INDB filing — read by section

Item 7. Management’s Discussion and Analysis

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 
 The Company is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust, a Massachusetts trust company chartered in 1907. For a full list of corporate entities see Item 1 "Business — General." 
 
 All material intercompany balances and transactions have been eliminated in consolidation. When necessary, certain amounts in prior year financial statements have been reclassified to conform to the current year’s presentation. The following should be read in conjunction with the Consolidated Financial Statements and related notes. 
 
 Executive Level Overview 
 
 Management evaluates the Company's operating results and financial condition using measures that include net income, earnings per share, return on assets and equity, return on tangible common equity, net interest margin, tangible book value per share, asset quality indicators, and many others. These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results. The Company maintains an asset-sensitive profile and, accordingly, has benefited from recent interest rate increases. While asset quality remains strong, management is closely monitoring the economic environment, including elevated inflationary pressures, supply chain issues, and labor shortages being experienced in the current operating environment across various industries. The Company focuses on organic growth, but will also consider growth through acquisition. Any potential acquisition opportunities are evaluated for the potential to provide a satisfactory financial return as well as other criteria (ease of integration, synergies, geographical location). Recent acquisitions include Meridian Bancorp, Inc. ("Meridian") and its subsidiary, East Boston Savings Bank ("EBSB"), which closed in the fourth quarter of 2021. 
 
 2022 Results 
 
 Net income for the year ended December 31, 2022 was $263.8 million, or $5.69 on a diluted earnings per share basis, as compared to $121.0 million, or $3.47 on a diluted earnings per share basis for the year ended December 31, 2021, representing increases of 118.0% and 64.0%, respectively. Full year 2022 results reflect pre-tax merger and acquisition-related costs of $7.1 million associated with the Meridian acquisition, as compared to $40.8 million of such costs during the same prior year period. Excluding these merger and acquisition-related costs, operating net income was $268.9 million, or $5.80 on a diluted per share 
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 basis, for the year ended December 31, 2022, as compared to $187.6 million, or $5.38 on a diluted per share basis for the year ended December 31, 2021, representing increases of 43.3% and 7.8%, respectively. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures. 
 
 Full year 2022 results reflected the following key drivers: 
 
 • Improvement in the net interest margin of 44 basis points; 
 • 4.1% net loan growth, excluding Paycheck Protection Program ("PPP") runoff; 
 • Deployment of excess cash balances into investment portfolio and paydowns of outstanding borrowings; 
 • Low deposit betas, with total cost of deposits contained at 15 basis points for the year; 
 • Relatively modest provision for credit loss, reflecting increase in nonperforming assets and a specific reserve allocation; 
 • Strong fee income; 
 • 51% efficiency ratio for the year; and 
 • Completion of the Company's share repurchase program announced in January 2022, resulting in the repurchase of 1.8 million shares for approximately $140 million. 
 
 Interest-Earning Assets 
 
 The results depicted in the following table reflect the trend of the Company's interest-earning assets over the past five years and reflect a longer term overall strategy that typically emphasizes loan growth commensurate with overall economic growth. Compared to the prior year, the composition of interest-earnings assets at December 31, 2022 primarily reflects reduced cash balances driven largely by decreased deposit balances and additional securities purchases. The following table summarizes the Company's interest-earning assets as of December 31st for each year presented: 
 
 Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. In addition, management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and credit losses. 
 
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 Funding and the Net Interest Margin 
 
 The Company's overall sources of funding reflect strong business and retail deposit growth with a management emphasis on core deposit growth to fund loans. The following chart shows the sources of funding and the percentage of core deposits to total deposits as of December 31st for the trailing five years: 
 
 The following table shows the net interest margin and cost of deposits trends for the trailing five year period: 
 
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 Noninterest Income 
 
 Noninterest income is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income. The following chart shows the components of noninterest income over the past five years: 
 
 Expense Control 
 
 Management seeks to take a balanced approach to noninterest expense control by monitoring ongoing operating expenses while making needed capital expenditures and prudently investing in growth initiatives. The Company’s primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment. 
 
 The following chart depicts the Company's efficiency ratio on a GAAP basis (calculated by dividing noninterest expense by the sum of noninterest income and net interest income), as well as the Company's efficiency ratio on a non-GAAP operating basis, (calculated by dividing noninterest expense, excluding certain noncore items, by the sum of noninterest income, excluding certain noncore items, and net interest income) over the past five years: 
 
 *See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures. 
 
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 Capital 
 
 The Company's approach with respect to revenue and expense is designed to promote long-term earnings growth, which in turn contributes to capital growth. Strong earnings retention has contributed to capital growth, both on an absolute level and per share basis, which has been offset in the last year by share repurchases and other comprehensive losses. The following chart shows the Company's book value and tangible book value per share over the past five years: 
 
 *See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures. 
 
 Cash dividends declared by the Company increased from an aggregate of $1.92 per share in 2021 to $2.08 per share in 2022, representing an increase of 8.3%. In 2022, the Company repurchased a total of 1.8 million shares of its common stock at an average price of $78.32 under the January 2022 program which was completed in the third quarter of 2022. In consideration of the Company's strong current capital position, on October 20, 2022 the Company announced a new share repurchase program, which authorizes repurchases by the Company of up to $120 million in common stock. The new plan will be in effect through October 19, 2023 and no repurchases had been executed by the Company under the plan as of December 31, 2022. 
 
 Non-GAAP Measures 
 
 When management assesses the Company’s financial performance for purposes of making day-to-day and strategic decisions, it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and noninterest or fee income, reduced by operating expenses, the provision for credit losses, and the impact of income taxes and other noncore items shown in the table that follows. There are items that impact the Company's results that management believes are unrelated to its core banking business such as gains or losses on the sales of securities, merger and acquisition expenses, provision for credit losses on acquired portfolios, loss on extinguishment of debt, impairment, and other items, such as one-time adjustments as a result of changes in laws and regulations. Management, therefore, excludes items management considers to be noncore when computing the Company’s non-GAAP operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis. Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items. 
 
 Management also supplements its evaluation of financial performance with an analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or tangible common equity, by common shares outstanding) and with the Company's tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets) which are non-GAAP measures. The Company has included information on these tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends. The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry. 
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 These non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. The Company’s non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies. 
 
 The following table summarizes the impact of noncore items on net income and reconciles non-GAAP net operating earnings to net income available to common shareholders for the periods indicated: 
 
 Years Ended December 31 
 Net Income Diluted Earnings Per Share 
 2022 2021 2022 2021 
 (Dollars in thousands, except per share data) 
 
 Net income available to common shareholders (GAAP) $ 263,813 $ 120,992 $ 5.69 $ 3.47 
 Non-GAAP adjustments 
 Provision for non-PCD acquired loans — 50,705 — 1.45 
 
 Noninterest expense components 
 
 Add: merger and acquisition expenses 7,100 40,840 0.15 1.17 
 
 Noncore increases to income before taxes 7,100 91,545 0.15 2.62 
 Net tax benefit associated with noncore items (1) (1,995) (24,899) (0.04) (0.71) 
 
 Noncore increases to net income $ 5,105 $ 66,646 $ 0.11 $ 1.91 
 Net operating earnings (Non-GAAP) $ 268,918 $ 187,638 $ 5.80 $ 5.38 
 
 (1) The net tax benefit associated with noncore items is determined by assessing whether each noncore item is included or excluded from net taxable income and applying the Company's combined marginal tax rate only to those items included in net taxable income. 
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 The following table summarizes the impact of noncore items with respect to the Company's total revenue, noninterest income as a percentage of total revenue, and the efficiency ratio for the periods indicated: 
 
 Years Ended December 31 
 2022 2021 2020 2019 2018 
 (Dollars in thousands) 
 Net interest income $ 613,249 $ 401,559 $ 367,728 $ 393,135 $ 298,165 (a) 
 
 Noninterest income (GAAP) $ 114,667 $ 105,850 $ 111,440 $ 115,294 $ 88,505 (b) 
 Less: 
 
 Gain on sale of loans — — — 951 — 
 
 Noninterest income on an operating basis (non-GAAP) $ 114,667 $ 105,850 $ 111,440 $ 114,343 $ 88,505 (c) 
 
 Noninterest expense (GAAP) $ 373,662 $ 332,529 $ 273,832 $ 284,321 $ 225,969 (d) 
 Less: 
 
 Loss on termination of derivatives — — 684 — — 
 Merger and acquisition expenses 7,100 40,840 — 26,433 11,168 
 
 Noninterest expense on an operating basis (non-GAAP) $ 366,562 $ 291,689 $ 273,148 $ 257,888 $ 214,801 (e) 
 
 Total revenue (GAAP) $ 727,916 $ 507,409 $ 479,168 $ 508,429 $ 386,670 (a+b) 
 Total operating revenue (non-GAAP) $ 727,916 $ 507,409 $ 479,168 $ 507,478 $ 386,670 (a+c) 
 
 Ratios 
 Noninterest income as a % of revenue 15.75 % 20.86 % 23.26 % 22.68 % 22.89 % (b/(a+b)) 
 Noninterest income as a % of revenue on an operating basis (non-GAAP) 15.75 % 20.86 % 23.26 % 22.53 % 22.89 % (c/(a+c)) 
 Efficiency ratio (GAAP) 51.33 % 65.53 % 57.15 % 55.92 % 58.44 % (d/(a+b)) 
 Efficiency ratio on an operating basis (non-GAAP) 50.36 % 57.49 % 57.00 % 50.82 % 55.55 % (e/(a+c)) 

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 The following table summarizes the calculation of the Company's tangible common equity ratio and tangible book value per share for the periods indicated: 
 
 Years Ended December 31 
 2022 2021 2020 2019 2018 
 (Dollars in thousands, except per share data) 
 Tangible common equity 
 Stockholders’ equity $ 2,886,701 $ 3,018,449 $ 1,702,685 $ 1,708,143 $ 1,073,490 (a) 
 Less: Goodwill and other intangibles 1,010,140 1,017,844 529,313 535,492 271,355 
 Tangible common equity (Non-GAAP) 1,876,561 2,000,605 1,173,372 1,172,651 802,135 (b) 
 Tangible assets 
 Assets (GAAP) 19,294,174 20,423,405 13,204,301 11,395,165 8,851,592 (c) 
 Less: Goodwill and other intangibles 1,010,140 1,017,844 529,313 535,492 271,355 
 Tangible assets (Non-GAAP) $ 18,284,034 $ 19,405,561 $ 12,674,988 $ 10,859,673 $ 8,580,237 (d) 
 
 Common shares 45,641,238 47,349,778 32,965,692 34,377,388 28,080,408 (e) 
 
 Common equity to assets ratio (GAAP) 14.96 % 14.78 % 12.89 % 14.99 % 12.13 % (a/c) 
 Tangible common equity to tangible assets ratio (Non-GAAP) 10.26 % 10.31 % 9.26 % 10.80 % 9.35 % (b/d) 
 Book value per share (GAAP) $ 63.25 $ 63.75 $ 51.65 $ 49.69 $ 38.23 (a/e) 
 Tangible book value per share (Non-GAAP) $ 41.12 $ 42.25 $ 35.59 $ 34.11 $ 28.57 (b/e) 

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 SELECTED FINANCIAL DATA 
 
 The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere herein. 
 
 Table 1 - Selected Financial Data 
 
 As of or for the Years Ended December 31 
 2022 2021 2020 2019 2018 
 (Dollars in thousands, except per share data) 
 Financial condition data 
 Securities $ 3,129,281 $ 2,664,859 $ 1,162,317 $ 1,190,670 $ 1,075,223 
 Loans 13,928,675 13,587,286 9,392,866 8,873,639 6,906,194 
 Allowance for credit losses (152,419) (146,922) (113,392) (67,740) (64,293) 
 Goodwill and other intangibles 1,010,140 1,017,844 529,313 535,492 271,355 
 Total assets 19,294,174 20,423,405 13,204,301 11,395,165 8,851,592 
 Deposits 15,879,007 16,917,044 10,993,170 9,147,367 7,427,120 
 Borrowings 113,377 152,374 181,060 303,103 258,707 
 Stockholders’ equity 2,886,701 3,018,449 1,702,685 1,708,143 1,073,490 
 Nonperforming loans 54,881 27,820 66,861 48,049 45,418 
 Nonperforming assets 54,881 27,820 66,861 48,049 45,418 
 Operating data 
 Interest income $ 642,840 $ 415,276 $ 402,069 $ 447,014 $ 323,701 
 Interest expense 29,591 13,717 34,341 53,879 25,536 
 Net interest income 613,249 401,559 367,728 393,135 298,165 
 Provision for credit losses 6,500 18,205 52,500 6,000 4,775 
 Noninterest income 114,667 105,850 111,440 115,294 88,505 
 Noninterest expenses 373,662 332,529 273,832 284,321 225,969 
 Net income 263,813 120,992 121,167 165,175 121,622 
 Per share data 
 Net income — basic $ 5.69 $ 3.47 $ 3.64 $ 5.03 $ 4.41 
 Net income — diluted 5.69 3.47 3.64 5.03 4.40 
 Cash dividends declared 2.08 1.92 1.84 1.76 1.52 
 Book value 63.25 63.75 51.65 49.69 38.23 
 Tangible book value (1) 41.12 42.25 35.59 34.11 28.57 
 Performance ratios 
 Return on average assets 1.33 % 0.81 % 0.96 % 1.52 % 1.46 % 
 Return on average common equity 9.05 % 6.34 % 7.13 % 10.85 % 12.31 % 
 Net interest margin (on a fully tax equivalent basis) 3.46 % 3.02 % 3.29 % 4.04 % 3.91 % 
 Dividend payout ratio 35.53 % 51.85 % 50.21 % 32.25 % 33.03 % 
 Asset quality ratios 
 Nonperforming loans as a percent of gross loans 0.39 % 0.20 % 0.71 % 0.54 % 0.66 % 
 Nonperforming assets as a percent of total assets 0.28 % 0.14 % 0.51 % 0.42 % 0.51 % 
 Allowance for credit losses as a percent of total loans 1.09 % 1.08 % 1.21 % 0.76 % 0.93 % 
 Allowance for credit losses as a percent of nonperforming loans 277.73 % 528.12 % 169.59 % 140.98 % 141.56 % 
 Capital ratios 
 Equity to assets 14.96 % 14.78 % 12.89 % 14.99 % 12.13 % 
 Tangible equity to tangible assets (1) 10.26 % 10.31 % 9.26 % 10.80 % 9.35 % 
 Tier 1 leverage capital ratio 10.99 % 12.03 % 9.56 % 11.28 % 10.69 % 
 Common equity tier 1 capital ratio 14.33 % 14.30 % 12.67 % 12.86 % 11.92 % 
 Tier 1 risk-based capital ratio 14.33 % 14.30 % 13.34 % 13.53 % 12.99 % 
 Total risk-based capital ratio 16.11 % 16.04 % 15.13 % 14.83 % 14.45 % 

 (1) Represents a non-GAAP measurement. For reconciliation to GAAP measurement, see Item 7 " Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Level Overview - Non-GAAP Measures ". 
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 Financial Position 
 
 Securities Portfolio The Company's securities portfolio primarily consists of U.S. Treasury, U.S. government agency securities, agency mortgage-backed securities, agency collateralized mortgage obligations, and small business administration pooled securities. Also included in the Company's security portfolio are trading and equity securities related to certain employee benefit programs. The majority of these securities are investment grade debt obligations with average lives of five years or less. U.S. government agency securities entail a lesser degree of risk than loans made by the Bank by virtue of the guarantees that back them, require less capital under risk-based capital rules than noninsured or nonguaranteed mortgage loans, are more liquid than individual mortgage loans, and may be used to collateralize borrowings or other obligations of the Bank. The Bank views its securities portfolio as a source of income and liquidity. Interest and principal payments generated from securities provide a source of liquidity to fund loans and meet short-term cash needs. 
 
 Total securities increased by $464.4 million, or 17.4%, at December 31, 2022 as compared to December 31, 2021, reflecting $927.4 million of purchases, partially offset by unrealized losses of $155.0 million related to the available for sale portfolio, as well as paydowns, calls and maturities. The ratio of securities to total assets increased to 16.2% at December 31, 2022 as compared to 13.1% at December 31, 2021, reflecting the Company's strategy to deploy excess cash balances into investment securities. The Company estimates expected credit losses for its available for sale and held to maturity securities in accordance with the CECL methodology. Further details regarding the Company's measurement of expected credit losses on investment securities can be found in Note 1, "Summary of Significant Accounting Policies" within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 The following table sets forth the fair value of available for sale securities and the amortized cost of held to maturity securities along with the percentage distribution: 
 
 Table 2 - Securities Portfolio Composition 
 
 December 31 
 2022 2021 
 Amount Percent Amount Percent 
 (Dollars in thousands) 
 Fair value of securities available for sale 
 U.S. government agency securities $ 202,300 14.5 % $ 215,482 13.7 % 
 U.S. treasury securities 791,341 56.5 % 861,448 54.8 % 
 Agency mortgage-backed securities 313,688 22.4 % 363,933 23.2 % 
 Agency collateralized mortgage obligations 38,843 2.8 % 79,677 5.1 % 
 
 State, county and municipal securities 191 — % 203 — % 
 Single issuer trust preferred securities issued by banks — — % 491 — % 
 Pooled trust preferred securities issued by banks and insurers 1,034 0.1 % 1,000 0.1 % 
 Small business administration pooled securities 51,757 3.7 % 48,914 3.1 % 
 
 Total fair value of securities available for sale 1,399,154 100.0 % 1,571,148 100.0 % 
 Amortized cost of securities held to maturity 
 U.S. government agency securities 31,258 1.8 % 32,987 3.1 % 
 U.S. treasury securities 100,634 5.9 % 102,560 9.6 % 
 Agency mortgage-backed securities 898,927 52.8 % 493,012 46.2 % 
 Agency collateralized mortgage obligations 535,971 31.4 % 415,736 39.0 % 
 
 Single issuer trust preferred securities issued by banks 1,500 0.1 % 1,500 0.1 % 
 Small business administration pooled securities 136,830 8.0 % 21,023 2.0 % 
 
 Total amortized cost of securities held to maturity 1,705,120 100.0 % 1,066,818 100.0 % 
 Total $ 3,104,274 $ 2,637,966 

 The Company’s available for sale securities are carried at fair value and are categorized within the fair value hierarchy based on the observability of model inputs. Securities which require inputs that are both significant to the fair value measurement and unobservable are classified as level 3 within the fair value hierarchy. At December 31, 2022 and 2021, the Company had no securities categorized as level 3 within the fair value hierarchy. 
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 The following table sets forth the weighted average yield for each range of contractual maturities of the Bank’s held to maturity securities portfolio at December 31, 2022. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Weighted average yields in the table below have been calculated based on the amortized cost of the security. 
 
 Table 3 - Securities Portfolio, Weighted Average Yields 
 
 Within One Year One Year to Five Years Five Years to Ten Years Over Ten Years Total 
 Weighted Average Yield 
 (Dollars in thousands) 
 
 U.S. government agency securities — 0.5 % — — 0.5 % 
 U.S. Treasury securities — 1.2 % 1.3 % — 1.3 % 
 Agency mortgage-backed securities 2.0 % 3.2 % 2.4 % 3.2 % 2.8 % 
 Agency collateralized mortgage obligations — 3.2 % 2.0 % 1.6 % 1.7 % 
 
 Single issuer trust preferred securities issued by banks — — 8.3 % — 8.3 % 
 Small business administration pooled securities — — 2.3 % 4.1 % 4.0 % 
 
 Total 2.0 % 2.6 % 2.3 % 2.4 % 2.4 % 

 As of December 31, 2022, the weighted average life of the securities portfolio was 4.80 years and the modified duration was 4.20 years. 
 
 At December 31, 2022, the aggregate book value of securities issued by Fannie Mae and Freddie Mac exceeded 10% of stockholders' equity, accordingly the following table disclosed the aggregate book value and market value of these securities at December 31, 2022: 
 
 Table 4 - Aggregate Book Value and Market Value of Select Securities 
 
 Aggregate Book Value Aggregate Market Value 
 (Dollars in thousands) 
 Securities issued by: 
 Fannie Mae $ 928,188 $ 822,989 
 Freddie Mac 387,245 341,461 
 Total $ 1,315,433 $ 1,164,450 

 Residential Mortgage Loan Sales The Bank’s residential mortgage loans are generally originated in compliance with terms, conditions and documentation which permit the sale of such loans to investors in the secondary market. Loan sales in the secondary market provide funds for additional lending and other banking activities. Depending on market conditions, the Bank may sell the servicing of the sold loans for a servicing released premium, simultaneous with the sale of the loan. For the remainder of the sold loans for which the Company retains the servicing, a mortgage servicing asset is recognized. Additionally, as part of its asset/liability management strategy, the Bank may opt to retain certain adjustable rate and fixed rate residential real estate loan originations for its portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are found to be not accurate in all material respects. The Company incurred no material losses related to mortgage repurchases during the years ended December 31, 2022, 2021, and 2020. 
 
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 For the year ended December 31, 2022, a larger portion of new residential real estate closings were retained in the portfolio rather than sold into the secondary market as compared to prior year periods. The following table shows the total residential loans that were closed and whether the amounts were held in the portfolio or sold (or held for sale) in the secondary market for the periods indicated: 
 
 Table 5 - Closed Residential Real Estate Loans 
 
 Years Ended December 31 
 2022 2021 2020 
 (Dollars in thousands) 
 Held in portfolio $ 689,636 $ 411,850 $ 223,544 
 Sold or held for sale in the secondary market 84,059 756,025 885,778 
 Total closed loans $ 773,695 $ 1,167,875 $ 1,109,322 

 The table below reflects additional information related to loans which were sold during the periods indicated: 
 
 Table 6 - Residential Mortgage Loan Sales 
 
 Years Ended December 31 
 2022 2021 2020 
 (Dollars in thousands) 
 Sold with servicing rights released $ 103,221 $ 772,234 $ 816,996 
 Sold with servicing rights retained (1) 863 11,116 45,830 
 Total loans sold $ 104,084 $ 783,350 $ 862,826 

 (1) All loans sold with servicing rights retained during the years ended December 31, 2022 and 2021 were sold without recourse. 
 
 When a loan is sold, the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneously with the sale of the loan, or the Company may opt to sell the loan and retain the servicing. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the Consolidated Balance Sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was $327.5 million at December 31, 2022 and $382.6 million at December 31, 2021. 
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 The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated: 
 
 Table 7 - Mortgage Servicing Asset 
 
 2022 2021 
 (Dollars in thousands) 
 Beginning balance $ 2,627 $ 2,365 
 Additions 8 95 
 Acquired portfolio — 493 
 Amortization (649) (1,011) 
 Change in valuation allowance 961 685 
 Ending balance $ 2,947 $ 2,627 

 See Note 10, "Derivatives and Hedging Activities," within the Notes to Consolidated Financial Statements included in Item 8 of this Report for more information on mortgage activity and mortgage related derivatives. 
 
 Loan Portfolio The Company’s loan portfolio at December 31, 2022 increased by $341.4 million, or 2.5%, when compared to December 31, 2021. Excluding $207.1 million of net paydowns associated with PPP loans during the twelve months ended December 31, 2022, the loan portfolio increased by $548.5 million, or 4.1%, compared to December 31, 2021. Organic loan growth was driven primarily by strong consumer loan activity, as the majority of residential real estate loan closings were retained on the balance sheet, while increased demand and line utilization fueled growth in home equity balances. Excluding the net reduction in PPP loans, the commercial portfolio increased $61.7 million, or 0.58% at December 31, 2022 in comparison to December 31, 2021, primarily driven by increased line utilization and higher closing volumes within the commercial and industrial category, which grew by $278.9 million, or 20.7%, which was partially offset by elevated levels of attrition within the commercial real estate portfolio. 
 
 The following table sets forth information concerning the composition of the Bank’s loan portfolio by loan type at the dates indicated: 
 Table 8 - Loan Portfolio Composition 
 
 December 31 
 2022 2021 
 (Dollars in thousands) 
 Amount Percent Amount Percent 
 Commercial and industrial $ 1,635,103 11.7 % $ 1,563,279 11.5 % 
 Commercial real estate 7,760,230 55.7 % 7,992,344 58.8 % 
 Commercial construction 1,154,413 8.3 % 1,165,457 8.6 % 
 Small business 219,102 1.6 % 193,189 1.4 % 
 Residential real estate 2,035,524 14.6 % 1,604,686 11.8 % 
 Home equity 1,088,750 7.8 % 1,039,611 7.7 % 
 Other consumer 35,553 0.3 % 28,720 0.2 % 
 Gross loans 13,928,675 100.0 % 13,587,286 100.0 % 
 Allowance for credit losses (152,419) (146,922) 
 Net loans $ 13,776,256 $ 13,440,364 

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 The following table sets forth the scheduled contractual amortization of the Bank’s loan portfolio at December 31, 2022. Loans having no schedule of repayments or no stated maturity are reported as being due in greater than five years. The following table also sets forth the rate structure of loans scheduled to mature after one year: 
 
 Table 9 - Scheduled Contractual Loan Amortization 
 
 December 31, 2022 
 Commercial and Industrial Commercial
Real Estate Commercial
Construction (1) Small
Business Residential
Real Estate 
 Home Equity Other Consumer Total 
 (Dollars in thousands) 
 Amounts due in: 
 One year or less $ 526,567 $ 1,159,234 $ 477,991 $ 38,963 $ 55,698 $ 94,447 $ 19,474 $ 2,372,374 
 After one year through five years 663,369 2,156,933 219,769 82,185 282,299 325,985 15,578 $ 3,746,118 
 After five years through fifteen years 421,478 3,256,757 329,968 97,750 856,133 668,319 500 $ 5,630,905 
 After fifteen years 23,689 1,187,305 126,685 204 841,395 — — $ 2,179,278 
 Total $ 1,635,103 $ 7,760,229 $ 1,154,413 $ 219,102 $ 2,035,525 $ 1,088,751 $ 35,552 $ 13,928,675 
 
 Interest rate terms on amounts due after one year: 
 Fixed rate $ 350,486 $ 2,563,703 $ 385,124 $ 132,453 $ 1,648,089 $ 292,014 $ 16,078 $ 5,387,947 
 Adjustable rate $ 758,050 $ 4,037,292 $ 291,298 $ 47,686 $ 331,738 $ 702,290 $ — $ 6,168,354 
 
 (1) Includes certain construction loans that will convert to commercial mortgages and will be reclassified to commercial real estate upon the completion of the construction phase. 
 
 Generally, the actual maturity of loans is substantially shorter than their contractual maturity due to prepayments and, in the case of real estate loans, due-on-sale clauses, which generally give the Bank the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage and the loan is not repaid. The average life of real estate loans tends to increase when current real estate loan rates are higher than rates on mortgages in the portfolio and, conversely, tends to decrease when rates on mortgages in the portfolio are higher than current real estate loan rates. Due to the fact that the Bank may, consistent with industry practice, renew a significant portion of commercial and commercial real estate loans at or immediately prior to their maturity by renewing the loans on substantially similar or revised terms, the principal repayments actually received by the Bank are anticipated to be significantly less than the amounts contractually due in any particular period. In other circumstances, a loan, or a portion of a loan, may not be repaid due to the borrower’s inability to satisfy the contractual obligations of the loan. 
 
 Asset Quality The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, nonperforming and/or put on nonaccrual status. In the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR"). In addition, in response to the COVID-19 pandemic, but prior to January 1, 2022, the Company offered need-based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit. In accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), these modifications are not accounted for as TDRs or reflected as delinquent or non-accrual loans if the borrower was in compliance with the loan terms as of December 31, 2019. 
 
 Delinquency The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and 
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 the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period. 
 
 Nonaccrual Loans As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses. 
 
 Troubled Debt Restructurings In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default. Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan. 
 
 It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or are delinquent for 90 days or more. Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it may be determined that the borrower is performing under modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring. 
 
 Purchased Credit Deteriorated Loans Purchased Credit Deteriorated ("PCD") loans are acquired loans which have shown a more-than-insignificant deterioration in credit quality since origination. PCD loans are recorded at amortized cost with an allowance for credit losses recorded upon purchase. 
 
 Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate owned ("OREO"). Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still accruing interest. 
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 The following table sets forth information regarding nonperforming assets held by the Bank at the dates indicated: 
 
 Table 10 - Nonperforming Assets 
 
 December 31 
 2022 2021 
 (Dollars in thousands) 
 Loans accounted for on a nonaccrual basis 
 Commercial and industrial $ 26,693 $ 3,439 
 Commercial real estate 15,730 10,870 
 Small business 104 44 
 Residential real estate 8,479 9,182 
 Home equity 3,400 3,781 
 Other consumer 475 504 
 
 Total nonperforming loans (1)(2) 54,881 27,820 
 
 Nonperforming loans as a percent of gross loans 0.39 % 0.20 % 
 Nonperforming assets as a percent of total assets 0.28 % 0.14 % 

 (1) Included in these amounts were nonaccrual TDRs of $11.5 million and $2.0 million at December 31, 2022 and 2021, respectively. 
 (2) There were no nonperforming loans that were not on nonaccrual status and no other real estate owned as of December 31, 2022 and 2021. 
 
 The following table summarizes the changes in nonperforming assets for the periods indicated: 
 
 Table 11 - Activity in Nonperforming Assets 
 
 2022 2021 
 (Dollars in thousands) 
 Nonperforming assets beginning balance $ 27,820 $ 66,861 
 Acquired nonperforming loans — 4,463 
 New to nonperforming 72,960 13,080 
 Loans charged-off (2,652) (4,944) 
 Loans paid-off /sold (35,622) (39,039) 
 
 Loans restored to accrual status (7,652) (13,068) 
 
 Other 27 467 
 Nonperforming assets ending balance $ 54,881 $ 27,820 

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 The following table sets forth information regarding TDR loans at the dates indicated: 
 
 Table 12 - Troubled Debt Restructurings 
 
 December 31 
 2022 2021 
 (Dollars in thousands) 
 Performing troubled debt restructurings $ 11,278 $ 14,635 
 Nonaccrual troubled debt restructurings 11,520 1,993 
 Total $ 22,798 $ 16,628 
 Performing troubled debt restructurings as a % of total loans 0.08 % 0.11 % 
 Nonaccrual troubled debt restructurings as a % of total loans 0.08 % 0.01 % 
 Total troubled debt restructurings as a % of total loans 0.16 % 0.12 % 

 The following table summarizes changes in TDRs for the periods indicated: 
 
 Table 13 - Activity in Troubled Debt Restructurings 
 
 2022 2021 
 (Dollars in thousands) 
 TDRs beginning balance $ 16,628 $ 39,192 
 New to TDR status 10,153 3,918 
 
 Paydowns/sold loans (3,983) (26,466) 
 Charge-offs — (16) 
 
 TDRs ending balance $ 22,798 $ 16,628 

 Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. The table below shows interest income that was recognized or collected on all nonaccrual loans and TDRs as of the dates indicated: 
 
 Table 14 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings 
 
 Years Ended December 31 
 2022 2021 2020 
 (Dollars in thousands) 
 The amount of incremental gross interest income that would have been recorded if nonaccrual loans had been current in accordance with their original terms $ 7,046 $ 2,721 $ 2,604 
 The amount of interest income on nonaccrual loans and performing TDRs that was included in net income $ 2,779 $ 895 $ 1,720 

 Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms. At December 31, 2022, there were 50 relationships, with an aggregate balance of $168.1 million, deemed to be potential problem loans. These potential problem loans continued to perform with respect to payments. Management actively monitors these loans and strives to minimize any possible adverse impact to the Company. 
 
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 As previously noted, the Company has offered need-based payment relief options to its customers in response to the COVID-19 pandemic, primarily in the form of payment deferrals, all of which were granted prior to January 1, 2022. Loans that were modified are not accounted for as TDRs or reflected as delinquent or nonaccrual loans if the borrower was in compliance with their loan terms as of December 31, 2019. The Company held $55.6 million of loans with active deferrals at December 31, 2022, of which $46.9 million are scheduled to mature during 2023. 
 
 Allowance for Credit Losses The allowance for credit losses is maintained at a level that management considers appropriate to provide for the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. The allowance is increased by providing for credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off. 
 
 In accordance with the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which is a reversion to the Company's historical long-run average for a period of six months. The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio. Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. 
 
 The allowance for credit losses of $152.4 million at December 31, 2022 represents an increase of $5.5 million, or 3.7% compared to December 31, 2021. 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 contributed to an overall higher quantitative allowance at December 31, 2022. This increase was offset partially by a stabilized credit environment and continued strong asset quality metrics experienced during the year. 
 
 Management's forecast anticipates that the federal funds rates will rise in the near term, that supply chain issues will persist, inflation will remain elevated, and the military conflict between Russia and Ukraine will persist for the foreseeable future, potentially impacting the production of chips, semiconductors and the supply chain more generally. The forecast used by management also anticipates that the U.S. economy will fall into a mild recession during the first quarter of 2023 and that the recession will persist for the short term. Additionally, the allowance for credit losses is qualitatively adjusted on a quarterly basis in order to ensure coverage for relationships that are deemed to be more at risk within certain industries, specific collateral types, or other specific characteristics that may be highly impacted by the current economic environment. 
 
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 The following table summarizes the ratio of net charge-offs to average loans outstanding within each major loan category for the periods presented: 
 
 Table 15 - Summary Net Charge-Offs to Average Loans Outstanding 
 
 Net Charge-Offs (Recoveries) Average Amount Outstanding Ratio of Annualized Net Charge-Offs/(Recoveries) to Average Loans 
 (Dollars in thousands) 
 December 31, 2022 
 Commercial and industrial $ (49) $ 1,538,848 — % 
 Commercial real estate (271) 7,807,427 — % 
 Commercial construction — 1,191,394 — % 
 Small business 47 204,982 0.02 % 
 Residential real estate — 1,831,493 — % 
 Home equity 1 1,061,228 — % 
 Other consumer 1,275 31,986 3.99 % 
 Total $ 1,003 $ 13,667,358 0.01 % 
 
 December 31, 2021 
 Commercial and industrial $ 788 $ 1,823,914 0.04 % 
 Commercial real estate (57) 4,702,346 — % 
 Commercial construction — 616,037 — % 
 Small business 121 180,473 0.07 % 
 Residential real estate (1) 1,286,470 — % 
 Home equity (180) 1,025,809 (0.02) % 
 Other consumer 544 23,885 2.28 % 
 Total $ 1,215 $ 9,658,934 0.01 % 
 
 December 31, 2020 
 Commercial and industrial $ 2,020 $ 1,858,951 0.11 % 
 Commercial real estate 3,876 4,070,462 0.10 % 
 Commercial construction — 561,431 — % 
 Small business 347 171,839 0.20 % 
 Residential real estate 103 1,435,655 0.01 % 
 Home equity (68) 1,116,005 (0.01) % 
 Other consumer 590 25,195 2.34 % 
 Total $ 6,868 $ 9,239,538 0.07 % 

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 For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for credit losses is made to each loan category using the analytical techniques and estimation methods described in this Report. While these amounts represent management’s best estimate of credit losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio. 
 
 The following table sets forth the allocation of the allowance for credit losses by loan category at the dates indicated: 
 Table 16 - Summary of Allocation of Allowance for Credit Losses 
 
 December 31 
 2022 2021 
 Allowance
Amount Percent of Loans In Category of Total Loans Allowance
Amount Percent of Loans In Category of Total Loans 
 (Dollars in thousands) 
 
 Commercial and industrial (1) $ 27,559 11.7 % $ 14,402 11.5 % 
 Commercial real estate 77,799 55.7 % 83,486 58.8 % 
 Commercial construction 10,762 8.3 % 12,316 8.6 % 
 Small business 2,834 1.6 % 3,508 1.4 % 
 Residential real estate 20,973 14.6 % 14,484 11.8 % 
 Home equity 11,504 7.8 % 17,986 7.7 % 
 Other consumer 988 0.3 % 740 0.2 % 
 Total $ 152,419 100.0 % $ 146,922 100.0 % 

 (1) Total loans in this category are inclusive of $9.1 million and $216.2 million in loans, at December 31, 2022 and 2021, respectively, which were originated as part of the PPP established by the CARES Act. These loans have been excluded from the credit loss calculations as these loans are 100% guaranteed by the U.S. Government. 
 
 To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of the Bank’s collateral, and the strength of co-makers or guarantors. When available information confirms that specific loans or portions thereof are uncollectible, these amounts are promptly charged-off against the allowance for credit losses and any recoveries of such previously charged-off amounts are credited to the allowance. 
 
 Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral. 
 
 For additional information regarding the Bank’s allowance for credit losses, see Note 1, "Summary of Significant Accounting Policies" and Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to the Consolidated Financial Statements included in Item 8 of this Report. 
 
 Federal Home Loan Bank Stock The Federal Home Loan Bank ("FHLB") is a cooperative that provides services to its member banking institutions. The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding as a tool to manage liquidity and interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company either purchases additional FHLB stock or is subject to redemption of FHLB stock proportional to the volume of funding received. The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. The Bank held an investment in FHLB of Boston, of $5.2 million and $11.4 million at December 31, 2022 and December 31, 2021, respectively, reflecting redemption activity occurring during 2022. 
 
 Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets were $1.0 billion at both December 31, 2022 and December 31, 2021, respectively. 
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 The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted. Accordingly, the Company last performed its annual goodwill impairment testing during the third quarter of 2022 and determined that the Company's goodwill was not impaired as of September 30, 2022. Other intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. There were no events or changes that indicated impairment of other intangible assets. For additional information regarding the goodwill and other intangible assets, see Note 6, "Goodwill and Other Intangible Assets " within the Notes to Consolidated Financial Statements included in Item 8 hereof. 
 
 Cash Surrender Value of Life Insurance Policies The Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans. The cash surrender value of life insurance policies was $293.3 million and $289.3 million at December 31, 2022 and December 31, 2021, respectively. 
 
 The Company recorded tax exempt income from life insurance policies in the amounts of $7.7 million, $6.4 million, and $5.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company also recorded gains on life insurance benefits of $1.3 million, $258,000, and $1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. 
 
 Deposits At December 31, 2022, total deposits were $15.9 billion, representing a decrease of $1.0 billion, or 6.1% compared to December 31, 2021, fueled by a combination of overall reductions in excess customer liquidity and market pricing pressures in the rising rate environment . The total cost of deposits was 0.15% for the year ended December 31, 2022, representing an increase from the prior year of eight basis points. As part of a strategy to contain its cost of deposits, the Company strives to maintain elevated levels of core deposit balances relative to total deposit balances. The Company's ratio of core deposits to total deposits increased to 87.9% at December 31, 2022 from 84.5% at December 31, 2021. 
 
 In addition to its core deposits, the Company also participates in the IntraFi Network, allowing the Bank to provide easy access to multi-million dollar Federal Deposit Insurance Corporation ("FDIC") deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities. This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market and amounted to $653.6 million and $998.1 million in deposits, at December 31, 2022 and December 31, 2021, respectively. In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to $102.6 million and $141.6 million, at December 31, 2022 and December 31, 2021, respectively. 
 
 Scheduled maturities of time deposits not covered by deposit insurance at December 31, 2022, were as follows: 
 
 Table 17 - Maturities of Uninsured Time Deposits 
 
 December 31, 2022 
 (Dollars in thousands) 
 Due within 3 months or less $ 44,098 
 Due after 3 months through 6 months 37,861 
 Due after 6 months through 12 months 55,234 
 Due after 12 months 106,245 
 Total uninsured deposits (1) 243,438 

 (1) Amounts of uninsured time deposits presented in the table above are estimates determined based upon a relative proportion of customer account balances in excess of FDIC insurance limits, and in a manner consistent with the Company's regulatory reporting requirements. 
 
 Borrowings The Company's borrowings typically consist of both short-term and long-term borrowings and provide the Bank with one of its primary sources of funding. Maintaining available borrowing capacity provides the Bank with a contingent source of liquidity. Borrowings decreased by $39.0 million, or 25.6%, at December 31, 2022, as compared to December 31, 2021, due primarily to the re-payment of a revolving loan credit facility during the first quarter of 2022 and the maturity of a short term FHLB borrowing during the third quarter of 2022. See Note 8, "Borrowings" within the Notes to Consolidated Financial Statements included in Item 8 of this Report for more information regarding borrowings. 
 
 Liquidity and Capital Resources The Company proactively manages its liquidity and cash flow requirements with the intent to maintain stable, cost-effective funding and to promote the strength of its overall balance sheet. The liquidity position of the Company is continuously monitored by management and adjustments are made to appropriately balance sources and uses of funds, as needed. For further details surrounding the Company’s liquidity risks and related strategy, see “Risk Management 
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 – Liquidity Risk” section below within Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Report. 
 
 The Federal Reserve Board ("Federal Reserve"), the FDIC, and other regulatory agencies have established risk-based capital guidelines for banks and bank holding companies that require banks to meet a minimum Common Equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0% and a total capital ratio of 8.0%. A minimum requirement of 4.0% Tier 1 leverage capital is also mandated. In addition, the Company is required to maintain a minimum capital conservation buffer of 2.5%, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. At December 31, 2022, the Company and the Bank exceeded the minimum requirements for Common Equity Tier 1 capital, Tier 1 capital, total capital, and Tier 1 leverage capital, inclusive of the capital conservation buffer. See Note 19, "Regulatory Matters " within the Notes to Consolidated Financial Statements included in Item 8 of this Report for more information regarding capital requirements. 
 
 Investment Management 
 
 The Company's Investment Management Group provides investment management and trust services to individuals, institutions, small businesses, and charitable institutions. 
 
 Accounts maintained by the Investment Management Group consist of managed and nonmanaged accounts. Managed accounts are those for which the Bank is responsible for administration and investment management and/or investment advice, while nonmanaged accounts are those for which the Bank acts solely as a custodian or directed trustee. The Bank receives fees dependent upon the level and type of service(s) provided. The Investment Management Group generated gross fee revenues of $32.8 million, $31.6 million, and $27.2 million for the year ended December 31, 2022, 2021, and 2020, respectively. Total assets under administration as of December 31, 2022 were $5.8 billion, including $603.7 million of investment solutions designed by Rockland Trust that are administered and executed through its agreement with LPL Financial ("LPL"), compared to $5.7 billion and $372.2 million, respectively, at December 31, 2021. The Company also has a subsidiary that is a registered investment advisor, Bright Rock Capital Management, LLC, which provides institutional quality investment management services to both institutional and high net worth clients. As of December 31, 2022 and December 31, 2021, included in the assets under administration amounts above, there were $390.1 million and $447.4 million, respectively, relating to the Company's registered investment advisor. 
 
 The administration of trust and fiduciary accounts is monitored by the Trust Committee of the Bank’s Board of Directors. The Trust Committee has delegated administrative responsibilities to three committees, one for investments, one for administration, and one for operations, all of which are comprised of Investment Management Group officers who meet no less than quarterly. 
 
 The Bank has an agreement with LPL and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., to offer the sale of mutual fund shares, unit investment trust shares, general securities, advisory platforms, fixed and variable annuities and life insurance. Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base. These same agents are also approved and appointed with various other Broker General Agents for the purposes of processing insurance solutions for clients. The retail investments and insurance group generated gross fee revenues of $4.1 million, $3.7 million, and $2.3 million for the years ended December 31, 2022, 2021, and 2020, respectively. 
 
 Results of Operations 
 Table 18 - Summary of Results of Operations 
 
 Years Ended December 31 
 2022 2021 
 (Dollars in thousands, except per share data) 
 Net income $ 263,813 $ 120,992 
 Diluted earnings per share $ 5.69 $ 3.47 
 Return on average assets 1.33 % 0.81 % 
 Return on average equity 9.05 % 6.34 % 
 Stockholders' equity as % of assets 14.96 % 14.78 % 
 Net interest margin 3.46 % 3.02 % 

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 Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities. 
 
 On a fully tax-equivalent basis, net interest income was $617.3 million for the year ended December 31, 2022, representing a 53.2% increase from net interest income of $402.9 million for the year ended December 31, 2021. The year-over-year increase in net interest income was primarily attributable to the full year impact of the Meridian acquisition which closed during the fourth quarter of 2021, along with the positive impact of asset repricing in the rising rate environment in conjunction with relatively stable funding costs. 
 
 The following table presents the Company’s average balances, net interest income, interest rate spread, and net interest margin for the years ended December 31, 2022, 2021 and 2020. Nontaxable income from loans and securities is presented on a fully tax-equivalent basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing federal income taxes that would have been paid if the income had been fully taxable. 
 Table 19 - Average Balance, Interest Earned/Paid & Average Yields 
 
 Years Ended December 31 
 2022 2021 2020 
 Average Balance Interest Earned/ Paid Average Yield Average Balance Interest Earned/ Paid Average Yield Average Balance Interest Earned/ Paid Average Yield 
 (Dollars in thousands) 
 Interest-earning assets 
 Interest-earning deposits with banks, federal funds sold, and short term investments $ 1,222,434 $ 14,385 1.18 % $ 1,864,346 $ 2,494 0.13 % $ 748,419 $ 847 0.11 % 
 Securities 
 Securities - trading 3,764 — — % 3,344 — — % 2,481 — — % 
 Securities - taxable investments 2,948,358 50,354 1.71 % 1,795,199 30,477 1.70 % 1,164,439 30,133 2.59 % 
 Securities - nontaxable investments (1) 196 7 3.57 % 469 20 4.26 % 1,142 44 3.85 % 
 Total securities 2,952,318 50,361 1.71 % 1,799,012 30,497 1.70 % 1,168,062 30,177 2.58 % 
 Loans held for sale 4,774 172 3.60 % 34,056 856 2.51 % 44,521 1,218 2.74 % 
 Loans (2) 
 Commercial and industrial 1,538,848 77,074 5.01 % 1,823,914 79,752 4.37 % 1,858,951 70,335 3.78 % 
 Commercial real estate (1) 7,807,427 326,593 4.18 % 4,702,346 185,908 3.95 % 4,070,462 171,013 4.20 % 
 Commercial construction 1,191,394 57,804 4.85 % 616,037 24,696 4.01 % 561,431 22,950 4.09 % 
 Small business 204,982 10,886 5.31 % 180,473 9,276 5.14 % 171,839 9,529 5.55 % 
 Total commercial 10,742,651 472,357 4.40 % 7,322,770 299,632 4.09 % 6,662,683 273,827 4.11 % 
 Residential real estate 1,831,493 63,443 3.46 % 1,286,470 46,279 3.60 % 1,435,655 53,876 3.75 % 
 Home equity 1,061,228 44,048 4.15 % 1,025,809 35,160 3.43 % 1,116,005 40,996 3.67 % 
 Total consumer real estate 2,892,721 107,491 3.72 % 2,312,279 81,439 3.52 % 2,551,660 94,872 3.72 % 
 Other consumer 31,986 2,114 6.61 % 23,885 1,668 6.98 % 25,195 2,055 8.16 % 
 Total loans 13,667,358 581,962 4.26 % 9,658,934 382,739 3.96 % 9,239,538 370,754 4.01 % 
 Total Interest-Earning Assets 17,846,884 646,880 3.62 % 13,356,348 416,586 3.12 % 11,200,540 402,996 3.60 % 
 Cash and Due from Banks 184,812 152,723 125,896 
 Federal Home Loan Bank Stock 7,134 10,283 15,843 
 Other Assets 1,858,210 1,335,193 1,263,332 
 Total Assets $ 19,897,040 $ 14,854,547 $ 12,605,611 
 
 Interest-bearing liabilities 
 Deposits 
 Savings and interest checking accounts $ 6,159,289 $ 8,339 0.14 % $ 4,590,055 $ 1,610 0.04 % $ 3,688,360 $ 4,413 0.12 % 

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 Money market 3,489,981 11,683 0.33 % 2,516,871 1,930 0.08 % 2,041,853 6,166 0.30 % 
 Time certificates of deposits 1,310,442 4,630 0.35 % 936,046 4,787 0.51 % 1,155,399 16,754 1.45 % 
 Total interest bearing deposits 10,959,712 24,652 0.22 % 8,042,972 8,327 0.10 % 6,885,612 27,333 0.40 % 
 Borrowings 
 Federal Home Loan Bank borrowings 16,138 313 1.94 % 41,556 897 2.16 % 162,776 1,564 0.96 % 
 
 Long-term borrowings 2,235 31 1.39 % 21,072 331 1.57 % 54,082 1,176 2.17 % 
 Junior subordinated debentures 62,854 2,125 3.38 % 62,852 1,692 2.69 % 62,850 1,798 2.86 % 
 Subordinated debt 49,837 2,470 4.96 % 49,741 2,470 4.97 % 49,647 2,470 4.98 % 
 Total borrowings 131,064 4,939 3.77 % 175,221 5,390 3.08 % 329,355 7,008 2.13 % 
 Total interest-bearing liabilities 11,090,776 29,591 0.27 % 8,218,193 13,717 0.17 % 7,214,967 34,341 0.48 % 
 Noninterest-bearing demand deposits 5,559,997 4,443,410 3,386,140 
 Other liabilities 330,371 284,679 304,957 
 Total liabilities 16,981,144 12,946,282 10,906,064 
 Stockholders’ equity 2,915,896 1,908,265 1,699,547 
 Total liabilities and stockholders’ equity $ 19,897,040 $ 14,854,547 $ 12,605,611 
 Net interest income (1) $ 617,289 $ 402,869 $ 368,655 
 Interest rate spread (3) 3.35 % 2.95 % 3.12 % 
 Net interest margin (4) 3.46 % 3.02 % 3.29 % 
 Supplemental Information 
 Total deposits, including demand deposits $ 16,519,709 $ 24,652 $ 12,486,382 $ 8,327 $ 10,271,752 $ 27,333 
 Cost of total deposits 0.15 % 0.07 % 0.27 % 
 Total funding liabilities, including demand deposits $ 16,650,773 $ 29,591 $ 12,661,603 $ 13,717 $ 10,601,107 $ 34,341 
 Cost of total funding liabilities 0.18 % 0.11 % 0.32 % 

 (1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $4.0 million, $1.3 million, and $927,000 for 2022, 2021 and 2020, respectively. 
 (2) Includes average nonaccruing loans. 
 (3) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average costs of interest-bearing liabilities. 
 (4) Net interest margin represents net interest income as a percentage of average interest-earning assets. 
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 The following table presents certain information on a fully-tax equivalent basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate) and (3) changes in volume/rate (change in rate multiplied by change in volume) which is allocated to the change due to rate column: 
 Table 20 - Volume Rate Analysis 
 
 Years Ended December 31 
 2022 Compared To 2021 2021 Compared To 2020 2020 Compared To 2019 
 Change
Due to
Rate Change
Due to
Volume Total
Change Change
Due to
Rate Change
Due to
Volume Total
Change Change
Due to
Rate Change
Due to
Volume Total
Change 
 (Dollars in thousands) 
 Income on interest-earning assets 
 Interest-earning deposits, federal funds sold and short term investments $ 12,750 $ (859) $ 11,891 $ 384 $ 1,263 $ 1,647 $ (16,177) $ 14,817 $ (1,360) 
 Securities 
 
 Taxable securities 300 19,577 19,877 (15,979) 16,323 344 (1,926) (346) (2,272) 
 Nontaxable securities (1) (1) (12) (13) 2 (26) (24) (1) (21) (22) 
 Total securities 19,864 320 (2,294) 
 Loans held for sale 52 (736) (684) (76) (286) (362) 247 80 327 
 Loans 
 Commercial and industrial 9,787 (12,465) (2,678) 10,743 (1,326) 9,417 (34,030) 30,157 (3,873) 
 Commercial real estate 17,925 122,760 140,685 (11,652) 26,547 14,895 (28,243) 11,354 (16,889) 
 Commercial construction 10,043 23,065 33,108 (486) 2,232 1,746 (9,014) 4,701 (4,313) 
 Small business 350 1,260 1,610 (732) 479 (253) (900) 149 (751) 
 Total commercial 172,725 25,805 (25,826) 
 Residential real estate (2,442) 19,606 17,164 (1,999) (5,598) (7,597) (3,571) (1,928) (5,499) 
 Home equity 7,674 1,214 8,888 (2,523) (3,313) (5,836) (9,650) (518) (10,168) 
 Total consumer real estate 26,052 (13,433) (15,667) 
 Total other consumer (120) 566 446 (280) (107) (387) (85) (76) (161) 
 Loans (1) 199,223 11,985 (41,654) 
 Total $ 230,294 $ 13,590 $ (44,981) 
 Expense of interest-bearing liabilities 
 Deposits 
 Savings and interest checking accounts $ 6,179 $ 550 $ 6,729 $ (3,882) $ 1,079 $ (2,803) $ (5,473) $ 1,520 $ (3,953) 
 Money market 9,007 746 9,753 (5,670) 1,434 (4,236) (10,838) 1,869 (8,969) 
 Time certificates of deposits (2,072) 1,915 (157) (8,786) (3,181) (11,967) 415 (1,346) (931) 
 Total interest-bearing deposits 16,325 (19,006) (13,853) 
 Borrowings 
 Federal Home Loan Bank borrowings (35) (549) (584) 498 (1,165) (667) (2,479) (395) (2,874) 
 
 Line of credit — (104) (104) 
 Long-term borrowings (4) (296) (300) (127) (718) (845) (782) (115) (897) 
 
 Junior subordinated debentures 433 — 433 (106) — (106) (423) (167) (590) 
 Subordinated debt (5) 5 — (5) 5 — (144) (1,076) (1,220) 
 Total borrowings (451) (1,618) (5,685) 
 Total $ 15,874 $ (20,624) $ (19,538) 
 Change in net interest income $ 214,420 $ 34,214 $ (25,443) 

 (1) The table above reflects income determined on a fully tax equivalent basis. See footnotes to Table 19 above for the related adjustments. 
 
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 Provision For Credit Losses The provision for credit losses represents the charge to expense that is required to maintain an adequate level of allowance for credit losses. The Company's provision for credit losses totaled $6.5 million, $18.2 million and $52.5 million for the years ended December 31, 2022, 2021, and 2020, respectively. The provision for credit losses recorded for 2022 was largely attributable to an additional reserve allocation associated with a 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. The elevated provision for credit losses for the year ended December 31, 2021 was driven primarily by the initial provision required to establish an allowance for credit losses on non-purchased deteriorated loans acquired from Meridian in 2021, while the 2020 provision was driven primarily by anticipated credit losses associated with the COVID-19 pandemic. The Company’s allowance for credit losses, as a percentage of total loans, was 1.09%, 1.08% and 1.21% at December 31, 2022, 2021 and 2020, respectively. See Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Item 8 of this Report, for further details surrounding the primary drivers of the provision for credit losses during the period. 
 
 Noninterest Income The following table sets forth information regarding noninterest income for the periods shown: 
 Table 21 - Noninterest Income 
 
 Years Ended December 31 
 Change 
 2022 2021 Amount % 
 (Dollars in thousands) 
 Deposit account fees $ 23,370 $ 16,745 $ 6,625 39.6 % 
 Interchange and ATM fees 16,249 12,987 3,262 25.1 % 
 Investment management 36,832 35,308 1,524 4.3 % 
 Mortgage banking income 3,515 13,280 (9,765) (73.5) % 
 Increase in cash surrender value of life insurance policies 7,685 6,431 1,254 19.5 % 
 Gain on life insurance benefits 1,291 258 1,033 400.4 % 
 
 Loan level derivative income 2,932 3,257 (325) (10.0) % 
 Other noninterest income 22,793 17,584 5,209 29.6 % 
 Total $ 114,667 $ 105,850 $ 8,817 8.3 % 

 The primary reasons for significant variances in the noninterest income categories shown in the preceding table are noted below: 
 
 Deposit account fees and interchange and ATM fees increased year over year due primarily to increased transaction volume attributable to the larger customer base as a result of the Meridian acquisition. 
 
 Investment management revenue increased as a result of growth in overall assets under administration, which increased from $5.7 billion at December 31, 2021 to $5.8 billion at December 31, 2022, reflecting healthy new asset inflows and strong retail and insurance commission income, offset partially by a decline in market valuations. The income for 2022 was also inclusive of a one-time incentive of $649,000. 
 
 Mortgage banking income decreased in comparison to the prior year, due primarily to overall reduced activity resulting from increased interest rates, as well as elevated levels of new residential originations being retained in the Company's portfolio versus sold in the secondary market. 
 
 The cash surrender value of life insurance increased primarily due to the impact of policies acquired from Meridian. The Company also received elevated levels of proceeds on life insurance policies during 2022 resulting in an increase of $1.0 million compared to the prior year. 
 
 The changes in loan level derivative income primarily reflect customer demand during the respective periods. 
 
 Other noninterest income increased during the year, primarily due to increases in equipment rental income, gain on the sale of a closed branch facility which was consolidated in conjunction with the Meridian acquisition, discounted purchases of Massachusetts historical tax credits, and foreign currency exchange fees, offset partially by decreases in income from other investments, and income from like-kind exchanges. 
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 Noninterest Expense The following table sets forth information regarding noninterest expense for the periods shown: 
 Table 22 - Noninterest Expense 
 
 Years Ended December 31 
 Change 
 2022 2021 Amount % 
 (Dollars in thousands) 
 Salaries and employee benefits $ 204,711 $ 172,586 $ 32,125 18.6 % 
 Occupancy and equipment 49,841 36,265 13,576 37.4 % 
 Data processing and facilities management 9,320 6,899 2,421 35.1 % 
 FDIC assessment 6,951 3,980 2,971 74.6 % 
 
 Consulting 9,617 8,271 1,346 16.3 % 
 Amortization of intangible assets 7,655 5,715 1,940 33.9 % 
 Debit card expense 7,670 5,144 2,526 49.1 % 
 
 Merger & acquisitions 7,100 40,840 (33,740) (82.6) % 
 Software maintenance 10,961 8,149 2,812 34.5 % 
 Other noninterest expense 59,836 44,680 15,156 33.9 % 
 Total $ 373,662 $ 332,529 $ 41,133 12.4 % 

 The primary reasons for significant variances in the noninterest expense categories shown in the preceding tables are noted below: 
 
 The increase in salaries and employee benefits in comparison to the prior year was primarily attributable to the Company's increased workforce base following the Meridian acquisition. 
 
 Occupancy and equipment expense increased year-over-year, primarily driven by costs associated with the Company's expanded branch network, real estate and other fixed assets resulting from the Meridian acquisition as well as increased depreciation on leased equipment. 
 
 Data processing and facilities management expenses increased primarily due to the timing of certain initiatives and general increases associated with higher transaction volumes. 
 
 FDIC assessment expense increased in comparison to the prior year due primarily to an increased assessment base following the Meridian acquisition. 
 
 Consulting expense increased year-over-year in conjunction with the Company's overall growth and implementation of strategic initiatives. 
 
 The Company incurred merger and acquisition costs related to the Meridian acquisition of $7.1 million during the first quarter of 2022, primarily related to lease terminations associated with exited branch locations, along with additional integration costs and professional fees. Merger and acquisition expenses in 2021 were also attributable to the Meridian acquisition and largely comprised of change-in-control contracts, severance, branch closure and conversion costs, contract terminations costs and other integration costs. 
 
 Software maintenance increased primarily due to the Company's continued investment in its technology infrastructure. 
 
 Other noninterest expenses increased year-over year due primarily to increased advertising costs, customer fraud reimbursements, unrealized losses on equity securities, internet banking costs, insurance, telecommunications, and postage costs. 
 
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 Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes. The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated: 
 Table 23 - Tax Provision and Applicable Tax Rates 
 
 Years Ended December 31 
 2022 2021 2020 
 (Dollars in thousands) 
 Combined federal and state income tax provisions $ 83,941 $ 35,683 $ 31,669 
 Effective income tax rates 24.14 % 22.78 % 20.72 % 
 Blended Statutory tax rate 27.85 % 27.92 % 27.92 % 

 The Company’s effective tax rate for 2022 is higher as compared to the year ago period primarily due to higher pre-tax net income, as well as the impact of discrete items, such as provision to return adjustments, changes in uncertain tax positions, and excess benefits from equity compensation, which are subject to fluctuation year over year. The effective tax rates reported in the table above are lower than the blended statutory tax rates due to the aforementioned discrete items as well as certain tax preference assets such as life insurance policies, tax exempt bonds, and federal tax credits. 
 
 Additionally, the Company invests in various low-income housing projects which are real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing developments. As a limited partner in these operating partnerships, the Company receives tax credits and tax deductions for losses incurred by the underlying properties. The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2039, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships at December 31, 2022 was $197.1 million, of which $139.2 million has been funded. The Company recognized a net tax benefit of approximately $3.4 million for 2022 and anticipates additional net tax benefits of $26.2 million over the remaining life of the investments from the combination of tax credits and operating losses. 
 
 For additional information related to the Company's income taxes see Note 11, "Income Taxes" and Note 12, "Low Income Housing Project Investments" within the Notes to the Consolidated Financial Statements included in Item 8 of this Report. 
 
 Dividends The Company declared quarterly cash dividends totaling $2.08 per common share in 2022 and $1.92 per common share in 2021. The 2022 and 2021 ratio of dividends paid to earnings was 35.53% and 51.85%, respectively. 
 
 Since substantially all of the funds available for the payment of dividends are derived from the Bank, future dividends of the Company will depend on the earnings of the Bank, its financial condition, its need for funds, applicable governmental policies and regulations, and other such matters as the Board of Directors deems appropriate. 
 
 Comparison of 2021 vs. 2020 For a discussion of our results for the year ended December 31, 2021 compared to the year ended December 31, 2020, please see Item 7. " Management's Discussion and Analysis of Financial Condition and Results of Operations" i n our Annual Report on Form 10-K filed with the SEC on February 2 8 , 202 2 . 
 
 Risk Management 
 
 The Board of Directors has approved an Enterprise Risk Management Policy to state the Company’s goals and objectives in identifying, measuring, and managing the risks associated with the Company’s current and near future anticipated size and complexity. Management is responsible for comprehensive enterprise risk management, and continually strives to adopt and implement practices that strike an appropriate balance between risk and reward and permit the achievement of strategic goals in a controlled environment. 
 
 The Company has implemented the “three lines of defense” enterprise risk management model. The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks. The second line of defense monitors and provides risk management advice across all risk domains, and is comprised of the enterprise risk department, with oversight from the Chief Risk Officer. The third line of defense is independent assurance performed by the Chief Internal Auditor, who reports to the Audit Committee of the Company's Board of Directors, and by the Company's internal audit department. 
 
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 The Board of Directors, with the assistance of its Risk Committee, oversees management’s enterprise risk management practices. As risks must be taken to create value, the Board of Directors has approved a Risk Appetite Statement that defines the acceptable residual risk tolerances for the Company and the nine major risk types identified as having the potential to create significant adverse impacts on the Company, such as financial losses, reputational damage, legal or regulatory actions, failure to achieve strategic objectives, diminished customer experience, and/or cultural erosion. The nine major risk types identified by the Company and addressed in the Risk Appetite Statement are strategic and emerging risk, culture risk, credit risk, liquidity risk, interest rate risk, operational risk, reputation risk, compliance risk, and technology risk, each of which is discussed below. 
 
 Strategic and Emerging Risk Strategic and emerging risk is the risk arising from adverse strategic or business decisions, misalignment of strategic direction with the Company’s mission and values, failure to execute strategies or tactics, or an inadequate adaptation or lack of responsiveness to industry and/or operating environment changes. Management seeks to mitigate strategic risk through strategic planning, frequent executive review of strategic plan progress, monitoring of competitors and technology, assessment of new products, new branches, and new business initiatives, customer advocacy, and crisis management planning. 
 
 Culture Risk Culture risk is the risk arising from failed leadership and/or ineffective colleague engagement and workplace management that causes the Company to lose sight of core values and, through acts or omissions, damage the relationship-based culture that has been one of the foundations of the Company’s consistent success. Management seeks to mitigate culture risk through effective employee relations, leadership that encourages continuous improvement, cultural development and reinforcement of core values, communication of clear ethical and behavioral standards, consistent enforcement of policies and programs, discipline of misbehavior, alignment of incentives and compensation, and by promoting diversity, equity, and inclusion. 
 
 Credit Risk Credit risk is the risk arising from the failure of a borrower or a counterparty to a contract to make payments as agreed, and includes the risks arising from inadequate collateral and mismanagement of loan concentrations. While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses that could have an adverse effect on its operating results. The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans. For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 4, “Loans, Allowance for Credit Losses and Credit Quality” within the Notes to Consolidated Financial Statements included in Item 8 of this Report . 
 
 Liquidity Risk Liquidity risk is the risk arising from the Company being unable to meet obligations when due. Liquidity risk includes the inability to access funding sources or manage fluctuations in available funding levels. Liquidity risk also results from a failure to recognize or address market condition changes that affect the ability to liquidate assets quickly with minimal value loss. 
 
 The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities. The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Interest rates, economic conditions, and competitive factors greatly influence deposit levels. 
 
 The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which is an analysis of the relationship between liquid assets plus available Federal Home Loan Bank funding, less short-term liabilities relative to total assets, was within policy limits at December 31, 2022. The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings. An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure. Other factors affecting the Total Basic Surplus/Deficit include Federal Home Loan Bank collateral requirements, securities portfolio changes, and the mix of deposits. 
 
 The Company seeks to increase deposits without adversely impacting its weighted average funding cost. As a result of PPP loan fundings, government stimulus programs, and a customer focus on retaining liquidity, the Company experienced significant deposit growth and a buildup of liquidity in recent years, which began to normalize and run off throughout 2022, contributing to an overall decline in deposit balances at December 31, 2022. However, the Company also maintains a variety of liquidity sources, including Federal Home Loan Bank advances, Federal Reserve borrowing capacity, and repurchase agreement lines. These funding sources serve as a contingent source of liquidity and, when profitable lending and investment opportunities exist, the Company may access them to provide the liquidity needed to grow the balance sheet. The amount and type of assets that the Company has available to pledge affects the Company's Federal Home Loan Bank and Federal Reserve borrowing capacity. For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for 
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 every $1.00 pledged, whereas a pledged commercial loan may increase borrowing capacity in a lower amount. The Company’s lending decisions, therefore, can also affect its liquidity position. 
 
 The Company may also have the ability to raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion. The availability and cost of equity or debt on an unsecured basis is dependent on many factors, including the Company’s financial position, the market environment, and the Company’s credit rating. The Company monitors the factors that could affect its ability to raise liquidity through these channels. 
 
 The table below shows current and unused liquidity capacity from various sources at the dates indicated: 
 Table 24 - Sources of Liquidity 
 
 December 31 
 2022 2021 
 Outstanding Additional
Borrowing Capacity Outstanding Additional
Borrowing Capacity 
 (Dollars in thousands) 
 Federal Home Loan Bank borrowings (1) $ 637 $ 1,808,729 25,667 1,622,494 
 Federal Reserve Bank of Boston (2) — 1,210,451 — 1,176,486 
 Unpledged securities — 2,144,235 — 1,897,148 
 Line of Credit — 85,000 — 85,000 
 Long-term borrowings (3) — — 14,063 — 
 
 Junior subordinated debentures (3) 62,855 — 62,853 — 
 Subordinated debt (3) 49,885 — 49,791 — 
 Reciprocal deposits (3) 653,638 — 998,121 — 
 Brokered deposits (3) 102,643 — 141,572 — 
 $ 869,658 $ 5,248,415 $ 1,292,067 $ 4,781,128 

 (1) Loans with a carrying value of $2.7 billion and $2.3 billion at December 31, 2022 and 2021, respectively, have been pledged to the Federal Home Loan Bank of Boston resulting in this additional borrowing capacity. 
 (2) Loans with a carrying value of $1.7 billion and $1.8 billion at December 31, 2022 and 2021, respectively, have been pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity. 
 (3) The additional borrowing capacity has not been assessed for these categories. 
 
 In addition to customary operational liquidity practices, the Board of Directors and management recognize the need to establish reasonable guidelines to manage a heightened liquidity risk environment. Catalysts for elevated liquidity risk can be Company-specific issues and/or systemic industry-wide events. Management is therefore responsible for instituting systems and controls designed to provide advanced detection of potentially significant funding shortages, establishing methods for assessing and monitoring risk levels, and instituting responses that may alleviate or circumvent a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and appropriately address them in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and execute an appropriate response. 
 
 Interest Rate Risk Interest rate risk is the risk arising from changes in interest rates and the value of investments due to market conditions or other external factors or events. Interest rate risk includes market risk. 
 
 Interest rate risk is the sensitivity of income to changes in interest rates. Interest rate changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest rate risk arises directly from the Company’s core banking activities. In addition to directly affecting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects. 
 
 Management strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons. The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure. If assets and liabilities do not re-price 
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 simultaneously and in equal volume, the potential for interest rate exposure exists. It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary within limits management deems prudent, with off-balance sheet hedging instruments such as interest rate swaps, floors, and caps. 
 
 The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis. Key assumptions in these analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits ( e.g. , demand deposit, negotiable order of withdrawal, savings, and money market accounts). In the case of prepayment of mortgage assets, assumptions are derived from published median prepayment estimates for comparable mortgage loans. The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined with precision and actual behavior may differ from assumptions to a significant degree. 
 
 Based upon the net interest income simulation models, the Company anticipates that assets will re-price faster than liabilities. As a result, net interest income will be positively impacted as market rates increase and negatively impacted if market rates decrease. The Company runs several scenarios to quantify and effectively assist in managing interest rate risk, including instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary given the interest rate environment. The results of those scenarios are summarized in the following table: 
 
 Table 25 - Interest Rate Sensitivity 
 
 Years Ended December 31 
 2022 2021 
 Year 1 Year 1 
 Parallel rate shocks (basis points) 
 
 -300 (10.0)% n/a 
 -200 (5.7)% n/a 
 -100 (2.5)% (4.5)% 
 +100 1.5% 5.4% 
 +200 2.4% 11.4% 
 +300 4.0% 17.8% 
 +400 5.5% 23.9% 
 
 Gradual rate shifts (basis points) 
 -200 over 12 months (2.3)% n/a 
 -100 over 12 months (1.1)% (1.6)% 
 +200 over 12 months 1.4% 5.4% 
 +400 over 24 months 1.4% 5.4% 
 
 Alternative scenarios 
 
 Steep down 200 basis points scenario (0.5)% n/a 

 The results depicted in the table above are dependent on material assumptions. For instance, asymmetrical rate behavior can have a material impact on the simulation results. If competition for deposits prompts the Company to raise rates on those liabilities more quickly than is assumed in the simulation analysis without a corresponding increase in asset yields, net interest income would be negatively affected. Alternatively, if the Company were able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted. 
 
 The most significant market factors affecting the Company’s net interest income during the year ended December 31, 2022 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime, LIBOR, SOFR, and interest rates offered on long-term fixed rate loans. 
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 The Company manages the interest rate risk inherent in both its loan and borrowing portfolios by using interest rate swap agreements and interest rate caps and floors. An interest rate swap is an agreement in which one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period from the other party. Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period to a second party if certain market interest rate thresholds are realized. While interest is paid or received in swap, cap, and floors agreements, the notional principal amount is not exchanged. The Company may also manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts under which the Company agrees to deliver whole mortgage loans to various investors. See Note 10," Derivatives and Hedging Activities " within Notes to Consolidated Financial Statements included in Item 8 of this Report for additional information regarding the Company’s derivative financial instruments. 
 
 Movements in foreign currency rates or commodity prices do not directly or materially affect the Company's earnings. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines. See Note 3 , "Securities " within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 Operational Risk Operational risk is the risk arising from human error or misconduct, transaction errors or delays, inadequate or failed internal systems or processes, data unavailability, loss, or poor quality, or adverse external events. Operational risk includes fraud risk and model risk. Potential operational risk exposure exists throughout the Company. The continued effectiveness of colleagues and operational infrastructure are integral to mitigating operational risk, and any shortcomings subject the Company to risks that vary in size, scale and scope. 
 
 Reputation Risk Reputation risk is the risk arising from negative public opinion of the Company and the Bank. Management seeks to mitigate reputational risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring. 
 
 Compliance Risk Compliance risk is the risk arising from violations of laws or regulations, non-conformance with prescribed practices, internal bank policies and procedures, or ethical standards. Compliance risk includes consumer compliance risk, legal risk, and regulatory compliance risk. Management seeks to mitigate compliance risk through compliance training and regulatory change management processes. 
 
 Technology Risk Technology risk is the risk of losses or other impacts arising from the failure of technology systems to function in accordance with expectations and business requirements. Technology risk includes information technology risk, information security risk, and cyber security. Technology risks include technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness or exposure due to interruption in third party support. Management seeks to mitigate technology risk through appropriate security and controls over data and its technological environment. 
 
 Contractual Obligations, Commitments, Contingencies and Off-Balance Sheet Obligations 
 
 In the ordinary course of business the Company has entered into contractual obligations, commitments, residential loans sold with recourse and other off-balance sheet financial instruments. Refer to the accompanying notes to consolidated financial statements in this report for further information and the expected timing of the applicable payments as of December 31, 2022. These include payments related to (i) borrowings (Note 8 - Borrowings ), (ii) lease obligations ( Note 17 - Leases), (iii) time deposits with stated maturity dates ( Note 7 - Deposits ), (iv) commitments to extend credit ( Note 18 - Commitments and Contingencies ), (v) derivative positions ( Note 10 - Derivatives and Hedging Activities), and (vi) unfunded commitments on low income housing project investments ( Note 12 - Low Income Housing Project Investments). Also refer to Table 24 - Sources of Liquidity within Item 7 of this report for further details surrounding the Company's current and unused liquidity resources. 
 
 Impact of Inflation and Changing Prices 
 
 The consolidated financial statements and related notes thereto presented in Item 8 of this Report have been prepared in accordance with GAAP which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. 
 
 The financial nature of the Company’s consolidated financial statements is more clearly affected by changes in interest rates than by inflation. Interest rates do not necessarily fluctuate in the same direction or in the same magnitude as the prices of goods and services. However, inflation does affect the Company because, as prices increase, the money supply grows and interest rates are affected by inflationary expectations. The impact on the Company is a noted increase in the size of loan 
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 requests with resulting growth in total assets. In addition, operating expenses may increase without a corresponding increase in productivity. There is no precise method, however, to measure the effects of inflation on the Company’s consolidated financial statements. Accordingly, any examination or analysis of the financial statements should take into consideration the possible effects of inflation. 
 
 Critical Accounting Estimates 
 
 Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Certain estimates associated with these policies inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. These critical accounting estimates are defined as estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on financial condition or results of operations. Management believes that the Company’s most critical accounting policies and estimates upon which the Company’s financial condition depends, and which involve the most complex or subjective decisions or assessments, are as follows: 
 
 Allowance for Credit Losses - Loans Held for Investment The Company estimates the allowance for credit losses in accordance with the CECL methodology for loans measured at amortized cost. The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses. Arriving at an appropriate amount of allowance for credit losses involves a high degree of judgment. 
 
 The Company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. Management's judgement is required for the selection and application of these factors which are derived from historical loss experience as well as assumptions surrounding expected future losses and economic forecasts. 
 
 Loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. Changes in these judgements and assumptions could be due to a number of circumstances which may have a direct impact on the provision for loan losses and may result in changes to the amount of allowance. The allowance for credit losses is increased by the provision for credit losses and by recoveries of loans previously charged off. Loan losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. 
 
 Management performs periodic sensitivity and stress testing using available economic forecasts in order to evaluate the adequacy of the allowance for credit losses under varying scenarios. Given the Company's benign loss history, the analyses performed have not resulted in a material change to the quantitative allowance but has informed management's determination of qualitative adjustments and act as corroborating evidence as to the appropriateness of the allowance as a whole. For additional discussion of the Company’s methodology of assessing the appropriateness of the allowance for credit losses, see Note 4, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 Income Taxes The Company accounts for income taxes using two components of income tax expense, current and deferred. Current taxes represent the net estimated amount due to or to be received from taxing authorities in the current year. In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Company’s tax position. Deferred tax assets and liabilities represent the future effects on income taxes that result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, and carry-forwards that exist at the end of a period. Deferred tax assets and liabilities are measured using enacted tax rates and provisions of the enacted tax law and are not discounted to reflect the time-value of money. The effect of any change in enacted tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Deferred tax assets are assessed for recoverability and the Company may record a valuation allowance if it believes based on available evidence that it is more likely than not that the deferred tax assets recognized will not be realized before their expiration. The amount of the deferred tax asset recognized and considered realizable could be reduced if projected income is not achieved due to various factors such as unfavorable business conditions. If projected income is not expected to be achieved, the Company may record a valuation allowance to reduce its deferred tax assets to the amount that it believes can be realized in its future tax returns. Additionally, deferred tax assets and liabilities are calculated based on tax rates expected to be in effect in future periods. Previously 
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 recorded tax assets and liabilities need to be adjusted when the expected date of the future event is revised based upon current information. The Company may also record an unrecognized tax benefit related to 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. All movements in unrecognized tax benefits are recognized through the provision for income taxes. Taxes are discussed in more detail in Note 11, "Income Taxes" within the Notes to the Consolidated Financial Statements included in Item 8 of this Report. 
 
 Valuation of Investment Securities Securities that the Company has the ability and intent to hold until maturity are classified as securities held-to-maturity and are accounted for using historical cost, adjusted for amortization of premium and accretion of discount. Trading and equity securities are carried at fair value, with unrealized gains and losses recorded in other noninterest income. All other securities are classified as securities available-for-sale and are carried at fair market value. The fair values of securities are based on either quoted market price or third party pricing services. In general, the third-party pricing services employ various methodologies, including but not limited to, broker quotes and proprietary models. Management does not typically adjust the prices received from third-party pricing services. Depending upon the type of security, management employs various techniques to analyze the pricing it receives from third-parties, such as reviewing model inputs, reviewing comparable trades, analyzing changes in market yields and, in certain instances, reviewing the underlying collateral of the security. Management reviews changes in fair values from period to period and performs testing to ensure that the prices received from the third parties are consistent with their expectation of the market. 
 
 Management determines if the market for a security is active primarily based upon the frequency of which the security, or similar securities, are traded. For securities which are determined to have an inactive market, fair value models are calibrated and to the extent possible, significant inputs are back tested on a quarterly basis. The third-party service provider performs calibration and testing of the models by comparing anticipated inputs to actual results, on a quarterly basis. Unrealized gains and losses on securities available-for-sale are reported, on an after-tax basis, as a separate component of stockholders’ equity in accumulated other comprehensive income. 
 
 Recent Accounting Developments 
 
 See Note 1, "Summary of Significant Accounting Policies " within the Notes to Consolidated Financial Statements included in Item 8 of this Report. 
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
 
 See "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management" in Item 7 of this Report. 
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
INDEPENDENT BANK CORP 10-K

Item 7. Management’s Discussion and Analysis
