What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-28 compared with 2022-02-28 · 312 added, 420 removed, 2176 unchanged (25% of the section changed)

8 unchanged sentences

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2023 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 5 to the consolidated financial statements, the Company changed its method of accounting for credit losses in 2020 due to the adoption of Accounting Standards Update (ASU) No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , and the related amendments.

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for credit losses

2 unchanged sentences

The output is then combined with an assessment of qualitative factors, including economic and business conditions, changes to collateral values and other external factors, which factors are designed to address forecast risk and model risk inherent in the quantitative model output.

Auditing the Company’s allowance for credit losses was complex due to the quantitative modeling used and involved subjective judgment to evaluate management’s determination of the qualitative risk factor adjustments described above.

How we addressed the matter in our audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s allowance process, which included, among others, controls over the appropriateness of the methodology, the development, operation and monitoring of the quantitative model, the reliability and accuracy of data used in developing the estimate, and management’s review and approval process over the economic forecasts, qualitative adjustments and overall allowance result.

Loans that do not share similar risk characteristics are individually evaluated and an allowance is determined based on a discounted cash flow or the fair value of collateral.

With the assistance of EY Specialists we tested management’s quantitative model including evaluating the conceptual soundness of model methodology, assessing model performance and governance, and testing key modeling assumptions, including the reasonable and supportable forecast period.

6 unchanged sentences

Additionally, we evaluated whether the overall allowance, inclusive of qualitative adjustments, appropriately reflected losses expected in the loan portfolio by comparing to peer bank data.

Fair value of loans and core deposit intangibles recognized as part of the acquisition of Meridian Bancorp, Inc.

Description of the matter The Company completed its acquisition of Meridian Bancorp, Inc.

(“Meridian”) on November 12, 2021 (“acquisition date”) at a purchase price of approximately $1.3 billion.

As discussed in Notes 1 and 2 to the consolidated financial statements, the transaction was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid were recorded at estimated fair values on the acquisition date.

Auditing the Company's accounting for the fair value of acquired loans and core deposit intangibles was complex and involved a greater extent of audit effort, including involving firm specialists to assess assumptions used in the valuation of the acquired loan portfolio and in the valuation of the core deposit intangibles.

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How we addressed the matter in our audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over the accounting for business combinations, including the valuation of loans and core deposit intangibles.

For example, we tested controls over management’s review of the fair value calculations performed by a third-party valuation specialist, the key assumptions and inputs used in the fair value measurement, and the data provided to the third-party valuation specialist.

To test the estimated fair value of acquired loans, our audit procedures included, among others, involving valuation specialists to assist us in testing management’s methodology and significant assumptions used in measuring the fair value of the acquired loan portfolio.

For example, we compared the significant assumptions used by management to third-party market sources, where available, or independently recalculated the assumption and compared those results to management’s assumptions.

We tested, on a sample basis, the completeness and accuracy of the underlying data, such as loan-level data, used in the Company’s fair value calculations.

With the assistance of our valuation specialists, we evaluated the methodologies and the assumptions used to fair value the core deposit intangible.

Procedures performed by the audit team and with the assistance of our valuation specialists included comparing market and historical information used in developing assumptions to third-party or internal Company-specific data and performing corroborative calculations to assess the appropriateness of the calculated fair value of the core deposit intangible.

For the allowance on individually evaluated loans, we assessed management’s use of either a discounted cash flow or fair value of collateral approach based on the nature of the loan.

We evaluated the methodologies and the assumptions used by management in determining the likelihood of recoverability and valuation of the underlying collateral.

Procedures performed included testing the completeness and accuracy of management’s population and testing the calculation of the allowance on individually evaluated loans.

/s/ Ernst & Young LLP

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February 28, 2023

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INDEPENDENT BANK CORP.

36 unchanged sentences

Federal Home Loan Bank borrowings 637 25,667

Long-term borrowings (less unamortized debt issuance costs of $ 0 and $ 40 )

14,063 32,773

Long-term borrowings — 14,063

Junior subordinated debentures (less unamortized debt issuance costs of $ 33 and $ 35 )

19 unchanged sentences

Retained earnings 934,442 766,716

Accumulated other comprehensive income, net of tax 2,183 40,695

Accumulated other comprehensive income (loss), net of tax ( 163,084 ) 2,183

Total stockholders' equity 2,886,701 3,018,449

1 unchanged sentence

The accompanying notes are an integral part of these consolidated financial statements.

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INDEPENDENT BANK CORP.

32 unchanged sentences

FDIC assessment 6,951 3,980 2,522

Advertising expense 4,085 4,258 5,444

Consulting expense 9,617 8,271 5,987

3 unchanged sentences

Loss on sale of other equity investments — — 1,033

Loss on sale of securities — — 1,462

Loss on termination of derivatives — — 684

13 unchanged sentences

The accompanying notes are an integral part of these consolidated financial statements.

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INDEPENDENT BANK CORP.

4 unchanged sentences

Net income $ 263,813 $ 120,992 $ 121,167

Other comprehensive income (loss), net of tax

Other comprehensive (loss) income, net of tax

Net change in fair value of securities available for sale ( 118,990 ) ( 22,922 ) 8,857

1 unchanged sentence

Net change in other comprehensive income for defined benefit postretirement plans 4,490 3,549 ( 3,128 )

Total other comprehensive income (loss) ( 38,512 ) 22,526 19,342

Total other comprehensive (loss) income ( 165,267 ) ( 38,512 ) 22,526

Total comprehensive income $ 98,546 $ 82,480 $ 143,693

The accompanying notes are an integral part of these consolidated financial statements.

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INDEPENDENT BANK CORP.

3 unchanged sentences

Balance December 31, 2019 34,377,388 $ 342 $ ( 4,735 ) $ 4,735 $ 1,035,450 $ 654,182 $ 18,169 $ 1,708,143

Cumulative effect accounting adjustment (1) — — — — — 1,553 — 1,553

Net income — — — — — 121,167 — 121,167

2 unchanged sentences

— — — — — ( 60,878 ) — ( 60,878 )

Common stock issued for acquisition 6,166,010 61 — — 499,632 — — 499,693

Proceeds from exercise of stock options, net of cash paid 8,873 — — — 197 — — 197

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Shares issued under direct stock purchase plan 32,249 — — — 2,132 — — 2,132

Shares repurchased under share repurchase program ( 1,500,000 ) ( 15 ) — — ( 95,076 ) — — ( 95,091 )

Deferred compensation and other retirement benefit obligations — — 1,669 ( 1,669 ) — — — —

Balance December 31, 2020 32,965,692 $ 328 $ ( 3,066 ) $ 3,066 $ 945,638 $ 716,024 $ 40,695 $ 1,702,685

Cumulative effect accounting adjustment (1) — — — — — 1,553 — 1,553

Net income — — — — — 120,992 — 120,992

Other comprehensive income — — — — — — 22,526 22,526

Other comprehensive loss — — — — — — ( 38,512 ) ( 38,512 )

Common dividend declared ($ 1.92 per share)

— — — — — ( 70,300 ) — ( 70,300 )

Common stock issued for acquisition 14,299,720 143 — — 1,298,415 — — 1,298,558

Proceeds from exercise of stock options, net of cash paid 4,744 — — — ( 57 ) — — ( 57 )

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Shares issued under direct stock purchase plan 25,854 — — — 2,023 — — 2,023

Shares repurchased under share repurchase program ( 1,500,000 ) ( 15 ) — — ( 95,076 ) — — ( 95,091 )

Deferred compensation and other retirement benefit obligations — — ( 80 ) 80 — — — —

1 unchanged sentence

Net income — — — — — 263,813 — 263,813

Other comprehensive income (loss) — — — — — — ( 38,512 ) ( 38,512 )

Other comprehensive loss — — — — — — ( 165,267 ) ( 165,267 )

Common dividend declared ($ 2.08 per share)

— — — — — ( 96,087 ) — ( 96,087 )

Common stock issued for acquisition 14,299,720 143 — — 1,298,415 — — 1,298,558

Proceeds from exercise of stock options, net of cash paid 4,744 — — — ( 57 ) — — ( 57 )

Stock based compensation — — — — 4,464 — — 4,464

1 unchanged sentence

Shares issued under direct stock purchase plan 29,409 — — — 2,359 — — 2,359

Shares repurchased under share repurchase program ( 1,786,965 ) ( 18 ) — — ( 139,928 ) — — ( 139,946 )

Deferred compensation and other retirement benefit obligations — — ( 81 ) 81 — — — —

4 unchanged sentences

The accompanying notes are an integral part of these consolidated financial statements.

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INDEPENDENT BANK CORP.

8 unchanged sentences

Change in unamortized net loan costs and fees ( 7,119 ) ( 24,785 ) ( 7,126 )

Accretion of acquired loans ( 6,882 ) ( 6,286 ) ( 12,778 )

Amortization (accretion) of acquired loans 175 ( 6,882 ) ( 6,286 )

Provision for credit losses 6,500 18,205 52,500

Deferred income tax expense (benefit) 3,090 ( 17,506 ) 10,594

Net gain on equity securities ( 554 ) ( 528 ) ( 1,566 )

Net loss on sale of securities — — 1,462

Deferred income tax (benefit) expense ( 1,254 ) 3,090 ( 17,506 )

Net loss (gain) on equity securities 3,061 ( 554 ) ( 528 )

Net (gain) loss on bank premises and equipment ( 584 ) 139 372

1 unchanged sentence

Loss on termination of derivatives — — 684

Net loss on other real estate owned and foreclosed assets — — 401

Realized gain on sale leaseback transaction ( 578 ) ( 578 ) ( 578 )

11 unchanged sentences

Net cash provided by operating activities 421,200 190,220 64,636

Cash flows provided by (used) in investing activities

Cash flows used in investing activities

Proceeds from sales of equity securities 31 1,164 —

Purchases of equity securities ( 1,524 ) ( 2,171 ) ( 803 )

Proceeds from sales of securities available for sale — — 45,863

Proceeds from maturities and principal repayments of securities available for sale 139,923 95,981 108,893

7 unchanged sentences

Net (increase) decrease in loans ( 335,448 ) 744,981 ( 511,526 )

Net cash acquired (paid) in business combinations 787,301 — ( 105,264 )

Net cash acquired in business combinations — 787,301 —

Purchases of bank premises and equipment ( 22,072 ) ( 25,200 ) ( 12,586 )

1 unchanged sentence

Payments on early termination of hedging relationship — — ( 684 )

Proceeds from the sale of other real estate owned and foreclosed assets — — 2,488

Net cash provided by (used in) investing activities ( 63,136 ) ( 488,211 ) 20,160

Cash flows provided by (used in) financing activities

Net cash used in investing activities ( 1,000,474 ) ( 63,136 ) ( 488,211 )

Cash flows (used in) provided by financing activities

Net decrease in time deposits ( 334,381 ) ( 235,577 ) ( 444,276 )

Net increase (decrease) in other deposits 1,719,398 2,290,489 ( 160,637 )

Net proceeds from (repayments of) short-term Federal Home Loan Bank borrowings — ( 45,000 ) ( 132,046 )

Net (decrease) increase in other deposits ( 702,628 ) 1,719,398 2,290,489

Net repayments of short-term Federal Home Loan Bank borrowings ( 25,000 ) — ( 45,000 )

Repayments of long-term Federal Home Loan Bank borrowings — ( 586,088 ) ( 35,000 )

Proceeds from line of credit, net of issuance costs — — 49,980

Repayment of line of credit, net of issuance costs — — ( 49,980 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Proceeds from (repayments of) long-term debt, net of issuance costs ( 18,750 ) ( 42,187 ) 74,867

Repayments of junior subordinated debentures, net of issuance costs — — ( 13,329 )

Proceeds from subordinated debentures, net of issuance costs — — 49,526

Repayments of subordinated debentures, net of issuance costs — — ( 34,767 )

Repayments of long-term debt, net of issuance costs ( 14,063 ) ( 18,750 ) ( 42,187 )

Net proceeds from exercise of stock options — ( 57 ) 197

3 unchanged sentences

Common dividends paid ( 93,734 ) ( 62,736 ) ( 60,840 )

Net cash provided by (used in) financing activities 816,964 1,569,237 ( 336,163 )

Net increase (decrease) in cash and cash equivalents 944,048 1,145,662 ( 99,481 )

Net cash (used in) provided by financing activities ( 1,308,477 ) 816,964 1,569,237

Net (decrease) increase in cash and cash equivalents ( 1,887,751 ) 944,048 1,145,662

Cash and cash equivalents at beginning of year 2,240,684 1,296,636 150,974

5 unchanged sentences

Net increase in capital commitments relating to low income housing project investments $ 17,643 $ 33,691 $ 32,477

Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1) $ — $ — $ 32,777

Recognition of operating lease at commencement $ 7,768 $ 8,646 $ 14,951

Recognition of operating lease at commencement and/or extension $ 14,789 $ 7,768 $ 8,646

In conjunction with the Company's acquisitions, assets were acquired and liabilities were assumed as follows

2 unchanged sentences

Fair value of liabilities assumed $ — $ 5,062,952 $ —

(1) Represents adjustment needed to reflect the opening balance of the Company's Right of Use ("ROU") assets and lease liabilities pursuant to the adoption of Accounting Standards Update 2016-02 effective January 1, 2019.

Upon adoption, the Company recognized on its balance sheet ROU assets of approximately $ 32.8 million, with a corresponding operating lease liability of approximately $ 34.1 million, with an adjustment to remove the Company's existing deferred rent liability of approximately $ 1.3 million.

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

INDEPENDENT BANK CORP.

4 unchanged sentences

(the "Company") is a bank holding company, the principal subsidiary of which is Rockland Trust Company ("Rockland Trust" or the "Bank").

Rockland Trust is a state-chartered commercial bank, which as of December 31, 2020, operates one hundred twenty full service retail branches, two limited service retail branches, one mobile branch, nineteen commercial banking centers, ten investment management offices and nine mortgage lending centers located in Eastern Massachusetts, Greater Boston, the North Shore, the South Shore, the Cape and Islands, as well as in Worcester County and in Rhode Island.

Rockland Trust is a state-chartered commercial bank which provides a variety of banking, investment and financial services through its retail branches, commercial banking centers, investment management offices and mortgage lending centers located throughout Eastern Massachusetts as well as in Worcester County and Rhode Island.

Rockland Trust deposits are insured by the Federal Deposit Insurance Corporation, subject to regulatory limits.

6 unchanged sentences

Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company would consolidate voting interest entities in which it has all, or at least a majority of, the voting interest.

The Company would consolidate voting interest entities in which it has all, or at least a majority of, the voting interest.

As defined in applicable accounting standards, variable interest entities ("VIEs") are entities that lack one or more of the characteristics of a voting interest entity.

11 unchanged sentences

Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for expected credit losses on loans held for investment, income taxes, and valuation and allowance for expected credit losses on investment securities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Significant Concentrations of Credit Risk

The vast majority of the Bank’s lending activities are conducted in Massachusetts and Rhode Island.

The vast majority of the Bank’s lending activities are conducted in New England.

The Bank originates commercial and industrial loans, commercial and residential real estate loans, including construction loans, small business loans, home equity loans, and other consumer loans for its portfolio.

The Bank considers a concentration of credit to a particular industry to exist when the aggregate credit exposure which includes direct, indirect or contingent obligations to a borrower, an affiliated group of borrowers or a nonaffiliated group of borrowers engaged in one industry, exceeds 25% of the Bank’s tier one capital.

Loans originated by the Bank to lessors of nonresidential buildings represented 23.6 % and 17.1 % of the total loan portfolio at December 31, 2021 and 2020, respectively.

Within this concentration category, the Company believes it is well diversified among collateral property types and tenant industries.

The Bank tracks concentrations of credit across numerous categories and segments including any particular industries where the aggregate credit exposure exceeds 25% of the Bank's tier one capital.

Aggregate credit exposure includes direct, indirect or contingent obligations to a borrower, an affiliated group of borrowers or a non-affiliated group of borrowers engaged in one industry.

Loans originated by the Bank to lessors of nonresidential buildings, lessors of residential buildings, building construction, and within the accommodations industry represented 21.3 %, 14.3 %, 5.9 %, and 3.9 % of the Bank's aggregate credit exposure, respectively, at December 31, 2022.

Within these concentration categories, the Company believes it is well diversified among collateral property types and tenant industries.

Business Combinations

2 unchanged sentences

While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed on the acquisition date, the estimates are inherently uncertain.

The allowance for credit losses on PCD loans is recognized within business combination accounting.

The allowance for credit losses on purchased credit deteriorated ("PCD") loans is recognized within business combination accounting.

The allowance for credit losses on non-PCD loans is recognized as a provision expense in the same period as the business combination.

4 unchanged sentences

Classification is constantly re-evaluated for consistency with corporate goals and objectives.

Trading and equity securities are

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recorded at fair value with subsequent changes in fair value recorded in earnings.

Trading and equity securities are recorded at fair value with subsequent changes in fair value recorded in earnings.

Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost.

10 unchanged sentences

If either of these criteria are met, the Company will record a write-down of the security's amortized cost basis to fair value through income.

For those available for sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors.

For those available for

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors.

In performing this assessment, management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S.

19 unchanged sentences

Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred and are not deferred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loans Held for Investment

12 unchanged sentences

In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructuring ("TDR").

Modifications 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.

Modifications may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

The recorded investment of loans classified as TDRs is adjusted to reflect the changes in value, if any, resulting from the granting of a concession.

18 unchanged sentences

• Changes in credit quality

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

• Changes in loan review system

13 unchanged sentences

The reserve for unfunded lending commitments is included in other liabilities on the Consolidated Balance Sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Acquired Loans

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Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loans held for sale are generally sold with servicing rights released, however if rights are retained, servicing assets are recognized as separate assets.

8 unchanged sentences

The amortization of mortgage servicing rights is recorded as a reduction of loan servicing fee income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company is also a party to certain instruments with off-balance-sheet risk including certain residential loans sold to investors with recourse.

19 unchanged sentences

If the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

Other intangible assets subject to amortization consist of core deposit intangibles, customer lists, non-compete agreements, and market-based favorable or unfavorable lease positions at time of acquisition, and are amortized over the estimated lives of the intangibles using a method that approximates the amount of economic benefits that are realized by the Company.

Other intangible assets subject to amortization consist of core deposit intangibles, customer lists, and non-compete agreements that are amortized over the estimated lives of the intangibles using a method that approximates the amount of economic benefits that are realized by the Company.

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

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Impairment losses on assets to be disposed of are based on the estimated proceeds to be received, less costs of disposal.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash Surrender Value of Life Insurance Policies

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The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) of the foreclosed asset is charged to the allowance for credit losses.

Subsequent declines in the fair value of the foreclosed asset below the new cost basis are recorded through the use of a valuation allowance.

Subsequent declines in the fair value of the foreclosed asset below the new cost basis

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

are recorded through the use of a valuation allowance.

Subsequent increases in the fair value are recorded as reductions in the valuation allowance, but not below zero.

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The Company has various retirement plans in place for current and former employees, including postretirement benefit plans, supplemental executive retirement plans, frozen multiemployer pension plans, deferred compensation plans, as well as other benefits.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The postretirement benefit plans and the supplemental executive retirement plans are unfunded and therefore have no plan assets.

6 unchanged sentences

The underfunded status of the plans is recorded as a liability on the balance sheet.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The multiemployer pension plans' assets are determined based on fair value, generally representing observable market prices.

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The excess tax benefits are recorded through earnings as a discrete item within the Company’s effective tax rate during the period of the transaction.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method of accounting for income taxes.

6 unchanged sentences

Additionally, a liability for unrecognized tax benefits is recorded for uncertain tax positions taken by the Company on its tax returns for which there is less than a 50% likelihood of being recognized upon a tax examination.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Low Income Housing Tax Credits

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Other comprehensive income includes unrealized gains and losses on securities available for sale, unrealized losses related to factors other than credit on debt securities, if applicable, unrealized gains and losses on cash flow hedges, deferred gains on hedge accounting transactions, and changes in the funded status of the Company’s postretirement and supplemental retirement plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value Measurements

3 unchanged sentences

These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters.

The Company leases office space, space for ATM locations and certain branch locations under noncancelable operating leases, several of which have renewal options to extend lease terms.

The Company leases office space, space for ATM and parking locations, and certain branch locations under noncancelable operating leases, several of which have renewal options to extend lease terms.

Upon commencement of a new lease, the Company will recognize a right of use ("ROU") asset and corresponding lease liability.

3 unchanged sentences

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately.

For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance, are not included in the measurement of the lease liability since they are generally able to be segregated.

For real estate leases, non-lease components and other non-components, such as common area maintenance

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

charges, real estate taxes, and insurance, are not included in the measurement of the lease liability since they are generally able to be segregated.

The Company has elected the short-term lease recognition exemption for all leases that qualify.

The Company may also assume lease obligations in connection with its acquisition activities, which may result in a market-based favorable or unfavorable lease position, resulting in an intangible lease asset.

These intangible lease assets are amortized over the estimated remaining lease term.

The Company is a party to certain equipment lease transactions where it has assumed the role of lessor for purchased assets.

10 unchanged sentences

2021-01 was subsequently issued in January 2021 and expanded application of the optional expedients to derivative transactions affected by the discounting transition.

The Company has not yet adopted the amendments in these updates, but has established a working group to guide the Company’s transition from LIBOR and has begun efforts to transition off the LIBOR index consistent with industry timelines.

The working group has identified its products that utilize LIBOR and has implemented fallback language to facilitate the transition to alternative rates.

The Company is also evaluating existing platforms and systems as well as alternative indices in its preparation to offer new products tied to the alternative indices.

The Company does not anticipate the adoption of these standards to have a material impact to the financial statements.

FASB ASC Topic 848 " Reference Rate Reform" Update No.

2022-06 was subsequently issued in December 2022 and defers the sunset date of the standard from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief offered in the standard.

The Company has elected to apply certain optional expedients related to hedge accounting and contract modifications, with no material impact to the Company's financial statements.

Additionally, the Company has established a working group to guide the Company’s transition from LIBOR and has begun efforts to transition off the LIBOR index consistent with industry timelines.

The working group has identified the Company's products that utilize LIBOR, implemented fallback language into applicable contracts, and has selected the Secured Overnight Funding Rate (“SOFR”) as its preferred alternative rate index.

FASB ASC Topic 815 "Derivatives and Hedging" Update No.

2022-01 was issued in March 2022 and its amendments allow for nonprepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method.

The expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets resulting in more consistent accounting for similar hedges.

All amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company has assessed the impact of the adoption of this standard and does not expect it to have a material impact on the Company's financial statements.

FASB ASC Topic 326 "Financial Instruments - Credit Losses" Update No.

2022-02 was issued in March 2022 and applies to public entities that have adopted ASU Topic 326.

The amendments in this update eliminate the existing accounting guidance for troubled debt restructures ("TDRs") by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors and instead require that an entity evaluate whether a modification represents a new loan or a continuation of an existing loan.

The amendments also enhance disclosure requirements for certain loan refinancing and restructuring by creditors when a borrower is experiencing financial difficulty.

ASU 2022-02 also requires additional disclosure of current period gross write-offs by year of origination for financing receivables to be included in the entity's vintage disclosure, as currently required under Topic 326.

All amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company adopted ASU 2022-02 effective January 1, 2023 and the adoption did not have a material impact on the Company's financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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These securities consist primarily of mutual funds held in a rabbi trust and will be used for future payments associated with the Company’s supplemental executive retirement plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table represents a summary of the gains and losses recognized within non-interest income and non-interest expense within the consolidated statements of income that relate to equity securities for the periods indicated:

2 unchanged sentences

(Dollars in thousands)

Net gains recognized during the period on equity securities $ 554 $ 528 $ 1,566

Net (losses) gains recognized during the period on equity securities $ ( 3,061 ) $ 554 $ 528

net gains recognized during the period on equity securities sold during the period — 192 14

Unrealized gains recognized during the reporting period on equity securities still held at the reporting date $ 362 $ 514 $ 1,548

Unrealized (losses) gains recognized during the reporting period on equity securities still held at the reporting date $ ( 3,061 ) $ 362 $ 514

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Available for Sale Securities

16 unchanged sentences

Total available for sale securities $ 1,566,779 $ 54 $ ( 167,679 ) $ — $ 1,399,154 $ 1,583,736 $ 8,808 $ ( 21,396 ) $ — $ 1,571,148

The Company did not record a provision for estimated credit losses on any available for sale securities for the years ended December 31, 2021 and 2020.

Excluded from the table above is accrued interest on available for sale securities of $ 3.6 million and $ 3.0 million at December 31, 2022 and 2021, respectively, which is included within other assets on the consolidated balance sheets.

Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities for the years ended December 31, 2022 and 2021.

No securities held by the Company were delinquent on contractual payments at December 31, 2021 and 2020, nor were any securities placed on non-accrual status for the years then ended.

Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status at December 31, 2022 and 2021.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables shows the gross unrealized losses and fair value of the Company’s available for sale securities which are in an unrealized loss position, and for which the Company has not recorded a provision for credit losses as of the dates indicated.

The following tables shows the gross unrealized losses and fair value of the Company’s available for sale securities in an unrealized loss position, and for which the Company has not recorded a provision for credit losses, as of the dates indicated.

These available for sale securities are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position:

9 unchanged sentences

Agency collateralized mortgage obligations 13 38,843 ( 3,031 ) — — 38,843 ( 3,031 )

State, county, and municipal securities 1 191 ( 2 ) — — 191 ( 2 )

Pooled trust preferred securities issued by banks and insurers 1 — — 1,034 ( 169 ) 1,034 ( 169 )

Small business administration pooled securities 8 34,511 ( 3,550 ) 17,246 ( 4,163 ) 51,757 ( 7,713 )

Total impaired available for sale securities 173 $ 333,099 $ ( 35,411 ) $ 1,062,964 $ ( 132,268 ) $ 1,396,063 $ ( 167,679 )

4 unchanged sentences

Losses Fair Value Unrealized

government agency securities 6 $ 160,913 $ ( 2,901 ) $ — $ — $ 160,913 $ ( 2,901 )

treasury securities 17 811,993 ( 12,191 ) — — 811,993 ( 12,191 )

Agency mortgage-backed securities 12 214,678 ( 5,534 ) — — 214,678 ( 5,534 )

Agency collateralized mortgage obligations 1 22,960 ( 571 ) — — 22,960 ( 571 )

Single issuer trust preferred securities issued by banks and insurers 1 488 ( 1 ) — — 488 ( 1 )

Pooled trust preferred securities issued by banks and insurers 1 — — 1,000 ( 199 ) 1,000 ( 199 )

Total impaired available for sale securities 37 $ 1,210,544 $ ( 21,197 ) $ 1,000 $ ( 199 ) $ 1,211,544 $ ( 21,396 )

The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis and management does not believe that any of the securities are impaired due to reasons of credit quality.

In addition, management does not believe that any of the securities are impaired due to reasons of credit quality.

As a result, the Company did not recognize a provision for credit losses on these investments for the years ended December 31, 2022 and 2021.

2 unchanged sentences

Government Agency Securities, U.S.

Treasury Securities, Agency Mortgage-Backed Securities and Agency Collateralized Mortgage Obligations:

Treasury Securities, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities:

These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment.

2 unchanged sentences

Government or one of its agencies.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

• State, County and Municipal Securities :

This portfolio has contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment.

The decline in market value of these securities is attributable to changes in interest rates and not credit quality.

• Pooled Trust Preferred Securities:

1 unchanged sentence

The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment.

Management evaluates collateral credit and instrument

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

structure, including current and expected deferral and default rates and timing.

Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing.

In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.

Held to Maturity Securities

The following table summarizes the amortized cost, fair value and allowance for credit losses of held to maturity securities and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at the dates indicated:

December 31, 2022 December 31, 2021

12 unchanged sentences

Total held to maturity securities $ 1,705,120 $ 729 $ ( 181,139 ) $ — $ 1,524,710 $ 1,066,818 $ 12,474 $ ( 15,159 ) $ — $ 1,064,133

The Company did not record a provision for estimated credit losses on any held to maturity securities for the years ended December 31, 2021 and 2020.

Substantially all held to maturity securities held by the Company are guaranteed by the U.S.

federal government or other government sponsored agencies and have a long history of no credit losses.

As a result, management has determined these securities to have a zero loss expectation and therefore the Company did not record a provision for estimated credit losses on any held to maturity securities for the years ended December 31, 2022 and 2021.

Excluded from the table above is accrued interest on held to maturity securities of $ 4.4 million and $ 2.0 million at December 31, 2022 and 2021, respectively, which is included within other assets on the consolidated balance sheets.

Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities for the years ended December 31, 2022 and 2021.

No securities held by the Company were delinquent on contractual payments at December 31, 2021 and 2020, nor were any securities placed on non-accrual status for the years then ended.

Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status at December 31, 2022 and 2021.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The actual maturities of certain securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

A schedule of the contractual maturities of securities available for sale and securities held to maturity at December 31, 2022 is presented below:

11 unchanged sentences

State, county, and municipal securities — — 193 191 — — — — 193 191

Single issuer trust preferred securities issued by banks — — — — — — 489 491 489 491

Pooled trust preferred securities issued by banks and insurers — — — — — — 1,203 1,034 1,203 1,034

29 unchanged sentences

Recoveries 49 333 — 149 — 121 997 1,649

Initial reserve on PCD loans 166 14,397 1,019 — 429 163 366 16,540

Provision for credit loss expense 13,108 ( 5,958 ) ( 1,554 ) ( 627 ) 6,489 ( 6,481 ) 1,523 6,500

9 unchanged sentences

Allowance for credit losses

Beginning balance $ 21,086 $ 45,009 $ 5,397 $ 5,095 $ 14,275 $ 22,060 $ 470 $ 113,392

Charge-offs ( 3,474 ) — — ( 219 ) — ( 69 ) ( 1,182 ) ( 4,944 )

Recoveries 2,686 57 — 98 1 249 638 3,729

Initial reserve on PCD loans 166 14,397 1,019 — 429 163 366 16,540

Provision for credit loss expense ( 6,062 ) 24,023 5,900 ( 1,466 ) ( 221 ) ( 4,417 ) 448 18,205

Ending balance (1) $ 14,402 $ 83,486 $ 12,316 $ 3,508 $ 14,484 $ 17,986 $ 740 $ 146,922

Year Ended December 31, 2020

(Dollars in thousands)

Commercial and

Industrial Commercial

Real Estate Commercial

Construction Small

Business Residential

Real Estate Home Equity Other Consumer Total

Allowance for credit losses

Beginning balance, pre adoption of ASU 2016-13 $ 17,594 $ 32,935 $ 6,053 $ 1,746 $ 3,440 $ 5,576 $ 396 $ 67,740

3 unchanged sentences

Recoveries 289 9 — 33 2 210 1,035 1,578

Provision for credit loss expense 7,447 28,661 2,996 3,201 687 9,085 423 52,500

Provision (benefit) 7,447 28,661 2,996 3,201 687 9,085 423 52,500

Ending balance (1) $ 21,086 $ 45,009 $ 5,397 $ 5,095 $ 14,275 $ 22,060 $ 470 $ 113,392

(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $ 43.7 million and $ 36.0 million at December 31, 2021 and December 31, 2020.

(2) Represents adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13.

(1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $ 50.8 million, $ 43.7 million, and $ 36.0 million at December 31, 2022, 2021, and 2020, respectively.

(2) Represents adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13 on January 1, 2020.

The adjustment represents a $ 1.1 million decrease to the allowance attributable to the change in accounting methodology for estimating the allowance for credit losses resulting from the Company's adoption of the standard.

1 unchanged sentence

The adjustment represents a $ 1.2 million increase to the allowance resulting from the day one reclassification.

The balance of allowance for credit losses of $ 146.9 million at December 31, 2021 represents an increase of $ 33.5 million, or 29.6 %, from the prior year end.

The increase in the allowance was driven primarily by $ 67.2 million in initial allowance reserves recorded on the acquired Meridian loan portfolio, including $ 50.7 million and $ 16.5 million attributable to non-PCD and PCD loans, respectively.

Partially offsetting the increase in allowance attributable to acquired loans was a reversal of credit loss expense of $ 32.5 million for the year ended December 31, 2021, primarily reflecting improvements in expected overall macro-economic forecast assumptions and continued strong asset quality metrics, along with lower organic loan growth.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The balance of allowance for credit losses of $ 152.4 million at December 31, 2022 increased by $ 5.5 million, or 3.7 % from the prior year driven primarily by an additional reserve allocation associated with a single large commercial and industrial credit that migrated to nonperforming status during 2022, as well as additional provisioning for net loan growth, partially offset by a stabilized credit environment and continued strong asset quality metrics.

For the purpose of estimating the allowance for credit losses, management segregated the loan portfolio into the portfolio segments detailed in the above tables.

1 unchanged sentence

Some of the characteristics unique to each loan category include:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Commercial Portfolio

• Commercial and Industrial :

Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment.

Collateral generally consists of pledges of business assets including, but not limited to:

accounts receivable, inventory, plant and equipment, or real estate, if applicable.

Repayment sources consist of primarily, operating cash flow, and secondarily, liquidation of assets.

Consists of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment.

Collateral generally consists of accounts receivable, inventory, plant and equipment, real estate, or other business assets.

The primary source of repayment is operating cash flow and, secondarily, liquidation of assets.

• Commercial Real Estate :

Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.

Consists of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties and is inclusive of owner-occupied commercial properties.

Loans are typically written with amortizing payment structures.

Collateral values are determined based upon third party appraisals and evaluations.

Loan to value ratios at origination are governed by established policy and regulatory guidelines.

Repayment sources consist of, primarily, cash flow from operating leases and rents and, secondarily, liquidation of assets.

Permissible loan to value ratios at origination are governed by Company policy and regulatory guidelines.

The primary source of repayment is cash flow from operating leases and rents and, secondarily, liquidation of assets.

• Commercial Construction :

Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property.

Consists of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property.

Project types include residential land development, one-to-four family, condominium, and multi-family home construction, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.

1 unchanged sentence

Collateral values are determined based upon third party appraisals and evaluations.

Loan to value ratios at origination are governed by established policy and regulatory guidelines.

Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets.

Permissible loan to value ratios at origination are governed by Company policy and regulatory guidelines.

Repayment sources vary depending upon the type of project and may consist of proceeds from the sale or lease of units, operating cash flows or liquidation of other assets.

• Small Business:

Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment.

Consists of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment.

Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate if applicable.

Repayment sources consist primarily of operating cash flows and, secondarily, liquidation of assets.

For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests in the borrowing entities.

The primary source of repayment is operating cash flows and, secondarily, liquidation of assets.

For the commercial portfolio, the Bank typically will obtain security interests in collateral and obtain personal guarantees for payment from individuals holding material ownership interests in the borrowing entities.

Consumer Portfolio

14 unchanged sentences

These loans may be secured or unsecured.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Credit Quality

2 unchanged sentences

Additionally, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio.

28 unchanged sentences

The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis.

Commercial loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") were assessed for potential downgrades of risk ratings.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower.

1 unchanged sentence

Under this structure, consumer loans less than 90 days past due are assigned a "pass" rating, while any consumer loans 90 days or more past due are assigned a "default" rating.

Consumer loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the CARES Act were not categorized as delinquent loans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

37 unchanged sentences

Default — — — 122 — 83 760 — 965

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Total home equity $ 43,917 $ 60,103 $ 54,802 $ 32,136 $ 26,414 $ 118,450 $ 749,054 $ 3,874 $ 1,088,750

1 unchanged sentence

Pass $ 677 $ 2,013 $ 1,619 $ 1,022 $ 231 $ 3,023 $ 26,939 $ — $ 35,524

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Default — — — 18 — 11 — — 29

35 unchanged sentences

Default — 392 — 1,010 — 2,811 — — 4,213

Definite loss — — — — — — — — —

Total residential real estate $ 454,162 $ 215,534 $ 114,762 $ 123,755 $ 133,961 $ 562,512 $ — $ — $ 1,604,686

2 unchanged sentences

Default — — — — — — 1,555 116 1,671

Definite loss — — — — — — — — —

Total home equity $ 66,410 $ 63,870 $ 38,201 $ 33,505 $ 38,051 $ 109,544 $ 685,982 $ 4,048 $ 1,039,611

2 unchanged sentences

Default 16 6 29 25 — 35 1 — 112

Definite loss — — — — — — — — —

Total other consumer $ 3,379 $ 2,708 $ 2,220 $ 884 $ 654 $ 4,497 $ 14,378 $ — $ 28,720

1 unchanged sentence

(1) Loans origination dates in the tables above reflect the original date, or the date of a material modification of a previously originated loan, for both organic originations and acquired loans.

(2) Loans originated as part of the Paycheck Protection Program ("PPP") established by the CARES Act are reported as commercial and industrial under the 2021 and 2020 vintage years and "Pass" category as these loans are 100% guaranteed by the U.S.

Outstanding PPP loans totaled $ 216.2 million and $ 791.9 million at December 31, 2021 and 2020, respectively, the former of which reflects PPP loans acquired in the Meridian acquisition.

(2) Loans originated as part of the Paycheck Protection Program ("PPP") established by the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act") are reported as commercial and industrial under the 2021 and 2020 vintage years and "Pass" category as these loans are 100% guaranteed by the U.S.

Outstanding PPP loans totaled $ 9.1 million and $ 216.2 million at December 31, 2022 and 2021, respectively.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower.

20 unchanged sentences

At December 31, 2022 and 2021, the Company's estimated reserve for unfunded commitments amounted to $ 1.3 million and $ 1.5 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Asset Quality

3 unchanged sentences

The Company also may use discretion regarding other loans 90 days or more delinquent if the loan is well secured and/or in process of collection.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In response to the COVID-19 pandemic, the Company granted loan modifications to allow deferral of payments for borrowers negatively impacted by the pandemic.

The balance of loans with active deferrals at December 31, 2021 was $ 383.1 million, which included $ 194.3 million in COVID-19 related modifications in the acquired Meridian portfolio, compared to $ 173.6 million at December 31, 2020.

The balance of loans with active deferrals decreased to $ 55.6 million at December 31, 2022, compared to $ 383.1 million at December 31, 2021 as granted deferrals continued to reach maturity.

The majority of these loans with active deferrals continue to be characterized as current loans.

2 unchanged sentences

The Company does, however, consider all active deferrals when estimating loss reserves.

As loans reach their deferral maturity date, consideration of TDR and delinquency status will resume in accordance with the Company's accounting policy.

As loans reach their deferral maturity date, consideration of TDR and delinquency status will resume in accordance with the Company's accounting po licy.

The following table shows information regarding nonaccrual loans at the dates indicated:

17 unchanged sentences

Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure $ 1,615 $ 1,426

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables show the age analysis of past due financing receivables at the dates indicated:

1 unchanged sentence

30-59 days 60-89 days 90 days or more Total Past Due Total

Receivables Amortized Cost

Receivables (2)

of Loans Principal

16 unchanged sentences

Total 481 $ 5,934 35 $ 6,560 46 $ 29,426 562 $ 41,920 $ 13,886,755 $ 13,928,675

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

December 31, 2021

30-59 days 60-89 days 90 days or more Total Past Due Total

Receivables Recorded

Receivables (2)

of Loans Principal

17 unchanged sentences

(1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances.

(2) The amount of net deferred costs on originated loans included in the ending balance was $ 5.0 million at December 31, 2022 compared to net deferred fees of $ 159,000 at December 31, 2021.

Net unamortized discounts on acquired loans included in the ending balance was $ 10.4 million at both December 31, 2022 and 2021.

Troubled Debt Restructurings

3 unchanged sentences

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 the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table shows the Company’s total TDRs and other pertinent information at the dates indicated:

26 unchanged sentences

Small business 2 189 189

Residential real estate 2 559 642

Total (1) 8 $ 18,301 $ 18,301

7 unchanged sentences

Residential real estate 2 559 642

Home equity 2 121 121

Total (1) 30 $ 4,908 $ 4,967

(1) The pre-modification and post-modification balances represent the legal principal balance of the loan.

Activity presented in the tables above includes $14.3 million, $1.9 million, and $855,000 of modifications on existing TDRs during the years ended December 31, 2021, 2020 and 2019, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Activity presented in the tables above includes $ 14.3 million, and $ 1.9 million of modifications on existing TDRs during the years ended December 31, 2021 and 2020, respectively.

The following table shows the Company’s post-modification balance of TDRs listed by type of modification for the periods indicated:

5 unchanged sentences

Total $ 11,315 $ 18,301 $ 4,967

The Company considers a loan to have defaulted when it reaches 90 days past due.

There was one commercial real estate loan modified during 2020 with a recorded investment of $ 3.2 million, which subsequently defaulted during 2021 prior to being paid off during the fourth quarter.

As such, this loan is not included within outstanding TDR balances December 31, 2021.

There were no defaults on such loans modified during the prior twelve months periods ended December 31, 2020 and 2019, respectively.

The Company determines the amount of allowance on TDRs in accordance with CECL methodology using a discounted cash flow approach, or a fair value of collateral approach if the loan is determined to be individually evaluated.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 5 LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company adopted the CECL standard, effective January 1, 2020.

Prior to 2020, the Company recognized an allowance for loan losses in accordance with the incurred loss impairment model under the previously applicable GAAP.

As required by disclosure guidance, the Company has included relevant disclosures and accounting policies prior to the adoption of CECL within this footnote, as it relates to loans and allowance for loan losses.

The following table bifurcates the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis at December 31, 2019:

December 31, 2019

Industrial Commercial

Real Estate Commercial

Construction Small

Business Residential

Equity Other Consumer Total

(Dollars in thousands)

Allowance for loan losses

Beginning balance $ 15,760 $ 32,370 $ 5,158 $ 1,756 $ 3,219 $ 5,608 $ 422 $ 64,293

Charge-offs ( 244 ) ( 2,614 ) — ( 509 ) — ( 240 ) ( 1,598 ) ( 5,205 )

Recoveries 1,131 152 — 122 142 318 787 2,652

Provision (benefit) 947 3,027 895 377 79 ( 110 ) 785 6,000

Ending balance $ 17,594 $ 32,935 $ 6,053 $ 1,746 $ 3,440 $ 5,576 $ 396 $ 67,740

Impaired Loans

Under previous accounting guidance, a loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment included payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.

Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired.

Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company considers a loan to have defaulted when it reaches 90 days past due.

During the twelve months ended December 31, 2022, 2021, and 2020, respectively, there were no loans modified during the prior twelve months that subsequently defaulted during the respective periods.

The Company determines the amount of allowance on accruing TDRs using a discounted cash flow approach, or a fair value of collateral approach if the loan is determined to be individually evaluated.

The allowance on nonaccrual TDR's is estimated in accordance with the CECL methodology for loans measured on a collective basis.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The table below sets forth information regarding the Company’s impaired loans.

The information for average recorded investment and interest income recognized is reflective of the full period being presented and does not take into account the date at which a loan was deemed to be impaired.

As of and For the Year Ended December 31, 2019

Investment Unpaid

Balance Related

Allowance Average

Investment Interest

(Dollars in thousands)

With no related allowance recorded

Commercial and industrial $ 23,786 $ 34,970 $ — $ 27,056 $ 136

Commercial real estate 6,213 12,101 — 12,595 523

Small business 469 484 — 471 22

Residential real estate 4,976 5,123 — 5,045 222

Home equity 3,764 3,893 — 3,869 184

Other consumer 34 34 — 41 3

Subtotal 39,242 56,605 — 49,077 1,090

With an allowance recorded

Commercial and industrial 670 670 126 718 29

Commercial real estate 2,124 2,124 48 2,176 122

Small business 68 105 8 74 2

Residential real estate 6,252 7,163 637 6,326 239

Home equity 1,184 1,382 156 1,214 52

Other consumer 88 91 5 97 3

Subtotal 10,386 11,535 980 10,605 447

Total $ 49,628 $ 68,140 $ 980 $ 59,682 $ 1,537

NOTE 5 BANK PREMISES AND EQUIPMENT

11 unchanged sentences

Depreciation expense related to bank premises and equipment was $ 18.4 million, $ 12.5 million, and $ 12.8 million for the years ended December 31, 2022, 2021 and 2020, respectively, and is primarily reflected in occupancy and equipment expenses.

In 2021 the Company purchased a total of $ 21.7 million in equipment that was subject to a master lease agreement with a third party lessee and recognized rental income of $ 890 ,000 for the year ended December 31, 2021, as the Company assumed the role of lessor in conjunction with the purchase.

This arrangement was deemed to be an operating lease for accounting purposes.

Previously, the Company had purchased $ 10.6 million in equipment that was subject to a similar agreement and recognized rental income of $ 1.5 million for the year ended December 31, 2020.

This arrangement was originally deemed to be an operating lease for accounting purposes but was subsequently modified and as a result the transaction was reflected as a direct financing beginning in the fourth quarter of 2020 and no additional rental income was recognized by the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Leased equipment held by the Company totaled $ 32.8 million and $ 21.7 million at December 31, 2022 and 2021, respectively.

The leased equipment is subject to a master lease agreement entered into during 2021 with a third party lessee and the Company assumes the role of lessor in the transaction, which is deemed an operating lease for accounting purposes.

The Company recognized rental income of $ 6.1 million, $ 890,000 and $ 1.5 million for the years ended December 31, 2022, 2021 and 2020, respectively .

NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS

14 unchanged sentences

The gross carrying amount and accumulated amortization of other intangible assets were as follows at the dates indicated:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Amount Accumulated

23 unchanged sentences

The FDIC offers insurance coverage on deposits up to the federally insured limit of $250,000.

The amount of time deposit accounts equal to or greater than $250,000 at of December 31, 2021 and 2020 was $ 339.3 million and $ 202.2 million, respectively.

The total amount of time deposit accounts with balances equal to or greater than $250,000 at December 31, 2022 and 2021 was $ 251.1 million and $ 339.3 million, respectively.

NOTE 8 BORROWINGS

Federal Home Loan Bank Borrowings

Advances payable to the Federal Home Loan Bank at December 31, 2021 and 2020 were as follows:

Weighted Weighted

Average Average

Total Contractual Total Contractual

Outstanding Rate Outstanding Rate

(Dollars in thousands)

Stated Maturity

2021 $ — — % $ 35,042 1.12 %

2022 25,000 0.34 % — — %

Subtotal 25,000 0.34 % 35,042 1.12 %

Amortizing advances 667 698

Total Federal Home Loan Bank Advances $ 25,667 $ 35,740

To manage the interest rate risk of these advances, the Company may enter into interest rate swap agreements which effectively fix the rate of the borrowing.

Inclusive of the impact of these swap arrangements, the weighted average rate of all FHLB borrowings was 2.05 % and 2.30 % at December 31, 2021 and 2020, respectively.

The Company’s FHLB advances are collateralized by a blanket pledge agreement on the Bank’s FHLB stock, certain qualified investment securities, deposits at the FHLB, residential mortgages, and by certain commercial real estate loans held in the Bank’s portfolio.

The carrying value of the loans pledged as collateral for these borrowings totaled $ 2.3 billion and $ 2.1 billion at December 31, 2021 and 2020, respectively.

The Bank’s unused remaining available borrowing capacity at the FHLB was approximately $ 1.6 billion and $ 1.4 billion at December 31, 2021 and 2020, respectively, inclusive of a $ 5.0 million line of credit.

The Company typically utilizes FHLB advances for certain short-term and long-term borrowing needs, as deemed necessary.

The Company had short-term borrowings outstanding with the FHLB of $ 25.0 million at December 31, 2021, with a contractual rate of 0.34 %.

This borrowing matured during the third quarter of 2022 resulting in no outstanding short-term borrowings with the FHLB at December 31, 2022.

To manage the interest rate risk of these advances, the Company may enter into interest rate swap agreements which effectively fixes the rate of the borrowing.

Inclusive of the impact of these swap arrangements, the weighted average rate of the Company's borrowings at December 31, 2021 was 2.05 %.

In addition to these short-term advances, the Company may also utilize longer term amortizing advances, of which $ 637,000 and $ 667,000 were outstanding at December 31, 2022 and 2021, respectively.

At December 31, 2022 and 2021, the Company had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB's collateral pledging program.

The carrying value of loans pledged as collateral for these borrowings totaled $ 2.7 billion and $ 2.3 billion at December 31, 2022 and 2021, respectively, resulting in available borrowing capacity with the FHLB of $ 1.8 billion and $ 1.6 billion at December 31, 2022, and 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Short-Term Debt

Excluding FHLB borrowings included in the table above, the Company had no short-term borrowings at December 31, 2021 and 2020.

The Company recorded no interest expense on short-term borrowings for the years ended December 31, 2021 and 2020, and recorded $ 104,000 for the year ended December 31, 2019.

Long-Term Debt

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Long-term borrowings:

During the first quarter of 2019 the Company entered into a senior unsecured term loan credit facility of which $ 14.1 million and $ 32.8 million was outstanding at December 31, 2021 and 2020, respectively.

Advances under the term loan facility bear interest at an interest rate equal to one-month LIBOR plus 1.25 % ( 1.35 % at December 31, 2021).

This term loan facility is due and payable in full on March 28, 2022.

The Company had no outstanding long-term borrowings as of December 31, 2022 and long-term borrowings of $ 14.1 million as of December 31, 2021 related to a senior unsecured term loan credit facility entered into during 2019.

The credit facility was re-paid in full during the first quarter of 2022.

Junior Subordinated Debentures :

The junior subordinated debentures are issued to various trust subsidiaries of the Company.

These trusts are considered to be variable interest entities for which the Company is not the primary beneficiary, and therefore the accounts of the trusts are not included in the Company’s consolidated financial statements.

These trusts were formed for the purpose of issuing trust preferred securities, which were then sold in a private placement offering.

The proceeds from the sale of the securities and the issuance of common stock by these trusts were invested in these Junior Subordinated Debentures issued by the Company.

For regulatory purposes, bank holding companies are allowed to include trust preferred securities in Tier 1 capital up to a certain limit.

Provisions in the Dodd-Frank Act generally exclude trust preferred securities from Tier 1 capital, however, holding companies with consolidated assets of less than $15 billion at December 31, 2009, are able to permanently to include these instruments in Tier 1 capital, unless the Company crosses the consolidated assets threshold as a result of merger and acquisition activity.

Accordingly, as the Company’s acquisition of Meridian resulted in the crossing of $15 billion in its consolidated assets, its trust preferred securities were phased out of Tier 1 capital and included within Tier 2 capital as of December 31, 2021, in accordance with applicable regulatory guidance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information relating to these trust preferred securities is as follows:

Trust Description of Capital Securities

Capital Trust V $ 50.0 million due in 2037, interest at a variable rate of 3 month LIBOR plus 1.48 % ( 1.70 % at December 31, 2021).

Central Trust I $ 5.1 million due in 2034, bearing interest at a variable rate of 3 month LIBOR plus 2.44 % ( 2.66 % at December 31, 2021).

These securities are callable quarterly, until maturity.

Central Trust II $ 5.9 million due in 2037, bearing interest at a variable rate of 3 month LIBOR plus 1.65 % ( 1.87 % at December 31, 2021).

These securities are callable quarterly, until maturity.

All obligations under these trust preferred securities are unconditionally guaranteed by the Company.

Subordinated Debentures :

At December 31, 2021 and 2020 the Company held $ 50.0 million of outstanding subordinated debentures at the bank holding company.

On March 14, 2019 the Company issued subordinated debentures with an aggregate principal amount of $50.0 million in a private placement transaction to institutional accredited investors.

The subordinated debentures mature on March 15, 2029.

However, with regulatory approval, the Company may redeem the subordinated debentures without penalty at any scheduled payment date on or after March 15, 2024 with 30 days notice.

The subordinated debentures carry a fixed rate of interest of 4.75 % through March 15, 2024, after which interest converts to a variable rate of the then current three-month LIBOR rate plus 219 basis points, or equivalent alternate rate.

The following table sets forth the contractual maturities of long-term debt over the next five years:

2022 2023 2024 2025 2026 Thereafter Total

These trust preferred securities bear interest at a rate of three-month LIBOR ( 4.77 % at December 31, 2022) plus applicable spread, or equivalent alternate rate.

Information relating to these trust preferred securities at December 31, 2022 is as follows:

Trust Principal Amount Maturity Date Interest Rate Spread All-in Rate

(Dollars in thousands)

Long term borrowings $ 14,063 $ — $ — $ — $ — $ — $ 14,063

Junior subordinated debentures

Capital Trust V $ 50,000 3/15/2037 1.48 % 6.25 %

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Central Trust II (1) $ 5,900 3/15/2037 1.65 % 6.42 %

(1) These securities noted above are callable quarterly until maturity.

Subordinated Debentures :

Total (1) $ 14,063 $ — $ — $ — $ — $ 112,888 $ 126,951

(1) Amounts in this table are presented on a gross basis, and do not include the capitalized issuance costs as presented in the Company's Consolidated Balance Sheet.

On March 14, 2019 the Company issued subordinated debentures with an aggregate principal amount of $ 50.0 million in a private placement transaction to institutional accredited investors, which remained outstanding at both December 31, 2022 and 2021.

The subordinated debentures mature on March 15, 2029.

However, with regulatory approval, the Company may redeem the subordinated debentures without penalty at any scheduled payment date on or after March 15, 2024 with 30 days notice.

At December 31, 2022, the Company held no borrowings scheduled to mature within the next 5 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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The Company's stock based plans include the Second Amended and Restated 2005 Employee Stock Plan (the "2005 Plan") and the 2018 Non-Employee Director Stock Plan (the "2018 Plan"), which have been approved by the Company’s Board of Directors and shareholders.

Up to 300,000 shares of the Company's common stock were authorized for issuance under the 2018 plan, which amount includes the 174,855 shares of common stock transferred from the 2010 Non-Employee Director Stock Plan (the "2010 Plan"), which shares were authorized but unissued when the 2010 Plan expired in May 2018.

These shares may be awarded as either stock option awards or restricted stock awards from its pool of authorized but unissued shares.

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Directors’ fee expense (2)

Stock options — — 23

Restricted stock awards 673 729 851

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and, that (2) any stock options which vest pursuant to a Change of Control, which is an event described in Section 280G of the Internal Revenue Code of 1986, will be cashed out at the difference between the acquisition price and the exercise price of the stock option.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Options

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• Forfeitures on stock compensation are recognized when they occur.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the years ended December 31, 2022, 2021 and 2020 there were no awards granted by the Company of nonqualified options to purchase shares of common stock.

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(Dollars in thousands, except per share data)

Fair value of stock options vested based on grant date fair value n/a $ 22 $ 21

Fair value of stock options vested based on grant date fair value $ — $ — $ 22

Intrinsic value of stock options exercised $ — $ 414 $ 404

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The Company grants both time-vested restricted stock awards as well as performance-based restricted stock awards.

During the years ended December 31, 2021, 2020, and 2019 the Company made the following restricted stock award grants:

The fair value of the restricted stock awards are based upon the average of the high and low prices at which the Company’s common stock traded on the date of grant.

The holders of time-vested restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights.

The holders of performance-based restricted stock awards do not participate in the rewards of stock ownership of the Company until vested.

The holders of all restricted stock awards are not required to pay any consideration to the Company for the awards.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the years ended December 31, 2022, 2021, and 2020 the Company made the following restricted stock award grants:

Shares Granted Plan Fair Value Vesting Period

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5/24/2022 8,099 2018 $ 80.39 Immediately upon grant date

9/1/2021 640 2018 $ 76.78 Immediately upon grant date

9/15/2022 646 2005 $ 77.44 Ratably over 5 years from grant date

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5/25/2021 7,680 2018 $ 78.18 Immediately upon grant date

2/21/2019 43,250 2005 $ 83.87 Ratably over 5 years from grant date

9/1/2021 640 2018 $ 76.78 Immediately upon grant date

2/27/2020 46,550 2005 $ 70.24 Ratably over 5 years from grant date

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or, March 31, 2023.

(1) The fair value of the restricted stock awards are based upon the average of the high and low prices at which the Company’s common stock traded on the date of grant.

The holders of time-vested restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights.

The holders of performance-based restricted stock awards do not participate in the rewards of stock ownership of the Company until vested.

The holders of all restricted stock awards are not required to pay any consideration to the Company for the awards.

The following table presents the fair value of restricted stock awards that vesting during the periods presented:

The following table presents the fair value of restricted stock awards that vested during the periods presented:

Years Ended December 31

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Grant Price ($)

(Dollars in thousands, except per share data)

Balance at January 1, 2022 185,173 $ 77.03

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Balance at December 31, 2022 191,412 (1) $ 80.15

Unrecognized compensation cost (inclusive of directors’ fees) $ 8,213

Unrecognized compensation cost (in thousands) (1) $ 8,916

Weighted average remaining recognition period (years) 3.09 years

(1) Inclusive of 4,500 restricted stock awards outstanding to Directors.

(1) There are no unvested restricted stock awards outstanding to Directors and therefore no related unrecognized compensation cost for Directors.

(2) Forfeited amounts are inclusive of 7,450 performance-based shares that were not vested based on performance objective criteria results.

NOTE 10 DERIVATIVES AND HEDGING ACTIVITIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table reflects information about the Company’s derivative positions at the dates indicated below for interest rate swaps which qualify as cash flow hedges for accounting purposes:

The following tables reflect information about the Company’s derivative positions at the dates indicated below for interest rate swaps which qualify as cash flow hedges for accounting purposes:

December 31, 2022

Weighted Average Rate

Notional Amount Weighted Average Maturity Current

Received Pay Fixed

Notional Amount Average Maturity Current Rate Paid Receive Fixed

Swap Rate Fair Value

(in thousands) (in years) (in thousands)

Interest rate swaps on borrowings $ 25,000 (1) 0.62 0.16 % 1.88 % $ ( 294 )

Current Rate Paid Receive Fixed

Interest rate swaps on loans $ 1,050,000 2.97 4.24 % 2.66 % $ ( 42,005 )

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Weighted Average Rate

Notional Amount Weighted Average Maturity Current

Notional Amount Average Maturity Current

Received Pay Fixed

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Total $ 975,000 $ 20,919

(1) Two forward starting swaps with notional amounts of $ 25.0 million each matured in December 2021.

The Company originally entered into these swaps in April 2016 for purposes of hedging $ 50.0 million of existing junior subordinated dentures .

The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 6.2 years.

For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

The Company expects approximately $ 15.4 million (pre-tax) to be reclassified as an increase to interest income and $ 238,000 (pre-tax) to be reclassified as an increase to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months.

For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

The Company expects approximately $ 28.6 million (pre-tax) to be reclassified as an increase to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months following December 31, 2022.

This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve at December 31, 2022.

During the year ended December 31, 2020, the Company accelerated the reclassification of a loss of approximately $ 684,000 from OCI to earnings as a result of the termination of one of its cash flow hedges.

The Company exited the hedge and paid off the associated borrowing in 2020.

The Company did not terminate any of its cash flow hedges during 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the year ended December 31, 2020, the Company accelerated the reclassification of a loss of approximately

$684,000 from OCI to earnings as a result of the termination of one of its cash flow hedges.

The Company exited the hedge

and paid off the associated borrowing in 2020.

The Company did not terminate any of its cash flow hedges during the years ended December 31, 2022 and 2021.

The Company had no fair value hedges for the years ended December 31, 2022, 2021 and 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Customer Related Positions

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table reflects the Company’s customer related derivative positions at the dates indicated below for those derivatives not designated as hedging:

The following tables reflect the Company’s customer related derivative positions at the dates indicated below for those derivatives not designated as hedging:

Positions (1) Notional Amount Maturing

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The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election.

The change in fair value associated with loans held for sale was a decrease of $ 1.7 million, an increase of $ 1.3 million and an increase of $ 822,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

The change in fair value associated with loans held for sale was a decrease of $ 452,000 , a decrease of $ 1.7 million and an increase of $ 1.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

These amounts were offset in earnings by the change in the fair value of mortgage derivatives.

Outstanding loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might change from inception of the rate lock to funding of the loan due to changes in mortgage interest rates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

If interest rates increase, the value of these loan commitments decreases.

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The Company expects that these best efforts forward loan sale commitments will experience a net neutral shift in fair value with related derivative loan commitments.

The aggregate amount of net realized gains or losses on sales of loans included within mortgage banking income was $ 19.9 million, $ 30.1 million and $ 13.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The aggregate amount of net realized gains or losses on sales of loans included within mortgage banking income was $ 562,000 , $ 19.9 million and $ 30.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Balance Sheet Offsetting

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(2) All liability derivatives are located in other liabilities on the balance sheet .

(3) Approximately $ 1.2 million and $ 1.5 million of accrued interest receivable is included in the fair value of the interest rate and loan level asset derivatives, respectively, at December 31, 2021, in comparison to accrued interest receivable of approximately and $ 1.2 million and $ 2.0 million, respectively, at December 31, 2020.

(4) Approximately $ 5,000 and $ 1.5 million of accrued interest payable is included in the fair value of interest rate and loan level derivative liabilities as of December 31, 2021, in comparison to accrued interest payable of approximately $ 81,000 and $ 2.0 million, respectively, at December 31, 2020.

(3) Approximately $ 2.2 million of accrued interest receivable is included in the fair value of the loan level asset derivatives at December 31, 2022, in comparison to accrued interest receivable of approximately $ 1.2 million and $ 1.5 million included in the fair value of interest rate and loan level derivative assets, respectively, at December 31, 2021.

(4) Approximately $ 1.3 million and $ 2.2 million of accrued interest payable is included in the fair value of interest rate and loan level derivative liabilities, respectively, at December 31, 2022, in comparison to accrued interest payable of approximately $ 5,000 and $ 1.5 million, respectively, at December 31, 2021.

(5) Netting adjustments represent the amounts recorded to convert derivative assets and liabilities cleared through CME from a gross basis to a net basis, inclusive of the variation margin payments, in accordance with applicable accounting guidance.

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Derivatives designated as hedges

Gain (loss) in OCI on derivatives (effective portion), net of tax $ ( 19,139 ) $ 16,797 $ 10,331

(Loss) gain in OCI on derivatives (effective portion), net of tax $ ( 50,767 ) $ ( 19,139 ) $ 16,797

Gain reclassified from OCI into interest income or interest expense (effective portion) $ 5,054 $ 18,691 $ 14,306

Loss reclassified from OCI into noninterest expense (loss on termination) $ — $ — $ ( 684 )

Interest expense $ — $ — $ —

Other expense — — —

Total $ — $ — $ —

Derivatives not designated as hedges

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If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions.

The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $ 34.8 million and $ 79.8 million at December 31, 2021 and December 31, 2020, respectively.

Although none of the contingency provisions have applied at December 31, 2021 and December 31, 2020, the Company has posted collateral to offset the net liability exposure with institutional counterparties.

All derivative instruments with credit-risk related contingent features were in a net asset position at December 31, 2022.

At December 31, 2021, the aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $ 34.8 million.

Although none of the contingency provisions have applied at December 31, 2022 and December 31, 2021, the Company posted collateral to offset the net liability exposure with institutional counterparties at December 31, 2021.

By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required.

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State taxes, net of federal tax benefit 19,728 5.67 % 8,754 5.59 % 8,147 5.33 %

CARES Act - net operating loss carryback (1) — — % ( 4,809 ) ( 3.15 ) % — — %

Change in valuation allowance 26 0.02 % — — % 17 0.01 %

Increase in cash surrender value of life insurance ( 1,405 ) ( 0.90 ) % ( 1,345 ) ( 0.88 ) % ( 1,144 ) ( 0.52 ) %

Low Income Housing Project Investments ( 3,364 ) ( 0.97 ) % ( 2,308 ) ( 1.47 ) % ( 1,851 ) ( 1.21 ) %

Merger and other related costs (non-deductible) 630 0.40 % — — % 582 0.27 %

New Markets Tax Credits — — % — — % ( 2,675 ) ( 1.23 ) %

Nontaxable interest, net ( 3,191 ) ( 0.92 ) % ( 1,022 ) ( 0.65 ) % ( 723 ) ( 0.47 ) %

Increase in cash surrender value of life insurance ( 1,885 ) ( 0.54 ) % ( 1,405 ) ( 0.90 ) % ( 1,345 ) ( 0.88 ) %

Increase (decrease) in uncertain positions ( 1,035 ) ( 0.30 ) % 50 0.03 % — — %

Stock-based compensation ( 202 ) ( 0.06 ) % ( 372 ) ( 0.24 ) % ( 1,067 ) ( 0.70 ) %

CARES Act - net operating loss carryback (1) — — % — — % ( 4,809 ) ( 3.15 ) %

Change in valuation allowance 52 0.01 % 26 0.02 % — — %

Merger and other related costs (non-deductible) — — % 630 0.40 % — — %

Other, net 810 0.25 % ( 1,572 ) ( 1.00 ) % 1,221 0.80 %

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Allowance for credit losses 42,748 41,541

Derivatives fair value adjustment 14,328 —

Employee and director equity compensation 1,388 1,489

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Goodwill 11,432 11,249

Net unrealized gain on securities available for sale — 4,152

Prepaid pension 3,469 3,296

5 unchanged sentences

The realization of the tax benefit depends upon the existence of sufficient taxable income in future periods.

At December 31, 2021, the Company had a foreign tax credit carryforward with a related deferred tax asset of $ 89,000 , which if not utilized, will expire in 2026.

The Company does not expect to utilize this deferred tax asset prior to the statute expiration and has recorded a partial valuation allowance against this asset.

Additionally, the Company has a state net operating loss carryforward totaling $251,000, which if not utilized, will expire in 2041.

The Company has recorded a full valuation allowance against this state net operating loss carryforward.

In total, the Company recorded a valuation allowance of $ 306,000 at December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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Balance at December 31, 2021 2,878

Increases to the Company's unrealized tax positions occur as a result of accruing for any unrecognized tax benefit, as well the accrual of interest and penalties related to prior year positions.

Reduction of tax positions for prior years ( 1,047 )

Increase for prior year tax positions 128

Increase for current year tax positions 761

Balance at December 31, 2022 $ 2,720

Increases to the Company's unrealized tax positions occur as a result of accruing for any unrecognized tax benefit, as well as the accrual of interest and penalties related to prior year positions.

Decreases in the Company's unrealized tax positions occur as a result of the statute of limitation lapsing on prior year positions and/or settlements relating to outstanding positions.

The table above does not include the indirect federal benefit of state tax positions of approximately $ 604,000 .

Additionally, the balances noted in the table above do not include the indirect federal benefit of state tax positions of approximately $ 544,000 and $604,000, at December 31, 2022 and 2021 respectively.

The following table summarizes the changes in accrued interest and penalties related to uncertain tax positions for the periods presented:

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Expense (benefit) recognized in provision for income taxes ( 335 ) 69 52

Acquired obligation for interest and penalties (1) 756 n/a n/a

Acquired obligation for interest and penalties (1) — 756 —

Ending Balance $ 585 $ 920 $ 95

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The Company’s total contributions to the Pension Plan did not represent more than 5 % of the total contributions to the Pension Plan as indicated in the Pension Plan’s most recently available annual report dated June 30, 2022.

The comparability of employer contributions is impacted by asset performance, discount rates and the reduction in the number of covered employees year over year.

The comparability

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of employer contributions is impacted by asset performance, discount rates and the reduction in the number of covered employees year over year.

The Company’s contributions to the Pension Plans were as follows for the periods indicated:

Required Contributions - Plan Year Allocation

Cash Payment 2021-2022 2020-2021 2019-2020

Contribution 2022-2023 2021-2022 2020-2021

(Dollars in thousands)

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Interest cost 366 344

Actuarial (gain) loss ( 901 ) 1,710

Actuarial gain ( 3,505 ) ( 901 )

Benefits paid ( 2,084 ) ( 556 )

1 unchanged sentence

Benefit obligation at end of year $ 8,716 $ 13,939

Funded status and prepaid asset (accrued liability) at end of year $ 160 $ ( 2,827 )

Funded status at end of year $ 1,173 $ 160

At December 31, 2022 and 2021, the discount rate used to determine the benefit obligation was 4.97 % and 2.68 %, respectively.

The components of net period pension cost (benefit) are as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of net period pension benefit are as follows:

Years Ended December 31

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Amortization of net actuarial loss 28 208

Settlement loss — 176

Net period pension cost (benefit) $ ( 339 ) $ 225

Settlement gain ( 31 ) —

Net period pension benefit $ ( 603 ) $ ( 339 )

The discount rate used to determine net periodic pension cost for the years ended December 31, 2022 and 2021 was 2.68 % and 2.35 %, respectively.

The expected long-term rate of return on plan assets used to determine the net periodic pension

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

cost for the years ended December 31, 2021 and 2020 was 7.00 % and 8.00 %, respectively.

The expected long-term rate of return on plan assets used to determine the net periodic pension cost for the years ended December 31, 2022 and 2021 was 7.00 %.

Assumptions with respect to the expected long-term rate of return are based on prevailing yields on high-quality, fixed-income investments increased by a premium for equity return expectations.

SBERA offers a common and collective trust as the underlying investment structure for pension plans participating in SBERA.

The target allocation mix for the common and collective trust portfolio calls for an equity-based investment range from 49 % to 63 % of total portfolio assets.

The remainder of the portfolio is allocated to fixed income securities with a target range of 28 % to 42 % and other investments including global asset allocation and hedge funds from 3 % to 15 %.

The Trustees of SBERA, through the Association's Investment Committee ("AIC"), select investment managers for the common and collective trust portfolio.

During the year ended December 31, 2022, the Company's Board of Directors voted to terminate the BHB Plan.

As a result, the assets of the BHB plan were transferred to a money market account until the termination is approved by all regulatory bodies.

Prior to all assets being held in a money market account and classified within Level 1 of the fair value hierarchy, SBERA offered a common and collective trust as the underlying investment structure for pension plans participating in SBERA.

As of December 31, 2021 the target allocation mix for the common and collective trust portfolio called for an equity-based investment range from 49 % to 63 % of total portfolio assets.

The remainder of the portfolio was allocated to fixed income securities with a target range of 28 % to 42 % and other investments including global asset allocation and hedge funds from 3 % to 15 %.

The Trustees of SBERA, through the Association's Investment Committee ("AIC"), selected investment managers for the common and collective trust portfolio.

A professional investment advisory firm is retained by the AIC to provide allocation analysis, performance measurement and to assist with manager searches.

The overall investment objective is to diversify equity investments across a spectrum of investment types to limit risks from large market swings.

The fair value of major categories of the BHB Plan assets are summarized below:

Fair Value Measurements at Reporting Date Using

Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs

December 31, 2021

(Dollars in thousands)

Collective funds $ 1,542 1,542 $ — $ —

Equity securities 3,391 3,391 — —

Mutual funds 1,702 1,702 — —

Total investments in the fair value hierarchy $ 6,635 $ 6,635 $ — $ —

Investments measured at net asset value (1) 7,464

The overall investment objective was to diversify equity investments across a spectrum of investment types to limit risks from large market swings.

The fair value of major categories of the BHB Plan assets as of December 31, 2021 are summarized below:

Fair Value Measurements at Reporting Date Using

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(1) Under the Fair Value Measurements and Disclosure Topic of the FASB ASC, certain investments that were measured at fair value at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.

There were no transfers to or from Level 1, 2 and 3 during the years ended December 31, 2021 and 2020.

The fair value hierarchy above was received from SBERA, the plan administrator.

1 unchanged sentence

BHB Plan assets measured at fair value in Level 2, as applicable, are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

BHB Plan assets measured

BHB Plan assets measured at fair value in Level 3, as applicable, are based on unobservable inputs, which include the SBERA’s assumptions and the best information available under the circumstance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

at fair value in Level 3, as applicable, are based on unobservable inputs, which include the SBERA’s assumptions and the best information available under the circumstance.

Estimated future benefit payments for the BHB Plan are presented below:

Presented in the table below are the e stimated future benefit payments for the BHB Plan.

These payments were calculated prior to the approval of the BHB Plan's termination.

(Dollars in thousands)

2028-2032 $ 2,731

The Company’s total defined benefit plan expense was $ 1.2 million, $ 1.9 million, and $ 1.4 million, for the years ending December 31, 2021, 2020, and 2019, respectively.

Postretirement Benefit Plans

Employees retiring from the Bank after attaining age 65 , who have rendered at least 10 years of continuous full time service with Rockland Trust are entitled to a fixed contribution toward the premium for postretirement health care benefits and a $ 5,000 benefit paid upon death.

The health care benefits are subject to deductibles, co-payment provisions and other limitations.

The Bank may amend or change these benefits periodically.

Additionally, the Company has acquired small postretirement plans and/or agreements in conjunction with various acquisitions.

The expense related to these plans for the years ending December 31, 2021, 2020, and 2019 was not material.

The Company’s total defined benefit plan expense was $ 562,000 , $ 1.2 million, and $ 1.9 million, for the years ending December 31, 2022, 2021, and 2020, respectively.

Supplemental Executive Retirement Plans

8 unchanged sentences

Retirement expense $ 1,681 $ 2,275 $ 1,770

Contributions paid $ 475 $ 475 $ 486

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Benefits paid $ 475 $ 475 $ 475

Expected future benefit payments for the defined benefit supplemental executive retirement plans are presented below:

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Amounts recognized in accumulated other comprehensive income ("AOCI")

Net loss $ 3,002 $ 5,881 $ 3,509

Net (gain) loss $ ( 1,970 ) $ 3,002 $ 5,881

Prior service cost 22 43 218

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In addition, the Bank may also pay a discretionary bonus to senior management, officers, and/or non-officers of the Bank.

The expense for the incentive plans amounted to $ 21.2 million, $ 11.0 million and $ 16.3 million in 2021, 2020 and 2019, respectively.

The expense for these incentive plans amounted to $ 24.3 million, $ 21.2 million and $ 11.0 million in 2022, 2021 and 2020, respectively.

The Bank has an Employee Savings Plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.

Under the Employee Savings Plan, participating employees may defer a portion of their earnings, not to exceed the Internal Revenue Service annual contribution limits.

The Bank matches 25 % of each employee’s contributions up to the first 6 % of the employee’s eligible earnings.

The 401(k) Plan incorporates an Employee Stock Ownership Plan for

The Bank matches 25 % of each employee’s contributions up to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

contributions invested in the Company’s common stock.

the first 6 % of the employee’s eligible earnings.

The 401(k) Plan incorporates an Employee Stock Ownership Plan for contributions invested in the Company’s common stock.

The Company also provides three defined contributions under this Plan, providing the employees are deemed eligible.

22 unchanged sentences

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure.

Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date.

Therefore, even when market assumptions are not readily available, the assumptions applied by the Company when determining fair value reflect those that the Company determines market participants would use to price the asset or liability at the measurement date.

If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.

The Company uses prices and inputs that are current as of the measurement date.

In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments.

This condition could cause an instrument to be reclassified from one level to another.

Fair value is the price that would be received if the asset were to be sold or that would be paid if the liability were to be transferred in an orderly market transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.

When determining fair value, the Company considers pricing information and other inputs that are current as of the measurement date.

In periods of market dislocation, the observability of prices and other inputs may be reduced for certain instruments, or not available at all.

The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another.

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:

Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

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otherwise, they are classified as Level 2.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loans Held for Sale

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The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.

This analysis reflects the contractual terms of the derivatives,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements.

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Goodwill and identified intangible assets are subject to impairment testing.

The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary, and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and discounted cash flow analysis.

The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary.

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

Both valuation models require a significant degree of management judgment.

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State, county, and municipal securities 191 — 191 —

Single issuer trust preferred securities issued by banks and insurers 491 — 491 —

Pooled trust preferred securities issued by banks and insurers 1,034 — 1,034 —

3 unchanged sentences

Derivative instruments 179,911 — 179,911 —

Total recurring fair value measurements $ 1,644,617 $ 26,893 $ 1,617,724 $ —

Total recurring fair value measurements, net $ 1,375,011 $ 25,007 $ 1,350,004 $ —

Nonrecurring fair value measurements

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government agency securities 215,482 — 215,482 —

treasury securities 861,448 — 861,448 —

Agency mortgage-backed securities 363,933 — 363,933 —

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Derivative instruments 76,015 — 76,015 —

Total recurring fair value measurements $ 549,244 $ 24,945 $ 524,299 $ —

Total recurring fair value measurements, net $ 1,644,617 $ 26,893 $ 1,617,724 $ —

Nonrecurring fair value measurements

1 unchanged sentence

Total nonrecurring fair value measurements $ 1,174 $ — $ — $ 1,174

(1) The fair value of individually assessed collateral dependent loans is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(1) The carrying value of individually assessed collateral dependent loans is based on the lower of amortized cost or fair value of the underlying collateral less costs to sell.

The fair value of the underlying collateral is generally determined through independent appraisals, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses.

21 unchanged sentences

Federal Home Loan Bank borrowings (f) 637 563 — 563 —

Long-term borrowings (f) 14,063 13,989 — 13,989 —

Junior subordinated debentures (g) 62,855 60,002 — 60,002 —

2 unchanged sentences

Fair Value Measurements at Reporting Date Using

Carrying Value Fair Value Quoted

Active Markets

for Identical

Carrying Value Fair Value Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other

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Securities held to maturity (a)

government agency securities $ 32,987 $ 32,546 $ — $ 32,546 $ —

treasury securities 102,560 102,242 $ — 102,242 —

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Other noninterest income 6,099 5,312 4,235

Total noninterest income in-scope of ASC 606 71,809 65,905 80,116

Total noninterest income out-of-scope of ASC 606 34,041 45,535 35,178

Total noninterest income in-scope of ASC 606 Revenue Recognition 84,415 71,809 65,905

Total noninterest income out-of-scope of ASC 606 Revenue Recognition 30,252 34,041 45,535

Total noninterest income $ 114,667 105,850 $ 111,440

In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and service requirements are generally explicitly identified in the associated contracts.

Furthermore, no new revenue streams were identified as part of the acquisition of Meridian.

Additional information related to each of the revenue streams is further noted below.

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The Company also offers additional services, such as estate settlement, financial planning, tax services and other special services quoted at the client's request.

The asset management and/or custody fees are based upon a percentage of the monthly valuation of the principal assets in the customer's account, whereas fees for additional or special services are fixed in nature and are charged as services are rendered.

Asset management and/or custody fees are based upon a percentage of the monthly valuation of the principal assets in the customer's account, whereas fees for additional or special services are fixed in nature and are charged as services are rendered.

As the fees are dependent on assets under management, which are susceptible to market factors outside of the Company's control, this variable consideration is constrained and therefore no revenue is estimated at contract initiation.

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Investment Management - Retail Investments and Insurance Revenue

The Company offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance products through registered representatives who are both employed by the Company and licensed and contracted with various Broker General Agents to offer these products to the Company’s customer base.

As such, the Company performs these services as an agent and earns a fixed commission on the sales of these products and services.

To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds.

The Company offers the sale of mutual fund shares, unit investment trust shares, third party model portfolios, general securities, fixed and variable annuities and life insurance products through registered representatives who are both employed by the Company and licensed and contracted with various Broker General Agents to offer these products to the Company’s customer base.

As such, the Company performs these services as an agent and earns a fixed commission on the sales of these

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

products and services.

To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds.

In general, the Company recognizes commission revenue at the point of sale, and for certain insurance products, may also earn and recognize annual residual commissions commensurate with annual premiums being paid.

21 unchanged sentences

NOTE 16 OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents a reconciliation of the changes in the components of other comprehensive income (loss) for the periods indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):

The following tables present a reconciliation of the changes in the components of other comprehensive income (loss) for the periods indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):

Year Ended December 31, 2022

11 unchanged sentences

Amortization of net prior service costs 39 ( 11 ) 28

Amortization of net settlement credits ( 31 ) 9 ( 22 )

Net change in other comprehensive income for defined benefit postretirement plans (1) 6,246 ( 1,756 ) 4,490

9 unchanged sentences

net cash flow hedge gains reclassified into interest income or interest expense 18,691 ( 5,256 ) 13,435

loss on termination of hedge reclassified into noninterest expense ( 684 ) 192 ( 492 )

Net change in fair value of cash flow hedges ( 26,629 ) 7,490 ( 19,139 )

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period ( 5,785 ) 1,627 ( 4,158 )

Net unamortized gain related to defined benefit pension and other postretirement adjustments arising during the period 3,414 ( 960 ) 2,454

Amortization of net actuarial losses 1,331 ( 374 ) 957

Amortization of net prior service costs 192 ( 54 ) 138

Amortization of net settlement costs 176 ( 50 ) 126

Net change in other comprehensive income for defined benefit postretirement plans (1) 4,937 ( 1,388 ) 3,549

Total other comprehensive income $ 30,707 $ ( 8,181 ) $ 22,526

Total other comprehensive loss $ ( 51,687 ) $ 13,175 $ ( 38,512 )

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8 unchanged sentences

net cash flow hedge gains reclassified into interest income or interest expense 14,306 ( 4,023 ) 10,283

loss on termination of hedge reclassified into noninterest expense ( 684 ) 192 ( 492 )

Net change in fair value of cash flow hedges 23,372 ( 6,575 ) 16,797

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period ( 5,785 ) 1,627 ( 4,158 )

Amortization of net actuarial gains ( 8 ) 2 ( 6 )

Amortization of net actuarial losses 982 ( 276 ) 706

Amortization of net prior service costs 276 ( 78 ) 198

Amortization of net settlement costs 176 ( 50 ) 126

Net change in other comprehensive income for defined benefit postretirement plans (1) ( 4,351 ) 1,223 ( 3,128 )

1 unchanged sentence

(1) The amortization of prior service costs is included in the computation of net periodic pension costs as disclosed in Note 13 - Employee Benefit Plans within the Notes to the Consolidated Financial Statements in Item 8.

Information on the Company's accumulated other comprehensive income (loss), net of tax, was comprised of the following components for the periods indicated:

Information on the Company's accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the dates indicated:

Unrealized Gain (Loss) on Securities Unrealized Gain (Loss) on Cash Flow Hedge Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss)

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As of December 31, 2022, the Company did not have any material sub-lease agreements.

The Company's right-of-use asset related to operating leases totaled $ 60.2 million and $ 49.7 million at December 31, 2021 and 2020, respectively, and are recognized in the Company's Consolidated Balance Sheet in other assets.

During 2021, as part of the acquisition of Meridian, the Company made the decision to exit several branch locations.

As a result of these closures, the Company recognized an impairment charge of $ 2.3 million , which was included within merger and acquisition expense in the Consolidated Statement of Income.

During 2020, the Company made the decision to exit two branch locations, resulting in an impairment charge of $ 4.2 million reflecting accelerated lease termination costs and the write-off of leasehold improvements associated with the locations.

The Company's right-of-use asset related to operating leases totaled $ 58.9 million and $ 60.2 million at December 31, 2022 and 2021, respectively, and is recognized in the Company's Consolidated Balance Sheet within other assets.

When a decision is made to exit a leased location, the Company may perform a review for lease impairment and/or recognize termination costs associated with the exit.

As a result of such exited locations, the Company recognized $ 4.4 million in termination costs during the year ended December 31, 2022, and impairment charges of $ 2.3 million and $ 4.2 million for the years ended December 31, 2021 and 2020, respectively.

Exited locations related to the Meridian acquisition were recorded within merger and acquisition expense in the consolidated income statement.

The following table provides information related to the Company's lease costs for the periods indicated:

9 unchanged sentences

(1) Operating lease cost for the years ended December 31, 2021 and 2020, respectively, is inclusive of impairment charges recognized by the Company in relation to branch closure decisions made during each year.

There were no impairment charges recognized by the Company in the year ended December 31, 2022.

The following table sets forth the undiscounted cash flows of base rent related to operating leases outstanding at December 31, 2022 with payments scheduled over the next five years and thereafter, including a reconciliation to the operating lease liability recognized in the Company's Consolidated Balance Sheet in other liabilities:

5 unchanged sentences

Present value of future minimum lease payments $ 60,707

(1) These amounts are inclusive of termination payments associated with branch closure decisions made during 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

balance sheet items as calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

At December 31, 2022 the most recent notification from the Federal Deposit Insurance Corporation indicated that the Bank's capital levels met or exceeded the minimum levels to be considered "well capitalized" for bank regulatory purposes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables.

To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables.

There are no conditions or events since the notification that management believes have changed the Bank’s category.

44 unchanged sentences

At both December 31, 2022 and 2021, there were $ 61.0 million in trust preferred securities that have been included within total capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

As a result of the Meridian acquisition in the fourth quarter of 2021 and the Company exceeding $15 billion in consolidated assets, these trust preferred securities were given Tier 2 capital treatment as of December 31, 2021, as compared to Tier 1 capital treatment as of December 31, 2020.

For regulatory purposes, bank holding companies are allowed to include trust preferred securities in Tier 1 capital up to a certain limit.

Accordingly, as the Company’s 2021 acquisition of Meridian resulted in the crossing of $15 billion in its consolidated assets, its trust preferred securities were phased out of Tier 1 capital and included within Tier 2 capital as of December 31, 2021, in accordance with applicable regulatory guidance.

All obligations under these trust preferred securities are unconditionally guaranteed by the Company.

NOTE 20 PARENT COMPANY FINANCIAL STATEMENTS

1 unchanged sentence

The statement of stockholders’ equity is not presented below as the parent company’s stockholders’ equity is that of the consolidated Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

BALANCE SHEETS

4 unchanged sentences

Deferred tax asset 453 472

Other assets (2) 2,297 —

Total assets $ 3,025,433 $ 3,168,653

1 unchanged sentence

Dividends payable $ 25,103 $ 22,728

Long-term borrowings (less unamortized debt issuance costs of $ 0 and $ 40 )

14,063 32,773

Long-term borrowings — 14,063

Junior subordinated debentures (less unamortized debt issuance costs of $ 33 and $ 35 )

2 unchanged sentences

49,885 49,791

Derivative instruments (1) — 569

Other liabilities 889 769

4 unchanged sentences

(2) Majority of balance eliminates in consolidation .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

STATEMENTS OF INCOME

5 unchanged sentences

Interest expense 4,626 4,493 5,432

Other expenses 1,680 — —

Total expenses 6,306 4,493 5,432

17 unchanged sentences

Change in other liabilities 143 ( 1,873 ) ( 169 )

Deficit (equity) in undistributed income of subsidiaries ( 46,571 ) 40,933 10,641

(Equity) deficit in undistributed income of subsidiaries ( 59,131 ) ( 46,571 ) 40,933

Net cash provided by operating activities 204,326 72,468 161,892

Cash flows provided by (used in) investing activities

Net cash acquired (paid) in business combinations 119,816 — ( 148,297 )

Net cash provided by (used) in investing activities 119,816 — ( 148,297 )

Cash flows provided by (used in) financing activities

Proceeds from line of credit, net of issuance costs — — 49,980

Repayment of line of credit, net of issuance costs — — ( 49,980 )

Proceeds from (repayments of) long-term debt, net of issuance costs ( 18,750 ) ( 42,187 ) 74,867

Repayments of junior subordinated debentures, net of issuance costs — — ( 13,329 )

Proceeds from issuance of subordinated debentures, net of issuance costs — — 49,526

Repayments of subordinated debentures, net of issuance costs — — ( 34,767 )

Cash flows provided by investing activities

Net cash acquired in business combinations — 119,816 —

Net cash provided by in investing activities — 119,816 —

Cash flows used in financing activities

Repayments of long-term debt, net of issuance costs ( 14,063 ) ( 18,750 ) ( 42,187 )

Restricted stock awards issued, net of awards surrendered ( 1,084 ) ( 1,249 ) ( 1,187 )

3 unchanged sentences

Common dividends paid ( 93,734 ) ( 62,736 ) ( 60,840 )

Net cash provided by (used in) financing activities ( 80,769 ) ( 196,976 ) 26,792

Net increase (decrease) in cash and cash equivalents 111,515 ( 35,084 ) 71,432

Net cash used in financing activities ( 246,468 ) ( 80,769 ) ( 196,976 )

Net (decrease) increase in cash and cash equivalents ( 42,142 ) 111,515 ( 35,084 )

Cash and cash equivalents at the beginning of the year 212,119 100,604 135,688

Cash and cash equivalents at the end of the year $ 169,977 $ 212,119 $ 100,604

(1) Reflected in this line for the year ended December 31, 2020 is a noncash adjustment which decreased prepaid income taxes and increased investment in subsidiary by $ 30.1 million, which represents a reallocation of a tax asset from the parent to the bank subsidiary.

NOTE 21 TRANSACTIONS WITH RELATED PARTIES

5 unchanged sentences

The following information represents annual activity of loans to related parties for the periods indicated:

2022 2021 2020

(Dollars in thousands)

2 unchanged sentences

Loan payments/payoffs ( 43,147 ) ( 39,293 ) ( 74,795 )

Reduction for retired directors and/or changes in director status ( 15,592 ) — —

Principal balance of loans outstanding at end of year $ 26,721 $ 45,033 $ 26,343

6 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data