-19 pandemic at that time.

The third quarter of 2021 included merger and acquisition costs, while the third quarter of 2020 included a loss on the termination of a derivative contract, which the Company deems to be noncore.

Excluding these noncore items, third quarter 2021 and 2020 operating net income was $41.4 million and $35.4 million, respectively.

See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures.

During the Company's third quarter 2021 earnings call, the Company's Chief Financial Officer provided the following key expectations regarding business activity to serve as near term guidance for the remainder of 2021:

• Loan growth is expected to mirror third quarter results, such that continued payoffs will mitigate strong anticipated closing activity, resulting in relatively flat balances.

However, any increase in line utilization rates could also serve as a catalyst to stronger loan growth;

• Deposit growth is expected to be in the low single digits;

• Near term deployment of excess liquidity is expected to continue to be in the form of increased securities balances;

• Assuming an anticipated trend of improving general economic factors and no significant unexpected changes in overall asset quality, the provision for credit losses is expected to continue to track at levels below net charge-offs;

• Non-interest income is expected to decrease slightly primarily due to anticipated seasonal declines in deposit fees, reduced mortgage banking income attributable to compressed gain on sale margins and an anticipated increase in loan production retained in the portfolio, as well as reduced equity investment gains which positively impacted both second and third quarter results in 2021;

• Non-interest expense is expected to increase slightly.

Non-GAAP Measures

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The following tables summarize adjustments for noncore items for the periods indicated below and reconcile non-GAAP measures:

Three Months Ended June 30

Three Months Ended September 30

Net Income Diluted

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Noninterest expense components

loss on termination of derivatives — 684 — 0.02

merger and acquisition expenses 1,943 — 0.06 —

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Net tax benefit associated with noncore items (1) (546) (192) (0.02) (0.01)

Total tax impact (546) (192) (0.02) (0.01)

Noncore increases to net income 1,397 492 0.04 0.01

Operating net income (Non-GAAP) $ 41,404 $ 35,365 $ 1.25 $ 1.07

Six Months Ended June 30

Nine Months Ended September 30

Net Income Diluted

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Noninterest expense components

loss on termination of derivatives — 684 — 0.02

merger and acquisition expenses 3,674 — 0.11 —

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Merger and acquisition expense 1,943 1,731 — — —

Loss on termination of derivative — — — 684 —

Loss on termination of derivatives — — — — 684

Noninterest expense on an operating basis (Non-GAAP) $ 70,476 $ 71,571 $ 69,682 $ 73,727 $ 65,974 (d)

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The Company believes that the most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.

There have been no material changes in critical accounting policies during the first six months of 2021.

There have been no material changes in critical accounting policies during the first nine months of 2021.

Refer to the Company's 2020 Form 10-K for a complete listing of critical accounting policies.

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Securities Portfolio The Company’s securities portfolio consists of trading securities, equity securities, securities available for sale, and securities which management intends to hold until maturity.

Securities increased by $520.4 million, or 44.8%, at June 30, 2021 as compared to December 31, 2020, r eflecting $713.7 million of purchases offset by paydowns, called securities, and maturities.

Purchases made during the first half of 2021 reflect the Company's continued direct strategy to deploy a portion of excess cash balances into securities.

The ratio of securities to total assets was 11.9% and 8.8% at June 30, 2021 and December 31, 2020, respectively.

Securities increased by $1.2 billion, or 99.5%, at September 30, 2021 as compared to December 31, 2020, r eflecting $1.4 billion of purchases offset by paydowns, called securities, and maturities.

Purchases made during 2021 reflect the Company's continued direct strategy to deploy a portion of excess cash balances into investment securities.

The ratio of securities to total assets was 16.0% and 8.8% at September 30, 2021 and December 31, 2020, respectively.

The Company estimates expected credit losses for its available for sale and held to maturity securities in accordance with the current expected credit loss ("CECL") methodology.

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Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans.

The Company originates residential loans with the intention of selling them in the secondary market or holding them in the Company's residential portfolio.

The Company originates residential loans with the intention of selling them in the secondary market or holding them in the Company's residential real estate portfolio.

When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination.

The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached.

The Company incurred no material losses related to mortgage repurchases during the three and six months ended June 30, 2021 and 2020, respectively.

The Company experienced strong closing volumes within the residential portfolio during the second quarter of 2021, with a larger portion of residential closings being retained in the portfolio rather than sold into the secondary market as compared to prior periods.

The following table shows the total residential loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market during the periods indicated:

The Company incurred no material losses related to residential mortgage repurchases during the three and nine months ended September 30, 2021 and 2020, respectively.

The Company experienced strong closing volumes within the residential real estate portfolio during the three and nine months ended September 30, 2021, with a larger portion of residential real estate closings being retained in the portfolio rather than sold into the secondary market as compared to prior year periods.

The following table shows the total residential real estate loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market during the periods indicated:

Table 1 - Closed Residential Real Estate Loans

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

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Table 2 - Residential Mortgage Loan Sales

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

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Total loans sold $ 174,285 $ 252,907 $ 629,287 $ 626,600

(1) All loans sold with servicing rights retained were sold with recourse during the three and six months ended June 30, 2021 and 2020, respectively.

(1) All loans sold with servicing rights retained during the nine months ended September 30, 2021 were sold without recourse.

When a loan is sold, the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneously with the sale of the loan, or the Company may opt to sell the loan and retain the servicing.

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If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income.

The principal balance of loans serviced by the Bank on behalf of investors was $373.2 million, $453.7 million and $563.0 million at June 30, 2021, December 31, 2020, and June 30, 2020, respectively.

The principal balance of loans serviced by the Bank on behalf of investors was $342.3 million, $453.7 million and $508.7 million at September 30, 2021, December 31, 2020, and September 30, 2020, respectively.

The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated:

Table 3 - Mortgage Servicing Asset

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

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Item 1 of this Report for more information on mortgage activity and mortgage related derivatives.

Loan Portfolio Total loans at June 30, 2021 decreased by $453.9 million, or 4.83%, when compared to December 31, 2020, which was primarily attributable to a net reduction in PPP loan balances.

Loan Portfolio Total loans at September 30, 2021 decreased by $584.9 million, or 6.23%, when compared to December 31, 2020, which was primarily attributable to a net reduction in PPP loan balances of $408.3 million, or 51.6%.

Despite strong origination volumes and loan pipelines across all products, overall portfolio growth continued to be constrained by ongoing paydowns and re-financing activity.

Excluding PPP loans of $482.7 million and $791.9 million outstanding at June 30, 2021 and December 31, 2020, respectively, total loans declined by $144.6 million or 1.68%, during the first half of 2021.

Exclusive of PPP loans, commercial loan balances decreased slightly by $39.3 million, or 0.63%, primarily reflecting a slowdown in new construction financing and lower line utilization levels within the commercial and industrial portfolio, countered by strong closings in commercial real estate throughout the first half of 2021.

Decreases were also observed in the consumer portfolio, as the low rate environment increased prepayments and refinancing, as well as lower home equity line utilization, resulting in reductions of 4.3% and 4.7% within the mortgage and home equity portfolios, respectively.

(see "Non-GAAP Measures" in the "Executive Level Overview" above for a reconciliation to the GAAP financial measure).

The Company's commercial loan portfolio is comprised primarily of commercial and industrial loans as well as commercial real estate loans.

Excluding PPP loans of $383.6 million and $791.9 million outstanding at September 30, 2021 and December 31, 2020, respectively, total loans declined by $176.5 million or 2.05%, for the nine months ended September 30, 2021.

Exclusive of PPP loans, commercial loan balances decreased by $36.2 million, or 0.6%, from December 31, 2020 to September 30, 2021, as strong pipelines and closing activity continued to be counterbalanced by elevated payoffs and lower line utilization levels.

Consumer loan balances also declined with increased prepayments and refinancing activity, as well as lower home equity line utilization, which resulted in reductions of 5.7% and 6.4% within the residential mortgage and home equity portfolios, respectively, for the nine months ended September 30, 2021.

(See "Non-GAAP Measures" in the "Executive Level Overview" above for a reconciliation to the GAAP financial measure, including the measure of total loans, excluding PPP).

The Company's commercial loan portfolio is comprised primarily of commercial and industrial loans, commercial real estate loans.

Management considers the Company’s commercial and industrial portfolio to be well-diversified with loans to various types of industries.

The Company's participation in the PPP resulted in significant loan fundings within the commercial and industrial portfolio throughout 2020 and the first six months of 2021, with outstanding balances totaling $482.7 million at June 30, 2021, comprising 28.0% of the total portfolio.

The Company's participation in the PPP resulted in significant loan fundings within the commercial and industrial category throughout 2020 and first half of 2021, with outstanding balances totaling $383.6 million at September 30, 2021, comprising 23.4% of the total commercial and industrial category.

Accordingly, the composition of the portfolio by sector is skewed as compared to periods prior to the commencement of the PPP in the second quarter of 2020, as the PPP loans are reflected within the various sectors below.

In connection with PPP loan originations during the first six months of 2021, the Company received fee revenue of $18.2 million, which is deferred and amortized over the life of the loan.

During the six months ended June 30, 2021, the Company amortized into income $16.7 million in PPP fee revenue related to forgiven loans.

The following pie chart shows the diversification of the commercial and industrial portfolio as of June 30, 2021:

In connection with PPP loan originations during the first half of 2021, the Company recognized fee revenue of $18.3 million, which is deferred and amortized over the life of the loan.

During the three and nine months ended September 30, 2021, the Company amortized into income $2.2 million and $18.9 million, respectively, in PPP fee revenue related to loans forgiven under the program.

The following pie chart shows the diversification of the commercial and industrial portfolio as of September 30, 2021:

(Dollars in thousands)

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Commercial real estate also includes loans secured by certain residential-related property types, including multi-family apartment buildings, residential development tracts and condominiums.

The following pie chart shows the diversification of the commercial real estate loan portfolio as of June 30, 2021:

The following pie chart shows the diversification of the commercial real estate loan portfolio as of September 30, 2021:

(Dollars in thousands)

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Owner occupied commercial real estate loans/commercial real estate loans 15.1 %

The Company's consumer portfolio consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area.

The Company also provides home equity loans and lines that may be made as a fixed-rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home.

The Company's consumer portfolio primarily consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area.

The Company also provides home equity loans and lines of credit that may be made as a fixed-rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home.

Additionally, the Company makes loans for a wide variety of other personal needs.

Other consumer loans primarily consist of installment loans and overdraft protections.

The residential, home equity and other consumer portfolios totaled $2.3 billion at June 30, 2021, as noted below:

The residential real estate, home equity and other consumer portfolios totaled $2.2 billion at September 30, 2021, as noted below:

Asset Quality The Company continually monitors the asset quality of the loan portfolio using all available information.

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If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR").

In addition, the Company has been offering need-based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to the COVID-19 pandemic.

In addition, the Company has offered need-based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to the COVID-19 pandemic.

In accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), these modifications are not accounted for as TDRs or reflected as delinquent or non-accrual loans if the borrower was in compliance with the loan terms as of December 31, 2019.

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However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection.

The Company monitors junior lien positions on mortgage loans, both where it holds the first position and where the first position is held by another institution, and may place a loan on nonaccrual status if

signs of delinquency are observed on the first position, despite the performance of the junior lien.

Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income.

Income accruals are suspended on all nonaccrual loans and all previously accrued

and uncollected interest is reversed against current income.

A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses.

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2021 December 31

2020 September 30

(Dollars in thousands)

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Nonperforming assets as a percent of total assets 0.32 % 0.51 % 0.74 %

(1) Inclusive of TDRs on nonaccrual status of $20.2 million, $22.2 million, and $24.1 million at June 30, 2021, December 31, 2020, and June 30, 2020, respectively.

(1) Inclusive of TDRs on nonaccrual status of $21.1 million, $22.2 million, and $23.8 million at September 30, 2021, December 31, 2020, and September 30, 2020, respectively.

The following table summarizes the changes in nonperforming assets for the periods indicated:

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Three Months Ended

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2021 September 30

2020 September 30

2021 September 30

(Dollars in thousands)

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Nonperforming assets ending balance $ 45,810 $ 98,025 $ 45,810 $ 98,025

(1) The higher balance for the periods ended September 30, 2020 primarily reflect three large commercial relationships that were newly nonperforming, all related to industries previously identified as being highly impacted by the COVID-19 pandemic.

The following table sets forth information regarding troubled debt restructured loans as of the dates indicated:

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2021 December 31

2020 September 30

(Dollars in thousands)

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Table 7 - Activity in Troubled Debt Restructurings

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2021 September 30

2020 September 30

2021 September 30

(Dollars in thousands)

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Table 8 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2021 September 30

2020 September 30

2021 September 30

(Dollars in thousands)

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Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms.

At June 30, 2021, there were 81 relationships, with an aggregate balance of $137.3 million, deemed to be potential problem loans.

At September 30, 2021, there were 79 relationships, with an aggregate balance of $135.7 million, deemed to be potential problem loans.

These potential problem loans continued to perform with respect to payments.

Management actively monitors these loans and strives to minimize any possible adverse impact to the Company.

A portion of the potential problem loans identified by management were granted a deferral during 2020 in accordance with the relief options offered in response to the COVID-19 pandemic.

If applicable, these potential problem loans with an active deferral as of June 30, 2021 have been included in the table below.

As previously noted, the Company has been offering need-based payment relief options to its customers in response to the COVID-19 pandemic, primarily in the form of payment deferrals.

A portion of the potential problem loans identified by management were granted a deferral in accordance with the relief options offered in response to the COVID-19 pandemic.

If applicable, these potential problem loans with an active deferral as of September 30, 2021 have been included in the table below.

As previously noted, the Company has offered need-based payment relief options to its customers in response to the COVID-19 pandemic, primarily in the form of payment deferrals, all of which were granted prior to December 31, 2020.

Loans that were modified are not accounted for as TDRs or reflected as delinquent or nonaccrual loans if the borrower was in compliance with their loan terms as of December 31, 2019.

The following table summarizes active deferrals by modification type as of June 30, 2021:

The following table summarizes active deferrals by modification type as of September 30, 2021:

Table 9 - Deferrals by Modification Type

Deferral of Principal and Interest Deferral of Principal Only Total Deferrals Total Portfolio % Deferral

Deferral of Principal and Interest Deferral of Principal Only Deferral of Interest Only Total Deferrals Total Portfolio % Deferral

(Dollars in thousands)

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Consumer — — — — 23,175 — %

Total active deferrals as of June 30, 2021

Total active deferrals as of September 30, 2021

$ 10,250 $ 211,483 $ 1,165 $ 222,898 $ 8,808,013 2.5 %

(1) Balances include commercial construction deferrals.

Additionally, as a result of the COVID-19 pandemic, management has also enhanced monitoring of loan portfolios in certain industries that have been highly impacted.

While management is unable to predict the full impact of all industries affected by the COVID-19 pandemic, there are assumptions as to which industries are more greatly impacted by social distancing and other restrictive measures, as well as the duration or reimposition of any such restrictions.

As a result of the COVID-19 pandemic, management has also enhanced monitoring of loan portfolios in certain industries that have been highly impacted.

While management is unable to predict the full impact on all industries affected by the COVID-19 pandemic, there are assumptions as to which industries have been, and may continue to be, more greatly impacted by social distancing and other restrictive measures, as well as the duration or re-imposition of any such restrictions.

Management has identified approximately $1.3 billion of loans within highly impacted industries, including Accommodations, Food Services, Retail Trade, Other Services (except Public Administration), and Arts, Entertainment and Recreation.

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Table 10 - Industries Highly Impacted By COVID-19 - Details

June 30, 2021

September 30, 2021

(Dollars in thousands)

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Other information:

– The food services portfolio includes full-service restaurants (59%), limited service restaurants and fast food (39%), and other types of food service (caterers, bars, mobile food service 2%).

– The food services portfolio includes full-service restaurants (55%), limited service restaurants and fast food (43%), and other types of food service (caterers, bars, and mobile food service 2%).

Balance $ 527,957

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The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable.

The allowance for credit losses of $102.4 million at June 30, 2021 represents a decrease of $11.0 million, or 9.7% compared to December 31, 2020.

The Company recorded a release of provision for credit losses of $7.5 million during the six months ended June 30, 2021, reflecting improvements in overall macro-economic assumptions,and continued strong asset quality metrics, along with lower loan levels.

The allowance for credit losses of $92.2 million at September 30, 2021 represents a decrease of $21.1 million, or 18.6% compared to December 31, 2020.

The Company recorded a release of provision for credit losses of $17.5 million during the nine months ended September 30, 2021, reflecting improvements in expected overall macro-economic forecast assumptions and continued strong asset quality metrics, along with lower loan levels.

As a result, the allowance for credit losses at September 30, 2021 includes a release of qualitative reserves that reflects a general reduction in potential risk previously assessed on portions of the portfolio related to industries expected to be at heightened risk due to the COVID-19 pandemic, while reserves related to loans with non-owner occupied real estate and junior lien home equity collateral positions were also reduced as performance trends within these portfolio segments remained relatively strong during the third quarter of 2021.

Quantitative reserves also decreased as of September 30, 2021, attributable to continued improvements in credit quality, including decreases in the weighted average probability of default across most portfolios, as well as increased stability in economic variables.

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 potentially have a significant 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 elevated reserve allocations to those loan segments that management considers to have heightened loss exposure associated with the COVID-19 pandemic.

The reasonable and supportable forecast modeled in the allowance for credit losses incorporates an economic scenario which reflects management's assumption that some uncertainty remains as the economy recovers, such as that the federal funds rates will remain near 0% through 2023 and that recent federal stimulus activity will be less effective as consumers are reluctant to spend the funds, some concerns about the speed of widespread vaccine administration, and the efficacy of the vaccines and the possibility for resurgences of COVID-19 or other variants of the virus.

The allowance for credit losses continued to include an upward qualitative adjustment at June 30, 2021 in order to ensure coverage for highly impacted relationships as management performed detailed analysis consisting of a review of maximum levels of historic loss given default ("LGD") and stressed probability of default ("PD") scenarios for loans that were deemed to be more at risk within the industries that are highly impacted by the COVID-19 pandemic, however the overall adjustment

necessary was reduced in comparison to the prior quarter as a result of improving economic conditions.

In addition to these industry exposures, qualitative adjustments were also made in order to provide coverage over the additional risk of loss attributable to collateral values associated with non-owner occupied real estate with significant retail tenant exposure, as well as home equity loans within a junior lien position.

As such, the allowance for credit losses at September 30, 2021 continues to reflect elevated reserve allocations to those loan segments that management considers to have heightened loss exposure associated with the COVID-19 pandemic.

will remain near 0% through 2023, and that recent federal stimulus activity will be less effective as consumers are reluctant to spend the funds, some concerns about the speed of widespread vaccine administration, and the efficacy of the vaccines and the possibility for resurgences of COVID-19 or other variants of the virus.

The following table summarizes changes in the allowance for credit losses and other selected statistics for the periods presented:

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Item 1 of this Report.

Federal Home Loan Bank Stock The Bank held investments in FHLB of Boston stock of $9.1 million and $10.3 million at June 30, 2021 and December 31, 2020, respectively.

Federal Home Loan Bank Stock The Bank held investments in FHLB of Boston stock of $8.7 million and $10.3 million at September 30, 2021 and December 31, 2020, respectively.

The FHLB is a cooperative that provides services to its member banking institutions.

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The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $526.6 million and $529.3 million at June 30, 2021 and December 31, 2020, respectively.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $525.3 million and $529.3 million at September 30, 2021 and December 31, 2020, respectively.

The decrease was primarily due to amortization of definite-lived intangibles.

The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted.

Accordingly, the Company last performed its annual goodwill impairment testing during the third quarter of 2020 and determined that the Company's goodwill was not impaired as of September 30, 2020.

Accordingly, the Company last performed its annual goodwill

impairment testing during the third quarter of 2021 and determined that the Company's goodwill was not impaired as of September 30, 2021.

Other intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

There were no events or changes during the second quarter of 2021 that indicated impairment of goodwill and other intangible assets.

There were no events or changes during the third quarter of 2021 that indicated impairment of goodwill and other intangible assets.

Cash Surrender Value of Life Insurance Policies The Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans.

The cash surrender value of life insurance policies was $243.0 million and $200.5 million at June 30, 2021 and December 31, 2020, respectively, primarily due to new policy purchases during the first half of 2021.

The Company recorded tax exempt income from life insurance policies of $1.6 million and $1.3 million for the three months ended June 30, 2021 and 2020, respectively, and $2.9 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively.

There were no gains on life insurance benefits recorded for the three months ended June 30, 2021 and $335,000 of gains on life insurance benefits recorded for the three months ended June 30, 2020.

The Company recorded gains on life insurance benefits of $258,000, and $692,000 for the six months ended June 30, 2021 and 2020, respectively.

Deposits As of June 30, 2021, total deposits were $12.0 billion, representing a $993.8 million, or 9.0%, increase from December 31, 2020, as robust new account opening activity and the ongoing impact o f government stimulus payments continued to fuel significant growth.

The total cost of deposits was 0.07% and 0.28% for the three months ended June 30, 2021 and 2020, respectively and 0.08% and 0.37% for the six months ended June 30, 2021 and 2020, respectively.

Core deposits increased to 91.6% of total deposits as of June 30, 2021, as noncore time deposits continued to runoff.

The cash surrender value of life insurance policies was $244.6 million at September 30, 2021 compared to $200.5 million at December 31, 2020, representing an increase of $44.0 million, or 22.0%, primarily due to new policy purchases.

The Company recorded tax exempt income from life insurance policies of $1.6 million and $1.3 million for the three months ended September 30, 2021 and 2020, respectively, and $4.5 million and $3.9 million for the nine months ended September 30, 2021 and 2020, respectively.

There were no gains on life insurance benefits recorded for the three months ended September 30, 2021 and September 30, 2020.

The Company recorded gains on life insurance benefits of $258,000, and $692,000 for the nine months ended September 30, 2021 and 2020, respectively.

Deposits As of September 30, 2021, total deposits were $12.3 billion, representing a $1.3 billion, or 11.5%, increase from December 31, 2020, as robust new account opening activity and the ongoing impact o f government stimulus payments continued to fuel significant growth.

The total cost of deposits was 0.05% and 0.20% for the three months ended September 30, 2021 and 2020, respectively and 0.07% and 0.31% for the nine months ended September 30, 2021 and 2020, respectively.

Core deposits increased from 91.6% of total deposits as of June 30, 2021 to 92.0% of total deposits as of September 30, 2021, while noncore time deposits continued to runoff.

The Company also participates in the IntraFi Network, allowing the Bank to provide easy access to multi-million dollar Federal Deposit Insurance Corporation ("FDIC") deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities.

This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market, and amounted to $233.0 million and $237.9 million at June 30, 2021 and December 31, 2020, respectively.

In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to $7.3 million and $8.5 million at June 30, 2021 and December 31, 2020, respectively.

This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market, and amounted to $244.6 million and $237.9 million at September 30, 2021 and December 31, 2020, respectively.

In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to $6.0 million and $8.5 million at September 30, 2021 and December 31, 2020, respectively.

Borrowings The Company’s borrowings consist of both short-term and long-term borrowings and provide the Bank with one of its primary sources of funding.

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Total borrowings $ 157,045 $ 181,060

Additionally, the Bank had $3.8 billion and $4.1 billion of assets pledged as collateral against borrowings at June 30, 2021 and December 31, 2020, respectively.

Additionally, the Bank had $3.6 billion and $4.1 billion of assets pledged as collateral against borrowings at September 30, 2021 and December 31, 2020, respectively.

These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston.

Capital Resources On June 17, 2021, the Company’s Board of Directors declared a cash dividend of $0.48 per share to shareholders of record as of the close of business on June 28, 2021.

This dividend was paid on July 9, 2021.

Capital Resources On September 16, 2021, the Company’s Board of Directors declared a cash dividend of $0.48 per share to shareholders of record as of the close of business on September 27, 2021.

This dividend was paid on October 8, 2021.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.

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Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 Capital and Common Equity Tier 1 Capital (as defined for regulatory purposes) to risk weighted assets (as defined for regulatory purposes) and Tier 1 Capital to average assets (as defined for regulatory purposes).

At June 30, 2021 and December 31, 2020, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods.

At September 30, 2021 and December 31, 2020, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods.

The Company’s and the Bank’s capital amounts and ratios are presented in the following table, along with the applicable minimum requirements as of each date indicated:

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Amount Ratio Amount Ratio Amount Ratio

June 30, 2021

September 30, 2021

(Dollars in thousands)

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The required amount of the capital conservation buffer is 2.5%.

At June 30, 2021, the Company's capital levels exceeded the buffer.

At September 30, 2021, the Company's capital levels exceeded the buffer.

Dividend Restrictions The Company is subject to capital and dividend requirements administered by federal and state bank regulators, and the Company will not declare a cash dividend that would cause the Company to violate regulatory requirements.

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Massachusetts Bank Commissioner approval is required if the total of all dividends declared by the Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock.

Dividends of $5.0 million and $95.2 million were paid by the Bank to the Company for the three months ended June 30, 2021 and June 30, 2020, respectively, and dividends of $5.0 million and $123.6 million were paid by the Bank to the Company for the six months ended June 30, 2021 and June 30, 2020, respectively.

Dividends of $33.9 million and $16.2 million were paid by the Bank to the Company for the three months ended September 30, 2021 and September 30, 2020, respectively, and dividends of $38.9 million and $139.8 million were paid by the Bank to the Company for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Trust Preferred Securities In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities has not been included in the consolidated financial statements of the Company.

At each of June 30, 2021 and December 31, 2020 there were $61.0 million in trust preferred securities included in the Tier 1 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

Investment Management As of June 30, 2021, the Rockland Trust Investment Management Group had assets under administration of $5.4 billion, representing 6,283 trust, fiduciary, and agency accounts.

At each of September 30, 2021 and December 31, 2020 there were $61.0 million in trust preferred securities included in the Tier 1 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

Investment Management As of September 30, 2021, the Rockland Trust Investment Management Group had assets under administration of $5.4 billion, representing 6,368 trust, fiduciary, and agency accounts.

At December 31, 2020, assets under administration were $4.9 billion, representing approximately 6,175 trust, fiduciary, and agency accounts.

Included in these amounts as of June 30, 2021 and December 31, 2020 are assets under administration of $422.0 million and $369.6 million, respectively, relating to the Company’s registered investment advisor, Bright Rock Capital Management, LLC, which provides institutional quality investment management services to institutional and high net worth clients.

Revenue from the Investment Management Group was $8.0 million and $6.8 million for the three months ended June 30, 2021 and 2020, respectively, and $15.4 million and $13.1 million for the six months ended June 30, 2021 and 2020, respectively.

Retail investments and insurance revenue was $845,000 and $469,000 for the three months ended June 30, 2021 and 2020, respectively, and $1.7 million and $1.0 million for the six months ended June 30, 2021 and 2020, respectively.

Included in these amounts as of September 30, 2021 and December 31, 2020 were assets under administration of $405.9 million and $369.6 million, respectively, relating to the Company’s registered investment advisor, Bright Rock Capital Management, LLC, which provides institutional quality investment management services to institutional and high net worth clients.

Revenue from the Investment Management Group was $8.1 million and $7.0 million for the three months ended September 30, 2021 and 2020, respectively, and $23.6 million and $20.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Retail investments and insurance revenue was $1.0 million and $573,000 for the three months ended September 30, 2021 and 2020, respectively, and $2.8 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Retail investments and insurance revenue include commission revenue from LPL Financial (“LPL”) and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., which offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance.

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RESULTS OF OPERATIONS

The following table provides a summary of results of operations for the three and six months ended June 30, 2021 and 2020:

The following table provides a summary of results of operations for the three and nine months ended September 30, 2021 and 2020:

Table 15 - Summary of Results of Operations

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

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Net interest margin 2.78 % 3.13 % 3.00 % 3.36 %

The Company's results of operations for the first half of 2021 were positively impacted by a release of provision for credit losses in the amount of $7.5 million, as well as elevated interest income from forgiven PPP loans.

In comparison, results from the first half of 2020 reflected an increased provision for credit loss of $45.0 million, driven by anticipated credit losses related to the COVID-19 pandemic.

The Company's results of operations for the nine months ended September 30, 2021 were positively impacted by a release of provision for credit losses in the amount of $17.5 million, as well as elevated interest income from forgiven PPP loans.

In comparison, results for the same nine ended September 30, 2020 reflected an increased provision for credit loss of $52.5 million, driven by anticipated credit losses related to the COVID-19 pandemic.

Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities.

On a fully tax equivalent basis ("FTE"), net interest income for the second quarter of 2021 was $93.6 million, representing an increase of $2.2 million, or 2.4%, when compared to the second quarter of 2020.

For the six months ended June 30, 2021, the net interest income on a FTE basis was $189.4 million, representing an increase of $3.5 million, or 1.9%, when compared to the year ago period.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and six months ended June 30, 2021 and 2020.

On a fully tax equivalent basis ("FTE"), net interest income for the third quarter of 2021 was $90.3 million, representing a decrease of $801,000, or 0.9%, when compared to the third quarter of 2020.

For the nine months ended September 30, 2021, the net interest income on a FTE basis was $279.7 million, representing an increase of $2.7 million, or 1.0%, when compared to the year ago period.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and nine months ended September 30, 2021 and 2020.

Nontaxable income from loans and securities is presented on a FTE basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing income tax rate that would have been paid if the income had been fully taxable.

Table 16 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date

Three Months Ended June 30

Three Months Ended September 30

Balance Interest

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Cost of total funding liabilities 0.09 % 0.25 %

(1) The total amount of adjustment to interest income and yield on a FTE basis was $209,000 and $237,000 for the three months ended June 30, 2021 and 2020, respectively.

The FTE adjustment relates to tax exempt income relating to securities with average balances of $555,000 and $1.1 million and tax exempt income relating to loans with average balances of $60.4 million and $82.0 million, for the three months ended June 30, 2021 and 2020, respectively.

(1) The total amount of adjustment to interest income and yield on a FTE basis was $220,000 and $230,000 for the three months ended September 30, 2021 and 2020, respectively.

The FTE adjustment relates to tax exempt income relating to securities with average balances of $468,000 and $1.1 million and tax exempt income relating to loans with average balances of $61.2 million and $81.6 million, for the three months ended September 30, 2021 and 2020, respectively.

(2) Includes average nonaccruing loans.

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Table 17 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date

Six Months Ended June 30

Nine Months Ended September 30

Balance Interest

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Cost of total funding liabilities 0.12 % 0.37 %

(1) The total amount of adjustment to present interest income and yield on a FTE basis was $438,000 and $490,000 for the six months ended June 30, 2021 and 2020, respectively.

The FTE adjustment relates to nontaxable investment securities with average balances of $599,000 and $1.2 million and tax exempt income relating to loans with average balances of $65.3 million and $83.8 million for the six months ended June 30, 2021 and 2020, respectively.

(1) The total amount of adjustment to present interest income and yield on a FTE basis was $658,000 and $720,000 for the nine months ended September 30, 2021 and 2020, respectively.

The FTE adjustment relates to nontaxable investment securities with average balances of $555,000 and $1.2 million and tax exempt income relating to loans with average balances of $63.9 million and $83.0 million for the nine months ended September 30, 2021 and 2020, respectively.

(2) Includes average nonaccruing loans.

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Table 18 - Volume Rate Analysis

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2021 Compared To 2020 2021 Compared To 2020

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however, unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.

Provision For Credit Losses T he provision for credit losses represents the charge to expense that is required to maintain an appropriate level of allowance for credit losses.

The Company recorded a release of provision for credit losses of $5.0 million and $7.5 million for the three and six months ended June 30, 2021, primarily due to an improved overall macro-economic outlook, continued strong asset quality metrics, as well as lower loan balances during the first half of 2021.

In comparison, the Company recorded a provision expense of $20.0 million and $45.0 million for the three and six months ended June 30, 2020, which was primarily driven by anticipated loan losses related to the COVID-19 pandemic.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.15% at June 30, 2021, 1.21% at December 31, 2020, and 1.20% at June 30, 2020.

The Company recorded net charge-offs of $192,000 and $3.5 million for the three and six months ended June 30, 2021, respectively, as compared to $200,000 and $584,000 for the three and six months ended June 30, 2020, respectively.

Provision For Credit Losses The provision for credit losses represents the charge to expense that is required to maintain an adequate level of allowance for credit losses.

The Company recorded a release of provision for credit losses of $10.0 million and $17.5 million for the three and nine months ended September 30, 2021, primarily due to improvements in expected overall macro-economic forecast assumptions and continued strong asset quality metrics, as well as lower loan balances during 2021.

In comparison, the Company recorded a provision expense of $7.5 million and $52.5 million for the three and nine months ended September 30, 2020, which was primarily driven by anticipated loan losses related to the COVID-19 pandemic.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.05% at September 30, 2021, 1.21% at December 31, 2020, and 1.23% at September 30, 2020.

The Company recorded net charge-offs of $111,000 and $3.6 million for the three and nine months ended September 30, 2021, respectively, as compared to $4.1 million and $4.6 million for the three and nine months ended September 30, 2020, respectively.

Refer to Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Part I.

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Three Months Ended

June 30 Change

September 30 Change

2021 2020 Amount %

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Mortgage banking income 2,825 7,704 (4,879) (63.33) %

Gain on life insurance benefits — 335 (335) (100.00) %

Increase in cash surrender value of life insurance policies 1,596 1,314 282 21.46 %

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Total $ 26,457 $ 29,347 $ (2,890) (9.85) %

Six Months Ended

June 30 Change

Nine Months Ended

September 30 Change

2021 2020 Amount %

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Total $ 76,670 $ 83,972 $ (7,302) (8.70) %

The primary reasons for the variances in the noninterest income categories for the three and six months ended June 30, 2021 as compared to the respective prior year periods shown in the preceding table include:

The primary reasons for the variances in the noninterest income categories for the three and nine months ended September 30, 2021 as compared to the respective prior year periods shown in the preceding table include:

• Deposit fee income was impacted by the timing and extent of government mandated shutdowns and social distancing measures, as well as the timing of economic stimulus payments received by customers.

• Interchange and ATM fees decreased for the three and six months ended June 30, 2021 in comparison to the year ago periods.

The decrease primarily reflects the negative impact of the Durbin Amendment, which the Company became subject to effective July 1, 2020 as a result of crossing the $10 billion asset threshold, coupled with an overall decrease in consumer spending as customers focused on retaining liquidity following the onset of COVID-19 pandemic late in the first quarter of 2020.

• Investment management income increased for the three and six months ended June 30, 2021 in comparison to the year ago periods, primarily driven by more favorable market conditions during the first half of 2021, along with overall growth in assets under administration which increased 23.0% to $5.4 billion at June 30, 2021 from $4.4 billion at June 30, 2020.

• Mortgage banking income decreased during the three months ended June 30, 2021 and increased for the six months ended June 30, 2021 in comparison to the year ago periods.

The quarter-over-quarter decrease was primarily attributable to the Company's strategic decision to retain a larger portion of new originations in its residential portfolio during the second quarter of 2021.

The year-over-year increase reflects a full six-month period of elevated volume in the low interest rate environment in 2021, in comparison to the prior year period when increased volume from rate reductions was not realized until late in the first quarter of 2020.

• Loan level derivative income decreased for the three and six months ended June 30, 2021 primarily as a result of lower customer demand in comparison to the year ago periods.

• Unrealized gain on equity securities decreased for the three and six months ended June 30, 2021, due primarily to significant market volatility during the first half of 2020 caused by the onset of the COVID-19 pandemic, the result of which was a sell-off late in the first quarter of 2020, followed by a period of market correction during the second quarter of 2020.

• Other noninterest income increased for the three and six months ended June 30, 2021 compared to the prior year periods, primarily attributable to income recognized from other investments.

• Interchange and ATM fees increased for the three months ended September 30, 2021 due to increased volume and rise in customer spending in comparison to the prior year period.

Such fees decreased for the nine months ended September 30, 2021 in comparison to the year ago period, reflecting the negative impact of the Durbin Amendment, which the Company became subject to effective July 1, 2020 as a result of crossing the $10 billion asset threshold, coupled with an overall decrease in consumer spending as customers focused on retaining liquidity following the onset of COVID-19 pandemic late in the first quarter of 2020.

• Investment management income increased for the three and nine months ended September 30, 2021 in comparison to the year ago periods, primarily driven by more favorable market conditions during 2021, along with overall growth in assets under administration which increased 19.7% to $5.4 billion at September 30, 2021 from $4.5 billion at September 30, 2020.

• Mortgage banking income decreased during the three and nine months ended September 30, 2021 in comparison to the year ago periods.

The changes are driven primarily by demand within the respective prevailing interest rate environments in those periods, as well as percentage of closings sold in the secondary market versus retained in the portfolio.

• Loan level derivative income decreased for the three and nine months ended September 30, 2021, primarily as a result of lower customer demand in comparison to the year ago periods.

• Unrealized gain on equity securities decreased for the three and nine months ended September 30, 2021, due primarily to significant market volatility during the first half of 2020 caused by the onset of the COVID-19 pandemic, the result of which was a sell-off late in the first quarter of 2020, followed by a period of elevated growth during the second and third quarters of 2020.

• Other noninterest income increased for the three and nine months ended September 30, 2021 compared to the prior year periods, primarily attributable to income recognized from other investments, income from like-kind exchanges and business credit card income.

Noninterest Expense The following table sets forth information regarding non-interest expense for the periods shown:

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Three Months Ended

June 30 Change

September 30 Change

2021 2020 Amount %

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FDIC assessment 980 1,034 (54) (5.22) %

Advertising expense 884 1,215 (331) (27.24) %

Consulting expense 1,560 1,305 255 19.54 %

Core deposit amortization 1,293 1,433 (140) (9.77) %

Amortization of intangible assets 1,310 1,449 (139) (9.59) %

Debit card expense 1,347 1,105 242 21.90 %

Loss on termination of derivatives — 684 (684) (100.00) %

Merger and acquisition expenses 1,943 — 1,943 100.00%

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Total $ 72,419 $ 66,658 $ 5,761 8.64 %

Six Months Ended

June 30 Change

Nine Months Ended

September 30 Change

2021 2020 Amount %

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FDIC assessment 2,805 1,537 1,268 82.50 %

Advertising expense 2,949 3,107 (158) (5.09) %

Consulting expense 5,443 4,244 1,199 28.25 %

Core deposit amortization 2,685 2,964 (279) (9.41) %

Amortization of intangible assets 4,037 4,704 (667) (14.18) %

Debit card expense 3,693 3,312 381 11.50 %

Loss on termination of derivatives — 684 (684) (100.00) %

Merger and acquisition expenses 3,674 — 3,674 100.00%

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Total $ 215,403 $ 200,105 $ 15,298 7.64 %

The primary reasons for the variances in the noninterest expense categories for the three and six months ended June 30, 2021 as compared to the respective prior year periods shown in the preceding table include:

• The increase in salaries and employee benefits for the three and six months ended June 30, 2021 as compared to the prior year periods is primarily due to increases in incentive compensation expense, commissions, general salary increases, retirement costs and payroll taxes.

• Occupancy and equipment decreased during both the three and six months ended June 30, 2021 as compared to the prior year periods.

The decreases were primarily due to reductions in depreciation expense from disposals of equipment, as well as increased computer hardware and software costs necessary to facilitate remote work for employees during the prior year period after onset of the COVID-19 pandemic.

Partially offsetting the decrease for the six months ended June 30, 2021 were increases in cleaning costs in response to the COVID-19 pandemic and snow removal expenses in comparison to the prior year period.

• Data processing and facilities management expenses increased for both the three and six months ended June 30, 2021 as compared to the prior year periods, primarily due to timing of certain initiatives and system upgrades.

• FDIC assessment increased for the three and six months ended June 30, 2021, in comparison to year ago period.

The Company previously benefited from a small bank assessment credit, which resulted in no expense during the first quarter of 2020 and reduced expense during the second quarter of 2020.

• Consulting expense increased for the six months ended June 30, 2021, in comparison to the prior year period, primarily due to the Company's overall growth, implementation of strategic initiatives, and projects and measures implemented in response to the COVID-19 pandemic.

Consulting costs were slightly higher for the three months ended June 30, 2020 as compared to the three months ended June 30, 2021, which primarily reflects timing of the commencement of COVID-19 related projects.

• The Company recorded merger and acquisitions expenses of $1.7 million during the second quarter of 2021 relating to the Meridian acquisition.

No such costs were incurred during 2020.

• Software maintenance increased for the three and six months ended June 30, 2021 as compared to the prior year periods, primarily due to the Company's continued investment in its technology infrastructure.

• Other noninterest expense for the three months ended June 30, 2021 remained relatively consistent compared to the prior year period, with decreases in retail branch traffic control, office supplies and prepayment fees on borrowings, offset somewhat by increases in advertising and training expenses.

Other noninterest expense decreased for the six months ended June 30, 2021 compared to the prior year period mainly due to decreases in unrealized loss on equity securities, prepayment fees on borrowings, loss on the sale of fixed assets, office supplies, retail branch traffic control, and recruitment expenses.

The primary reasons for the variances in the noninterest expense categories for the three and nine months ended September 30, 2021 as compared to the respective prior year periods shown in the preceding table include:

• The increase in salaries and employee benefits for the three and nine months ended September 30, 2021 as compared to the prior year periods is primarily due to increases in incentive programs, commissions, payroll taxes, general salary increases, and retirement costs.

• Occupancy and equipment decreased during both the three and nine months ended September 30, 2021 as compared to the prior year periods.

These decreases were primarily due to reductions in depreciation expense

from disposals of equipment, as well as decreased computer hardware and software costs which were elevated in the prior year to facilitate remote work for employees after onset of the COVID-19 pandemic.

Partially offsetting the decrease for the nine months ended September 30, 2021 were increases in cleaning costs and snow removal expenses in comparison to the prior year period.

• Data processing and facilities management expenses increased for both the three and nine months ended September 30, 2021 as compared to the prior year periods, primarily due to timing of certain initiatives and system upgrades.

• FDIC assessment increased for the nine months ended September 30, 2021, in comparison to year ago period as the Company previously benefited from a small bank assessment credit, which resulted in no expense during the first quarter of 2020 and reduced expense during the second quarter of 2020.

Assessment fees for the three months ended September 30, 2021 were slightly lower than the year ago period, due to normal fluctuations in the company's assessment base.

• Consulting expense increased for the three and nine months ended September 30, 2021, in comparison to the prior year periods, primarily due to the Company's overall growth and implementation of strategic initiatives.

• The Company recorded merger and acquisitions expenses of $1.9 million and $3.7 million during the three and nine months ended September 30, 2021, respectively, relating to the Meridian acquisition.

No such costs were incurred during either period in 2020.

• Software maintenance increased for the three and nine months ended September 30, 2021, as compared to the prior year periods, primarily due to the Company's continued investment in its technology infrastructure.

• Other noninterest expense for the three months ended September 30, 2021 increased when compared to the prior year period, with increases in recruitment expense, sponsorships, unrealized loss on equity securities, and legal fees.

Other noninterest expense decreased for the nine months ended September 30, 2021 as compared to the prior year period, mainly due to decreases in unrealized loss on equity securities, prepayment fees on borrowings, loss on the sale of fixed assets, office supplies, retail branch traffic control, and miscellaneous other expenses.

Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes.

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Table 21 - Tax Provision and Applicable Tax Rates

Three Months Ended Six Months Ended

June 30 June 30

Three Months Ended Nine Months Ended

September 30 September 30

2021 2020 2021 2020

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Blended statutory tax rate 27.92 % 27.89 % 27.92 % 27.89 %

The Company’s effective tax rate in 2021 thus far is higher as compared to the year ago period primarily due to higher net income, as well as the impact of discrete items, including tax benefits related to low income housing tax credits and equity compensation.

The discrete tax amounts for the six months ended June 30, 2020 also reflect a benefit of $4.7 million associated with the net operating loss (NOL) carryback provision of the CARES Act.

The Company’s effective tax rate in 2021 thus far is higher as compared to the year ago period primarily due to higher pre-tax income, as well as the impact of discrete items, including tax benefits related to low income housing tax credits and equity compensation.

The discrete tax amounts for the nine months ended September 30, 2020 also reflect a benefit of $4.7 million associated with the net operating loss (NOL) carryback provision of the CARES Act.

The NOL was generated in relation to the acquisition of Blue Hills Bancorp, Inc.

The effective tax rates in the table above are lower than the blended statutory tax rates due to the aforementioned discrete items as well as certain tax preference assets such as life insurance policies, tax exempt bonds, and federal tax credits.

The Company’s blended statutory tax rate for the three and six months ended June 30, 2021 are comparable to the year ago period.

The Company’s blended statutory tax rate for the three and nine months ended September 30, 2021 are comparable to the year ago periods.

The Company invests in various low income housing projects, which are real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing developments.

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The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2039, which represents the period that the tax credits and other tax benefits will be utilized.

The total committed investment in these partnerships is $163.0 million, of which $88.7 million had been funded as of June 30, 2021.

The total committed investment in

these partnerships is $162.9 million, of which $88.7 million had been funded as of September 30, 2021.

It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.4 million for the fiscal year 2021 and a total of $22.4 million over the remaining life of the investments from the combination of the tax credits and operating losses.

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The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets.

This ratio, which is an analysis of the relationship between liquid assets plus available Federal Home Loan Bank funding, less short-term liabilities relative to total assets, was within policy limits at June 30, 2021.

The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings.

An increase in deposits,

without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure.

An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure.

Other factors affecting the Total Basic Surplus/Deficit include Federal Home Loan Bank collateral requirements, securities portfolio changes, and the mix of deposits.

The Company seeks to increase deposits without adversely impacting its weighted average funding cost.

As a result of PPP loan funding, government stimulus programs, and a customer focus on retaining liquidity, the Company has experienced significant deposit growth and a buildup of liquidity through the second quarter of 2021.

The Company also maintains a variety of liquidity sources, including Federal Home Loan Bank advances, Federal Reserve borrowing capacity, and repurchase agreement lines.

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Table 22 - Liquidity Sources

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Outstanding Additional

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$ 407,631 $ 4,085,751 $ 427,500 $ 3,495,441

(1) Loans with a carrying value of $2.1 billion at each of June 30, 2021 and December 31, 2020 were pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.

(2) Loans with a carrying value of $1.7 billion and $1.9 billion at June 30, 2021 and December 31, 2020, respectively, were pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.

(1) Loans with a carrying value of $2.0 billion and $2.1 billion at September 30, 2021 and December 31, 2020, respectively, were pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.

(2) Loans with a carrying value of $1.6 billion and $1.9 billion at September 30, 2021 and December 31, 2020, respectively, were pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.

(3) The additional borrowing capacity has not been assessed for these categories.

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It is therefore the responsibility of management to institute systems and controls designed to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute responses that may alleviate or circumvent a potential liquidity crisis.

Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and appropriately address them in a timely manner.

Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and

appropriately address them in a timely manner.

In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and establish and execute an appropriate response.

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Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted.

The most significant market factors affecting the Company’s net interest income during the six months ended June 30, 2021 were the shape of the U.S.

The most significant market factors affecting the Company’s net interest income during the nine months ended September 30, 2021 were the shape of the U.S.

Government securities and interest rate swap yield curve, the U.S.

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Item 1 of this Report.

There were no material changes in off-balance sheet financial instruments during the three months ended June 30, 2021.

There were no material changes in off-balance sheet financial instruments during the three months ended September 30, 2021.

See Note 6, “Derivative and Hedging Activities ” and Note 10, "Commitments and Contingencies " within the Notes to

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Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet Financial Information

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended June 30, 2021.

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended September 30, 2021.

See Note 6, "Derivative and Hedging Activities" and Note 10, "Commitments and Contingencies" within the Notes to Consolidated Financial Statements included in Part I.

Item 1 of this Report for more information relating to the Company's other off-balance sheet financial instruments.

Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended June 30, 2021.

Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended September 30, 2021.

Refer to the 2020 Form 10-K for a complete table of contractual obligations, commitments and contingencies.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis