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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-02-26 · 395 added, 460 removed, 627 unchanged (58% of the section changed)

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These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results.

Results for the year ended December 31, 2020 were significantly impacted by the ongoing COVID-19 pandemic, resulting in $52.5 million of loan provisioning during the year.

The full macroeconomic impacts of the pandemic remain unclear and are continuing to evolve;

however, the stay-at-home orders, business closures, social distancing measures, limitations on travel and restrictions on gatherings that have been put in place for public health and safety have led to a decline in consumer spending and historically high levels of unemployment as workplaces have been forced to shut down or severely limit operations.

The duration of these restrictions has varied, and restrictions have been and may continue to be tightened or re-instituted in light of resurgences of COVID-19 in particular areas.

In addition, the effectiveness of recently approved vaccines, as well as their availability and the timing of their distribution to the public remain largely unknown at this time.

As a result, the Company is not able to provide any assurances that the Company’s earnings, asset quality, regulatory capital ratios and economic condition will not be materially adversely impacted on a short term or long term basis.

The Company has been and remains committed to supporting and working with its customers as they navigate these unprecedented times.

The Company has abided by government mandates requiring temporary moratorium on foreclosures, and has offered a variety of relief measures to its customers consistent with prudent banking principles and regulatory guidance.

These relief measures have included temporary deferrals of loan payments, waiving certain fees and permitting customers easier access to their deposits.

The Company’s charitable foundations have engaged and will continue to engage in outreach to local communities during this difficult time and have committed funds to be made available to key nonprofits with urgent needs, such as local food banks.

The Company has been an active participant in the government-sponsored Paycheck Protection Program ("PPP") designed to help deploy stimulus funds in the form of loans to businesses within the community, funding approximately 6,100 loans during the year, with a total balance of $791.9 million outstanding as of December 31, 2020.

The Company received fee revenue of $27.1 million for the origination of these PPP loans, which is deferred and amortized over the life of the loan.

As of December 31, 2020, $9.1 million in fee revenue has been amortized into income, with the remaining amount to be amortized over the remaining loan maturity.

Subsequent to year end, the Company has been participating in the second round of PPP funding, continuing to offer its customers acc ess to much needed relief funds.

The Company is focused on organic growth, but will also consider acquisition opportunities that are expected to provide a satisfactory financial return, including the recent acquisition of Meridian Bancorp., Inc.

("Meridian") and its subsidiary, East Boston Savings Bank, which closed during the fourth quarter of 2021.

The acquisition resulted in the net addition of twenty-seven branch locations and includes the acquisition of $4.9 billion in loans, and the assumption of $4.4 billion in deposits, and $576.1 million of borrowings, each at fair value.

The acquired borrowings were paid off in full immediately subsequent to the acquisition.

The Company's business has been, and continues to be impacted by the ongoing COVID-19 pandemic, however it remains committed to supporting and working with its customers as they navigate through uncertain times.

While the full macroeconomic impacts of the COVID-19 pandemic have yet to be fully determined, overall conditions have begun to improve as a result of vaccine availability, leading to the re-opening of businesses and loosening of certain travel restrictions and social distancing measures.

Despite the observed improvements, the future outlook with regard to the COVID-19 pandemic remains uncertain, with the possibility for resurgences of COVID-19 or other variants of the virus and other factors described under Item 1A.

Risk Factors under "Risks Related to the COVID-19 Pandemic." As a result, the Company is not able to provide any assurances that the Company’s earnings, asset quality, regulatory capital ratios and economic condition will not be adversely impacted on a short term or long term basis.

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Interest-Earning Assets

Management’s asset strategy typically emphasizes loan growth, primarily in the commercial and home equity portfolios.

The results depicted in the following table reflect the trend of the Company's interest-earning assets over the past five years.

For 2020, the increase in interest-earning assets was driven primarily by an increase in commercial loan balances, reflecting the Company's PPP loan funding activity, as well as growth in cash balances attributable to elevated deposits from PPP loans and other government stimulus payments, partially offset by decreases in the residential and home equity loan portfolios.

Management’s asset strategy typically emphasizes loan growth, however, the mix of the Company's interest earning assets has experienced volatility in recent periods due to the unique operating environment.

For 2021, the increase in interest-earning assets was driven primarily by an increase in commercial loan balances, primarily reflecting the acquisition of Meridian's $4.5 billion commercial portfolio, offset partially by a net reduction in PPP loan balances of $616.2 million during the year ended December 31, 2021.

The Company continued to experience elevated levels of interest earning cash, driven by significant growth in deposits during 2021, a portion of which the Company elected to deploy into investment securities resulting in net growth of the securities portfolio of $1.5 billion during the year.

The following table summarizes the Company's interest-earning assets as of December 31st for each year presented:

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

In addition, management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and credit losses.

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Funding and the Net Interest Margin

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 2020, the Company realized growth in deposits, which increased $1.8 billion or 20.2% from December 31, 2019 to $11.0 billion, which was attributable to a combination of funds received for PPP loans and from other government stimulus programs and an overall customer focus on retaining liquidity.

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

The cost of deposits at December 31, 2020 was 0.27%, a 20 basis point decrease compared to December 31, 2019 due primarily to deposit rate reductions across all products.

The Company's net interest margin was 3.29% for the year ended December 31, 2020, representing a 75 basis point decrease from the comparative 2019 period, primarily reflective of the lower interest-rate environment, along with other factors, such as increases in low yielding cash balances and PPP loans.

During 2021, the Company experienced significant growth in deposits, which increased $5.9 billion, or 53.9%, from December 31, 2020 to $16.9 billion.

This increase was primarily attributable to Meridian acquired deposit balances of $4.4 billion, along with robust new account opening activity.

The following chart shows the sources of funding and the percentage of core deposits to total deposits as of December 31st for the trailing five years:

The Company's core deposits decreased to 84.5% of total deposits at December 31, 2021, in comparison to the prior year, reflective of a higher ratio of non-core time and brokered deposits acquired from Meridian.

The cost of deposits at

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December 31, 2021 was 0.07%, a 20 basis point decrease compared to December 31, 2020 due primarily to managed deposit rate reductions across all products.

The Company's net interest margin was 3.02% for the year ended December 31, 2021, representing a 27 basis point decrease from the comparative 2020 period, which primarily reflects the elevated levels of excess liquidity throughout 2021.

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

Noninterest Income

Management continues to focus on noninterest income, which is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income.

Non-interest income represented 20.9% of the Company's total revenue for 2021, and is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income.

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

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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.

During 2020, the Company incurred additional expenses due to the COVID-19 pandemic relating to cleaning costs, the purchase of office supplies and protective equipment, such as face masks, plexiglass dividers and other protective measures, as well as increased equipment expense related to setting up employees with remote capabilities.

Additionally, the 2020 results included a $4.2 million lease impairment charge in connection with the decision to exit two branch locations.

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, (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 years:

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

Noninterest expense for the year ended December 31, 2021 was also inclusive of $40.8 million in merger related costs associated with the Meridian acquisition.

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The following chart depicts the Company's efficiency ratio on a U.S.

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, (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 years:

*See "Non-GAAP Measures" below for a reconciliation to U.S.

GAAP financial measures.

The Company's approach with respect to revenue and expense is designed to promote long-term earnings growth, which in turn contributes to capital growth.

During the first half of 2020, the Company completed its previously announced stock repurchase program, repurchasing all 1.5 million shares available under the program at a total cost of $95.1 million and an average cost per share of $63.39.

At December 31, 2021, the Company's tangible book value per share was $42.25, representing an increase of 18.7% from the prior year, reflecting the immediate accretive impact of the Meridian acquisition, as well as earnings retention.

The following chart shows the Company's book value and tangible book value per share over the past five years:

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

*See "Non-GAAP Measures" below for a reconciliation to U.S.

GAAP financial measures.

Cash dividends declared by the Company increased from an aggregate of $1.84 per share in 2020 to $1.92 per share in 2021, representing an increase of 4.3%.

Net income for 2020 computed in accordance with GAAP was $121.2 million, or $3.64 on a diluted earnings per share basis, as compared to $165.2 million, or $5.03 per diluted share, for the prior year.

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Net income for 2021 was $121.0 million, or $3.47 on a diluted earnings per share basis, as compared to $121.2 million, or $3.64 per diluted share, for the prior year.

While results for the year ended December 31, 2021 included $40.8 million in merger related costs associated with the Meridian acquisition, they were positively impacted by reduced levels of loan provisioning in comparison to the prior year, as the Company recorded a total credit loss provision of $18.2 million in 2021, representing a decrease of 65.3% from $52.5 million for the twelve months ended December 31, 2020.

The current year provision was the net result of $50.7 million in initial allowance reserves recorded on non-purchased credit deteriorated ("non-PCD") loans acquired from Meridian, partially offset by a reversal of credit loss expense of $32.5 million, primarily reflecting improvements in overall macro-economic forecast assumptions and continued strong asset quality metrics.

Net income for 2021 and 2020 included items that are considered noncore, which are excluded for purposes of assessing operating earnings.

Net operating earnings for 2020 were $121.7 million, or $3.66 on a diluted earnings per share basis, a decrease of 34.1% and 34.9%, respectively, when compared to net operating earnings of $184.6 million, or $5.62 per diluted share, for the year ended December 31, 2019.

See "Non-GAAP Measures" below for a reconciliation of net operating earnings and diluted earnings per share to GAAP net income and earnings per share, respectively.

Net operating earnings for 2021 were $187.6 million, or $5.38 on a diluted earnings per share basis, an increase of 54.2% and 47.0%, respectively, when compared to net operating earnings of $121.7 million, or $3.66 per diluted share, for the year ended December 31, 2020.

See "Non-GAAP Measures" below for a reconciliation of net operating earnings and diluted earnings per share to U.S.

GAAP net income and earnings per share, respectively.

During the Company's fourth quarter 2021 earnings call, the Company provided the following key expectations regarding business activity to serve as near term guidance into the year 2022:

• excluding PPP activity, the Company anticipates modest net growth in total commercial loan balances;

• while loan closing activity is expected to remain strong heading into 2021, the anticipated persistence of pay-down activity will continue to challenge any meaningful growth in the consumer loan portfolios;

• excess liquidity and the timing on PPP fee income recognition will continue to create some level of volatility in net interest margin.

Excluding these factors, the core margin will continue to be impacted by expected asset yield compression as assets continue to reprice into an anticipated low interest rate environment.

However, the Company believes there is still some level of further reductions in the deposit base at December 31, 2020 that should continue to mitigate the asset yield compression in the near term, resulting in a modest net core margin compression;

• assuming no material changes to the overall macroeconomic forecast, the Company anticipates that the build of the allowance for credit losses in 2020 should cause the provision for credit losses to more closely correlate to charge-off activity, with some element of loss reserve reductions if the economic environment stabilizes;

• the Company expects mortgage demand to remain strong with gain on sale margins expected to normalize down from 2020 levels, while swap fee income is expected to return to historical levels;

• a continued stabilization of the economy should reflect positive increases to deposit fees that were negatively impacted for much of 2020, and continued growth in investment management results are expected;

• the Company's effective tax rate is expected to be approximately 24% in 2021 assuming no change in tax laws.

• Despite healthy loan closing expectations, loan balances for the year are expected to contract at a low single digit percentage, due primarily to reductions in the remaining PPP balances and a continued level of attrition attributable to Meridian balances, which is anticipated to offset legacy core growth in the low to mid single digit range.

Upon stabilization of the acquired balances, modest net loan growth is expected, which is targeted for late 2022 and into early 2023.

Additionally, any increases in line utilization would be expected to serve as a catalyst to stronger loan growth;

• The outlook for deposit balances remain somewhat uncertain, with core household growth remaining a priority, while time deposit attrition and some modest level of acquired deposit balance runoff is expected in the first half of the year;

• Net interest income is anticipated to include the recognition of the remaining $5.9 million in PPP fees, and may reflect quarter over quarter volatility due primarily to purchase accounting loan accretion.

However, assuming no changes in interest rates from the Federal Reserve and a continued measured approach of increasing securities balances, and excluding PPP fee income and purchase accounting, management estimates the core margin to be in the 2.9 to 3.0% range for the full year;

• Assuming continued expected improvement in general economic factors and no major change in overall asset quality, the provision for credit loss is expected to continue to track at levels below net charge-offs, which the Company anticipates to be well contained;

• Non-interest income is expected to be primarily impacted by the following:

◦ Reflecting the current rate environment and year end mortgage pipeline levels, a majority portion of closing activity is expected to be retained in the portfolio, which will drive decreases in mortgage banking income in the short term while contributing modestly to net interest income;

◦ Wealth management income is expected to continue to reflect positive net inflows of new money plus market appreciation or depreciation impact;

◦ Assuming that expectations over Federal Reserve interest rate increases remain high, management anticipates loan level derivative income to increase from the full year 2021 results, though likely lower than the Company's 2020 record levels;

• Regarding non-interest expense, with the majority of the systems and contract terminations already completed in 2021, the Company is confident in the 45% cost savings assumptions originally announced with the Meridian deal, while increasing the legacy spending at a mid-single digit percentage rate when compared to pre-Meridian 2021 results;

• The full year tax rate is expected to be in the 24-25% range, with a typical first quarter low point reflective of discrete equity compensation vesting benefits.

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Non-GAAP Measures

When management assesses the Company’s financial performance for purposes of making day-to-day and strategic decisions, it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and noninterest or fee income, reduced by operating expenses, the provision for credit losses, and the impact of income taxes and other noncore items shown in the table that follows.

There are items that impact the Company's results that management believes are unrelated to its core banking business such as gains or losses on the sales of securities, merger and acquisition expenses, loss on extinguishment of debt, impairment, and other items, such as one-time adjustments as a result of changes in laws and regulations.

There are items that impact the Company's results that management believes are unrelated to its core banking business such as gains or losses on the sales of securities, merger and acquisition expenses, provision for credit losses on acquired portfolios, loss on extinguishment of debt, impairment, and other items, such as one-time adjustments as a result of changes in laws and regulations.

Management, therefore, excludes items management considers to be noncore when computing the Company’s non-GAAP operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis.

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Management also supplements its evaluation of financial performance with an analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or tangible common equity, by common shares outstanding) and with the Company's tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets) which are non-GAAP measures.

The Company has included information on these

tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends.

The Company has included information on these tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends.

The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities.

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The Company’s non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies.

The following table summarizes the impact of noncore items on net income and reconciles non-GAAP net operating earnings to net income available to common shareholders:

The following table summarizes the impact of noncore items on net income and reconciles non-GAAP net operating earnings to net income available to common shareholders for the periods indicated:

Net Income Diluted Earnings Per Share

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Non-GAAP adjustments

Noninterest income components

gain on sale of loans — 951 — 0.03

Provision for non-PCD acquired loans 50,705 — 1.45 —

Noninterest expense components

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Net tax benefit associated with noncore items (1) (24,899) (192) (0.71) (0.01)

Add - adjustments for tax effect of previously incurred merger and acquisition expenses — 650 — 0.02

Noncore increases to net income $ 66,646 $ 492 $ 1.91 $ 0.02

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(1) The net tax benefit associated with noncore items is determined by assessing whether each noncore item is included or excluded from net taxable income and applying the Company's combined marginal tax rate only to those items included in net taxable income.

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The following table summarizes the impact of noncore items with respect to the Company's total revenue, noninterest income as a percentage of total revenue, and the efficiency ratio for the periods indicated:

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Noninterest expense (GAAP) $ 332,529 $ 273,832 $ 284,321 $ 225,969 $ 204,359 (d)

Loss on extinguishment of debt — — — — 437

Loss on termination of derivatives — 684 — — —

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Noninterest income as a % of revenue 20.86 % 23.26 % 22.68 % 22.89 % 24.28 % (b/(a+b))

Noninterest income as a % of revenue on an operating basis 23.26 % 22.53 % 22.89 % 24.28 % 26.57 % (c/(a+c))

Noninterest income as a % of revenue on an operating basis (non-GAAP) 20.86 % 23.26 % 22.53 % 22.89 % 24.28 % (c/(a+c))

Efficiency ratio (GAAP) 65.53 % 57.15 % 55.92 % 58.44 % 59.78 % (d/(a+b))

Efficiency ratio on an operating basis (non-GAAP) 57.49 % 57.00 % 50.82 % 55.55 % 58.79 % (e/(a+c))

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The following table summarizes the calculation of the Company's tangible common equity ratio and tangible book value per share for the periods indicated:

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Tangible book value per share (Non-GAAP) $ 42.25 $ 35.59 $ 34.11 $ 28.57 $ 25.60 (b/e)

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SELECTED FINANCIAL DATA

The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere herein.

Table 1 - Selected Financial Data

As of or for the Years Ended December 31

2021 2020 2019 2018 2017

(Dollars in thousands, except per share data)

Financial condition data

Securities $ 2,664,859 $ 1,162,317 $ 1,190,670 $ 1,075,223 $ 946,510

Loans 13,587,286 9,392,866 8,873,639 6,906,194 6,355,553

Allowance for credit losses (146,922) (113,392) (67,740) (64,293) (60,643)

Goodwill and other intangibles 1,017,844 529,313 535,492 271,355 241,147

Total assets 20,423,405 13,204,301 11,395,165 8,851,592 8,082,029

Deposits 16,917,044 10,993,170 9,147,367 7,427,120 6,729,253

Borrowings 152,374 181,060 303,103 258,707 323,698

Stockholders’ equity 3,018,449 1,702,685 1,708,143 1,073,490 943,809

Nonperforming loans 27,820 66,861 48,049 45,418 49,638

Nonperforming assets 27,820 66,861 48,049 45,418 50,250

Operating data

Interest income $ 415,276 $ 402,069 $ 447,014 $ 323,701 $ 277,194

Interest expense 13,717 34,341 53,879 25,536 18,334

Net interest income 401,559 367,728 393,135 298,165 258,860

Provision for credit losses 18,205 52,500 6,000 4,775 2,950

Noninterest income 105,850 111,440 115,294 88,505 82,994

Noninterest expenses 332,529 273,832 284,321 225,969 204,359

Net income 120,992 121,167 165,175 121,622 87,204

Per share data

Net income — basic $ 3.47 $ 3.64 $ 5.03 $ 4.41 $ 3.19

Net income — diluted 3.47 3.64 5.03 4.40 3.19

Cash dividends declared 1.92 1.84 1.76 1.52 1.28

Book value 63.75 51.65 49.69 38.23 34.38

Tangible book value (1) 42.25 35.59 34.11 28.57 25.60

Performance ratios

Return on average assets 0.81 % 0.96 % 1.52 % 1.46 % 1.11 %

Return on average common equity 6.34 % 7.13 % 10.85 % 12.31 % 9.55 %

Net interest margin (on a fully tax equivalent basis) 3.02 % 3.29 % 4.04 % 3.91 % 3.60 %

Dividend payout ratio 51.85 % 50.21 % 32.25 % 33.03 % 39.04 %

Asset quality ratios

Nonperforming loans as a percent of gross loans 0.20 % 0.71 % 0.54 % 0.66 % 0.78 %

Nonperforming assets as a percent of total assets 0.14 % 0.51 % 0.42 % 0.51 % 0.62 %

Allowance for credit losses as a percent of total loans 1.08 % 1.21 % 0.76 % 0.93 % 0.95 %

Allowance for credit losses as a percent of nonperforming loans 528.12 % 169.59 % 140.98 % 141.56 % 122.17 %

Capital ratios

Equity to assets 14.78 % 12.89 % 14.99 % 12.13 % 11.68 %

Tangible equity to tangible assets (1) 10.31 % 9.26 % 10.80 % 9.35 % 8.96 %

Tier 1 leverage capital ratio 12.03 % 9.56 % 11.28 % 10.69 % 10.04 %

Common equity tier 1 capital ratio 14.30 % 12.67 % 12.86 % 11.92 % 11.20 %

Tier 1 risk-based capital ratio 14.30 % 13.34 % 13.53 % 12.99 % 12.31 %

Total risk-based capital ratio 16.04 % 15.13 % 14.83 % 14.45 % 13.82 %

(1) Represents a non-GAAP measurement.

For reconciliation to GAAP measurement, see Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Level Overview - Non-GAAP Measures ".

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Financial Position

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 decreased by $28.4 million, or 2.4%, at December 31, 2020 as compared to December 31, 2019.

The ratio of securities to total assets at December 31, 2020 was 8.80%, compared to 10.45% at December 31, 2019.

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.

Further details regarding the Company's measurement of expected credit losses can be found in Note 1, "Summary of Significant Accounting Policies" within the Notes to Consolidated Financial Statements included in Item 8 of this Report.

Securities increased by $1.5 billion, or 129.3%, at December 31, 2021 as compared to December 31, 2020, reflecting $1.9 billion of purchases, offset by paydowns, calls and maturities.

Purchases made during 2021 reflect the Company's direct strategy to deploy a portion of excess cash balances into investment securities, and accordingly the ratio of securities to total assets increased to 13.05% at December 31, 2021, as compared to 8.80% at December 31, 2020.

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

Further details regarding the Company's measurement of expected credit losses on investment securities can be found in Note 1, "Summary of Significant Accounting Policies" within the Notes to Consolidated Financial Statements included in Item 8 of this Report.

The following table sets forth the fair value of available for sale securities and the amortized cost of held to maturity securities along with the percentage distribution:

Table 2 - Securities Portfolio Composition

2020 2019 2018

Amount Percent Amount Percent Amount Percent

Amount Percent Amount Percent

(Dollars in thousands)

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government agency securities $ 215,482 13.7 % $ 24,116 5.8 %

treasury securities 861,448 54.8 % — — %

Agency mortgage-backed securities 363,933 23.2 % 233,629 56.6 %

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Securities which require inputs that are both significant to the fair value measurement and unobservable are classified as level 3 within the fair value hierarchy.

At December 31, 2020, and 2019, the Company had $1.1 million of securities categorized as level 3 within the fair value hierarchy.

At December 31, 2018, the Company had $1.3 million of securities categorized as level 3 within the fair value hierarchy.

The following tables set forth contractual maturities of the Bank’s securities portfolio at December 31, 2020.

At December 31, 2021 and 2020, the Company had no securities categorized as level 3 within the fair value hierarchy.

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The following table sets forth the weighted average yield for each range of contractual maturities of the Bank’s held to maturity securities portfolio at December 31, 2021.

Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Weighted average yields in the table below have been calculated based on the amortized cost of the security.

Table 2 - Securities Portfolio, Amounts Maturing

Table 3 - Securities Portfolio, Weighted Average Yields

Within One Year One Year to Five Years Five Years to Ten Years Over Ten Years Total

Amount Weighted

Yield Amount Weighted

Weighted Average Yield

(Dollars in thousands)

Fair value of securities available for sale

government agency securities — 0.5 % — — 0.5 %

Agency mortgage-backed securities — — 76,441 2.6 % 31,458 3.0 % 125,730 2.2 % 233,629 2.4 %

Agency collateralized mortgage obligations — — — — — — 91,683 2.0 % 91,683 2.0 %

State, county and municipal securities 601 3.2 % — — 206 3.0 % — — 807 3.1 %

Single issuer trust preferred securities issued by banks — — — — — — 488 3.7 % 488 3.7 %

Pooled trust preferred securities issued by banks and insurers — — — — — — 1,056 0.7 % 1,056 0.7 %

Small business administration pooled securities — — — — — — 61,081 2.6 % 61,081 2.6 %

Total fair value of securities available for sale 601 3.2 % 86,672 2.5 % 45,549 2.9 % 280,038 2.2 % 412,860 2.4 %

Amortized cost of securities held to maturity

Treasury securities 1.6 % — 1.3 % — 1.3 %

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Small business administration pooled securities — — — 2.6 % 2.6 %

Total amortized cost of securities held to maturity 1,999 2.3 % 4,490 2.1 % 76,740 2.3 % 641,283 2.3 % 724,512 2.3 %

Total 1.6 % 0.7 % 1.6 % 1.8 % 1.7 %

As of December 31, 2021, the weighted average life of the securities portfolio was 4.70 years and the modified duration was 4.50 years.

At December 31, 2020, the aggregate book value of securities issued by Fannie Mae and Freddie Mac exceeded 10% of stockholders' equity.

The aggregate book value and market value of securities issued by Fannie Mae at December 31, 2020 was $674.9 million and $700.3 million, respectively.

The aggregate book value and market value of securities issued by Freddie Mac at December 31, 2020 was $276.6 million and $286.8 million, respectively.

At December 31, 2021, the aggregate book value of securities issued by Fannie Mae, Freddie Mac and the U.S.

Department of the Treasury exceeded 10% of stockholders' equity, accordingly the following table disclosed the aggregate book value and market value of these securities at December 31, 2021:

Table 4 - Aggregate Book Value and Market Value of Select Securities

Aggregate Book Value Aggregate Market Value

(Dollars in thousands)

Securities issued by:

Fannie Mae $ 1,031,548 $ 1,027,148

Freddie Mac 383,491 381,591

Department of the Treasury 976,028 963,690

Total $ 2,391,067 $ 2,372,429

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 to hold 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.

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The Company incurred no material losses related to mortgage repurchases during the years ended December 31, 2021, 2020, and 2019.

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The Company experienced strong closing volumes within the residential real estate portfolio during the twelve months ended December 31, 2021, with a larger portion of new 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 loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market for the periods indicated:

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Total loans sold $ 783,350 $ 862,826 $ 602,284

(1) The Company had recourse on all loans sold with servicing rights retained.

(1) All loans sold with servicing rights retained during the year ended December 31, 2021 were sold without recourse, while loans sold during the years ended December 31, 2020 and 2019 loans were sold with 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 $453.7 million at December 31, 2020 and $656.4 million at December 31, 2019.

The principal balance of loans serviced by the Bank on behalf of investors was $382.6 million at December 31, 2021 (inclusive of $67.0 million of loans serviced acquired from the Meridian acquisition) and $453.7 million at December 31, 2020.

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

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See Note 11, "Derivatives and Hedging Activities," within the Notes to Consolidated Financial Statements included in Item 8 of this Report for more information on mortgage activity and mortgage related derivatives.

Loan Portfolio The Company’s loan portfolio increased by $519.2 million during 2020.

The overall increase is primarily attributable to the Company's participation in the PPP.

There were approximately 6,100 PPP loans funded during the year with a total outstanding balance of $791.9 million at December 31, 2020.

When excluding PPP activity, loans declined by $272.7 million, or 3.07%, compared to December 31, 2019.

During 2020, growth across most commercial loan categories was outpaced by runoff in the consumer loan portfolios.

Growth across commercial loan categories generally reflects strong closing activity diversified across a number of industries and property types.

Within the consumer portfolios, the low interest rate environment has driven record mortgage banking volumes and results, while portfolio balances further declined as the majority of residential mortgage production continues to be sold into the secondary market.

Similarly, on the home equity side, despite strong closing activity, loan growth continues to be challenged by attrition.

Loan Portfolio The Company’s loan portfolio increased by $4.2 billion during 2021, primarily due to the Meridian loans acquired.

This increase was offset partially by a decrease in PPP loan balances of $575.7 million, or 72.7%, bringing total outstanding PPP loan balances to $216.2 million at December 31, 2021.

The following table summarizes loan growth/decline during the periods indicated:

Table 8 - Components of Loan Growth/(Decline)

December 31 December 31 Meridian Organic Growth/ Organic Growth/

2021 2020 Acquisition (Decline) $ (Decline) %

(Dollars in thousands)

Commercial and industrial (1) $ 1,563,279 $ 2,103,152 $ 110,359 $ (650,232) (30.9) %

Commercial real estate 7,992,344 4,173,927 3,702,407 116,010 2.8 %

Commercial construction 1,165,457 553,929 691,978 (80,450) (14.5) %

Small business 193,189 175,023 1,552 16,614 9.5 %

Residential real estate 1,604,686 1,296,183 338,959 (30,456) (2.3) %

Home equity 1,039,611 1,068,790 54,355 (83,534) (7.8) %

Other consumer 28,720 21,862 9,339 (2,481) (11.3) %

Total loans $ 13,587,286 $ 9,392,866 $ 4,908,949 $ (714,529) (7.6) %

(1) Organic loan growth/(decline) within commercial and industrial in the table above includes $40.5 million in Meridian acquired PPP loans, resulting in an organic decrease in PPP loan balances of $616.2 million.

Excluding PPP activity, the organic commercial portfolio increased compared to the prior year, as strong pipelines and closing activity were counterbalanced by elevated payoffs and lower line utilization levels.

On the consumer side, balances declined across all portfolios on an organic basis, largely attributable to increased prepayments and refinancing activity, as well as lower home equity line utilization.

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The following table sets forth information concerning the composition of the Bank’s loan portfolio by loan type at the dates indicated:

Table 9 - Loan Portfolio Composition

2020 2019 2018 2017 2016

(Dollars in thousands)

Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent

Amount Percent Amount Percent

Commercial and industrial $ 1,563,279 11.5 % $ 2,103,152 22.4 %

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After one year through five years 886,764 2,909,009 436,520 91,935 203,574 97,974 9,189 4,634,965

Beyond five years 238,852 1,139,828 141,686 50,559 1,089,252 930,423 426 3,591,026

After five years through fifteen years 270,267 2,626,313 277,948 54,782 560,447 871,011 304 4,661,072

After fifteen years 12,914 990,557 197,063 388 792,275 41,870 — 2,035,067

Total $ 1,563,279 $ 7,992,344 $ 1,165,457 $ 193,189 $ 1,604,686 $ 1,039,611 $ 28,720 $ 13,587,286

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(1) Includes certain construction loans that will convert to commercial mortgages and will be reclassified to commercial real estate upon the completion of the construction phase.

At December 31, 2020 , $18.8 million of loa ns scheduled to mature within one year were nonperforming.

Generally, the actual maturity of loans is substantially shorter than their contractual maturity due to prepayments and, in the case of real estate loans, due-on-sale clauses, which generally give the Bank the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage and the loan is not repaid.

The average life of real estate loans tends to increase when current real estate loan rates are higher than rates on mortgages in the portfolio and, conversely, tends to decrease when rates on mortgages in the portfolio are higher than current real estate loan rates.

Due to the fact that the Bank may, consistent with industry practice, renew a significant portion of commercial and commercial real estate loans at or immediately prior to their maturity by renewing the loans on substantially similar or revised terms, the principal repayments actually received by the Bank are anticipated to be significantly less than the amounts

contractually due in any particular period.

Due to the fact that the Bank may, consistent with industry practice, renew a significant portion of commercial and

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commercial real estate loans at or immediately prior to their maturity by renewing the loans on substantially similar or revised terms, the principal repayments actually received by the Bank are anticipated to be significantly less than the amounts contractually due in any particular period.

In other circumstances, a loan, or a portion of a loan, may not be repaid due to the borrower’s inability to satisfy the contractual obligations of the loan.

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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 needs 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 CARES Act, these modifications will not be accounted for as TDRs or be reflected as delinquent or non-accrual loans if the borrower was in compliance with the loan terms as of December 31, 2019.

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.

Delinquency The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations.

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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 may also put a junior lien mortgage on nonaccrual status as a result of delinquency with respect to the first position, which is held by another financial institution, while the junior lien is currently performing.

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

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Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate owned ("OREO").

Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still accruing interest.

Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still

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accruing interest.

OREO consists of real estate properties, which have primarily served as collateral to secure loans, that are controlled or owned by the Bank.

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Table 11 - Nonperforming Assets

2020 2019 2018 2017 2016

(Dollars in thousands)

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Loans past due 90 days or more but still accruing

Commercial real estate (2) — $ 218 — — —

Residential real estate (2) — 1,652 — — —

Home equity (2) — 265 — — —

Other consumer — 1

Total 1 2,157 5 8 2

Total nonperforming loans 27,820 66,861

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Nonperforming assets as a percent of total assets 0.14 % 0.51 %

(1) Included in these amounts were nonaccrual TDRs of $22.2 million at December 31, 2020, $24.8 million at December 31, 2019, $29.3 million at December 31, 2018, $6.1 million at December 31, 2017, and $5.2 million at December 31, 2016.

The increase in nonaccrual TDRs in 2018 was due to nonaccrual loans associated with a large commercial loan customer that had previously declared bankruptcy which were modified when a court confirmed the customer's bankruptcy reorganization plan.

That revision to loan terms required the Company to deem loans associated with the customer as TDRs at December 31, 2018 which amounted to $25.9 million.

(2) Represents purchased credit impaired ("PCI") loans that were accruing interest due to the expectation of future cash collections.

Under CECL guidance, the concept of PCI loans was eliminated (and was replaced with classification as PCD loans) and is therefore not applicable for periods subsequent to the Company's adoption of CECL on January 1, 2020.

(1) Included in these amounts were nonaccrual TDRs of $2.0 million at December 31, 2021, and $22.2 million at December 31, 2020.

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

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Loans charged-off (4,944) (8,446)

Loans paid-off (57,666) (16,723)

Loans paid-off /sold (39,039) (57,666)

Loans restored to accrual status (13,068) (12,692)

Acquired other real estate owned — 2,818

Valuation write down — (389)

Sale of other real estate owned — (2,500)

Other 467 (16)

Nonperforming assets ending balance $ 27,820 $ 66,861

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The following table sets forth information regarding TDR loans at the dates indicated:

Table 13 - Troubled Debt Restructurings

2020 2019 2018 2017 2016

(Dollars in thousands)

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Total troubled debt restructurings as a % of total loans 0.12 % 0.42 %

(1) During the fourth quarter of 2018 nonaccrual loans associated with a large commercial loan customer that had previously declared bankruptcy were modified when a court confirmed the customer's bankruptcy reorganization plan.

That revision to loan terms required the Company to deem $25.9 million of loans associated with the customer as TDRs at December 31, 2018.

The following table summarizes changes in TDRs for the periods indicated:

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New to TDR status 3,918 2,912

Paydowns (8,063) (10,146)

Paydowns/sold loans (26,466) (8,063)

Charge-offs (16) (22)

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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 have been granted a deferral during 2020 in accordance with the relief options offered in response to the COVID-19 pandemic.

A portion of the potential problem loans identified by management have been 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 December 31, 2021 have been included in the table below.

As ntoed above, as a result of the COVID-19 pandemic, the Company has been offering needs based payment relief options to its customers in response to the COVID-19 pandemic.

These modifications will not be 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 December 31, 2020:

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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, including deferral of principal only, deferral of interest only, or a deferral of principal and interest, depending upon needs of the borrower.

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 remaining active deferrals as of December 31, 2021, the entirety of which were deferrals of principal only:

Table 16 - Deferrals by Modification Type

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

Deferral of Principal Only Total Portfolio % of Total Portfolio Deferred

(Dollars in thousands)

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(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 or could be highly impacted.

While management is unable to predict the full impact of all industries affected by the pandemic, there are assumptions as to which industries will be more greatly impacted due to social distancing and other protective measures and restrictions put in place by government and private businesses, as well as the duration of these measures and restrictions.

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

Loss exposure within these industries is mitigated by a number of factors such as collateral values, loan-to-value ratios, and other key indicators, however, some degree of credit loss is expected and has been incorporated into the allowance for credit loss recognition under the CECL model.

The table below provides total outstanding balances of commercial loans at December 31, 2020 within industries that management has deemed to be highly impacted by the COVID-19 pandemic:

Table14 - Highly Impacted COVID-19 Industries - Details

December 31, 2020

(Dollars in thousands)

Accommodations

Balance $ 400,351

Average borrower loan size $ 4,055

% secured by real estate 99.7 %

Weighted average loan to value 54.4 %

Other information:

– The accommodation portfolio consists of 68 properties representing a combination of flagged (59%) and non-flagged (41%) hotels, motels and inns.

– Properties deemed to be located in areas of leisure comprise $157.6 million, or 39% of the total accommodation portfolio.

– Approximately 89% of the balances outstanding are secured by properties located within the six New England states with the largest concentration in Massachusetts (59%).

Food Services

Balance $ 136,509

Average borrower loan size $ 374

% secured by real estate 65.6 %

Weighted average loan to value 51.2 %

Other information:

– The food services portfolio includes full-service restaurants (59%), limited service restaurants and fast food (38%), and other types of food service (caterers, bars, mobile food service 3%).

Balance $ 520,649

Average borrower loan size $ 490

% secured by real estate 42.2 %

Weighted average loan to value 55.5 %

Other information:

– The retail trade portfolio consists broadly of food and beverage stores (42%), motor vehicle and parts dealers (29%), gasoline stations (13%), and all other retailers account for (16%) of the current outstanding balance.

– Collateral for these loans varies and may consist of real estate, motor vehicles inventories, other types of inventories and general business assets.

Other Services (except Public Administration)

Balance $ 150,653

Average borrower loan size $ 257

% secured by real estate 51.0 %

Weighted average loan to value 50.8 %

Other information:

– The other services portfolio consists of various for-profit and not-for-profit services diversified across religious, civic and social service organizations (41%), repair and maintenance business (31%) and personal services, including car washes, beauty salons, laundry services, funeral homes, pet care and other types of services (28%).

Arts, Entertainment, and Recreation

Balance $ 99,830

Average borrower loan size $ 807

% secured by real estate 84.1 %

Weighted average loan to value 52.9 %

Other information:

– Amusement, gambling and recreational industries make up a majority of this category (94%) and include amusement/theme parks, bowling centers, fitness centers, golf courses, marinas, and other recreational industries.

Other industries including museums, performing arts, and spectator sports account for the remaining outstanding balances (6%).

(2) Total active deferrals are inclusive of Meridian acquired deferrals of $194.3 million.

Allowance for Credit Losses The allowance for credit losses is maintained at a level that management considers appropriate to provide for the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost.

The allowance is increased by providing for credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off.

In accordance with the CECL methodology, adopted January 1, 2020, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output.

The allowance is adjusted by providing for credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off.

In accordance with the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output.

The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments.

Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which is a reversion to the Company's historical long-run average for a period of 6 months.

Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which the Company reverts to its historical long-run average over a period of 6 months.

The reasonable and supportable forecast modeled in the allowance for credit losses incorporates an economic scenario which reflects management's assumptions as follows:

that some uncertainty remains as the economy recovers, 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, that some concerns remain regarding the speed of widespread vaccine administration, and the efficacy and public acceptance of vaccines and the possibility for resurgences of COVID-19 or other variants of the virus.

The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio.

Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting.

For the loans that will be individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach.

For loans that are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach.

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

The Company's adoption of CECL had a minimal impact on the allowance for credit losses as compared to the incurred loss methodology prescribed by previously applicable accounting guidance.

The allowance for credit losses of $113.4 million at December 31, 2020 represents an increase of $45.6 million, or 67.3%, in comparison to the implementation balances at January 1, 2020.

This increase in the allowance was primarily driven by anticipated credit deterioration caused by the COVID-19 pandemic, which resulted in an elevated provision for credit losses of $52.5 million for the year ended December 31, 2020.

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 will have a material adverse impact on future losses across a broad range of loan segments.

Accordingly, the forecast used by the model was adjusted to use a more severe outlook as compared to the baseline forecast used to calculate the opening balances on January 1, 2020 as a result of the uncertainty in the outlook due to the ongoing pandemic.

Additionally, the provision for credit loss recognized for the year ended December 31, 2020 reflects increased reserve allocations to loan segments identified as having an elevated loss exposure associated with the COVID-19 pandemic.

The underlying assumptions related to the Company's economic forecast included items such as, unemployment increasing through mid-2022, federal funds rates holding steady near 0% until 2022 and an expectation that no sustained economic recovery will occur until 2022.

The provision for credit losses was qualitatively adjusted upward for the year ended December 31, 2020 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.

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.

Refer to Note 4, "Loans, Allowance for Credit Losses and Credit Quality" within the Notes to the Consolidated Financial Statements included in Item 8 of this Report for further details regarding the Company's adoption of CECL and full disclosures under the new standard.

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

Table 15 - Summary of Changes in the Allowance for Credit Losses

2020 2019 2018 2017 2016

The allowance for credit losses of $146.9 million at December 31, 2021 represents an increase of $33.5 million, or 29.6% compared to December 31, 2020, driven primarily by $67.2 million in initial allowance reserves recorded on the acquired Meridian loan portfolio, including $50.7 million and $16.5 million attributable to non-PCD and PCD loans, respectively.

This increase in allowance was partially offset by a reversal of provision for credit losses of $32.5 million recorded for the year ended December 31, 2021, reflecting decreases in both quantitative and qualitative reserves, driven primarily by improvements in expected overall macro-economic forecast assumptions, continued strong asset quality metrics, along with lower organic loan growth.

Decreased quantitative reserves at December 31, 2021 were 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.

Additionally, the allowance for credit losses continues to reflect elevated qualitative reserve allocations to those loan segments that management considers to have heightened loss exposure associated with the COVID-19 pandemic, however the amount of this elevated reserve has decreased and contributed to the release of reserves as COVID-19 restrictions

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have lessened.

Further qualitative 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 2021.

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The following table summarizes the ratio of net charge-offs to average loans outstanding within each major loan category for the periods presented:

Table 17 - Summary Net Charge-Offs to Average Loans Outstanding

Net Charge-Off (Recoveries) Average Amount Outstanding Ratio of Annualized Net Charge-Offs/(Recoveries) to Average Loans

(Dollars in thousands)

Average total loans $ 9,239,538 $ 8,445,921 $ 6,489,910 $ 6,191,099 $ 5,670,427

Allowance for credit losses, beginning of year $ 67,740 $ 64,293 $ 60,643 $ 61,566 $ 55,825

Cumulative effect accounting adjustment (1) (1,137) — — — —

Cumulative effect accounting adjustment (2) 1,157 — — — —

Charged-off loans:

December 31, 2021

Commercial and industrial $ 788 $ 1,823,914 0.04 %

Commercial real estate (57) 4,702,346 — %

Commercial construction — 616,037 — %

Small business 121 180,473 0.07 %

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Other consumer 544 23,885 2.28 %

Total charged-off loans 8,446 5,205 2,597 6,209 3,472

Recoveries on loans previously charged-off

Total $ 1,215 $ 9,658,934 0.01 %

December 31, 2020

Commercial and industrial 2,020 1,858,951 0.11 %

Commercial real estate 3,876 4,070,462 0.10 %

Commercial construction — 561,431 — %

Small business 347 171,839 0.20 %

2 unchanged sentences

Other consumer 590 25,195 2.34 %

Total recoveries 1,578 2,652 1,472 2,336 3,138

Net loans charged-off (recoveries)

Total $ 6,868 $ 9,239,538 0.07 %

December 31, 2019

Commercial and industrial (887) 1,321,798 (0.07) %

Commercial real estate 2,462 3,838,526 0.06 %

Commercial construction — 478,865 — %

Small business 387 169,381 0.23 %

2 unchanged sentences

Other consumer 811 26,095 3.11 %

Total net loans charged-off 6,868 2,553 1,125 3,873 334

Provision for credit losses 52,500 6,000 4,775 2,950 6,075

Total allowances for credit losses, end of year $ 113,392 $ 67,740 $ 64,293 $ 60,643 $ 61,566

Net loans charged-off as a percent of average total loans 0.07 % 0.03 % 0.02 % 0.06 % 0.01 %

Allowance for credit losses as a percent of total loans 1.21 % 0.76 % 0.93 % 0.95 % 1.03 %

Allowance for credit losses as a percent of nonperforming loans 169.59 % 140.98 % 141.56 % 122.17 % 107.24 %

(1) Represents adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13.

The adjustment represents a $1.1 million decrease to the allowance attributable to the change in accounting methodology for estimating the allowance for credit losses resulting from the Company's adoption of the standard.

(2) Represents adjustment needed to reflect the day one reclassification of the Company's PCI loan balances to PCD and the associated gross-up, pursuant to the adoption of Accounting Standards Update 2016-13.

The adjustment represents a $1.2 million increase to the allowance resulting from the day one reclassification.

Total $ 2,553 $ 8,445,921 0.03 %

The Company recorded net charge-offs of $1.2 million for 2021 compared to $6.9 million and $2.6 million in 2020 and 2019, respectively.

As noted in the table above, net charge-offs incurred by the Company have been minimal for the periods presented, with larger losses being isolated to individual loan workouts, and are not indicative of declining credit quality in the Company's overall loan portfolio.

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For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below.

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Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment.

The Company began estimating its allowance for credit losses in accordance with the CECL methodology as of January 1, 2020, while prior period amounts were estimated using the incurred loss methodology prescribed by previously applicable accounting guidance.

The total allowance is available to absorb losses from any segment of the loan portfolio.

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Table 18 - Summary of Allocation of Allowance for Credit Losses

2020 2019 2018 2017 2016

Amount Percent of

Loans Allowance

Amount Percent of

Loans Allowance

Amount Percent of

Loans Allowance

Amount Percent of

Loans Allowance

Amount Percent of

Amount Percent of Loans In Category of Total Loans Allowance

Amount Percent of Loans In Category of Total Loans

(Dollars in thousands)

8 unchanged sentences

Total $ 146,922 100.0 % $ 113,392 100.0 %

(1) Total loans in this category increased during 2020 due to loans originated as part of the PPP established by the CARES Act.

(1) Total loans in this category are inclusive of $216.2 million and $791.9 million in loans, at December 31, 2021 and 2020, respectively, which were originated as part of the PPP established by the CARES Act.

These loans have been excluded from the credit loss calculations as these loans are 100% guaranteed by the U.S.

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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 $529.3 million and $535.5 million at December 31, 2020 and December 31, 2019, respectively.

The decrease in 2020 is due to primarily to the amortization of definite-lived intangibles.

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Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets were $1.0 billion and $529.3 million at December 31, 2021 and December 31, 2020, respectively.

The increase in 2021 is primarily due to the Meridian acquisition, partially offset by 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.

The COVID-19 pandemic resulted in significant levels of volatility in the capital markets and presents heightened uncertainty surrounding the future impact to operations of the Company and its customers.

Given these conditions, the Company identified the impact of the pandemic as a triggering event warranting interim tests for impairment as of March 31, June 30, and September 30, 2020.

Accordingly, the Company performed impairment tests as of each date and determined that there was no impairment of its goodwill.

No additional test for impairment was deemed warranted as of the year ended December 31, 2020.

Although the Company utilizes quoted market prices when estimating fair value of the reporting unit for purposes of the quantitative impairment tests, it also considers certain qualitative factors, including the concept of a control premium, which increases the fair value as compared to market capitalization.

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.

The Company also considered the impact of the COVID-19 pandemic on other intangible assets and determined that there was no indication of impairment related to other intangible assets as of December 31, 2020.

There were no events or changes that indicated impairment of other intangible assets.

For additional information regarding the goodwill and other intangible assets, see Note 7, "Goodwill and Other Intangible Assets " within the Notes to Consolidated Financial Statements included in Item 8 hereof.

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 $200.5 million and $197.4 million at December 31, 2020 and December 31, 2019, respectively.

The cash surrender value of life insurance policies was $289.3 million and $200.5 million at December 31, 2021 and December 31, 2020, respectively, reflecting primarily $42.9 million in policies obtained in the Meridian acquisition, in addition to new policy purchases made during 2021.

The Company recorded tax exempt income from life insurance policies in the amounts of $6.4 million, $5.4 million, and $5.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company also recorded gains on life insurance benefits of $1.0 million, $434,000, and $1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Deposits At December 31, 2020, total deposits were $11.0 billion, representing a $1.8 billion, or 20.2%, increase from the prior year-end.

The increase is due primarily to a combination of funds received for PPP loans and from other government stimulus programs and a customer focus on retaining liquidity, which fueled strong growth during the twelve months ended December 31, 2020.

Core deposits represented 89.6% of total deposits at December 31, 2020, and the total cost of deposits was 0.27% for the year ended December 31, 2020, representing a decrease from the prior year of 20 basis points.

The Company also recorded gains on life insurance benefits of $258,000, $1.0 million, and $434,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

Deposits At December 31, 2021, total deposits were $16.9 billion, representing a $5.9 billion, or 53.9%, increase from the prior year-end, reflecting primarily $4.4 billion in balances acquired from Meridian, in addition to robust new account opening activity and the ongoing impact of government stimulus payments which resulted in organic deposit growth of $1.5 billion, or 13.5%, compared to December 31, 2020.

Core deposits represented 84.5% of total deposits at December 31, 2021, reflecting primarily a higher ratio of noncore-time deposits acquired from Meridian.

The total cost of deposits was 0.07% for the year ended December 31, 2021, representing a decrease from the prior year of 20 basis points.

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 $237.9 million and $211.2 million, at December 31, 2020 and December 31, 2019, 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 $998.1 million and $237.9 million in deposits, at December 31, 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 $141.6 million and $8.5 million, at December 31, 2021 and December 31, 2020, respectively.

The decline is due primarily to the maturity of brokered certificates of deposit during 2020.

The following table sets forth the maturities of the Bank’s time certificates of deposits in the amount of $100,000 or more as of December 31, 2020:

Table 17 - Maturities of Time Certificates of Deposits $100,000 and Over

Balance Percentage

The aforementioned increases in funding through both the IntraFi Network and brokered deposits during 2021 were primarily the result of deposit balances acquired from Meridian.

Excluding the effects of the Meridian acquisition, the Company's deposits have increased on a net organic basis as compared to the prior year end as summarized in the table below:

Table 19 - Components of Deposit Growth/(Decline)

2021 December 31

2020 Meridian Bancorp Acquisition Organic Growth/(Decline) $ Organic Growth/(Decline) %

(Dollars in thousands)

1 to 3 months $ 286,513 30.1 %

4 to 6 months 271,693 28.6 %

7 to 12 months 231,032 24.3 %

Over 12 months 161,391 17.0 %

Noninterest-bearing demand deposits $ 5,479,503 $ 3,762,306 $ 819,792 $ 897,405 23.9 %

Savings and interest checking 6,350,016 4,047,332 1,647,600 655,084 16.2 %

Money market 3,556,375 2,232,903 1,156,563 166,909 7.5 %

Time certificates of deposits 1,531,150 950,629 816,477 (235,956) (24.8) %

Total $ 16,917,044 $ 10,993,170 $ 4,440,432 $ 1,483,442 13.5 %

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Scheduled maturities of time deposits not covered by deposit insurance at December 31, 2021, were as follows:

Table 20 - Maturities of Uninsured Time Deposits

December 31, 2021

(Dollars in thousands)

Due within 3 months or less $ 92,441

Due after 3 months through 6 months 51,096

Due after 6 months through 12 months 53,352

Due after 12 months 141,985

Total uninsured deposits (1) 338,874

(1) Amounts of uninsured time deposits presented in the table above are estimates determined based upon a relative proportion of customer account balances in excess of FDIC insurance limits, and in a manner consistent with the Company's regulatory reporting requirements.

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.

Maintaining available borrowing capacity provides the Bank with a contingent source of liquidity.

Borrowings decreased by $122.0 million, or 40.3%, at December 31, 2020, as compared to December 31, 2019.

In relation to its funding strategy, and in light of the steady buildup of its liquidity position, the Bank used excess cash to pay down various forms of borrowings during the year, including short term borrowings held with the FHLB as well a $37.5 million pay down on a long-term line of credit.

The following table presents balances within each of the Company's major borrowing categories as of the periods indicated:

Table 18 - Components of Borrowings by Category

(Dollars in thousands)

Federal Home Loan Bank borrowings $ 35,740 $ 115,748

Long-term borrowings 32,773 74,906

Junior subordinated debentures 62,851 62,848

Subordinated debentures 49,696 49,601

Total $ 181,060 $ 303,103

Borrowings decreased by $28.7 million, or 15.8%, at December 31, 2021, as compared to December 31, 2020, reflecting primarily the repayment of outstanding debt, including the maturity of a $10.0 million advance from the Federal Home Loan Bank.

The Company assumed $576.1 million in borrowings as part of its acquisition of Meridian, the entirety of which was paid off subsequent to the acquisition.

See Note 9, "Borrowings" within the Notes to Consolidated Financial Statements included in Item 8 of this Report for more information regarding borrowings.

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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, net interest income was $368.7 million for the year ended December 31, 2020, representing a 6.5% decrease from net interest income of $394.1 million for the year ended December 31, 2019.

The overall decrease in net interest income is due primarily to the negative impact of a lower interest rate environment and mix of interest earnings assets, partially offset by the full year impact of the BHB acquisition, which closed in the second quarter of 2019.

On a fully tax-equivalent basis, net interest income was $402.9 million for the year ended December 31, 2021, representing a 9.3% increase from net interest income of $368.7 million for the year ended December 31, 2020.

The increase was attributable primarily to PPP fee recognition of $26.5 million for the twelve months ended December 31, 2021 in comparison to $9.1 million for the prior year, in addition to increased average interest-earning assets resulting from the 2021 fourth quarter Meridian acquisition.

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The following table presents the Company’s average balances, net interest income, interest rate spread, and net interest margin for the years ended December 31, 2021, 2020 and 2019.

Nontaxable income from loans and securities is presented on a

fully tax-equivalent basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing federal income taxes that would have been paid if the income had been fully taxable.

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

Table 22 - Average Balance, Interest Earned/Paid & Average Yields

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Federal Home Loan Bank borrowings 41,556 897 2.16 % 162,776 1,564 0.96 % 178,658 4,438 2.48 %

Customer repurchase agreements and other short-term borrowings — — — % — — — % 129,890 248 0.19 %

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Line of credit — — — % — — — % 2,673 104 3.89 %

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Cost of total funding liabilities 0.11 % 0.32 % 0.59 %

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $927,000, $963,000 and $724,000 for 2020, 2019 and 2018, respectively.

The FTE adjustment relates to nontaxable investment securities with average balances of $1.1 million, $1.7 million, and $2.1 million in 2020, 2019, and 2018, respectively, and tax exempt income relating to loans with average balances of $80.1 million, $80.0 million and $55.7 million at 2020, 2019 and 2018, respectively.

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $1.3 million, $927,000 and $963,000 for 2021, 2020 and 2019, respectively.

(2) Includes average nonaccruing loans.

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(4) Net interest margin represents net interest income as a percentage of average interest-earning assets.

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The following table presents certain information on a fully-tax equivalent basis regarding changes in the Company’s interest income and interest expense for the periods indicated.

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See footnotes to Table 22 above for the related adjustments.

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

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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 provision for credit losses totaled $18.2 million for the year ended December 31, 2021, compared with $52.5 million for the year ended December 31, 2020.

The elevated provision for credit losses for the year ended December 31, 2020 was calculated under the new CECL methodology, which was adopted as of January 1, 2020, and was driven primarily by anticipated credit losses related to the COVID-19 pandemic.

The provision for credit losses for 2021 included $50.7 million of provision required to establish an allowance for credit losses on non-purchased credit deteriorated loans acquired from Meridian, offset by a $32.5 million release of credit reserves, reflecting primarily continued improvement in expected asset quality metrics and overall macro-economic assumptions.

The elevated provision for credit losses for the year ended December 31, 2020 was driven primarily by anticipated credit losses related to the COVID-19 pandemic.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.08% at December 31, 2021, as compared to 1.21% at December 31, 2020.

Net charge-offs for the years ended December 31, 2021 and 2020 totaled $1.2 million and $6.9 million, respectively.

The increase in net charge-offs for the year ended December 31, 2020 was due primarily to charge-offs recorded on two large commercial relationships.

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

Item 1 of this Report, for further details surrounding the primary drivers of the provision for credit losses during the period.

See Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Item 8 of this Report, for further details surrounding the primary drivers of the provision for credit losses during the period.

Noninterest Income The following table sets forth information regarding noninterest income for the periods shown:

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The primary reasons for significant variances in the noninterest income categories shown in the preceding table are noted below:

Deposit account fees decreased year over year primarily due to reductions in overdraft fees as customers benefited from government stimulus payments disbursed during 2020.

Interchange and ATM fees decreased during the year reflective of 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.

In addition there was an overall decrease in consumer spending as customers focused on retaining liquidity during the COVID-19 pandemic leading to further reduced fees.

Investment management revenue increased primarily due to growth in overall assets under administration, which grew from $4.6 billion at December 31, 2019 to $4.9 billion at December 31, 2020.

Mortgage banking income increased in comparison to the prior year primarily due to increased volume and strong demand driven by the low interest rate environment.

The increase in cash surrender value of life insurance policies was primarily due to policies obtained from the BHB acquisition, which closed in the second quarter of 2019.

The Company received proceeds on life insurance policies during 2020, resulting in gains of $1.0 million for the year ended December 31, 2020, compared to gains of $434,000 for the year ended December 31, 2019.

Loan level derivative income increased primarily as a result of higher customer demand during the year.

Other noninterest income decreased during the year, largely attributable to a one-time $3.1 million insurance recovery and a gain on the sale of residential loans of $1.4 million, each recognized in 2019.

Gain on sale of fixed assets and FHLB dividend income also decreased in 2020.

Deposit account fees increased year over year due primarily to higher overdraft fees which were impacted in the prior year 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 during the year, mostly reflective of 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.

Investment management revenue increased primarily due to growth in overall assets under administration, which grew 15.7% from $4.9 billion at December 31, 2020 to $5.7 billion at December 31, 2021, along with overall more favorable market conditions during 2021.

Mortgage banking income decreased in comparison to the prior year, primarily due to a larger portion of new residential originations being retained in the Company's portfolio versus being sold in the secondary market in comparison to the prior year.

Loan level derivative income decreased primarily as a result of lower customer demand during 2021 in comparison to the prior year.

Other noninterest income increased during the year, primarily due to increases in income recognized from other investments, income from like-kind exchanges, capital gains distributions on equity securities, business credit card interchange fees and commercial loan late charge fees, offset partially by decreases in unrealized gains on equity securities, rental income from equipment leases, and FHLB dividend income.

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Noninterest Expense The following table sets forth information regarding noninterest expense for the periods shown:

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Consulting 8,271 5,987 2,284 38.1 %

Core deposit amortization 5,802 5,545 257 4.6 %

Amortization of intangible assets 5,715 6,135 (420) -6.8 %

Debit card expense 5,144 4,374 770 17.6 %

Lease impairment — 4,163 (4,163) nm

Loss on sale of other equity investments — 1,033 (1,033) nm

Loss on sale of securities — 1,462 (1,462) 100.0 %

Loss on termination of derivatives — 684 (684) nm

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The primary reasons for significant variances in the noninterest expense categories shown in the preceding tables are noted below:

The increase in salaries and employee benefits reflects overall increases in the employee base, primarily due to the BHB acquisition which occurred on April 1, 2019, along with increases in retirement benefit costs and medical insurance costs, partially offset by decreases in incentive compensation.

Occupancy and equipment expense increases were primarily attributable to the full year impact of the acquired BHB branch network and costs attributable to the Company's infrastructure in response to the COVID-19 pandemic.

FDIC assessment expense increased during 2020 primarily due to an increase in the assessment base driven by the Company's crossing the $10 billion asset threshold.

Additionally, the Company benefited from the small bank assessment credits allocated in conjunction with the Deposit Insurance Fund's attainment of a 1.38 percent reserve ratio, which resulted in no expense during the second half of 2019 and reduced expense during the first half of 2020.

Advertising expense in 2020 decreased in comparison to the prior year due primarily to the timing and scope of various marketing campaigns.

Consulting expense increased in 2020 in conjunction with the Company's overall growth, implementation of strategic initiatives and COVID-19 related projects.

During the fourth quarter of 2020, the Company recorded an impairment charge of $4.2 million reflecting accelerated lease termination costs and the write-off of leasehold improvements related to two branch closure decisions made during the quarter.

There were no such impairment charges recorded during the prior year.

For the fourth quarter of 2020, the Company recognized a loss of $1.0 million on the sale of certain Small Business Investment Company ("SBIC") investment holdings that were acquired in the BHB merger in 2019.

No such losses were recognized during the prior year.

In 2020, the Company recorded a $684,000 loss on the termination of a swap derivative contract with a notional amount of $100.0 million.

There were no such charges recorded during the prior year.

Merger and acquisition expense in 2019 was primarily attributable to the BHB acquisition.

The majority of these costs include legal, professional fees and integration costs.

The increase in salaries and employee benefits in comparison to the prior was driven by increases in incentive programs, commissions, payroll taxes, and general salary increases, which included the impact of an expanded employee base from the Meridian acquisition which closed during the fourth quarter of 2021.

Occupancy and equipment expense decreases were primarily attributable to decreased computer hardware and software costs which were elevated in the prior year to facilitate remote work for employees after the onset of the COVID-19 pandemic, along with reduced depreciation due to a reduction in leased equipment.

These decreases were partially offset by increases in general equipment maintenance and repairs, in addition to increased costs attributable to the acquired Meridian branch network.

FDIC assessment expense increased during 2021 in comparison to the prior year as the Company previously benefited from a small bank assessment credit, which resulted in no expense for the first quarter of 2020 and reduced expense for the second quarter of 2020.

The Company's assessment base has also increased in comparison to the prior year, further increasing the expense.

Consulting expense increased in 2021 in conjunction with the Company's overall growth and implementation of strategic initiatives.

In 2020, the Company recorded an impairment charge of $4.2 million reflecting accelerated lease termination costs and the write-off of leasehold improvements related to two branch closure decisions made during the quarter.

During the 2021, the Company recognized approximately $2.3 million in impairment charges associated with several branch closure decisions as part of its acquisition of Meridian, however these charges were recorded within merger and acquisition expense.

Merger and acquisition expenses in 2021 were attributable to the Meridian acquisition.

The majority of these costs included change-in-control contracts, severance, branch closure and conversion costs, contract terminations costs and other integration costs.

There were no merger and acquisition costs incurred during 2020.

Software maintenance expense increased during 2020 reflecting the Company's continued investment in its technology infrastructure.

Other noninterest expenses increased in 2020 in comparison to the prior year, primarily due to increased consultant fees, retail branch traffic control, subscription fees, defined benefit plan costs, recruitment expenses, prepayment fees on borrowings, COVID-19 related office supplies and protective equipment, which were partially offset by a reduction in the provision for unfunded commitments and sponsorships.

Other noninterest expenses decreased in 2021 in comparison to the prior year, primarily due to decreased prepayment fees on borrowings, loss on the sale of fixed assets, office supplies, retail branch traffic control, partially offset by increases in legal fees, telecommunications expense, and service charges to correspondent banks.

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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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Blended Statutory tax rate 27.92 % 27.92 % 27.89 %

The Company’s effective tax rate for 2020 is lower as compared to the year ago period primarily due to lower pre-tax net income, as well as the impact of discrete items, which are subject to fluctuation year over year.

The Company’s effective tax rate for 2021 is higher as compared to the year ago period primarily due to the impact of discrete items, which are subject to fluctuation year over year.

The discrete tax amounts for the year ended December 31, 2020 include a benefit of $4.8 million associated with the net operating loss (NOL) carryback provision of the CARES Act.

This NOL was generated in relation to the BHB acquisition.

This NOL was generated in relation to the Blue Hills Bancorp.("BHB acquisition").

The effective tax rates reported 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 year ended December 31, 2020 is comparable to the year ago period.

The Company’s blended statutory tax rate for the year ended December 31, 2021 is consistent with the 2020 period.

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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2019 For a discussion of our results for the year ended December 31, 2020 compared to the year ended December 31, 2019, please see Item 7.

" Management's Discussion and Analysis of Financial C ondition and Results of Operations" i n our A nnual R eport on Form 10-K filed with the SEC on February 27, 2020 .

" Management's Discussion and Analysis of Financial Condition and Results of Operations" i n our Annual Report on Form 10-K filed with the SEC on February 2 6 , 202 1 .

Risk Management

The Board of Directors and management have identified significant risks which affect the Company, including credit risk, market risk, liquidity risk, price risk, operations risk, cybersecurity risk, consumer compliance risk, reputation risk, and strategic risk.

The Board of Directors has approved an Enterprise Risk Management Policy, and management has adopted a Risk Appetite Statement that addresses each risk category.

Management reviews key risks and their mitigation on an ongoing basis and provides regular enterprise risk management reports to the Board of Directors.

The Board of Directors, with the assistance of the Board’s Risk Committee, oversees management’s enterprise risk assessment and management.

Credit Risk Credit risk is the possibility that customers or other counterparties may not repay loans or other contractual obligations according to their terms.

The Board of Directors has approved an Enterprise Risk Management Policy to state the Company’s goals and objectives in identifying, measuring, and managing the risks associated with the Company’s current and near future anticipated size and complexity.

Management is responsible for comprehensive enterprise risk management, and continually strives to adopt and implement practices that strike an appropriate balance between risk and reward and permit the achievement of strategic goals in a controlled environment.

The Company has implemented the “three lines of defense” enterprise risk management model.

The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks.

The second line of defense is the Chief Risk

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Officer and the risk department, who monitor and provide advice with respect to first line risk management.

The third line of defense is independent assurance performed by the Chief Internal Auditor, who reports to the Audit Committee of the Company's Board of Directors, and by the Company's internal audit department.

The Board of Directors, with the assistance of its Risk Committee, oversees management’s enterprise risk management practices.

As risks must be taken to create value, the Board of Directors has approved a Risk Appetite Statement that defines the acceptable residual risk tolerances for the Company and the seven major risk types identified as having the potential to create significant adverse impacts on the Company, such as financial losses, reputational damage, legal or regulatory actions, nonachievement of strategic objectives, diminished customer experience, and/or cultural erosion.

The seven major risk types identified by the Company and addressed in the Risk Appetite Statement are strategic risk, culture risk, credit risk, liquidity risk, market risk, operational risk, and reputation risk, each of which is discussed below.

Strategic Risk Strategic risk is the risk arising from adverse strategic or business decisions, misalignment of strategic direction with the Company’s mission and values, failure to execute strategies or tactics, or an inadequate adaptation or lack of responsiveness to industry and/or operating environment changes.

Management seeks to mitigate strategic risk through strategic planning, frequent executive review of strategic plan progress, monitoring of competitors and technology, assessment of new products, new branches, and new business initiatives, customer advocacy, and crisis management planning.

Culture Risk Culture risk is the risk arising from failed leadership and/or ineffective colleague engagement and workplace management that causes the Company to lose sight of core values and, through acts or omissions, damage the relationship-based culture which has been one of the foundations of the Company’s consistent success.

Management seeks to mitigate culture risk through effective employee relations, leadership that encourages continuous improvement, cultural development and reinforcement of core values, communication of clear ethical and behavioral standards, consistent enforcement of policies and programs, discipline of misbehavior, alignment of incentives and compensation, and by promoting diversity, equity, and inclusion.

Credit Risk Credit risk is the risk arising from the failure of a borrower or a counterparty to a contract to make payments as agreed, and includes the risks arising from inadequate collateral and mismanagement of loan concentrations.

While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results.

The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans.

For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within Notes to Consolidated Financial Statements included in Item 8 of this Report.

Operational Risk Operational risk is the risk of loss from the Company’s operations due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, natural disasters, and security risks.

Potential operational risk exposure exists throughout the Company.

The continued effectiveness of colleagues, technical systems, operational infrastructure, and relationships with key third party service providers are integral to mitigating operations risk, and any shortcomings subject the Company to risks that vary in size, scale and scope.

Operational risks include, but are not limited to, operational or technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or failure on the part of the key individuals to perform properly.

Management maintains an Operational Risk Committee to assess and mitigate operational risk which contributes to periodic enterprise risk management reporting to the Board of Directors.

Compliance Risk Compliance risk is the risk of regulatory sanctions or financial loss resulting from the failure to comply with rules and regulations issued by the various banking agencies, the SEC, the NASDAQ Stock Market, and good banking practices.

Activities which may expose the Company to compliance risk include money laundering, privacy and data protection, adherence to laws and regulations, community reinvestment initiatives, and employment and tax matters.

Compliance risk is mitigated through the use of written policies and procedures, staff training, and continuous monitoring of activities for adherence to policies and procedures.

Management maintains a Consumer Compliance Advisory team to assess and mitigate compliance risk that contributes to periodic enterprise risk management reporting to the Board of Directors.

Strategic and Reputation Risk Strategic and reputation risk is the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess current and new opportunities and threats in business, markets, and products.

Management seeks to mitigate strategic and reputational risk through annual strategic planning, frequent executive review of strategic plan progress, ongoing competitive and technological observation, assessment processes of new products, new branches, and new business initiatives, adherence to ethical standards, a philosophy of customer advocacy, a structured process of customer complaint resolution, and ongoing reputational monitoring, crisis management planning, and management tools.

Market Risk Market risk is the sensitivity of income to changes in interest rates, equity prices, foreign exchange rates, commodity prices, and other market-driven rates or prices.

The Company’s most significant market risk exposure is interest rate risk.

Interest rate risk is the sensitivity of income due to changes in interest rates.

For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 4, “Loans, Allowance for Credit Losses and Credit Quality” within the Notes to Consolidated Financial Statements included in Item 8 of this Report .

Liquidity Risk Liquidity risk is the risk arising from the Company being unable to meet obligations when due.

Liquidity risk includes the inability to access funding sources or manage fluctuations in available funding levels.

Liquidity risk also results from a failure to recognize or address market condition changes that affect the ability to liquidate assets quickly with minimal value loss.

The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities.

The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits.

These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts.

Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors.

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 December 31, 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.

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 fundings, government stimulus programs, and a customer focus on retaining liquidity, the Company experienced significant deposit growth and a buildup of liquidity throughout 2021.

In consideration of the Company's strong capital position, the Company has put in a place a stock buyback plan, which authorizes repurchases of up to $140 million in common stock and will be in effect through January 18, 2023.

The plan was previously approved by the Company's Board of Directors, pending the receipt of non-objection from the Federal Reserve, which was received on January 19, 2022.

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

These funding sources serve as a contingent source of liquidity and, when profitable lending and investment opportunities exist, the Company may access them to provide the liquidity needed to grow the balance sheet.

The amount and type of assets that the Company has available to pledge impacts the Company's Federal Home Loan Bank and Federal Reserve borrowing capacity.

For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a pledged commercial loan may increase borrowing capacity in a lower amount.

The Company’s lending decisions, therefore, can also affect its liquidity position.

The Company may also have the ability to raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past.

Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion.

The availability and cost of equity or debt on an unsecured basis is dependent on many factors, including the Company’s financial position, the market environment, and the Company’s credit rating.

The Company monitors the factors that could impact its ability to raise liquidity through these channels.

The table below shows current and unused liquidity capacity from various sources at the dates indicated:

Table 27 - Sources of Liquidity

Outstanding Additional

Borrowing Capacity Outstanding Additional

Borrowing Capacity

(Dollars in thousands)

Federal Home Loan Bank borrowings (1) $ 25,667 $ 1,622,494 35,740 1,372,671

Federal Reserve Bank of Boston (2) — 1,176,486 — 1,355,809

Unpledged securities — 1,897,148 — 716,961

Line of Credit — 50,000 — 50,000

Long-term borrowings (3) 14,063 — 32,773 —

Junior subordinated debentures (3) 62,853 — 62,851 —

Subordinated debt (3) 49,791 — 49,696 —

Reciprocal deposits (3) 998,121 — 237,902 —

Brokered deposits (3) 141,572 — 8,538 —

$ 1,292,067 $ 4,746,128 $ 427,500 $ 3,495,441

(1) Loans with a carrying value of $2.3 billion and $2.1 billion at December 31, 2021 and 2020, respectively, have been pledged to the Federal Home Loan Bank of Boston resulting in this additional borrowing capacity.

(2) Loans with a carrying value of $1.8 billion and $1.9 billion at December 31, 2021 and 2020, respectively, have been 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.

In addition to customary operational liquidity practices, the Board of Directors and management recognize the need to establish reasonable guidelines to manage a heightened liquidity risk environment.

Catalysts for elevated liquidity risk can be Company-specific issues and/or systemic industry-wide events.

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.

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.

Market Risk Market risk is the risk arising from changes in interest rates and the value of investments due to market conditions or other external factors or events.

The Company’s primary market risk exposure is interest rate risk.

Interest rate risk is the sensitivity of income to changes in interest rates.

Interest rate changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue.

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In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects.

Management maintains an Asset Liability Committee to manage interest rate risk, which strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons.

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Management strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons.

The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure.

If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists.

management determines to be prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.

It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary within limits management deems prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.

The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis.

Key assumptions in these simulation analyses relate to changes in interest rates and the behavior of the Company’s deposit and loan customers.

Key assumptions in these analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers.

The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g., demand deposit, negotiable order of withdrawal, savings, and money market accounts).

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The risk of prepayment tends to increase when interest rates fall.

Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined exactly and actual behavior may differ from assumptions.

Based upon the net interest income simulation models, the Company currently forecasts that the Bank’s assets re-price faster than the liabilities.

As a result, the net interest income of the Bank will benefit as market rates increase, and contract if market rates decrease.

The Company runs several scenarios to quantify and effectively assist in managing this position.

These scenarios include instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary, given the interest rate environment.

Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined with precision and actual behavior may differ from assumptions to a significant degree.

Based upon the net interest income simulation models, the Company currently forecasts that assets are anticipated to re-price faster than liabilities.

As a result, net interest income will be positively impacted as market rates increase and negatively impacted if market rates decrease.

The Company runs several scenarios to quantify and effectively assist in managing interest rate risk, including instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary given the interest rate environment.

The results of such scenarios are outlined in the table below:

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Table 28 - Interest Rate Sensitivity

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Alternative scenarios

Yield curve twist (1) 1.5% 3.0% 0.8% 4.6%

Yield curve twist (1) n/a n/a 1.5% 3.0%

(1) In the yield curve twist scenario, rates increase 200 basis points over a two year horizon.

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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 factors affecting market risk exposure of the Company’s net interest income for the year ended December 31, 2020 were the shape of the U.S.

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

prime interest rate and LIBOR rates, and the interest rates being offered on long-term fixed rate loans.

Additionally, the full economic impact of the COVID-19 pandemic on these factors remains uncertain.

The most significant market factors affecting the Company’s net interest income during the year ended December 31, 2021 were the shape of the U.S.

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

prime, LIBOR, Secured Overnight Funding Rate ("SOFR") and other interest rates being offered on long-term fixed rate loans.

The Company manages the interest rate risk inherent in both its loan and borrowing portfolios by using interest rate swap agreements and interest rate caps and floors.

An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from the other party.

An interest rate swap is an agreement in which one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from the other party.

Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized.

The amounts relating to the notional principal amount are not actually exchanged.

Additionally, the Company may manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts.

In an effort to mitigate that risk, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors.

While interest is paid or received in swap, cap, and floors agreements, the notional principal amount is not actually exchanged.

The Company may also manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts under which the Company agrees to deliver whole mortgage loans to various investors.

See Note 11," Derivatives and Hedging Activities " within Notes to Consolidated Financial Statements included in Item 8 of this Report for additional information regarding the Company’s derivative financial instruments.

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See Note 3 , "Securities " within the Notes to Consolidated Financial Statements included in Item 8 of this Report.

Liquidity Risk Liquidity risk is the risk that the Company will not have the ability to generate adequate amounts of cash in the most economical way to meet its ongoing obligations to pay deposit withdrawals, repay borrowings, and fund loans.

The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities.

The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core

These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts.

Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors.

Management maintains an Asset Liability Committee to manage liquidity risk.

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 funding at the FHLB, less short-term liabilities relative to total assets, was within policy limits at December 31, 2020.

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

Other factors affecting the Total Basic Surplus/Deficit measure include collateral requirements at the FHLB, changes in the securities portfolio, and the mix of deposits.

The Bank seeks to increase deposits without adversely impacting the weighted average cost of those funds.

As part of a prudent liquidity risk management practice, the Company maintains various liquidity sources, some of which are only accessed on a contingency basis.

Accordingly, management has implemented funding strategies that include FHLB advances, Federal Reserve Bank borrowing capacity, and repurchase agreement lines.

These funding sources are a contingent source of liquidity and, when profitable lending and investment opportunities exist, access to them provides a means to grow the balance sheet.

Borrowing capacity at the FHLB and the Federal Reserve is impacted by the amount and type of assets available to be pledged.

For example, a prime, one-to-four family, residential loan, may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a commercial loan may provide a lower amount.

As a result, the Company’s lending decisions can also affect its liquidity position.

The Company can raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past.

Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion.

The availability and cost of equity or debt on an unsecured basis is dependent on many factors.

Some factors that will impact this source of liquidity are the Company’s financial position, the market environment, and the Company’s credit rating.

The Company monitors the factors that could impact its ability to raise liquidity through these channels.

The table below shows current and unused liquidity capacity from various sources at the dates indicated:

Table 26 - Sources of Liquidity

Outstanding Additional

Borrowing Capacity Outstanding Additional

Borrowing Capacity

(Dollars in thousands)

Federal Home Loan Bank borrowings (1) $ 35,740 $ 1,372,671 115,748 1,557,559

Federal Reserve Bank of Boston (2) — 1,355,809 — 954,748

Unpledged securities — 716,961 — 790,304

Line of Credit — 50,000 — 50,000

Long-term borrowings (3) 32,773 — 74,906 —

Junior subordinated debentures (3) 62,851 — 62,848 —

Subordinated debt (3) 49,696 — 49,601 —

Reciprocal deposits (3) 237,902 — 211,213 —

Brokered deposits (3) 8,538 — 281,573 —

$ 427,500 $ 3,495,441 $ 795,889 $ 3,352,611

(1) Loans with a carrying value of $2.1 billion and $2.5 billion at December 31, 2020 and 2019, respectively, have been pledged to the Federal Home Loan Bank of Boston resulting in this additional borrowing capacity.

(2) Loans with a carrying value of $1.9 billion and $1.5 billion at December 31, 2020 and 2019, respectively, have been 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.

In addition to policies used for managing operational liquidity, the Board of Directors and management recognize the need to establish reasonable guidelines for managing through an environment of heightened liquidity risk.

Catalysts for elevated liquidity risk can be Bank-specific issues and/or systemic industry-wide events.

It is therefore the responsibility of management to institute systems and controls to provide advanced detection of potentially significant funding shortages,

establish methods for assessing and monitoring risk levels, and institute prompt responses that may alleviate or circumvent a potential liquidity crisis.

Management has established a Liquidity Contingency Plan to provide a framework for the Bank to help detect liquidity problems promptly and appropriately address potential liquidity problems 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.

The Liquidity Crisis Task Force is responsible for monitoring the potential for a liquidity crisis and for establishing and executing an appropriate response.

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

The Company has entered into contractual obligations, commitments, residential loans sold with recourse and other off-balance sheet financial instruments.

The amounts below assume the contractual obligations and commitments will run through the end of the applicable term and, as such, do not include early termination fees or penalties where applicable.

The following tables summarize the Company’s contractual obligations, other commitments, contingencies, loans sold with recourse and off-balance sheet financial instruments at December 31, 2020:

Table 27 - Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet Financial Instruments by Maturity

Payments Due — By Period

Contractual Obligations, Commitments and Contingencies Total Less than

One Year One to

Three Years Four to

Five Years After

Five Years (2)

(Dollars in thousands)

FHLB advances (1) $ 35,740 $ 35,042 $ — $ — $ 698

Junior subordinated debentures (1) 62,888 — — — 62,888

Subordinated debt (1) 50,000 — — — 50,000

Long term borrowings 32,773 18,750 14,023 — —

Time certificates of deposits 950,629 789,237 130,466 30,926 —

All other deposits with no maturity 10,042,541 — — — 10,042,541

Loan exposures with recourse 303,265 — — — 303,265

Lease obligations 60,108 16,083 19,494 13,339 11,192

Vendor contracts and other obligations 45,323 16,071 23,620 5,632

Retirement benefit obligations (3) 46,850 1,017 2,134 3,492 40,207

Low income housing project investments unfunded commitments 49,586 30,276 18,886 181 243

Total Contractual Obligations $ 11,679,703 $ 906,476 $ 208,623 $ 53,570 $ 10,511,034

Amount of Commitment Expiring — By Period

Off-Balance Sheet Financial Instruments Total Less than

One Year One to

Three Years Four to

Five Years After

Five Years (2)

(Dollars in thousands)

Commitments to extend credit $ 3,301,691 $ 275,023 $ 222,955 $ 155,184 $ 2,648,529

Standby letters of credit 20,686 1,040 5,665 2,072 11,909

Mortgage derivatives - notional value 298,021 298,021 — — —

Interest rate swaps - notional value 925,000 50,000 575,000 300,000 —

Customer-related positions

Foreign exchange contracts - notional value 92,857 87,557 5,300 — —

Loan level interest rate swaps - notional value 1,698,730 102,999 225,752 426,534 943,445

Risk participation agreements - notional value 185,646 $ 6,721 $ 62,396 $ 31,845 $ 84,684

Total Commitments $ 6,522,631 $ 821,361 $ 1,097,068 $ 915,635 $ 3,688,567

(1) The Company has hedged certain short-term borrowings and variable rate junior subordinated debentures, effectively converting the borrowings to a fixed rate.

Amounts maturing represent contractual amounts due and do not include any issuance costs, which may be presented on a net basis in the financial statements.

(2) Items with no maturity are presented in the table in the after five years category.

(3) Retirement benefit obligations include expected contributions to the Company’s frozen pension plan, post retirement plans and supplemental executive retirement plans.

Expected contributions for the pension plan have been included only through plan year July 1, 2020 - June 30, 2021 and reflect only the expected minimum required contribution.

Contributions beyond this plan year cannot be quantified as they will be determined based upon the return on the investments in the plan and the discount rate used to quantify the liability.

Expected contributions for the post retirement plans and supplemental executive retirement plans include obligations that are payable over the life of the participants.

Operational Risk Operational risk is the risk arising from human error or misconduct, transaction errors or delays, inadequate or failed internal systems or processes, data unavailability, loss, or poor quality, or adverse external events.

Operational risk includes business resiliency risk, consumer compliance risk, data governance risk, fraud risk, information security risk, information technology risk, legal risk, model risk, regulatory compliance risk, and third party vendor risk.

Potential operational risk exposure exists throughout the Company.

The continued effectiveness of colleagues, technical systems, operational infrastructure, and relationships with key third party service providers are integral to mitigating operational risk, and any shortcomings subject the Company to risks that vary in size, scale and scope.

Operational risks include operational or technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness

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or exposure due to interruption in third party support, as well as the loss of key individuals or a failure of key individuals to perform properly.

Reputational Risk Reputational risk is the risk arising from negative public opinion of the Company and the Bank.

Management seeks to mitigate reputational risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring.

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

In the ordinary course of business the Company has entered into contractual obligations, commitments, residential loans sold with recourse and other off-balance sheet financial instruments.

Refer to the accompanying notes to consolidated financial statements in this report for further information and the expected timing of the applicable payments as of December 31, 2021.

These include payments related to (i) borrowings (Note 9 - Borrowings ), (ii) lease obligations ( Note 18 - Leases), (iii) time deposits with stated maturity dates ( Note 8 - Deposits ), (iv) commitments to extend credit ( Note 19 - Commitments and Contingencies ), (v) derivative positions ( Note 111 - Derivatives and Hedging Activities), (vi) unfunded commitments on low income housing project investments ( Note 13 - Low Income Housing Project Investments).

Also refer to Table 27 - Sources of Liquidity within Item 7 of this report for further details surrounding the Company's current and unused liquidity resources.

Impact of Inflation and Changing Prices

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Management believes that the Company’s most critical accounting policies upon which the Company’s financial condition depends, and which involve the most complex or subjective decisions or assessments, are as follows:

Allowance for Credit Losses - Loans Held for Investment The Company estimates the allowance for credit losses in accordance with the current expected credit loss ("CECL") methodology for loans measured at amortized cost.

Allowance for Credit Losses - Loans Held for Investment The Company estimates the allowance for credit losses in accordance with the CECL methodology for loans measured at amortized cost.

The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses.

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Loan losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan.

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Management performs periodic sensitivity and stress testing using available economic forecasts in order to evaluate the adequacy of the allowance for credit losses under varying scenarios.

Given the Company's benign loss history, the analyses performed have not resulted in a material change to the quantitative allowance but has informed management's determination of qualitative adjustments and act as corroborating evidence as to the appropriateness of the allowance as a whole.

For additional discussion of the Company’s methodology of assessing the appropriateness of the allowance for credit losses, see Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Item 8 of this Report.

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Additionally, deferred tax assets and liabilities are calculated based on tax rates expected to be in effect in future periods.

recorded tax assets and liabilities need to be adjusted when the expected date of the future event is revised based upon current information.

Previously recorded tax assets and liabilities need to be adjusted when the expected date of the future event is revised based upon current information.

The Company may also record an unrecognized tax benefit related to uncertain tax positions taken by the Company on its tax returns for which there is less than a 50% likelihood of being recognized upon a tax examination.

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Taxes are discussed in more detail in Note 12, "Income Taxes" within the Notes to the Consolidated Financial Statements included in Item 8 of this Report.

Valuation of Goodwill/Intangible Assets and Analysis for Impairment The Company has increased its market share through the acquisition of entire financial institutions accounted for under the acquisition method of accounting, as well as from the acquisition of branches (not the entire institution) and other nonbanking entities.

For all acquisitions, the Company is required to record assets acquired and liabilities assumed at their fair value, which is an estimate determined by the use of internal or other valuation techniques, which may include the use of third party specialists.

Goodwill is evaluated for impairment at least annually, or more often if warranted, using a combined qualitative and quantitative impairment approach.

The initial qualitative approach assesses whether the existence of events or circumstances led to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, after assessing the totality of events and circumstances, the Company determines it is more likely than not that the fair value is less than carrying value, a quantitative impairment test is performed to compare carrying value to the fair value of the reporting unit.

If the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

The quantitative impairment test was performed as of March 31, June 30 and September 30, 2020 in response to the COVID-19 pandemic, and the Company determined that no impairment of goodwill existed as of each testing date.

No additional test for impairment was deemed warranted as of the year ended December 31, 2020.

The Company’s goodwill relates to acquisitions that are fully integrated into the retail banking operations, which management does not consider to be at risk of failing step one in the near future.

The Company’s other intangible assets are subject to amortization and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

When applicable, the Company tests each of the other intangibles by comparing the carrying value of the intangible to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

The Company also considered the impacts of the COVID-19 pandemic on other intangible assets and determined that there was no indication of impairment related to other intangible assets as of December 31, 2020.

Business Combinations In accordance with applicable accounting guidance, the Company recognizes assets acquired and liabilities assumed at their respective fair values as of the date of acquisition, with the related transaction costs expensed in the period incurred.

The Company may use third party valuation specialists to assist in the determination of fair value of certain assets and liabilities at the acquisition date, including loans, core deposit intangibles and time deposits.

While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed on the acquisition date, the estimates are inherently uncertain.

The allowance for credit losses on PCD loans is recognized within business combination accounting.

The allowance for credit losses on non-PCD loans is recognized as a provision expense in the same period as the business combination.

For further discussion of the Company’s accounting policies for estimating credit losses on acquired loans, see Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Item 8 of this Report.

Valuation of Investment Securities Securities that the Company has the ability and intent to hold until maturity are classified as securities held-to-maturity and are accounted for using historical cost, adjusted for amortization of premium and accretion of discount.

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Unrealized gains and losses on securities available-for-sale are reported, on an after-tax basis, as a separate component of stockholders’ equity in accumulated other comprehensive income.

Allowance for Credit Losses - Available for Sale Securities The Company estimates an allowance for credit losses on available for sale securities in accordance with the CECL methodology.

For any holdings in an unrealized loss position, management will first evaluate whether there is intent to sell, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis.

If either of these criteria are met, the Company will establish an allowance for credit losses, limited by the amount that the amortized cost basis exceeds fair value, as determined by a discounted cash flow analysis.

For those available for sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors.

In performing this assessment, management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S.

Federal Government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors.

If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis.

Once an allowance for credit losses is established, management will reassess credit loss estimates at each reporting date, with subsequent changes in

the estimated allowance recorded as credit loss expense, or reversal of credit loss expense.

The allowance may not be reversed to a negative amount and is limited by the amount that amortized cost exceeds fair value.

Allowance for Credit Losses - Held to Maturity Securities The Company estimates an allowance for credit losses on held to maturity securities in accordance with the CECL methodology.

Securities in this portfolio are charged-off against the allowance for credit losses when deemed uncollectible by management.

When applicable, adjustments to the allowance are reported in the Company's income statement as a component of credit loss expense.

For held to maturity securities, the Company measures expected credit losses on a collective basis by major security type.

Management classifies the held-to-maturity portfolio into the following major security types:

Government Agency, U.S.

Treasury, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations, Small Business Administration Pooled Securities, and Single Issuer Trust Preferred Securities.

Securities in the Company's held to maturity portfolio are guaranteed by either the U.S.

Federal Government or other government sponsored agencies with a long history of no credit losses.

As a result, management has determined these securities to have a zero loss expectation and therefore does not estimate an allowance for credit losses on these securities.

For additional discussion of the Company’s methodology of assessing the adequacy of the allowance for credit losses for its security portfolios, see Note 3, " Securities " within the Notes to Consolidated Financial Statements included in Item 8 of this Report.

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Recent Accounting Developments

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See "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management" in Item 7 of this Report.

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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-K

Item 7. Management’s Discussion and Analysis