What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 266 added, 157 removed, 705 unchanged (38% of the section changed)

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

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

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

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

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• 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;

• the 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;

• 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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• increased competition in the Company’s market areas;

• 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;

• 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, and their impact on the Company's local economies or the Company's operations;

• a deterioration in the conditions of the securities markets;

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Three Months Ended

2022 March 31

2022 December 31

2021 September 30

2021 March 31

(Dollars in thousands, except per share data)

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("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.

Second Quarter 2022 Results

Net income for the three months ended June 30, 2022 was $61.8 million, or $1.32 on a diluted earnings per share basis, as compared to $37.6 million, or $1.14 on a diluted earnings per share basis, for the three months ended June 30, 2021, representing an increase of 64.4% and 15.8%, respectively.

Full year-to-date net income for the six months ended June 30, 2022 was $114.9 million, or $2.44 on a diluted earnings per share basis, as compared to $79.3 million, or $2.40 on a diluted earnings per share basis, for the six months ended June 30, 2021, representing an increase of 44.9% and 1.7%, respectively.

First half 2022 results reflect merger-related costs of $7.1 million, pre-tax, associated with the Meridian acquisition, as compared to $1.7 million during the same prior year period.

Excluding these merger and acquisition costs, operating net income was $120.0 million, or $2.55 on a diluted per share basis, for the six months ended June 30, 2022 , as compared to $80.5 million, or $2.44 on a diluted per share basis for the six months ended June 30, 2021 .

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;

Second quarter 2022 results reflected the following key drivers:

• 4.9% annualized net loan growth, when excluding PPP runoff, driven primarily by strong consumer loan activity;

• Modest cash deployment into the securities portfolio, which resulted in enhanced profitability;

• Improved net interest margin when excluding purchase accounting and PPP related impact;

• Strong core deposit account openings, with an overall reduction in deposit balances driven primarily by lower time deposit balances;

• Zero provision for credit losses, driven primarily by continued strong asset quality metrics;

• Solid fee income results;

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

• Modest increase in operating expenses for the quarter, when excluding $7.1 million of merger and acquisition expenses incurred during the prior quarter, driven primarily by increased incentive compensation, salaries and benefits and consulting costs;

• 1.3 million shares were repurchased under the Company's share repurchase program.

Interest-Earning Assets

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

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.

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

Additionally, the Company repurchased 1.3 million shares during the six months ended June 30, 2022 under the Company's previously announced buyback program, which totaled $105.3 million.

Non-GAAP Measures

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

Three Months Ended March 31

Three Months Ended June 30

Net Income Diluted

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Operating net income (Non-GAAP) $ 61,776 $ 38,816 $ 1.32 $ 1.17

Six Months Ended June 30

Net Income Diluted

Earnings Per Share

2022 2021 2022 2021

(Dollars in thousands, except per share data)

Net income available to common shareholders (GAAP) $ 114,873 $ 79,283 $ 2.44 $ 2.40

Non-GAAP adjustments

Noninterest expense components

merger and acquisition expenses 7,100 1,731 0.15 0.05

Noncore increases to income before taxes 7,100 1,731 0.15 0.05

Net tax benefit associated with noncore items (1) (1,995) (487) (0.04) (0.02)

Noncore increases to net income 5,105 1,244 0.11 0.03

Operating net income (Non-GAAP) $ 119,978 $ 80,527 $ 2.55 $ 2.44

(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

2022 March 31

2022 December 31

2021 September 30

2021 March 31

(Dollars in thousands)

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

2022 March 31

2022 December 31

2021 September 30

2021 March 31

(Dollars in thousands, except per share data)

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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 three months of 2022.

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

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

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

Securities increased by $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.

Securities increased by $270.1 million, or 10.1%, at June 30, 2022 as compared to December 31, 2021, primarily r eflecting $561.9 million of purchases which were partially offset by unrealized losses of $112.4 million related to the available for sale portfolio, as well as paydowns, calls, and maturities.

The ratio of securities to total assets increased to 14.7% at June 30, 2022 compared to 13.0% at December 31, 2021, as management has been effectively deploying excess liquidity with increased investment security purchases.

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 months ended March 31, 2022 and 2021, respectively.

The Company incurred no material losses related to residential mortgage repurchases during the three and six months ended June 30, 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 March 31

Three Months Ended June 30 Six Months Ended June 30

2022 2021 2022 2021

(Dollars in thousands)

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Total closed loans $ 244,264 $ 289,601 $ 462,034 $ 641,345

As shown in the above table, the Company experienced a lower volume of residential real estate loans sales for the three and six months ended June 30, 2022 in comparison to the same prior year periods, driven primarily by reduced customer demand in the rising interest rate environment.

In addition, the volume of closed residential real estate loans held in portfolio increased during the three and six months ended June 30, 2022.

The table below reflects additional information related to the loans which were sold during the periods indicated:

Table 2 - Residential Mortgage Loan Sales

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

2022 2021 2022 2021

(Dollars in thousands)

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Total loans sold $ 22,197 $ 172,432 $ 76,481 $ 455,001

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

(1) All loans sold with servicing rights retained during the three and six months ended June 30, 2022 and June 30, 2021 were sold without recourse.

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

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

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

The principal balance of loans serviced by the Bank on behalf of investors was $348.1 million, $382.6 million and $373.2 million at June 30, 2022, December 31, 2021, and June 30, 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 March 31

Three Months Ended June 30 Six Months Ended June 30

2022 2021 2022 2021

(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 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.

Loan Portfolio Total loans at June 30, 2022 increased by $88.5 million, or 0.65%, when compared to December 31, 2021.

Excluding $185.6 million of net paydowns associated with the PPP for the first six months of 2022, t he loan portfolio increased by $274.1 million, or 4.1% on an annualized basis, compared to December 31, 2021.

Organic loan growth was driven primarily by strong consumer loan activity, as the majority of residential real estate loan closings were retained on the balance sheet, while increased demand and line utilization fueled growth in home equity balances.

Excluding the net reduction in PPP loans, the commercial portfolio remained relatively flat at June 30, 2022 in comparison to December 31, 2021, as increased line utilization and higher closing volumes in the commercial and industrial and construction categories were countered by elevated levels of attrition within commercial real estate.

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 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:

The Company's previous participation in the PPP resulted in significant loan fundings within the commercial and industrial category, which have now declined to $30.6 million or 2.0% of the total commercial and industrial category at June 30, 2022, primarily as a result of the ongoing forgiveness process, and are reflected within the various sectors below.

During the three and six months ended June 30, 2022, the Company amortized into income $1.8 million and $3.5 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 June 30, 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 March 31, 2022:

The following pie chart shows the diversification of the commercial real estate loan portfolio as of June 30, 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 $2.8 billion at March 31, 2022, as noted below:

The residential real estate, home equity and other consumer portfolios totaled $2.9 billion at June 30, 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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2022 December 31

2021 March 31

(Dollars in thousands)

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Other consumer 215 504 95

Total (1) $ 56,618 $ 27,820 $ 59,200

Loans past due 90 days or more but still accruing

Other consumer — — 1

Total $ — $ — $ 1

Total nonperforming loans $ 56,618 $ 27,820 $ 59,201

Other real estate owned — — —

Total nonperforming assets (1) $ 55,915 $ 27,820 $ 47,818

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Nonperforming assets as a percent of total assets 0.28 % 0.14 % 0.34 %

(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.

(1) Inclusive of TDRs on nonaccrual status of $1.7 million at June 30, 2022, $2.0 million at December 31, 2021, and $20.2 million at June 30, 2021.

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

Table 5 - Activity in Nonperforming Assets

Three Months Ended

2022 March 31

Three Months Ended Six Months Ended

(Dollars in thousands)

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2022 December 31

2021 March 31

(Dollars in thousands)

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Table 7 - Activity in Troubled Debt Restructurings

Three Months Ended

2022 March 31

Three Months Ended Six Months Ended

(Dollars in thousands)

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

Three Months Ended

2022 March 31

Three Months Ended Six Months Ended

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

At June 30, 2022, there were 47 relationships, with an aggregate balance of $162.9 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 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 March 31, 2022:

Table 9 - Deferrals by Modification Type

Deferral of Principal Only Total Portfolio % Deferral

The following table summarizes active deferrals by modification type as of June 30, 2022:

Table 9 - Deferrals Maturity Schedule

Q4 2022 2023 2024 Total Deferrals (2) Total Portfolio % Deferral

(Dollars in thousands)

Commercial and industrial $ — $ 1,566,192 — %

Commercial real estate (1) $ 137,669 $ 51,072 $ 8,700 $ 197,441 8,986,334 2.2 %

Business banking — 200,405 — %

Residential real estate — 1,706,045 — %

Home equity — 1,025,815 — %

Consumer — 30,009 — %

Total active deferrals as of March 31, 2022

Other portfolios — — — — 4,689,430 — %

Total active deferrals as of June 30, 2022

$ 137,669 $ 51,072 $ 8,700 $ 197,441 13,675,764 1.4 %

(1) Balances include commercial construction deferrals.

(2) All active deferrals as of June 30, 2022 were comprised of deferrals of principal only.

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

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

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

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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 $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.

The allowance for credit losses of $144.3 million at June 30, 2022 represents a decrease of $2.6 million, or 1.8% compared to December 31, 2021.

The decrease in the allowance was primarily driven by a stabilized credit quality environment, continued strong asset quality metrics and overall consistent loan balances.

The aforementioned stabilization of credit quality and continued strong asset quality metrics experienced by the Company resulted in a lower quantitative allowance for credit loss reserve at June 30, 2022, as compared to December 31, 2021.

Partially offsetting this decline was the impact of increased economic uncertainty over the reasonable and supportable forecast modeled in the allowance for credit losses.

Management's forecast anticipates that the federal funds rates will rise in the near term, that supply chain issues will persist, inflation remains elevated, 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.

The forecast used by management also anticipates that the U.S.

economy will fall into a mild recession during the third quarter of 2022 and persist for the short term.

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.

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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

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

(Dollars in thousands)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Commercial and industrial $ (29) $ 1,537,883 (0.01) % $ (42) $ 1,536,757 (0.01) %

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Total $ 199 $ 13,603,098 0.01 % $ 603 $ 13,573,576 0.01 %

Three Months Ended March 31, 2021

(Dollars in thousands)

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

Commercial and industrial $ 107 $ 1,944,026 0.02 % $ 3,374 $ 2,029,075 0.34 %

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Total $ 192 $ 9,107,446 0.01 % $ 3,535 $ 9,224,955 0.08 %

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.

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Total allowance for credit losses $ 144,319 100.0 % $ 146,922 100.0 %

(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.

(1) Total loans in this category are inclusive of $30.6 million and $216.2 million in loans, at June 30, 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.

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Item 1 of this Report.

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.

Federal Home Loan Bank Stock The FHLB is a cooperative that provides services to its member banking institutions.

The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding as a tool to manage liquidity and interest rate risk.

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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 $1.0 billion and at both March 31, 2022 and December 31, 2021.

The Bank held investments in FHLB of Boston stock of $6.2 million and $11.4 million at June 30, 2022 and December 31, 2021, respectively, reflecting redemption activity occurring during the first half of 2022.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both June 30, 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.

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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 first quarter of 2022 that indicated impairment of goodwill and other intangible assets.

There were no events or changes during the second 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 $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 cash surrender value of life insurance policies was $292.8 million at June 30, 2022 compared to $289.3 million at December 31, 2021, representing an increase of $3.5 million, or 1.2%, primarily due to income earned on the policies.

The Company recorded tax exempt income from life insurance policies of $1.9 million and $1.6 million for the three months ended June 30, 2022 and 2021, respectively, and $3.7 million and $2.9 million for the six months ended June 30, 2022 and 2021, respectively.

The Company recorded gains on life insurance benefits of $123,000 for the three and six months ended June 30, 2022, and $258,000 for the six months ended June 30, 2022.

No gains were recognized during the three months ended June 30, 2021.

Deposits As of June 30, 2022, total deposits were $16.6 billion, representing a $277.5 million, or 1.6%, decrease from December 31, 2021, primarily attributable to continued runoff in higher cost time deposits.

The total cost of deposits was 0.05% and 0.07% for the three months ended June 30, 2022 and 2021, respectively, and 0.05% and 0.08% for the six months ended June 30, 2022 and 2021, respectively.

Core deposits increased to 86.8% of total deposits as of June 30, 2022 from 84.5% at December 31, 2021.

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 $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.

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 $819.7 million and $998.1 million at June 30, 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 $113.8 million and $141.6 million at June 30, 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.

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.

Borrowings were $138.3 million at June 30, 2022, a decrease of $14.0 million, or 9.2%, as compared to December 31, 2022, due primarily to the re-payment of a revolving loan credit facility during the first quarter of 2022.

Additionally, the Bank had $4.4 billion and $4.2 billion of assets pledged as collateral against borrowings at June 30, 2022 and December 31, 2021, respectively.

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

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.

Capital Resources On June 16, 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 June 27, 2022.

This dividend was paid on July 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 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.

At June 30, 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:

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Amount Ratio Amount Ratio Amount Ratio

March 31, 2022

June 30, 2022

(Dollars in thousands)

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

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

At June 30, 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 $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.

Dividends paid by the Bank to the Company totaled $53.2 million and $5.0 million for the three months ended June 30, 2022 and 2021, respectively and totaled $78.2 million and $5.0 million for the six months ended June 30, 2022 and 2021, respectively.

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

At each of 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.

At each of June 30, 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 The following table presents total assets under administration and number of accounts held by the Rockland Trust Investment Management Group at the following dates:

Table 13 - Assets Under Administration

2022 December 31

(Dollars in thousands)

Assets under administration $ 5,156,575 $ 5,726,368 $ 5,407,211

Number of trust, fiduciary and agency accounts 6,721 6,379 6,283

The decrease in assets under administration at June 30, 2022 was driven primarily by depressed market valuations experienced during the first half of 2022.

Included in these amounts as of June 30, 2022 and December 31, 2021 are assets under administration of $376.3 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 $7.8 million and $8.0 million for the three months ended June 30, 2022 and 2021, respectively, and $15.7 million and $15.4 million for the six months ended June 30, 2022 and 2021, respectively.

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

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

Retail investments and insurance revenue was $1.5 million and $845,000 for the three months ended June 30, 2022 and 2021, respectively, and $2.3 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively.

RESULTS OF OPERATIONS

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

The following table provides a summary of results of operations for the three and six months ended June 30, 2022 and 2021:

Table 14 - Summary of Results of Operations

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

2022 2021 2022 2021

(Dollars in thousands, except per share data)

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

On a fully tax equivalent basis ("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.

On a fully tax equivalent basis ("FTE"), net interest income for the second quarter of 2022 was $145.8 million, representing an increase of $52.3 million, or 55.9%, when compared to the second quarter of 2021.

For the six months ended June 30, 2022, the net interest income on a FTE basis was $284.2 million, representing an increase of $94.8 million, or 50.1%, when compared to the year ago period.

The year-over-year increases in net interest income are primarily attributable to the impact of the Meridian acquisition which closed during the fourth quarter of 2021, as well as the positive impact of asset repricing in the rising rate environment and relatively stable funding costs experienced during the first half of 2022.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and six months ended June 30, 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 15 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date

Three Months Ended March 31

Three Months Ended June 30

Balance Interest

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Cost of total funding liabilities 0.08 % 0.11 %

(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.

(1) The total amount of adjustment to interest income and yield on a FTE basis was $956,000 and $209,000 for the three months ended June 30, 2022 and 2021, respectively.

The FTE adjustment relates to tax exempt income relating to securities with average balances of $197,000 and $555,000 and tax exempt income relating to loans with average balances of $402.7 million and $60.4 million, for the three months ended June 30, 2022 and 2021, respectively.

(2) Includes average nonaccruing loans.

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

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

Six Months Ended June 30

Balance Interest

(Dollars in thousands)

Interest-earning assets

Interest-earning deposits with banks, federal funds sold, and short-term investments $ 1,640,264 $ 3,703 0.46 % $ 1,603,407 $ 839 0.11 %

Securities - trading 3,798 — — % 3,150 — — %

Securities - taxable investments 2,808,213 21,324 1.53 % 1,383,122 13,811 2.01 %

Securities - nontaxable investments (1) 199 4 4.05 % 599 12 4.04 %

Total securities $ 2,812,210 $ 21,328 1.53 % $ 1,386,871 $ 13,823 2.01 %

Loans held for sale 6,643 99 3.01 % 38,907 482 2.50 %

Commercial and industrial (1) 1,536,757 34,527 4.53 % 2,029,075 43,397 4.31 %

Commercial real estate (1) 7,869,164 152,800 3.92 % 4,176,202 81,908 3.96 %

Commercial construction 1,192,013 25,724 4.35 % 534,933 10,060 3.79 %

Small business 199,408 5,072 5.13 % 176,434 4,583 5.24 %

Total commercial 10,797,342 218,123 4.07 % 6,916,644 139,948 4.08 %

Residential real estate 1,705,883 28,576 3.38 % 1,248,778 23,494 3.79 %

Home equity 1,039,661 17,840 3.46 % 1,037,446 17,348 3.37 %

Total consumer real estate 2,745,544 46,416 3.41 % 2,286,224 40,842 3.60 %

Other consumer 30,690 996 6.54 % 22,087 843 7.70 %

Total loans $ 13,573,576 $ 265,535 3.94 % $ 9,224,955 $ 181,633 3.97 %

Total interest-earning assets $ 18,032,693 $ 290,665 3.25 % $ 12,254,140 $ 196,777 3.24 %

Cash and due from banks 181,069 148,499

Federal Home Loan Bank stock 8,814 9,828

Other assets 1,853,285 1,249,898

Total assets $ 20,075,861 $ 13,662,365

Interest-bearing liabilities

Savings and interest checking accounts $ 6,224,128 $ 1,308 0.04 % $ 4,225,331 $ 807 0.04 %

Money market 3,547,066 1,166 0.07 % 2,318,106 950 0.08 %

Time deposits 1,411,275 1,744 0.25 % 874,676 2,971 0.68 %

Total interest-bearing deposits $ 11,182,469 $ 4,218 0.08 % $ 7,418,113 $ 4,728 0.13 %

Federal Home Loan Bank borrowings $ 25,675 $ 256 2.01 % $ 35,746 $ 379 2.14 %

Long-term borrowings 4,506 31 1.39 % 25,818 205 1.60 %

Junior subordinated debentures 62,854 709 2.27 % 62,851 855 2.74 %

Subordinated debentures 49,813 1,235 5.00 % 49,717 1,235 5.01 %

Total borrowings $ 142,848 $ 2,231 3.15 % $ 174,132 $ 2,674 3.10 %

Total interest-bearing liabilities $ 11,325,317 $ 6,449 0.11 % $ 7,592,245 $ 7,402 0.20 %

Noninterest bearing demand deposits 5,495,036 4,067,235

Other liabilities 292,023 279,620

Total liabilities $ 17,112,376 $ 11,939,100

Stockholders' equity 2,963,485 1,723,265

Total liabilities and stockholders' equity $ 20,075,861 $ 13,662,365

Net interest income (1) $ 284,216 $ 189,375

Interest rate spread (3) 3.14 % 3.04 %

Net interest margin (4) 3.18 % 3.12 %

Supplemental information

Total deposit, including demand deposits $ 16,677,505 $ 4,218 $ 11,485,348 $ 4,728

Cost of total deposits 0.05 % 0.08 %

Total funding liabilities, including demand deposits $ 16,820,353 $ 6,449 $ 11,659,480 $ 7,402

Cost of total funding liabilities 0.08 % 0.13 %

(1) The total amount of adjustment to present interest income and yield on a FTE basis was $1.9 million and $438,000 for the six months ended June 30, 2022 and 2021, respectively.

The FTE adjustment relates to nontaxable investment securities with average balances of $199,000 and $599,000 and tax exempt income relating to loans with average balances of $410.6 million and $65.3 million for the six months ended June 30, 2022 and 2021, 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.

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

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Table 17 - Volume Rate Analysis

Three Months Ended March 31

2022 Compared To 2021

Three Months Ended June 30 Six Months Ended June 30

2022 Compared To 2021 2022 Compared To 2021

Volume Total Change Change

Volume Total Change

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(1) Reflects income determined on a FTE basis.

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

See footnote (1) to Table 15 and 16 in this Report for the related adjustments.

(2) Loans include portfolio loans and nonaccrual loans;

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

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 $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.

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

The Company recorded no provision for credit losses for the three months ended June 30, 2022 and a release of provision for credit losses of $2.0 million for the six months ended June 30, 2022, as compared to a release of provision for credit losses of $5.0 million and $7.5 million for the three and six months ended June 30, 2021.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.06% at June 30, 2022, 1.08% at December 31, 2021, and 1.15% at June 30, 2021.

The Company recorded net charge-offs of $199,000 and $603,000 for the three and six months ended June 30, 2022, respectively, as compared to net charge-offs of $192,000 and $3.5 million for the three and six months ended June 30, 2021, respectively.

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

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

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Three Months Ended

March 31 Change

June 30 Change

2022 2021 Amount %

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Total $ 27,898 $ 24,967 $ 2,931 11.74 %

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.

Six Months Ended

June 30 Change

2022 2021 Amount %

(Dollars in thousands)

Deposit account fees $ 11,321 $ 7,406 $ 3,915 52.86 %

Interchange and ATM fees 7,636 5,788 1,848 31.93 %

Investment management 18,002 17,176 826 4.81 %

Mortgage banking income 2,404 8,445 (6,041) (71.53) %

Gain on life insurance benefits 123 258 (135) (52.33) %

Increase in cash surrender value of life insurance policies 3,666 2,912 754 25.89 %

Loan level derivative income 1,040 289 751 259.86 %

Other noninterest income 9,978 7,939 2,039 25.68 %

Total $ 54,170 $ 50,213 $ 3,957 7.88 %

The primary reasons for the variances in the noninterest income categories for the three and six months ended June 30, 2022 as compared to the respective prior year periods shown in the preceding table include:

• Deposit account fees and interchange and ATM fees increased for the three and six months ended June 30, 2022 in comparison to the same prior year periods driven by increased volume attributable to the Meridian acquisition.

• Investment management income increased for the three and six months ended June 30, 2022, driven primarily by fluctuations in assets under management as well as strong retail and insurance commission income during the first half of 2022.

• Mortgage banking income decreased in comparison to the prior year, despite strong origination volumes, as a greater portion of new originations were retained in the Company's portfolio versus being sold in the secondary market during the first half of 2022.

• 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.

• Other noninterest income increased for the three and six months ended June 30, 2022, primarily attributable to increases in rental income from equipment leases, discounted purchases of Massachusetts historical tax credits, credit card fee income and foreign currency exchange fees, partially offset by decreases in income from other investments and reduced 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

March 31 Change

June 30 Change

2022 2021 Amount %

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Data processing & facilities management 2,247 1,686 561 33.27 %

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

Consulting expense 2,760 1,492 1,268 84.99 %

Software maintenance 2,645 1,915 730 38.12 %

Amortization of intangible assets 1,902 1,314 588 44.75 %

FDIC assessment 1,805 1,050 755 71.90 %

Debit card expense 1,861 1,165 696 59.74 %

FDIC assessment 1,743 775 968 124.90 %

Merger and acquisition expenses — 1,731 (1,731) (100.00) %

Other noninterest expenses 16,229 11,883 4,346 36.57 %

Total $ 90,562 $ 73,302 $ 17,260 23.55 %

Six Months Ended

June 30 Change

2022 2021 Amount %

(Dollars in thousands)

Salaries and employee benefits $ 98,249 $ 82,524 $ 15,725 19.06 %

Occupancy and equipment expenses 24,939 17,979 6,960 38.71 %

Data processing & facilities management 4,619 3,351 1,268 37.84 %

Merger and acquisition expenses 7,100 1,731 5,369 310.17 %

Software maintenance 5,209 3,885 1,324 34.08 %

Consulting expense 4,510 3,883 627 16.15 %

Amortization of intangible assets 3,903 2,727 1,176 43.12 %

Debit card expense 3,626 2,346 1,280 54.56 %

FDIC assessment 3,548 1,825 1,723 94.41 %

Other noninterest expenses 30,359 22,733 7,626 33.55 %

Total $ 186,062 $ 142,984 $ 43,078 30.13 %

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.

The primary reasons for the variances in the noninterest expense categories for the three and six months ended June 30, 2022 as compared to the respective prior year periods shown in the preceding table include:

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

• Occupancy and equipment expenses increased year-over-year, primarily driven by costs associated with the Company's expanded branch network, real estate and other fixed assets resulting from the Meridian acquisition, as well as increased snow removal costs incurred during the first half of 2022.

• Data processing and facilities management expenses increased primarily due to timing of certain initiatives and general increases associated with higher transaction volumes.

• The Company incurred merger and acquisition costs related to the Meridian acquisition of $7.1 million for the six months ended June 30, 2022, all of which were incurred during the first quarter of 2022 and primarily related to

lease terminations associated with exited branch locations, along with additional integration costs and professional fees.

Meridian related merger and acquisition costs were also incurred, to a lesser extent, during the six months ended June 30, 2021, leading up to deal close during the fourth quarter of 2021.

• 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.

• Consulting expense increased for the three and six months ended June 30, 2022, primarily due to timing of strategic initiatives.

• Other noninterest expense increased for the three and six months ended June 30, 2022, primarily due to two full quarters of general increases associated with the Meridian acquisition, elevated unrealized losses on equity securities, and increased marketing and public relations costs.

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 20 - Tax Provision and Applicable Tax Rates

Three Months Ended

Three Months Ended Six Months Ended

June 30 June 30

2022 2021 2022 2021

(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 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 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 $178.8 million, of which $112.6 million had been funded as of March 31, 2022.

The total committed investment in these partnerships is $184.0 million, of which $119.7 million had been funded as of June 30, 2022.

It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.5 million for the fiscal year 2022 and a total of $23.3 million over the remaining life of the investments from the combination of the tax credits and operating losses.

Risk Management

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

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

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

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The second line of defense is the Chief Risk Officer and the risk department, who monitor and provide advice with respect to first line risk management.

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

The third line of

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

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

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

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

As risks must be taken to create value, the Board of Directors has defined the acceptable residual risk tolerances for the Company and the eight 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 eight major risk types identified by the Company and addressed in the Risk Appetite Statement are strategic risk, culture risk, credit risk, liquidity risk, interest rate risk, operational risk, technology risk, and reputation risk, each of which is discussed below.

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

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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 March 31, 2022.

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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Table 21 - Liquidity Sources

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Outstanding Additional

12 unchanged sentences

$ 1,071,786 $ 5,222,162 $ 1,292,067 $ 4,781,128

(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.

(1) Loans with a carrying value of $2.6 billion and $2.3 billion at June 30, 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 June 30, 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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In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and establish and execute an appropriate response.

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

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

Interest rate risk includes market risk.

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

6 unchanged sentences

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

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

It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and

interest-bearing liabilities and, when necessary within limits management deems prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.

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

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

The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g.,

demand deposit, negotiable order of withdrawal, savings, and money market accounts).

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

The results of all scenarios and the impact to net interest income are outlined in the table below:

The Company measures the annual income from each scenario and then compares it against the current year base case scenario.

The relative results of all scenarios and the impact to net interest income as they compare to the year 1 base scenario are outlined in the table below:

Table 22 - Interest Rate Sensitivity

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Parallel rate shocks (basis points)

-200 (13.4) % (18.0) % n/a n/a

-100 (7.2) % (6.7) % (3.3) % (9.7) %

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Gradual rate shifts (basis points)

-200 over 12 months (6.0) % (14.3) % n/a n/a

-100 over 12 months (3.0) % (5.3) % (1.5) % (8.0) %

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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 three months ended March 31, 2022 were the shape of the U.S.

The most significant market factors affecting the Company’s net interest income during the six months ended June 30, 2022 were the shape of the U.S.

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

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

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

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

Potential operational risk exposure exists throughout the Company.

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

Operational risks include operational or technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or a failure of key individuals to perform properly.

Operational risks include operational failures, unlawful tampering, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or a failure of key individuals to perform properly.

Technology Risk Technology risk is the risk of losses or other impacts arising from the failure of technology systems to function in accordance with expectations and business requirements.

Technology risk includes information technology risk, information security risk, and cyber security.

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

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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 March 31, 2022.

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended June 30, 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 March 31, 2022.

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