What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 181 added, 170 removed, 801 unchanged (30% of the section changed)

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• 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;

• the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, any further resurgences or variants of the COVID-19 virus, the efficacy and availability of vaccines, boosters or other treatments, actions taken by governmental authorities in response thereto, 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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• 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 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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Net interest income 162,601 144,861 137,432 122,530 90,091

Provision for credit losses — (2,000) 35,705 (10,000) (5,000)

Provision for (release of) credit losses 3,000 — (2,000) 35,705 (10,000)

Noninterest income 28,195 27,898 26,272 29,180 26,457

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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 are expected to provide a satisfactory financial return, including the recent acquisition of Meridian Bancorp, Inc.

The Company maintains an asset-sensitive profile and, accordingly, has benefited from recent interest rate increases.

While asset quality remains very strong, management is closely monitoring the economic environment, including elevated inflationary pressures, supply chain issues, and labor shortages being experienced in the current operating environment across various industries.

The Company focuses on organic growth, but will also consider growth through acquisition.

Any potential acquisition opportunities are evaluated for the potential to provide a satisfactory financial return as well as other criteria (ease of integration, synergies, geographical location).

Recent acquisitions include Meridian Bancorp, Inc.

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

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 .

Third Quarter 2022 Results

Net income for the three months ended September 30, 2022 was $71.9 million, or $1.57 on a diluted earnings per share basis, as compared to $40.0 million, or $1.21 on a diluted earnings per share basis, for the three months ended September 30, 2021, or an increase of 79.7% and 29.8%, respectively.

Net income for the nine months ended September 30, 2022 was $186.8 million, or $4.00 on a diluted earnings per share basis, as compared to $119.3 million, or $3.61 on a diluted earnings per share basis, for the nine months ended September 30, 2021, or an increase of 56.6% and 10.8%, respectively.

The nine months ended September 30, 2022 results reflect merger and acquisition-related costs of $7.1 million, pre-tax, associated with the Meridian acquisition, as compared to $3.7 million of merger-related costs during the same prior year period.

Excluding these merger and acquisition costs, operating net income was $191.9 million, or $4.11 on a diluted per share basis, for the nine months ended September 30, 2022, as compared to $121.9 million, or $3.69 on a diluted per share basis for the nine months ended September 30, 2021.

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

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;

• 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.

Third quarter 2022 results reflected the following key drivers:

• Improved net interest margin for the quarter;

• 1.3% annualized net loan growth, excluding Paycheck Protection Program ("PPP") runoff;

• Continued modest cash deployment into the securities portfolio;

• Strong core deposit account openings and low cost of deposits;

• Modest provision for credit loss;

nonperforming assets remained flat;

• Strong fee income;

• 49% efficiency ratio for the quarter;

• 443,000 shares repurchased, completing the Company's share repurchase program announced in January 2022.

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, as well as the Company's acquisition of Meridian during the fourth quarter of 2021.

The results depicted in the following table reflect the trend of the Company's interest-earning assets over the past five quarters, inclusive of the Company's acquisition of Meridian during the fourth quarter of 2021.

Changes over the five quarter period reflect measured deployment of excess cash balances into the securities portfolio, combined with a longer term overall strategy that typically emphasizes loan growth commensurate with overall economic growth.

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

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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.

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

The Company's overall sources of funding reflect strong business and retail deposit growth with a management strategy of relying upon core deposit growth to fund loans.

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

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

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

Expense Control

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

Strong earnings retention has contributed to capital growth, both on an absolute level and per share basis.

The following chart shows the Company's book value and tangible book value per share over the past five quarters (see "Non-GAAP Measures" below for a reconciliation to GAAP financial measures):

Strong earnings retention has contributed to capital growth, both on an absolute level and per share basis, which has been offset in the last two quarters by share repurchases and other comprehensive losses.

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

*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 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.

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

During the third quarter of 2022, the Company repurchased approximately 443,000 shares of common stock under the Company's stock repurchase program announced in January 2022.

In total, the Company repurchased 1.8 million shares of its common stock during the nine months ended September 30, 2022 at an average price of $78.32 under the January 2022 program which ended in the third quarter.

In consideration of the Company's strong current capital position, on October 20, 2022 the Company announced a new stock repurchase plan, which authorizes repurchases by the Company of up to $120 million in common stock.

The new plan will be in effect through October 19, 2023.

Non-GAAP Measures

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

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 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.

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

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

Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items.

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

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

Management 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.

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

The Company reports these 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.

Management believes providing information excluding the impact of goodwill and other intangibles 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.

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

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

Three Months Ended June 30

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

Three Months Ended September 30

Net Income Diluted

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Net tax benefit associated with noncore items (1) — (546) — (0.02)

Total tax impact — (487) — (0.02)

Noncore increases to net income — 1,397 — 0.04

Operating net income (Non-GAAP) $ 71,897 $ 41,404 $ 1.57 $ 1.25

Six Months Ended June 30

Nine Months Ended September 30

Net Income Diluted

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Efficiency ratio on an operating basis (Non-GAAP) 48.60 % 52.42 % 54.00 % 52.71 % 60.47 % (d/(a+b))

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

The following table summarizes the calculation of tangible common equity to tangible assets ratio and tangible book value per share and shows the reconciliation of non-GAAP measures:

2022 March 31

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Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions.

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 six months of 2022.

Critical accounting policies are those that are reflective of significant management judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions.

The Company believes that the most critical accounting policies are those that are both most important to the portrayal of the Company’s financial condition and results and require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

There have been no material changes in critical accounting policies during the first nine 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 $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.

Securities increased by $482.3 million, or 18.1%, at September 30, 2022 as compared to December 31, 2021, primarily r eflecting $887.3 million of purchases, partially offset by unrealized losses of $167.8 million related to the available for sale portfolio, as well as paydowns, calls, and maturities.

The ratio of securities to total assets increased to 16.0% at September 30, 2022 compared to 13.0% at December 31, 2021, which reflects the ongoing strategy to deploy excess liquidity into 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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Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans.

The Company originates residential loans with the intention of selling them in the secondary market or holding them in the Company's residential real estate portfolio.

The Company originates residential loans with the intention of either selling them in the secondary market or holding them in the Company's residential real estate portfolio.

When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination.

The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached.

The Company incurred no material losses related to 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:

The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are found to be not accurate in all material respects.

The Company incurred no material losses related to residential mortgage repurchases during the three and nine months ended September 30, 2022 and 2021, respectively.

The following table shows the total residential real estate loans closed and the breakdown of amounts held in portfolio or sold (or held for sale) in the secondary market during the periods indicated:

Table 1 - Closed Residential Real Estate Loans

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

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Total closed loans $ 186,390 $ 249,626 $ 648,424 $ 890,971

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:

The Company experienced a lower volume of residential real estate loans sales for the three and nine months ended September 30, 2022 compared 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 nine months ended September 30, 2022.

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

Table 2 - Residential Mortgage Loan Sales

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

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Total loans sold $ 18,388 $ 174,285 $ 94,869 $ 629,287

(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.

(1) All loans sold with servicing rights retained during the three and nine months ended September 30, 2022 and 2021, respectively, 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 $348.1 million, $382.6 million and $373.2 million at June 30, 2022, December 31, 2021, and June 30, 2021, respectively.

The principal balance of loans serviced by the Bank on behalf of investors was $336.2 million, $382.6 million and $342.3 million at September 30, 2022, December 31, 2021, and September 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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

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

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.

Loan Portfolio Total loans at September 30, 2022 increased by $113.1 million, or 0.8%, when compared to December 31, 2021.

Excluding $205.1 million of net paydowns associated with PPP loans during the nine months ended September 30, 2022, t he loan portfolio increased by $318.1 million, or 2.4% (3.2% 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.

Excluding the net reduction in PPP loans, the commercial portfolio decreased 0.82% at September 30, 2022 in comparison to December 31, 2021, primarily driven by continued elevated levels of attrition within the commercial real estate portfolio, which were partially offset by increased line utilization and higher closing volumes within the commercial and industrial category, which grew by $190.1 million, or 14.1% (18.9% on an annualized basis), as compared to December 31, 2021.

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 $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:

The following pie chart shows the diversification of the commercial and industrial portfolio as of September 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 June 30, 2022:

The following pie chart shows the diversification of the commercial real estate loan portfolio as of September 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 $2.9 billion at June 30, 2022, as noted below:

The residential real estate, home equity and other consumer portfolios totaled $3.1 billion at September 30, 2022, as noted below:

(Dollars in thousands)

Average loan size $ 165

Largest individual consumer loan outstanding $ 5,181

Consumer nonperforming loans/consumer loans 0.41 %

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

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If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment.

Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent.

Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and

the length of time that the loan has been delinquent.

The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position.

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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.

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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2022 December 31

2021 September 30

(Dollars in thousands)

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Nonperforming assets as a percent of total assets 0.28 % 0.14 % 0.32 %

(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.

(1) Inclusive of TDRs on nonaccrual status of $1.5 million at September 30, 2022, $2.0 million at December 31, 2021, and $21.1 million at September 30, 2021.

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

Table 5 - Activity in Nonperforming Assets

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2022 September 30

2021 September 30

2022 September 30

(Dollars in thousands)

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2022 December 31

2021 September 30

(Dollars in thousands)

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Table 7 - Activity in Troubled Debt Restructurings

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2022 September 30

2021 September 30

2022 September 30

(Dollars in thousands)

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Paydowns (386) (2,637) (3,603) (6,040)

Charge-offs — (16) — (16)

TDRs ending balance $ 13,087 $ 37,054 $ 13,087 $ 37,054

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

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2022 September 30

2021 September 30

2022 September 30

(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 June 30, 2022, there were 47 relationships, with an aggregate balance of $162.9 million, deemed to be potential problem loans.

At September 30, 2022, there were 51 relationships, with an aggregate balance of $173.5 million, deemed to be potential problem loans.

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

Management actively monitors these loans and strives to minimize any possible adverse impact to the Company.

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

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 June 30, 2022:

Table 9 - Deferrals Maturity Schedule

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

(Dollars in thousands)

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

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.

The Company held $193.3 million of loans with active deferrals at September 30, 2022, of which $137.7 million is scheduled to mature during the fourth quarter of 2022.

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 $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 balance of allowance for credit losses of $147.3 million at September 30, 2022 remained relatively flat compared to $146.9 million at December 31, 2021.

The net change in the Company's allowance for credit losses for the nine months ended September 30, 2022 primarily reflects elevated balances of nonperforming loans at September 30, 2022 compared to December 31, 2021, offset by attrition of existing loans and continued strong asset quality metrics.

Despite the increase in nonperforming loans, net charge-offs recorded for the three and nine months ended September 30, 2022 were minimal.

The aforementioned increase in nonperforming loans contributed to an overall higher quantitative allowance at September 30, 2022 compared to December 31, 2021.

Management's forecast anticipates that the federal funds rates will rise in the near term, that supply chain issues will persist, inflation will remain elevated, and the military conflict between Russia and Ukraine will persist for the foreseeable future, potentially impacting global oil supplies and the supply chain more generally.

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.

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

Additionally, the allowance for credit losses is qualitatively adjusted on a quarterly basis 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 9 - Summary Net Charge-Offs to Average Loans Outstanding

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

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

(Dollars in thousands)

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

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Commercial and industrial $ (2) $ 1,520,924 — % $ (44) $ 1,531,421 — %

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Total $ 6 $ 13,663,805 — % $ 609 $ 13,603,983 0.01 %

(Dollars in thousands)

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

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Commercial and industrial $ — $ 1,640,422 — % $ 3,374 $ 1,898,100 0.24 %

6 unchanged sentences

Total $ 111 $ 8,827,249 — % $ 3,646 $ 9,090,930 0.05 %

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 $ 147,313 100.0 % $ 146,922 100.0 %

(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.

(1) Total loans in this category are inclusive of $11.1 million and $216.2 million in loans at September 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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The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return.

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 Bank held investments in FHLB of Boston stock of $5.2 million and $11.4 million at September 30, 2022 and December 31, 2021, respectively, reflecting redemption activity occurring during 2022.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both September 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.

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 performed its annual goodwill impairment testing during the third quarter of 2022 and determined that the Company's goodwill was not impaired as of September 30, 2022.

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

There were no events or changes during the third 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 $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 cash surrender value of life insurance policies was $293.1 million at September 30, 2022 compared to $289.3 million at December 31, 2021, representing an increase of $3.8 million, or 1.3%, 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 September 30, 2022 and 2021, respectively, and $5.5 million and $4.5 million for the nine months ended September 30, 2022 and 2021, respectively.

The Company recorded gains on life insurance benefits of $477,000 for three months ended September 30, 2022 and no such gains for the three months ended September 30, 2021, respectively, and $600,000 and $258,000 for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Deposits As of September 30, 2022, total deposits were $16.3 billion, representing a $578.1 million, or 3.4%, decrease from December 31, 2021, primarily attributable to continued runoff in higher-cost time deposits and certain rate sensitive deposits.

The total cost of deposits was 0.15% and 0.05% for the three months ended September 30, 2022 and 2021, respectively, and 0.08% and 0.07% for the nine months ended September 30, 2022 and 2021, respectively.

Core deposits increased to 87.8% of total deposits as of September 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 $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.

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 $751.1 million and $998.1 million at September 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 $102.6 million and $141.6 million at September 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 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.

Borrowings were $113.4 million at September 30, 2022, a decrease of $39.0 million, or 25.6%, as compared to December 31, 2021, due primarily to the re-payment of a revolving loan credit facility during the first quarter of 2022 and the maturity of a short term Federal Home Loan Bank borrowing during the third quarter of 2022.

Additionally, the Bank had $4.3 billion and $4.2 billion of assets pledged as collateral against borrowings at September 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 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.

Capital Resources On September 15, 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 September 26, 2022.

This dividend was paid on October 7, 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 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.

At September 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

June 30, 2022

September 30, 2022

(Dollars in thousands)

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

At June 30, 2022, the Company's capital levels exceeded the buffer.

At September 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 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.

Dividends paid by the Bank to the Company totaled $64.5 million and $33.9 million for the three months ended September 30, 2022 and 2021, respectively and totaled $142.7 million and $38.9 million for the nine months ended September 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 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.

At each of September 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:

1 unchanged sentence

2022 December 31

2021 September 30

(Dollars in thousands)

1 unchanged sentence

Number of trust, fiduciary and agency accounts 6,487 6,379 6,368

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.

Despite strong new asset inflows, assets under administration at September 30, 2022 decreased compared to December 31, 2021, driven primarily by depressed market valuations experienced during the first nine months of 2022.

Included in these amounts as of September 30, 2022 and December 31, 2021 are assets under administration of $361.0 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 $8.1 million for the three months ended September 30, 2022 and 2021, respectively, and $23.6 million for the nine months ended September 30, 2022 and 2021.

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.

Retail investments and insurance revenue was $601,000 and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $2.9 million and $2.8 million for the nine months ended September 30, 2022 and 2021, respectively.

RESULTS OF OPERATIONS

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

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

Table 13 - Summary of Results of Operations

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

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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 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.

On a fully tax equivalent basis ("FTE"), net interest income for the third quarter of 2022 was $163.6 million, representing an increase of $73.3 million, or 81.2%, when compared to the third quarter of 2021.

For the nine months ended September 30, 2022, the net interest income on a FTE basis was $447.9 million, representing an increase of $168.2 million, or 60.1%, when compared to the year ago period.

The year-over-year increases in net interest income are primarily attributable to 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 through September 30, 2022, partially offset by reduced PPP fee income.

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, 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 June 30

Three Months Ended September 30

Balance Interest

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Cost of total funding liabilities 0.18 % 0.09 %

(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.

(1) The total amount of adjustment to interest income and yield on a FTE basis was $1.0 million and $220,000 for the three months ended September 30, 2022 and 2021, respectively.

The FTE adjustment relates to tax exempt income relating to securities with average balances of $196,000 and $468,000 and tax exempt income relating to loans with average balances of $414.4 million and $61.2 million, for the three months ended September 30, 2022 and 2021, respectively.

(2) Includes average nonaccruing loans.

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Table 15 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date

Six Months Ended June 30

Nine Months Ended September 30

Balance Interest

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Cost of total funding liabilities 0.11 % 0.12 %

(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.

(1) The total amount of adjustment to present interest income and yield on a FTE basis was $3.0 million and $658,000 for the nine months ended September 30, 2022 and 2021, respectively.

The FTE adjustment relates to nontaxable investment securities with average balances of $198,000 and $555,000 and tax exempt income relating to loans with average balances of $411.9 million and $63.9 million for the nine months ended September 30, 2022 and 2021, respectively.

(2) Includes average nonaccruing loans.

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Table 16 - Volume Rate Analysis

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2022 Compared To 2021 2022 Compared To 2021

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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.

The Company recorded a $3.0 million and a $1.0 million provision for credit losses for the three and nine months ended September 30, 2022, respectively, as compared to releases of provision for credit losses of $10.0 million and $17.5 million for the three and nine months ended September 30, 2021, respectively.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.08% at both September 30, 2022 and December 31, 2021, and 1.05% at September 30, 2021.

The Company recorded net charge-offs of $6,000 and $609,000 for the three and nine months ended September 30, 2022, respectively, as compared to net charge-offs of $111,000 and $3.6 million for the three and nine months ended September 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.

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Three Months Ended

June 30 Change

September 30 Change

2022 2021 Amount %

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Total $ 28,195 $ 26,457 $ 1,738 6.57 %

Six Months Ended

June 30 Change

Nine Months Ended

September 30 Change

2022 2021 Amount %

9 unchanged sentences

Total $ 82,365 $ 76,670 $ 5,695 7.43 %

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 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.

The primary reasons for the variances in the noninterest income categories for the three and nine months ended September 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 nine months ended September 30, 2022 in comparison to the same prior year periods driven primarily by increased transaction volume attributable to the larger customer base as a result of the Meridian acquisition.

• Investment management income decreased for the three months ended September 30, 2022, driven primarily by a decline in overall asset valuations and was consistent for the nine months ended September 30, 2022, as compared to the prior year period, primarily due to a higher volume of new asset inflows, which were offset by depressed market valuations.

• Mortgage banking income decreased for the three and nine months ended September 30, 2022 in comparison to the prior year periods, due primarily to overall reduced activity resulting from increased interest rates and a greater portion of new originations being retained in the Company's portfolio versus being sold in the secondary market during 2022.

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

• The changes in loan level derivative income primarily reflect customer demand during the respective periods.

• Other noninterest income increased for the three and nine months ended September 30, 2022, primarily attributable to increases in rental income from equipment leases, foreign currency exchange fees, credit card fee income, discounted purchases of Massachusetts historical tax credits, and a gain on the sale of a vacated office space recently acquired during the Meridian acquisition, partially offset by decreases in loan fees and income from like-kind exchanges.

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

1 unchanged sentence

Three Months Ended

June 30 Change

September 30 Change

2022 2021 Amount %

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Total $ 92,728 $ 72,419 $ 20,309 28.04 %

Six Months Ended

June 30 Change

Nine Months Ended

September 30 Change

2022 2021 Amount %

11 unchanged sentences

Total $ 278,790 $ 215,403 $ 63,387 29.43 %

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 primary reasons for the variances in the noninterest expense categories for the three and nine months ended September 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.

• Data processing and facilities management expenses increased primarily due to the 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 during the first quarter of 2022, 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 nine months ended September 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 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.

• Consulting expense increased for the three and nine months ended September 30, 2022, primarily due to rollout of strategic initiatives during such periods.

• Other noninterest expense increased for the three and nine months ended September 30, 2022, primarily due to three 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 19 - Tax Provision and Applicable Tax Rates

Three Months Ended Six Months Ended

June 30 June 30

Three Months Ended Nine Months Ended

September 30 September 30

2022 2021 2022 2021

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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 $184.0 million, of which $119.7 million had been funded as of June 30, 2022.

The total committed investment in these partnerships is $183.9 million, of which $120.9 million had been funded as of September 30, 2022.

It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.3 million for the fiscal year 2022 and a total of $23.7 million over the remaining life of the investments from the combination of the tax credits and operating losses.

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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 June 30, 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 20 - Liquidity Sources

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Outstanding Additional

12 unchanged sentences

$ 967,103 $ 5,189,931 $ 1,292,067 $ 4,781,128

(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.

(1) Loans with a carrying value of $2.6 billion and $2.3 billion at September 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 $1.7 billion and $1.8 billion at September 30, 2022 and December 31, 2021, respectively, 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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-300 (15.2) % (21.8) % n/a n/a

-200 (9.8) % (11.3) % n/a n/a

-100 (3.4) % 0.5 % (3.4) % (9.8) %

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Alternative scenarios

Flat up 200 basis points scenario 3.2 % 15.0 % 9.2 % 19.6 %

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

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 six months ended June 30, 2022 were the shape of the U.S.

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

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

prime interest rate, LIBOR rates, the secured overnight financing rates ("SOFR"), and the interest rates being offered on long-term fixed rate loans.

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.

19 unchanged sentences

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 June 30, 2022.

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

Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended September 30, 2022.

Quantitative and Qualitative Disclosures About Market Risk

2 unchanged sentences

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