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Item 7. Management’s Discussion and Analysis

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 The Company is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust, a Massachusetts trust company chartered in 1907. For a full list of corporate entities see Item 1 "Business — General." 
 All material intercompany balances and transactions have been eliminated in consolidation. When necessary, certain amounts in prior year financial statements have been reclassified to conform to the current year’s presentation. The following should be read in conjunction with the Consolidated Financial Statements and related notes. 
 
 
 
 Executive Level Overview 
 
 
 Management evaluates the Company's operating results and financial condition using measures that include net income, earnings per share, return on assets and equity, return on tangible common equity, net interest margin, tangible book value per share, asset quality indicators, and many others. These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results. The Company is focused on organic growth, but will also consider acquisition opportunities that are expected to provide a satisfactory financial return, including the recent acquisition of Meridian Bancorp., Inc. ("Meridian") and its subsidiary, East Boston Savings Bank, which closed during the fourth quarter of 2021. The acquisition resulted in the net addition of twenty-seven branch locations and includes the acquisition of $4.9 billion in loans, and the assumption of $4.4 billion in deposits, and $576.1 million of borrowings, each at fair value. The acquired borrowings were paid off in full immediately subsequent to the acquisition. 
 
 
 The Company's business has been, and continues to be impacted by the ongoing COVID-19 pandemic, however it remains committed to supporting and working with its customers as they navigate through uncertain times. While the full macroeconomic impacts of the COVID-19 pandemic have yet to be fully determined, overall conditions have begun to improve as a result of vaccine availability, leading to the re-opening of businesses and loosening of certain travel restrictions and social distancing measures. Despite the observed improvements, the future outlook with regard to the COVID-19 pandemic remains uncertain, with the possibility for resurgences of COVID-19 or other variants of the virus and other factors described under Item 1A. Risk Factors under "Risks Related to the COVID-19 Pandemic." As a result, the Company is not able to provide any assurances that the Company’s earnings, asset quality, regulatory capital ratios and economic condition will not be adversely impacted on a short term or long term basis. 
 
 
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 Interest-Earning Assets 
 
 
 Management’s asset strategy typically emphasizes loan growth, however, the mix of the Company's interest earning assets has experienced volatility in recent periods due to the unique operating environment. For 2021, the increase in interest-earning assets was driven primarily by an increase in commercial loan balances, primarily reflecting the acquisition of Meridian's $4.5 billion commercial portfolio, offset partially by a net reduction in PPP loan balances of $616.2 million during the year ended December 31, 2021. The Company continued to experience elevated levels of interest earning cash, driven by significant growth in deposits during 2021, a portion of which the Company elected to deploy into investment securities resulting in net growth of the securities portfolio of $1.5 billion during the year. The following table summarizes the Company's interest-earning assets as of December 31st for each year presented: 
 
 
 Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. In addition, management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and credit losses. 
 
 
 
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 Funding and the Net Interest Margin 
 
 
 The Company's overall sources of funding reflect strong business and retail deposit growth with a management emphasis on core deposit growth to fund loans. During 2021, the Company experienced significant growth in deposits, which increased $5.9 billion, or 53.9%, from December 31, 2020 to $16.9 billion. This increase was primarily attributable to Meridian acquired deposit balances of $4.4 billion, along with robust new account opening activity. The following chart shows the sources of funding and the percentage of core deposits to total deposits as of December 31st for the trailing five years: 
 
 
 
 
 
 The Company's core deposits decreased to 84.5% of total deposits at December 31, 2021, in comparison to the prior year, reflective of a higher ratio of non-core time and brokered deposits acquired from Meridian. The cost of deposits at 
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 December 31, 2021 was 0.07%, a 20 basis point decrease compared to December 31, 2020 due primarily to managed deposit rate reductions across all products. 
 The Company's net interest margin was 3.02% for the year ended December 31, 2021, representing a 27 basis point decrease from the comparative 2020 period, which primarily reflects the elevated levels of excess liquidity throughout 2021. 
 
 
 The following table shows the net interest margin and cost of deposits trends for the trailing five year period: 
 
 
 
 Noninterest Income 
 
 Non-interest income represented 20.9% of the Company's total revenue for 2021, and is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income. The following chart shows the components of noninterest income over the past five years: 
 
 
 Expense Control 
 Management seeks to take a balanced approach to noninterest expense control by monitoring ongoing operating expenses while making needed capital expenditures and prudently investing in growth initiatives. The Company’s primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment. Noninterest expense for the year ended December 31, 2021 was also inclusive of $40.8 million in merger related costs associated with the Meridian acquisition. 
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 The following chart depicts the Company's efficiency ratio on a U.S. GAAP basis (calculated by dividing noninterest expense by the sum of noninterest income and net interest income), as well as the Company's efficiency ratio on a non-GAAP operating basis, (calculated by dividing noninterest expense, excluding certain noncore items, by the sum of noninterest income, excluding certain noncore items, and net interest income) over the past five years: 
 
 *See "Non-GAAP Measures" below for a reconciliation to U.S. GAAP financial measures. 
 
 
 Capital 
 
 
 The Company's approach with respect to revenue and expense is designed to promote long-term earnings growth, which in turn contributes to capital growth. At December 31, 2021, the Company's tangible book value per share was $42.25, representing an increase of 18.7% from the prior year, reflecting the immediate accretive impact of the Meridian acquisition, as well as earnings retention. The following chart shows the Company's book value and tangible book value per share over the past five years: 
 
 
 
 *See "Non-GAAP Measures" below for a reconciliation to U.S. GAAP financial measures. 
 
 
 Cash dividends declared by the Company increased from an aggregate of $1.84 per share in 2020 to $1.92 per share in 2021, representing an increase of 4.3%. 
 
 
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 2021 Results 
 
 
 Net income for 2021 was $121.0 million, or $3.47 on a diluted earnings per share basis, as compared to $121.2 million, or $3.64 per diluted share, for the prior year. While results for the year ended December 31, 2021 included $40.8 million in merger related costs associated with the Meridian acquisition, they were positively impacted by reduced levels of loan provisioning in comparison to the prior year, as the Company recorded a total credit loss provision of $18.2 million in 2021, representing a decrease of 65.3% from $52.5 million for the twelve months ended December 31, 2020. The current year provision was the net result of $50.7 million in initial allowance reserves recorded on non-purchased credit deteriorated ("non-PCD") loans acquired from Meridian, partially offset by a reversal of credit loss expense of $32.5 million, primarily reflecting improvements in overall macro-economic forecast assumptions and continued strong asset quality metrics. 
 
 
 Net income for 2021 and 2020 included items that are considered noncore, which are excluded for purposes of assessing operating earnings. Net operating earnings for 2021 were $187.6 million, or $5.38 on a diluted earnings per share basis, an increase of 54.2% and 47.0%, respectively, when compared to net operating earnings of $121.7 million, or $3.66 per diluted share, for the year ended December 31, 2020. See "Non-GAAP Measures" below for a reconciliation of net operating earnings and diluted earnings per share to U.S. GAAP net income and earnings per share, respectively. 
 
 
 2022 Outlook 
 
 
 During the Company's fourth quarter 2021 earnings call, the Company provided the following key expectations regarding business activity to serve as near term guidance into the year 2022: 
 
 
 • Despite healthy loan closing expectations, loan balances for the year are expected to contract at a low single digit percentage, due primarily to reductions in the remaining PPP balances and a continued level of attrition attributable to Meridian balances, which is anticipated to offset legacy core growth in the low to mid single digit range. Upon stabilization of the acquired balances, modest net loan growth is expected, which is targeted for late 2022 and into early 2023. Additionally, any increases in line utilization would be expected to serve as a catalyst to stronger loan growth; 
 
 
 • The outlook for deposit balances remain somewhat uncertain, with core household growth remaining a priority, while time deposit attrition and some modest level of acquired deposit balance runoff is expected in the first half of the year; 
 
 
 • Net interest income is anticipated to include the recognition of the remaining $5.9 million in PPP fees, and may reflect quarter over quarter volatility due primarily to purchase accounting loan accretion. However, assuming no changes in interest rates from the Federal Reserve and a continued measured approach of increasing securities balances, and excluding PPP fee income and purchase accounting, management estimates the core margin to be in the 2.9 to 3.0% range for the full year; 
 
 
 • Assuming continued expected improvement in general economic factors and no major change in overall asset quality, the provision for credit loss is expected to continue to track at levels below net charge-offs, which the Company anticipates to be well contained; 
 
 
 • Non-interest income is expected to be primarily impacted by the following: 
 
 
 ◦ Reflecting the current rate environment and year end mortgage pipeline levels, a majority portion of closing activity is expected to be retained in the portfolio, which will drive decreases in mortgage banking income in the short term while contributing modestly to net interest income; 
 ◦ Wealth management income is expected to continue to reflect positive net inflows of new money plus market appreciation or depreciation impact; 
 ◦ Assuming that expectations over Federal Reserve interest rate increases remain high, management anticipates loan level derivative income to increase from the full year 2021 results, though likely lower than the Company's 2020 record levels; 
 
 
 • Regarding non-interest expense, with the majority of the systems and contract terminations already completed in 2021, the Company is confident in the 45% cost savings assumptions originally announced with the Meridian deal, while increasing the legacy spending at a mid-single digit percentage rate when compared to pre-Meridian 2021 results; and, 
 • The full year tax rate is expected to be in the 24-25% range, with a typical first quarter low point reflective of discrete equity compensation vesting benefits. 
 
 
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 Non-GAAP Measures 
 
 
 When management assesses the Company’s financial performance for purposes of making day-to-day and strategic decisions, it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and noninterest or fee income, reduced by operating expenses, the provision for credit losses, and the impact of income taxes and other noncore items shown in the table that follows. There are items that impact the Company's results that management believes are unrelated to its core banking business such as gains or losses on the sales of securities, merger and acquisition expenses, provision for credit losses on acquired portfolios, loss on extinguishment of debt, impairment, and other items, such as one-time adjustments as a result of changes in laws and regulations. Management, therefore, excludes items management considers to be noncore when computing the Company’s non-GAAP operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis. Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items. 
 
 Management also supplements its evaluation of financial performance with an analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or tangible common equity, by common shares outstanding) and with the Company's tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets) which are non-GAAP measures. The Company has included information on these tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends. The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry. 
 
 
 These non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. The Company’s non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies. 
 
 The following table summarizes the impact of noncore items on net income and reconciles non-GAAP net operating earnings to net income available to common shareholders for the periods indicated: 
 
 
 Net Income Diluted Earnings Per Share 
 2021 2020 2021 2020 
 (Dollars in thousands, except per share data) 
 
 Net income available to common shareholders (GAAP) $ 120,992 $ 121,167 $ 3.47 $ 3.64 
 Non-GAAP adjustments 
 Provision for non-PCD acquired loans 50,705 — 1.45 — 
 
 
 
 
 Noninterest expense components 
 
 
 
 
 Add: loss on termination of derivatives — 684 — 0.03 
 Add: merger and acquisition expenses 40,840 — 1.17 — 
 
 Noncore increases to income before taxes 91,545 684 2.62 0.03 
 Net tax benefit associated with noncore items (1) (24,899) (192) (0.71) (0.01) 
 
 
 
 Noncore increases to net income $ 66,646 $ 492 $ 1.91 $ 0.02 
 Net operating earnings (Non-GAAP) $ 187,638 $ 121,659 $ 5.38 $ 3.66 
 

 (1) The net tax benefit associated with noncore items is determined by assessing whether each noncore item is included or excluded from net taxable income and applying the Company's combined marginal tax rate only to those items included in net taxable income. 
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 The following table summarizes the impact of noncore items with respect to the Company's total revenue, noninterest income as a percentage of total revenue, and the efficiency ratio for the periods indicated: 
 
 Years Ended December 31 
 2021 2020 2019 2018 2017 
 (Dollars in thousands) 
 Net interest income $ 401,559 $ 367,728 $ 393,135 $ 298,165 $ 258,860 (a) 
 
 Noninterest income (GAAP) $ 105,850 $ 111,440 $ 115,294 $ 88,505 $ 82,994 (b) 
 Less: 
 
 Gain on sale of loans — — 951 — — 
 
 Noninterest income on an operating basis (non-GAAP) $ 105,850 $ 111,440 $ 114,343 $ 88,505 $ 82,994 (c) 
 
 Noninterest expense (GAAP) $ 332,529 $ 273,832 $ 284,321 $ 225,969 $ 204,359 (d) 
 Less: 
 
 
 
 
 Loss on termination of derivatives — 684 — — — 
 Merger and acquisition expenses 40,840 — 26,433 11,168 3,393 
 
 Noninterest expense on an operating basis (non-GAAP) $ 291,689 $ 273,148 $ 257,888 $ 214,801 $ 200,966 (e) 
 
 Total revenue (GAAP) $ 507,409 $ 479,168 $ 508,429 $ 386,670 $ 341,854 (a+b) 
 Total operating revenue (non-GAAP) $ 507,409 $ 479,168 $ 507,478 $ 386,670 $ 341,854 (a+c) 
 
 Ratios 
 Noninterest income as a % of revenue 20.86 % 23.26 % 22.68 % 22.89 % 24.28 % (b/(a+b)) 
 Noninterest income as a % of revenue on an operating basis (non-GAAP) 20.86 % 23.26 % 22.53 % 22.89 % 24.28 % (c/(a+c)) 
 Efficiency ratio (GAAP) 65.53 % 57.15 % 55.92 % 58.44 % 59.78 % (d/(a+b)) 
 Efficiency ratio on an operating basis (non-GAAP) 57.49 % 57.00 % 50.82 % 55.55 % 58.79 % (e/(a+c)) 

 
 
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 The following table summarizes the calculation of the Company's tangible common equity ratio and tangible book value per share for the periods indicated: 
 
 Years Ended December 31 
 2021 2020 2019 2018 2017 
 (Dollars in thousands, except per share data) 
 Tangible common equity 
 Stockholders’ equity $ 3,018,449 $ 1,702,685 $ 1,708,143 $ 1,073,490 $ 943,809 (a) 
 Less: Goodwill and other intangibles 1,017,844 529,313 535,492 271,355 241,147 
 Tangible common equity (Non-GAAP) 2,000,605 1,173,372 1,172,651 802,135 702,662 (b) 
 Tangible assets 
 Assets (GAAP) 20,423,405 13,204,301 11,395,165 8,851,592 8,082,029 (c) 
 Less: Goodwill and other intangibles 1,017,844 529,313 535,492 271,355 241,147 
 Tangible assets (Non-GAAP) $ 19,405,561 $ 12,674,988 $ 10,859,673 $ 8,580,237 $ 7,840,882 (d) 
 
 Common shares 47,349,778 32,965,692 34,377,388 28,080,408 27,450,190 (e) 
 
 Common equity to assets ratio (GAAP) 14.78 % 12.89 % 14.99 % 12.13 % 11.68 % (a/c) 
 Tangible common equity to tangible assets ratio (Non-GAAP) 10.31 % 9.26 % 10.80 % 9.35 % 8.96 % (b/d) 
 Book value per share (GAAP) $ 63.75 $ 51.65 $ 49.69 $ 38.23 $ 34.38 (a/e) 
 Tangible book value per share (Non-GAAP) $ 42.25 $ 35.59 $ 34.11 $ 28.57 $ 25.60 (b/e) 

 
 
 
 
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 SELECTED FINANCIAL DATA 
 The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere herein. 
 Table 1 - Selected Financial Data 
 
 As of or for the Years Ended December 31 
 2021 2020 2019 2018 2017 
 (Dollars in thousands, except per share data) 
 Financial condition data 
 Securities $ 2,664,859 $ 1,162,317 $ 1,190,670 $ 1,075,223 $ 946,510 
 Loans 13,587,286 9,392,866 8,873,639 6,906,194 6,355,553 
 Allowance for credit losses (146,922) (113,392) (67,740) (64,293) (60,643) 
 Goodwill and other intangibles 1,017,844 529,313 535,492 271,355 241,147 
 Total assets 20,423,405 13,204,301 11,395,165 8,851,592 8,082,029 
 Deposits 16,917,044 10,993,170 9,147,367 7,427,120 6,729,253 
 Borrowings 152,374 181,060 303,103 258,707 323,698 
 Stockholders’ equity 3,018,449 1,702,685 1,708,143 1,073,490 943,809 
 Nonperforming loans 27,820 66,861 48,049 45,418 49,638 
 Nonperforming assets 27,820 66,861 48,049 45,418 50,250 
 Operating data 
 Interest income $ 415,276 $ 402,069 $ 447,014 $ 323,701 $ 277,194 
 Interest expense 13,717 34,341 53,879 25,536 18,334 
 Net interest income 401,559 367,728 393,135 298,165 258,860 
 Provision for credit losses 18,205 52,500 6,000 4,775 2,950 
 Noninterest income 105,850 111,440 115,294 88,505 82,994 
 Noninterest expenses 332,529 273,832 284,321 225,969 204,359 
 Net income 120,992 121,167 165,175 121,622 87,204 
 Per share data 
 Net income — basic $ 3.47 $ 3.64 $ 5.03 $ 4.41 $ 3.19 
 Net income — diluted 3.47 3.64 5.03 4.40 3.19 
 Cash dividends declared 1.92 1.84 1.76 1.52 1.28 
 Book value 63.75 51.65 49.69 38.23 34.38 
 Tangible book value (1) 42.25 35.59 34.11 28.57 25.60 
 Performance ratios 
 Return on average assets 0.81 % 0.96 % 1.52 % 1.46 % 1.11 % 
 Return on average common equity 6.34 % 7.13 % 10.85 % 12.31 % 9.55 % 
 Net interest margin (on a fully tax equivalent basis) 3.02 % 3.29 % 4.04 % 3.91 % 3.60 % 
 Dividend payout ratio 51.85 % 50.21 % 32.25 % 33.03 % 39.04 % 
 Asset quality ratios 
 Nonperforming loans as a percent of gross loans 0.20 % 0.71 % 0.54 % 0.66 % 0.78 % 
 Nonperforming assets as a percent of total assets 0.14 % 0.51 % 0.42 % 0.51 % 0.62 % 
 Allowance for credit losses as a percent of total loans 1.08 % 1.21 % 0.76 % 0.93 % 0.95 % 
 Allowance for credit losses as a percent of nonperforming loans 528.12 % 169.59 % 140.98 % 141.56 % 122.17 % 
 Capital ratios 
 Equity to assets 14.78 % 12.89 % 14.99 % 12.13 % 11.68 % 
 Tangible equity to tangible assets (1) 10.31 % 9.26 % 10.80 % 9.35 % 8.96 % 
 Tier 1 leverage capital ratio 12.03 % 9.56 % 11.28 % 10.69 % 10.04 % 
 Common equity tier 1 capital ratio 14.30 % 12.67 % 12.86 % 11.92 % 11.20 % 
 Tier 1 risk-based capital ratio 14.30 % 13.34 % 13.53 % 12.99 % 12.31 % 
 Total risk-based capital ratio 16.04 % 15.13 % 14.83 % 14.45 % 13.82 % 

 (1) Represents a non-GAAP measurement. For reconciliation to GAAP measurement, see Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Level Overview - Non-GAAP Measures ". 
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 Financial Position 
 
 Securities Portfolio The Company’s securities portfolio consists of trading securities, equity securities, securities available for sale and securities which management intends to hold until maturity. Securities increased by $1.5 billion, or 129.3%, at December 31, 2021 as compared to December 31, 2020, reflecting $1.9 billion of purchases, offset by paydowns, calls and maturities. Purchases made during 2021 reflect the Company's direct strategy to deploy a portion of excess cash balances into investment securities, and accordingly the ratio of securities to total assets increased to 13.05% at December 31, 2021, as compared to 8.80% at December 31, 2020. The Company estimates expected credit losses for its available for sale and held to maturity securities in accordance with the CECL methodology. Further details regarding the Company's measurement of expected credit losses on investment securities can be found in Note 1, "Summary of Significant Accounting Policies" within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 
 
 The following table sets forth the fair value of available for sale securities and the amortized cost of held to maturity securities along with the percentage distribution: 
 Table 2 - Securities Portfolio Composition 
 
 December 31 
 2021 2020 
 Amount Percent Amount Percent 
 (Dollars in thousands) 
 Fair value of securities available for sale 
 U.S. government agency securities $ 215,482 13.7 % $ 24,116 5.8 % 
 U.S. treasury securities 861,448 54.8 % — — % 
 Agency mortgage-backed securities 363,933 23.2 % 233,629 56.6 % 
 Agency collateralized mortgage obligations 79,677 5.1 % 91,683 22.2 % 
 
 State, county and municipal securities 203 — % 807 0.2 % 
 Single issuer trust preferred securities issued by banks 491 — % 488 0.1 % 
 Pooled trust preferred securities issued by banks and insurers 1,000 0.1 % 1,056 0.3 % 
 Small business administration pooled securities 48,914 3.1 % 61,081 14.8 % 
 
 Total fair value of securities available for sale 1,571,148 100.0 % 412,860 100.0 % 
 Amortized cost of securities held to maturity 
 U.S. government agency securities 32,987 3.1 % — — % 
 U.S. treasury securities 102,560 9.6 % 4,017 0.6 % 
 Agency mortgage-backed securities 493,012 46.2 % 356,085 49.1 % 
 Agency collateralized mortgage obligations 415,736 39.0 % 335,993 46.4 % 
 
 Single issuer trust preferred securities issued by banks 1,500 0.1 % 1,500 0.2 % 
 Small business administration pooled securities 21,023 2.0 % 26,917 3.7 % 
 
 Total amortized cost of securities held to maturity 1,066,818 100.0 % 724,512 100.0 % 
 Total $ 2,637,966 $ 1,137,372 

 
 
 The Company’s available for sale securities are carried at fair value and are categorized within the fair value hierarchy based on the observability of model inputs. Securities which require inputs that are both significant to the fair value measurement and unobservable are classified as level 3 within the fair value hierarchy. At December 31, 2021 and 2020, the Company had no securities categorized as level 3 within the fair value hierarchy. 
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 The following table sets forth the weighted average yield for each range of contractual maturities of the Bank’s held to maturity securities portfolio at December 31, 2021. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Weighted average yields in the table below have been calculated based on the amortized cost of the security. 
 Table 3 - Securities Portfolio, Weighted Average Yields 
 
 Within One Year One Year to Five Years Five Years to Ten Years Over Ten Years Total 
 Weighted Average Yield 
 (Dollars in thousands) 
 
 
 
 
 
 
 
 
 
 
 
 U.S. government agency securities — 0.5 % — — 0.5 % 
 U.S. Treasury securities 1.6 % — 1.3 % — 1.3 % 
 Agency mortgage-backed securities — 3.1 % 1.7 % 2.5 % 2.0 % 
 Agency collateralized mortgage obligations — — — 1.4 % 1.4 % 
 
 Single issuer trust preferred securities issued by banks — — 8.3 % — 8.3 % 
 Small business administration pooled securities — — — 2.6 % 2.6 % 
 
 
 Total 1.6 % 0.7 % 1.6 % 1.8 % 1.7 % 

 As of December 31, 2021, the weighted average life of the securities portfolio was 4.70 years and the modified duration was 4.50 years. 
 
 
 
 At December 31, 2021, the aggregate book value of securities issued by Fannie Mae, Freddie Mac and the U.S. Department of the Treasury exceeded 10% of stockholders' equity, accordingly the following table disclosed the aggregate book value and market value of these securities at December 31, 2021: 
 Table 4 - Aggregate Book Value and Market Value of Select Securities 
 
 Aggregate Book Value Aggregate Market Value 
 (Dollars in thousands) 
 Securities issued by: 
 Fannie Mae $ 1,031,548 $ 1,027,148 
 Freddie Mac 383,491 381,591 
 U.S. Department of the Treasury 976,028 963,690 
 Total $ 2,391,067 $ 2,372,429 

 
 
 
 
 Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans. The Company originates residential loans with the intention of selling them in the secondary market or holding them in the Company's residential real estate portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached. The Company incurred no material losses related to mortgage repurchases during the years ended December 31, 2021, 2020, and 2019. 
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 The Company experienced strong closing volumes within the residential real estate portfolio during the twelve months ended December 31, 2021, with a larger portion of new residential real estate closings being retained in the portfolio rather than sold into the secondary market as compared to prior year periods. The following table shows the total residential loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market for the periods indicated: 
 
 
 Table 5 - Closed Residential Real Estate Loans 
 
 Years Ended December 31 
 2021 2020 2019 
 (Dollars in thousands) 
 Held in portfolio $ 411,850 $ 223,544 $ 193,884 
 Sold or held for sale in the secondary market 756,025 885,778 632,627 
 Total closed loans $ 1,167,875 $ 1,109,322 $ 826,511 

 
 
 
 The table below reflects additional information related to loans which were sold during the periods indicated: 
 
 
 Table 6 - Residential Mortgage Loan Sales 
 
 Years Ended December 31 
 2021 2020 2019 
 (Dollars in thousands) 
 Sold with servicing rights released $ 772,234 $ 816,996 $ 474,571 
 Sold with servicing rights retained (1) 11,116 45,830 127,713 
 Total loans sold $ 783,350 $ 862,826 $ 602,284 

 (1) All loans sold with servicing rights retained during the year ended December 31, 2021 were sold without recourse, while loans sold during the years ended December 31, 2020 and 2019 loans were sold with recourse. 
 
 
 When a loan is sold, the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneously with the sale of the loan, or the Company may opt to sell the loan and retain the servicing. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the Consolidated Balance Sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was $382.6 million at December 31, 2021 (inclusive of $67.0 million of loans serviced acquired from the Meridian acquisition) and $453.7 million at December 31, 2020. 
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 The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated: 
 Table 7 - Mortgage Servicing Asset 
 
 2021 2020 
 (Dollars in thousands) 
 Beginning balance $ 2,365 $ 5,116 
 Additions 95 429 
 Acquired portfolio 493 — 
 Amortization (1,011) (1,246) 
 Change in valuation allowance 685 (1,934) 
 Ending balance $ 2,627 $ 2,365 

 See Note 11, "Derivatives and Hedging Activities," within the Notes to Consolidated Financial Statements included in Item 8 of this Report for more information on mortgage activity and mortgage related derivatives. 
 
 
 
 Loan Portfolio The Company’s loan portfolio increased by $4.2 billion during 2021, primarily due to the Meridian loans acquired. This increase was offset partially by a decrease in PPP loan balances of $575.7 million, or 72.7%, bringing total outstanding PPP loan balances to $216.2 million at December 31, 2021. 
 
 
 
 The following table summarizes loan growth/decline during the periods indicated: 
 Table 8 - Components of Loan Growth/(Decline) 
 
 December 31 December 31 Meridian Organic Growth/ Organic Growth/ 
 2021 2020 Acquisition (Decline) $ (Decline) % 
 (Dollars in thousands) 
 Commercial and industrial (1) $ 1,563,279 $ 2,103,152 $ 110,359 $ (650,232) (30.9) % 
 Commercial real estate 7,992,344 4,173,927 3,702,407 116,010 2.8 % 
 Commercial construction 1,165,457 553,929 691,978 (80,450) (14.5) % 
 Small business 193,189 175,023 1,552 16,614 9.5 % 
 Residential real estate 1,604,686 1,296,183 338,959 (30,456) (2.3) % 
 Home equity 1,039,611 1,068,790 54,355 (83,534) (7.8) % 
 Other consumer 28,720 21,862 9,339 (2,481) (11.3) % 
 Total loans $ 13,587,286 $ 9,392,866 $ 4,908,949 $ (714,529) (7.6) % 

 (1) Organic loan growth/(decline) within commercial and industrial in the table above includes $40.5 million in Meridian acquired PPP loans, resulting in an organic decrease in PPP loan balances of $616.2 million. 
 
 
 Excluding PPP activity, the organic commercial portfolio increased compared to the prior year, as strong pipelines and closing activity were counterbalanced by elevated payoffs and lower line utilization levels. On the consumer side, balances declined across all portfolios on an organic basis, largely attributable to increased prepayments and refinancing activity, as well as lower home equity line utilization. 
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 The following table sets forth information concerning the composition of the Bank’s loan portfolio by loan type at the dates indicated: 
 Table 9 - Loan Portfolio Composition 
 
 December 31 
 2021 2020 
 (Dollars in thousands) 
 Amount Percent Amount Percent 
 Commercial and industrial $ 1,563,279 11.5 % $ 2,103,152 22.4 % 
 Commercial real estate 7,992,344 58.8 % 4,173,927 44.4 % 
 Commercial construction 1,165,457 8.6 % 553,929 5.9 % 
 Small business 193,189 1.4 % 175,023 1.9 % 
 Residential real estate 1,604,686 11.8 % 1,296,183 13.8 % 
 Home equity 1,039,611 7.7 % 1,068,790 11.4 % 
 Other consumer 28,720 0.2 % 21,862 0.2 % 
 Gross loans 13,587,286 100.0 % 9,392,866 100.0 % 
 Allowance for credit losses (146,922) (113,392) 
 Net loans $ 13,440,364 $ 9,279,474 

 
 
 
 
 
 The following table sets forth the scheduled contractual amortization of the Bank’s loan portfolio at December 31, 2021. Loans having no schedule of repayments or no stated maturity are reported as being due in greater than five years. The following table also sets forth the rate structure of loans scheduled to mature after one year: 
 Table 10 - Scheduled Contractual Loan Amortization 
 
 December 31, 2021 
 Commercial and Industrial Commercial
Real Estate Commercial
Construction (1) Small
Business Residential
Real Estate 
 Home Equity Other Consumer Total 
 (Dollars in thousands) 
 Amounts due in: 
 One year or less $ 393,334 $ 1,466,465 $ 253,926 $ 46,084 $ 48,390 $ 28,756 $ 19,227 $ 2,256,182 
 After one year through five years 886,764 2,909,009 436,520 91,935 203,574 97,974 9,189 4,634,965 
 After five years through fifteen years 270,267 2,626,313 277,948 54,782 560,447 871,011 304 4,661,072 
 After fifteen years 12,914 990,557 197,063 388 792,275 41,870 — 2,035,067 
 Total $ 1,563,279 $ 7,992,344 $ 1,165,457 $ 193,189 $ 1,604,686 $ 1,039,611 $ 28,720 $ 13,587,286 
 
 Interest rate terms on amounts due after one year: 
 Fixed rate $ 449,304 $ 2,278,509 $ 452,686 $ 98,428 $ 1,170,201 $ 332,746 $ 9,493 $ 4,791,367 
 Adjustable rate $ 720,641 $ 4,247,370 $ 458,845 $ 48,677 $ 386,095 $ 678,109 $ — $ 6,539,737 
 
 

 (1) Includes certain construction loans that will convert to commercial mortgages and will be reclassified to commercial real estate upon the completion of the construction phase. 
 Generally, the actual maturity of loans is substantially shorter than their contractual maturity due to prepayments and, in the case of real estate loans, due-on-sale clauses, which generally give the Bank the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage and the loan is not repaid. The average life of real estate loans tends to increase when current real estate loan rates are higher than rates on mortgages in the portfolio and, conversely, tends to decrease when rates on mortgages in the portfolio are higher than current real estate loan rates. Due to the fact that the Bank may, consistent with industry practice, renew a significant portion of commercial and 
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 commercial real estate loans at or immediately prior to their maturity by renewing the loans on substantially similar or revised terms, the principal repayments actually received by the Bank are anticipated to be significantly less than the amounts contractually due in any particular period. In other circumstances, a loan, or a portion of a loan, may not be repaid due to the borrower’s inability to satisfy the contractual obligations of the loan. 
 
 
 
 Asset Quality The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, nonperforming and/or put on nonaccrual status. 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. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR"). In addition, the Company has offered need-based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to the COVID-19 pandemic. In accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), these modifications are not accounted for as TDRs or reflected as delinquent or non-accrual loans if the borrower was in compliance with the loan terms as of December 31, 2019. 
 
 Delinquency The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period. 
 
 Nonaccrual Loans As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses. 
 
 Troubled Debt Restructurings In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default. Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include 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. If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan. 
 It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or are delinquent for 90 days or more. Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it may be determined that the borrower is performing under 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. 
 
 
 
 Purchased Credit Deteriorated Loans Purchased Credit Deteriorated ("PCD") loans are acquired loans which have shown a more-than-insignificant deterioration in credit quality since origination. PCD loans are recorded at amortized cost with an allowance for credit losses recorded upon purchase, as appropriate. 
 
 Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate owned ("OREO"). Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still 
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 accruing interest. OREO consists of real estate properties, which have primarily served as collateral to secure loans, that are controlled or owned by the Bank. These properties are recorded at fair value less estimated costs to sell at the date control is established, resulting in a new cost basis. The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) of the foreclosed asset is charged to the allowance for credit losses. Subsequent declines in the fair value of the foreclosed asset below the new cost basis are recorded through the use of a valuation allowance. Subsequent increases in the fair value are recorded as reductions in the valuation allowance, but not below zero. All costs incurred thereafter in maintaining the property are generally charged to noninterest expense. In the event the real estate is utilized as a rental property, net rental income and expenses are recorded as incurred within noninterest expense. 
 
 
 
 The following table sets forth information regarding nonperforming assets held by the Bank at the dates indicated: 
 Table 11 - Nonperforming Assets 
 
 December 31 
 2021 2020 
 (Dollars in thousands) 
 Loans accounted for on a nonaccrual basis 
 Commercial and industrial $ 3,439 $ 34,729 
 Commercial real estate 10,870 10,195 
 Small business 44 825 
 Residential real estate 9,182 15,528 
 Home equity 3,781 5,427 
 Other consumer 504 156 
 Total (1) 27,820 66,860 
 Loans past due 90 days or more but still accruing 
 
 
 
 Other consumer — 1 
 Total — 1 
 Total nonperforming loans 27,820 66,861 
 
 
 Other real estate owned — — 
 Total nonperforming assets $ 27,820 $ 66,861 
 Nonperforming loans as a percent of gross loans 0.20 % 0.71 % 
 Nonperforming assets as a percent of total assets 0.14 % 0.51 % 

 (1) Included in these amounts were nonaccrual TDRs of $2.0 million at December 31, 2021, and $22.2 million at December 31, 2020. 
 
 
 
 The following table summarizes the changes in nonperforming assets for the periods indicated: 
 
 
 Table 12 - Activity in Nonperforming Assets 
 
 2021 2020 
 (Dollars in thousands) 
 Nonperforming assets beginning balance $ 66,861 $ 48,049 
 Acquired nonperforming loans 4,463 — 
 New to nonperforming 13,080 97,632 
 Loans charged-off (4,944) (8,446) 
 Loans paid-off /sold (39,039) (57,666) 
 
 Loans restored to accrual status (13,068) (12,692) 
 
 
 
 
 
 
 Other 467 (16) 
 Nonperforming assets ending balance $ 27,820 $ 66,861 

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 The following table sets forth information regarding TDR loans at the dates indicated: 
 Table 13 - Troubled Debt Restructurings 
 
 December 31 
 2021 2020 
 (Dollars in thousands) 
 Performing troubled debt restructurings $ 14,635 $ 16,983 
 Nonaccrual troubled debt restructurings 1,993 22,209 
 Total $ 16,628 $ 39,192 
 Performing troubled debt restructurings as a % of total loans 0.11 % 0.18 % 
 Nonaccrual troubled debt restructurings as a % of total loans 0.01 % 0.24 % 
 Total troubled debt restructurings as a % of total loans 0.12 % 0.42 % 

 
 
 
 The following table summarizes changes in TDRs for the periods indicated: 
 
 
 Table 14 - Activity in Troubled Debt Restructurings 
 
 2021 2020 
 (Dollars in thousands) 
 TDRs beginning balance $ 39,192 $ 44,365 
 New to TDR status 3,918 2,912 
 
 Paydowns/sold loans (26,466) (8,063) 
 Charge-offs (16) (22) 
 
 TDRs ending balance $ 16,628 $ 39,192 

 
 
 
 Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. The table below shows interest income that was recognized or collected on all nonaccrual loans and TDRs as of the dates indicated: 
 Table 15 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings 
 
 Years Ended December 31 
 2021 2020 2019 
 (Dollars in thousands) 
 The amount of incremental gross interest income that would have been recorded if nonaccrual loans had been current in accordance with their original terms $ 2,721 $ 2,604 $ 3,000 
 The amount of interest income on nonaccrual loans and performing TDRs that was included in net income $ 895 $ 1,720 $ 1,330 

 
 
 
 Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms. At December 31, 2021, there were 47 relationships, with an aggregate balance of $171.0 million, deemed to be potential problem loans. These potential problem loans continued to perform with respect to payments. Management actively monitors these loans and strives to minimize any possible adverse impact to the Company. A portion of the potential problem loans identified by management have been granted a deferral in accordance with the relief options offered in response to the COVID-19 pandemic. If applicable, these potential problem loans with an active deferral as of December 31, 2021 have been included in the table below. 
 
 
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 The Company has offered need-based payment relief options to its customers in response to the COVID-19 pandemic, primarily in the form of payment deferrals, including deferral of principal only, deferral of interest only, or a deferral of principal and interest, depending upon needs of the borrower. Loans that were modified are not accounted for as TDRs or reflected as delinquent or nonaccrual loans if the borrower was in compliance with their loan terms as of December 31, 2019. The following table summarizes remaining active deferrals as of December 31, 2021, the entirety of which were deferrals of principal only: 
 Table 16 - Deferrals by Modification Type 
 
 Deferral of Principal Only Total Portfolio % of Total Portfolio Deferred 
 (Dollars in thousands) 
 Commercial and industrial $ 560 $ 1,563,279 — % 
 Commercial real estate (1) 382,535 9,157,801 4.2 % 
 Business Banking — 193,189 — % 
 Residential real estate — 1,604,686 — % 
 Home equity — 1,039,611 — % 
 Consumer — 28,720 — % 
 Total active deferrals as of December 31, 2021 (2) 
 $ 383,095 $ 13,587,286 2.8 % 

 (1) Balances include commercial construction deferrals. 
 (2) Total active deferrals are inclusive of Meridian acquired deferrals of $194.3 million. 
 
 
 
 
 
 Allowance for Credit Losses The allowance for credit losses is maintained at a level that management considers appropriate to provide for the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. The allowance is adjusted by providing for credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off. 
 In accordance with the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which the Company reverts to its historical long-run average over a period of 6 months. The reasonable and supportable forecast modeled in the allowance for credit losses incorporates an economic scenario which reflects management's assumptions as follows: that some uncertainty remains as the economy recovers, that the federal funds rates will remain near 0% through 2023, and that recent federal stimulus activity will be less effective as consumers are reluctant to spend the funds, that some concerns remain regarding the speed of widespread vaccine administration, and the efficacy and public acceptance of vaccines and the possibility for resurgences of COVID-19 or other variants of the virus. The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio. Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For loans that are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. 
 The allowance for credit losses of $146.9 million at December 31, 2021 represents an increase of $33.5 million, or 29.6% compared to December 31, 2020, driven primarily by $67.2 million in initial allowance reserves recorded on the acquired Meridian loan portfolio, including $50.7 million and $16.5 million attributable to non-PCD and PCD loans, respectively. This increase in allowance was partially offset by a reversal of provision for credit losses of $32.5 million recorded for the year ended December 31, 2021, reflecting decreases in both quantitative and qualitative reserves, driven primarily by improvements in expected overall macro-economic forecast assumptions, continued strong asset quality metrics, along with lower organic loan growth. 
 Decreased quantitative reserves at December 31, 2021 were attributable to continued improvements in credit quality, including decreases in the weighted average probability of default across most portfolios, as well as increased stability in economic variables. Additionally, the allowance for credit losses continues to reflect elevated qualitative reserve allocations to those loan segments that management considers to have heightened loss exposure associated with the COVID-19 pandemic, however the amount of this elevated reserve has decreased and contributed to the release of reserves as COVID-19 restrictions 
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 have lessened. Further qualitative reserves related to loans with non-owner occupied real estate and junior lien home equity collateral positions were also reduced as performance trends within these portfolio segments remained relatively strong during 2021. 
 
 
 
 
 
 
 
 
 
 
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 The following table summarizes the ratio of net charge-offs to average loans outstanding within each major loan category for the periods presented: 
 Table 17 - Summary Net Charge-Offs to Average Loans Outstanding 
 
 Net Charge-Off (Recoveries) Average Amount Outstanding Ratio of Annualized Net Charge-Offs/(Recoveries) to Average Loans 
 (Dollars in thousands) 
 December 31, 2021 
 Commercial and industrial $ 788 $ 1,823,914 0.04 % 
 Commercial real estate (57) 4,702,346 — % 
 Commercial construction — 616,037 — % 
 Small business 121 180,473 0.07 % 
 Residential real estate (1) 1,286,470 — % 
 Home equity (180) 1,025,809 (0.02) % 
 Other consumer 544 23,885 2.28 % 
 Total $ 1,215 $ 9,658,934 0.01 % 
 
 December 31, 2020 
 Commercial and industrial 2,020 1,858,951 0.11 % 
 Commercial real estate 3,876 4,070,462 0.10 % 
 Commercial construction — 561,431 — % 
 Small business 347 171,839 0.20 % 
 Residential real estate 103 1,435,655 0.01 % 
 Home equity (68) 1,116,005 (0.01) % 
 Other consumer 590 25,195 2.34 % 
 Total $ 6,868 $ 9,239,538 0.07 % 
 
 December 31, 2019 
 Commercial and industrial (887) 1,321,798 (0.07) % 
 Commercial real estate 2,462 3,838,526 0.06 % 
 Commercial construction — 478,865 — % 
 Small business 387 169,381 0.23 % 
 Residential real estate (142) 1,483,831 (0.01) % 
 Home equity (78) 1,127,425 (0.01) % 
 Other consumer 811 26,095 3.11 % 
 Total $ 2,553 $ 8,445,921 0.03 % 

 The Company recorded net charge-offs of $1.2 million for 2021 compared to $6.9 million and $2.6 million in 2020 and 2019, respectively. As noted in the table above, net charge-offs incurred by the Company have been minimal for the periods presented, with larger losses being isolated to individual loan workouts, and are not indicative of declining credit quality in the Company's overall loan portfolio. 
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 For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for credit losses is made to each loan category using the analytical techniques and estimation methods described in this Report. While these amounts represent management’s best estimate of credit losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio. 
 The following table sets forth the allocation of the allowance for credit losses by loan category at the dates indicated: 
 Table 18 - Summary of Allocation of Allowance for Credit Losses 
 
 December 31 
 2021 2020 
 Allowance
Amount Percent of Loans In Category of Total Loans Allowance
Amount Percent of Loans In Category of Total Loans 
 (Dollars in thousands) 
 Allocated Allowance 
 Commercial and industrial (1) $ 14,402 11.5 % $ 21,086 22.4 % 
 Commercial real estate 83,486 58.8 % 45,009 44.4 % 
 Commercial construction 12,316 8.6 % 5,397 5.9 % 
 Small business 3,508 1.4 % 5,095 1.9 % 
 Residential real estate 14,484 11.8 % 14,275 13.8 % 
 Home equity 17,986 7.7 % 22,060 11.4 % 
 Other consumer 740 0.2 % 470 0.2 % 
 Total $ 146,922 100.0 % $ 113,392 100.0 % 

 (1) Total loans in this category are inclusive of $216.2 million and $791.9 million in loans, at December 31, 2021 and 2020, respectively, which were originated as part of the PPP established by the CARES Act. These loans have been excluded from the credit loss calculations as these loans are 100% guaranteed by the U.S. Government. 
 To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of the Bank’s collateral, and the strength of co-makers or guarantors. When available information confirms that specific loans or portions thereof are uncollectible, these amounts are promptly charged-off against the allowance for credit losses and any recoveries of such previously charged-off amounts are credited to the allowance. 
 Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral. 
 For additional information regarding the Bank’s allowance for credit losses, see Note 1, "Summary of Significant Accounting Policies" and Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to the Consolidated Financial Statements included in Item 8 of this Report. 
 
 
 
 Federal Home Loan Bank Stock The Bank held an investment in Federal Home Loan Bank ("FHLB") of Boston, of $11.4 million and $10.3 million at December 31, 2021 and December 31, 2020, respectively. The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding as a tool to manage liquidity and interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company either purchases additional FHLB stock or is subject to redemption of FHLB stock proportional to the volume of funding received. The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. 
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 Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets were $1.0 billion and $529.3 million at December 31, 2021 and December 31, 2020, respectively. The increase in 2021 is primarily due to the Meridian acquisition, partially offset by amortization of definite-lived intangibles. The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted. Accordingly, the Company last performed its annual goodwill impairment testing during the third quarter of 2021 and determined that the Company's goodwill was not impaired as of September 30, 2021. Other intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. There were no events or changes that indicated impairment of other intangible assets. For additional information regarding the goodwill and other intangible assets, see Note 7, "Goodwill and Other Intangible Assets " within the Notes to Consolidated Financial Statements included in Item 8 hereof. 
 
 Cash Surrender Value of Life Insurance Policies The Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans. The cash surrender value of life insurance policies was $289.3 million and $200.5 million at December 31, 2021 and December 31, 2020, respectively, reflecting primarily $42.9 million in policies obtained in the Meridian acquisition, in addition to new policy purchases made during 2021. The Company recorded tax exempt income from life insurance policies in the amounts of $6.4 million, $5.4 million, and $5.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company also recorded gains on life insurance benefits of $258,000, $1.0 million, and $434,000 for the years ended December 31, 2021, 2020 and 2019, respectively. 
 
 Deposits At December 31, 2021, total deposits were $16.9 billion, representing a $5.9 billion, or 53.9%, increase from the prior year-end, reflecting primarily $4.4 billion in balances acquired from Meridian, in addition to robust new account opening activity and the ongoing impact of government stimulus payments which resulted in organic deposit growth of $1.5 billion, or 13.5%, compared to December 31, 2020. Core deposits represented 84.5% of total deposits at December 31, 2021, reflecting primarily a higher ratio of noncore-time deposits acquired from Meridian. The total cost of deposits was 0.07% for the year ended December 31, 2021, representing a decrease from the prior year of 20 basis points. 
 
 The Company also participates in the IntraFi Network, allowing the Bank to provide easy access to multi-million dollar Federal Deposit Insurance Corporation ("FDIC") deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities. This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market and amounted to $998.1 million and $237.9 million in deposits, at December 31, 2021 and December 31, 2020, respectively. In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to $141.6 million and $8.5 million, at December 31, 2021 and December 31, 2020, respectively. The aforementioned increases in funding through both the IntraFi Network and brokered deposits during 2021 were primarily the result of deposit balances acquired from Meridian. 
 
 Excluding the effects of the Meridian acquisition, the Company's deposits have increased on a net organic basis as compared to the prior year end as summarized in the table below: 
 Table 19 - Components of Deposit Growth/(Decline) 
 
 December 31
2021 December 31
2020 Meridian Bancorp Acquisition Organic Growth/(Decline) $ Organic Growth/(Decline) % 
 (Dollars in thousands) 
 Noninterest-bearing demand deposits $ 5,479,503 $ 3,762,306 $ 819,792 $ 897,405 23.9 % 
 Savings and interest checking 6,350,016 4,047,332 1,647,600 655,084 16.2 % 
 Money market 3,556,375 2,232,903 1,156,563 166,909 7.5 % 
 Time certificates of deposits 1,531,150 950,629 816,477 (235,956) (24.8) % 
 Total $ 16,917,044 $ 10,993,170 $ 4,440,432 $ 1,483,442 13.5 % 

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 Scheduled maturities of time deposits not covered by deposit insurance at December 31, 2021, were as follows: 
 Table 20 - Maturities of Uninsured Time Deposits 
 
 December 31, 2021 
 (Dollars in thousands) 
 Due within 3 months or less $ 92,441 
 Due after 3 months through 6 months 51,096 
 Due after 6 months through 12 months 53,352 
 Due after 12 months 141,985 
 Total uninsured deposits (1) 338,874 

 (1) Amounts of uninsured time deposits presented in the table above are estimates determined based upon a relative proportion of customer account balances in excess of FDIC insurance limits, and in a manner consistent with the Company's regulatory reporting requirements. 
 
 
 
 Borrowings The Company's borrowings consist of both short-term and long-term borrowings and provide the Bank with one of its primary sources of funding. Maintaining available borrowing capacity provides the Bank with a contingent source of liquidity. Borrowings decreased by $28.7 million, or 15.8%, at December 31, 2021, as compared to December 31, 2020, reflecting primarily the repayment of outstanding debt, including the maturity of a $10.0 million advance from the Federal Home Loan Bank. The Company assumed $576.1 million in borrowings as part of its acquisition of Meridian, the entirety of which was paid off subsequent to the acquisition. See Note 9, "Borrowings" within the Notes to Consolidated Financial Statements included in Item 8 of this Report for more information regarding borrowings. 
 
 Capital Resources The Federal Reserve Board ("Federal Reserve"), the FDIC, and other regulatory agencies have established risk-based capital guidelines for banks and bank holding companies that require banks to meet a minimum Common Equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0% and a total capital ratio of 8.0%. A minimum requirement of 4.0% Tier 1 leverage capital is also mandated. In addition, the Company is required to maintain a minimum capital conservation buffer of 2.5%, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. At December 31, 2021, the Company and the Bank exceeded the minimum requirements for Common Equity Tier 1 capital, Tier 1 capital, total capital, and Tier 1 leverage capital, inclusive of the capital conservation buffer. See Note 20, "Regulatory Matters " within the Notes to Consolidated Financial Statements included in Item 8 of this Report for more information regarding capital requirements. 
 
 
 
 
 Results of Operations 
 
 
 Table 21 - Summary of Results of Operations 
 
 
 Years Ended December 31 
 2021 2020 
 (Dollars in thousands, except per share data) 
 Net income $ 120,992 $ 121,167 
 Diluted earnings per share $ 3.47 $ 3.64 
 Return on average assets 0.81 % 0.96 % 
 Return on average equity 6.34 % 7.13 % 
 Stockholders' equity as % of assets 14.78 % 12.89 % 
 Net interest margin 3.02 % 3.29 % 

 
 
 
 Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities. 
 On a fully tax-equivalent basis, net interest income was $402.9 million for the year ended December 31, 2021, representing a 9.3% increase from net interest income of $368.7 million for the year ended December 31, 2020. The increase was attributable primarily to PPP fee recognition of $26.5 million for the twelve months ended December 31, 2021 in comparison to $9.1 million for the prior year, in addition to increased average interest-earning assets resulting from the 2021 fourth quarter Meridian acquisition. 
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 The following table presents the Company’s average balances, net interest income, interest rate spread, and net interest margin for the years ended December 31, 2021, 2020 and 2019. Nontaxable income from loans and securities is presented on a fully tax-equivalent basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing federal income taxes that would have been paid if the income had been fully taxable. 
 Table 22 - Average Balance, Interest Earned/Paid & Average Yields 
 
 Years Ended December 31 
 2021 2020 2019 
 Average Balance Interest Earned/ Paid Average Yield Average Balance Interest Earned/ Paid Average Yield Average Balance Interest Earned/ Paid Average Yield 
 (Dollars in thousands) 
 Interest-earning assets 
 Interest-earning deposits with banks, federal funds sold, and short term investments $ 1,864,346 $ 2,494 0.13 % $ 748,419 $ 847 0.11 % $ 97,028 $ 2,207 2.27 % 
 Securities 
 Securities - trading 3,344 — — % 2,481 — — % 1,876 — — % 
 Securities - taxable investments 1,795,199 30,477 1.70 % 1,164,439 30,133 2.59 % 1,176,992 32,405 2.75 % 
 Securities - nontaxable investments (1) 469 20 4.26 % 1,142 44 3.85 % 1,673 66 3.95 % 
 Total securities 1,799,012 30,497 1.70 % 1,168,062 30,177 2.58 % 1,180,541 32,471 2.75 % 
 Loans held for sale 34,056 856 2.51 % 44,521 1,218 2.74 % 40,858 891 2.18 % 
 Loans (2) 
 Commercial and industrial 1,823,914 79,752 4.37 % 1,858,951 70,335 3.78 % 1,321,798 74,208 5.61 % 
 Commercial real estate (1) 4,702,346 185,908 3.95 % 4,070,462 171,013 4.20 % 3,838,526 187,902 4.90 % 
 Commercial construction 616,037 24,696 4.01 % 561,431 22,950 4.09 % 478,865 27,263 5.69 % 
 Small business 180,473 9,276 5.14 % 171,839 9,529 5.55 % 169,381 10,280 6.07 % 
 Total commercial 7,322,770 299,632 4.09 % 6,662,683 273,827 4.11 % 5,808,570 299,653 5.16 % 
 Residential real estate 1,286,470 46,279 3.60 % 1,435,655 53,876 3.75 % 1,483,831 59,375 4.00 % 
 Home equity 1,025,809 35,160 3.43 % 1,116,005 40,996 3.67 % 1,127,425 51,164 4.54 % 
 Total consumer real estate 2,312,279 81,439 3.52 % 2,551,660 94,872 3.72 % 2,611,256 110,539 4.23 % 
 Other consumer 23,885 1,668 6.98 % 25,195 2,055 8.16 % 26,095 2,216 8.49 % 
 Total loans 9,658,934 382,739 3.96 % 9,239,538 370,754 4.01 % 8,445,921 412,408 4.88 % 
 Total Interest-Earning Assets 13,356,348 416,586 3.12 % 11,200,540 402,996 3.60 % 9,764,348 447,977 4.59 % 
 Cash and Due from Banks 152,723 125,896 118,295 
 Federal Home Loan Bank Stock 10,283 15,843 15,692 
 Other Assets 1,335,193 1,263,332 976,962 
 Total Assets $ 14,854,547 $ 12,605,611 $ 10,875,297 
 
 Interest-bearing liabilities 
 Deposits 
 Savings and interest checking accounts $ 4,590,055 $ 1,610 0.04 % $ 3,688,360 $ 4,413 0.12 % $ 3,121,120 $ 8,366 0.27 % 
 Money market 2,516,871 1,930 0.08 % 2,041,853 6,166 0.30 % 1,817,394 15,135 0.83 % 
 Time certificates of deposits 936,046 4,787 0.51 % 1,155,399 16,754 1.45 % 1,250,577 17,685 1.41 % 
 Total interest bearing deposits 8,042,972 8,327 0.10 % 6,885,612 27,333 0.40 % 6,189,091 41,186 0.67 % 
 Borrowings 
 Federal Home Loan Bank borrowings 41,556 897 2.16 % 162,776 1,564 0.96 % 178,658 4,438 2.48 % 
 
 

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 Line of credit — — — % — — — % 2,673 104 3.89 % 
 Long-term borrowings 21,072 331 1.57 % 54,082 1,176 2.17 % 57,270 2,073 3.62 % 
 Junior subordinated debentures 62,852 1,692 2.69 % 62,850 1,798 2.86 % 67,581 2,388 3.53 % 
 Subordinated debt 49,741 2,470 4.97 % 49,647 2,470 4.98 % 70,070 3,690 5.27 % 
 Total borrowings 175,221 5,390 3.08 % 329,355 7,008 2.13 % 376,252 12,693 3.37 % 
 Total interest-bearing liabilities 8,218,193 13,717 0.17 % 7,214,967 34,341 0.48 % 6,565,343 53,879 0.82 % 
 Noninterest-bearing demand deposits 4,443,410 3,386,140 2,607,763 
 Other liabilities 284,679 304,957 180,270 
 Total liabilities 12,946,282 10,906,064 9,353,376 
 Stockholders’ equity 1,908,265 1,699,547 1,521,921 
 Total liabilities and stockholders’ equity $ 14,854,547 $ 12,605,611 $ 10,875,297 
 Net interest income (1) $ 402,869 $ 368,655 $ 394,098 
 Interest rate spread (3) 2.95 % 3.12 % 3.77 % 
 Net interest margin (4) 3.02 % 3.29 % 4.04 % 
 Supplemental Information 
 Total deposits, including demand deposits $ 12,486,382 $ 8,327 $ 10,271,752 $ 27,333 $ 8,796,854 $ 41,186 
 Cost of total deposits 0.07 % 0.27 % 0.47 % 
 Total funding liabilities, including demand deposits $ 12,661,603 $ 13,717 $ 10,601,107 $ 34,341 $ 9,173,106 $ 53,879 
 Cost of total funding liabilities 0.11 % 0.32 % 0.59 % 

 (1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $1.3 million, $927,000 and $963,000 for 2021, 2020 and 2019, respectively. 
 (2) Includes average nonaccruing loans. 
 (3) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average costs of interest-bearing liabilities. 
 (4) Net interest margin represents net interest income as a percentage of average interest-earning assets. 
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 The following table presents certain information on a fully-tax equivalent basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate) and (3) changes in volume/rate (change in rate multiplied by change in volume) which is allocated to the change due to rate column: 
 Table 23 - Volume Rate Analysis 
 
 Years Ended December 31 
 2021 Compared To 2020 2020 Compared To 2019 2019 Compared To 2018 
 Change
Due to
Rate Change
Due to
Volume Total
Change Change
Due to
Rate Change
Due to
Volume Total
Change Change
Due to
Rate Change
Due to
Volume Total
Change 
 (Dollars in thousands) 
 Income on interest-earning assets 
 Interest-earning deposits, federal funds sold and short term investments $ 384 $ 1,263 $ 1,647 $ (16,177) $ 14,817 $ (1,360) $ 300 $ (769) $ (469) 
 Securities 
 
 Taxable securities (15,979) 16,323 344 (1,926) (346) (2,272) 1,191 4,701 5,892 
 Nontaxable securities (1) 2 (26) (24) (1) (21) (22) 5 (15) (10) 
 Total securities 320 (2,294) 5,882 
 Loans held for sale (76) (286) (362) 247 80 327 (313) 1,045 732 
 Loans 
 Commercial and industrial 10,743 (1,326) 9,417 (34,030) 30,157 (3,873) 11,106 17,348 28,454 
 Commercial real estate (11,652) 26,547 14,895 (28,243) 11,354 (16,889) 11,174 32,683 43,857 
 Commercial construction (486) 2,232 1,746 (9,014) 4,701 (4,313) 2,915 4,733 7,648 
 Small business (732) 479 (253) (900) 149 (751) 365 1,553 1,918 
 Total commercial 25,805 (25,826) 81,877 
 Residential real estate (1,999) (5,598) (7,597) (3,571) (1,928) (5,499) 62 27,545 27,607 
 Home equity (2,523) (3,313) (5,836) (9,650) (518) (10,168) 4,155 2,504 6,659 
 Total consumer real estate (13,433) (15,667) 34,266 
 Total other consumer (280) (107) (387) (85) (76) (161) 166 1,098 1,264 
 Loans (1) 11,985 (41,654) 117,407 
 Total $ 13,590 $ (44,981) $ 123,552 
 Expense of interest-bearing liabilities 
 Deposits 
 Savings and interest checking accounts $ (3,882) $ 1,079 $ (2,803) $ (5,473) $ 1,520 $ (3,953) $ 1,813 $ 971 $ 2,784 
 Money market (5,670) 1,434 (4,236) (10,838) 1,869 (8,969) 5,216 2,454 7,670 
 Time certificates of deposits (8,786) (3,181) (11,967) 415 (1,346) (931) 4,439 6,298 10,737 
 Total interest-bearing deposits (19,006) (13,853) 21,191 
 Borrowings 
 Federal Home Loan Bank borrowings 498 (1,165) (667) (2,479) (395) (2,874) 1,210 2,145 3,355 
 Customer repurchase agreements and other short-term borrowings — — — — — — — (248) (248) 
 Line of Credit — (104) (104) 104 — 104 
 Long-term borrowings (127) (718) (845) (782) (115) (897) 2,073 — 2,073 
 
 Junior subordinated debentures (106) — (106) (423) (167) (590) 87 (200) (113) 
 Subordinated debt (5) 5 — (144) (1,076) (1,220) 239 1,742 1,981 
 Total borrowings (1,618) (5,685) 7,152 
 Total $ (20,624) $ (19,538) $ 28,343 
 Change in net interest income $ 34,214 $ (25,443) $ 95,209 

 (1) The table above reflects income determined on a fully tax equivalent basis. See footnotes to Table 22 above for the related adjustments. 
 
 
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 Provision For Credit Losses The provision for credit losses represents the charge to expense that is required to maintain an adequate level of allowance for credit losses. The provision for credit losses totaled $18.2 million for the year ended December 31, 2021, compared with $52.5 million for the year ended December 31, 2020. The provision for credit losses for 2021 included $50.7 million of provision required to establish an allowance for credit losses on non-purchased credit deteriorated loans acquired from Meridian, offset by a $32.5 million release of credit reserves, reflecting primarily continued improvement in expected asset quality metrics and overall macro-economic assumptions. The elevated provision for credit losses for the year ended December 31, 2020 was driven primarily by anticipated credit losses related to the COVID-19 pandemic. The Company’s allowance for credit losses, as a percentage of total loans, was 1.08% at December 31, 2021, as compared to 1.21% at December 31, 2020. Net charge-offs for the years ended December 31, 2021 and 2020 totaled $1.2 million and $6.9 million, respectively. See Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Item 8 of this Report, for further details surrounding the primary drivers of the provision for credit losses during the period. 
 
 
 
 
 
 
 Noninterest Income The following table sets forth information regarding noninterest income for the periods shown: 
 Table 24 - Noninterest Income 
 
 Years Ended December 31 
 Change 
 2021 2020 Amount % 
 (Dollars in thousands) 
 Deposit account fees $ 16,745 $ 15,121 $ 1,624 10.7 % 
 Interchange and ATM fees 12,987 15,834 (2,847) (18.0) % 
 Investment management 35,308 29,432 5,876 20.0 % 
 Mortgage banking income 13,280 18,948 (5,668) (29.9) % 
 Increase in cash surrender value of life insurance policies 6,431 5,362 1,069 19.9 % 
 Gain on life insurance benefits 258 1,044 (786) (75.3) 
 
 
 
 Loan level derivative income 3,257 10,058 (6,801) (67.6) % 
 Other noninterest income 17,584 15,641 1,943 12.4 % 
 Total $ 105,850 $ 111,440 $ (5,590) (5.0) % 

 The primary reasons for significant variances in the noninterest income categories shown in the preceding table are noted below: 
 Deposit account fees increased year over year due primarily to higher overdraft fees which were impacted in the prior year by the timing and extent of government mandated shutdowns and social distancing measures, as well as the timing of economic stimulus payments received by customers. 
 Interchange and ATM fees decreased during the year, mostly reflective of the negative impact of the Durbin Amendment, which the Company became subject to effective July 1, 2020 as a result of crossing the $10 billion asset threshold. 
 Investment management revenue increased primarily due to growth in overall assets under administration, which grew 15.7% from $4.9 billion at December 31, 2020 to $5.7 billion at December 31, 2021, along with overall more favorable market conditions during 2021. 
 Mortgage banking income decreased in comparison to the prior year, primarily due to a larger portion of new residential originations being retained in the Company's portfolio versus being sold in the secondary market in comparison to the prior year. 
 Loan level derivative income decreased primarily as a result of lower customer demand during 2021 in comparison to the prior year. 
 Other noninterest income increased during the year, primarily due to increases in income recognized from other investments, income from like-kind exchanges, capital gains distributions on equity securities, business credit card interchange fees and commercial loan late charge fees, offset partially by decreases in unrealized gains on equity securities, rental income from equipment leases, and FHLB dividend income. 
 
 
 
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 Noninterest Expense The following table sets forth information regarding noninterest expense for the periods shown: 
 Table 25 - Noninterest Expense 
 
 Years Ended December 31 
 Change 
 2021 2020 Amount % 
 (Dollars in thousands) 
 Salaries and employee benefits $ 172,586 $ 152,460 $ 20,126 13.2 % 
 Occupancy and equipment 36,265 37,050 (785) (2.1) % 
 Data processing and facilities management 6,899 6,265 634 10.1 % 
 FDIC assessment 3,980 2,522 1,458 57.8 % 
 Advertising 4,085 4,258 (173) (4.1) % 
 Consulting 8,271 5,987 2,284 38.1 % 
 Amortization of intangible assets 5,715 6,135 (420) -6.8 % 
 Debit card expense 5,144 4,374 770 17.6 % 
 Lease impairment — 4,163 (4,163) nm 
 Loss on sale of other equity investments — 1,033 (1,033) nm 
 
 Loss on termination of derivatives — 684 (684) nm 
 Merger & acquisitions 40,840 — 40,840 nm 
 Software maintenance 8,149 7,264 885 12.2 % 
 Other noninterest expense 40,595 41,637 (1,042) (2.5) % 
 Total $ 332,529 $ 273,832 $ 58,697 21.4 % 

 The use of "nm" indicated that the percentage was not meaningful. 
 The primary reasons for significant variances in the noninterest expense categories shown in the preceding tables are noted below: 
 The increase in salaries and employee benefits in comparison to the prior was driven by increases in incentive programs, commissions, payroll taxes, and general salary increases, which included the impact of an expanded employee base from the Meridian acquisition which closed during the fourth quarter of 2021. 
 Occupancy and equipment expense decreases were primarily attributable to decreased computer hardware and software costs which were elevated in the prior year to facilitate remote work for employees after the onset of the COVID-19 pandemic, along with reduced depreciation due to a reduction in leased equipment. These decreases were partially offset by increases in general equipment maintenance and repairs, in addition to increased costs attributable to the acquired Meridian branch network. 
 FDIC assessment expense increased during 2021 in comparison to the prior year as the Company previously benefited from a small bank assessment credit, which resulted in no expense for the first quarter of 2020 and reduced expense for the second quarter of 2020. The Company's assessment base has also increased in comparison to the prior year, further increasing the expense. 
 Consulting expense increased in 2021 in conjunction with the Company's overall growth and implementation of strategic initiatives. 
 In 2020, the Company recorded an impairment charge of $4.2 million reflecting accelerated lease termination costs and the write-off of leasehold improvements related to two branch closure decisions made during the quarter. During the 2021, the Company recognized approximately $2.3 million in impairment charges associated with several branch closure decisions as part of its acquisition of Meridian, however these charges were recorded within merger and acquisition expense. 
 Merger and acquisition expenses in 2021 were attributable to the Meridian acquisition. The majority of these costs included change-in-control contracts, severance, branch closure and conversion costs, contract terminations costs and other integration costs. There were no merger and acquisition costs incurred during 2020. 
 Other noninterest expenses decreased in 2021 in comparison to the prior year, primarily due to decreased prepayment fees on borrowings, loss on the sale of fixed assets, office supplies, retail branch traffic control, partially offset by increases in legal fees, telecommunications expense, and service charges to correspondent banks. 
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 Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes. The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated: 
 Table 26 - Tax Provision and Applicable Tax Rates 
 
 Years Ended December 31 
 2021 2020 2019 
 (Dollars in thousands) 
 Combined federal and state income tax provisions $ 35,683 $ 31,669 $ 52,933 
 Effective income tax rates 22.78 % 20.72 % 24.27 % 
 Blended Statutory tax rate 27.92 % 27.92 % 27.89 % 

 
 
 
 The Company’s effective tax rate for 2021 is higher as compared to the year ago period primarily due to the impact of discrete items, which are subject to fluctuation year over year. The discrete tax amounts for the year ended December 31, 2020 include a benefit of $4.8 million associated with the net operating loss (NOL) carryback provision of the CARES Act. This NOL was generated in relation to the Blue Hills Bancorp.("BHB acquisition"). The effective tax rates reported in the table above are lower than the blended statutory tax rates due to the aforementioned discrete items as well as certain tax preference assets such as life insurance policies, tax exempt bonds, and federal tax credits. The Company’s blended statutory tax rate for the year ended December 31, 2021 is consistent with the 2020 period. 
 
 The Company invests in various low-income housing projects which are real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing developments. As a limited partner in these operating partnerships, the Company receives tax credits and tax deductions for losses incurred by the underlying properties. The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2039, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships at December 31, 2021 was $179.5 million, of which $106.1 million has been funded. The Company recognized a net tax benefit of approximately $2.3 million for 2021 and anticipates additional net tax benefits of $25.4 million over the remaining life of the investments from the combination of tax credits and operating losses. 
 For additional information related to the Company's income taxes see Note 12, "Income Taxes" and Note 13, "Low Income Housing Project Investments" within the Notes to the Consolidated Financial Statements included in Item 8 of this Report. 
 
 Dividends The Company declared quarterly cash dividends totaling $1.92 per common share in 2021 and $1.84 per common share in 2020. The 2021 and 2020 ratio of dividends paid to earnings was 51.85% and 50.21%, respectively. 
 Since substantially all of the funds available for the payment of dividends are derived from the Bank, future dividends of the Company will depend on the earnings of the Bank, its financial condition, its need for funds, applicable governmental policies and regulations, and other such matters as the Board of Directors deems appropriate. 
 
 Comparison of 2020 vs. 2019 For a discussion of our results for the year ended December 31, 2020 compared to the year ended December 31, 2019, please see Item 7. " Management's Discussion and Analysis of Financial Condition and Results of Operations" i n our Annual Report on Form 10-K filed with the SEC on February 2 6 , 202 1 . 
 
 
 
 
 
 Risk Management 
 
 
 The Board of Directors has approved an Enterprise Risk Management Policy to state the Company’s goals and objectives in identifying, measuring, and managing the risks associated with the Company’s current and near future anticipated size and complexity. Management is responsible for comprehensive enterprise risk management, and continually strives to adopt and implement practices that strike an appropriate balance between risk and reward and permit the achievement of strategic goals in a controlled environment. 
 
 
 The Company has implemented the “three lines of defense” enterprise risk management model. The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks. The second line of defense is the Chief Risk 
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 Officer and the risk department, who monitor and provide advice with respect to first line risk management. The third line of defense is independent assurance performed by the Chief Internal Auditor, who reports to the Audit Committee of the Company's Board of Directors, and by the Company's internal audit department. 
 
 
 The Board of Directors, with the assistance of its Risk Committee, oversees management’s enterprise risk management practices. As risks must be taken to create value, the Board of Directors has approved a Risk Appetite Statement that defines the acceptable residual risk tolerances for the Company and the seven major risk types identified as having the potential to create significant adverse impacts on the Company, such as financial losses, reputational damage, legal or regulatory actions, nonachievement of strategic objectives, diminished customer experience, and/or cultural erosion. The seven major risk types identified by the Company and addressed in the Risk Appetite Statement are strategic risk, culture risk, credit risk, liquidity risk, market risk, operational risk, and reputation risk, each of which is discussed below. 
 
 Strategic Risk Strategic risk is the risk arising from adverse strategic or business decisions, misalignment of strategic direction with the Company’s mission and values, failure to execute strategies or tactics, or an inadequate adaptation or lack of responsiveness to industry and/or operating environment changes. Management seeks to mitigate strategic risk through strategic planning, frequent executive review of strategic plan progress, monitoring of competitors and technology, assessment of new products, new branches, and new business initiatives, customer advocacy, and crisis management planning. 
 
 
 
 Culture Risk Culture risk is the risk arising from failed leadership and/or ineffective colleague engagement and workplace management that causes the Company to lose sight of core values and, through acts or omissions, damage the relationship-based culture which has been one of the foundations of the Company’s consistent success. Management seeks to mitigate culture risk through effective employee relations, leadership that encourages continuous improvement, cultural development and reinforcement of core values, communication of clear ethical and behavioral standards, consistent enforcement of policies and programs, discipline of misbehavior, alignment of incentives and compensation, and by promoting diversity, equity, and inclusion. 
 
 Credit Risk Credit risk is the risk arising from the failure of a borrower or a counterparty to a contract to make payments as agreed, and includes the risks arising from inadequate collateral and mismanagement of loan concentrations. While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results. The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans. For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 4, “Loans, Allowance for Credit Losses and Credit Quality” within the Notes to Consolidated Financial Statements included in Item 8 of this Report . 
 
 
 
 Liquidity Risk Liquidity risk is the risk arising from the Company being unable to meet obligations when due. Liquidity risk includes the inability to access funding sources or manage fluctuations in available funding levels. Liquidity risk also results from a failure to recognize or address market condition changes that affect the ability to liquidate assets quickly with minimal value loss. 
 
 
 The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities. The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors. 
 The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which is an analysis of the relationship between liquid assets plus available Federal Home Loan Bank funding, less short-term liabilities relative to total assets, was within policy limits at December 31, 2021. The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings. An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure. Other factors affecting the Total Basic Surplus/Deficit include Federal Home Loan Bank collateral requirements, securities portfolio changes, and the mix of deposits. 
 
 
 The Company seeks to increase deposits without adversely impacting its weighted average funding cost. As a result of PPP loan fundings, government stimulus programs, and a customer focus on retaining liquidity, the Company experienced significant deposit growth and a buildup of liquidity throughout 2021. In consideration of the Company's strong capital position, the Company has put in a place a stock buyback plan, which authorizes repurchases of up to $140 million in common stock and will be in effect through January 18, 2023. The plan was previously approved by the Company's Board of Directors, pending the receipt of non-objection from the Federal Reserve, which was received on January 19, 2022. 
 
 
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 The Company also maintains a variety of liquidity sources, including Federal Home Loan Bank advances, Federal Reserve borrowing capacity, and repurchase agreement lines. These funding sources serve as a contingent source of liquidity and, when profitable lending and investment opportunities exist, the Company may access them to provide the liquidity needed to grow the balance sheet. The amount and type of assets that the Company has available to pledge impacts the Company's Federal Home Loan Bank and Federal Reserve borrowing capacity. For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a pledged commercial loan may increase borrowing capacity in a lower amount. The Company’s lending decisions, therefore, can also affect its liquidity position. 
 
 
 The Company may also have the ability to raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion. The availability and cost of equity or debt on an unsecured basis is dependent on many factors, including the Company’s financial position, the market environment, and the Company’s credit rating. The Company monitors the factors that could impact its ability to raise liquidity through these channels. 
 
 The table below shows current and unused liquidity capacity from various sources at the dates indicated: 
 Table 27 - Sources of Liquidity 
 
 December 31 
 2021 2020 
 Outstanding Additional
Borrowing Capacity Outstanding Additional
Borrowing Capacity 
 (Dollars in thousands) 
 Federal Home Loan Bank borrowings (1) $ 25,667 $ 1,622,494 35,740 1,372,671 
 Federal Reserve Bank of Boston (2) — 1,176,486 — 1,355,809 
 Unpledged securities — 1,897,148 — 716,961 
 Line of Credit — 50,000 — 50,000 
 Long-term borrowings (3) 14,063 — 32,773 — 
 
 
 Junior subordinated debentures (3) 62,853 — 62,851 — 
 Subordinated debt (3) 49,791 — 49,696 — 
 Reciprocal deposits (3) 998,121 — 237,902 — 
 Brokered deposits (3) 141,572 — 8,538 — 
 $ 1,292,067 $ 4,746,128 $ 427,500 $ 3,495,441 

 (1) Loans with a carrying value of $2.3 billion and $2.1 billion at December 31, 2021 and 2020, respectively, have been pledged to the Federal Home Loan Bank of Boston resulting in this additional borrowing capacity. 
 (2) Loans with a carrying value of $1.8 billion and $1.9 billion at December 31, 2021 and 2020, respectively, have been pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity. 
 (3) The additional borrowing capacity has not been assessed for these categories. 
 In addition to customary operational liquidity practices, the Board of Directors and management recognize the need to establish reasonable guidelines to manage a heightened liquidity risk environment. Catalysts for elevated liquidity risk can be Company-specific issues and/or systemic industry-wide events. It is therefore the responsibility of management to institute systems and controls designed to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute responses that may alleviate or circumvent a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and appropriately address them in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and establish and execute an appropriate response. 
 
 Market Risk Market risk is the risk arising from changes in interest rates and the value of investments due to market conditions or other external factors or events. The Company’s primary market risk exposure is interest rate risk. 
 
 
 Interest rate risk is the sensitivity of income to changes in interest rates. Interest rate changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest rate risk arises directly from the Company’s core banking activities. In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects. 
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 Management strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons. The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary within limits management deems prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors, and caps. 
 
 
 The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis. Key assumptions in these analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g., demand deposit, negotiable order of withdrawal, savings, and money market accounts). In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans. The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined with precision and actual behavior may differ from assumptions to a significant degree. 
 
 
 Based upon the net interest income simulation models, the Company currently forecasts that assets are anticipated to re-price faster than liabilities. As a result, net interest income will be positively impacted as market rates increase and negatively impacted if market rates decrease. The Company runs several scenarios to quantify and effectively assist in managing interest rate risk, including instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary given the interest rate environment. The results of such scenarios are outlined in the table below: 
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 Table 28 - Interest Rate Sensitivity 
 
 Years Ended December 31 
 2021 2020 
 Year 1 Year 2 Year 1 Year 2 
 Parallel rate shocks (basis points) 
 
 -100 (4.5)% (12.3)% (1.8)% (11.9)% 
 +100 5.4% 6.8% 6.0% 1.8% 
 +200 11.4% 16.7% 12.6% 11.5% 
 +300 17.8% 27.2% 19.6% 21.3% 
 +400 23.9% 37.5% 26.0% 30.6% 
 
 Gradual rate shifts (basis points) 
 
 -100 over 12 months (1.6)% (9.9)% (0.7)% (11.0)% 
 +200 over 12 months 5.4% 14.7% 5.8% 9.0% 
 +400 over 24 months 5.4% 22.7% 5.8% 16.1% 
 
 Alternative scenarios 
 Yield curve twist (1) n/a n/a 1.5% 3.0% 

 (1) In the yield curve twist scenario, rates increase 200 basis points over a two year horizon. The parallel shift occurs faster on the long end of the curve than it does on the short end, creating a temporary increase in the steepness of the curve during the interim period of the twist. 
 
 
 The results depicted in the table above are dependent on material assumptions. For instance, asymmetrical rate behavior can have a material impact on the simulation results. If competition for deposits prompts the Company to raise rates on those liabilities more quickly than is assumed in the simulation analysis without a corresponding increase in asset yields, net interest income would be negatively impacted. Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted. 
 
 
 The most significant market factors affecting the Company’s net interest income during the year ended December 31, 2021 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime, LIBOR, Secured Overnight Funding Rate ("SOFR") and other interest rates being offered on long-term fixed rate loans. 
 
 
 The Company manages the interest rate risk inherent in both its loan and borrowing portfolios by using interest rate swap agreements and interest rate caps and floors. An interest rate swap is an agreement in which one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from the other party. Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized. While interest is paid or received in swap, cap, and floors agreements, the notional principal amount is not actually exchanged. The Company may also manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts under which the Company agrees to deliver whole mortgage loans to various investors. See Note 11," Derivatives and Hedging Activities " within Notes to Consolidated Financial Statements included in Item 8 of this Report for additional information regarding the Company’s derivative financial instruments. 
 The Company’s earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines. See Note 3 , "Securities " within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 Operational Risk Operational risk is the risk arising from human error or misconduct, transaction errors or delays, inadequate or failed internal systems or processes, data unavailability, loss, or poor quality, or adverse external events. Operational risk includes business resiliency risk, consumer compliance risk, data governance risk, fraud risk, information security risk, information technology risk, legal risk, model risk, regulatory compliance risk, and third party vendor risk. Potential operational risk exposure exists throughout the Company. The continued effectiveness of colleagues, technical systems, operational infrastructure, and relationships with key third party service providers are integral to mitigating operational risk, and any shortcomings subject the Company to risks that vary in size, scale and scope. Operational risks include operational or technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness 
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 or exposure due to interruption in third party support, as well as the loss of key individuals or a failure of key individuals to perform properly. 
 
 Reputational Risk Reputational risk is the risk arising from negative public opinion of the Company and the Bank. Management seeks to mitigate reputational risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring. 
 
 
 
 Contractual Obligations, Commitments, Contingencies and Off-Balance Sheet Obligations 
 
 
 In the ordinary course of business the Company has entered into contractual obligations, commitments, residential loans sold with recourse and other off-balance sheet financial instruments. Refer to the accompanying notes to consolidated financial statements in this report for further information and the expected timing of the applicable payments as of December 31, 2021. These include payments related to (i) borrowings (Note 9 - Borrowings ), (ii) lease obligations ( Note 18 - Leases), (iii) time deposits with stated maturity dates ( Note 8 - Deposits ), (iv) commitments to extend credit ( Note 19 - Commitments and Contingencies ), (v) derivative positions ( Note 111 - Derivatives and Hedging Activities), (vi) unfunded commitments on low income housing project investments ( Note 13 - Low Income Housing Project Investments). Also refer to Table 27 - Sources of Liquidity within Item 7 of this report for further details surrounding the Company's current and unused liquidity resources. 
 
 Impact of Inflation and Changing Prices 
 The consolidated financial statements and related notes thereto presented in Item 8 of this Report have been prepared in accordance with GAAP which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. 
 The financial nature of the Company’s consolidated financial statements is more clearly affected by changes in interest rates than by inflation. Interest rates do not necessarily fluctuate in the same direction or in the same magnitude as the prices of goods and services. However, inflation does affect the Company because, as prices increase, the money supply grows and interest rates are affected by inflationary expectations. The impact on the Company is a noted increase in the size of loan requests with resulting growth in total assets. In addition, operating expenses may increase without a corresponding increase in productivity. There is no precise method, however, to measure the effects of inflation on the Company’s consolidated financial statements. Accordingly, any examination or analysis of the financial statements should take into consideration the possible effects of inflation. 
 
 Critical Accounting Policies and Estimates 
 Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Management believes that the Company’s most critical accounting policies upon which the Company’s financial condition depends, and which involve the most complex or subjective decisions or assessments, are as follows: 
 
 Allowance for Credit Losses - Loans Held for Investment The Company estimates the allowance for credit losses in accordance with the CECL methodology for loans measured at amortized cost. The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses. Arriving at an appropriate amount of allowance for credit losses involves a high degree of judgment. 
 The Company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. Management's judgement is required for the selection and application of these factors which are derived from historical loss experience as well as assumptions surrounding expected future losses and economic forecasts. 
 Loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. Changes in these estimates could be due to a number of circumstances which may have a direct impact on the provision for loan losses and may result in changes to the amount of allowance. 
 The allowance for credit losses is increased by the provision for credit losses and by recoveries of loans previously charged off. Loan losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. 
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 Management performs periodic sensitivity and stress testing using available economic forecasts in order to evaluate the adequacy of the allowance for credit losses under varying scenarios. Given the Company's benign loss history, the analyses performed have not resulted in a material change to the quantitative allowance but has informed management's determination of qualitative adjustments and act as corroborating evidence as to the appropriateness of the allowance as a whole. For additional discussion of the Company’s methodology of assessing the appropriateness of the allowance for credit losses, see Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 Income Taxes The Company accounts for income taxes using two components of income tax expense, current and deferred. Current taxes represent the net estimated amount due to or to be received from taxing authorities in the current year. In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Company’s tax position. Deferred tax assets and liabilities represent the future effects on income taxes that result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, and carry-forwards that exist at the end of a period. Deferred tax assets and liabilities are measured using enacted tax rates and provisions of the enacted tax law and are not discounted to reflect the time-value of money. The effect of any change in enacted tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Deferred tax assets are assessed for recoverability and the Company may record a valuation allowance if it believes based on available evidence that it is more likely than not that the deferred tax assets recognized will not be realized before their expiration. The amount of the deferred tax asset recognized and considered realizable could be reduced if projected income is not achieved due to various factors such as unfavorable business conditions. If projected income is not expected to be achieved, the Company may record a valuation allowance to reduce its deferred tax assets to the amount that it believes can be realized in its future tax returns. Additionally, deferred tax assets and liabilities are calculated based on tax rates expected to be in effect in future periods. Previously recorded tax assets and liabilities need to be adjusted when the expected date of the future event is revised based upon current information. The Company may also record an unrecognized tax benefit related to uncertain tax positions taken by the Company on its tax returns for which there is less than a 50% likelihood of being recognized upon a tax examination. All movements in unrecognized tax benefits are recognized through the provision for income taxes. Taxes are discussed in more detail in Note 12, "Income Taxes" within the Notes to the Consolidated Financial Statements included in Item 8 of this Report. 
 
 
 
 Business Combinations In accordance with applicable accounting guidance, the Company recognizes assets acquired and liabilities assumed at their respective fair values as of the date of acquisition, with the related transaction costs expensed in the period incurred. The Company may use third party valuation specialists to assist in the determination of fair value of certain assets and liabilities at the acquisition date, including loans, core deposit intangibles and time deposits. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed on the acquisition date, the estimates are inherently uncertain. The allowance for credit losses on PCD loans is recognized within business combination accounting. The allowance for credit losses on non-PCD loans is recognized as a provision expense in the same period as the business combination. For further discussion of the Company’s accounting policies for estimating credit losses on acquired loans, see Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 Valuation of Investment Securities Securities that the Company has the ability and intent to hold until maturity are classified as securities held-to-maturity and are accounted for using historical cost, adjusted for amortization of premium and accretion of discount. Trading and equity securities are carried at fair value, with unrealized gains and losses recorded in other noninterest income. All other securities are classified as securities available-for-sale and are carried at fair market value. The fair values of securities are based on either quoted market price or third party pricing services. In general, the third-party pricing services employ various methodologies, including but not limited to, broker quotes and proprietary models. Management does not typically adjust the prices received from third-party pricing services. Depending upon the type of security, management employs various techniques to analyze the pricing it receives from third-parties, such as reviewing model inputs, reviewing comparable trades, analyzing changes in market yields and, in certain instances, reviewing the underlying collateral of the security. Management reviews changes in fair values from period to period and performs testing to ensure that the prices received from the third parties are consistent with their expectation of the market. 
 Management determines if the market for a security is active primarily based upon the frequency of which the security, or similar securities, are traded. For securities which are determined to have an inactive market, fair value models are calibrated and to the extent possible, significant inputs are back tested on a quarterly basis. The third-party service provider performs calibration and testing of the models by comparing anticipated inputs to actual results, on a quarterly basis. Unrealized gains and losses on securities available-for-sale are reported, on an after-tax basis, as a separate component of stockholders’ equity in accumulated other comprehensive income. 
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 Recent Accounting Developments 
 See Note 1, "Summary of Significant Accounting Policies " within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
 See "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management" in Item 7 of this Report. 
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INDEPENDENT BANK CORP 10-K

Item 7. Management’s Discussion and Analysis
