What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-02-26 · 390 added, 620 removed, 2206 unchanged (31% of the section changed)

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Measurement of Credit Losses on Financial Instruments , and the related amendments.

See below for discussion of our related critical audit matter.

Basis for Opinion

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

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Allowance for credit losses

Description of the matter As discussed above and in Note 1 to the consolidated financial statements, on January 1, 2020, the Company adopted ASU 2016-13, which changed the method of accounting for credit losses, referred to as the current expected credit losses ("CECL") methodology.

The Company’s loan portfolio totaled $9.4 billion as of December 31, 2020, and the associated allowance for credit losses (“allowance”) was $113.4 million.

Description of the matter The Company’s loan portfolio totaled $13.6 billion as of December 31, 2021, and the associated allowance for credit losses (“allowance”) was $147 million.

As discussed in Notes 1 and 4 to the consolidated financial statements, the Company estimates the allowance on a collective basis for loans sharing similar risk characteristics using a quantitative model based on probability of default, loss given default and exposure at default estimates, which are derived from internal historical default and loss experience, adjusted for economic forecasts.

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With the assistance of EY Specialists we tested management’s quantitative model including evaluating the conceptual soundness of model methodology, assessing model performance and governance, and testing key modeling assumptions, including the reasonable and supportable forecast period.

We also compared the underlying economic forecast data used to estimate the quantitative reserve to external sources to determine whether it was reasonable.

To test the qualitative factors, among other procedures, we assessed management’s methodology and considered whether relevant risks were reflected in the models and whether adjustments to the model output were appropriate.

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Additionally, we evaluated whether the overall allowance, inclusive of qualitative adjustments, appropriately reflected losses expected in the loan portfolio by comparing to peer bank data.

Fair value of loans and core deposit intangibles recognized as part of the acquisition of Meridian Bancorp, Inc.

Description of the matter The Company completed its acquisition of Meridian Bancorp, Inc.

(“Meridian”) on November 12, 2021 (“acquisition date”) at a purchase price of approximately $1.3 billion.

As discussed in Notes 1 and 2 to the consolidated financial statements, the transaction was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid were recorded at estimated fair values on the acquisition date.

Auditing the Company's accounting for the fair value of acquired loans and core deposit intangibles was complex and involved a greater extent of audit effort, including involving firm specialists to assess assumptions used in the valuation of the acquired loan portfolio and in the valuation of the core deposit intangibles.

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How we addressed the matter in our audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over the accounting for business combinations, including the valuation of loans and core deposit intangibles.

For example, we tested controls over management’s review of the fair value calculations performed by a third-party valuation specialist, the key assumptions and inputs used in the fair value measurement, and the data provided to the third-party valuation specialist.

To test the estimated fair value of acquired loans, our audit procedures included, among others, involving valuation specialists to assist us in testing management’s methodology and significant assumptions used in measuring the fair value of the acquired loan portfolio.

For example, we compared the significant assumptions used by management to third-party market sources, where available, or independently recalculated the assumption and compared those results to management’s assumptions.

We tested, on a sample basis, the completeness and accuracy of the underlying data, such as loan-level data, used in the Company’s fair value calculations.

With the assistance of our valuation specialists, we evaluated the methodologies and the assumptions used to fair value the core deposit intangible.

Procedures performed by the audit team and with the assistance of our valuation specialists included comparing market and historical information used in developing assumptions to third-party or internal Company-specific data and performing corroborative calculations to assess the appropriateness of the calculated fair value of the core deposit intangible.

/s/ Ernst & Young LLP

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February 28, 2022

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INDEPENDENT BANK CORP.

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Money market 3,556,375 2,232,903

Time certificates of deposit of $ 100,000 and over

525,424 663,645

Other time certificates of deposits 425,205 731,670

Time certificates of deposit 1,531,150 950,629

Total deposits 16,917,044 10,993,170

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The accompanying notes are an integral part of these consolidated financial statements.

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INDEPENDENT BANK CORP.

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Consulting expense 8,271 5,987 5,448

Core deposit amortization 5,802 5,545 2,344

Amortization of intangible assets 5,715 6,135 6,379

Debit card expense 5,144 4,374 4,220

Lease impairment — 4,163 —

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The accompanying notes are an integral part of these consolidated financial statements.

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INDEPENDENT BANK CORP.

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Net change in other comprehensive income for defined benefit postretirement plans 3,549 ( 3,128 ) ( 1,334 )

Total other comprehensive income 22,526 19,342 1,886

Total other comprehensive income (loss) ( 38,512 ) 22,526 19,342

Total comprehensive income $ 82,480 $ 143,693 $ 184,517

The accompanying notes are an integral part of these consolidated financial statements.

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INDEPENDENT BANK CORP.

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Balance December 31, 2018 28,080,408 $ 279 $ ( 4,718 ) $ 4,718 $ 527,648 $ 546,736 $ ( 1,173 ) $ 1,073,490

Opening balance reclassification (1) — — — — — 397 ( 397 ) —

Cumulative effect accounting adjustment (2) — — — — — 831 ( 831 ) —

Net income — — — — — 165,175 — 165,175

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Balance December 31, 2019 34,377,388 $ 342 $ ( 4,735 ) $ 4,735 $ 1,035,450 $ 654,182 $ 18,169 $ 1,708,143

Cumulative effect accounting adjustment (1) — — — — — 1,553 — 1,553

Net income — — — — — 121,167 — 121,167

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— — — — — ( 60,878 ) — ( 60,878 )

Common stock issued for acquisition 6,166,010 61 — — 499,632 — — 499,693

Proceeds from exercise of stock options, net of cash paid 8,873 — — — 197 — — 197

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Shares issued under direct stock purchase plan 32,249 — — — 2,132 — — 2,132

Shares repurchased under share repurchase program ( 1,500,000 ) ( 15 ) — — ( 95,076 ) — — ( 95,091 )

Deferred compensation and other retirement benefit obligations — — 1,669 ( 1,669 ) — — — —

Balance December 31, 2020 32,965,692 $ 328 $ ( 3,066 ) $ 3,066 $ 945,638 $ 716,024 $ 40,695 $ 1,702,685

Cumulative effect accounting adjustment (3) — — — — — 1,553 — 1,553

Net income — — — — — 120,992 — 120,992

Other comprehensive income — — — — — — 22,526 22,526

Other comprehensive income (loss) — — — — — — ( 38,512 ) ( 38,512 )

Common dividend declared ($ 1.92 per share)

— — — — — ( 70,300 ) — ( 70,300 )

Common stock issued for acquisition 14,299,720 143 — — 1,298,415 — — 1,298,558

Proceeds from exercise of stock options, net of cash paid 4,744 — — — ( 57 ) — — ( 57 )

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Shares issued under direct stock purchase plan 25,854 — — — 2,023 — — 2,023

Shares repurchased under share repurchase program ( 1,500,000 ) ( 15 ) — — ( 95,076 ) — — ( 95,091 )

Deferred compensation and other retirement benefit obligations — — ( 80 ) 80 — — — —

Balance December 31, 2021 47,349,778 $ 472 $ ( 3,146 ) $ 3,146 $ 2,249,078 $ 766,716 $ 2,183 $ 3,018,449

(1) Represents adjustment needed to reflect the cumulative impact on retained earnings for reclassification of the income tax effects attributable to accumulated other comprehensive income, as a result of the Tax Cuts and Jobs Act of 2017.

Pursuant to the Company's adoption of Accounting Standards Update 2018-02, the Company has elected to reclassify amounts stranded in other comprehensive income to retained earnings.

(2) Represents adjustment needed to reflect the cumulative impact on retained earnings for the classification and measurement of investments in equity securities.

Pursuant to the Company's adoption of Accounting Standards Update 2016-01, the Company's investments in equity securities will no longer be classified as available for sale, therefore the Company was required to reclassify the net unrealized gain recognized on the change in fair value of these equity securities from other comprehensive income to retained earnings.

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

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The accompanying notes are an integral part of these consolidated financial statements.

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INDEPENDENT BANK CORP.

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Depreciation and amortization 32,824 27,262 19,439

Change in unamortized net loan costs and premiums ( 13,412 ) ( 10,086 ) 365

Change in unamortized net loan costs and fees ( 24,785 ) ( 7,126 ) 2,692

Accretion of acquired loans ( 6,882 ) ( 6,286 ) ( 12,778 )

Provision for credit losses 18,205 52,500 6,000

Deferred income tax expense (benefit) 3,090 ( 17,506 ) 10,594

Net (gain) loss on equity securities ( 528 ) ( 1,566 ) 1,225

Net gain on equity securities ( 554 ) ( 528 ) ( 1,566 )

Net loss on sale of securities — — 1,462

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Purchases of securities held to maturity ( 606,543 ) ( 244,718 ) ( 59,967 )

Net redemption (purchases) of Federal Home Loan Bank stock 4,174 18,896 ( 2,376 )

Net redemption of Federal Home Loan Bank stock 25,027 4,174 18,896

Investments in low income housing projects ( 22,496 ) ( 17,858 ) ( 10,052 )

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Net (increase) decrease in loans 744,981 ( 511,526 ) 27,816

Net cash paid in business combinations — ( 105,264 ) ( 6,906 )

Net cash acquired (paid) in business combinations 787,301 — ( 105,264 )

Purchases of bank premises and equipment ( 25,200 ) ( 12,586 ) ( 16,583 )

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Repayments of long-term Federal Home Loan Bank borrowings ( 586,088 ) ( 35,000 ) ( 25,000 )

Net decrease in customer repurchase agreements — — ( 21,503 )

Proceeds from line of credit, net of issuance costs — — 49,980

Repayment of line of credit, net of issuance costs — — ( 49,980 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Proceeds from (repayments of) long-term debt, net of issuance costs ( 18,750 ) ( 42,187 ) 74,867

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Net increase in capital commitments relating to low income housing project investments $ 33,691 $ 32,477 $ 36,543

Transfer of customer repurchase agreements to deposits $ — $ — 141,176

Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1) $ — $ — $ 32,777

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(the "Company") is a bank holding company, the principal subsidiary of which is Rockland Trust Company ("Rockland Trust" or the "Bank").

Rockland Trust is a state-chartered commercial bank, which as of December 31, 2020, operates ninety-six full service and two limited service retail branches, sixteen commercial banking centers, ten investment management offices and eight mortgage lending centers located in Eastern Massachusetts, Greater Boston, the South Shore, the Cape and Islands, as well as in Worcester County and Rhode Island.

Rockland Trust is a state-chartered commercial bank, which as of December 31, 2020, operates one hundred twenty full service retail branches, two limited service retail branches, one mobile branch, nineteen commercial banking centers, ten investment management offices and nine mortgage lending centers located in Eastern Massachusetts, Greater Boston, the North Shore, the South Shore, the Cape and Islands, as well as in Worcester County and in Rhode Island.

Rockland Trust deposits are insured by the Federal Deposit Insurance Corporation, subject to regulatory limits.

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Actual results could vary from these estimates.

Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for expected credit losses on loans held for investment, income taxes, valuation and allowance for expected credit losses on investment securities, as well as valuation of goodwill and other intangibles and their respective analyses of impairment.

Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for expected credit losses on loans held for investment, income taxes, and valuation and allowance for expected credit losses on investment securities.

Significant Concentrations of Credit Risk

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Within this concentration category, the Company believes it is well diversified among collateral property types and tenant industries.

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.

Cash and Cash Equivalents

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Classification is constantly re-evaluated for consistency with corporate goals and objectives.

Trading and equity securities are recorded at fair value with subsequent changes in fair value recorded in earnings.

Trading and equity securities are

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recorded at fair value with subsequent changes in fair value recorded in earnings.

Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost.

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Such gains and losses are recognized within non-interest income or non-interest expense within the consolidated statements of income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accrued interest receivable balances are excluded from the amortized cost of held to maturity securities and the fair value of available for sale securities and are included within other assets on the Consolidated Balance Sheets.

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It is the Company's policy that a security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent, and interest earned but not collected for a security placed on non-accrual is reversed against interest income.

Prior to the Company's adoption of the current expected credit loss ("CECL") standard, declines in the fair value of held to maturity and available for sale securities below their amortized cost deemed to be OTTI were written down to fair value as determined by a cash flow analysis.

To the extent the estimated cash flows did not support the amortized cost, the deficiency was considered to be due to credit loss and recognized in earnings.

Unless the Company intended to sell the security, or if it was more likely than not that the Company would be required to sell the debt security before its anticipated recovery, the remainder of the OTTI charge was considered to be due to other factors, such as liquidity or interest rates, and thus was not recognized in earnings, but rather through other comprehensive income, net of related tax.

The Company evaluated individual securities that had fair values below cost for six months or longer, or for a shorter period of time if considered appropriate by management, to determine if the decline in fair value was other-than-temporary.

Consideration was given to the obligor of the security, whether the security was guaranteed, whether there was a projected adverse change in cash flows, the liquidity of the security, the type of security, the capital position of security issuers, and payment history of the security, amongst other factors when evaluating such securities.

Allowance for Credit Losses - Available for Sale Securities

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Loans Held for Sale

The Bank primarily classifies new residential real estate mortgage loans as held for sale based on intent, which is determined when loans are underwritten.

The Bank may choose to classify new residential real estate mortgage loans as held for sale based on intent, which is determined when loans are underwritten.

Residential real estate mortgage loans not designated as held for sale are retained based upon available liquidity, for interest rate risk management and other business purposes.

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However, loans that are 90 days or more past due may be kept on an accruing status if the loan is 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 the Bank or by another financial institution, while the junior lien is currently performing.

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

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Allowance for Credit Losses - Loans Held for Investment

The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost.

The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost, also referred to as the "CECL methodology".

Credit 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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• Changes in management

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

• Changes in credit quality

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

• Changes in loan review system

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

Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within other assets on the consolidated balance sheet.

Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within other assets on the consolidated balance sheets.

Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy.

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Acquired Loans

Prior to its adoption of CECL, and under legacy GAAP, the Company maintained a portfolio of acquired loans, which, at acquisition, were recorded at fair value with no carryover of the allowance for credit losses.

Acquired loans were also reviewed to determine if the loan had evidence of deterioration in credit quality and also if it was probable, at acquisition, that all contractually required payments would not be collected.

Loans meeting such criteria were deemed to be purchased credit impaired ("PCI") loans.

Under the accounting model for PCI loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the "accretable yield", was accreted into interest income over the life of the loans using the effective yield method.

Accordingly, PCI loans were not subject to classification as nonaccrual in the same manner as originated loans.

Rather, acquired PCI loans were generally considered to be accruing loans because their interest income related to the accretable yield recognized and not to contractual interest payments at the loan level.

The difference between contractually required principal and interest payments and the cash flows expected to be collected, referred to as the "nonaccretable difference", included estimates of both the impact of prepayments and future credit losses expected to be incurred over the life of the loans.

Under the CECL standard, the concept of PCI assets was effectively replaced with purchased credit deteriorated ("PCD") assets, the balances of which should be treated in a manner consistent with loans held for investment for purposes of estimating an allowance for credit losses.

As a result, upon the Company's adoption of CECL on January 1, 2020, loan balances previously classified as PCI assets were re-classified as PCD assets and have been prospectively accounted for in accordance with the standard.

Loans Held for Sale

The Bank primarily classifies new residential real estate mortgage loans as held for sale based on intent, which is determined when loans are underwritten.

Residential real estate mortgage loans not designated as held for sale are retained based upon available liquidity, for interest rate risk management and other business purposes.

The Company has elected the fair value option to account for originated closed loans intended for sale.

Accordingly, changes in fair value relating to loans intended for sale are recorded in earnings and are offset by changes in fair value relating to interest rate lock commitments and forward sales commitments.

Gains and losses on residential loan sales (sales proceeds minus carrying amount) are recorded in mortgage banking income.

Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred and are not deferred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loans are carried at the principal amounts outstanding, or fair value in the case of acquired loans, adjusted by partial charge-offs and net of deferred loan costs or fees.

For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the expected term of the loan using the level-yield method.

When a loan is paid off, the unamortized portion is recognized in interest income.

Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status.

For acquired loans which did not show signs of credit deterioration at acquisition, interest income is also accrued based upon the daily principal amount outstanding and is then further adjusted by the accretion of any discount or amortization of any premium associated with the loan.

As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans, or sooner if management considers such action to be prudent.

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

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

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

When doubt exists as to the collectability of a loan, any payments received are applied to reduce the recorded investment in the asset to the extent necessary to eliminate such doubt.

For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible.

This determination is made based on management's review of specific facts and circumstances of the individual loan, including assessing the viability of the customer’s business or project as a going concern, the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform.

In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructuring ("TDR").

Modifications may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral.

The recorded investment of loans classified as TDRs is adjusted to reflect the changes in value, if any, resulting from the granting of a concession.

Nonaccrual loans that are restructured remain on nonaccrual for a period of six months to demonstrate that the borrower can meet the restructured terms.

If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status.

If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan is classified as a nonaccrual loan.

Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it is determined that the borrower is performing under the modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring.

Loans acquired through purchase or a business combination are recorded at their fair value at the acquisition date.

The Company performs an assessment of acquired loans to first determine if such loans have experienced a more than insignificant deterioration in credit quality since their origination and thus should be classified and accounted for as purchased credit deteriorated (“PCD”) loan.

For loans that have not experienced a more than insignificant deterioration in credit quality since origination, referred to as non-PCD loans, the Company records such loans at fair value, with any resulting discount or premium accreted or amortized into interest income over the remaining life of the loan using the interest method.

Additionally, upon the purchase or acquisition of non-PCD loans, the Company measures and records a reserve for credit losses based on the Company’s methodology for determining the allowance under CECL.

The allowance for non-PCD loans is recorded through a charge to provision for credit losses in the period in which the loans were purchased or acquired.

Acquired loans that are classified as PCD are acquired at fair value, including any resulting discounts or premiums.

Discounts and premiums are accreted or amortized into interest income over the remaining life of the loan using the interest method.

In contrast to non-PCD loans, the initial allowance for credit losses on PCD loans is established through an adjustment to the acquired loan balance, rather than through a charge to provision for credit losses, in the period in which the loans were acquired.

The allowance for PCD loans is determined based upon the Company's methodology for estimating the allowance under CECL, and is recorded as an adjustment to the acquired loan balance on the date of acquisition.

The Company evaluates acquired loans for deterioration in credit quality based on a variety of characteristics, including, but not limited to non-accrual and delinquency status, downgrades in credit quality since origination, loans that have been modified, along with any other factors identified by the Company through its initial analysis of acquired loans which may indicate there has been a more than insignificant deterioration in credit quality since origination.

At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics, if applicable.

Subsequent to acquisition, the allowance for credit losses for both non-PCD and PCD loans are determined with the use of the Company’s allowance methodology under CECL, in the same manner as all other loans.

Transfers and Servicing of Financial Assets

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Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loans held for sale are generally sold with servicing rights released, however if rights are retained, servicing assets are recognized as separate assets.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Servicing fee income is recorded for fees earned for servicing loans for investors.

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Goodwill and Other Intangible Assets

The Company adopted ASC Topic 350 "Intangibles - Goodwill and Other" Update No.

2017-04 on January 1, 2020, and as previously disclosed, there was no material impact to the financial statements.

Goodwill represents the excess of the purchase price over the net fair value of acquired businesses.

Goodwill is not amortized and is assigned to one reporting unit.

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.

Goodwill is evaluated for impairment at least annually, or more often if warranted.

In assessing for impairment, the Company has the option to first perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount.

If, after assessing the totality of such 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.

The Company also has an unconditional option to bypass the assessment of qualitative factors for any period and proceed directly to the quantitative goodwill impairment test.

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.

Other intangible assets subject to amortization consist of core deposit intangibles, customer lists and market-based favorable or unfavorable lease positions at time of acquisition, and are amortized over the estimated lives of the intangibles using a method that approximates the amount of economic benefits that are realized by the Company.

Other intangible assets subject to amortization consist of core deposit intangibles, customer lists, non-compete agreements, and market-based favorable or unfavorable lease positions at time of acquisition, and are amortized over the estimated lives of the intangibles using a method that approximates the amount of economic benefits that are realized by the Company.

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

The range of useful lives is as follows:

Core deposit intangibles 10 years

Customer Lists 12 years

Leases 3 - 30 years

The determination of which intangible assets have finite lives is subjective, as is the determination of the amortization period for such intangible assets.

Impairment of Long-Lived Assets Other Than Goodwill

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The Company makes the decision on whether to renew an option to extend a lease by considering various factors.

The Company will recognize an adjustment to its ROU asset and lease liability when lease agreements are amended and executed.

The Company will recognize an adjustment to its ROU asset and lease liability when lease agreements are amended and executed, or in an event where the Company is reasonably certain that a renewal option will be exercised.

The discount rate used in determining the present value of lease payments is based on the Company's incremental borrowing rate for borrowings with terms similar to each lease at commencement date.

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The Company has elected the short-term lease recognition exemption for all leases that qualify.

The Company is a party to certain equipment lease transactions where it has assumed the role of lessor for purchased assets.

These lease transactions are classified by the Company as either operating leases or direct financing leases for accounting purposes, depending upon the nature of the underlying lease agreements.

Under operating lease arrangements, the leased asset value is recorded within fixed assets and the Company recognizes rental income over the life of the lease.

Under direct financing lease arrangements, the leased asset value is de-recognized and offset with the recognition of a lease receivable that is evaluated for impairment in a manner similar to loans.

Recent Accounting Standards

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 326 "Financial Instruments - Credit Losses" Update No.

The standard was issued in June 2016 and has been amended three times by the FASB (collectively, the "updates").

The purpose of the updates is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

To achieve this objective, these updates replace the incurred loss impairment methodology in current GAAP with a methodology, referred to as the current expected credit losses ("CECL") methodology, which reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The updates affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The Company adopted the CECL standard effective January 1, 2020.

The Company adopted the standard using the modified retrospective method for all financial assets measured at amortized cost, net investment in leases and off-balance sheet credit exposures.

Results for reporting periods beginning after January 1, 2020 are presented under the CECL standard, while prior period results are presented under standards previously applicable under GAAP.

The cumulative effect of the Company's adoption resulted in an immaterial increase to retained earnings as of the January 1, 2020 adoption date.

This transition adjustment was a result of the change in allowance methodology, including the impact to the reserve on unfunded commitments resulting from the application of new guidance under CECL, as well as the day one gross-up of purchased credit deteriorated ("PCD") assets.

The standard was adopted using the prospective transition approach for PCD assets that were previously classified as purchased credit impaired ("PCI") assets.

As prescribed by the standard, management did not reassess whether PCI assets met the criteria of PCD assets at the date of adoption.

On January 1, 2020, the amortized cost basis of the PCD assets were adjusted to reflect estimated credit losses, with the remaining non-credit related discount, calculated based on the adjusted amortized cost, and will be accreted into interest income on a straight line basis over the remaining contractual term of the asset.

See Note 3, "Securities," and Note 4, "Loans, Allowance for Credit Losses and Credit Quality" for further details surrounding the Company's adoption of CECL.

FASB ASC Subtopic 715-20 "Compensation - Retirement Benefits - Defined Benefit Plans - General" Update No.

2018-14 was issued in August 2018 to remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosures, and add certain disclosure requirements.

The amendments in this update are effective for fiscal years ending after December 15, 2020, for public business entities.

Accordingly, the Company adopted this standard as of the year ended December 31, 2020.

The adoption of this standard did not have an impact on the Company's consolidated financial position.

FASB ASC Topic 848 "Reference Rate Reform" Update No.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 848 "Reference Rate Reform" Update No.

2020-04 was issued in March 2020 to provide optional expedients and exceptions for applying GAAP to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

rate expected to be discontinued because of reference rate reform.

The amendments will not apply to contract modifications made and hedging relationship entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship.

The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform.

The amendments will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022.

The Company has not yet adopted the amendments in this update and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact of the transition away from LIBOR.

FASB ASC Topic 848 "Reference Rate Reform" Update No.

2021-01 was subsequently issued in January 2021 and expanded application of the optional expedients to derivative transactions affected by the discounting transition.

The Company has not yet adopted the amendments in these updates, but has established a working group to guide the Company’s transition from LIBOR and has begun efforts to transition off the LIBOR index consistent with industry timelines.

The working group has identified its products that utilize LIBOR and has implemented fallback language to facilitate the transition to alternative rates.

The Company is also evaluating existing platforms and systems as well as alternative indices in its preparation to offer new products tied to the alternative indices.

The Company does not anticipate the adoption of these standards to have a material impact to the financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 2 ACQUISITIONS

Blue Hills Bancorp, Inc.

On April 1, 2019, the Company completed the acquisition of Blue Hills Bancorp, Inc., parent of Blue Hills Bank (collectively "BHB").

The transaction qualified as a tax-free reorganization for federal income tax purposes and provided a tax-free exchange to Blue Hills Bancorp, Inc.

Meridian Bancorp, Inc.

On November 12, 2021, the Company completed the acquisition of Meridian Bancorp, Inc., parent of East Boston Savings Bank (collectively "Meridian").

The transaction qualified as a tax-free reorganization for federal income tax purposes and provided a tax-free exchange to Meridian Bancorp, Inc.

stockholders with respect to the common stock received in the merger.

For each share of Blue Hills Bancorp, Inc.

common stock, stockholders had the right to receive $ 5.25 in cash and 0.2308 shares of the Company's stock, with cash paid in lieu of fractional shares.

Total consideration of $ 661.3 million consisted of 6,166,010 shares of the Company's common stock issued, as well as $ 161.6 million in cash, inclusive of cash in lieu of fractional shares.

In addition to increasing its loan and deposit base, the acquisition enabled the Company to provide a deeper product set to BHB's customers, as well as benefit from increased operating synergies.

The Company accounted for the BHB acquisition using the acquisition method pursuant to the Business Combinations Topic of the FASB ASC.

Accordingly, the Company recorded pre-tax merger and acquisition expenses of $ 26.0 million during the twelve months ended December 31, 2019 related to the BHB acquisition.

For each share of Meridian Bancorp, Inc.

common stock, stockholders received 0.2750 shares of the Company's stock, with cash paid in lieu of fractional shares.

Total consideration of $ 1.3 billion consisted of 14.3 million shares of the Company's common stock issued, as well as $ 11.2 million in cash paid for stock option cancellations and in lieu of fractional shares.

In addition to increasing its loan and deposit base, the acquisition enabled the Company to provide a deeper product set to Meridian's customers, as well as benefit from increased operating synergies, which are expected to improve the long-term operating and financial results of the Company.

The Company accounted for the Meridian acquisition using the acquisition method pursuant to the Business Combinations Topic of the FASB ASC.

Accordingly, the Company recorded pre-tax merger and acquisition expenses of $ 40.8 million during the twelve months ended December 31, 2021 related to the Meridian acquisition.

Additionally, the acquisition method requires the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date.

The Company used third party valuation specialists to assist in the determination of fair value at the acquisition date.

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

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:

3 unchanged sentences

Investments 266

Loans 2,073,714

Premises and equipment 24,253

Loans (including loans held for sale) 4,908,949

Allowance for credit losses on PCD loans ( 16,540 )

Bank Premises and equipment 66,825

Goodwill 478,866

12 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair values of securities were based on quoted market prices for comparable securities received from an independent, nationally-recognized, third party pricing service.

Prices provided by the independent pricing service were based on recent trading activity and other observable information including, but not limited to, market interest rate curves, referenced credit spreads and estimated prepayment rates where applicable.

The loans acquired were recorded at fair value without a carryover of the allowance for credit losses.

Fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows.

The $ 23.2 million discount on the loans acquired in this transaction was due to anticipated credit loss, as well as considerations for liquidity and market interest rates.

In addition, the acquired loans were reviewed to determine if any loans would be deemed PCI, as determined by identifying evidence of deterioration of credit quality at the purchase date combined with an assumption that all contractually required payments will not be collected.

The following is a summary of these PCI loans associated with the acquisition as of the date acquired:

As of April 1, 2019

Acquired loans were reviewed to determine if any had experienced a more-than-insignificant deterioration in credit quality since origination.

Loans meeting established criteria to indicate more-than-insignificant deterioration were identified as PCD loans, and an allowance for credit losses was calculated using management's best estimate of projected losses over the remaining life of the loan in accordance with CECL methodology.

In connection with the Meridian acquisition, the Company recorded an allowance for credit losses on PCD loans of approximately $ 16.5 million, which was added to the amortized cost of the loans.

For PCD loans acquired from Meridian, a reconciliation of the difference between the purchase price and par value of the assets acquired is presented below:

As of November 12, 2021

(Dollars in thousands)

Contractually required principal and interest at acquisition $ 14,849

Contractual cash flows not expected to be collected ( 5,717 )

Expected cash flows at acquisition 9,132

Interest component of expected cash flows ( 1,464 )

Basis in PCI loans at acquisition - estimated fair value $ 7,668

Gross amortized cost basis at November 12, 2021 $ 768,018

Allowance for credit losses on PCD loans ( 16,540 )

Interest and liquidity premium 8,560

Purchase price of PCD loans (at fair value) $ 760,038

For loans acquired without evidence of more-than-insignificant deterioration in credit quality since origination, also referred to as non-PCD loans, the Company estimated an allowance for credit losses based on the Company's methodology for determining the allowance under CECL.

The resulting allowance on non-PCD loans was $ 50.7 million, which was recorded through a charge to provision for credit losses on the date of acquisition.

Premises and Equipment

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The appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised.

Lease Assets and Lease Liabilities

Lease assets and liabilities were measured using a methodology to estimate the future rental payments over the remaining lease term with discounting using the Company’s incremental borrowing rate.

The lease term was determined for individual leases based on the Company’s assessment of the probability of exercising renewal options.

The net effect of any off-market terms in a lease were also discounted and applied to the balance of the lease asset.

Core Deposit Intangible

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The fair value of time deposits was determined based on the present value of the contractual cash flows over the remaining period to maturity using a market interest rate.

The fair values of borrowings were derived based upon the present value of the principal and interest payments using a current market discount rate.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair values of borrowings were derived based upon the present value of the principal and interest payments using a current market discount rate.

Immediately after the closing, the Company paid off the acquired borrowings of $576.1 million in full.

Selected Pro Forma Results

The following summarizes the unaudited pro forma results of operations as if the Company acquired BHB on January 1, 2019 (2018 amounts represent combined results for the Company and BHB).

The following summarizes the unaudited pro forma results of operations as if the Company acquired Meridian on January 1, 2021 (2020 amounts represent combined results for the Company and Meridian).

The selected pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the period presented, nor does it indicate future results for any other interim or full-year period.

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Net income $ 178,936 $ 186,218

Included from the pro forma net income for the twelve months ended December 31, 2019 are merger-related costs of $ 57.3 million, net of tax, recognized by each of the Company and BHB in the aggregate.

These costs were primarily made up of severance, contract terminations due to the change in control, Employee stock ownership plan termination expenses, stock compensation and integration costs.

Included in the pro forma net income for the twelve months ended December 31, 2021 are merger-related costs of $ 42.2 million, net of tax, recognized by the Company and Meridian, in the aggregate.

These costs were primarily made up of severance, contract terminations due to the change in control, professional and legal fees, facilities conversion and termination costs and other integration costs.

NOTE 3 SECURITIES

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(Dollars in thousands)

Net gains (losses) recognized during the period on equity securities $ 528 $ 1,566 ( 1,225 )

Net gains recognized during the period on equity securities $ 554 $ 528 $ 1,566

net gains recognized during the period on equity securities sold during the period 192 14 18

Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date $ 514 $ 1,548 ( 2,099 )

Unrealized gains recognized during the reporting period on equity securities still held at the reporting date $ 362 $ 514 $ 1,548

Available for Sale Securities

5 unchanged sentences

Gains Gross Unrealized

Losses Allowance for credit losses Fair

(Dollars in thousands)

government agency securities $ 217,393 $ 990 $ ( 2,901 ) $ — $ 215,482 $ 22,476 $ 1,640 $ — $ — $ 24,116

treasury securities 873,467 172 ( 12,191 ) — 861,448 — — — — —

Agency mortgage-backed securities 364,955 4,512 ( 5,534 ) — 363,933 224,293 9,337 ( 1 ) — 233,629

5 unchanged sentences

Total available for sale securities $ 1,583,736 $ 8,808 $ ( 21,396 ) $ — $ 1,571,148 $ 395,453 $ 17,869 $ ( 462 ) $ — $ 412,860

The Company did not record a provision for estimated credit losses on any available for sale securities for the year ended December 31, 2020.

The Company did not record a provision for estimated credit losses on any available for sale securities for the years ended December 31, 2021 and 2020.

Excluded from the table above is accrued interest on available for sale securities of $ 3.0 million and $ 1.2 million at December 31, 2021 and 2020, respectively, which is included within other assets on the Consolidated Balance Sheets.

Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities for the year ended December 31, 2020.

No securities held by the Company were delinquent on contractual payments at December 31, 2020, nor were any securities placed on non-accrual status for the year then ended.

Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities for the years ended December 31, 2021 and 2020.

No securities held by the Company were delinquent on contractual payments at December 31, 2021 and 2020, nor were any securities placed on non-accrual status for the years then ended.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

The Company had no sales of securities available for sale for the year ended December 31, 2020, and therefore no gains or losses were realized for the periods presented.

The Company realized losses of $ 1.5 million on sales of securities available for sale for the year ended December 31, 2019.

The Company had no sales of securities available for sale for the years ended December 31, 2021 and 2020, and therefore no gains or losses were realized for the periods presented.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table shows the gross unrealized losses and fair value of the Company’s available for sale securities which are in an unrealized loss position, and for which the Company has not recorded a provision for credit losses for the year ended December 31, 2020.

The following tables shows the gross unrealized losses and fair value of the Company’s available for sale securities which are in an unrealized loss position, and for which the Company has not recorded a provision for credit losses as of the dates indicated.

These available for sale securities are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position:

5 unchanged sentences

(Dollars in thousands)

government agency securities 6 $ 160,913 $ ( 2,901 ) $ — $ — $ 160,913 $ ( 2,901 )

treasury securities 17 811,993 ( 12,191 ) — — 811,993 ( 12,191 )

Agency mortgage-backed securities 12 214,678 ( 5,534 ) — — 214,678 ( 5,534 )

Agency collateralized mortgage obligations 1 22,960 ( 571 ) — — 22,960 ( 571 )

Pooled trust preferred securities issued by banks and insurers 1 — — 1,000 ( 199 ) 1,000 ( 199 )

Total impaired available for sale securities 37 $ 1,210,544 $ ( 21,197 ) $ 1,000 $ ( 199 ) $ 1,211,544 $ ( 21,396 )

December 31, 2020

Less than 12 months 12 months or longer Total

holdings Fair Value Unrealized

Value Unrealized

Losses Fair Value Unrealized

Agency mortgage-backed securities 3 $ 437 $ ( 1 ) $ — $ — $ 437 $ ( 1 )

Agency collateralized mortgage obligations 2 23,323 ( 87 ) — — 23,323 ( 87 )

Single issuer trust preferred securities issued by banks and insurers 1 488 ( 1 ) — — 488 ( 1 )

2 unchanged sentences

The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis and management does not believe that any of the securities are impaired due to reasons of credit quality.

As a result, the Company did not recognize a provision for credit losses on these investments for the year ended December 31, 2020.

As a result, the Company did not recognize a provision for credit losses on these investments for the years ended December 31, 2021 and 2020.

The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.

As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category were as follows at December 31, 2021:

• Agency Mortgage-Backed Securities and Agency Collateralized Mortgage Obligations:

Government Agency Securities, U.S.

Treasury Securities, Agency Mortgage-Backed Securities and Agency Collateralized Mortgage Obligations:

These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment.

2 unchanged sentences

Government or one of its agencies.

• Single Issuer Trust Preferred Securities:

This portfolio consists of one security, which is investment grade.

The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic environment.

Management evaluates various financial metrics for the issuers, including regulatory capital ratios of the issuers.

• Pooled Trust Preferred Securities:

1 unchanged sentence

The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment.

Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing.

In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.

Management evaluates collateral credit and instrument

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

structure, including current and expected deferral and default rates and timing.

In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.

Held to Maturity Securities

5 unchanged sentences

Gains Gross Unrealized

Losses Allowance for credit losses Fair

(Dollars in thousands)

6 unchanged sentences

Total held to maturity securities $ 1,066,818 $ 12,474 $ ( 15,159 ) $ — $ 1,064,133 $ 724,512 $ 28,007 $ ( 342 ) $ — $ 752,177

The Company did not record a provision for estimated credit losses on any held to maturity securities for the year ended December 31, 2020.

Excluded from the table above is accrued interest on held to maturity securities of $ 1.5 million and $ 1.9 million at December 31, 2020 and 2019, respectively, which is included within other assets on the Consolidated Balance Sheet.

Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities for the year ended December 31, 2020.

No securities held by the Company were delinquent on contractual payments at December 31, 2020, nor were any securities placed on non-accrual status for the year then ended.

The Company did not record a provision for estimated credit losses on any held to maturity securities for the years ended December 31, 2021 and 2020.

Excluded from the table above is accrued interest on held to maturity securities of $ 2.0 million and $ 1.5 million at December 31, 2021 and 2020, respectively, which is included within other assets on the Consolidated Balance Sheets.

Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities for the years ended December 31, 2021 and 2020.

No securities held by the Company were delinquent on contractual payments at December 31, 2021 and 2020, nor were any securities placed on non-accrual status for the years then ended.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

2 unchanged sentences

Credit ratings are monitored by the Company on at least a quarterly basis.

At December 31, 2020, all held to maturity securities held by the Company were rated investment grade or higher.

At December 31, 2021 and 2020, all held to maturity securities held by the Company were rated investment grade or higher.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9 unchanged sentences

government agency securities $ 10,000 $ 10,007 $ 43,831 $ 44,065 $ 163,562 $ 161,410 $ — $ — $ 217,393 $ 215,482

treasury securities — — 643,068 633,504 230,399 227,944 — — 873,467 861,448

Agency mortgage-backed securities 14,411 14,563 95,373 96,519 142,730 139,331 112,441 113,520 364,955 363,933

6 unchanged sentences

Held to maturity securities

government agency securities $ — $ — $ 32,987 $ 32,546 $ — $ — $ — $ — $ 32,987 $ 32,546

Treasury securities 2,003 2,009 — — 100,557 100,233 — — 102,560 102,242

9 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under previous accounting guidance, the Company reviewed both available for sale and held to maturity securities for other-than-temporary-impairment ("OTTI").

However, in accordance with the newly adopted CECL standard, the Company now utilizes separate impairment models for held to maturity and available for sale securities for purposes of estimating credit losses.

The following table shows the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company had not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019:

December 31, 2019

Less than 12 months 12 months or longer Total

holdings Fair Value Unrealized

Value Unrealized

Losses Fair Value Unrealized

(Dollars in thousands)

Agency mortgage-backed securities 12 $ 34,009 $ ( 59 ) $ 243 $ ( 2 ) $ 34,252 $ ( 61 )

Agency collateralized mortgage obligations 17 48,476 ( 215 ) 37,382 ( 653 ) 85,858 ( 868 )

Single issuer trust preferred securities issued by banks and insurers 1 — — 1,490 ( 10 ) 1,490 ( 10 )

Pooled trust preferred securities issued by banks and insurers 1 — — 1,114 ( 374 ) 1,114 ( 374 )

Small business administration pooled securities 1 7,349 ( 55 ) — — 7,349 ( 55 )

Total temporarily impaired securities 32 $ 89,834 $ ( 329 ) $ 40,229 $ ( 1,039 ) $ 130,063 $ ( 1,368 )

The Company did not intend to sell these investments and therefore determined, based upon available evidence, that it was more likely than not that the Company would not be required to sell each security before the recovery of its amortized cost basis.

As a result, the Company did not consider these investments to be OTTI and accordingly, there was no OTTI recorded and no cumulative credit related component of OTTI for the year ended December 31, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

Loans Held for Investment and Allowance for Credit Losses

The following table summarizes the change in allowance for credit losses by loan category, and bifurcates the amount of loans allocated to each loan category for the year ended December 31, 2020:

The following table summarizes the change in allowance for credit losses by loan category, and bifurcates the amount of loans allocated to each loan category for the periods indicated:

Years Ended December 31, 2021

7 unchanged sentences

Allowance for credit losses

Beginning balance $ 21,086 $ 45,009 $ 5,397 $ 5,095 $ 14,275 $ 22,060 $ 470 $ 113,392

Charge-offs ( 3,474 ) — — ( 219 ) — ( 69 ) ( 1,182 ) ( 4,944 )

Recoveries 2,686 57 — 98 1 249 638 3,729

Initial reserve on PCD loans 166 14,397 1,019 — 429 163 366 16,540

Provision for credit loss expense ( 6,062 ) 24,023 5,900 ( 1,466 ) ( 221 ) ( 4,417 ) 448 18,205

Ending balance (1) $ 14,402 $ 83,486 $ 12,316 $ 3,508 $ 14,484 $ 17,986 $ 740 $ 146,922

Years Ended December 31, 2020

(Dollars in thousands)

Commercial and

Industrial Commercial

Real Estate Commercial

Construction Small

Business Residential

Home Equity Other Consumer Total

Allowance for credit losses

Beginning balance, pre adoption of ASU 2016-13 $ 17,594 $ 32,935 $ 6,053 $ 1,746 $ 3,440 $ 5,576 $ 396 $ 67,740

5 unchanged sentences

Ending balance (1) $ 21,086 $ 45,009 $ 5,397 $ 5,095 $ 14,275 $ 22,060 $ 470 $ 113,392

(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $ 43.7 million and $ 36.0 million at December 31, 2021 and December 31, 2020.

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

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

(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 Company's adoption of Accounting Standards Update 2016-13.

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

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

(3) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $ 36.0 million at December 31, 2020 .

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

The 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 that was 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.

These loan segments primarily include commercial relationships within industries that are subject to mandated closures and capacity limits that will potentially impede the borrowers’ ability to make loan payments, including loans in the following industry sections:

Accommodations, Food Services, Retail Trade, Recreation and Entertainment, and Other Services (excluding Public Administration).

In addition to these industry exposures, additional risk of loss was 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.

Leveraging actual historical loss given default (LGD) rates combined with stressing of assumptions over probability of default rates over these higher risk segments, qualitative adjustments were made to the initially model-driven calculated loss reserves.

The balance of allowance for credit losses of $ 146.9 million at December 31, 2021 represents an increase of $ 33.5 million, or 29.6 %, from the prior year end.

The increase in the allowance was 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.

Partially offsetting the increase in allowance attributable to acquired loans was a reversal of credit loss expense of $ 32.5 million for the year ended December 31, 2021, primarily reflecting improvements in expected overall macro-economic forecast assumptions and continued strong asset quality metrics, along with lower organic loan growth.

For the purpose of estimating the allowance for credit losses, management segregated the loan portfolio into the portfolio segments detailed in the above tables.

46 unchanged sentences

Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition.

The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio.

For the commercial portfolio, the Company utilizes a 10-point credit risk-rating system, which assigns a risk-grade to each loan

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

obligation based on a number of quantitative and qualitative factors associated with a commercial or small business loan transaction.

The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio.

For the commercial portfolio, the Company utilizes a 10-point credit risk-rating system, which assigns a risk-grade to each loan obligation based on a number of quantitative and qualitative factors associated with a commercial or small business loan transaction.

Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations.

26 unchanged sentences

The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis.

Commercial loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") have been assessed for downgrades of risk ratings.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower.

1 unchanged sentence

Under this structure, consumer loans less than 90 days past due are assigned a "pass" rating, while any consumer loans 90 days or more past due are assigned a "default" rating.

Consumer loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the CARES Act have not been categorized as delinquent loans.

Consumer loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the CARES Act were not categorized as delinquent loans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year at December 31, 2020:

The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of the dates indicated below:

December 31, 2021

2021 2020 2019 2018 2017 Prior Revolving Loans Revolving converted to Term Total (1)

41 unchanged sentences

Total $ 2,962,947 $ 2,273,064 $ 1,344,438 $ 1,331,466 $ 1,126,800 $ 2,905,961 $ 1,636,023 $ 6,587 $ 13,587,286

(1) Loans originated as part of the Paycheck Protection Program ("PPP") established by the CARES Act are reported as commercial and industrial under the 2020 vintage year and as"Pass" because these loans are 100% guaranteed by the U.S.

Funded PPP loans outstanding totaled $ 791.9 million at December 31, 2020.

December 31, 2020

2020 2019 2018 2017 2016 Prior Revolving Loans Revolving converted to Term Total (1)

(Dollars in thousands)

Commercial and

Pass (2) $ 1,074,773 $ 141,859 $ 97,908 $ 30,431 $ 19,426 $ 19,749 $ 631,049 $ 2,538 $ 2,017,733

Potential weakness 9,020 1,869 670 4,997 1,539 294 20,766 — 39,155

Definite weakness - loss unlikely 2,009 1,310 19,575 2,997 320 429 6,991 — 33,631

Partial loss probable 672 — — — 156 143 11,662 — 12,633

Definite loss — — — — — — — — —

Total commercial and industrial $ 1,086,474 $ 145,038 $ 118,153 $ 38,425 $ 21,441 $ 20,615 $ 670,468 $ 2,538 $ 2,103,152

Commercial real estate

Pass $ 1,054,345 $ 726,276 $ 480,725 $ 544,826 $ 372,542 $ 664,256 $ 19,085 $ 14,737 $ 3,876,792

Potential weakness 27,877 55,166 30,286 19,531 25,462 71,252 13,610 — 243,184

Definite weakness - loss unlikely 25,878 3,502 3,857 10,185 3,376 7,153 — — 53,951

Partial loss probable — — — — — — — — —

Definite loss — — — — — — — — —

Total commercial real estate $ 1,108,100 $ 784,944 $ 514,868 $ 574,542 $ 401,380 $ 742,661 $ 32,695 $ 14,737 $ 4,173,927

Commercial construction

Pass $ 255,679 $ 167,948 $ 30,706 $ 32,538 $ — $ 6,689 $ 31,705 $ 588 $ 525,853

Potential weakness 17,528 9,953 520 — — — 75 — 28,076

Definite weakness - loss unlikely — — — — — — — — —

Partial loss probable — — — — — — — — —

Definite loss — — — — — — — — —

Total commercial construction $ 273,207 $ 177,901 $ 31,226 $ 32,538 $ — $ 6,689 $ 31,780 $ 588 $ 553,929

Small business

Pass $ 41,713 $ 27,751 $ 19,497 $ 13,411 $ 13,837 $ 19,624 $ 35,451 $ — $ 171,284

Potential weakness — 10 15 15 6 217 822 — 1,085

Definite weakness - loss unlikely 684 438 122 11 137 353 883 — 2,628

Partial loss probable — — — — — — 26 — 26

Definite loss — — — — — — — — —

Total small business $ 42,397 $ 28,199 $ 19,634 $ 13,437 $ 13,980 $ 20,194 $ 37,182 $ — $ 175,023

Residential real estate

Pass $ 219,595 $ 146,058 $ 160,422 $ 144,638 $ 215,568 $ 401,279 $ — $ — $ 1,287,560

Default — — 427 — 4,158 4,038 — — 8,623

Definite loss — — — — — — — — —

Total residential real estate $ 219,595 $ 146,058 $ 160,849 $ 144,638 $ 219,726 $ 405,317 $ — $ — $ 1,296,183

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pass $ 82,312 $ 59,409 $ 52,088 $ 53,570 $ 41,181 $ 111,360 $ 661,575 $ 4,663 $ 1,066,158

Default — — — — — 440 1,837 355 2,632

Definite loss — — — — — — — — —

Total home equity $ 82,312 $ 59,409 $ 52,088 $ 53,570 $ 41,181 $ 111,800 $ 663,412 $ 5,018 $ 1,068,790

Other consumer

Pass $ 816 $ 398 $ 165 $ 665 $ 615 $ 6,749 $ 12,317 $ — $ 21,725

Default — — — 15 — 111 11 — 137

Definite loss — — — — — — — — —

Total other consumer $ 816 $ 398 $ 165 $ 680 $ 615 $ 6,860 $ 12,328 $ — $ 21,862

Total $ 2,812,901 $ 1,341,947 $ 896,983 $ 857,830 $ 698,323 $ 1,314,136 $ 1,447,865 $ 22,881 $ 9,392,866

(1) Loans origination dates in the tables above reflect the original date, or the date of a material modification of a previously originated loan, for both organic originations and acquired loans.

(2) Loans originated as part of the Paycheck Protection Program ("PPP") established by the CARES Act are reported as commercial and industrial under the 2021 and 2020 vintage years and "Pass" category as these loans are 100% guaranteed by the U.S.

Outstanding PPP loans totaled $ 216.2 million and $ 791.9 million at December 31, 2021 and 2020, respectively, the former of which reflects PPP loans acquired in the Meridian acquisition.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower.

11 unchanged sentences

(1) The average FICO scores at December 31, 2021 are based upon rescores from December 2021, as available for previously originated loans, or origination score data for loans booked in December 2021.

The average FICO scores at December 31, 2019 were based upon rescores available from November 2019 and origination score data for loans booked in December 2019.

The average FICO scores at December 31, 2020 were based upon rescores from December 2020, as available for previously originated loans, or origination score data for loans booked in December 2020.

(2) The combined LTV ratios for December 31, 2021 are based upon updated automated valuations as of November 2021, when available, and/or the most current valuation data available.

5 unchanged sentences

Management evaluates the need for a reserve on unfunded lending commitments in a manner consistent with loans held for investment.

At December 31, 2020, the Company's estimated reserve for unfunded commitments amounted to $ 1.2 million.

At December 31, 2021 and 2020, the Company's estimated reserve for unfunded commitments amounted to $ 1.5 million and $ 1.2 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Asset Quality

3 unchanged sentences

The Company also may use discretion regarding other loans 90 days or more delinquent if the loan is well secured and/or in process of collection.

In response to the COVID-19 pandemic, the Company has granted loan modifications to allow deferral of payments for borrowers negatively impacted by the pandemic.

The amount of loans with active deferrals at December 31, 2020 was $ 173.6 million.

In response to the COVID-19 pandemic, the Company granted loan modifications to allow deferral of payments for borrowers negatively impacted by the pandemic.

The balance of loans with active deferrals at December 31, 2021 was $ 383.1 million, which included $ 194.3 million in COVID-19 related modifications in the acquired Meridian portfolio, compared to $ 173.6 million at December 31, 2020.

The majority of these loans with active deferrals continue to be characterized as current loans.

In accordance with regulatory guidance, these modifications were not considered to be troubled debt restructurings ("TDRs") if they were performing prior to December 31, 2019.

Additionally, a majority of these loans were characterized as current and therefore were not impacting nonaccrual or delinquency totals at December 31, 2020.

Additionally, a majority of these loans were characterized as current and therefore were not impacting nonaccrual or delinquency totals at December 31, 2021 and 2020.

The Company does, however, consider all active deferrals when estimating loss reserves.

As loans reach their deferral maturity date, consideration of TDR and delinquency status will resume in accordance with the Company's accounting policy.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table shows information regarding nonaccrual loans at the dates indicated:

1 unchanged sentence

December 31, 2021 December 31, 2020

With Allowance for Credit Losses Without Allowance for Credit Losses Total Total

With Allowance for Credit Losses Without Allowance for Credit Losses Total (1) With Allowance for Credit Losses Without Allowance for Credit Losses Total (1)

(Dollars in thousands)

7 unchanged sentences

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

It is the Company's policy to reverse any accrued interest when a loan is put on nonaccrual status, and, as such, the Company did not record any interest income on nonaccrual loans for the years ended December 31, 2020 and December 31, 2019.

In accordance with government moratorium orders established in response to the COVID-19 pandemic, new foreclosures pursued by the Company were on hold as of December 31, 2020, and in turn, all loan foreclosures in process as of December, 31, 2020 had begun prior to the commencement of the moratorium orders.

The following table shows information regarding foreclosed residential real estate property at the dates indicated:

3 unchanged sentences

Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure $ 1,426 $ 1,750

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables show the age analysis of past due financing receivables at the dates indicated:

20 unchanged sentences

Total 518 $ 37,927 60 $ 1,677 123 $ 7,092 701 $ 46,696 $ 13,540,590 $ 13,587,286 $ —

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2020

20 unchanged sentences

(1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances.

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

Troubled Debt Restructurings

3 unchanged sentences

Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table shows the Company’s total TDRs and other pertinent information at the dates indicated:

4 unchanged sentences

Total TDRs $ 16,628 $ 39,192

Amount of specific reserves associated with TDRs n/a $ 855

Additional commitments to lend to a borrower who has been a party to a TDR $ 190 $ 263

8 unchanged sentences

Investment Post-Modification

Troubled debt restructurings

Troubled debt restructurings (Dollars in thousands)

Commercial and industrial 1 $ 14,148 $ 14,148

1 unchanged sentence

Small business 2 189 189

Residential real estate 2 559 642

Total (1) 8 $ 18,301 $ 18,301

2 unchanged sentences

Investment Post-Modification

Troubled debt restructurings

Troubled debt restructurings (Dollars in thousands)

Commercial and industrial 8 $ 732 $ 732

2 unchanged sentences

Residential real estate 2 559 642

Home equity 2 121 121

Total (1) 30 $ 4,908 $ 4,967

2 unchanged sentences

Investment Post-Modification

Troubled debt restructurings

Troubled debt restructurings (Dollars in thousands)

Commercial and industrial 3 $ 268 $ 268

Commercial real estate 4 819 819

Small business 1 14 14

Residential real estate 3 967 1,009

1 unchanged sentence

Total (1) 13 $ 2,189 $ 2,231

(1) The pre-modification and post-modification balances represent the legal principal balance of the loan.

Activity presented in the tables above includes $14.3 million, $1.9 million, and $855,000 of modifications on existing TDRs during the years ended December 31, 2021, 2020 and 2019, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7 unchanged sentences

The Company considers a loan to have defaulted when it reaches 90 days past due.

At December 31, 2020 and December 31, 2019, there were no loans modified during the prior twelve months that subsequently defaulted.

There was one commercial real estate loan modified during 2020 with a recorded investment of $ 3.2 million, which subsequently defaulted during 2021 prior to being paid off during the fourth quarter.

As such, this loan is not included within outstanding TDR balances December 31, 2021.

There were no defaults on such loans modified during the prior twelve months periods ended December 31, 2020 and 2019, respectively.

The Company determines the amount of allowance on TDRs in accordance with CECL methodology using a discounted cash flow approach, or a fair value of collateral approach if the loan is determined to be individually evaluated.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 5 LOANS AND ALLOWANCE FOR LOAN LOSSES

As disclosed in Note 1 - " Summary of Significant Accounting Policies " and Note 4 - " Loans, Allowance for Credit Losses and Credit Quality ," the Company adopted the CECL standard, effective January 1, 2020.

As required by disclosure guidance, the Company has included relevant disclosures and accounting policies from the prior year and prior to the adoption of CECL within this footnote, as it relates to loans and allowance for loan losses.

Allowance for Loan Losses

The allowance for loan losses was established based upon the level of estimated probable losses in prior loan portfolios.

Loan losses were charged against the allowance when management believed the collectability of a loan balance was doubtful.

Subsequent recoveries, if any, were credited to the allowance.

The allowance for loan losses was allocated to loan types using both a formula-based approach applied to groups of loans and an analysis of certain individual loans for impairment.

The formula-based approach emphasized loss factors derived from actual historical portfolio loss rates, which were combined with an assessment of certain qualitative factors to determine the allowance amounts allocated to the various loan categories.

Allowance amounts were determined based on an estimate of the historical average annual percentage rate of loan loss for each loan category, an estimate of the incurred loss emergence and confirmation period for each loan category, and certain qualitative risk factors considered in the computation of the allowance for loan losses.

The qualitative risk factors that impacted the inherent risk of loss within the portfolio included the following:

• National and local economic and business conditions

• Level and trend of delinquencies

• Level and trend of charge-offs and recoveries

• Trends in volume and terms of loans

• Risk selection, lending policy and underwriting standards

• Experience and depth of management

• Banking industry conditions and other external factors

• Concentration risk

The formula-based approach evaluated groups of loans with common characteristics, which consisted of similar loan types with similar terms and conditions, to determine the appropriate allocation within each portfolio section.

This approach incorporated qualitative adjustments based upon management’s assessment of various market and portfolio specific risk factors into its formula-based estimate.

Due to the imprecise nature of the loan loss estimation process and ever changing conditions, the qualitative risk attributes may not have been adequately captured amounts of incurred loss in the formula-based loan loss components used to determine the Bank’s analysis of the appropriateness of the allowance for loan losses.

The Bank evaluated certain loans within the commercial and industrial, commercial real estate, commercial construction and small business portfolios individually for specific impairment.

A loan was considered impaired when, based on current information and events, it was probable that the Bank would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment included payment status, collateral value, contractual interest rates and the probability of collecting scheduled principal and interest payments when due.

Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired.

Loans were selected for evaluation based upon a change in internal risk rating, occurrence of delinquency, loan classification, troubled debt restructuring or nonaccrual status.

A specific allowance amount was allocated to an individual loan when such loan had been deemed impaired and when the amount of the probable loss was able to be estimated.

Estimates of loss were determined by the present value of anticipated future cash flows, the loan’s observable fair market value, or the fair value of the collateral, if the loan is collateral dependent.

However, for collateral dependent loans, the amount of the recorded investment in a loan that exceeded the fair value of the collateral less costs to sell was charged-off against the allowance for loan losses in lieu of an allocation of a specific allowance amount when such an amount had been identified definitively as uncollectible.

Large groups of small-balance homogeneous loans such as the residential real estate, residential construction, home equity and other consumer portfolios were collectively evaluated for impairment.

As such, the Bank did not typically identify

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

individual loans within these groupings as impaired loans for impairment evaluation and disclosure.

However, the Bank evaluated all TDRs for impairment on an individual loan basis regardless of loan type.

In the ordinary course of business, the Bank enters into commitments to extend credit, commercial letters of credit, and standby letters of credit.

Such financial instruments are recorded in the financial statements when they become payable.

The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses.

The reserve for unfunded lending commitments is included in other liabilities in the balance sheet.

At December 31, 2019 and 2018, the reserve for unfunded loan commitments was $ 2.1 million and $ 1.3 million, respectively.

The following table bifurcates the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis at December 31, 2019 and 2018:

December 31, 2019

Industrial Commercial

Real Estate Commercial

Construction Small

Business Residential

Equity Other Consumer Total

(Dollars in thousands)

Allowance for loan losses

Beginning balance $ 15,760 $ 32,370 $ 5,158 $ 1,756 $ 3,219 $ 5,608 $ 422 $ 64,293

Charge-offs ( 244 ) ( 2,614 ) — ( 509 ) — ( 240 ) ( 1,598 ) ( 5,205 )

Recoveries 1,131 152 — 122 142 318 787 2,652

Provision (benefit) 947 3,027 895 377 79 ( 110 ) 785 6,000

Ending balance $ 17,594 $ 32,935 $ 6,053 $ 1,746 $ 3,440 $ 5,576 $ 396 $ 67,740

Ending balance:

collectively evaluated for impairment $ 17,468 $ 32,887 $ 6,053 $ 1,738 $ 2,803 $ 5,420 $ 391 $ 66,760

Ending balance:

individually evaluated for impairment $ 126 $ 48 $ — $ 8 $ 637 $ 156 $ 5 $ 980

Financing receivables ending balance:

Collectively evaluated for impairment $ 1,370,580 $ 3,987,848 $ 547,293 $ 173,960 $ 1,571,848 $ 1,127,963 $ 29,663 $ 8,809,155

Individually evaluated for impairment 24,456 8,337 — 537 11,228 4,948 122 49,628

Purchased credit impaired loans — 6,174 — — 7,493 887 302 14,856

Total loans by group $ 1,395,036 $ 4,002,359 $ 547,293 $ 174,497 $ 1,590,569 $ 1,133,798 $ 30,087 $ 8,873,639 (1)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company adopted the CECL standard, effective January 1, 2020.

Prior to 2020, the Company recognized an allowance for loan losses in accordance with the incurred loss impairment model under the previously applicable GAAP.

As required by disclosure guidance, the Company has included relevant disclosures and accounting policies prior to the adoption of CECL within this footnote, as it relates to loans and allowance for loan losses.

The following table bifurcates the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis at December 31, 2019:

December 31, 2019

11 unchanged sentences

Ending balance $ 17,594 $ 32,935 $ 6,053 $ 1,746 $ 3,440 $ 5,576 $ 396 $ 67,740

Ending balance:

collectively evaluated for impairment $ 15,753 $ 32,333 $ 5,158 $ 1,755 $ 2,357 $ 5,444 $ 414 $ 63,214

Ending balance:

individually evaluated for impairment $ 7 $ 37 $ — $ 1 $ 862 $ 164 $ 8 $ 1,079

Financing receivables ending balance:

Collectively evaluated for impairment $ 1,064,800 $ 3,235,418 $ 365,165 $ 164,135 $ 906,959 $ 1,085,961 $ 15,901 $ 6,838,339

Individually evaluated for impairment 28,829 10,839 — 541 12,706 5,948 197 59,060

Purchase credit impaired loans — 4,991 — — 3,629 175 — 8,795

Total loans by group $ 1,093,629 $ 3,251,248 $ 365,165 $ 164,676 $ 923,294 $ 1,092,084 $ 16,098 $ 6,906,194 (1)

(1) The amount of net deferred costs on originated loans included in the ending balance was $ 7.1 million at December 31, 2019 and 2018.

Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance were $ 21.6 million and $ 15.2 million at December 31, 2019 and 2018 respectively.

The Company's historical approach to loan portfolio segmentation by risk characteristics and monitoring of credit quality for commercial loans under previous accounting guidance was consistent with that applied under the newly adopted CECL standard.

See Note 4 - "Loans, Allowance for Credit Losses and Credit Quality" for further discussion surrounding the Company's policies for loan segmentation and credit quality monitoring.

The following tables detail the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s commercial portfolio:

December 31, 2019

Category Risk

Rating Commercial and

Industrial Commercial Real

Estate Commercial

Construction Small Business Total

(Dollars in thousands)

Pass 1 - 6 $ 1,274,155 $ 3,860,555 $ 542,608 $ 171,213 $ 5,848,531

Potential weakness 7 63,485 97,268 2,247 1,416 164,416

Definite weakness - loss unlikely 8 57,396 44,536 2,438 1,868 106,238

Partial loss probable 9 — — — — —

Definite loss 10 — — — — —

Total $ 1,395,036 $ 4,002,359 $ 547,293 $ 174,497 $ 6,119,185

Impaired Loans

2 unchanged sentences

Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired.

Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into

Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The table below sets forth information regarding the Company’s impaired loans.

The information for average recorded investment and interest income recognized is reflective of the full period being presented and does not take into account the date at which a loan was deemed to be impaired.

See information below as of the dates indicated:

As of and For the Years Ended December 31

Investment Unpaid

Balance Related

Allowance Average

Investment Interest

(Dollars in thousands)

With no related allowance recorded

Commercial and industrial $ 23,786 $ 34,970 $ — $ 27,056 $ 136

Commercial real estate 6,213 12,101 — 12,595 523

Small business 469 484 — 471 22

Residential real estate 4,976 5,123 — 5,045 222

Home equity 3,764 3,893 — 3,869 184

Other consumer 34 34 — 41 3

Subtotal 39,242 56,605 — 49,077 1,090

With an allowance recorded

Commercial and industrial 670 670 126 718 29

Commercial real estate 2,124 2,124 48 2,176 122

Small business 68 105 8 74 2

Residential real estate 6,252 7,163 637 6,326 239

Home equity 1,184 1,382 156 1,214 52

Other consumer 88 91 5 97 3

Subtotal 10,386 11,535 980 10,605 447

Total $ 49,628 $ 68,140 $ 980 $ 59,682 $ 1,537

As of and For the Year Ended December 31, 2019

Investment Unpaid

20 unchanged sentences

Total $ 49,628 $ 68,140 $ 980 $ 59,682 $ 1,537

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Acquired loans

All acquired loans were recorded at fair value with no carryover of the allowance for loan losses.

At acquisition, loans were also reviewed to determine if the loan had evidence of deterioration in credit quality and to review if it was probable, at acquisition, that all contractually required payments were not collected.

Such loans were deemed to be purchased credit impaired ("PCI") loans.

Accordingly, PCI loans were not subject to classification as nonaccrual in the same manner as originated loans.

The estimated cash flows expected to be collected was regularly re-assessed subsequent to acquisition.

These re-assessments involved updates, as necessary, of the key assumptions and estimates used in the initial estimate of fair value.

Generally speaking, expected cash flows were affected by:

• Changes in the expected principal and interest payments over the estimated life - Changes in expected cash flows may be driven by the credit outlook and actions taken with borrowers.

Changes in expected future cash flows resulting from loan modifications are included in the assessment of expected cash flows.

• Change in prepayment assumptions - Prepayments affect the estimated life of the loans, which may change the amount of interest income expected to be collected.

• Change in interest rate indices for variable rate loans - Expected future cash flows are based, as applicable, on the variable rates in effect at the time of the assessment of expected cash flows.

A decrease in expected cash flows in subsequent periods were an indication that the loan was impaired which would have likely required the recognition of a charge-off against the allowance for loan losses or an establishment of a specific reserve.

An increase in expected cash flows in subsequent periods served, first, to reduce any previously established specific reserve by the increase in the present value of cash flows expected to be collected.

Any increase above the previously established specific reserve resulted in a recalculation of the amount of accretable yield for the loan.

The adjustment of accretable yield due to an increase in expected cash flows was accounted for as a change in estimate.

The additional cash flows expected to be collected were reclassified from the nonaccretable difference to the accretable yield, and the amount of periodic accretion was adjusted accordingly over the remaining life of the loans.

A PCI loan may have been resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral.

In the event of a sale of the loan, a gain or loss on sale would have been recognized and reported within noninterest income based on the difference between the sales proceeds and the carrying amount of the loan.

For PCI loans accounted for on an individual loan basis and resolved directly with the borrower, any amount received from resolution in excess of the carrying amount of the loan was recognized and reported within interest income.

A refinancing or modification of a PCI loan accounted for individually was assessed to determine whether the modification represented a TDR.

If the loan was considered to be a TDR, it would have been included in the total impaired loans reported by the Company.

The loan would have continued to recognize interest income based upon the excess of cash flows expected to be collected over the carrying amount of the loan.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Purchased Credit Impaired Loans

Under previous accounting guidance, certain loans acquired by the Company may have shown evidence of deterioration of credit quality since origination at purchase date, and it was therefore deemed unlikely that the Company would be able to collect all contractually required payments.

As such, these loans were deemed to be PCI loans and the carrying value and prospective income recognition were predicated upon future cash flows expected to be collected.

The following table displays certain information pertaining to PCI loans at the date indicated:

December 31, 2019

(Dollars in thousands)

Outstanding balance $ 18,358

Carrying amount $ 14,856

The following table summarizes activity in the accretable yield for the PCI loan portfolio for the year ended December 31, 2019:

(Dollars in thousands)

Beginning balance $ 1,191

Acquisition 1,464

Accretion ( 1,751 )

Other change in expected cash flows (1) 803

Reclassification from nonaccretable difference for loans which have paid off (2) 227

Ending balance $ 1,934

(1) Represents changes in cash flows expected to be collected resulting in increased interest income as a prospective yield adjustment over the remaining life of the loan(s) .

(2) Results in increased income during the period when a loan pays off at amount greater than originally expected .

NOTE 6 BANK PREMISES AND EQUIPMENT

10 unchanged sentences

Net bank premises and equipment $ 195,590 $ 116,393

Depreciation expense related to bank premises and equipment was $ 12.8 million, $ 11.4 million, and $ 9.1 million for the years ended December 31, 2020, 2019 and 2018, respectively, and is reflected in occupancy and equipment expenses.

Depreciation expense relating to computer software is included within other noninterest expense.

Depreciation expense related to bank premises and equipment was $ 12.5 million, $ 12.8 million, and $ 11.4 million for the years ended December 31, 2021, 2020 and 2019, respectively, and is primarily reflected in occupancy and equipment expenses.

In 2021 the Company purchased a total of $ 21.7 million in equipment that was subject to a master lease agreement with a third party lessee and recognized rental income of $ 890 ,000 for the year ended December 31, 2021, as the Company assumed the role of lessor in conjunction with the purchase.

This arrangement was deemed to be an operating lease for accounting purposes.

Previously, the Company had purchased $ 10.6 million in equipment that was subject to a similar agreement and recognized rental income of $ 1.5 million for the year ended December 31, 2020.

This arrangement was originally deemed to be an operating lease for accounting purposes but was subsequently modified and as a result the transaction was reflected as a direct financing beginning in the fourth quarter of 2020 and no additional rental income was recognized by the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In 2017 the Company purchased a total of $ 10.6 million equipment that was subject to a master lease agreement with a third party lessee and recognized rental income of $ 1.5 million for the year ended December 31, 2020 and $ 1.6 million for both the years ended December 31, 2019 and 2018, as the Company assumed the role of lessor in conjunction with the purchase.

This arrangement was originally deemed to be an operating lease for accounting purposes.

During 2020, the Company entered into a lease modification with the third party lessee, which resulted in this lease no longer being deemed to be an operating lease for accounting purposes.

Accordingly, the Company has reflected the transactions as a direct financing lease as of December 31, 2020.

NOTE 7 GOODWILL AND OTHER INTANGIBLE ASSETS

22 unchanged sentences

Total $ 55,310 $ ( 22,538 ) $ 32,772 $ 41,054 $ ( 17,947 ) $ 23,107

Amortization of intangible assets was $ 6.2 million, $ 6.8 million, and $ 2.7 million at December 31, 2020, 2019, and 2018, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the estimated annual amortization expense of intangible assets for each of the next five years:

1 unchanged sentence

The original weighted average amortization period for intangible assets is 9.5 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 DEPOSITS

26 unchanged sentences

Total Federal Home Loan Bank Advances $ 25,667 $ 35,740

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

To manage the interest rate risk of these advances, the Company may enter into interest rate swap agreements which effectively fix the rate of the borrowing.

Inclusive of the impact of these swap arrangements, the weighted average rate of the FHLB borrowings was 1.13 % and 1.88 % at December 31, 2020 and 2019, respectively.

Inclusive of the impact of these swap arrangements, the weighted average rate of all FHLB borrowings was 2.05 % and 2.30 % at December 31, 2021 and 2020, respectively.

The Company’s FHLB advances are collateralized by a blanket pledge agreement on the Bank’s FHLB stock, certain qualified investment securities, deposits at the FHLB, residential mortgages, and by certain commercial real estate loans held in the Bank’s portfolio.

2 unchanged sentences

At December 31, 2021 and 2020, the Company had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB's collateral pledging program.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Short-Term Debt

Excluding FHLB borrowings included in the table above, the Company had no short-term borrowings at December 31, 2021 and 2020.

On March 28, 2019, the Company entered into a credit facility for a principal amount of $ 50.0 million senior unsecured revolving loan credit facility, bearing interest at an interest rate equal to the one-month LIBOR rate plus 1.15 %.

The Company used the proceeds of these borrowings for funding needs related to the second quarter closing of BHB.

During the second quarter of 2019, the Company repaid in full the entire $ 50.0 million amount of the senior unsecured revolving loan.

There was no interest expense on short-term borrowings for the year ended December 31, 2020.

The interest expense on short-term borrowings was $ 104,000 and $ 248,000 for the years ended December 31, 2019, and 2018, respectively.

The 2018 expense was primarily attributable to customer repurchase agreements, which were discontinued and transitioned to a deposit product offering in the fourth quarter of 2018.

The Company recorded no interest expense on short-term borrowings for the years ended December 31, 2021 and 2020, and recorded $ 104,000 for the year ended December 31, 2019.

Long-Term Debt

18 unchanged sentences

The proceeds from the sale of the securities and the issuance of common stock by these trusts were invested in these Junior Subordinated Debentures issued by the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For regulatory purposes, bank holding companies are allowed to include trust preferred securities in Tier 1 capital up to a certain limit.

Provisions in the Dodd-Frank Act generally exclude trust preferred securities from Tier 1 capital, however, holding companies with consolidated assets of less than $15 billion, such as the Company, are able to continue to include these instruments in Tier 1 capital, but no such securities issued in the future will count as Tier 1 capital.

Provisions in the Dodd-Frank Act generally exclude trust preferred securities from Tier 1 capital, however, holding companies with consolidated assets of less than $15 billion at December 31, 2009, are able to permanently to include these instruments in Tier 1 capital, unless the Company crosses the consolidated assets threshold as a result of merger and acquisition activity.

Accordingly, as the Company’s acquisition of Meridian resulted in the crossing of $15 billion in its consolidated assets, its trust preferred securities were phased out of Tier 1 capital and included within Tier 2 capital as of December 31, 2021, in accordance with applicable regulatory guidance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information relating to these trust preferred securities is as follows:

Trust Description of Capital Securities

Capital Trust V $ 50.0 million due in 2037, interest at a variable rate of 3 month LIBOR plus 1.48 % ( 1.70 % at December 31, 2020),which, effective on January 17, 2017, has been converted to a fixed rate of 2.84 % through the use of an interest rate swap.

Capital Trust V $ 50.0 million due in 2037, interest at a variable rate of 3 month LIBOR plus 1.48 % ( 1.70 % at December 31, 2021).

Central Trust I $ 5.1 million due in 2034, bearing interest at a variable rate of 3 month LIBOR plus 2.44 % ( 2.66 % at December 31, 2021).

21 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 10 EARNINGS PER SHARE

Earnings per share consisted of the following components for the years ended December 31:

2020 2019 2018

(Dollars in thousands, except per share data)

Net income $ 121,167 $ 165,175 $ 121,622

Weighted Average Shares

Basic shares 33,259,643 32,810,433 27,592,380

Effect of dilutive securities 25,646 45,801 61,428

Diluted shares 33,285,289 32,856,234 27,653,808

Net income per share

Basic EPS $ 3.64 $ 5.03 $ 4.41

Effect of dilutive securities — — ( 0.01 )

Diluted EPS $ 3.64 $ 5.03 $ 4.40

For the year ended December 31, 2020, there were 632 options to purchase common stock and 476 shares of performance-based restricted stock that were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

For the years ended December 31, 2019 and 2018, there were no options to purchase common stock and no shares of performance-based restricted stock that were considered anti-dilutive.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 10 STOCK BASED COMPENSATION

The Company's stock based plans include the Second Amended and Restated 2005 Employee Stock Plan (the "2005 Plan") and the 2018 Non-Employee Director Stock Plan (the "2018 Plan"), which have been approved by the Company’s Board of Directors and shareholders.

The 2010 Non-Employee Director Stock Plan (the "2010 Plan") expired in May 2018, and as such the Company may only award shares from the 2005 Plan or the 2018 Plan.

Up to 300,000 shares of the Company's common stock were authorized for issuance under the 2018 plan, which amount includes the 174,855 shares of common stock transferred from the 2010 Non-Employee Director Stock Plan (the "2010 Plan"), which shares were authorized but unissued when the 2010 Plan expired in May 2018.

These shares may be awarded as either stock option awards or restricted stock awards from its pool of authorized but unissued shares.

5 unchanged sentences

2018 Plan 300,000 — 30,258 30,258 269,742

2018 Plan 300,000 — 21,938 21,938 278,062 (1)

(1) The Company may award up to a total of 300,000 shares from the 2018 Plan, inclusive of 174,855 shares that were Authorized but Unissued in the 2010 Plan, and were transferred from the 2010 Plan to the 2018 Plan.

Due to this transfer, there are no available shares remaining to be issued from the 2010 Plan.

The following table presents the pre-tax expense associated with stock option and restricted stock awards and the related tax benefits recognized for the periods presented:

25 unchanged sentences

For the years ended December 31, 2021, 2020 and 2019 there were no awards granted by the Company of nonqualified options to purchase shares of common stock.

The following table presents the awards granted by the Company of nonqualified options to purchase shares of common stock for the periods presented:

Year Ended December 31

Date of grant 4/3/2018

Options granted 5,000

Vesting period (beginning on the grant date) 21 months

Expiration date 4/3/2028

Expected volatility 21.15 %

Expected life (years) 5.5

Expected dividend yield 1.94 %

Risk free interest rate 2.62 %

Fair value per option $ 13.46

Under all of the Company’s stock based plans, the option exercise price is based upon the average of the high and low trading value of the stock on the date of grant.

4 unchanged sentences

(Dollars in thousands, except per share data)

Fair value of stock options vested based on grant date fair value $ 22 $ 21 $ 85

Fair value of stock options vested based on grant date fair value n/a $ 22 $ 21

Intrinsic value of stock options exercised $ 414 $ 404 $ 883

1 unchanged sentence

Tax benefit realized on stock option exercises $ 116 $ 114 $ 248

Weighted average grant date fair value of options granted (per share) n/a n/a $ 13.46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents a summary of stock option award activity for the year ended December 31, 2021:

Outstanding Nonvested

Awards Weighted

1 unchanged sentence

Term (years) Aggregate

Value (1) Stock

Awards Weighted

(Dollars in thousands, except per share data)

Balance at January 1, 2021 28,500 $ 47.61

Granted — — — —

Exercised ( 10,000 ) 27.90 n/a n/a

Vested n/a n/a ( 1,666 ) 13.46

Forfeited — — — —

Expired — — — —

Balance at December 31, 2020 28,500 (2) $ 47.61 3.99 years $ 704 — $ —

Options outstanding, vested, and exercisable at December 31, 2020 28,500 (2) $ 47.61 3.99 years $ 704

Exercised ( 8,500 ) 27.46

Balance of options outstanding, vested and exercisable at December 31, 2021 20,000 (2) $ 56.18 4.63 years $ 509

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on the average of the high price and low price at which the Company’s common stock traded on December 31, 2021 of $ 81.65 , which would have been received by in-the-money option holders had they all exercised their options as of that date.

(2) Inclusive of 20,000 vested stock options outstanding to Directors.

(2) Represents vested stock options outstanding to Directors.

For the year ended December 31, 2021, all outstanding stock option awards are vested and there is no unrecognized compensation expense related to those options.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Stock

1 unchanged sentence

During the years ended December 31, 2021, 2020, and 2019 the Company made the following restricted stock award grants:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Shares Granted Plan Fair Value (1) Vesting Period

2/18/2021 49,550 2005 $ 81.84 Ratably over 5 years from grant date

4/15/2020 880 2005 $ 70.02 Ratably over 5 years from grant date

5/25/2021 7,680 2018 $ 78.18 Immediately upon grant date

2/21/2019 43,250 2005 $ 83.87 Ratably over 5 years from grant date

9/1/2021 640 2018 $ 76.78 Immediately upon grant date

2/27/2020 46,550 2005 $ 70.24 Ratably over 5 years from grant date

5 unchanged sentences

5/21/2019 6,500 2018 $ 77.08 Immediately upon grant date

11/15/2018 560 2005 $ 77.78 Ratably over 5 years from grant date

Performance-based

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Unrecognized compensation cost (inclusive of directors’ fees) $ 8,213

Weighted average remaining recognition period (years) 2.96

Weighted average remaining recognition period (years) 3.06 years

(1) Inclusive of 4,500 restricted stock awards outstanding to Directors.

39 unchanged sentences

Total $ 925,000 $ 47,444

(1) Beginning in 2020, the Company made an election to include accrued interest within fair value balances.

(1) Two forward starting swaps with notional amounts of $ 25.0 million each matured in December 2021.

The Company originally entered into these swaps in April 2016 for purposes of hedging $ 50.0 million of existing junior subordinated dentures .

The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 7.2 years.

4 unchanged sentences

The Company exited the hedge and paid off the associated borrowing in 2020.

The Company did not terminate any of its cash flow hedges during 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recognized net amortization income that was an offset to interest expense related to previously terminated swaps of $ 231,000 for the year ended December 31, 2018.

The Company did not recognize any amortization income related to previously terminated swaps for the years ended December 31, 2020 and 2019.

The Company had no fair value hedges for the years ended December 31, 2021, 2020 and 2019.

5 unchanged sentences

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

The Company is subject to over-the-counter derivative clearing requirements, which require certain derivatives to be cleared through central clearing houses.

Accordingly, the Company began to clear certain derivative transactions through the Chicago Mercantile Exchange Clearing House ("CME") in December of 2019.

This clearing house requires the Company to post initial and variation margin to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts.

Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes.

23 unchanged sentences

Participation in 7 29,972 28,235 — — 8,339 66,546 ( 55 )

Positions (1) Notional Amount Maturing

Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value

December 31, 2020

7 unchanged sentences

currency, sells foreign currency 33 87,557 5,300 — — — 92,857 4,224

Risk participation agreements

Participation out 12 6,721 — 2,675 7,307 93,378 110,081 512

Participation in 8 — 30,649 29,072 — 15,844 75,565 ( 118 )

(1) The Company may enter into one dealer swap agreement which offsets multiple commercial borrower swap agreements .

(2) Beginning in 2020, the Company made an election to include accrued interest within fair value balances.

Mortgage Derivatives

4 unchanged sentences

The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election.

The change in fair value associated with loans held for sale was an increase of $1.3 million, an increase of $ 822,000 and a decrease of $ 51,000 for the years ended December 31, 2020, 2019 and 2018, respectively.

The change in fair value associated with loans held for sale was a decrease of $ 1.7 million, an increase of $ 1.3 million and an increase of $ 822,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

These amounts were offset in earnings by the change in the fair value of mortgage derivatives.

Outstanding loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might change from inception of the rate lock to funding of the loan due to changes in mortgage interest rates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

If interest rates increase, the value of these loan commitments decreases.

2 unchanged sentences

Mandatory delivery contracts are accounted for as derivative instruments.

Included in the mandatory delivery forward commitments are To Be Announced

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

securities ("TBAs").

Included in the mandatory delivery forward commitments are To Be Announced securities ("TBAs").

Certain assumptions, including pull through rates and rate lock periods, are used in managing the existing and future hedges.

44 unchanged sentences

(2) All liability derivatives are located in other liabilities on the balance sheet .

(3) Approximately $ 1.2 million and $ 2.0 million of accrued interest receivable is included in the fair value of the interest rate and loan level asset derivatives, respectively, at December 31, 2020.

Accrued interest receivable of approximately and $ 350,000 and $ 569,000 was excluded from the fair value of the interest rate and loan level asset derivatives, respectively, at December 31, 2019.

(4) Approximately $ 81,000 and $ 2.0 million of accrued interest payable is included in the fair value of interest rate and loan level derivative liabilities as of December 31, 2020.

Accrued interest payable of approximately $ 4,000 and $ 569,000 was excluded from the fair value of the interest rate and loan level derivative liabilities, respectively, at December 31, 2019.

(3) Approximately $ 1.2 million and $ 1.5 million of accrued interest receivable is included in the fair value of the interest rate and loan level asset derivatives, respectively, at December 31, 2021, in comparison to accrued interest receivable of approximately and $ 1.2 million and $ 2.0 million, respectively, at December 31, 2020.

(4) Approximately $ 5,000 and $ 1.5 million of accrued interest payable is included in the fair value of interest rate and loan level derivative liabilities as of December 31, 2021, in comparison to accrued interest payable of approximately $ 81,000 and $ 2.0 million, respectively, at December 31, 2020.

(5) Netting adjustments represent the amounts recorded to convert derivative assets and liabilities cleared through CME from a gross basis to a net basis, inclusive of the variation margin payments, in accordance with applicable accounting guidance.

As displayed in the table above, derivatives that cleared through the CME were either in a net asset position or a net liability position at December 31, 2020.

As displayed in the table above, derivatives that cleared through the CME were either in a net asset position or a net liability position as of December 31, 2021 and 2020.

(6) Reflects offsetting derivative positions with the same counterparty that are not netted on the balance sheet.

5 unchanged sentences

Derivatives designated as hedges

Gain in OCI on derivatives (effective portion), net of tax $ 16,797 $ 10,331 $ 4,829

Gain (loss) in OCI on derivatives (effective portion), net of tax $ ( 19,139 ) $ 16,797 $ 10,331

Gain reclassified from OCI into interest income or interest expense (effective portion) $ 18,691 $ 14,306 $ 2,346

45 unchanged sentences

CARES Act - net operating loss carryback (1) — — % ( 4,809 ) ( 3.15 ) % — — %

Low Income Housing Project Investments ( 1,851 ) ( 1.21 ) % ( 1,696 ) ( 0.78 ) % ( 1,030 ) ( 0.66 ) %

Increase in cash surrender value of life insurance ( 1,345 ) ( 0.88 ) % ( 1,144 ) ( 0.52 ) % ( 1,160 ) ( 0.74 ) %

Stock-based compensation ( 1,067 ) ( 0.70 ) % ( 824 ) ( 0.38 ) % ( 885 ) ( 0.57 ) %

Nontaxable interest, net ( 723 ) ( 0.47 ) % ( 757 ) ( 0.35 ) % ( 566 ) ( 0.36 ) %

Change in valuation allowance 26 0.02 % — — % 17 0.01 %

New Markets Tax Credits — — % ( 2,675 ) ( 1.23 ) % ( 3,960 ) ( 2.54 ) %

Increase in cash surrender value of life insurance ( 1,405 ) ( 0.90 ) % ( 1,345 ) ( 0.88 ) % ( 1,144 ) ( 0.52 ) %

Low Income Housing Project Investments ( 2,308 ) ( 1.47 ) % ( 1,851 ) ( 1.21 ) % ( 1,696 ) ( 0.78 ) %

Merger and other related costs (non-deductible) 630 0.40 % — — % 582 0.27 %

New Markets Tax Credits — — % — — % ( 2,675 ) ( 1.23 ) %

Nontaxable interest, net ( 1,022 ) ( 0.65 ) % ( 723 ) ( 0.47 ) % ( 757 ) ( 0.35 ) %

Stock-based compensation ( 372 ) ( 0.24 ) % ( 1,067 ) ( 0.70 ) % ( 824 ) ( 0.38 ) %

Other, net ( 1,522 ) ( 0.97 ) % 1,221 0.80 % 1,365 0.63 %

14 unchanged sentences

Net operating loss carry-forward 637 226

Net unrealized loss on securities available for sale 2,921 —

Operating lease liability 17,970 15,846

17 unchanged sentences

The realization of the tax benefit depends upon the existence of sufficient taxable income in future periods.

At December 31, 2020, the Company had a foreign tax credit carryforward with a related deferred tax asset of $ 89,000 and net operating loss carryforwards with related deferred tax assets of $ 226,000 , which if not utilized, will expire in 2026 and 2040, respectively.

The Company believes that these deferred assets related to its carryforwards will not be fully realized and accordingly recorded a valuation allowance of $ 280,000 at December 31, 2020.

The Company believes that it is more likely than not that the remaining deferred tax assets will be realized through future reversals of existing taxable temporary differences and by offsetting other future taxable income.

At December 31, 2021, the Company had a foreign tax credit carryforward with a related deferred tax asset of $ 89,000 , which if not utilized, will expire in 2026.

The Company does not expect to utilize this deferred tax asset prior to the statute expiration and has recorded a partial valuation allowance against this asset.

Additionally, the Company has a state net operating loss carryforward totaling $251,000, which if not utilized, will expire in 2041.

The Company has recorded a full valuation allowance against this state net operating loss carryforward.

In total, the Company recorded a valuation allowance of $ 306,000 at December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10 unchanged sentences

Reduction of tax positions for prior years ( 58 )

Increase for current year tax positions 444

Balance at December 31, 2020 474

Reduction of tax positions for prior years ( 29 )

Increase for current year tax positions 2,433

Balance at December 31, 2021 $ 2,878

Increases to the Company's unrealized tax positions occur as a result of accruing for the unrecognized tax benefit as well the accrual of interest and penalties related to prior year positions.

Increases to the Company's unrealized tax positions occur as a result of accruing for any unrecognized tax benefit, as well the accrual of interest and penalties related to prior year positions.

Decreases in the Company's unrealized tax positions occur as a result of the statute of limitation lapsing on prior year positions and/or settlements relating to outstanding positions.

The table above does not include the indirect federal benefit of state tax positions of approximately $ 604,000 .

All of the Company’s unrecognized tax benefits, including the indirect federal benefit of state tax positions, are recorded as a component of income tax expense.

For the years ended December 31, 2020, 2019 and 2018 the Company recognized approximately $ 52,000 , $ 10,000 and $ 24,000 , respectively, in the provision for income taxes for interest and penalties related to uncertain tax positions.

Accordingly, the Company has accrued approximately $ 95,000 , $ 43,000 and $ 53,000 for the payment of interest and penalties as of December 31, 2020, 2019 and 2018, respectively, which are not included in the table above.

The following table summarizes the changes in accrued interest and penalties related to uncertain tax positions for the periods presented:

As of December 31

2021 2020 2019

(Dollars in thousands)

Beginning Balance $ 95 $ 43 $ 53

Expense (benefit) recognized in provision for income taxes 69 52 ( 10 )

Acquired obligation for interest and penalties (1) 756 n/a n/a

Ending Balance $ 920 $ 95 $ 43

(1) Represents balances of accrued interest and penalties assumed by the Company in connection with the Meridian acquisition.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 13 LOW INCOME HOUSING PROJECT INVESTMENTS

10 unchanged sentences

Net income tax benefit recognized during the year $ 2,306 $ 1,851 $ 1,696

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 14 EMPLOYEE BENEFIT PLANS

Pension Plans

The Company maintains a multiemployer defined benefit pension plan (the "Pension Plan") administered by Pentegra Retirement Services (the "Fund" or "Pentegra Defined Benefit Plan for Financial Institutions").

23 unchanged sentences

The comparability of employer contributions is impacted by asset performance, discount rates and the reduction in the number of covered employees year over year.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s contributions to the Pension Plans were as follows for the periods indicated:

Required Contributions - Plan Year Allocation

Cash Payment Future period funding 2020-2021 2019-2020 2018-2019

Cash Payment 2021-2022 2020-2021 2019-2020

(Dollars in thousands)

2 unchanged sentences

2019 $ 2,063 $ — $ — $ 2,063

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In conjunction with the acquisition of BHB in 2019, the Company acquired the Savings Banks Employees Retirement Association Pension Plan as adopted by BHB (the "BHB Plan").

In conjunction with the acquisition of Blue Hills Bancorp, Inc., parent of Blue Hills Bank (collectively "BHB") in 2019, the Company acquired the Savings Banks Employees Retirement Association Pension Plan as adopted by BHB (the "BHB Plan").

The BHB Plan is administered by Savings Banks Employees Retirement Association (SBERA) and was frozen on October 31, 2014.

13 unchanged sentences

Interest cost 344 416

Actuarial loss 1,710 2,874

Actuarial (gain) loss ( 901 ) 1,710

Benefits paid ( 556 ) ( 761 )

1 unchanged sentence

Benefit obligation at end of year $ 13,939 $ 15,052

Funded status and accrued liability at end of year $ ( 2,827 ) $ ( 2,034 )

Accumulated benefit obligation at end of year $ 15,052 $ 13,687

Funded status and prepaid asset (accrued liability) at end of year $ 160 $ ( 2,827 )

At December 31, 2021 and 2020, the discount rate used to determine the benefit obligation was 2.68 % and 2.35 %, respectively.

8 unchanged sentences

The discount rate used to determine net periodic pension cost for the years ended December 31, 2021 and 2020 was 2.35 % and 3.11 %, respectively.

The expected long-term rate of return on plan assets used to determine the net periodic pension cost for the years ended December 31, 2020 and 2019 was 8.00 %.

The expected long-term rate of return on plan assets used to determine the net periodic pension

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

cost for the years ended December 31, 2021 and 2020 was 7.00 % and 8.00 %, respectively.

Assumptions with respect to the expected long-term rate of return are based on prevailing yields on high-quality, fixed-income investments increased by a premium for equity return expectations.

2 unchanged sentences

The remainder of the portfolio is allocated to fixed income securities with a target range of 28 % to 42 % and other investments including global asset allocation and hedge funds from 3 % to 15 %.

The Trustees of SBERA, through the Association's Investment Committee ("AIC"), select investment managers for the common and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

collective trust portfolio.

The Trustees of SBERA, through the Association's Investment Committee ("AIC"), select investment managers for the common and collective trust portfolio.

A professional investment advisory firm is retained by the AIC to provide allocation analysis, performance measurement and to assist with manager searches.

24 unchanged sentences

BHB Plan assets measured at fair value in Level 2, as applicable, are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

BHB Plan assets measured at fair value in Level 3, as applicable, are based on unobservable inputs, which include the SBERA’s assumptions and the best information available under the circumstance.

BHB Plan assets measured

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

at fair value in Level 3, as applicable, are based on unobservable inputs, which include the SBERA’s assumptions and the best information available under the circumstance.

Estimated future benefit payments for the BHB Plan are presented below:

19 unchanged sentences

Contributions paid $ 475 $ 475 $ 486

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Expected future benefit payments for the defined benefit supplemental executive retirement plans are presented below:

15 unchanged sentences

Interest cost 424 518 601

Actuarial loss (gain) 2,843 1,850 ( 1,344 )

Actuarial (gain) loss ( 1,777 ) 2,843 1,850

Benefits paid ( 475 ) ( 475 ) ( 486 )

21 unchanged sentences

Net periodic benefit cost $ 2,275 $ 1,770 $ 1,356

Amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit cost over next fiscal year

Net actuarial loss $ 471 $ 471 $ 41

Net prior service cost $ 276 $ 276 $ 276

Discount rate used for benefit obligation 1.28 % - 2.57 %

0.43 % - 2.18 %

2.00 % - 3.04 %

Discount rate used for net periodic benefit cost 0.43 % - 2.18 %

2.00 % - 3.04 %

3.24 % - 4.09 %

Rate of compensation increase n/a n/a n/a

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Employee Benefits

1 unchanged sentence

In addition, the Bank may also pay a discretionary bonus to senior management, officers, and/or non-officers of the Bank.

The expense for the incentive plans and the discretionary bonus amounted to $ 11.0 million, $ 16.3 million and $ 13.8 million in 2020, 2019 and 2018, respectively.

The expense for the incentive plans amounted to $ 21.2 million, $ 11.0 million and $ 16.3 million in 2021, 2020 and 2019, respectively.

The Bank has an Employee Savings Plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.

1 unchanged sentence

The Bank matches 25 % of each employee’s contributions up to the first 6 % of the employee’s eligible earnings.

The 401(k) Plan incorporates an Employee Stock Ownership Plan for contributions invested in the Company’s common stock.

The 401(k) Plan incorporates an Employee Stock Ownership Plan for

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

contributions invested in the Company’s common stock.

The Company also provides three defined contributions under this Plan, providing the employees are deemed eligible.

15 unchanged sentences

Expense related to the Salary Continuation Agreements was $ 210,000 , $ 207,000 and $ 295,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company also assumed a Peoples supplemental retirement plan with a former executive, whereby the amounts paid under this plan commenced upon the executive's retirement and continue until 2026.

The expense related to the supplemental retirement plan for the years ended December 31, 2020, 2019 and 2018 was not material.

Additionally, in conjunction with the acquisition of BHB in 2019, the Company assumed an Employee Stock Ownership Plan and a 401(k) retirement plan.

These plans were terminated subsequent to the acquisition and both were fully liquidated during the year ended December 31, 2020.

Director Benefits

The Company maintains two deferred compensation plans for the Company’s Board of Directors which permit non-employee directors to defer cash fees, one of which was in effect through December 31, 2018 and a new plan which was adopted effective January 1, 2019.

Under the plan in effect through December 31, 2018, deferred compensation is invested in Company stock and held by the Company's Investment Management Group.

Under the plan in effect through December 31, 2018, deferred compensation was invested in Company stock and held by the Company's Investment Management Group.

Under the plan that took effect January 1, 2019, participating directors may defer all or a portion of their cash compensation into a choice of diversified investment portfolios comprised of stocks, bonds and cash.

The amount of compensation deferred during 2021, 2020, and 2019 was $ 84,000 , $ 101,000 , and $ 180,000 , respectively.

As a result of the Peoples acquisition during 2015, the Company assumed several Director Retirement Agreements.

The agreements require the payment of specified benefits upon retirement over periods of ten or twenty years as described in each agreement.

The expense related to the Director Retirement Agreements for the years ended December 31, 2020, 2019 and 2018 was not material.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 15 FAIR VALUE MEASUREMENTS

9 unchanged sentences

The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

9 unchanged sentences

These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.

Government Agency Securities

Government Agency and U.S.

Treasury Securities

Fair value is estimated using either multi-dimensional spread tables or benchmarks.

10 unchanged sentences

otherwise, they are classified as Level 2.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

State, County, and Municipal Securities

12 unchanged sentences

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.

This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

This analysis reflects the contractual terms of the derivatives,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements.

17 unchanged sentences

The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary, and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

comparable analysis of relevant price multiples in recent market transactions and discounted cash flow analysis.

To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and discounted cash flow analysis.

Both valuation models require a significant degree of management judgment.

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If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated:

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government agency securities 215,482 — 215,482 —

treasury securities 861,448 — 861,448 —

Agency mortgage-backed securities 363,933 — 363,933 —

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Nonrecurring fair value measurements:

Collateral dependent impaired loans $ 25,515 $ — $ — $ 25,515

Individually assessed collateral dependent loans (1) $ 31,510 $ — $ — $ 31,510

Total nonrecurring fair value measurements $ 31,510 $ — $ — $ 31,510

All assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were valued using pricing models and discounted cash flow methodologies, as of December 31, 2020, 2019 and 2018.

This reconciliation is presented in the table below for the periods indicated:

2020 2019 2018

(Dollars in thousands)

Pooled Trust Preferred Securities

Beginning balance $ 1,114 $ 1,329 $ 1,640

Gain and (losses) (realized/unrealized)

Included in other comprehensive income — ( 26 ) 191

Settlements ( 58 ) ( 189 ) ( 502 )

Ending Balance $ 1,056 $ 1,114 $ 1,329

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth certain unobservable inputs regarding the Company's financial instruments that are classified as Level 3 as of December 31st of the years indicated:

Valuation Technique Fair Value Unobservable Inputs Range Weighted Average

2020 2019 2020 2019 2020 2019

(Dollars in thousands)

Discounted cash flow methodology

Pooled trust preferred securities $ 1,056 $ 1,114 Cumulative prepayment 0% - 55% 0% - 57% 2.4 % 2.6 %

Cumulative default 4% - 100% 2% - 100% 11.8 % 13.5 %

Loss given default 85% - 100% 85% - 100% 94.0 % 93.6 %

Cure given default 0% - 75% 0% - 75% 60.9 % 60.9 %

Appraisals of collateral (1)

Individually assessed collateral dependent loans $ 31,510 n/a

Collateral dependent impaired loans n/a $ 25,515

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(1) The fair value of individually assessed collateral dependent loans is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses.

The range of these possible adjustments may vary.

The significant unobservable inputs used in the fair value measurement of the Company’s pooled trust preferred securities are cumulative prepayment rates, cumulative defaults, loss given defaults and cure given defaults.

Significant increases (decreases) in deferrals or defaults, in isolation, would result in a significantly lower (higher) fair value measurement.

Alternatively, significant increases (decreases) in cure rates, in isolation, would result in a significantly higher (lower) fair value measurement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

T he estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated:

The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated:

Fair Value Measurements at Reporting Date Using

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Securities held to maturity (a)

government agency securities $ 32,987 $ 32,546 $ — $ 32,546 $ —

treasury securities 102,560 102,242 — 102,242 —

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Securities held to maturity (a)

government agency securities $ 12,874 $ 12,997 $ — $ 12,997 $ —

treasury securities $ 4,017 $ 4,077 $ — $ 4,077 $ —

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In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and service requirements are generally explicitly identified in the associated contracts.

Furthermore, no new revenue streams were identified as part of the acquisition of Meridian.

Additional information related to each of the revenue streams is further noted below:

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net cash flow hedge gains reclassified into interest income or interest expense 18,691 ( 5,256 ) 13,435

loss on termination of hedge reclassified into noninterest expense ( 684 ) 192 ( 492 )

Net change in fair value of cash flow hedges ( 26,629 ) 7,490 ( 19,139 )

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period ( 5,785 ) 1,627 ( 4,158 )

Net unamortized gain related to defined benefit pension and other postretirement adjustments arising during the period 3,414 ( 960 ) 2,454

Amortization of net actuarial losses 1,331 ( 374 ) 957

Amortization of net prior service costs 192 ( 54 ) 138

Amortization of net settlement costs 176 ( 50 ) 126

Net change in other comprehensive income for defined benefit postretirement plans (1) 4,937 ( 1,388 ) 3,549

Total other comprehensive income $ 30,707 $ ( 8,181 ) $ 22,526

Total other comprehensive loss $ ( 51,687 ) $ 13,175 $ ( 38,512 )

Year Ended December 31, 2020

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net cash flow hedge gains reclassified into interest income or interest expense 14,306 ( 4,023 ) 10,283

loss on termination of hedge reclassified into noninterest expense ( 684 ) 192 ( 492 )

Net change in fair value of cash flow hedges 23,372 ( 6,575 ) 16,797

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period ( 5,785 ) 1,627 ( 4,158 )

Amortization of net actuarial gains ( 8 ) 2 ( 6 )

Amortization of net actuarial losses 982 ( 276 ) 706

Amortization of net prior service costs 276 ( 78 ) 198

Amortization of net settlement costs 176 ( 50 ) 126

Net change in other comprehensive income for defined benefit postretirement plans (1) ( 4,351 ) 1,223 ( 3,128 )

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Change in fair value of securities available for sale $ 12,055 $ ( 2,761 ) $ 9,294

net security gains reclassified into other noninterest income (expense) — — —

net security losses reclassified into other noninterest expense ( 1,462 ) 411 ( 1,051 )

Net change in fair value of securities available for sale 13,517 ( 3,172 ) 10,345

2 unchanged sentences

Net change in fair value of cash flow hedges 14,379 ( 4,048 ) 10,331

Net unamortized gain related to defined benefit pension and other postretirement adjustments arising during the period 1,521 ( 428 ) 1,093

Amortization of net actuarial losses 372 ( 105 ) 267

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period ( 2,123 ) 597 ( 1,526 )

Amortization of net actuarial gains ( 8 ) 2 ( 6 )

Amortization of net prior service costs 276 ( 78 ) 198

1 unchanged sentence

Total other comprehensive income $ 26,041 $ ( 6,699 ) $ 19,342

(1) Includes the amortization of the remaining balance of a realized but unrecognized gain, net of tax, from the termination of interest rate swaps in 2009.

The original gain of $ 1.4 million, net of tax, was recognized in earnings through December 2018, the original maturity date of the swap.

(2) The amortization of prior service costs is included in the computation of net periodic pension costs as disclosed in Note 15 - Employee Benefit Plans .

Effective January 1, 2018, the Company elected to reclassify certain tax effects from accumulated other comprehensive income to retained earnings, related to items that were stranded in other comprehensive income as a result of the Tax Cuts and Jobs Act of 2017.

A description of the other income tax effects that were reclassified as a result of the Tax Act are listed in the table below.

(1) The amortization of prior service costs is included in the computation of net periodic pension costs as disclosed in Note 14 - Employee Benefit Plans within the Notes to the Consolidated Financial Statements in Item 8.

Information on the Company's accumulated other comprehensive income (loss), net of tax, was comprised of the following components for the periods indicated:

Unrealized Gain (Loss) on Securities Unrealized Gain (Loss) on Cash Flow Hedge Deferred Gain on Hedge Transactions Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss)

Unrealized Gain (Loss) on Securities Unrealized Gain (Loss) on Cash Flow Hedge Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss)

(Dollars in Thousands)

1 unchanged sentence

January 1, 2019 $ ( 5,947 ) $ 6,148 $ ( 1,374 ) $ ( 1,173 )

Opening balance reclassification ( 111 ) 205 29 ( 520 ) ( 397 )

Cumulative effect accounting adjustment ( 831 ) — — — ( 831 )

Other comprehensive income (loss) 10,345 10,331 ( 1,334 ) 19,342

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NOTE 18 LEASES

The Company adopted the new lease accounting standard ("the lease standard") under Accounting Standards Codification Topic 842 ("ASC 842") using the modified retrospective transition method with an effective date as of January 1, 2019.

Therefore, periods prior to that date were not restated, and accordingly disclosures are not presented on a comparable basis.

The Company elected the package of practical expedients, which permits the Company not to reassess prior conclusions about lease identifications, lease classification and initial direct costs.

The Company did not elect to apply the hindsight practical expedient pertaining to using hindsight knowledge as of the effective date when determining lease terms and impairment.

As of December 31, 2020, the Company had entered into 97 noncancelable operating lease agreements for office space, space for ATM locations and certain branch locations, several of which contain renewal options to extend lease terms for a period of 1 to 10 years.

As of December 31, 2021, the Company had entered into 126 noncancellable operating lease agreements for office space, parking , space for ATM locations and certain branch locations, several of which contain renewal options to extend lease terms for a period of 3 to 20 years.

The Company has no financing leases outstanding and no leases with residual value guarantees.

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The Company's right-of-use asset related to operating leases totaled $ 60.2 million and $ 49.7 million at December 31, 2021 and 2020, respectively, and are recognized in the Company's Consolidated Balance Sheet in other assets.

During 2020, the Company made the decision to exit two branch locations.

As a result of these closures, the Company recognized an impairment charge of $ 4.2 million reflecting accelerated lease termination costs and the write-off of leasehold improvements associated with the locations.

The following table provides information related to the Company's lease cost for the periods indicated:

During 2021, as part of the acquisition of Meridian, the Company made the decision to exit several branch locations.

As a result of these closures, the Company recognized an impairment charge of $ 2.3 million , which was included within merger and acquisition expense in the Consolidated Statement of Income.

During 2020, the Company made the decision to exit two branch locations, resulting in an impairment charge of $ 4.2 million reflecting accelerated lease termination costs and the write-off of leasehold improvements associated with the locations.

The following table provides information related to the Company's lease costs for the periods indicated:

Years Ended December 31

2021 2020 2019

(Dollars in thousands)

Operating lease cost (1) $ 16,881 $ 10,718

Short-term lease cost 16 116

Variable lease cost — —

Total lease cost $ 16,897 $ 10,834

(1) Operating lease cost for the year ended December 31, 2020 includes impairment losses associated with two branch closure decisions.

As of December 31, 2020, the weighted average remaining lease term for operating leases was 5.59 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.13 %.

Operating lease costs (1) $ 14,550 $ 16,881 $ 10,718

Short-term lease costs 23 16 116

Variable lease costs — — —

Total lease costs $ 14,573 $ 16,897 $ 10,834

Weighted-average remaining lease term - operating leases 5.72 years 5.59 years 6.43 years

Weighted-average discount rate - operating leases 1.97 % 2.13 % 2.75 %

(1) Operating lease cost for the years ended December 31, 2021 and 2020, respectively, is inclusive of impairment charges recognized by the Company in relation to branch closure decisions made during each year.

The following table sets forth the undiscounted cash flows of base rent related to operating leases outstanding at December 31, 2021 with payments scheduled over the next five years and thereafter, including a reconciliation to the operating lease liability recognized in the Company's Consolidated Balance Sheet in other liabilities:

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Present value of future minimum lease payments $ 63,908

(1) These amounts are inclusive of termination payments associated with branch closure decisions made during 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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Commitments to extend credit $ 4,535,895 $ 3,301,692

Loan exposures sold with recourse $ 202,717 $ 303,265

Standby letters of credit $ 24,412 $ 20,686

Deferred standby letter of credit fees $ 124 $ 164

Loan exposures with recourse $ 303,265 $ 404,532

Other Contingencies

2 unchanged sentences

In the opinion of management, the final disposition of pending lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.

Historically, the Bank was required to maintain certain reserve requirements of vault cash and/or deposits with the Federal Reserve Bank of Boston, however the reserve requirement was reduced to zero by the Federal Reserve during the first quarter of 2020 in response to the COVID-19 pandemic, and as such, there was no reserve requirement at December 31, 2020.

There was also no reserve requirement balance necessary at December 31, 2019 due to cash balances held at the Federal Reserve that were in excess of reserve requirements.

NOTE 20 REGULATORY MATTERS

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Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

At December 31, 2021 the most recent notification from the Federal Deposit Insurance Corporation indicated that the Bank's capital levels met or exceeded the minimum levels to be considered "well capitalized" for bank regulatory purposes.

To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables.

There are no conditions or events since the notification that management believes have changed the Bank’s category.

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Trust Preferred Securities

In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities included in the consolidated financial statements.

At both December 31, 2020 and 2019, there were $ 61.0 million in trust preferred securities that have been included in the Tier 1 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

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

At both December 31, 2021 and 2020, there were $ 61.0 million in trust preferred securities that have been included within total capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

As a result of the Meridian acquisition in the fourth quarter of 2021 and the Company exceeding $15 billion in consolidated assets, these trust preferred securities were given Tier 2 capital treatment as of December 31, 2021, as compared to Tier 1 capital treatment as of December 31, 2020.

NOTE 21 PARENT COMPANY FINANCIAL STATEMENTS

7 unchanged sentences

Deferred tax asset 472 642

Derivative instruments (1) — 290

Total assets $ 3,168,653 $ 1,864,556

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Long-term borrowings (less unamortized debt issuance costs of $ 0 and $ 40 )

14,063 32,773

Junior subordinated debentures (less unamortized debt issuance costs of $ 35 and $ 37 )

62,853 62,851

Subordinated debentures (less unamortized debt issuance costs of $ 209 and $ 304 )

49,791 49,696

Derivative instruments (1) — 569

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Net cash provided by operating activities 72,468 161,892 192,937

Cash flows used in investing activities

Cash paid for acquisitions, net of cash acquired (2) — ( 148,297 ) ( 13,649 )

Net cash used in investing activities — ( 148,297 ) ( 13,649 )

Cash flows provided by (used in) investing activities

Net cash acquired (paid) in business combinations 119,816 — ( 148,297 )

Net cash provided by (used) in investing activities 119,816 — ( 148,297 )

Cash flows provided by (used in) financing activities

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(1) Reflected in this line for the year ended December 31, 2020 is a noncash adjustment which decreased prepaid income taxes and increased investment in subsidiary by $ 30.1 million, which represents a reallocation of a tax asset from the parent to the bank subsidiary.

(2) The majority of the net assets acquired at the parent company level represent each of the acquired companies' investments in their wholly owned subsidiaries, which were eliminated in consolidation .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 23 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

First Quarter Second Quarter Third Quarter Fourth Quarter

2020 2019 2020 2019 2020 2019 2020 2019

(Dollars in thousands, except per share data)

Interest income $ 107,380 $ 91,543 $ 99,965 $ 122,144 $ 97,919 $ 119,624 $ 96,805 $ 113,703

Interest expense 13,076 9,018 8,867 16,125 7,036 15,026 5,362 13,710

Net interest income 94,304 82,525 91,098 106,019 90,883 104,598 91,443 99,993

Provision for credit losses 25,000 1,000 20,000 1,000 7,500 — — 4,000

Total noninterest income 26,435 21,533 28,190 28,648 29,347 31,816 27,468 33,297

Total noninterest expenses 66,840 56,311 66,607 93,032 66,658 67,533 73,727 67,445

Provision for income taxes 2,148 11,522 7,779 10,007 11,199 17,036 10,543 14,368

Net income $ 26,751 $ 35,225 $ 24,902 $ 30,628 $ 34,873 $ 51,845 $ 34,641 $ 47,477

Basic earnings per share $ 0.78 $ 1.25 $ 0.76 $ 0.89 $ 1.06 $ 1.51 $ 1.05 $ 1.38

Diluted earnings per share $ 0.78 $ 1.25 $ 0.76 $ 0.89 $ 1.06 $ 1.51 $ 1.05 $ 1.38

Weighted average common shares (basic) 34,184,431 28,106,184 32,944,761 34,313,492 32,951,918 34,361,176 32,964,090 34,374,953

Common stock equivalents 36,827 54,466 28,098 41,878 24,758 39,390 26,348 46,245

Weighted average common shares (diluted) 34,221,258 28,160,650 32,972,859 34,355,370 32,976,676 34,400,566 32,990,438 34,421,198

Unusual or infrequently occurring items

Items within noninterest income

Gain on sale of loans $ — $ — $ — $ — $ — $ 951 $ — $ —

Total $ — $ — $ — $ — $ — $ 951 $ — $ —

Items within noninterest expense

Loss on termination of derivatives — — — — 684 — — —

Merger and acquisition expense $ — $ 1,032 $ — $ 24,696 $ — $ 705 $ — $ —

Adjustment for tax effect of previously incurred merger and acquisition expense — 650 — — — — — —

Total $ — $ 1,682 $ — $ 24,696 $ 684 $ 705 $ — $ —

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 22 TRANSACTIONS WITH RELATED PARTIES

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Principal balance of loans outstanding at end of year $ 45,033 $ 26,343

(1) The 2019 amount includes $7.0 million of BHB acquired loans associated with director, which represent the outstanding loans balances at the effective date of appointment.

(1) The 2021 amount includes $ 10.6 million of loans associated with a new director, which represent the outstanding loans balances at the effective date of appointment.

At December 31, 2021 and 2020, there were no loans to related parties which were past due, on nonaccrual status or that had been restructured as part of a troubled debt restructuring.

1 unchanged sentence

Lease Commitments

There were no material leases with related parties during the years ended December 31, 2020 and 2019.

At December 31, 2021 and 2020, there were no material leases with related parties.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data