INDEPENDENT BANK CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the "2021 Form 10-K"). Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q (this "Report"), in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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,” “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. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the “Risk Factors” section of the 2021 Form 10-K, include but are not limited to: • further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including any future weakening caused by the COVID-19 pandemic and any uncertainty regarding the length and extent of economic contraction as a result of the pandemic; • the potential effects of inflationary pressures, labor market shortages and supply chain issues; • 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; • adverse changes or volatility in the local real estate market; • adverse changes in asset quality and any unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships; • acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles; • additional regulatory oversight and related compliance costs; • changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; 48 Table of Contents • higher than expected tax expense, resulting from failure to comply with general tax laws and changes in tax laws; • changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR; • 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, 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; • a deterioration of the credit rating for U.S. long-term sovereign debt; • inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery; • electronic fraudulent activity within the financial services industry, especially in the commercial banking sector; • adverse changes in consumer spending and savings habits; • the effect of laws and regulations regarding the financial services industry; • changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business; • the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic; • changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters including, but not limited to, changes to how the Company accounts for credit losses; • cyber security attacks or intrusions that could adversely impact our businesses; and • other unexpected material adverse changes in our operations or earnings. 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. Any public statements or disclosures by the Company following this Report which modify or impact any of the forward-looking statements contained in this Report will be deemed to modify or supersede such statements in this Report. 49 Table of Contents Selected Quarterly Financial Data The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere in this Report. Three Months Ended September 30 2022 June 30 2022 March 31 2022 December 31 2021 September 30 2021 (Dollars in thousands, except per share data) Financial condition data Securities $ 3,147,123 $ 2,934,956 $ 2,861,739 $ 2,664,859 $ 2,318,757 Loans 13,700,350 13,675,764 13,580,027 13,587,286 8,808,013 Allowance for credit losses (147,313) (144,319) (144,518) (146,922) (92,246) Goodwill and other intangible assets 1,012,006 1,013,917 1,015,831 1,017,844 525,261 Total assets 19,703,269 19,982,450 20,159,178 20,423,405 14,533,311 Total deposits 16,338,994 16,639,548 16,763,392 16,917,044 12,260,140 Total borrowings 113,360 138,344 138,328 152,374 157,045 Stockholders’ equity 2,817,201 2,871,185 2,965,439 3,018,449 1,755,954 Nonperforming loans 56,017 55,915 56,618 27,820 45,810 Nonperforming assets 56,017 55,915 56,618 27,820 45,810 Income statement Interest income $ 169,971 $ 148,123 $ 140,619 $ 125,921 $ 93,016 Interest expense 7,370 3,262 3,187 3,391 2,925 Net interest income 162,601 144,861 137,432 122,530 90,091 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 Noninterest expenses 92,728 90,562 95,500 117,126 72,419 Net income 71,897 61,776 53,097 1,702 40,007 Per share data Net income—basic $ 1.57 $ 1.32 $ 1.12 $ 0.04 $ 1.21 Net income—diluted 1.57 1.32 1.12 0.04 1.21 Cash dividends declared 0.51 0.51 0.51 0.48 0.48 Book value per share 61.73 62.32 62.59 63.75 53.14 Tangible book value per share (1) 39.56 40.31 41.15 42.25 37.24 Performance ratios Return on average assets 1.43 % 1.24 % 1.06 % 0.04 % 1.11 % Return on average common equity 9.90 % 8.49 % 7.16 % 0.28 % 9.04 % Net interest margin (on a fully tax equivalent basis) 3.64 % 3.27 % 3.09 % 3.05 % 2.78 % Dividend payout ratio 32.78 % 39.11 % 42.80 % 931.90 % 39.64 % Asset Quality Ratios Nonperforming loans as a percent of gross loans 0.41 % 0.41 % 0.42 % 0.20 % 0.52 % Nonperforming assets as a percent of total assets 0.28 % 0.28 % 0.28 % 0.14 % 0.32 % Allowance for credit losses as a percent of total loans 1.08 % 1.06 % 1.06 % 1.08 % 1.05 % Allowance for credit losses as a percent of nonperforming loans 262.98 % 258.10 % 255.25 % 528.12 % 201.37 % Capital ratios 50 Table of Contents Equity to assets 14.30 % 14.37 % 14.71 % 14.78 % 12.08 % Tangible equity to tangible assets (1) 9.66 % 9.79 % 10.18 % 10.31 % 8.79 % Tier 1 leverage capital ratio 10.51 % 10.42 % 10.62 % 12.03 % 9.36 % Common equity tier 1 capital ratio 13.98 % 13.90 % 14.45 % 14.30 % 13.53 % Tier 1 risk-based capital ratio 13.98 % 13.90 % 14.45 % 14.30 % 14.21 % Total risk-based capital ratio 15.71 % 15.62 % 16.18 % 16.04 % 15.78 % (1) Represents a non-GAAP measure. For reconciliation to GAAP book value per share, see Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Level Overview - Non-GAAP Measures" below. 51 Table of Contents Executive Level Overview Management evaluates the Company's operating results and financial condition using measures that include net income, earnings per share, return on assets and equity, return on tangible common equity, net interest margin, tangible book value per share, asset quality indicators, and many others. These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results. The Company 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. 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. 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. 52 Table of Contents 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, 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: Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. In addition, management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and credit losses. 53 Table of Contents Funding and Net Interest Margin 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: 54 Table of Contents Noninterest Income Noninterest income is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income. The following chart shows trends in the components of noninterest income over the past five quarters: Expense Control Management seeks to take a balanced approach to noninterest expense control by monitoring ongoing operating expenses while making needed capital expenditures and prudently investing in growth initiatives. The Company’s primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment. The following chart depicts the Company's efficiency ratio on a GAAP basis (calculated by dividing noninterest expense by the sum of noninterest income and net interest income), as well as the Company's efficiency ratio on a non-GAAP operating basis, if applicable (calculated by dividing noninterest expense, excluding certain noncore items, by the sum of noninterest income, excluding certain noncore items, and net interest income), over the past five quarters: 55 Table of Contents *See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures. Capital The Company's approach with respect to revenue and expense is designed to promote long-term earnings growth, which in turn contributes to capital growth. 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 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. 56 Table of Contents 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 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 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. 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. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. The Company’s non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies. The following tables summarize adjustments for noncore items for the periods indicated below and shows the reconciliation of non-GAAP measures: 57 Table of Contents Three Months Ended September 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) $ 71,897 $ 40,007 $ 1.57 $ 1.21 Non-GAAP adjustments Noninterest expense components Add: merger and acquisition expenses — 1,943 — 0.06 Noncore increases to income before taxes — 1,943 — 0.06 Net tax benefit associated with noncore items (1) — (546) — (0.02) Noncore increases to net income — 1,397 — 0.04 Operating net income (Non-GAAP) $ 71,897 $ 41,404 $ 1.57 $ 1.25 Nine Months Ended September 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) $ 186,770 $ 119,290 $ 4.00 $ 3.61 Non-GAAP adjustments Noninterest expense components Add: merger and acquisition expenses 7,100 3,674 0.15 0.11 Noncore increases to income before taxes 7,100 3,674 0.15 0.11 Net tax benefit associated with noncore items (1) (1,995) (1,033) (0.04) (0.03) Noncore increases to net income 5,105 2,641 0.11 0.08 Operating net income (Non-GAAP) $ 191,875 $ 121,931 $ 4.11 $ 3.69 (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. 58 Table of Contents Three Months Ended September 30 2022 June 30 2022 March 31 2022 December 31 2021 September 30 2021 (Dollars in thousands) Net interest income (GAAP) $ 162,601 $ 144,861 $ 137,432 $ 122,530 $ 90,091 (a) Noninterest income (GAAP) $ 28,195 $ 27,898 $ 26,272 $ 29,180 $ 26,457 (b) Noninterest expense (GAAP) $ 92,728 $ 90,562 $ 95,500 $ 117,126 $ 72,419 (c) Less: Merger and acquisition expense — — 7,100 37,166 1,943 Noninterest expense on an operating basis (Non-GAAP) $ 92,728 $ 90,562 $ 88,400 $ 79,960 $ 70,476 (d) Total revenue (GAAP) $ 190,796 $ 172,759 $ 163,704 $ 151,710 $ 116,548 (a+b) Ratios Noninterest income as a % of revenue (GAAP based) 14.78 % 16.15 % 16.05 % 19.23 % 22.70 % (b/(a+b)) Efficiency ratio (GAAP based) 48.60 % 52.42 % 58.34 % 77.20 % 62.14 % (c/(a+b)) Efficiency ratio on an operating basis (Non-GAAP) 48.60 % 52.42 % 54.00 % 52.71 % 60.47 % (d/(a+b)) 59 Table of Contents 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: September 30 2022 June 30 2022 March 31 2022 December 31 2021 September 30 2021 (Dollars in thousands, except per share data) Tangible common equity Stockholders' equity (GAAP) $ 2,817,201 $ 2,871,185 $ 2,965,439 $ 3,018,449 $ 1,755,954 (a) Less: Goodwill and other intangibles 1,012,006 1,013,917 1,015,831 1,017,844 525,261 Tangible common equity (Non-GAAP) 1,805,195 1,857,268 1,949,608 2,000,605 1,230,693 (b) Tangible assets Assets (GAAP) 19,703,269 19,982,450 20,159,178 20,423,405 14,533,311 (c) Less: Goodwill and other intangibles 1,012,006 1,013,917 1,015,831 1,017,844 525,261 Tangible assets (Non-GAAP) $ 18,691,263 $ 18,968,533 $ 19,143,347 $ 19,405,561 $ 14,008,050 (d) Common shares 45,634,626 46,069,761 47,377,125 47,349,778 33,043,812 (e) Common equity to assets ratio (GAAP) 14.30 % 14.37 % 14.71 % 14.78 % 12.08 % (a/c) Tangible common equity to tangible assets ratio (Non-GAAP) 9.66 % 9.79 % 10.18 % 10.31 % 8.79 % (b/d) Book value per share (GAAP) $ 61.73 $ 62.32 $ 62.59 $ 63.75 $ 53.14 (a/e) Tangible book value per share (Non-GAAP) $ 39.56 $ 40.31 $ 41.15 $ 42.25 $ 37.24 (b/e) Critical Accounting Policies 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. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2021 Form 10-K for a complete listing of critical accounting policies. FINANCIAL POSITION Securities Portfolio The Company’s securities portfolio consists of trading securities, equity securities, securities available for sale, and securities which management intends to hold until maturity. Securities increased by $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. Further details regarding the Company's measurement of expected credit losses on securities can be found in Note 3 “Securities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report. 60 Table of Contents 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 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 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 September 30 Nine Months Ended September 30 2022 2021 2022 2021 (Dollars in thousands) Held in portfolio $ 165,065 $ 65,832 $ 571,115 $ 279,176 Sold or held for sale in the secondary market 21,325 183,794 77,309 611,795 Total closed loans $ 186,390 $ 249,626 $ 648,424 $ 890,971 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 September 30 Nine Months Ended September 30 2022 2021 2022 2021 (Dollars in thousands) Sold with servicing rights released $ 18,206 $ 171,256 $ 94,006 $ 618,171 Sold with servicing rights retained (1) 182 3,029 863 11,116 Total loans sold $ 18,388 $ 174,285 $ 94,869 $ 629,287 (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. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the Consolidated Balance Sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was $336.2 million, $382.6 million and $342.3 million at September 30, 2022, December 31, 2021, and September 30, 2021, respectively. 61 Table of Contents The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated: Table 3 - Mortgage Servicing Asset Three Months Ended September 30 Nine Months Ended September 30 2022 2021 2022 2021 (Dollars in thousands) Balance at beginning of period $ 2,993 $ 2,295 $ 2,627 $ 2,365 Additions 2 30 8 95 Amortization (153) (244) (510) (769) Change in valuation allowance 103 122 820 512 Balance at end of period $ 2,945 $ 2,203 $ 2,945 $ 2,203 See Note 6, “Derivative and Hedging Activities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for more information on mortgage activity and mortgage related derivatives. 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 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. 62 Table of Contents 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 following pie chart shows the diversification of the commercial and industrial portfolio as of September 30, 2022: (Dollars in thousands) Average loan size (excluding floor plan tranches) $ 388 Largest individual commercial and industrial loan outstanding $ 37,650 Commercial and industrial nonperforming loans/commercial and industrial loans 1.77 % The Company’s commercial real estate loan portfolio, inclusive of commercial construction, is the Company’s largest loan type concentration. The Company believes that this portfolio is also well-diversified with loans secured by a variety of property types, such as owner-occupied and nonowner-occupied commercial, retail, office, industrial, warehouse, and other special purpose properties, such as hotels, motels, nursing homes, restaurants, churches, recreational facilities, marinas, and golf courses. Commercial real estate also includes loans secured by certain residential-related property types, including multi-family apartment buildings, residential development tracts and condominiums. The following pie chart shows the diversification of the commercial real estate loan portfolio as of September 30, 2022: 63 Table of Contents (Dollars in thousands) Average loan size $ 1,573 Largest individual commercial real estate mortgage outstanding $ 63,435 Commercial real estate nonperforming loans/commercial real estate loans 0.18 % Owner occupied commercial real estate loans/commercial real estate loans 12.0 % 64 Table of Contents The Company's consumer portfolio primarily consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area. The Company also provides home equity loans and lines of credit that may be made as a fixed-rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home. Additionally, the Company makes loans for a wide variety of other personal needs. Other consumer loans primarily consist of installment loans and overdraft protections. 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. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, nonperforming and/or put on nonaccrual status. In the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR"). In addition, the Company has offered need-based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to the COVID-19 pandemic. In accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), these modifications are not accounted for as TDRs or reflected as delinquent or non-accrual loans if the borrower was in compliance with the loan terms as of December 31, 2019. Delinquency The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and 65 the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period. Nonaccrual Loans As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses. Troubled Debt Restructurings In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default. Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan. It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or are delinquent for 90 days or more. Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it may be determined that the borrower is performing under modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring. Purchased Credit Deteriorated Loans Purchased Credit Deteriorated ("PCD") loans are acquired loans which have shown a more-than-insignificant deterioration in credit quality since origination. PCD loans are recorded at amortized cost with an allowance for credit losses recorded upon purchase. Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate owned. Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still accruing interest. Table of Contents The following table sets forth information regarding nonperforming assets held by the Company at the dates indicated: Table 4 - Nonperforming Assets September 30 2022 December 31 2021 September 30 2021 (Dollars in thousands) Loans accounted for on a nonaccrual basis Commercial and industrial $ 27,393 $ 3,439 $ 19,275 Commercial real estate 15,982 10,870 11,788 Small business 50 44 46 Residential real estate 8,891 9,182 10,872 Home equity 3,485 3,781 3,746 Other consumer 216 504 83 Total nonperforming assets (1) $ 56,017 $ 27,820 $ 45,810 Nonperforming loans as a percent of gross loans 0.41 % 0.20 % 0.52 % Nonperforming assets as a percent of total assets 0.28 % 0.14 % 0.32 % (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 2022 2021 Three Months Ended Nine Months Ended September 30 2022 September 30 2021 September 30 2022 September 30 2021 (Dollars in thousands) Nonperforming assets beginning balance $ 55,915 $ 47,818 $ 27,820 $ 66,861 New to nonperforming 30,650 4,613 67,226 9,205 Loans charged-off (741) (332) (1,992) (4,499) Loans paid-off (29,450) (3,488) (33,174) (17,877) Loans restored to performing status (366) (2,813) (3,806) (8,143) Other 9 12 (57) 263 Nonperforming assets ending balance $ 56,017 $ 45,810 $ 56,017 $ 45,810 67 Table of Contents The following table sets forth information regarding troubled debt restructured loans as of the dates indicated: Table 6 - Troubled Debt Restructurings September 30 2022 December 31 2021 September 30 2021 (Dollars in thousands) Performing troubled debt restructurings $ 11,549 $ 14,635 $ 15,950 Nonaccrual troubled debt restructurings 1,538 1,993 21,104 Total $ 13,087 $ 16,628 $ 37,054 Performing troubled debt restructurings as a % of total loans 0.09 % 0.11 % 0.18 % Nonaccrual troubled debt restructurings as a % of total loans 0.01 % 0.01 % 0.24 % Total troubled debt restructurings as a % of total loans 0.10 % 0.12 % 0.42 % The following table summarizes changes in TDRs for the periods indicated: Table 7 - Activity in Troubled Debt Restructurings Three Months Ended Nine Months Ended September 30 2022 September 30 2021 September 30 2022 September 30 2021 (Dollars in thousands) TDRs beginning balance $ 13,411 $ 39,707 $ 16,628 $ 39,192 New to TDR status 62 — 62 3,918 Paydowns (386) (2,637) (3,603) (6,040) Charge-offs — (16) — (16) TDRs ending balance $ 13,087 $ 37,054 $ 13,087 $ 37,054 Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. The table below shows interest income that was recognized or collected on all nonaccrual loans and TDRs for the periods indicated: Table 8 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings Three Months Ended Nine Months Ended September 30 2022 September 30 2021 September 30 2022 September 30 2021 (Dollars in thousands) The amount of incremental gross interest income that would have been recorded if nonaccrual loans had been current in accordance with their original terms $ 1,802 $ 678 $ 4,666 $ 2,289 The amount of interest income on nonaccrual loans and performing TDRs that was included in net income $ 1,817 $ 257 $ 2,443 $ 673 Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms. At September 30, 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. 68 Table of Contents 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 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. The allowance is increased by providing for credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off. In accordance with the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which is a reversion to the Company's historical long-run average for a period of six months. The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio. Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. The 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 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. 69 Table of Contents 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 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 September 30, 2022 Nine Months Ended September 30, 2022 Commercial and industrial $ (2) $ 1,520,924 — % $ (44) $ 1,531,421 — % Commercial real estate (268) 7,760,470 (0.01) % (271) 7,832,534 — % Commercial construction — 1,157,876 — % — 1,180,509 — % Small business (88) 207,546 (0.17) % (88) 202,151 (0.06) % Residential real estate — 1,909,066 — % — 1,774,355 — % Home equity (65) 1,076,040 (0.02) % 17 1,051,921 — % Other consumer 429 31,883 5.34 % 995 31,092 4.28 % Total $ 6 $ 13,663,805 — % $ 609 $ 13,603,983 0.01 % 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 September 30, 2021 Nine Months Ended September 30, 2021 Commercial and industrial $ — $ 1,640,422 — % $ 3,374 $ 1,898,100 0.24 % Commercial real estate — 4,232,575 — % (57) 4,195,200 — % Commercial construction — 507,393 — % — 525,652 — % Small business 33 181,953 0.07 % 119 178,294 0.09 % Residential real estate — 1,231,606 — % (1) 1,242,991 — % Home equity (49) 1,007,371 (0.02) % (38) 1,027,311 — % Other consumer 127 25,929 1.94 % 249 23,382 1.42 % Total $ 111 $ 8,827,249 — % $ 3,646 $ 9,090,930 0.05 % 70 Table of Contents For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for credit losses is made to each loan category using the analytical techniques and estimation methods described in this Report. While these amounts represent management’s best estimate of credit losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio. The following table sets forth the allocation of the allowance for credit losses by loan category at the dates indicated: Table 10 - Summary of Allocation of Allowance for Credit Losses September 30 2022 December 31 2021 Allowance Amount Percent of Loans In Category To Total Loans Allowance Amount Percent of Loans In Category To Total Loans (Dollars in thousands) Commercial and industrial (1) $ 20,169 11.3 % $ 14,402 11.5 % Commercial real estate 80,036 56.1 % 83,486 58.8 % Commercial construction 11,419 8.7 % 12,316 8.6 % Small business 2,624 1.5 % 3,508 1.4 % Residential real estate 20,602 14.3 % 14,484 11.8 % Home equity 11,651 7.9 % 17,986 7.7 % Other consumer 812 0.2 % 740 0.2 % Total allowance for credit losses $ 147,313 100.0 % $ 146,922 100.0 % (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. Government. To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of the Bank’s collateral, and the strength of co-makers or guarantors. When available information confirms that specific loans or portions thereof are uncollectible, these amounts are promptly charged-off against the allowance for credit losses and any recoveries of such previously charged-off amounts are credited to the allowance. Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral. For additional information regarding the Company’s allowance for credit losses, see Note 4 "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report. 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. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company either purchases additional FHLB stock or is subject to redemption of FHLB stock proportional to the volume of funding received. The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. 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. 71 Table of Contents 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 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 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 $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 $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 $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. 72 Table of Contents 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. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 Capital and Common Equity Tier 1 Capital (as defined for regulatory purposes) to risk weighted assets (as defined for regulatory purposes) and Tier 1 Capital to average assets (as defined for regulatory purposes). At September 30, 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: Table 11 - Company and Bank's Capital Amounts and Ratios Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio September 30, 2022 (Dollars in thousands) Company (consolidated) Total capital (to risk weighted assets) $ 2,250,741 15.71 % $ 1,146,074 ≥ 8.0 % N/A N/A Common equity tier 1 capital (to risk weighted assets) 2,002,105 13.98 % 644,666 ≥ 4.5 % N/A N/A Tier 1 capital (to risk weighted assets) 2,002,105 13.98 % 859,555 ≥ 6.0 % N/A N/A Tier 1 capital (to average assets) 2,002,105 10.51 % 761,820 ≥ 4.0 % N/A N/A Bank Total capital (to risk weighted assets) $ 2,142,284 14.95 % $ 1,146,046 ≥ 8.0 % $ 1,432,558 ≥ 10.0 % Common equity tier 1 capital (to risk weighted assets) 2,004,510 13.99 % 644,651 ≥ 4.5 % 931,163 ≥ 6.5 % Tier 1 capital (to risk weighted assets) 2,004,510 13.99 % 859,535 ≥ 6.0 % 1,146,046 ≥ 8.0 % Tier 1 capital (to average assets) 2,004,510 10.52 % 801,528 ≥ 4.0 % 1,001,911 ≥ 5.0 % December 31, 2021 (Dollars in thousands) Company (consolidated) Total capital (to risk weighted assets) $ 2,262,740 16.04 % $ 1,128,900 ≥ 8.0 % N/A N/A Common equity tier 1 capital (to risk weighted assets) 2,017,497 14.30 % 635,006 ≥ 4.5 % N/A N/A Tier 1 capital (to risk weighted assets) 2,017,497 14.30 % 846,675 ≥ 6.0 % N/A N/A Tier 1 capital (to average assets) 2,017,497 12.03 % 670,659 ≥ 4.0 % N/A N/A Bank Total capital (to risk weighted assets) $ 2,083,689 14.77 % $ 1,128,536 ≥ 8.0 % $ 1,410,670 ≥ 10.0 % Common equity tier 1 capital (to risk weighted assets) 1,949,237 13.82 % 634,801 ≥ 4.5 % 916,935 ≥ 6.5 % Tier 1 capital (to risk weighted assets) 1,949,237 13.82 % 846,402 ≥ 6.0 % 1,128,536 ≥ 8.0 % Tier 1 capital (to average assets) 1,949,237 11.62 % 670,827 ≥ 4.0 % 838,534 ≥ 5.0 % 73 Table of Contents In addition to the minimum risk-based capital requirements outlined in the table above, the Company is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the capital conservation buffer is 2.5%. 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. The Company is, in the ordinary course of business, dependent upon the receipt of cash dividends from the Bank to pay cash dividends to shareholders and satisfy the Company’s other cash needs. Federal and state law impose limits on capital distributions by the Bank. Massachusetts-chartered banks, such as the Bank, may declare from net profits cash dividends not more frequently than quarterly and non-cash dividends at any time. No dividends may be declared, credited, or paid if the Bank’s capital stock would be impaired. 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 $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 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: Table 12 - Assets Under Administration September 30 2022 December 31 2021 September 30 2021 (Dollars in thousands) Assets under administration $ 5,091,592 $ 5,726,368 $ 5,434,971 Number of trust, fiduciary and agency accounts 6,487 6,379 6,368 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. The Trust Committee has delegated administrative responsibilities to three committees, one for investments, one for administration, and one for operations, all of which are comprised of Investment Management Group officers who meet no less than quarterly. The Bank has an agreement with LPL Financial ("LPL") and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., to offer the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance. Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base. These same agents are also approved and appointed with various other Broker General Agents for the purposes of processing insurance solutions for clients. 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. 74 Table of Contents RESULTS OF OPERATIONS 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 September 30 Nine Months Ended September 30 2022 2021 2022 2021 (Dollars in thousands, except per share data) Net income $ 71,897 $ 40,007 $ 186,770 $ 119,290 Diluted earnings per share $ 1.57 $ 1.21 $ 4.00 $ 3.61 Return on average assets 1.43 % 1.11 % 1.25 % 1.15 % Return on average equity 9.90 % 9.04 % 8.51 % 9.20 % Net interest margin 3.64 % 2.78 % 3.33 % 3.00 % Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities. On a fully tax equivalent basis ("FTE"), net interest income for the third quarter of 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. 75 Table of Contents 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 September 30 2022 2021 Average Balance Interest Earned/ Paid Yield/Rate Average Balance Interest Earned/ Paid Yield/Rate (Dollars in thousands) Interest-earning assets Interest-earning deposits with banks, federal funds sold, and short term investments $ 1,156,143 $ 6,519 2.24 % $ 2,135,031 $ 815 0.15 % Securities Securities - trading 3,730 — — % 3,498 — — % Securities - taxable investments 3,024,802 13,243 1.74 % 1,880,863 7,792 1.64 % Securities - nontaxable investments (1) 196 1 2.02 % 468 5 4.24 % Total securities $ 3,028,728 $ 13,244 1.73 % $ 1,884,829 $ 7,797 1.64 % Loans held for sale 4,263 51 4.75 % 30,143 193 2.54 % Loans (2) Commercial and industrial (1) 1,520,924 19,289 5.03 % 1,640,422 15,309 3.70 % Commercial real estate (1) 7,760,470 85,284 4.36 % 4,232,575 41,469 3.89 % Commercial construction 1,157,876 14,875 5.10 % 507,393 4,916 3.84 % Small business 207,546 2,819 5.39 % 181,953 2,341 5.10 % Total commercial 10,646,816 122,267 4.56 % 6,562,343 64,035 3.87 % Residential real estate 1,909,066 16,533 3.44 % 1,231,606 10,955 3.53 % Home equity 1,076,040 11,869 4.38 % 1,007,371 9,043 3.56 % Total consumer real estate 2,985,106 28,402 3.77 % 2,238,977 19,998 3.54 % Other consumer 31,883 523 6.51 % 25,929 398 6.09 % Total loans $ 13,663,805 $ 151,192 4.39 % $ 8,827,249 $ 84,431 3.79 % Total interest-earning assets $ 17,852,939 $ 171,006 3.80 % $ 12,877,252 $ 93,236 2.87 % Cash and due from banks 192,003 144,556 Federal Home Loan Bank stock 5,745 8,904 Other assets 1,854,870 1,268,199 Total assets $ 19,905,557 $ 14,298,911 Interest-bearing liabilities Deposits Savings and interest checking accounts $ 6,224,690 $ 2,110 0.13 % $ 4,426,106 $ 338 0.03 % Money market 3,459,212 3,025 0.35 % 2,375,492 443 0.07 % Time deposits 1,246,841 974 0.31 % 795,943 852 0.42 % Total interest-bearing deposits $ 10,930,743 $ 6,109 0.22 % $ 7,597,541 $ 1,633 0.09 % Borrowings Federal Home Loan Bank borrowings $ 12,876 $ 55 1.69 % $ 31,118 $ 165 2.10 % Long-term borrowings — — — % 18,742 77 1.63 % Junior subordinated debentures 62,854 589 3.72 % 62,852 432 2.73 % Subordinated debentures 49,847 617 4.91 % 49,753 617 4.92 % 76 Table of Contents Total borrowings $ 125,577 $ 1,261 3.98 % $ 162,465 $ 1,291 3.15 % Total interest-bearing liabilities $ 11,056,320 $ 7,370 0.26 % $ 7,760,006 $ 2,924 0.15 % Noninterest bearing demand deposits 5,641,742 4,502,045 Other liabilities 325,507 280,754 Total liabilities $ 17,023,569 $ 12,542,805 Stockholders' equity 2,881,988 1,756,106 Total liabilities and stockholders' equity $ 19,905,557 $ 14,298,911 Net interest income (1) $ 163,636 $ 90,312 Interest rate spread (3) 3.54 % 2.72 % Net interest margin (4) 3.64 % 2.78 % Supplemental information Total deposits, including demand deposits $ 16,572,485 $ 6,109 $ 12,099,586 $ 1,633 Cost of total deposits 0.15 % 0.05 % Total funding liabilities, including demand deposits $ 16,698,062 $ 7,370 $ 12,262,051 $ 2,924 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 $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. (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. 77 Table of Contents Table 15 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date Nine Months Ended September 30 2022 2021 Average Balance Interest Earned/ Paid Yield/ Rate Average Balance Interest Earned/ Paid Yield/ Rate (Dollars in thousands) Interest-earning assets Interest-earning deposits with banks, federal funds sold, and short-term investments $ 1,477,117 $ 10,222 0.93 % $ 1,782,463 $ 1,654 0.12 % Securities Securities - trading 3,775 — — % 3,267 — — % Securities - taxable investments 2,881,203 34,567 1.60 % 1,550,859 21,603 1.86 % Securities - nontaxable investments (1) 198 5 3.38 % 555 17 4.10 % Total securities $ 2,885,176 $ 34,572 1.60 % $ 1,554,681 $ 21,620 1.86 % Loans held for sale 5,841 150 3.43 % 35,953 675 2.51 % Loans (2) Commercial and industrial (1) 1,531,421 53,816 4.70 % 1,898,100 58,706 4.14 % Commercial real estate (1) 7,832,534 238,085 4.06 % 4,195,200 123,377 3.93 % Commercial construction 1,180,509 40,599 4.60 % 525,652 14,976 3.81 % Small business 202,151 7,891 5.22 % 178,294 6,924 5.19 % Total commercial 10,746,615 340,391 4.23 % 6,797,246 203,983 4.01 % Residential real estate 1,774,355 45,109 3.40 % 1,242,991 34,449 3.71 % Home equity 1,051,921 29,709 3.78 % 1,027,311 26,391 3.43 % Total consumer real estate 2,826,276 74,818 3.54 % 2,270,302 60,840 3.58 % Other consumer 31,092 1,519 6.53 % 23,382 1,241 7.10 % Total loans $ 13,603,983 $ 416,728 4.10 % $ 9,090,930 $ 266,064 3.91 % Total interest-earning assets $ 17,972,117 $ 461,672 3.43 % $ 12,464,027 $ 290,013 3.11 % Cash and due from banks 184,754 147,269 Federal Home Loan Bank stock 7,780 9,516 Other assets 1,853,818 1,256,066 Total assets $ 20,018,469 $ 13,876,878 Interest-bearing liabilities Deposits Savings and interest checking accounts $ 6,224,317 $ 3,418 0.07 % $ 4,292,992 $ 1,145 0.04 % Money market 3,517,459 4,191 0.16 % 2,337,445 1,393 0.08 % Time deposits 1,355,861 2,718 0.27 % 848,143 3,823 0.60 % Total interest-bearing deposits $ 11,097,637 $ 10,327 0.12 % $ 7,478,580 $ 6,361 0.11 % Borrowings Federal Home Loan Bank borrowings $ 21,361 $ 311 1.95 % $ 34,185 $ 544 2.13 % Long-term borrowings 2,988 31 1.39 % 23,434 282 1.61 % Junior subordinated debentures 62,854 1,298 2.76 % 62,852 1,287 2.74 % Subordinated debentures 49,824 1,852 4.97 % 49,729 1,852 4.98 % Total borrowings $ 137,027 $ 3,492 3.41 % $ 170,200 $ 3,965 3.11 % Total interest-bearing liabilities $ 11,234,664 $ 13,819 0.16 % $ 7,648,780 $ 10,326 0.18 % Noninterest bearing demand deposits 5,544,476 4,213,764 Other liabilities 303,308 280,002 78 Table of Contents Total liabilities $ 17,082,448 $ 12,142,546 Stockholders' equity 2,936,021 1,734,332 Total liabilities and stockholders' equity $ 20,018,469 $ 13,876,878 Net interest income (1) $ 447,853 $ 279,687 Interest rate spread (3) 3.27 % 2.93 % Net interest margin (4) 3.33 % 3.00 % Supplemental information Total deposit, including demand deposits $ 16,642,113 $ 10,327 $ 11,692,344 $ 6,361 Cost of total deposits 0.08 % 0.07 % Total funding liabilities, including demand deposits $ 16,779,140 $ 13,819 $ 11,862,544 $ 10,326 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 $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. (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. 79 Table of Contents 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. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to: (1) changes in rate (change in rate multiplied by prior period volume), (2) changes in volume (change in volume multiplied by old rate), and (3) changes in volume/rate (change in volume multiplied by change in rate) which is allocated to the change due to rate column: Table 16 - Volume Rate Analysis Three Months Ended September 30 Nine Months Ended September 30 2022 Compared To 2021 2022 Compared To 2021 Change Due to Rate Change Due to Volume Total Change Change Due to Rate Change Due to Volume Total Change (Dollars in thousands) Income on interest-earning assets Interest earning deposits, federal funds sold and short term investments $ 6,078 $ (374) $ 5,704 $ 8,851 $ (283) $ 8,568 Securities Securities - taxable investments 712 4,739 5,451 (5,567) 18,531 12,964 Securities - nontaxable investments (1) (1) (3) (4) (1) (11) (12) Total securities 5,447 12,952 Loans held for sale 24 (166) (142) 40 (565) (525) Loans Commercial and industrial (1) 5,095 (1,115) 3,980 6,451 (11,341) (4,890) Commercial real estate (1) 9,250 34,565 43,815 7,737 106,971 114,708 Commercial construction 3,657 6,302 9,959 6,966 18,657 25,623 Small business 149 329 478 41 926 967 Total commercial 58,232 136,408 Residential real estate (448) 6,026 5,578 (4,067) 14,727 10,660 Home equity 2,210 616 2,826 2,686 632 3,318 Total consumer real estate 8,404 13,978 Other consumer 34 91 125 (131) 409 278 Total loans (1)(2) 66,761 150,664 Total income of interest-earning assets $ 77,770 $ 171,659 Expense of interest-bearing liabilities Deposits Savings and interest checking accounts $ 1,635 $ 137 $ 1,772 $ 1,758 $ 515 $ 2,273 Money market 2,380 202 2,582 2,095 703 2,798 Time certificates of deposits (361) 483 122 (3,394) 2,289 (1,105) Total interest bearing deposits 4,476 3,966 Borrowings Federal Home Loan Bank borrowings (13) (97) (110) (29) (204) (233) Line of Credit — — — — Long-term borrowings — (77) (77) (5) (246) (251) Junior subordinated debentures 157 — 157 11 — 11 Subordinated debentures (1) 1 — (4) 4 — Total borrowings (30) (473) Total expense of interest-bearing liabilities 4,446 3,493 Change in net interest income $ 73,324 $ 168,166 (1) Reflects income determined on a FTE basis. See footnote (1) to Table 14 and 15 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. 80 Table of Contents 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 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. Item 1 of this Report, for further details surrounding the primary drivers of the provision for credit losses for the period. Noninterest Income The following table sets forth information regarding noninterest income for the periods shown: Table 17 - Noninterest Income Three Months Ended September 30 Change 2022 2021 Amount % (Dollars in thousands) Deposit account fees $ 6,261 $ 4,298 $ 1,963 45.67 % Interchange and ATM fees 4,331 3,441 890 25.86 % Investment management 8,436 9,174 (738) (8.04) % Mortgage banking income 585 2,825 (2,240) (79.29) % Gain on life insurance benefits 477 — 477 100.00% Increase in cash surrender value of life insurance policies 1,883 1,596 287 17.98 % Loan level derivative income 471 586 (115) (19.62) % Other noninterest income 5,751 4,537 1,214 26.76 % Total $ 28,195 $ 26,457 $ 1,738 6.57 % Nine Months Ended September 30 Change 2022 2021 Amount % (Dollars in thousands) Deposit account fees $ 17,582 $ 11,704 $ 5,878 50.22 % Interchange and ATM fees 11,967 9,229 2,738 29.67 % Investment management 26,438 26,350 88 0.33 % Mortgage banking income 2,989 11,270 (8,281) (73.48) % Gain on life insurance benefits 600 258 342 132.56 % Increase in cash surrender value of life insurance policies 5,549 4,508 1,041 23.09 % Loan level derivative income 1,511 875 636 72.69 % Other noninterest income 15,729 12,476 3,253 26.07 % Total $ 82,365 $ 76,670 $ 5,695 7.43 % 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. 81 Table of Contents • 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. 82 Table of Contents Noninterest Expense The following table sets forth information regarding non-interest expense for the periods shown: Table 18 - Noninterest Expense Three Months Ended September 30 Change 2022 2021 Amount % (Dollars in thousands) Salaries and employee benefits $ 52,708 $ 42,235 $ 10,473 24.80 % Occupancy and equipment expenses 12,316 8,564 3,752 43.81 % Data processing & facilities management 2,259 1,673 586 35.03 % Consulting expense 2,547 1,560 987 63.27 % Software maintenance 2,497 2,018 479 23.74 % Amortization of intangible assets 1,898 1,310 588 44.89 % Debit card expense 1,936 1,347 589 43.73 % FDIC assessment 1,677 980 697 71.12 % Merger and acquisition expenses — 1,943 (1,943) (100.00) % Other noninterest expenses 14,890 10,789 4,101 38.01 % Total $ 92,728 $ 72,419 $ 20,309 28.04 % Nine Months Ended September 30 Change 2022 2021 Amount % (Dollars in thousands) Salaries and employee benefits $ 150,957 $ 124,759 $ 26,198 21.00 % Occupancy and equipment expenses 37,255 26,543 10,712 40.36 % Data processing & facilities management 6,878 5,024 1,854 36.90 % Merger and acquisition expenses 7,100 3,674 3,426 93.25 % Software maintenance 7,706 5,903 1,803 30.54 % Consulting expense 7,057 5,443 1,614 29.65 % Amortization of intangible assets 5,801 4,037 1,764 43.70 % Debit card expense 5,562 3,693 1,869 50.61 % FDIC assessment 5,225 2,805 2,420 86.27 % Other noninterest expenses 45,249 33,522 11,727 34.98 % Total $ 278,790 $ 215,403 $ 63,387 29.43 % 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 depreciation expense on leased equipment. • 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 83 Table of Contents 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 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. The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated: Table 19 - Tax Provision and Applicable Tax Rates Three Months Ended Nine Months Ended September 30 September 30 2022 2021 2022 2021 (Dollars in thousands) Combined federal and state income tax provision $ 23,171 $ 14,122 $ 60,699 $ 38,506 Effective income tax rate 24.37 % 26.09 % 24.53 % 24.40 % Blended statutory tax rate 27.11 % 27.92 % 27.11 % 27.92 % 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 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 invests in various low income housing projects, which are real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing developments. As a limited partner in these operating partnerships, the Company will receive tax credits and tax deductions for losses incurred by the underlying properties. The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2039, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships 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. Risk Management 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. The Company has implemented the “three lines of defense” enterprise risk management model. The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks. The second line of defense is the Chief Risk Officer and the risk department, who monitor and provide advice with respect to first line risk management. The third line of 84 Table of Contents 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 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. Management seeks to mitigate strategic risk through strategic planning, frequent executive review of strategic plan progress, monitoring of competitors and technology, assessment of new products, new branches, and new business initiatives, customer advocacy, and crisis management planning. Culture Risk Culture risk is the risk arising from failed leadership and/or ineffective colleague engagement and workplace management that causes the Company to lose sight of core values and, through acts or omissions, damage the relationship-based culture which has been one of the foundations of the Company’s consistent success. Management mitigates culture risk through effective employee relations, leadership that encourages continuous improvement, cultural development and reinforcement of core values, communication of clear ethical and behavioral standards, consistent enforcement of policies and programs, discipline of misbehavior, alignment of incentives and compensation, and by promoting diversity, equity, and inclusion. Credit Risk Credit risk is the risk arising from the failure of a borrower or a counterparty to a contract to make payments as agreed, and includes the risks arising from inadequate collateral and mismanagement of loan concentrations. While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results. The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans. For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 4, “Loans, Allowance for Credit Losses and Credit Quality” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report . Liquidity Risk Liquidity risk is the risk arising from the Company being unable to meet obligations when due. Liquidity risk includes the inability to access funding sources or manage fluctuations in available funding levels. Liquidity risk also results from a failure to recognize or address market condition changes that affect the ability to liquidate assets quickly with minimal value loss. The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities. The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors. The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which is an analysis of the relationship between liquid assets plus available Federal Home Loan Bank funding, less short-term liabilities relative to total assets, was within policy limits at September 30, 2022. The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings. An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure. Other factors affecting the Total Basic Surplus/Deficit include Federal Home Loan Bank collateral requirements, securities portfolio changes, and the mix of deposits. The Company seeks to increase deposits without adversely impacting its weighted average funding cost. The Company also maintains a variety of liquidity sources, including Federal Home Loan Bank advances, Federal Reserve borrowing capacity, and repurchase agreement lines. These funding sources serve as a contingent source of liquidity and, when profitable lending and investment opportunities exist, the Company may access them to provide the liquidity needed to grow the balance sheet. The amount and type of assets that the Company has available to pledge impacts the Company's Federal Home Loan Bank and Federal Reserve borrowing capacity. For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a pledged commercial loan may increase borrowing capacity in a lower amount. The Company’s lending decisions, therefore, can also affect its liquidity position. 85 Table of Contents The Company can also raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion. The availability and cost of equity or debt on an unsecured basis is dependent on many factors, including the Company’s financial position, the market environment, and the Company’s credit rating. The Company monitors the factors that could impact its ability to raise liquidity through these channels. The following table depicts current and unused liquidity capacity from various sources as of the dates indicated: Table 20 - Liquidity Sources September 30, 2022 December 31, 2021 Outstanding Additional Borrowing Capacity Outstanding Additional Borrowing Capacity (Dollars in thousands) Federal Home Loan Bank of Boston (1) $ 643 $ 1,739,262 $ 25,667 $ 1,622,494 Federal Reserve Bank of Boston (2) — 1,206,651 — 1,176,486 Unpledged Securities — 2,159,018 — 1,897,148 Line of Credit — 85,000 — 85,000 Long-term borrowing (3) — — 14,063 — Junior subordinated debentures (3) 62,855 — 62,853 — Subordinated debt (3) 49,862 — 49,791 — Reciprocal deposits (3) 751,133 — 998,121 — Brokered deposits (3) 102,610 — 141,572 — $ 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 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. In addition to customary operational liquidity practices, the Board of Directors and management recognize the need to establish reasonable guidelines to manage a heightened liquidity risk environment. Catalysts for elevated liquidity risk can be Company-specific issues and/or systemic industry-wide events. It is therefore the responsibility of management to institute systems and controls designed to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute responses that may alleviate or circumvent a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and appropriately address them in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and establish and execute an appropriate response. 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. Interest rate risk is the sensitivity of income to changes in interest rates. Interest rate changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest rate risk arises directly from the Company’s core banking activities. In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects. Management strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons. The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and 86 Table of Contents interest-bearing liabilities and, when necessary within limits management deems prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors, and caps. The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis. Key assumptions in these analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g., demand deposit, negotiable order of withdrawal, savings, and money market accounts). In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans. The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined with precision and actual behavior may differ from assumptions to a significant degree. Based upon the net interest income simulation models, the Company currently forecasts that assets are anticipated to re-price faster than liabilities. As a result, net interest income will be positively impacted as market rates increase and negatively impacted if market rates decrease. The Company runs several scenarios to quantify and effectively assist in managing interest rate risk, including instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary given the interest rate environment. The 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 21 - Interest Rate Sensitivity September 30 2022 2021 Year 1 Year 2 Year 1 Year 2 Parallel rate shocks (basis points) -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) % +100 2.4 % 14.0 % 8.4 % 9.6 % +200 4.0 % 18.1 % 18.0 % 22.8 % +300 6.4 % 24.0 % 27.9 % 36.4 % +400 8.7 % 29.9 % 37.5 % 49.5 % Gradual rate shifts (basis points) -200 over 12 months (3.9) % (8.2) % n/a n/a -100 over 12 months (1.5) % 1.6 % (1.4) % (8.0) % +200 over 12 months 2.3 % 17.5 % 8.6 % 20.3 % +400 over 24 months 2.3 % 20.8 % 8.6 % 31.6 % Alternative scenarios 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. For instance, asymmetrical rate behavior can have a material impact on the simulation results. If competition for deposits prompts the Company to raise rates on those liabilities more quickly than is assumed in the simulation analysis without a corresponding increase in asset yields, net interest income would be negatively impacted. Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted. The most significant market factors affecting the Company’s net interest income during the 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 87 Table of Contents 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. An interest rate swap is an agreement in which one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from the other party. Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized. While interest is paid or received in swap, cap, and floors agreements, the notional principal amount is not actually exchanged. The Company may also manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts under which the Company agrees to deliver whole mortgage loans to various investors. See Note 6, “ Derivative and Hedging Activities ” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for additional information regarding the Company’s derivative financial instruments. The Company’s earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines. See Note 3, “Securities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report. Operational Risk Operational risk is the risk arising from human error or misconduct, transaction errors or delays, inadequate or failed internal systems or processes, data unavailability, loss, or poor quality, or adverse external events. Operational risk includes business resiliency risk, consumer compliance risk, data governance risk, fraud risk, 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 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. Management seeks to mitigate reputation risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring. Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet Financial Information Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended September 30, 2022. See Note 6, "Derivative and Hedging Activities" and Note 10, "Commitments and Contingencies" within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for more information relating to the Company's other off-balance sheet financial instruments. Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended September 30, 2022. Item 3. Quantitative and Qualitative Disclosures About Market Risk Information required by this Item 3 is included in the "Risk Management" section of Part I. Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report and is incorporated herein by reference. 88 Table of Contents