What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 180 added, 431 removed, 682 unchanged (47% of the section changed)

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

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

• further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including future weakening caused by the COVID-19 pandemic and variables such as global supply chain disruptions, labor shortages and inflation;

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

• further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including any future weakening caused by the COVID-19 pandemic and any uncertainty regarding the length and extent of economic contraction as a result of the pandemic;

• the potential effects of inflationary pressures, labor market shortages and supply chain issues;

• instability or volatility in financial markets and unfavorable general economic or business conditions, globally, nationally or regionally, caused by geopolitical concerns, including as a result of the conflict between Russia and Ukraine, could have an adverse effect on our business or results of operations;

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

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

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

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

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

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

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

• additional regulatory oversight and related compliance costs;

• changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

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• increased competition in the Company’s market areas;

• adverse weather, changes in climate, natural disasters, the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, other public health crises or man-made events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations;

• adverse weather, changes in climate, natural disasters, geopolitical concerns, including those arising from the conflict between Russia and Ukraine, the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, other public health crises or man-made events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations;

• a deterioration in the conditions of the securities markets;

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• adverse changes in consumer spending and savings habits;

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

• the effect of laws and regulations regarding the financial services industry;

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

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

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

Further, the foregoing factors may be exacerbated by the ultimate impact of the COVID-19 pandemic, which remains unknown at this time due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond the Company's control, including the scope, duration and extent of the pandemic and any further resurgences, the efficacy, availability and public acceptance of vaccines, boosters or other treatments, actions taken by governmental authorities in response to the pandemic and the direct and indirect impact of these actions and the pandemic generally on the Company’s employees, customers, business and third-parties with which the Company conducts business.

Except as required by law, the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether in response to new information, future events or otherwise.

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Three Months Ended

2021 March 31

2022 December 31

2021 September 30

2021 March 31

(Dollars in thousands, except per share data)

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

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

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

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

The transaction is intended to qualify as a tax-free reorganization for federal income tax purposes and to provide Meridian stockholders with a tax-free exchange for the Company common stock consideration they will receive in the merger.

The Company anticipates issuing approximately 14.2 million shares of its common stock in the merger.

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

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

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

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

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

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

The Company concluded its participation in the government-sponsored Paycheck Protection Program ("PPP"), designed to help deploy stimulus funds in the form of loans to businesses within the community, after the second round PPP closed to new applicants.

During the first half of 2021, the Company funded an additional $370.0 million of PPP loans in the second round of the program.

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 of the COVID-19 pandemic remains highly dependent on the speed of vaccine administration, the efficacy of the vaccines and the possibility for resurgences of COVID-19 or other variants of the virus, including the Delta variant.

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

The Company 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 ("EBSB"), which closed in the fourth quarter of 2021.

First Quarter 2022 Results

Net income for the first quarter of 2022 was $53.1 million, or $1.12 on a diluted earnings per share basis, as compared to $41.7 million, or $1.26 on a diluted earnings per share basis, for the prior year first quarter, representing an increase of 27.3% and decrease of 11.1%, respectively.

The first quarter of 2022 results reflect merger-related costs of $7.1 million, pre-tax, associated with the Meridian acquisition while no such costs were incurred during the same prior year quarter.

Excluding the merger and acquisition costs incurred during the first quarter of 2022, operating net income was $58.2 million, or $1.23 per diluted share.

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

First quarter 2022 results reflected the following key drivers:

• 3.3% annualized net loan growth, when excluding PPP loans;

• Modest cash deployment into the securities portfolio;

• Increase in non-performing assets, yet minimal credit losses resulting in a $2 million release of credit reserves for the quarter;

• Solid fee income results;

• Overall expenses in line with EBSB merger related cost save expectations

Interest-Earning Assets

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

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

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

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

The following table summarizes the Company's interest-earning assets as of the periods indicated.

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 loan losses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Third Quarter 2021 Results

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

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

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

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

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

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

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

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

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

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

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

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

• Non-interest expense is expected to increase slightly.

The Company declared a quarterly cash dividend of $0.51 per share for the first quarter of 2022, representing an increase of 6.3% from the 2021 quarterly dividend rate of $0.48 per share.

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 tables that follow.

There are items that impact the Company's results that management believes are unrelated to its core banking business such as merger and acquisition expenses and other items.

Management, therefore, computes certain non-GAAP measures including operating net income and operating EPS, noninterest income on an operating basis, noninterest expense on an operating basis, operating return on average assets, operating return on average equity, and efficiency ratio on an operating basis, which exclude items management considers to be noncore.

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 analyses 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 the tangible common equity to tangible assets ratio (which is computed by dividing tangible common equity by "tangible assets", defined as total assets less goodwill and other intangibles).

The Company has included information on tangible book value per share and the tangible common equity to tangible assets ratio because management believes that investors may find it useful to have access to the same analytical tools used by management.

As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles.

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, provides a framework to compare 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 operating results and other financial measures 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 quarter or year.

The Company’s non-GAAP performance measures including those non-GAAP measures referenced above, are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.

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

Three Months Ended September 30

Three Months Ended March 31

Net Income Diluted

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Noninterest expense components

loss on termination of derivatives — 684 — 0.02

merger and acquisition expenses 7,100 — 0.15 —

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Operating net income (Non-GAAP) $ 58,202 $ 41,711 $ 1.23 $ 1.26

Nine Months Ended September 30

Net Income Diluted

Earnings Per Share

2021 2020 2021 2020

(Dollars in thousands, except per share data)

Net income available to common shareholders (GAAP) $ 119,290 $ 86,526 $ 3.61 $ 2.59

Non-GAAP adjustments

Noninterest expense components

loss on termination of derivatives — 684 — 0.02

merger and acquisition expenses 3,674 — 0.11 —

Noncore increases to income before taxes 3,674 684 0.11 0.02

Net tax benefit associated with noncore items (1) (1,033) (192) (0.03) (0.01)

Noncore increases to net income 2,641 492 0.08 0.01

Operating net income (Non-GAAP) $ 121,931 $ 87,018 $ 3.69 $ 2.61

(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 to only those items included in net taxable income.

Three Months Ended

2021 March 31

2022 December 31

2021 September 30

2021 March 31

(Dollars in thousands)

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Merger and acquisition expense 7,100 37,166 1,943 1,731 —

Loss on termination of derivatives — — — — 684

Noninterest expense on an operating basis (Non-GAAP) $ 88,400 $ 79,960 $ 70,476 $ 71,571 $ 69,682 (d)

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Efficiency ratio on an operating basis (Non-GAAP) 54.00 % 52.71 % 60.47 % 60.49 % 57.67 % (d/(a+b))

The following table summarizes the calculation of the Company's tangible common equity to tangible assets ratio, tangible book value per share, and loan and allowance metrics, exclusive of PPP loan balances as of the dates indicated:

2021 March 31

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

2022 December 31

2021 September 30

2021 March 31

(Dollars in thousands, except per share data)

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Tangible book value per share (Non-GAAP) $ 41.15 $ 42.25 $ 37.24 $ 36.78 $ 35.96 (b/e)

Total loans (GAAP) $ 8,808,013 $ 8,938,988 $ 9,246,691 $ 9,392,866 $ 9,405,193

Total loans, excluding PPP (Non-GAAP) $ 8,424,442 $ 8,456,338 $ 8,400,390 $ 8,600,956 $ 8,593,470

Allowance as a % of total loans (GAAP) 1.05 % 1.15 % 1.16 % 1.21 % 1.23 %

Allowance as a % of total loans, excluding PPP (Non-GAAP) 1.09 % 1.21 % 1.28 % 1.32 % 1.35 %

Critical Accounting Policies

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

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

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

There have been no material changes in critical accounting policies during the first three months of 2022.

Refer to "Critical Accounting Policies and Estimates" in Item 7.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2021 Form 10-K for a complete listing of critical accounting policies.

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

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

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

Securities increased by $196.9 million, or 7.4%, at March 31, 2022 as compared to December 31, 2021, primarily r eflecting $365.2 million of purchases which were partially offset by unrealized losses of $81.6 million related to the available for sale portfolio, as well as paydowns, calls, and maturities.

The ratio of securities to total assets was 14.2% and 13.0% at March 31, 2022 and December 31, 2021, respectively.

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

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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 residential mortgage repurchases during the three and nine months ended September 30, 2021 and 2020, respectively.

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

The Company incurred no material losses related to residential mortgage repurchases during the three months ended March 31, 2022 and 2021, respectively.

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

Table 1 - Closed Residential Real Estate Loans

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

Three Months Ended March 31

(Dollars in thousands)

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Table 2 - Residential Mortgage Loan Sales

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

Three Months Ended March 31

(Dollars in thousands)

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Total loans sold $ 54,284 $ 282,569

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

(1) All loans sold with servicing rights retained during the three months ended March 31, 2022 and March 31, 2021 were sold without recourse.

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

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

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

The principal balance of loans serviced by the Bank on behalf of investors was $361.7 million, $382.6 million and $401.2 million at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.

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

Table 3 - Mortgage Servicing Asset

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

Three Months Ended March 31

(Dollars in thousands)

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

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

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

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

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

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

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

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

Loan Portfolio Total loans at March 31, 2022 decreased by $7.3 million, or 0.05%, when compared to December 31, 2021.

Excluding $116.6 million of net paydowns associated with the PPP, t he loan portfolio increased by $109.4 million compared to the prior quarter, or 3.3% on an annualized basis.

Organic loan growth was primarily driven by line utilization increases within the commercial and industrial portfolio as well as a healthy increase in the residential real estate portfolio as a higher portion of new closings were retained on balance sheet.

Partially offsetting these growth drivers were ongoing reductions in the acquired Meridian portfolio which led to a decrease in commercial real estate balances, while continued low home equity utilization rates and attrition continue to negate strong home equity closing volumes.

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

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

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

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

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

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

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

The Company's previous participation in the PPP resulted in significant loan fundings within the commercial and industrial category, which have now declined to $99.6 million or 6.4% of the total commercial and industrial category at March 31, 2022, primarily as a result of the ongoing forgiveness process, and are reflected within the various sectors below.

During the three months ended March 31, 2022, the Company amortized into income $3.5 million in PPP fee revenue related to loans forgiven under the program.

The following pie chart shows the diversification of the commercial and industrial portfolio as of March 31, 2022:

(Dollars in thousands)

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

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

The following pie chart shows the diversification of the commercial real estate loan portfolio as of March 31, 2022:

(Dollars in thousands)

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

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

The residential real estate, home equity and other consumer portfolios totaled $2.8 billion at March 31, 2022, as noted below:

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

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

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.

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.

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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.

PCD loans are recorded at amortized cost with an allowance for credit losses recorded upon purchase.

Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate owned.

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2022 December 31

2020 September 30

2021 March 31

(Dollars in thousands)

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Nonperforming assets as a percent of total assets 0.28 % 0.14 % 0.43 %

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

(1) Inclusive of TDRs on nonaccrual status of $2.0 million at both March 31, 2022 and December 31, 2021 and $21.2 million at March 31, 2021.

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

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Three Months Ended

Three Months Ended Nine Months Ended

2021 September 30

2020 September 30

2021 September 30

Three Months Ended

2022 March 31

(Dollars in thousands)

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Nonperforming assets ending balance $ 56,618 $ 59,201

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

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

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2022 December 31

2020 September 30

2021 March 31

(Dollars in thousands)

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Table 7 - Activity in Troubled Debt Restructurings

Three Months Ended Nine Months Ended

2021 September 30

2020 September 30

2021 September 30

Three Months Ended

2022 March 31

(Dollars in thousands)

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Paydowns (1,368) (1,599)

Charge-offs (16) — (16) (22)

TDRs ending balance $ 15,260 $ 41,429

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

Three Months Ended Nine Months Ended

2021 September 30

2020 September 30

2021 September 30

Three Months Ended

2022 March 31

(Dollars in thousands)

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

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

At March 31, 2022, there were 48 relationships, with an aggregate balance of $127.7 million, deemed to be potential problem loans.

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

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

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

If applicable, these potential problem loans with an active deferral as of March 31, 2022 have been included in the table below.

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

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

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

The following table summarizes active deferrals by modification type as of March 31, 2022:

Table 9 - Deferrals by Modification Type

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

Deferral of Principal Only Total Portfolio % Deferral

(Dollars in thousands)

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Consumer — 30,009 — %

Total active deferrals as of September 30, 2021

Total active deferrals as of March 31, 2022

$ 304,508 $ 13,580,027 2.2 %

(1) Balances include commercial construction deferrals.

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

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

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

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

The table below provides total outstanding balances of commercial loans as of the date indicated within industries that management has deemed to be highly impacted by the COVID-19 pandemic:

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

September 30, 2021

(Dollars in thousands)

Accommodations

Balance $ 388,083

Average borrower loan size $ 4,283

% secured by real estate 99.8 %

Weighted average loan to value 54.0 %

Other information:

– The accommodation portfolio consists of 65 properties representing a combination of flagged (61%) and non-flagged (39%) hotels, motels and inns.

– Loans secured by hotel properties deemed to be located in areas of leisure comprise $146.6 million, or 38% of the hotel portfolio.

– Approximately 89% of the balances outstanding are secured by properties located within the six New England states with the largest concentration in Massachusetts (60%).

Food Services

Balance $ 142,059

Average borrower loan size $ 384

% secured by real estate 67.7 %

Weighted average loan to value 50.5 %

Other information:

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

Balance $ 527,957

Average borrower loan size $ 499

% secured by real estate 43.3 %

Weighted average loan to value 57.4 %

Other information:

– The retail trade portfolio consists broadly of food and beverage stores (47%), motor vehicle and parts dealers (24%), and gasoline stations (14%).

All other retailers account for 15% of the current outstanding balance.

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

Other Services (except Public Administration)

Balance $ 139,679

Average borrower loan size $ 250

% secured by real estate 51.6 %

Weighted average loan to value 48.8 %

Other information:

– The other services portfolio consists of various for-profit and not-for-profit services diversified across religious, civic and social service organizations (43%), repair and maintenance business (31%) and other personal services, including beauty salons, laundry services, pet care and other types of services (26%).

Arts, Entertainment, and Recreation

Balance $ 99,699

Average borrower loan size $ 793

% secured by real estate 85.5 %

Weighted average loan to value 52.3 %

Other information:

– Amusement, gambling and recreational industries make up a majority of this category (95%) and include amusement/theme parks, bowling centers, fitness centers, golf courses, marinas, and other recreational industries.

Other industries including museums, performing arts, and spectator sports account for the remaining outstanding balances (5%).

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.

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

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

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

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

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

While management is unable to know with certainty the direct, indirect, and future impacts of the COVID-19 pandemic, it is expected that the pandemic could potentially have a significant impact on future losses across a broad range of loan segments.

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

The reasonable and supportable forecast modeled in the allowance for credit losses incorporates an economic scenario which reflects management's assumption that some uncertainty remains as the economy recovers, such as that the federal funds rates

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

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

Table 11 - Summary of Changes in the Allowance for Credit Losses

Three Months Ended

2021 March 31

2021 December 31

2020 September 30

The allowance for credit losses of $144.5 million at March 31, 2022 represents a decrease of $2.4 million, or 1.6% compared to December 31, 2021.

The Company recorded a release of provision for credit losses of $2.0 million during the three months ended March 31, 2022, primarily reflecting the stabilized credit quality environment.

In addition, the allowance for credit losses at March 31, 2022 is reflective of a lower quantitative reserve due to continued strong asset quality metrics experienced by the Company.

Partially offsetting this decline was the increased impact of the reasonable and supportable forecast modeled in the allowance for credit losses, which incorporates an economic scenario reflective of management's assumption that some economic uncertainty remains.

Although the federal funds rates are expected to be increased in the near term, management anticipates that supply chain issues will continue to worsen with increased shortages of goods, the military conflict between Russia and Ukraine will persist longer than originally anticipated for the foreseeable future, potentially impacting global oil supplies and the supply chain more generally and general economic conditions, as well as concerns regarding rising COVID-19 cases and the possibility of resurgences.

Additionally, the allowance for credit losses continues to be qualitatively adjusted in order to ensure coverage for relationships that are deemed to be more at risk within certain industries, specific collateral types, or other specific characteristics that may be highly impacted by the current economic environment.

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

Table 10 - Summary Net Charge-Offs to Average Loans Outstanding

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

(Dollars in thousands)

Average total loans $ 8,827,249 $ 9,107,446 $ 9,343,769 $ 9,396,192 $ 9,375,522

Allowance for credit losses, beginning of period $ 102,357 $ 107,549 $ 113,392 $ 115,625 $ 112,176

Charged-off loans

Commercial and industrial 1 142 3,331 2,124 185

Commercial real estate — — — — 3,885

Commercial construction — — — — —

Small business 83 35 66 186 49

Residential real estate — — — 105 —

Home equity — 69 — — —

Other consumer 248 235 289 283 185

Total charged-off loans 332 481 3,686 2,698 4,304

Recoveries on loans previously charged-off

Three Months Ended March 31, 2022

Commercial and industrial $ (13) $ 1,535,619 — %

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Other consumer 400 29,814 5.44 %

Total recoveries 221 289 343 465 253

Net loans charged-off (recovered)

Total $ 404 $ 13,543,725 0.01 %

Three Months Ended March 31, 2021

Commercial and industrial $ 3,267 $ 2,115,069 0.63 %

5 unchanged sentences

Other consumer 92 21,698 1.72 %

Total net loans charged-off 111 192 3,343 2,233 4,051

Provision for credit losses (10,000) (5,000) (2,500) — 7,500

Total allowance for credit losses, end of period $ 92,246 $ 102,357 $ 107,549 $ 113,392 $ 115,625

Net loans charged-off as a percent of average total loans (annualized) 0.00 % 0.01 % 0.15 % 0.09 % 0.17 %

Allowance for credit losses as a percent of total loans 1.05 % 1.15 % 1.16 % 1.21 % 1.23 %

Allowance for credit losses as a percent of nonperforming loans 201.37 % 214.06 % 181.67 % 169.59 % 117.95 %

Total $ 3,343 $ 9,343,769 0.15 %

The Company recorded net charge-offs of $404,000 for the three months ended March 31, 2022 compared to $3.3 million for the three months ended March 31, 2021.

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.

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

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Total allowance for credit losses $ 144,518 100.0 % $ 146,922 100.0 %

(1) This loan category includes loans originated as part of the PPP established by the CARES Act, which have been excluded from the credit loss calculations because these loans are 100% guaranteed by the U.S.

(1) Total loans in this category are inclusive of $99.6 million and $216.2 million in loans, at March 31, 2022 and December 31, 2021, 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.

To determine if a loan should be charged-off, all possible sources of repayment are analyzed.

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Item 1 of this Report.

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

Federal Home Loan Bank Stock The Bank held investments in FHLB of Boston stock of $11.4 million at both March 31, 2022 and December 31, 2021.

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

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

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

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

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion and at both March 31, 2022 and December 31, 2021.

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.

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

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

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

There were no events or changes during the first quarter of 2022 that indicated impairment of goodwill and other intangible assets.

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

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

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

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

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

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

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

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

The cash surrender value of life insurance policies was $291.2 million at March 31, 2022 compared to $289.3 million at December 31, 2021, representing an increase of $1.9 million, or 0.7%.

The Company recorded tax exempt income from life insurance policies of $1.8 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively.

There were no gains on life insurance benefits recorded for the three months ended March 31, 2022 and $258,000 for the three months ended March 31, 2021.

Deposits As of March 31, 2022, total deposits were $16.8 billion, representing a $153.7 million, or 0.9%, decrease from December 31, 2021, primarily attributable to continued runoff in time deposits.

The total cost of deposits was 0.05% and 0.10% for the three months ended March 31, 2022 and 2021, respectively.

Core deposits increased from 84.5% of total deposits as of December 31, 2021 to 85.8% of total deposits as of March 31, 2022.

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 $244.6 million and $237.9 million at September 30, 2021 and December 31, 2020, respectively.

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

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 $916.8 million and $998.1 million at March 31, 2022 and December 31, 2021, respectively.

In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to $115.9 million and $141.6 million at March 31, 2022 and December 31, 2021, respectively.

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

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

The following table presents the components of borrowings as of the dates indicated:

Table 13 - Borrowings

2021 December 31

(Dollars in thousands)

Federal Home Loan Bank borrowings $ 25,675 $ 35,740

Long-term borrowings 18,750 32,773

Junior subordinated debentures 62,853 62,851

Subordinated debentures 49,767 49,696

Total borrowings $ 157,045 $ 181,060

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

Borrowings were $138.3 million at March 31, 2022, a decrease of $14.0 million, or 9.22%, as compared to December 31, 2022, due primarily to the re-payment of a revolving loan credit facility.

Additionally, the Bank had $4.2 billion of assets pledged as collateral against borrowings at both March 31, 2022 and December 31, 2021.

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

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

This dividend was paid on October 8, 2021.

Capital Resources On March 17, 2022 the Company’s Board of Directors declared a cash dividend of $0.51 per share to shareholders of record as of the close of business on March 28, 2022.

This dividend was paid on April 8, 2022.

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

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

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

At March 31, 2022 and December 31, 2021, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods.

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

3 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio

September 30, 2021

March 31, 2022

(Dollars in thousands)

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

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

At March 31, 2022, the Company's capital levels exceeded the buffer.

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

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

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

Dividends of $25.0 million and were paid by the Bank to the Company for the three months ended March 31, 2022 and there were no dividends paid by the Bank to the Company for the three months ended March 31, 2021.

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

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

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

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

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

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

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

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

At each of March 31, 2022 and December 31, 2021 there were $61.0 million in trust preferred securities included in the Tier 2 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

Investment Management As of March 31, 2022, the Rockland Trust Investment Management Group had assets under administration of $5.7 billion, representing 6,667 trust, fiduciary, and agency accounts.

At December 31, 2021, assets under administration were also $5.7 billion, representing approximately 6,379 trust, fiduciary, and agency accounts.

Also, included in these amounts as of March 31, 2022 and December 31, 2021 are assets under administration of $428.1 million and $447.4 million, respectively, relating to the Company’s registered investment advisor, Bright Rock Capital Management, LLC, which provides institutional quality investment management services to institutional and high net worth clients.

Revenue from the Investment Management Group was $7.9 million and $7.4 million for the three months ended March 31, 2022 and 2021, respectively.

Retail investments and insurance revenue was $769,000 and $902,000 for the three months ended March 31, 2022 and 2021, respectively.

The administration of trust and fiduciary accounts is monitored by the Trust Committee of the Bank’s Board of Directors.

The Trust Committee has delegated administrative responsibilities to three committees, one for investments, one for administration, and one for operations, all of which are comprised of Investment Management Group officers who meet no less than quarterly.

The Bank has an agreement with LPL Financial ("LPL") and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., to offer the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance.

Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base.

These same agents are also approved and appointed with various other broker general agents for the purpose of processing insurance solutions for clients.

These same agents are also approved and appointed with various other Broker General Agents for the purposes of processing insurance solutions for clients.

RESULTS OF OPERATIONS

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

The following table provides a summary of results of operations for the three months ended March 31, 2022 and 2021:

Table 13 - Summary of Results of Operations

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

Three Months Ended March 31

(Dollars in thousands, except per share data)

4 unchanged sentences

Net interest margin 3.09 % 3.25 %

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

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

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

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

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

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

On a fully tax equivalent basis ("FTE"), net interest income for the first quarter of 2022 was $138.4 million, representing an increase of $42.6 million, or 44.4%, when compared to the first quarter of 2021, driven primarily by the full quarter impact of the Meridian acquisition.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three months ended March 31, 2022 and 2021.

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

Table 14 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date

Three Months Ended September 30

Three Months Ended March 31

Balance Interest

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Cost of total funding liabilities 0.08 % 0.14 %

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

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

(2) Includes average nonaccruing loans.

(3) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

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

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

Nine Months Ended September 30

Balance Interest

(Dollars in thousands)

Interest-earning assets

Interest-earning deposits with banks, federal funds sold, and short-term investments $ 1,782,463 $ 1,654 0.12 % $ 599,827 $ 546 0.12 %

Securities - trading 3,267 — — % 2,421 — — %

Securities - taxable investments 1,550,859 21,603 1.86 % 1,178,671 23,006 2.61 %

Securities - nontaxable investments (1) 555 17 4.10 % 1,176 34 3.86 %

Total securities $ 1,554,681 $ 21,620 1.86 % $ 1,182,268 $ 23,040 2.60 %

Loans held for sale 35,953 675 2.51 % 43,150 917 2.84 %

Commercial and industrial (1) 1,898,100 58,706 4.14 % 1,784,715 52,027 3.89 %

Commercial real estate (1) 4,195,200 123,377 3.93 % 4,050,154 129,800 4.28 %

Commercial construction 525,652 14,976 3.81 % 554,222 17,341 4.18 %

Small business 178,294 6,924 5.19 % 172,575 7,253 5.61 %

Total commercial 6,797,246 203,983 4.01 % 6,561,666 206,421 4.20 %

Residential real estate 1,242,991 34,449 3.71 % 1,473,812 41,856 3.79 %

Home equity 1,027,311 26,391 3.43 % 1,125,817 31,617 3.75 %

Total consumer real estate 2,270,302 60,840 3.58 % 2,599,629 73,473 3.78 %

Other consumer 23,382 1,241 7.10 % 25,643 1,587 8.27 %

Total loans $ 9,090,930 $ 266,064 3.91 % $ 9,186,938 $ 281,481 4.09 %

Total interest-earning assets $ 12,464,027 $ 290,013 3.11 % $ 11,012,183 $ 305,984 3.71 %

Cash and due from banks 147,269 122,302

Federal Home Loan Bank stock 9,516 17,645

Other assets 1,256,066 1,256,074

Total assets $ 13,876,878 $ 12,408,204

Interest-bearing liabilities

Savings and interest checking accounts $ 4,292,992 $ 1,145 0.04 % $ 3,592,069 $ 3,873 0.14 %

Money market 2,337,445 1,393 0.08 % 1,978,006 5,495 0.37 %

Time deposits 848,143 3,823 0.60 % 1,202,746 13,983 1.55 %

Total interest-bearing deposits $ 7,478,580 $ 6,361 0.11 % $ 6,772,821 $ 23,351 0.46 %

Federal Home Loan Bank borrowings $ 34,185 $ 544 2.13 % $ 205,244 $ 1,369 0.89 %

Long-term borrowings 23,434 282 1.61 % 61,240 1,045 2.28 %

Junior subordinated debentures 62,852 1,287 2.74 % 62,849 1,362 2.89 %

Subordinated debentures 49,729 1,852 4.98 % 49,635 1,852 4.98 %

Total borrowings $ 170,200 $ 3,965 3.11 % $ 378,968 $ 5,628 1.98 %

Total interest-bearing liabilities $ 7,648,780 $ 10,326 0.18 % $ 7,151,789 $ 28,979 0.54 %

Noninterest bearing demand deposits 4,213,764 3,257,058

Other liabilities 280,002 300,248

Total liabilities $ 12,142,546 $ 10,709,095

Stockholders' equity 1,734,332 1,699,109

Total liabilities and stockholders' equity $ 13,876,878 $ 12,408,204

Net interest income (1) $ 279,687 $ 277,005

Interest rate spread (3) 2.93 % 3.17 %

Net interest margin (4) 3.00 % 3.36 %

Supplemental information

Total deposit, including demand deposits $ 11,692,344 $ 6,361 $ 10,029,879 $ 23,351

Cost of total deposits 0.07 % 0.31 %

Total funding liabilities, including demand deposits $ 11,862,544 $ 10,326 $ 10,408,847 $ 28,979

Cost of total funding liabilities 0.12 % 0.37 %

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

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

(1) The total amount of adjustment to interest income and yield on a FTE basis was $968,000 and $229,000 for the three months ended March 31, 2022 and 2021, respectively.

The FTE adjustment relates to tax exempt income relating to securities with average balances of $201,000 and $642,000 and tax exempt income relating to loans with average balances of $418.7 million and $70.2 million, for the three months ended March 31, 2022 and 2021, respectively.

(2) Includes average nonaccruing loans.

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Table 15 - Volume Rate Analysis

Three Months Ended September 30 Nine Months Ended September 30

2021 Compared To 2020 2021 Compared To 2020

Volume Total Change Change

Three Months Ended March 31

2022 Compared To 2021

Volume Total Change

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(1) Reflects income determined on a FTE basis.

See footnote (1) to tables 16 and 17 in this Report for the related adjustments.

See footnote (1) to Table 14 in this Report for the related adjustments.

(2) Loans include portfolio loans and nonaccrual loans;

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

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

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

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

The Company recorded a release of provision for credit losses of $2.0 million and $2.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.06% at March 31, 2022, 1.08% at December 31, 2021, and 1.16% at March 31, 2021.

The Company recorded net charge-offs of $404,000 for the three months ended March 31, 2022, as compared to $3.3 million for the three months ended March 31, 2021.

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

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Three Months Ended

September 30 Change

2021 2020 Amount %

(Dollars in thousands)

Deposit account fees $ 4,298 $ 3,428 $ 870 25.38 %

Interchange and ATM fees 3,441 3,044 397 13.04 %

Investment management 9,174 7,571 1,603 21.17 %

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

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

Loan level derivative income 586 2,457 (1,871) (76.15) %

Unrealized gain on equity securities — 308 (308) (100.00) %

Other noninterest income 4,537 3,521 1,016 28.86 %

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

Nine Months Ended

September 30 Change

March 31 Change

2022 2021 Amount %

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Loan level derivative income 604 173 431 249.13 %

Unrealized gain on equity securities 723 1,694 (971) (57.32) %

Other noninterest income 4,736 3,144 1,592 50.64 %

Total $ 26,272 $ 25,246 $ 1,026 4.06 %

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

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

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

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

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

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

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

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

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

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

The primary reasons for the variances in the noninterest income categories shown in the preceding table in comparison to the year ago period include:

• Deposit account fee income increased due to the increased volume attributable to the Meridian acquisition, as well as lower levels of overdraft fees as customers benefited from government stimulus payments disbursed during the first quarter of 2021.

• Interchange and ATM fees increased primarily due to increased volume attributable to both the Meridian acquisition and rise in customer spending.

• Investment management income increased primarily driven by overall growth in assets under administration which increased 10.4% to $5.7 billion at March 31, 2022 from $5.2 billion at March 31, 2021.

This increase was partially offset by depressed market valuations experienced during the first quarter of 2022.

• Mortgage banking income decreased primarily due to overall reduced volumes and a greater portion of new originations being retained in the Company's portfolio versus being sold in the secondary market.

• The cash surrender value of life insurance policies increased primarily due the impact of policies acquired from Meridian.

• Loan level derivative income increased primarily as a result of higher customer demand.

• Other noninterest income increased primarily attributable to increases in rental income from equipment leases as well as income from other investments, and business credit card interchange fees, partially offset by lower unrealized gains on equity securities.

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

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Three Months Ended

September 30 Change

March 31 Change

2022 2021 Amount %

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Data processing & facilities management 2,372 1,665 707 42.46 %

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

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

Consulting expense 1,560 1,305 255 19.54 %

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

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

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

Merger and acquisition expenses 7,100 — 7,100 100.00%

Software maintenance 2,564 1,970 594 30.15 %

Other noninterest expenses 9,905 8,864 1,041 11.74 %

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

Nine Months Ended

September 30 Change

2021 2020 Amount %

(Dollars in thousands)

Salaries and employee benefits $ 124,759 $ 113,027 $ 11,732 10.38 %

Occupancy and equipment expenses 26,543 27,863 (1,320) (4.74) %

Data processing & facilities management 5,024 4,684 340 7.26 %

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

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

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

Amortization of intangible assets 2,001 1,413 588 41.61 %

FDIC assessment 1,805 1,050 755 71.90 %

Debit card expense 1,765 1,181 584 49.45 %

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

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

Software maintenance 5,903 5,218 685 13.13 %

Consulting expense 1,750 2,391 (641) (26.81) %

Other noninterest expenses 14,130 10,850 3,280 30.23 %

Total $ 95,500 $ 69,682 $ 25,818 37.05 %

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

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

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

These decreases were primarily due to reductions in depreciation expense

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

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

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

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

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

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

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

No such costs were incurred during either period in 2020.

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

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

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

The primary reasons for the variances in the noninterest expense categories shown in the preceding table in comparison to the year ago period include:

• The increase in salaries and employee benefits was primarily due to the Company's increased workforce base following the Meridian acquisition.

• Occupancy and equipment expenses increased primarily driven by a full quarter of costs associated with the Company's expanded branch network, real estate and other fixed assets resulting from the Meridian acquisition, as well as an increase in snow removal costs.

• Data processing and facilities management expenses increased primarily due to timing of certain initiatives and general increases associated with the Company's higher transaction volume.

• Merger and acquisition costs incurred in relation to the Meridian acquisition were $7.1 million for the first quarter of 2022.

The majority of first quarter 2022 costs related to lease terminations associated with exited branch locations, along with additional integration costs and professional fees incurred during the quarter.

No such costs were incurred during the year ago period.

• Software maintenance increased primarily due to the Company's continued investment in its technology infrastructure.

• FDIC assessment increased primarily due to an increased assessment base resulting from the Meridian acquisition.

• Consulting expense decreased primarily due to timing of strategic initiatives and elevated expenses related to projects and measures implemented in response to the COVID-19 pandemic during the first quarter of 2021.

• Other noninterest expense increased primarily due to a full quarter of general increases associated with the Meridian acquisition, along with elevated unrealized losses on equity securities recognized during the first quarter of 2022.

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

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Table 18 - Tax Provision and Applicable Tax Rates

Three Months Ended Nine Months Ended

September 30 September 30

2021 2020 2021 2020

Three Months Ended

(Dollars in thousands)

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The Company’s effective tax rate in 2022 thus far is higher as compared to the year ago period primarily due to higher pre-tax income, as well as the impact of discrete items, including tax benefits related to low income housing tax credits and equity compensation.

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

The discrete tax amounts for the three months ended March 31, 2021 also reflect a benefit of $4.7 million associated with the net operating loss (NOL) carryback provision of the CARES Act.

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

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

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

The Company’s blended statutory tax rate for the three months ended March 31, 2022 is comparable to the year ago period.

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

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

The total committed investment in

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

The total committed investment in these partnerships is $178.8 million, of which $112.6 million had been funded as of March 31, 2022.

It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.6 million for the fiscal year 2022 and a total of $21.3 million over the remaining life of the investments from the combination of the tax credits and operating losses.

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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, non‐achievement of strategic objectives, diminished customer experience, and/or cultural erosion.

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.

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

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

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

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

As a result of PPP loan funding, government stimulus programs, and a customer focus on retaining liquidity, the Company has experienced significant deposit growth and a buildup of liquidity throughout the first three quarters of 2021.

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

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Table 19 - Liquidity Sources

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Outstanding Additional

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$ 1,171,075 $ 5,153,968 $ 1,292,067 $ 4,781,128

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

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

(1) Loans with a carrying value of $2.4 billion and $2.3 billion at March 31, 2022 and December 31, 2021, respectively, were pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.

(2) Loans with a carrying value of $1.8 billion at both March 31, 2022 and December 31, 2021 were pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.

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

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

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

appropriately address them in a timely manner.

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

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

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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).

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.

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Alternative scenarios

Yield Curve Twist (1) n/a n/a 1.6 % 2.9 %

Flat up 200 basis points scenario 8.0 % 17.8 n/a n/a

(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.

Flat up 200 basis points scenario 3.6 % 11.6 6.8 % 9.7 %

The results depicted in the table above are dependent on material assumptions.

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

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

The most significant market factors affecting the Company’s net interest income during the three months ended March 31, 2022 were the shape of the U.S.

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

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

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

prime interest rate, LIBOR rates, the secured overnight financing rates ("SOFR"), and the 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.

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Item 1 of this Report.

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

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

Consolidated Financial Statements included in Part I.

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

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.

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

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

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended March 31, 2022.

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

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

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

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

Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended March 31, 2022.

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis