INDEPENDENT BANK CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Independent Bank Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Independent Bank Corp. (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 66 Table of Contents Allowance for credit losses Description of the matter The Company’s loan portfolio totaled $13.9 billion as of December 31, 2022, and the associated allowance for credit losses (“allowance”) was $152 million. As discussed in Notes 1 and 4 to the consolidated financial statements, the Company estimates the allowance on a collective basis for loans sharing similar risk characteristics using a quantitative model based on probability of default, loss given default and exposure at default estimates, which are derived from internal historical default and loss experience, adjusted for economic forecasts. The output is then combined with an assessment of qualitative factors, including economic and business conditions, changes to collateral values and other external factors, which factors are designed to address forecast risk and model risk inherent in the quantitative model output. Loans that do not share similar risk characteristics are individually evaluated and an allowance is determined based on a discounted cash flow or the fair value of collateral. Auditing the Company’s allowance for credit losses was complex due to the quantitative modeling used and involved subjective judgment to evaluate management’s determination of the qualitative risk factor adjustments and the allowance on individually evaluated loans described above. How we addressed the matter in our audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s allowance process, which included, among others, controls over the appropriateness of the methodology, the development, operation and monitoring of the quantitative model, the reliability and accuracy of data used in developing the estimate, and management’s review and approval process over the economic forecasts, qualitative adjustments, individually evaluated loans, and overall allowance result. With the assistance of EY Specialists we tested management’s quantitative model including evaluating the conceptual soundness of model methodology, assessing model performance and governance, and testing key modeling assumptions, including the reasonable and supportable forecast period. To test the qualitative factors, among other procedures, we assessed management’s methodology and considered whether relevant risks were reflected in the models and whether adjustments to the model output were appropriate. We tested the completeness, accuracy and relevance of the underlying data used to estimate the qualitative adjustments. We evaluated whether qualitative adjustments were reasonable based on changes in economic conditions, the loan portfolio, management’s policies and procedures, and lending personnel. For example, we evaluated the reasonableness of qualitative adjustments for economic and business conditions, changes to collateral values and other external factors. We also assessed whether qualitative adjustments were consistent with publicly available information. Further, we performed an independent search for the existence of new or contrary information relating to risks impacting the qualitative adjustments to validate that management’s considerations were appropriate. Additionally, we evaluated whether the overall allowance, inclusive of qualitative adjustments, appropriately reflected losses expected in the loan portfolio by comparing to peer bank data. For the allowance on individually evaluated loans, we assessed management’s use of either a discounted cash flow or fair value of collateral approach based on the nature of the loan. We evaluated the methodologies and the assumptions used by management in determining the likelihood of recoverability and valuation of the underlying collateral. Procedures performed included testing the completeness and accuracy of management’s population and testing the calculation of the allowance on individually evaluated loans. /s/ Ernst & Young LLP We have served as the Company's auditor since 2009 Boston, Massachusetts February 28, 2023 67 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31 2022 2021 Assets Cash and due from banks $ 175,843 $ 141,581 Interest-earning deposits with banks 177,090 2,099,103 Securities Trading 3,888 3,720 Equities 21,119 23,173 Available for sale (amortized cost $ 1,566,779 and $ 1,583,736 ) 1,399,154 1,571,148 Held to maturity (fair value $ 1,524,710 and $ 1,064,133 ) 1,705,120 1,066,818 Total securities 3,129,281 2,664,859 Loans held for sale (at fair value) 2,803 24,679 Loans Commercial and industrial 1,635,103 1,563,279 Commercial real estate 7,760,230 7,992,344 Commercial construction 1,154,413 1,165,457 Small business 219,102 193,189 Residential real estate 2,035,524 1,604,686 Home equity - first position 566,166 589,550 Home equity - subordinate positions 522,584 450,061 Other consumer 35,553 28,720 Total loans 13,928,675 13,587,286 Less: allowance for credit losses ( 152,419 ) ( 146,922 ) Net loans 13,776,256 13,440,364 Federal Home Loan Bank stock 5,218 11,407 Bank premises and equipment, net 196,504 195,590 Goodwill 985,072 985,072 Other intangible assets 25,068 32,772 Cash surrender value of life insurance policies 293,323 289,304 Other assets 527,716 538,674 Total assets $ 19,294,174 $ 20,423,405 Liabilities and Stockholders' Equity Deposits Noninterest-bearing demand deposits $ 5,441,584 $ 5,479,503 Savings and interest checking accounts 5,898,009 6,350,016 Money market 3,343,673 3,556,375 Time certificates of deposit 1,195,741 1,531,150 Total deposits 15,879,007 16,917,044 Borrowings Federal Home Loan Bank borrowings 637 25,667 Long-term borrowings — 14,063 Junior subordinated debentures (less unamortized debt issuance costs of $ 33 and $ 35 ) 62,855 62,853 Subordinated debentures (less unamortized debt issuance costs of $ 115 and $ 209 ) 49,885 49,791 Total borrowings 113,377 152,374 Other liabilities 415,089 335,538 Total liabilities 16,407,473 17,404,956 Commitments and contingencies — — Stockholders' Equity Preferred stock, $ 0.01 par value; authorized: 1,000,000 shares, outstanding: none — — Common stock, $ 0.01 par value; authorized: 75,000,000 shares, issued and outstanding: 45,641,238 shares at December 31, 2022 and 47,349,778 shares at December 31, 2021 (includes 135,712 and 135,273 shares of unvested participating restricted stock awards, respectively) 455 472 Value of shares held in rabbi trust at cost: 80,965 shares at December 31, 2022 and 82,565 shares at December 31, 2021 ( 3,227 ) ( 3,146 ) Deferred compensation obligation 3,227 3,146 Additional paid in capital 2,114,888 2,249,078 Retained earnings 934,442 766,716 Accumulated other comprehensive income (loss), net of tax ( 163,084 ) 2,183 Total stockholders' equity 2,886,701 3,018,449 Total liabilities and stockholders' equity $ 19,294,174 $ 20,423,405 The accompanying notes are an integral part of these consolidated financial statements. 68 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31 2022 2021 2020 (Dollars in thousands, except per share data) Interest income Interest and fees on loans $ 577,923 $ 381,433 $ 369,836 Taxable interest and dividends on securities 50,354 30,477 30,133 Nontaxable interest and dividends on securities 6 16 35 Interest on loans held for sale 172 856 1,218 Interest on federal funds sold and short-term investments 14,385 2,494 847 Total interest and dividend income 642,840 415,276 402,069 Interest expense Interest on deposits 24,652 8,327 27,333 Interest on borrowings 4,939 5,390 7,008 Total interest expense 29,591 13,717 34,341 Net interest income 613,249 401,559 367,728 Provision for credit losses 6,500 18,205 52,500 Net interest income after provision for credit losses 606,749 383,354 315,228 Noninterest income Deposit account fees 23,370 16,745 15,121 Interchange and ATM fees 16,249 12,987 15,834 Investment management 36,832 35,308 29,432 Mortgage banking income 3,515 13,280 18,948 Increase in cash surrender value of life insurance policies 7,685 6,431 5,362 Gain on life insurance benefits 1,291 258 1,044 Loan level derivative income 2,932 3,257 10,058 Other noninterest income 22,793 17,584 15,641 Total noninterest income 114,667 105,850 111,440 Noninterest expenses Salaries and employee benefits 204,711 172,586 152,460 Occupancy and equipment expenses 49,841 36,265 37,050 Data processing & facilities management 9,320 6,899 6,265 FDIC assessment 6,951 3,980 2,522 Consulting expense 9,617 8,271 5,987 Amortization of intangible assets 7,655 5,715 6,135 Debit card expense 7,670 5,144 4,374 Lease impairment — — 4,163 Loss on sale of other equity investments — — 1,033 Loss on termination of derivatives — — 684 Merger and acquisition expense 7,100 40,840 — Software maintenance 10,961 8,149 7,264 Other noninterest expenses 59,836 44,680 45,895 Total noninterest expenses 373,662 332,529 273,832 Income before income taxes 347,754 156,675 152,836 Provision for income taxes 83,941 35,683 31,669 Net Income $ 263,813 $ 120,992 $ 121,167 Basic earnings per share $ 5.69 $ 3.47 $ 3.64 Diluted earnings per share $ 5.69 $ 3.47 $ 3.64 Weighted average common shares (basic) 46,372,051 34,872,034 33,259,643 Common share equivalents 17,938 16,484 25,646 Weighted average common shares (diluted) 46,389,989 34,888,518 33,285,289 Cash dividends declared per common share $ 2.08 $ 1.92 $ 1.84 The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 2022 2021 2020 (Dollars in thousands) Net income $ 263,813 $ 120,992 $ 121,167 Other comprehensive (loss) income, net of tax Net change in fair value of securities available for sale ( 118,990 ) ( 22,922 ) 8,857 Net change in fair value of cash flow hedges ( 50,767 ) ( 19,139 ) 16,797 Net change in other comprehensive income for defined benefit postretirement plans 4,490 3,549 ( 3,128 ) Total other comprehensive (loss) income ( 165,267 ) ( 38,512 ) 22,526 Total comprehensive income $ 98,546 $ 82,480 $ 143,693 The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Outstanding Common Stock Value of Shares Held in Rabbi Trust at Cost Deferred Compensation Obligation Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total (Dollars in thousands, except per share data) Balance December 31, 2019 34,377,388 $ 342 $ ( 4,735 ) $ 4,735 $ 1,035,450 $ 654,182 $ 18,169 $ 1,708,143 Cumulative effect accounting adjustment (1) — — — — — 1,553 — 1,553 Net income — — — — — 121,167 — 121,167 Other comprehensive income — — — — — — 22,526 22,526 Common dividend declared ($ 1.84 per share) — — — — — ( 60,878 ) — ( 60,878 ) Proceeds from exercise of stock options, net of cash paid 8,873 — — — 197 — — 197 Stock based compensation — — — — 4,123 — — 4,123 Restricted stock awards issued, net of awards surrendered 47,182 1 — — ( 1,188 ) — — ( 1,187 ) Shares issued under direct stock purchase plan 32,249 — — — 2,132 — — 2,132 Shares repurchased under share repurchase program ( 1,500,000 ) ( 15 ) — — ( 95,076 ) — — ( 95,091 ) Deferred compensation and other retirement benefit obligations — — 1,669 ( 1,669 ) — — — — Balance December 31, 2020 32,965,692 $ 328 $ ( 3,066 ) $ 3,066 $ 945,638 $ 716,024 $ 40,695 $ 1,702,685 Net income — — — — — 120,992 — 120,992 Other comprehensive loss — — — — — — ( 38,512 ) ( 38,512 ) Common dividend declared ($ 1.92 per share) — — — — — ( 70,300 ) — ( 70,300 ) Common stock issued for acquisition 14,299,720 143 — — 1,298,415 — — 1,298,558 Proceeds from exercise of stock options, net of cash paid 4,744 — — — ( 57 ) — — ( 57 ) Stock based compensation — — — — 4,309 — — 4,309 Restricted stock awards issued, net of awards surrendered 53,768 1 — — ( 1,250 ) — — ( 1,249 ) Shares issued under direct stock purchase plan 25,854 — — — 2,023 — — 2,023 Deferred compensation and other retirement benefit obligations — — ( 80 ) 80 — — — — Balance December 31, 2021 47,349,778 $ 472 $ ( 3,146 ) $ 3,146 $ 2,249,078 $ 766,716 $ 2,183 $ 3,018,449 Net income — — — — — 263,813 — 263,813 Other comprehensive loss — — — — — — ( 165,267 ) ( 165,267 ) Common dividend declared ($ 2.08 per share) — — — — — ( 96,087 ) — ( 96,087 ) Stock based compensation — — — — 4,464 — — 4,464 Restricted stock awards issued, net of awards surrendered 49,016 1 — — ( 1,085 ) — — ( 1,084 ) Shares issued under direct stock purchase plan 29,409 — — — 2,359 — — 2,359 Shares repurchased under share repurchase program ( 1,786,965 ) ( 18 ) — — ( 139,928 ) — — ( 139,946 ) Deferred compensation and other retirement benefit obligations — — ( 81 ) 81 — — — — Balance December 31, 2022 45,641,238 $ 455 $ ( 3,227 ) $ 3,227 $ 2,114,888 $ 934,442 $ ( 163,084 ) $ 2,886,701 (1) Represents adjustment needed to reflect the cumulative impact on retained earnings pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment presented includes $ 1.1 million ($ 817,000 , net of tax) attributable to the change in accounting methodology for estimating the allowance for credit losses and $ 1.0 million ($ 736,000 , net of tax) related to the reserve for unfunded commitments resulting from the Company's adoption of the standard. Amount shown in the table above is presented net of tax. The accompanying notes are an integral part of these consolidated financial statements. 71 Table of Contents INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31 2022 2021 2020 (Dollars in thousands) Cash flow from operating activities Net income $ 263,813 $ 120,992 $ 121,167 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 38,799 32,824 27,262 Change in unamortized net loan costs and fees ( 7,119 ) ( 24,785 ) ( 7,126 ) Amortization (accretion) of acquired loans 175 ( 6,882 ) ( 6,286 ) Provision for credit losses 6,500 18,205 52,500 Deferred income tax (benefit) expense ( 1,254 ) 3,090 ( 17,506 ) Net loss (gain) on equity securities 3,061 ( 554 ) ( 528 ) Net (gain) loss on bank premises and equipment ( 584 ) 139 372 Lease impairment — — 4,163 Loss on termination of derivatives — — 684 Realized gain on sale leaseback transaction ( 578 ) ( 578 ) ( 578 ) Stock based compensation 4,464 4,309 4,123 Increase in cash surrender value of life insurance policies ( 7,685 ) ( 6,431 ) ( 5,362 ) Gain on life insurance benefits ( 1,291 ) ( 258 ) ( 1,044 ) Operating lease payments ( 19,296 ) ( 17,456 ) ( 11,936 ) Change in fair value on loans held for sale 452 1,679 ( 1,296 ) Net change in: Trading assets ( 168 ) ( 882 ) ( 659 ) Loans held for sale 21,424 31,746 ( 23,501 ) Other assets 65,263 93,565 ( 145,953 ) Other liabilities 55,224 ( 58,503 ) 76,140 Total adjustments 157,387 69,228 ( 56,531 ) Net cash provided by operating activities 421,200 190,220 64,636 Cash flows used in investing activities Proceeds from sales of equity securities 31 1,164 — Purchases of equity securities ( 1,524 ) ( 2,171 ) ( 803 ) Proceeds from maturities and principal repayments of securities available for sale 139,923 95,981 108,893 Purchases of securities available for sale ( 123,289 ) ( 1,284,867 ) ( 84,156 ) Proceeds from maturities and principal repayments of securities held to maturity 166,712 263,106 261,705 Purchases of securities held to maturity ( 804,105 ) ( 606,543 ) ( 244,718 ) Net redemption of Federal Home Loan Bank stock 6,189 25,027 4,174 Investments in low income housing projects ( 33,232 ) ( 22,496 ) ( 17,858 ) Purchases of life insurance policies ( 163 ) ( 40,164 ) ( 164 ) Proceeds from life insurance policies 3,160 576 3,417 Net (increase) decrease in loans ( 335,448 ) 744,981 ( 511,526 ) Net cash acquired in business combinations — 787,301 — Purchases of bank premises and equipment ( 22,072 ) ( 25,200 ) ( 12,586 ) Proceeds from the sale of bank premises and equipment 3,344 169 6,095 Payments on early termination of hedging relationship — — ( 684 ) Net cash used in investing activities ( 1,000,474 ) ( 63,136 ) ( 488,211 ) Cash flows (used in) provided by financing activities Net decrease in time deposits ( 334,381 ) ( 235,577 ) ( 444,276 ) Net (decrease) increase in other deposits ( 702,628 ) 1,719,398 2,290,489 Net repayments of short-term Federal Home Loan Bank borrowings ( 25,000 ) — ( 45,000 ) Repayments of long-term Federal Home Loan Bank borrowings — ( 586,088 ) ( 35,000 ) Repayments of long-term debt, net of issuance costs ( 14,063 ) ( 18,750 ) ( 42,187 ) Net proceeds from exercise of stock options — ( 57 ) 197 Restricted stock awards issued, net of awards surrendered ( 1,084 ) ( 1,249 ) ( 1,187 ) Proceeds from shares issued under direct stock purchase plan 2,359 2,023 2,132 Payments for shares repurchased under direct stock purchase plan ( 139,946 ) — ( 95,091 ) 72 Table of Contents Common dividends paid ( 93,734 ) ( 62,736 ) ( 60,840 ) Net cash (used in) provided by financing activities ( 1,308,477 ) 816,964 1,569,237 Net (decrease) increase in cash and cash equivalents ( 1,887,751 ) 944,048 1,145,662 Cash and cash equivalents at beginning of year 2,240,684 1,296,636 150,974 Cash and cash equivalents at end of period $ 352,933 $ 2,240,684 $ 1,296,636 Cash paid during the year for Interest on deposits and borrowings $ 26,424 $ 14,004 $ 36,739 Income taxes $ 44,274 $ 23,353 $ 48,240 Supplemental schedule of noncash investing and financing activities Net increase in capital commitments relating to low income housing project investments $ 17,643 $ 33,691 $ 32,477 Recognition of operating lease at commencement and/or extension $ 14,789 $ 7,768 $ 8,646 In conjunction with the Company's acquisitions, assets were acquired and liabilities were assumed as follows Common stock issued for acquisition $ — $ 1,298,558 $ — Fair value of assets acquired, net of cash acquired $ — $ 5,574,209 $ — Fair value of liabilities assumed $ — $ 5,062,952 $ — The accompanying notes are an integral part of these consolidated financial statements. 73 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) INDEPENDENT BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Independent Bank Corp. (the "Company") is a bank holding company, the principal subsidiary of which is Rockland Trust Company ("Rockland Trust" or the "Bank"). Rockland Trust is a state-chartered commercial bank which provides a variety of banking, investment and financial services through its retail branches, commercial banking centers, investment management offices and mortgage lending centers located throughout Eastern Massachusetts as well as in Worcester County and Rhode Island. Rockland Trust deposits are insured by the Federal Deposit Insurance Corporation, subject to regulatory limits. The Company’s primary source of income is from providing loans to individuals and small-to-medium sized businesses in its market area. Rockland Trust is a community-oriented commercial bank, and the community banking business is the Company's only reportable operating segment. Principles of Consolidation The consolidated financial statements include the accounts of the Company, the Bank and other wholly-owned subsidiaries, except subsidiaries that are not deemed necessary to be consolidated. All significant intercompany balances and transactions have been eliminated in consolidation. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity under GAAP. Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. The Company would consolidate voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, variable interest entities ("VIEs") are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when the Company has both the power and ability to direct the activities of the VIE that most significantly impact the VIE's economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The Company also owns the common stock of various trusts which have issued trust preferred securities. These trusts are VIEs in which the Company is not the primary beneficiary and, therefore, are not consolidated. The trust's only assets are junior subordinated debentures issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures are included in long-term debt and the Company’s equity interest in the trust is included in other assets in the accompanying Consolidated Balance Sheets. Interest expense on the junior subordinated debentures is reported in interest expense on long-term debt in the accompanying Consolidated Statements of Income. Reclassification Certain previously reported amounts have been reclassified to conform to the current year’s presentation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could vary from these estimates. Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for expected credit losses on loans held for investment, income taxes, and valuation and allowance for expected credit losses on investment securities. 74 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Significant Concentrations of Credit Risk The vast majority of the Bank’s lending activities are conducted in New England. The Bank originates commercial and industrial loans, commercial and residential real estate loans, including construction loans, small business loans, home equity loans, and other consumer loans for its portfolio. The Bank tracks concentrations of credit across numerous categories and segments including any particular industries where the aggregate credit exposure exceeds 25% of the Bank's tier one capital. Aggregate credit exposure includes direct, indirect or contingent obligations to a borrower, an affiliated group of borrowers or a non-affiliated group of borrowers engaged in one industry. Loans originated by the Bank to lessors of nonresidential buildings, lessors of residential buildings, building construction, and within the accommodations industry represented 21.3 %, 14.3 %, 5.9 %, and 3.9 % of the Bank's aggregate credit exposure, respectively, at December 31, 2022. Within these concentration categories, the Company believes it is well diversified among collateral property types and tenant industries. Business Combinations In accordance with applicable accounting guidance, the Company recognizes assets acquired and liabilities assumed at their respective fair values as of the date of acquisition, with the related transaction costs expensed in the period incurred. The Company may use third party valuation specialists to assist in the determination of fair value of certain assets and liabilities at the acquisition date, including loans, core deposit intangibles and time deposits. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed on the acquisition date, the estimates are inherently uncertain. The allowance for credit losses on purchased credit deteriorated ("PCD") loans is recognized within business combination accounting. The allowance for credit losses on non-PCD loans is recognized as a provision expense in the same period as the business combination. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents may include cash on hand, amounts due from banks, inclusive of interest-earning deposits held at banks, and federal funds sold. Generally, federal funds are sold for up to two week periods. Securities Investment securities are classified at the time of purchase as available for sale, held to maturity, trading, or equity. Classification is constantly re-evaluated for consistency with corporate goals and objectives. Trading and equity securities are recorded at fair value with subsequent changes in fair value recorded in earnings. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity or trading are classified as available for sale and recorded at fair value, with changes in fair value excluded from earnings and reported in other comprehensive income, net of related tax. Purchase premiums and discounts are recognized in interest income, using the interest method, to arrive at periodic interest income at a constant effective yield, thereby reflecting the securities market yield. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. Such gains and losses are recognized within non-interest income or non-interest expense within the consolidated statements of income. Accrued interest receivable balances are excluded from the amortized cost of held to maturity securities and the fair value of available for sale securities and are included within other assets on the Consolidated Balance Sheets. Management has elected not to measure an allowance for credit losses on these balances as the Company employs a timely write-off policy. It is the Company's policy that a security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent, and interest earned but not collected for a security placed on non-accrual is reversed against interest income. Allowance for Credit Losses - Available for Sale Securities The Company's available for sale securities are carried at fair value and assessed for estimated credit losses in accordance with the current expected credit loss ("CECL") methodology. For available for sale securities in an unrealized loss position, management will first evaluate whether there is intent to sell, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis. If either of these criteria are met, the Company will record a write-down of the security's amortized cost basis to fair value through income. For those available for 75 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S. Federal Government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the uncollectibility of a security is confirmed, or when either of the aforementioned criteria surrounding intent or requirement to sell have been met. Allowance for Credit Losses - Held to Maturity Securities The Company measures expected credit losses on held to maturity securities on a collective basis by major security type in accordance with the CECL methodology. Management classifies the held to maturity portfolio into the following major security types: U.S. Government Agency, U.S. Treasury, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations, Small Business Administration Pooled Securities, and Single Issuer Trust Preferred Securities. Securities in the Company's held to maturity portfolio are primarily guaranteed by either the U.S. Federal Government or other government sponsored agencies with a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation and therefore does not estimate an allowance for credit losses on these securities. Loans Held for Sale The Bank may choose to classify new residential real estate mortgage loans as held for sale based on intent, which is determined when loans are underwritten. Residential real estate mortgage loans not designated as held for sale are retained based upon available liquidity, for interest rate risk management and other business purposes. The Company has elected the fair value option to account for originated closed loans intended for sale. Accordingly, changes in fair value relating to loans intended for sale are recorded in earnings and are offset by changes in fair value relating to interest rate lock commitments and forward sales commitments. Gains and losses on residential loan sales (sales proceeds minus carrying amount) are recorded in mortgage banking income. Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred and are not deferred. Loans Held for Investment Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of deferred loan costs or fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the expected term of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status. As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans, or sooner if management considers such action to be prudent. However, loans that are 90 days or more past due may be kept on an accruing status if the loan is well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans in a timely manner 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. When doubt exists as to the collectability of a loan, any payments received are applied to reduce the amortized cost of the loan to the extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including assessing the viability of the customer’s business or project as a going concern, the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform. In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructuring ("TDR"). Modifications may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged 76 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. The recorded investment of loans classified as TDRs is adjusted to reflect the changes in value, if any, resulting from the granting of a concession. Nonaccrual loans that are restructured remain on nonaccrual for a period of six months to demonstrate that the borrower can meet the restructured terms. 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. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan is classified as a nonaccrual loan. Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it is determined that the borrower is performing under the 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. Allowance for Credit Losses - Loans Held for Investment The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost, also referred to as the "CECL methodology". Credit 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. Subsequent recoveries, if any, are credited to the allowance. Under 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 quantitative model utilizes a factor based approach to estimate expected credit losses using Probability of Default ("PD"), Loss Given Default ("LGD") and Exposure at Default ("EAD"), which are derived from internal historical default and loss experience. The model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the Company's historical long-run average. Management has determined a reasonable and supportable period of 12 months, and a straight line reversion period of 6 months, to be appropriate for purposes of estimating expected credit losses. The qualitative risk factors impacting the expected risk of loss within the portfolio include the following: • Lending policies and procedures • Economic and business conditions • Nature and volume of loans • Changes in management • Changes in credit quality • Changes in loan review system • Changes to underlying collateral values • Concentrations of credit risk • Model imprecision • Other external factors Loans that do not share similar risk characteristics with any pools of assets are subject to individual evaluation and are removed from the collectively assessed pools to avoid double counting. For the loans that are individually evaluated, 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. Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within other assets on the consolidated balance sheets. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy. Consistent with the Company's policy for nonaccrual loans, accrued interest receivable is typically written off when loans reach 90 days past due and are placed on nonaccrual status. In the ordinary course of business, the Company enters into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses. The reserve for unfunded lending commitments is included in other liabilities on the Consolidated Balance Sheets. 77 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Acquired Loans Loans acquired through purchase or a business combination are recorded at their fair value at the acquisition date. The Company performs an assessment of acquired loans to first determine if such loans have experienced a more than insignificant deterioration in credit quality since their origination and thus should be classified and accounted for as purchased credit deteriorated (“PCD”) loan. For loans that have not experienced a more than insignificant deterioration in credit quality since origination, referred to as non-PCD loans, the Company records such loans at fair value, with any resulting discount or premium accreted or amortized into interest income over the remaining life of the loan using the interest method. Additionally, upon the purchase or acquisition of non-PCD loans, the Company measures and records a reserve for credit losses based on the Company’s methodology for determining the allowance under CECL. The allowance for non-PCD loans is recorded through a charge to provision for credit losses in the period in which the loans were purchased or acquired. Acquired loans that are classified as PCD are acquired at fair value, including any resulting discounts or premiums. Discounts and premiums are accreted or amortized into interest income over the remaining life of the loan using the interest method. In contrast to non-PCD loans, the initial allowance for credit losses on PCD loans is established through an adjustment to the acquired loan balance, rather than through a charge to provision for credit losses, in the period in which the loans were acquired. The allowance for PCD loans is determined based upon the Company's methodology for estimating the allowance under CECL, and is recorded as an adjustment to the acquired loan balance on the date of acquisition. The Company evaluates acquired loans for deterioration in credit quality based on a variety of characteristics, including, but not limited to non-accrual and delinquency status, downgrades in credit quality since origination, loans that have been modified, along with any other factors identified by the Company through its initial analysis of acquired loans which may indicate there has been a more than insignificant deterioration in credit quality since origination. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics, if applicable. Subsequent to acquisition, the allowance for credit losses for both non-PCD and PCD loans are determined with the use of the Company’s allowance methodology under CECL, in the same manner as all other loans. Transfers and Servicing of Financial Assets Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Loans held for sale are generally sold with servicing rights released, however if rights are retained, servicing assets are recognized as separate assets. Servicing rights are originally recorded at fair value within other assets, but subsequently are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment at each reporting date. Fair value is 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, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds, default rates and losses. 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. Servicing fee income is recorded for fees earned for servicing loans for investors. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan, and are recorded as income when earned. The amortization of mortgage servicing rights is recorded as a reduction of loan servicing fee income. 78 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company is also a party to certain instruments with off-balance-sheet risk including certain residential loans sold to investors with recourse. The Company's policy is to record such instruments when funded. Federal Home Loan Bank Stock The Company, as a member of the Federal Home Loan Bank ("FHLB") of Boston, is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions, the stock has no quoted market value and is carried at cost. The Company continually reviews its investment to determine if impairment exists. The Company reviews recent public filings, rating agency analysis and other factors when making its determination. Bank Premises and Equipment Land is carried at cost. Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line convention method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease terms or the estimated useful lives of the improvements. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured, not to exceed fifteen years . Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the net fair value of acquired businesses. Goodwill is not amortized and is assigned to one reporting unit. Goodwill is evaluated for impairment at least annually, or more often if warranted. In assessing for impairment, the Company has the option to first perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of such events and circumstances, the Company determines it is more-likely-than-not that the fair value is less than carrying value, a quantitative impairment test is performed to compare carrying value to the fair value of the reporting unit. The Company also has an unconditional option to bypass the assessment of qualitative factors for any period and proceed directly to the quantitative goodwill impairment test. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Other intangible assets subject to amortization consist of core deposit intangibles, customer lists, and non-compete agreements that are amortized over the estimated lives of the intangibles using a method that approximates the amount of economic benefits that are realized by the Company. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Impairment of Long-Lived Assets Other Than Goodwill The Company reviews long-lived assets, including premises and equipment, for impairment whenever events or changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable. The Company performs an undiscounted cash flow analysis to determine if impairment exists. When impairment is determined to exist, the related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of are based on the estimated proceeds to be received, less costs of disposal. Cash Surrender Value of Life Insurance Policies Increases in the cash surrender value ("CSV") of life insurance policies, as well as benefits received net of any CSV, are recorded in other noninterest income, and are generally not subject to income taxes. The CSV of the policies is recorded as an asset of the Bank, with liabilities recognized for any split dollar arrangements associated with the policies. The Company reviews the financial strength of the insurance carriers prior to the purchase of life insurance policies and no less than annually thereafter. Regulatory requirements limit the total amount of CSV to be held with any individual carrier to 15% of Tier 1 capital (as defined for regulatory purposes) and the total CSV of all life insurance policies is limited to 25% of Tier 1 capital. Other Real Estate Owned and Other Foreclosed Assets Real estate properties and other assets, which have served as collateral to secure loans, are held for sale and are initially recorded at fair value less estimated costs to sell at the date control is established, resulting in a new cost basis. The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) of the foreclosed asset is charged to the allowance for credit losses. Subsequent declines in the fair value of the foreclosed asset below the new cost basis 79 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) are recorded through the use of a valuation allowance. Subsequent increases in the fair value are recorded as reductions in the valuation allowance, but not below zero. Upon a sale of a foreclosed asset, any excess of the carrying value over the sale proceeds is recognized as a loss on sale. Any excess of sale proceeds over the carrying value of the foreclosed asset is first applied as a recovery to the valuation allowance, if any, with the remainder being recognized as a gain on sale. Operating expenses and changes in the valuation allowance relating to foreclosed assets are included in other noninterest expense. Derivatives Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship, and further, by the type of hedging relationship. At the inception of a hedge, the Company documents certain items, including but not limited to the following: the relationship between hedging instruments and hedged items, the Company's risk management objectives, hedging strategies, and the evaluation of hedge transaction effectiveness. Documentation includes linking all derivatives designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions. For those derivative instruments that are designated and qualify for special hedge accounting, the Company designates the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income, net of related tax. The Company considers any economic mismatch between the hedging instrument and the hedged transaction in its ongoing assessment of hedge effectiveness. If the hedging instrument is not highly effective at achieving offsetting cash flows attributable to the revised contractually specified interest rate(s), hedge accounting will be discontinued. At that time, accumulated other comprehensive income would be frozen and amortized, as long as the forecasted transactions are still probable of occurring. For derivative instruments designated and qualifying as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or liability or an identified portion thereof that is attributable to the hedged risk), the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in current earnings during the period of the change in fair values. Hedge accounting is discontinued prospectively when (1) a derivative is no longer highly effective in offsetting changes in the fair value or cash flow of a hedged item, (2) a derivative expires or is settled, (3) it is no longer likely that a forecasted transaction associated with the hedge will occur, or (4) it is determined that designation of a derivative as a hedge is no longer appropriate. To the extent the Company enters into new or re-designates existing hedging relationships, it is the Company's policy to include the Overnight Index Swap Rate based on the Fed Funds Effective Rate and the Overnight Index Swap Rate based on the Secured Overnight Financing Rate in the spectrum of available benchmark interest rates for hedge accounting. For derivative instruments not designated as hedging instruments, such as loan level derivatives, foreign exchange contracts, risk participation agreements and mortgage derivatives, changes in fair value are recognized in other noninterest income during the period of change and are included in changes in other assets or other liabilities on the Company's consolidated statement of cash flows. Retirement Plans The Company has various retirement plans in place for current and former employees, including postretirement benefit plans, supplemental executive retirement plans, frozen multiemployer pension plans, deferred compensation plans, as well as other benefits. The postretirement benefit plans and the supplemental executive retirement plans are unfunded and therefore have no plan assets. The actuarial cost method used to compute the benefit liabilities and related expense is the projected unit credit method. The projected benefit obligation is principally determined based on the present value of the projected benefit distributions at an assumed discount rate. The discount rate which is utilized is based on the investment yield of high quality corporate bonds available in the market place with maturities approximately equal to projected cash flows of future benefit payments as of the measurement date. Periodic benefit expense (or income) includes service costs and interest costs based on the assumed discount rate, amortization of prior service costs due to plan amendments and amortization of actuarial gains and losses. Service costs are included in salaries and employee benefits and all other costs are included in other noninterest expense. The amortization of actuarial gains and losses is determined using the 10% corridor minimum amortization approach and is taken over the average remaining future working lifetime of the plan participants. The underfunded status of the plans is recorded as a liability on the balance sheet. 80 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The multiemployer pension plans' assets are determined based on fair value, generally representing observable market prices. The actuarial cost method used to compute the pension liabilities and related expense is the unit credit method. The pension expense is equal to the plan contribution requirement of the Company for the plan year. In conjunction with the acquisition of Blue Hills Bancorp, Inc., parent of Blue Hills Bank (collectively "BHB") the Company acquired BHB's defined benefit pension plan, which is administered by the Savings Banks Employees Retirement Association. The Company accounts for the plan using an actuarial model that allocates pension costs over the service period of employees in the plan. The Company accounts for the over-funded or under-funded status of the plan as an asset or liability on its consolidated balance sheets and recognizes changes in the funded status that are not reflected in net periodic pension cost as other comprehensive income or loss. BHB amended its defined benefit pension plan in 2013 freezing the plan to new participants and subsequently amended the plan and froze it for all participants effective October 31, 2014. The Director Deferred Compensation Plan allows directors to invest their funds into a diversified investment portfolio and the 401(k) Restoration Plan allows employees to invest their funds in both Company stock and other investment alternatives offered by the Plan. All funds under both of these plans are held in a rabbi trust. The plans do not permit diversification after initial election and therefore elections made to defer into Company stock result in both the investment and obligation recognized within Stockholders' Equity. Alternatively, investments not in Company stock are included in trading securities, with the correlating obligation classified as a liability. The Company has obligations with various individuals related to certain post-retirement benefits. The obligations are based on the individual's service through retirement, with the associated cost recognized over the requisite service period. The accrual methodology results in an accrued amount at the full eligibility date equal to the then present value of all of the future benefits expected to be paid. Stock-Based Compensation The Company recognizes stock-based compensation based on the grant-date fair value of the award, with no adjustment for estimated forfeitures, as forfeitures are recognized when they occur. For restricted stock awards and units, the Company recognizes compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. For stock option awards, the Company values awards granted using the Black-Scholes option-pricing model. The Company recognizes compensation expense for these awards on a straight-line basis over the requisite service period for the entire award (straight-line attribution method), ensuring that the amount of compensation cost recognized at any date at least equals the portion of the grant-date fair value of the award that is vested at that time. The Company recognizes excess tax benefits on certain stock compensation transactions. The excess tax benefits are recorded through earnings as a discrete item within the Company’s effective tax rate during the period of the transaction. Income Taxes Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in enacted tax rates is recognized in income in the period that includes the enactment date. Income taxes are allocated to each entity in the consolidated group based on its share of taxable income. Management exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets, including projections of future taxable income. Additionally, a liability for unrecognized tax benefits is recorded for uncertain tax positions taken by the Company on its tax returns for which there is less than a 50% likelihood of being recognized upon a tax examination. 81 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Low Income Housing Tax Credits The Company accounts for its investments in qualified affordable housing projects using the proportional amortization method. Under the proportional amortization method the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizes the net investment benefit as a component of income tax expense (benefit). Assets Under Administration Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheet, as such assets are not assets of the Company. Revenue from administrative and management activities associated with these assets is recorded on an accrual basis. Extinguishment of Debt Upon extinguishment of an outstanding debt, the Company records the difference between the exit price and the net carrying amount of the debt as a gain or loss on the extinguishment. The gain or loss is recorded as a component of other noninterest income or other noninterest expense, respectively. Earnings Per Share Basic earnings per share is calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per share is calculated from common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain nonforfeitable rights to dividends are considered participating securities, not subject to performance based measures (i.e. unvested time-vested restricted stock). Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding (inclusive of participating securities). Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the exercise of stock options or the attainment of performance measures) were issued during the period, computed using the treasury stock method. Comprehensive Income Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, unrealized losses related to factors other than credit on debt securities, if applicable, unrealized gains and losses on cash flow hedges, deferred gains on hedge accounting transactions, and changes in the funded status of the Company’s postretirement and supplemental retirement plans. Fair Value Measurements In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Leases The Company leases office space, space for ATM and parking locations, and certain branch locations under noncancelable operating leases, several of which have renewal options to extend lease terms. Upon commencement of a new lease, the Company will recognize a right of use ("ROU") asset and corresponding lease liability. The Company makes the decision on whether to renew an option to extend a lease by considering various factors. The Company will recognize an adjustment to its ROU asset and lease liability when lease agreements are amended and executed, or in an event where the Company is reasonably certain that a renewal option will be exercised. The discount rate used in determining the present value of lease payments is based on the Company's incremental borrowing rate for borrowings with terms similar to each lease at commencement date. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance 82 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) charges, real estate taxes, and insurance, are not included in the measurement of the lease liability since they are generally able to be segregated. The Company has elected the short-term lease recognition exemption for all leases that qualify. The Company may also assume lease obligations in connection with its acquisition activities, which may result in a market-based favorable or unfavorable lease position, resulting in an intangible lease asset. These intangible lease assets are amortized over the estimated remaining lease term. The Company is a party to certain equipment lease transactions where it has assumed the role of lessor for purchased assets. These lease transactions are classified by the Company as either operating leases or direct financing leases for accounting purposes, depending upon the nature of the underlying lease agreements. Under operating lease arrangements, the leased asset value is recorded within fixed assets and the Company recognizes rental income over the life of the lease. Under direct financing lease arrangements, the leased asset value is de-recognized and offset with the recognition of a lease receivable that is evaluated for impairment in a manner similar to loans. Recent Accounting Standards Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 848 "Reference Rate Reform" Update No. 2020-04. Update No. 2020-04 was issued in March 2020 to provide optional expedients and exceptions for applying GAAP to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The amendments will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022. FASB ASC Topic 848 "Reference Rate Reform" Update No. 2021-01 was subsequently issued in January 2021 and expanded application of the optional expedients to derivative transactions affected by the discounting transition. FASB ASC Topic 848 " Reference Rate Reform" Update No. 2022-06 was subsequently issued in December 2022 and defers the sunset date of the standard from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief offered in the standard. The Company has elected to apply certain optional expedients related to hedge accounting and contract modifications, with no material impact to the Company's financial statements. Additionally, the Company has established a working group to guide the Company’s transition from LIBOR and has begun efforts to transition off the LIBOR index consistent with industry timelines. The working group has identified the Company's products that utilize LIBOR, implemented fallback language into applicable contracts, and has selected the Secured Overnight Funding Rate (“SOFR”) as its preferred alternative rate index. FASB ASC Topic 815 "Derivatives and Hedging" Update No. 2022-01. Update No. 2022-01 was issued in March 2022 and its amendments allow for nonprepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. The expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets resulting in more consistent accounting for similar hedges. All amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has assessed the impact of the adoption of this standard and does not expect it to have a material impact on the Company's financial statements. FASB ASC Topic 326 "Financial Instruments - Credit Losses" Update No. 2022-02. Update No. 2022-02 was issued in March 2022 and applies to public entities that have adopted ASU Topic 326. The amendments in this update eliminate the existing accounting guidance for troubled debt restructures ("TDRs") by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors and instead require that an entity evaluate whether a modification represents a new loan or a continuation of an existing loan. The amendments also enhance disclosure requirements for certain loan refinancing and restructuring by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 also requires additional disclosure of current period gross write-offs by year of origination for financing receivables to be included in the entity's vintage disclosure, as currently required under Topic 326. All amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2022-02 effective January 1, 2023 and the adoption did not have a material impact on the Company's financial statements. 83 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 2 ACQUISITIONS Meridian Bancorp, Inc. On November 12, 2021, the Company completed the acquisition of Meridian Bancorp, Inc., parent of East Boston Savings Bank (collectively, "Meridian"). The transaction qualified as a tax-free reorganization for federal income tax purposes and provided a tax-free exchange to Meridian Bancorp, Inc. stockholders with respect to the common stock received in the merger. For each share of Meridian Bancorp, Inc. common stock, stockholders received 0.2750 shares of the Company's stock, with cash paid in lieu of fractional shares. Total consideration of $ 1.3 billion consisted of 14.3 million shares of the Company's common stock issued, as well as $ 11.2 million in cash paid for stock option cancellations and in lieu of fractional shares. In addition to increasing its loan and deposit base, the acquisition enabled the Company to provide a deeper product set to Meridian's customers, as well as benefit from increased operating synergies, which are expected to improve the long-term operating and financial results of the Company. The Company accounted for the Meridian acquisition using the acquisition method pursuant to the Business Combinations Topic of the FASB ASC. Accordingly, the Company recorded pre-tax merger and acquisition expenses of $ 40.8 million during the twelve months ended December 31, 2021 related to the Meridian acquisition. Additionally, the acquisition method requires the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date. The Company used third party valuation specialists to assist in the determination of the fair value of certain assets and liabilities at the acquisition date, including loans, core deposit intangibles and time deposits. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition: Net Assets Acquired at Fair Value (Dollars in thousands) Assets Cash $ 798,470 Investments 266 Loans (including loans held for sale) 4,908,949 Allowance for credit losses on PCD loans ( 16,540 ) Bank Premises and equipment 66,825 Goodwill 478,866 Core deposit and other intangibles 10,300 Other assets 125,543 Total assets acquired 6,372,679 Liabilities Deposits 4,440,432 Borrowings 576,088 Other liabilities 46,432 Total liabilities assumed 5,062,952 Purchase price $ 1,309,727 Fair value adjustments to assets acquired and liabilities assumed are generally amortized using either an effective yield or straight-line basis over periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities. Fair values of the major categories of assets acquired and liabilities assumed were determined as follows: Cash and Cash Equivalents The fair values of cash and cash equivalents approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities. 84 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Loans The loans acquired were recorded at fair value without a carryover of the allowance for credit losses. Fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. Acquired loans were reviewed to determine if any had experienced a more-than-insignificant deterioration in credit quality since origination. Loans meeting established criteria to indicate more-than-insignificant deterioration were identified as PCD loans, and an allowance for credit losses was calculated using management's best estimate of projected losses over the remaining life of the loan in accordance with CECL methodology. In connection with the Meridian acquisition, the Company recorded an allowance for credit losses on PCD loans of approximately $ 16.5 million, which was added to the amortized cost of the loans. For PCD loans acquired from Meridian, a reconciliation of the difference between the purchase price and par value of the assets acquired is presented below: As of November 12, 2021 (Dollars in thousands) Gross amortized cost basis at November 12, 2021 $ 768,018 Allowance for credit losses on PCD loans ( 16,540 ) Interest and liquidity premium 8,560 Purchase price of PCD loans (at fair value) $ 760,038 For loans acquired without evidence of more-than-insignificant deterioration in credit quality since origination, also referred to as non-PCD loans, the Company estimated an allowance for credit losses based on the Company's methodology for determining the allowance under CECL. The resulting allowance on non-PCD loans was $ 50.7 million, which was recorded through a charge to provision for credit losses on the date of acquisition. Premises and Equipment The fair value of the premises, including land, buildings and improvements, was determined based upon appraisals by licensed real estate appraisers. The appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised. Lease Assets and Lease Liabilities Lease assets and liabilities were measured using a methodology to estimate the future rental payments over the remaining lease term with discounting using the Company’s incremental borrowing rate. The lease term was determined for individual leases based on the Company’s assessment of the probability of exercising renewal options. The net effect of any off-market terms in a lease were also discounted and applied to the balance of the lease asset. Core Deposit Intangible The fair value of the core deposit intangible is derived by comparing the interest rate and servicing costs that the financial institution pays on the core deposit liability versus the current market rate for alternative sources of financing, while factoring in estimates over the remaining life and attrition rate of the deposit accounts. The intangible asset represents the stable and relatively low cost source of funds that the deposits and accompanying relationships provide the Company, when compared to alternative funding sources. Deposits The fair value of acquired savings and transaction deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was determined based on the present value of the contractual cash flows over the remaining period to maturity using a market interest rate. 85 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Borrowings The fair values of borrowings were derived based upon the present value of the principal and interest payments using a current market discount rate. Immediately after the closing, the Company paid off the acquired borrowings of $576.1 million in full. Selected Pro Forma Results The following summarizes the unaudited pro forma results of operations as if the Company acquired Meridian on January 1, 2021 (2020 amounts represent combined results for the Company and Meridian). The selected pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the period presented, nor does it indicate future results for any other interim or full-year period. Year Ended December 31 2021 2020 (Dollars in thousands) Net interest income after provision for credit losses $ 565,360 $ 560,461 Net income $ 178,936 $ 186,218 Included in the pro forma net income for the twelve months ended December 31, 2021 are merger-related costs of $ 42.2 million, net of tax, recognized by the Company and Meridian, in the aggregate. These costs were primarily made up of severance, contract terminations due to the change in control, professional and legal fees, facilities conversion and termination costs and other integration costs. NOTE 3 SECURITIES Trading Securities The Company had trading securities of $ 3.9 million and $ 3.7 million at December 31, 2022 and 2021, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company's non-qualified 401(k) Restoration Plan and Non-qualified Deferred Compensation Plan. Equity Securities The Company had equity securities of $ 21.1 million and $ 23.2 million at December 31, 2022 and 2021, respectively. These securities consist primarily of mutual funds held in a rabbi trust and will be used for future payments associated with the Company’s supplemental executive retirement plans. The following table represents a summary of the gains and losses recognized within non-interest income and non-interest expense within the consolidated statements of income that relate to equity securities for the periods indicated: Years Ended December 31 2022 2021 2020 (Dollars in thousands) Net (losses) gains recognized during the period on equity securities $ ( 3,061 ) $ 554 $ 528 Less: net gains recognized during the period on equity securities sold during the period — 192 14 Unrealized (losses) gains recognized during the reporting period on equity securities still held at the reporting date $ ( 3,061 ) $ 362 $ 514 86 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Available for Sale Securities The following table summarizes the amortized cost, allowance for credit losses, and fair value of available for sale securities and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at the dates indicated: December 31, 2022 December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for credit losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for credit losses Fair Value (Dollars in thousands) U.S. government agency securities $ 230,936 $ — $ ( 28,636 ) $ — $ 202,300 $ 217,393 $ 990 $ ( 2,901 ) $ — $ 215,482 U.S. treasury securities 874,035 — ( 82,694 ) — 791,341 873,467 172 ( 12,191 ) — 861,448 Agency mortgage-backed securities 359,068 54 ( 45,434 ) — 313,688 364,955 4,512 ( 5,534 ) — 363,933 Agency collateralized mortgage obligations 41,874 — ( 3,031 ) — 38,843 78,966 1,282 ( 571 ) — 79,677 State, county, and municipal securities 193 — ( 2 ) — 191 192 11 — — 203 Single issuer trust preferred securities issued by banks — — — — — 489 2 — — 491 Pooled trust preferred securities issued by banks and insurers 1,203 — ( 169 ) — 1,034 1,199 — ( 199 ) — 1,000 Small business administration pooled securities 59,470 — ( 7,713 ) — 51,757 47,075 1,839 — — 48,914 Total available for sale securities $ 1,566,779 $ 54 $ ( 167,679 ) $ — $ 1,399,154 $ 1,583,736 $ 8,808 $ ( 21,396 ) $ — $ 1,571,148 Excluded from the table above is accrued interest on available for sale securities of $ 3.6 million and $ 3.0 million at December 31, 2022 and 2021, respectively, which is included within other assets on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities for the years ended December 31, 2022 and 2021. Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status at December 31, 2022 and 2021. When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of securities available for sale for the years ended December 31, 2022 and 2021, and therefore no gains or losses were realized for the periods presented. 87 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following tables shows the gross unrealized losses and fair value of the Company’s available for sale securities in an unrealized loss position, and for which the Company has not recorded a provision for credit losses, as of the dates indicated. These available for sale securities are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position: December 31, 2022 Less than 12 months 12 months or longer Total # of holdings Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Dollars in thousands) U.S. government agency securities 9 $ 60,575 $ ( 7,292 ) $ 141,725 $ ( 21,344 ) $ 202,300 $ ( 28,636 ) U.S. treasury securities 18 43,035 ( 6,350 ) 748,306 ( 76,344 ) 791,341 ( 82,694 ) Agency mortgage-backed securities 123 155,944 ( 15,186 ) 154,653 ( 30,248 ) 310,597 ( 45,434 ) Agency collateralized mortgage obligations 13 38,843 ( 3,031 ) — — 38,843 ( 3,031 ) State, county, and municipal securities 1 191 ( 2 ) — — 191 ( 2 ) Pooled trust preferred securities issued by banks and insurers 1 — — 1,034 ( 169 ) 1,034 ( 169 ) Small business administration pooled securities 8 34,511 ( 3,550 ) 17,246 ( 4,163 ) 51,757 ( 7,713 ) Total impaired available for sale securities 173 $ 333,099 $ ( 35,411 ) $ 1,062,964 $ ( 132,268 ) $ 1,396,063 $ ( 167,679 ) December 31, 2021 Less than 12 months 12 months or longer Total # of holdings Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. government agency securities 6 $ 160,913 $ ( 2,901 ) $ — $ — $ 160,913 $ ( 2,901 ) U.S. treasury securities 17 811,993 ( 12,191 ) — — 811,993 ( 12,191 ) Agency mortgage-backed securities 12 214,678 ( 5,534 ) — — 214,678 ( 5,534 ) Agency collateralized mortgage obligations 1 22,960 ( 571 ) — — 22,960 ( 571 ) Pooled trust preferred securities issued by banks and insurers 1 — — 1,000 ( 199 ) 1,000 ( 199 ) Total impaired available for sale securities 37 $ 1,210,544 $ ( 21,197 ) $ 1,000 $ ( 199 ) $ 1,211,544 $ ( 21,396 ) The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis. In addition, management does not believe that any of the securities are impaired due to reasons of credit quality. As a result, the Company did not recognize a provision for credit losses on these investments for the years ended December 31, 2022 and 2021. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations. As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category were as follows at December 31, 2022: • U.S. Government Agency Securities, U.S. Treasury Securities, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities: These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies. 88 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) • State, County and Municipal Securities : This portfolio has contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. • Pooled Trust Preferred Securities: This portfolio consists of one below investment grade security which is performing. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments. Held to Maturity Securities The following table summarizes the amortized cost, fair value and allowance for credit losses of held to maturity securities and the corresponding amounts of gross unrealized gains and losses at the dates indicated: December 31, 2022 December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for credit losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for credit losses Fair Value (Dollars in thousands) U.S. government agency securities $ 31,258 $ — $ ( 2,222 ) $ — $ 29,036 $ 32,987 $ — $ ( 441 ) — $ 32,546 U.S. treasury securities 100,634 — ( 11,755 ) — 88,879 102,560 6 ( 324 ) — 102,242 Agency mortgage-backed securities 898,927 408 ( 83,383 ) — 815,952 493,012 8,495 ( 4,271 ) — 497,236 Agency collateralized mortgage obligations 535,971 — ( 77,554 ) — 458,417 415,736 3,232 ( 10,123 ) — 408,845 Single issuer trust preferred securities issued by banks 1,500 8 — — 1,508 1,500 8 — — 1,508 Small business administration pooled securities 136,830 313 ( 6,225 ) — 130,918 21,023 733 — — 21,756 Total held to maturity securities $ 1,705,120 $ 729 $ ( 181,139 ) $ — $ 1,524,710 $ 1,066,818 $ 12,474 $ ( 15,159 ) $ — $ 1,064,133 Substantially all held to maturity securities held by the Company are guaranteed by the U.S. federal government or other government sponsored agencies and have a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation and therefore the Company did not record a provision for estimated credit losses on any held to maturity securities for the years ended December 31, 2022 and 2021. Excluded from the table above is accrued interest on held to maturity securities of $ 4.4 million and $ 2.0 million at December 31, 2022 and 2021, respectively, which is included within other assets on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities for the years ended December 31, 2022 and 2021. Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status at December 31, 2022 and 2021. When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of held to maturity securities for the years ended December 31, 2022 and 2021, and therefore no gains or losses were realized for such periods. The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. At December 31, 2022 and 2021, all held to maturity securities held by the Company were rated investment grade or higher. 89 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of securities available for sale and securities held to maturity at December 31, 2022 is presented below: Due in one year or less Due after one year to five years Due after five to ten years Due after ten years Total Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) Available for sale securities U.S. government agency securities $ — $ — $ 117,591 $ 104,486 $ 113,345 $ 97,814 $ — $ — $ 230,936 $ 202,300 U.S. treasury securities 49,958 48,237 690,626 627,111 133,451 115,993 — — 874,035 791,341 Agency mortgage-backed securities 14,800 14,571 72,240 66,658 124,370 105,203 147,658 127,256 359,068 313,688 Agency collateralized mortgage obligations — — — — — — 41,874 38,843 41,874 38,843 State, county, and municipal securities — — 193 191 — — — — 193 191 Pooled trust preferred securities issued by banks and insurers — — — — — — 1,203 1,034 1,203 1,034 Small business administration pooled securities — — — — — — 59,470 51,757 59,470 51,757 Total available for sale securities $ 64,758 $ 62,808 $ 880,650 $ 798,446 $ 371,166 $ 319,010 $ 250,205 $ 218,890 $ 1,566,779 $ 1,399,154 Held to maturity securities U.S. government agency securities $ — $ — $ 31,258 $ 29,036 $ — $ — $ — $ — $ 31,258 $ 29,036 U.S. Treasury securities — — 49,779 44,519 50,855 44,360 — — 100,634 88,879 Agency mortgage-backed securities 152 150 215,269 203,018 450,182 395,627 233,324 217,157 898,927 815,952 Agency collateralized mortgage obligations — — 29,836 28,381 36,576 31,802 469,559 398,234 535,971 458,417 Single issuer trust preferred securities issued by banks — — — — 1,500 1,508 — — 1,500 1,508 Small business administration pooled securities — — — — 3,388 3,088 133,442 127,830 136,830 130,918 Total held to maturity securities $ 152 $ 150 $ 326,142 $ 304,954 $ 542,501 $ 476,385 $ 836,325 $ 743,221 $ 1,705,120 $ 1,524,710 Total $ 64,910 $ 62,958 $ 1,206,792 $ 1,103,400 $ 913,667 $ 795,395 $ 1,086,530 $ 962,111 $ 3,271,899 $ 2,923,864 Included in the table above is $ 24.6 million of callable securities at December 31, 2022. The carrying value of securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law, was $ 959.8 million and $ 740.6 million at December 31, 2022 and 2021, respectively. At December 31, 2022 and 2021, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of stockholders’ equity. 90 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 4 LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY Loans Held for Investment and Allowance for Credit Losses The following table summarizes the change in allowance for credit losses by loan category, and bifurcates the amount of loans allocated to each loan category for the periods indicated: Years Ended December 31, 2022 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for credit losses Beginning balance $ 14,402 $ 83,486 $ 12,316 $ 3,508 $ 14,484 $ 17,986 $ 740 $ 146,922 Charge-offs — ( 62 ) — ( 196 ) — ( 122 ) ( 2,272 ) ( 2,652 ) Recoveries 49 333 — 149 — 121 997 1,649 Provision for credit loss expense 13,108 ( 5,958 ) ( 1,554 ) ( 627 ) 6,489 ( 6,481 ) 1,523 6,500 Ending balance (1) $ 27,559 $ 77,799 $ 10,762 $ 2,834 $ 20,973 $ 11,504 $ 988 $ 152,419 Years Ended December 31, 2021 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for credit losses Beginning balance $ 21,086 $ 45,009 $ 5,397 $ 5,095 $ 14,275 $ 22,060 $ 470 $ 113,392 Charge-offs ( 3,474 ) — — ( 219 ) — ( 69 ) ( 1,182 ) ( 4,944 ) Recoveries 2,686 57 — 98 1 249 638 3,729 Initial reserve on PCD loans 166 14,397 1,019 — 429 163 366 16,540 Provision for credit loss expense ( 6,062 ) 24,023 5,900 ( 1,466 ) ( 221 ) ( 4,417 ) 448 18,205 Ending balance (1) $ 14,402 $ 83,486 $ 12,316 $ 3,508 $ 14,484 $ 17,986 $ 740 $ 146,922 Year Ended December 31, 2020 (Dollars in thousands) Commercial and Industrial Commercial Real Estate Commercial Construction Small Business Residential Real Estate Home Equity Other Consumer Total Allowance for credit losses Beginning balance, pre adoption of ASU 2016-13 $ 17,594 $ 32,935 $ 6,053 $ 1,746 $ 3,440 $ 5,576 $ 396 $ 67,740 Cumulative effect accounting adjustment (2) ( 1,984 ) ( 13,048 ) ( 3,652 ) 495 9,828 7,012 212 ( 1,137 ) Cumulative effect accounting adjustment (3) 49 337 — — 423 319 29 1,157 Charge-offs ( 2,309 ) ( 3,885 ) — ( 380 ) ( 105 ) ( 142 ) ( 1,625 ) ( 8,446 ) Recoveries 289 9 — 33 2 210 1,035 1,578 Provision (benefit) 7,447 28,661 2,996 3,201 687 9,085 423 52,500 Ending balance (1) $ 21,086 $ 45,009 $ 5,397 $ 5,095 $ 14,275 $ 22,060 $ 470 $ 113,392 (1) Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $ 50.8 million, $ 43.7 million, and $ 36.0 million at December 31, 2022, 2021, and 2020, respectively. (2) Represents adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13 on January 1, 2020. The adjustment represents a $ 1.1 million decrease to the allowance attributable to the change in accounting methodology for estimating the allowance for credit losses resulting from the Company's adoption of the standard. (3) Represents adjustment needed to reflect the day one reclassification of the Company's purchased credit impaired ("PCI") loan balances to PCD and the associated gross-up, pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment represents a $ 1.2 million increase to the allowance resulting from the day one reclassification. 91 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The balance of allowance for credit losses of $ 152.4 million at December 31, 2022 increased by $ 5.5 million, or 3.7 % from the prior year driven primarily by an additional reserve allocation associated with a single large commercial and industrial credit that migrated to nonperforming status during 2022, as well as additional provisioning for net loan growth, partially offset by a stabilized credit environment and continued strong asset quality metrics. For the purpose of estimating the allowance for credit losses, management segregated the loan portfolio into the portfolio segments detailed in the above tables. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. Some of the characteristics unique to each loan category include: Commercial Portfolio • Commercial and Industrial : Consists of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of accounts receivable, inventory, plant and equipment, real estate, or other business assets. The primary source of repayment is operating cash flow and, secondarily, liquidation of assets. • Commercial Real Estate : Consists of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties and is inclusive of owner-occupied commercial properties. Loans are typically written with amortizing payment structures. Collateral values are determined based upon third party appraisals and evaluations. Permissible loan to value ratios at origination are governed by Company policy and regulatory guidelines. The primary source of repayment is cash flow from operating leases and rents and, secondarily, liquidation of assets. • Commercial Construction : Consists of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property. Project types include residential land development, one-to-four family, condominium, and multi-family home construction, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project. Collateral values are determined based upon third party appraisals and evaluations. Permissible loan to value ratios at origination are governed by Company policy and regulatory guidelines. Repayment sources vary depending upon the type of project and may consist of proceeds from the sale or lease of units, operating cash flows or liquidation of other assets. • Small Business: Consists of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate if applicable. The primary source of repayment is operating cash flows and, secondarily, liquidation of assets. For the commercial portfolio, the Bank typically will obtain security interests in collateral and obtain personal guarantees for payment from individuals holding material ownership interests in the borrowing entities. Consumer Portfolio • Residential Real Estate : Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral. Collateral consists of mortgage liens on one-to-four family residential properties. Residential mortgage loans also include loans to construct owner-occupied one-to-four family residential properties. • Home Equity : Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied one-to-four family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. The majority of home equity lines of credit have a variable rate and are billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued interest over a predetermined repayment period, as set forth in the note. Additionally, the Company has the option of renewing each line of credit for additional draw periods. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines. • Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. These loans may be secured or unsecured. 92 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Credit Quality The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as adversely risk-rated, delinquent, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point credit risk-rating system, which assigns a risk-grade to each loan obligation based on a number of quantitative and qualitative factors associated with a commercial or small business loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-rating categories for the commercial portfolio are defined as follows: • Pass: Risk-rating “1” through “6” comprises of loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing or above average leverage and/or weakening market fundamentals that indicate below average asset quality, margins and market share. Collateral coverage is protective. • Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Company’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned. • Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loans may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation. • Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely. • Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted. The Company utilizes a comprehensive, continuous strategy for evaluating and monitoring commercial credit quality. Initially, credit quality is determined at loan origination and is re-evaluated when subsequent actions, such as renewals, modifications or reviews, occur. Actively managed commercial borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by experienced credit professionals, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. Any changes in credit quality are reflected in risk-rating changes. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis. For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. As a result, for this portfolio the Company utilizes a pass/default risk-rating system, based on an age analysis (i.e., days past due) associated with each consumer loan. Under this structure, consumer loans less than 90 days past due are assigned a "pass" rating, while any consumer loans 90 days or more past due are assigned a "default" rating. 93 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of the dates indicated below: December 31, 2022 2022 2021 2020 2019 2018 Prior Revolving Loans Revolving converted to Term Total (1) (Dollars in thousands) Commercial and industrial Pass (2) $ 350,036 $ 137,832 $ 113,020 $ 59,936 $ 79,391 $ 18,197 $ 815,128 $ 3,165 $ 1,576,705 Potential weakness 4,836 925 1,023 1,744 467 623 17,122 — 26,740 Definite weakness - loss unlikely 2,389 1,681 180 618 — — 3,623 — 8,491 Partial loss probable — — — — — — 23,167 — 23,167 Definite loss — — — — — — — — — Total commercial and industrial $ 357,261 $ 140,438 $ 114,223 $ 62,298 $ 79,858 $ 18,820 $ 859,040 $ 3,165 $ 1,635,103 Commercial real estate Pass $ 1,277,333 $ 1,487,333 $ 1,213,984 $ 723,794 $ 696,166 $ 1,833,099 $ 44,477 $ 669 $ 7,276,855 Potential weakness 42,005 65,603 39,740 14,167 58,190 183,468 — — 403,173 Definite weakness - loss unlikely 42,629 3,843 4,774 4,066 3,553 21,162 — — 80,027 Partial loss probable — — — — — 175 — — 175 Definite loss — — — — — — — — — Total commercial real estate $ 1,361,967 $ 1,556,779 $ 1,258,498 $ 742,027 $ 757,909 $ 2,037,904 $ 44,477 $ 669 $ 7,760,230 Commercial construction Pass $ 504,932 $ 327,194 $ 169,838 $ 56,693 $ 3,135 $ 1,588 $ 23,122 $ 951 $ 1,087,453 Potential weakness 33,000 1,775 3,347 — — — — — 38,122 Definite weakness - loss unlikely 18,980 9,858 — — — — — — 28,838 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total commercial construction $ 556,912 $ 338,827 $ 173,185 $ 56,693 $ 3,135 $ 1,588 $ 23,122 $ 951 $ 1,154,413 Small business Pass $ 54,876 $ 44,811 $ 31,051 $ 16,588 $ 9,882 $ 18,891 $ 39,434 $ — $ 215,533 Potential weakness — 152 373 366 191 117 686 — 1,885 Definite weakness - loss unlikely 139 98 417 — — 401 629 — 1,684 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total small business $ 55,015 $ 45,061 $ 31,841 $ 16,954 $ 10,073 $ 19,409 $ 40,749 $ — $ 219,102 Residential real estate Pass $ 665,407 $ 419,665 $ 193,886 $ 94,065 $ 94,425 $ 565,246 $ — $ — $ 2,032,694 Default — — 729 158 — 1,943 — — 2,830 Total residential real estate $ 665,407 $ 419,665 $ 194,615 $ 94,223 $ 94,425 $ 567,189 $ — $ — $ 2,035,524 Home equity Pass $ 43,917 $ 60,103 $ 54,802 $ 32,014 $ 26,414 $ 118,367 $ 748,294 $ 3,874 $ 1,087,785 Default — — — 122 — 83 760 — 965 94 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Total home equity $ 43,917 $ 60,103 $ 54,802 $ 32,136 $ 26,414 $ 118,450 $ 749,054 $ 3,874 $ 1,088,750 Other consumer Pass $ 677 $ 2,013 $ 1,619 $ 1,022 $ 231 $ 3,023 $ 26,939 $ — $ 35,524 Default — — — 18 — 11 — — 29 Total other consumer $ 677 $ 2,013 $ 1,619 $ 1,040 $ 231 $ 3,034 $ 26,939 $ — $ 35,553 Total $ 3,041,156 $ 2,562,886 $ 1,828,783 $ 1,005,371 $ 972,045 $ 2,766,394 $ 1,743,381 $ 8,659 $ 13,928,675 December 31, 2021 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving converted to Term Total (1) (Dollars in thousands) Commercial and industrial Pass (2) $ 478,141 $ 167,421 $ 92,657 $ 74,940 $ 12,432 $ 27,000 $ 681,155 $ 250 $ 1,533,996 Potential weakness 779 6,874 1,627 109 908 287 5,401 — 15,985 Definite weakness - loss unlikely 766 317 962 515 2,570 258 7,910 — 13,298 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total commercial and industrial $ 479,686 $ 174,612 $ 95,246 $ 75,564 $ 15,910 $ 27,545 $ 694,466 $ 250 $ 1,563,279 Commercial real estate Pass $ 1,445,829 $ 1,232,824 $ 875,001 $ 950,540 $ 820,201 $ 1,913,217 $ 154,020 $ — $ 7,391,632 Potential weakness 51,024 86,781 53,250 69,137 53,455 185,847 13,617 — 513,111 Definite weakness - loss unlikely 20,078 4,106 3,380 1,663 35,727 22,647 — — 87,601 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total commercial real estate $ 1,516,931 $ 1,323,711 $ 931,631 $ 1,021,340 $ 909,383 $ 2,121,711 $ 167,637 $ — $ 7,992,344 Commercial construction Pass $ 374,023 $ 451,987 $ 141,127 $ 62,752 $ 19,168 $ 48,175 $ 36,368 $ 2,289 $ 1,135,889 Potential weakness 9,646 2,550 — — — 12,811 — — 25,007 Definite weakness - loss unlikely 4,561 — — — — — — — 4,561 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total commercial construction $ 388,230 $ 454,537 $ 141,127 $ 62,752 $ 19,168 $ 60,986 $ 36,368 $ 2,289 $ 1,165,457 Small business Pass $ 53,939 $ 37,017 $ 20,840 $ 13,459 $ 9,665 $ 18,603 $ 35,875 $ — $ 189,398 Potential weakness 210 456 379 198 4 285 803 — 2,335 Definite weakness - loss unlikely — 619 32 9 4 278 514 — 1,456 Partial loss probable — — — — — — — — — Definite loss — — — — — — — — — Total small business $ 54,149 $ 38,092 $ 21,251 $ 13,666 $ 9,673 $ 19,166 $ 37,192 $ — $ 193,189 Residential real estate Pass $ 454,162 $ 215,142 $ 114,762 $ 122,745 $ 133,961 $ 559,701 $ — $ — $ 1,600,473 Default — 392 — 1,010 — 2,811 — — 4,213 Total residential real estate $ 454,162 $ 215,534 $ 114,762 $ 123,755 $ 133,961 $ 562,512 $ — $ — $ 1,604,686 95 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Home equity Pass $ 66,410 $ 63,870 $ 38,201 $ 33,505 $ 38,051 $ 109,544 $ 684,427 $ 3,932 $ 1,037,940 Default — — — — — — 1,555 116 1,671 Total home equity $ 66,410 $ 63,870 $ 38,201 $ 33,505 $ 38,051 $ 109,544 $ 685,982 $ 4,048 $ 1,039,611 Other consumer Pass $ 3,363 $ 2,702 $ 2,191 $ 859 $ 654 $ 4,462 $ 14,377 $ — $ 28,608 Default 16 6 29 25 — 35 1 — 112 Total other consumer $ 3,379 $ 2,708 $ 2,220 $ 884 $ 654 $ 4,497 $ 14,378 $ — $ 28,720 Total $ 2,962,947 $ 2,273,064 $ 1,344,438 $ 1,331,466 $ 1,126,800 $ 2,905,961 $ 1,636,023 $ 6,587 $ 13,587,286 (1) Loans origination dates in the tables above reflect the original date, or the date of a material modification of a previously originated loan, for both organic originations and acquired loans. (2) Loans originated as part of the Paycheck Protection Program ("PPP") established by the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act") are reported as commercial and industrial under the 2021 and 2020 vintage years and "Pass" category as these loans are 100% guaranteed by the U.S. Government. Outstanding PPP loans totaled $ 9.1 million and $ 216.2 million at December 31, 2022 and 2021, respectively. For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios at the dates indicated below: December 31 2022 December 31 2021 Residential portfolio FICO score (re-scored)(1) 753 749 LTV (re-valued)(2) 57.0 % 54.4 % Home equity portfolio FICO score (re-scored)(1) 771 772 LTV (re-valued)(2)(3) 41.3 % 42.4 % (1) The average FICO scores at December 31, 2022 are based upon rescores from December 2022, as available for previously originated loans, or origination score data for loans booked in December 2022. The average FICO scores at December 31, 2021 were based upon rescores from December 2021, as available for previously originated loans, or origination score data for loans booked in December 2021. (2) The combined LTV ratios for December 31, 2022 are based upon updated automated valuations as of November 2022, when available, and/or the most current valuation data available. The combined LTV ratios for December 31, 2021 were based upon updated automated valuations as of November 2021, when available, and/or the most current valuation data available as of such date. The updated automated valuations provide new information on loans that may be available since the previous valuation was obtained. If no new information is available, the valuation will default to the previously obtained data or most recent appraisal. (3) For home equity loans and lines in a subordinate lien, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines. Unfunded Commitments Management evaluates the need for a reserve on unfunded lending commitments in a manner consistent with loans held for investment. At December 31, 2022 and 2021, the Company's estimated reserve for unfunded commitments amounted to $ 1.3 million and $ 1.5 million. Asset Quality 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. Delinquent loans are managed by a team of collection specialists and the Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. The Company also may use discretion regarding other loans 90 days or more delinquent if the loan is well secured and/or in process of collection. 96 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) In response to the COVID-19 pandemic, the Company granted loan modifications to allow deferral of payments for borrowers negatively impacted by the pandemic. The balance of loans with active deferrals decreased to $ 55.6 million at December 31, 2022, compared to $ 383.1 million at December 31, 2021 as granted deferrals continued to reach maturity. The majority of these loans with active deferrals continue to be characterized as current loans. In accordance with regulatory guidance, these modifications were not considered to be troubled debt restructurings ("TDRs") if they were performing prior to December 31, 2019. Additionally, a majority of these loans were characterized as current and therefore were not impacting nonaccrual or delinquency totals at December 31, 2022 and 2021. The Company does, however, consider all active deferrals when estimating loss reserves. As loans reach their deferral maturity date, consideration of TDR and delinquency status will resume in accordance with the Company's accounting po licy. The following table shows information regarding nonaccrual loans at the dates indicated: Nonaccrual Balances December 31, 2022 December 31, 2021 With Allowance for Credit Losses Without Allowance for Credit Losses Total (1) With Allowance for Credit Losses Without Allowance for Credit Losses Total (1) (Dollars in thousands) Commercial and industrial $ 26,395 $ 298 $ 26,693 $ 3,420 $ 19 $ 3,439 Commercial real estate 12,961 2,769 15,730 10,870 — 10,870 Small business 99 5 104 44 — 44 Residential real estate 8,479 — 8,479 8,580 602 9,182 Home equity 3,400 — 3,400 3,781 — 3,781 Other consumer 475 — 475 504 — 504 Total nonaccrual loans $ 51,809 $ 3,072 $ 54,881 $ 27,199 $ 621 $ 27,820 (1) Included in these amounts are $ 11.5 million and $ 2.0 million of nonaccruing TDRs at December 31, 2022 and December 31, 2021, respectively . It is the Company's policy to reverse any accrued interest when a loan is put on nonaccrual status, and, as such, the Company did not record any interest income on nonaccrual loans for the years ended December 31, 2022, 2021, and 2020. The following table shows information regarding foreclosed residential real estate property at the dates indicated: December 31, 2022 December 31, 2021 (Dollars in thousands) Foreclosed residential real estate property held by the creditor $ — $ — Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure $ 1,615 $ 1,426 The following tables show the age analysis of past due financing receivables at the dates indicated: December 31, 2022 30-59 days 60-89 days 90 days or more Total Past Due Total Financing Receivables (2) Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Current (Dollars in thousands) Loan Portfolio Commercial and industrial 3 $ 49 1 $ 175 3 $ 23,726 7 $ 23,950 $ 1,611,153 $ 1,635,103 Commercial real estate 7 2,052 5 4,971 3 2,977 15 10,000 7,750,230 7,760,230 Commercial construction — — — — — — — — 1,154,413 1,154,413 Small business 12 111 3 25 3 5 18 141 218,961 219,102 Residential real estate 8 1,654 8 1,105 16 1,725 32 4,484 2,031,040 2,035,524 Home equity 19 1,647 3 201 17 965 39 2,813 1,085,937 1,088,750 Other consumer (1) 432 421 15 83 4 28 451 532 35,021 35,553 Total 481 $ 5,934 35 $ 6,560 46 $ 29,426 562 $ 41,920 $ 13,886,755 $ 13,928,675 97 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2021 30-59 days 60-89 days 90 days or more Total Past Due Total Financing Receivables (2) Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Number of Loans Principal Balance Current (Dollars in thousands) Loan Portfolio Commercial and industrial 7 $ 143 2 $ 252 2 $ 24 11 $ 419 $ 1,562,860 $ 1,563,279 Commercial real estate 15 32,845 — — 4 1,339 19 34,184 7,958,160 7,992,344 Commercial construction — — — — — — — — 1,165,457 1,165,457 Small business 11 136 6 53 4 24 21 213 192,976 193,189 Residential real estate 12 2,709 5 714 76 3,922 93 7,345 1,597,341 1,604,686 Home equity 15 1,375 6 381 21 1,671 42 3,427 1,036,184 1,039,611 Other consumer (1) 458 719 41 277 16 112 515 1,108 27,612 28,720 Total 518 $ 37,927 60 $ 1,677 123 $ 7,092 701 $ 46,696 $ 13,540,590 $ 13,587,286 (1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances. (2) The amount of net deferred costs on originated loans included in the ending balance was $ 5.0 million at December 31, 2022 compared to net deferred fees of $ 159,000 at December 31, 2021. Net unamortized discounts on acquired loans included in the ending balance was $ 10.4 million at both December 31, 2022 and 2021. Troubled Debt Restructurings In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Exclusive of loans modified under provisions of the CARES Act, any loans that are modified are reviewed by the Bank 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 the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. The following table shows the Company’s total TDRs and other pertinent information at the dates indicated: December 31, 2022 December 31, 2021 (Dollars in thousands) TDRs on accrual status $ 11,278 $ 14,635 TDRs on nonaccrual 11,520 1,993 Total TDRs $ 22,798 $ 16,628 Additional commitments to lend to a borrower who has been a party to a TDR $ 64 $ 190 The Company’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months subsequent to being modified before management considers its 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. Additionally, loans classified as TDRs are adjusted to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized. 98 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table shows the troubled debt restructurings which occurred for the periods indicated and the change in the recorded investment subsequent to the modifications occurring: Year Ended December 31, 2022 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Troubled debt restructurings (Dollars in thousands) Commercial and industrial 4 $ 3,466 $ 3,465 Commercial real estate 1 7,850 7,850 Small business — — — Total 5 $ 11,316 $ 11,315 Year Ended December 31, 2021 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Troubled debt restructurings (Dollars in thousands) Commercial and industrial 1 $ 14,148 $ 14,148 Commercial real estate 5 3,964 3,964 Small business 2 189 189 Total (1) 8 $ 18,301 $ 18,301 Year Ended December 31, 2020 Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Troubled debt restructurings (Dollars in thousands) Commercial and industrial 8 $ 732 $ 732 Commercial real estate 10 2,865 2,865 Small business 10 752 728 Residential real estate 2 559 642 Total (1) 30 $ 4,908 $ 4,967 (1) The pre-modification and post-modification balances represent the legal principal balance of the loan. Activity presented in the tables above includes $ 14.3 million, and $ 1.9 million of modifications on existing TDRs during the years ended December 31, 2021 and 2020, respectively. The following table shows the Company’s post-modification balance of TDRs listed by type of modification for the periods indicated: Years Ended December 31 2022 2021 2020 Extended maturity $ 11,315 $ 4,153 $ 4,120 Adjusted interest rate — — 822 Combination rate and maturity — 14,148 — Court ordered concession — — 25 Total $ 11,315 $ 18,301 $ 4,967 99 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company considers a loan to have defaulted when it reaches 90 days past due. During the twelve months ended December 31, 2022, 2021, and 2020, respectively, there were no loans modified during the prior twelve months that subsequently defaulted during the respective periods. The Company determines the amount of allowance on accruing TDRs using a discounted cash flow approach, or a fair value of collateral approach if the loan is determined to be individually evaluated. The allowance on nonaccrual TDR's is estimated in accordance with the CECL methodology for loans measured on a collective basis. 100 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 5 BANK PREMISES AND EQUIPMENT Bank premises and equipment at December 31, were as follows: 2022 2021 Estimated Useful Life (Dollars in thousands) (In years) Cost Land $ 52,844 $ 54,295 n/a Bank premises 97,760 96,887 5 - 40 Leasehold improvements 47,098 45,263 1 - 15 Furniture and equipment 93,450 89,029 1 - 10 Leased equipment 32,792 21,660 5 Total cost 323,944 307,134 Accumulated depreciation ( 127,440 ) ( 111,544 ) Net bank premises and equipment $ 196,504 $ 195,590 Depreciation expense related to bank premises and equipment was $ 18.4 million, $ 12.5 million, and $ 12.8 million for the years ended December 31, 2022, 2021 and 2020, respectively, and is primarily reflected in occupancy and equipment expenses. Leased equipment held by the Company totaled $ 32.8 million and $ 21.7 million at December 31, 2022 and 2021, respectively. The leased equipment is subject to a master lease agreement entered into during 2021 with a third party lessee and the Company assumes the role of lessor in the transaction, which is deemed an operating lease for accounting purposes. The Company recognized rental income of $ 6.1 million, $ 890,000 and $ 1.5 million for the years ended December 31, 2022, 2021 and 2020, respectively . NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS The following table sets forth the carrying value of goodwill and other intangible assets, net of accumulated amortization, at December 31: 2022 2021 (Dollars in thousands) Balances not subject to amortization Goodwill $ 985,072 $ 985,072 Balances subject to amortization Core deposit intangibles 20,757 27,053 Other intangible assets 4,311 5,719 Total other intangible assets 25,068 32,772 Total goodwill and other intangible assets $ 1,010,140 $ 1,017,844 The changes in the carrying value of goodwill for the periods indicated were as follows: 2022 2021 (Dollars in thousands) Balance at beginning of year $ 985,072 $ 506,206 Acquisitions — 478,866 Balance at end of year $ 985,072 $ 985,072 The gross carrying amount and accumulated amortization of other intangible assets were as follows at the dates indicated: 101 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31 2022 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (Dollars in thousands) Core deposit intangibles $ 46,770 $ ( 26,013 ) $ 20,757 $ 48,920 $ ( 21,867 ) $ 27,053 Other intangible assets 6,100 ( 1,789 ) 4,311 6,390 ( 671 ) 5,719 Total $ 52,870 $ ( 27,802 ) $ 25,068 $ 55,310 $ ( 22,538 ) $ 32,772 The following table sets forth the estimated annual amortization expense of intangible assets for each of the next five years: Year Amount (Dollars in thousands) 2023 $ 6,878 2024 $ 5,905 2025 $ 4,716 2026 $ 2,820 2027 $ 2,077 The original weighted average amortization period for intangible assets is 9.5 years. 102 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 7 DEPOSITS The following is a summary of the scheduled maturities of time deposits at December 31: 2022 2021 (Dollars in thousands) 1 year or less $ 953,214 79.7 % $ 1,216,437 79.4 % Over 1 year to 2 years 150,102 12.5 % 142,942 9.3 % Over 2 years to 3 years 66,995 5.6 % 85,650 5.6 % Over 3 years to 4 years 15,172 1.3 % 66,907 4.4 % Over 4 years to 5 years 10,258 0.9 % 19,214 1.3 % Total $ 1,195,741 100.0 % $ 1,531,150 100.0 % The amount of overdraft deposits that were reclassified to the loan category were $ 2.8 million and $ 1.5 million at December 31, 2022 and 2021, respectively. The Company had pledged assets as collateral covering certain deposits in the amount of $ 959.8 million and $ 740.6 million at December 31, 2022 and 2021, respectively. The Bank's deposit accounts are insured to the maximum extent permitted by law by the Deposit Insurance Fund which is administered by the FDIC. The FDIC offers insurance coverage on deposits up to the federally insured limit of $250,000. The total amount of time deposit accounts with balances equal to or greater than $250,000 at December 31, 2022 and 2021 was $ 251.1 million and $ 339.3 million, respectively. NOTE 8 BORROWINGS Federal Home Loan Bank Borrowings The Company typically utilizes FHLB advances for certain short-term and long-term borrowing needs, as deemed necessary. The Company had short-term borrowings outstanding with the FHLB of $ 25.0 million at December 31, 2021, with a contractual rate of 0.34 %. This borrowing matured during the third quarter of 2022 resulting in no outstanding short-term borrowings with the FHLB at December 31, 2022. To manage the interest rate risk of these advances, the Company may enter into interest rate swap agreements which effectively fixes the rate of the borrowing. Inclusive of the impact of these swap arrangements, the weighted average rate of the Company's borrowings at December 31, 2021 was 2.05 %. In addition to these short-term advances, the Company may also utilize longer term amortizing advances, of which $ 637,000 and $ 667,000 were outstanding at December 31, 2022 and 2021, respectively. At December 31, 2022 and 2021, the Company had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB's collateral pledging program. The Company’s FHLB advances are collateralized by a blanket pledge agreement on the Bank’s FHLB stock, certain qualified investment securities, deposits at the FHLB, residential mortgages, and by certain commercial real estate loans held in the Bank’s portfolio. The carrying value of loans pledged as collateral for these borrowings totaled $ 2.7 billion and $ 2.3 billion at December 31, 2022 and 2021, respectively, resulting in available borrowing capacity with the FHLB of $ 1.8 billion and $ 1.6 billion at December 31, 2022, and 2021, respectively. 103 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Long-Term Debt The following table summarizes long-term debt, net of debt issuances costs, at the dates indicated: December 31 2022 2021 (Dollars in thousands) Long term borrowings, net $ — $ 14,063 Junior subordinated debentures Capital Trust V 51,514 51,512 Central Trust I 5,258 5,258 Central Trust II 6,083 6,083 Subordinated debentures 49,885 49,791 Total long-term debt $ 112,740 $ 126,707 The interest expense on long-term debt was $ 4.6 million, $ 4.5 million, and $ 5.4 million for the years ended December 31, 2022, 2021, and 2020, respectively. Long-term borrowings: The Company had no outstanding long-term borrowings as of December 31, 2022 and long-term borrowings of $ 14.1 million as of December 31, 2021 related to a senior unsecured term loan credit facility entered into during 2019. The credit facility was re-paid in full during the first quarter of 2022. Junior Subordinated Debentures : The junior subordinated debentures are issued to various trust subsidiaries of the Company. These trusts were formed for the purpose of issuing trust preferred securities, which were then sold in a private placement offering. The proceeds from the sale of the securities and the issuance of common stock by these trusts were invested in these Junior Subordinated Debentures issued by the Company. These trust preferred securities bear interest at a rate of three-month LIBOR ( 4.77 % at December 31, 2022) plus applicable spread, or equivalent alternate rate. Information relating to these trust preferred securities at December 31, 2022 is as follows: Trust Principal Amount Maturity Date Interest Rate Spread All-in Rate (Dollars in thousands) Capital Trust V $ 50,000 3/15/2037 1.48 % 6.25 % Central Trust I (1) $ 5,100 9/16/2034 2.44 % 7.21 % Central Trust II (1) $ 5,900 3/15/2037 1.65 % 6.42 % (1) These securities noted above are callable quarterly until maturity. Subordinated Debentures : On March 14, 2019 the Company issued subordinated debentures with an aggregate principal amount of $ 50.0 million in a private placement transaction to institutional accredited investors, which remained outstanding at both December 31, 2022 and 2021. The subordinated debentures mature on March 15, 2029. However, with regulatory approval, the Company may redeem the subordinated debentures without penalty at any scheduled payment date on or after March 15, 2024 with 30 days notice. The subordinated debentures carry a fixed rate of interest of 4.75 % through March 15, 2024, after which interest converts to a variable rate of the then current three-month LIBOR rate plus 219 basis points, or equivalent alternate rate. At December 31, 2022, the Company held no borrowings scheduled to mature within the next 5 years. 104 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 9 STOCK BASED COMPENSATION The Company's stock based plans include the Second Amended and Restated 2005 Employee Stock Plan (the "2005 Plan") and the 2018 Non-Employee Director Stock Plan (the "2018 Plan"), which have been approved by the Company’s Board of Directors and shareholders. These shares may be awarded as either stock option awards or restricted stock awards from its pool of authorized but unissued shares. The following table presents the amount of cumulatively granted stock option awards and restricted stock awards, net of forfeitures and expirations, granted through December 31, 2022: Authorized Awards Cumulatively Granted, Net of Forfeitures and Expirations Total Authorized but Unissued Stock Option Awards Restricted Stock Awards 2005 Plan 1,650,000 387,258 986,882 1,374,140 275,860 2018 Plan 300,000 — 38,357 38,357 261,643 The following table presents the pre-tax expense associated with stock option and restricted stock awards and the related tax benefits recognized for the periods presented: Years Ended December 31 2022 2021 2020 (Dollars in thousands) Stock based compensation expense Restricted stock awards (1) $ 3,791 $ 3,580 $ 3,272 Directors’ fee expense (2) Restricted stock awards 673 729 851 Total stock based award expense $ 4,464 $ 4,309 $ 4,123 Related tax benefits recognized in earnings $ 1,255 $ 1,212 $ 1,159 (1) Inclusive of compensation expense associated with time-vested and performance-based restricted stock awards. (2) Expense related to awards issued to directors is recognized as directors’ fees within other noninterest expense. The Company has standard form agreements used for stock option and restricted stock awards. The standard form agreements used for the Chief Executive Officer and all other Executive Officers have previously been disclosed in Securities and Exchange Commission filings and generally provide that: (1) any unvested options or unvested restricted stock vest upon a Change of Control; and, that (2) any stock options which vest pursuant to a Change of Control, which is an event described in Section 280G of the Internal Revenue Code of 1986, will be cashed out at the difference between the acquisition price and the exercise price of the stock option. Stock Options The fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions used for grants under the identified plans: • Expected volatility is based on the standard deviation of the historical volatility of the weekly adjusted closing price of the Company’s shares for a period equivalent to the expected life of the option. • Expected life represents the period of time that the option is expected to be outstanding, taking into account the contractual term, historical exercise/forfeiture behavior, and the vesting period, if any. • Expected dividend yield is an annualized rate calculated using the most recent dividend payment at time of grant and the Company’s average trailing twelve-month daily closing stock price. • The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equivalent to the expected life of the option. • Forfeitures on stock compensation are recognized when they occur. 105 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) For the years ended December 31, 2022, 2021 and 2020 there were no awards granted by the Company of nonqualified options to purchase shares of common stock. Under all of the Company’s stock based plans, the option exercise price is based upon the average of the high and low trading value of the stock on the date of grant. Stock option awards granted to date under all plans expire at various dates through 2028. The following table presents relevant information relating to the Company’s stock options for the periods presented: Years Ended December 31 2022 2021 2020 (Dollars in thousands, except per share data) Fair value of stock options vested based on grant date fair value $ — $ — $ 22 Intrinsic value of stock options exercised $ — $ 414 $ 404 Cash received from stock option exercises $ — $ 233 $ 279 Tax benefit realized on stock option exercises $ — $ 116 $ 114 The following table presents a summary of stock option award activity for the year ended December 31, 2022: Outstanding Stock Option Awards Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (1) (Dollars in thousands, except per share data) Balance at January 1, 2022 20,000 $ 56.18 Granted — — Exercised — — Balance of options outstanding, vested and exercisable at December 31, 2022 20,000 (2) $ 56.18 3.35 years $ 568 (1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on the average of the high price and low price at which the Company’s common stock traded on December 31, 2022 of $ 84.57 , which would have been received by in-the-money option holders had they all exercised their options as of that date. (2) Represents vested stock options outstanding to Directors. For the year ended December 31, 2022, all outstanding stock option awards are vested and there is no unrecognized compensation expense related to those options. Restricted Stock The Company grants both time-vested restricted stock awards as well as performance-based restricted stock awards. The fair value of the restricted stock awards are based upon the average of the high and low prices at which the Company’s common stock traded on the date of grant. The holders of time-vested restricted stock awards participate fully in the rewards of stock ownership of the Company, including voting and dividend rights. The holders of performance-based restricted stock awards do not participate in the rewards of stock ownership of the Company until vested. The holders of all restricted stock awards are not required to pay any consideration to the Company for the awards. 106 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) During the years ended December 31, 2022, 2021, and 2020 the Company made the following restricted stock award grants: Shares Granted Plan Fair Value Vesting Period Time-vested 2022 2/17/2022 52,100 2005 $ 84.70 Ratably over 5 years from grant date 5/24/2022 8,099 2018 $ 80.39 Immediately upon grant date 9/15/2022 646 2005 $ 77.44 Ratably over 5 years from grant date 2021 2/18/2021 49,550 2005 $ 81.84 Ratably over 5 years from grant date 5/25/2021 7,680 2018 $ 78.18 Immediately upon grant date 9/1/2021 640 2018 $ 76.78 Immediately upon grant date 2020 2/27/2020 46,550 2005 $ 70.24 Ratably over 5 years from grant date 4/15/2020 880 2005 $ 70.02 Ratably over 5 years from grant date 5/27/2020 9,438 2018 $ 72.86 Immediately upon grant date Performance-based 2/17/2022 20,700 2005 $ 84.70 The earlier of: the date on which it is determined if the performance goal has been achieved; or, March 31, 2025. 2/18/2021 18,900 2005 $ 81.84 The earlier of: the date on which it is determined if the performance goal has been achieved; or, March 31, 2024. 2/27/2020 17,100 2005 $ 70.24 The earlier of: the date on which it is determined if the performance goal has been achieved; or, March 31, 2023. The following table presents the fair value of restricted stock awards that vested during the periods presented: Years Ended December 31 2022 2021 2020 (Dollars in thousands) Fair value of restricted stock awards upon vesting $ 5,148 $ 5,754 $ 5,580 107 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table presents a summary of restricted stock award activity for the year ended December 31, 2022: Outstanding Restricted Stock Awards Weighted Average Grant Price ($) Balance at January 1, 2022 185,173 $ 77.03 Granted 81,545 84.21 Vested/released ( 61,396 ) 75.73 Forfeited (2) ( 13,910 ) 81.96 Balance at December 31, 2022 191,412 (1) $ 80.15 Unrecognized compensation cost (in thousands) (1) $ 8,916 Weighted average remaining recognition period (years) 3.09 years (1) There are no unvested restricted stock awards outstanding to Directors and therefore no related unrecognized compensation cost for Directors. (2) Forfeited amounts are inclusive of 7,450 performance-based shares that were not vested based on performance objective criteria results. NOTE 10 DERIVATIVES AND HEDGING ACTIVITIES The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, the Company enters into interest rate derivatives, foreign exchange contracts and risk participation agreements to accommodate the business requirements of its customers (“customer related positions”). The Company minimizes the market and liquidity risks of customer related positions by entering into similar offsetting positions with broker-dealers. Derivative instruments are carried at fair value in the Company's financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship. The Company does not enter into proprietary trading positions for any derivatives. The Company is subject to over-the-counter derivative clearing requirements which require certain derivatives to be cleared through central clearing houses. Accordingly, the Company clears certain derivative transactions through the Chicago Mercantile Exchange Clearing House ("CME"). This clearing house requires the Company to post initial and variation margin to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts. Interest Rate Positions The Company may utilize various interest rate derivatives as hedging instruments against interest rate risk associated with the Company’s borrowings and loan portfolios. An interest rate derivative is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. 108 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following tables reflect information about the Company’s derivative positions at the dates indicated below for interest rate swaps which qualify as cash flow hedges for accounting purposes: December 31, 2022 Weighted Average Rate Notional Amount Average Maturity Current Rate Paid Receive Fixed Swap Rate Fair Value (in thousands) (in years) (in thousands) Interest rate swaps on loans $ 1,050,000 2.97 4.24 % 2.66 % $ ( 42,005 ) Current Rate Paid Receive Fixed Swap Rate Cap - Floor Interest rate collars on loans 400,000 2.27 4.22 % 3.09 % - 2.19 % ( 10,239 ) Total $ 1,450,000 $ ( 52,244 ) December 31, 2021 Weighted Average Rate Notional Amount Average Maturity Current Rate Received Pay Fixed Swap Rate Fair Value (in thousands) (in years) (in thousands) Interest rate swaps on borrowings $ 25,000 0.62 0.16 % 1.88 % $ ( 294 ) Current Rate Paid Receive Fixed Swap Rate Interest rate swaps on loans 550,000 2.58 0.11 % 2.16 % 11,830 Current Rate Paid Receive Fixed Swap Rate Cap - Floor Interest rate collars on loans 400,000 1.66 0.11 % 2.73 % - 2.20 % 9,383 Total $ 975,000 $ 20,919 The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 6.2 years. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $ 28.6 million (pre-tax) to be reclassified as an increase to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months following December 31, 2022. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve at December 31, 2022. During the year ended December 31, 2020, the Company accelerated the reclassification of a loss of approximately $684,000 from OCI to earnings as a result of the termination of one of its cash flow hedges. The Company exited the hedge and paid off the associated borrowing in 2020. The Company did not terminate any of its cash flow hedges during the years ended December 31, 2022 and 2021. The Company had no fair value hedges for the years ended December 31, 2022, 2021 and 2020. 109 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Customer Related Positions Loan level derivatives, primarily interest rate swaps, offered to commercial borrowers through the Company’s loan level derivative program do not qualify as hedges for accounting purposes. The Company believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an offsetting dealer transaction. Derivatives with dealer counterparties are then either cleared through a clearinghouse or settled directly with a single counterparty. The commercial customer derivative program allows the Company to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. The amounts relating to the notional principal amount are not actually exchanged. Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes. The Company acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions. The amounts relating to the notional principal amount are exchanged. The Company has entered into risk participation agreements with other dealer banks in commercial loan agreements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and, therefore, changes in fair value are recognized in earnings. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank. 110 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following tables reflect the Company’s customer related derivative positions at the dates indicated below for those derivatives not designated as hedging: Number of Positions (1) Notional Amount Maturing Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value December 31, 2022 (Dollars in thousands) Loan level swaps Receive fixed, pay variable 283 $ 80,531 $ 96,613 $ 256,924 $ 193,096 $ 1,016,312 $ 1,643,476 $ ( 118,930 ) Pay fixed, receive variable 283 80,531 96,613 256,924 193,096 1,016,312 1,643,476 118,928 Foreign exchange contracts Buys foreign currency, sells U.S. currency 49 124,982 13,363 — — — 138,345 306 Buys U.S. currency, sells foreign currency 49 124,982 13,363 — — — 138,345 ( 232 ) Risk participation agreements Participation out 13 2,595 — 24,538 — 95,514 122,647 161 Participation in 6 27,365 — — — 25,849 53,214 ( 15 ) Number of Positions (1) Notional Amount Maturing Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value December 31, 2021 (Dollars in thousands) Loan level swaps Receive fixed, pay variable 296 $ 37,589 $ 139,844 $ 123,507 $ 260,953 $ 1,060,276 $ 1,622,169 $ 55,984 Pay fixed, receive variable 296 37,589 139,844 123,507 260,953 1,060,276 1,622,169 ( 55,982 ) Foreign exchange contracts Buys foreign currency, sells U.S. currency 52 149,588 8,784 — — — 158,372 5,734 Buys U.S. currency, sells foreign currency 52 149,588 8,784 — — — 158,372 ( 5,734 ) Risk participation agreements Participation out 11 — 2,635 7,138 24,539 68,408 102,720 279 Participation in 7 29,972 28,235 — — 8,339 66,546 ( 55 ) (1) The Company may enter into one dealer swap agreement which offsets multiple commercial borrower swap agreements. Mortgage Derivatives The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that loans will likely be sold subsequently in the secondary market. Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. These commitments are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with changes in their fair values recorded within mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The change in fair value associated with loans held for sale was a decrease of $ 452,000 , a decrease of $ 1.7 million and an increase of $ 1.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives. 111 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Outstanding loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might change from inception of the rate lock to funding of the loan due to changes in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases. To protect against the price risk inherent in derivative loan commitments, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Mandatory delivery contracts are accounted for as derivative instruments. Included in the mandatory delivery forward commitments are To Be Announced securities ("TBAs"). Certain assumptions, including pull through rates and rate lock periods, are used in managing the existing and future hedges. The accuracy of underlying assumptions will impact the ultimate effectiveness of any hedging strategies. With mandatory delivery contracts, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a "pair-off" fee, based on then-current market prices, to the investor/counterparty to compensate the investor for the shortfall. Generally the Company makes this type of commitment once mortgage loans have been funded and are held for sale, in order to minimize the risk of failure to deliver the requisite volume of loans to the investor and paying pair-off fees as a result. The Company also sells TBA securities to offset potential changes in the fair value of derivative loan commitments. Generally the Company sells TBA securities by entering into derivative loan commitments for settlement in 30 to 90 days. The Company expects that mandatory delivery contracts, including TBA securities, will experience changes in fair value opposite to the changes in the fair value of derivative loan commitments. With best effort contracts, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally best efforts cash contracts have no pair off risk regardless of market movement. The price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these best efforts forward loan sale commitments will experience a net neutral shift in fair value with related derivative loan commitments. The aggregate amount of net realized gains or losses on sales of loans included within mortgage banking income was $ 562,000 , $ 19.9 million and $ 30.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. Balance Sheet Offsetting The Company does not offset fair value amounts recognized for derivative instruments. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be maintained at dealer banks by the Company is monitored and adjusted as necessary. A daily settlement occurs through the CME for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through the daily clearing agent. As a result, the total fair values of loan level derivative assets and liabilities recognized on the Company's financial statements are not equal and offsetting. 112 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The table below presents the fair value of the Company’s derivative financial instruments, as well as their classification on the balance sheet at the dates indicated: Asset Derivatives (1) Liability Derivatives (2) Fair Value at Fair Value at Fair Value at Fair Value at December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 (Dollars in thousands) Derivatives designated as hedges Interest rate derivatives $ — (3) $ 21,951 (3) $ 52,244 (4) $ 1,032 (4) Derivatives not designated as hedges Customer Related Positions: Loan level derivatives 123,372 (3) 68,726 (3) 123,374 (4) 68,724 (4) Foreign exchange contracts 4,352 6,147 4,278 6,147 Risk participation agreements 161 279 15 55 Mortgage Derivatives Interest rate lock commitments 43 753 — — Forward sale loan commitments 30 56 — — Forward sale hedge commitments — — — 57 Total derivatives not designated as hedges 127,958 75,961 127,667 74,983 Total 127,958 97,912 179,911 76,015 Netting Adjustments (5) ( 57,784 ) ( 5,727 ) 33,245 6,769 Net Derivatives on the Balance Sheet 70,174 92,185 146,666 69,246 Financial instruments (6) 20,019 22,378 20,019 22,378 Cash collateral pledged (received) — — — 33,838 Net Derivative Amounts $ 50,155 $ 69,807 $ 126,647 $ 13,030 (1) All asset derivatives are located in other assets on the balance sheet . (2) All liability derivatives are located in other liabilities on the balance sheet . (3) Approximately $ 2.2 million of accrued interest receivable is included in the fair value of the loan level asset derivatives at December 31, 2022, in comparison to accrued interest receivable of approximately $ 1.2 million and $ 1.5 million included in the fair value of interest rate and loan level derivative assets, respectively, at December 31, 2021. (4) Approximately $ 1.3 million and $ 2.2 million of accrued interest payable is included in the fair value of interest rate and loan level derivative liabilities, respectively, at December 31, 2022, in comparison to accrued interest payable of approximately $ 5,000 and $ 1.5 million, respectively, at December 31, 2021. (5) Netting adjustments represent the amounts recorded to convert derivative assets and liabilities cleared through CME from a gross basis to a net basis, inclusive of the variation margin payments, in accordance with applicable accounting guidance. As displayed in the table above, derivatives that cleared through the CME were either in a net asset position or a net liability position as of December 31, 2022 and 2021. (6) Reflects offsetting derivative positions with the same counterparty that are not netted on the balance sheet. 113 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The table below presents the effect of the Company’s derivative financial instruments included in OCI and current earnings for the periods indicated: Years Ended December 31 2022 2021 2020 (Dollars in thousands) Derivatives designated as hedges (Loss) gain in OCI on derivatives (effective portion), net of tax $ ( 50,767 ) $ ( 19,139 ) $ 16,797 Gain reclassified from OCI into interest income or interest expense (effective portion) $ 5,054 $ 18,691 $ 14,306 Loss reclassified from OCI into noninterest expense (loss on termination) $ — $ — $ ( 684 ) Derivatives not designated as hedges Changes in fair value of customer related positions Other income $ 260 $ 217 $ 90 Other expenses ( 268 ) ( 405 ) ( 199 ) Changes in fair value of mortgage derivatives Mortgage banking income ( 679 ) ( 4,725 ) 4,005 Total $ ( 687 ) $ ( 4,913 ) $ 3,896 The Company's derivative agreements with institutional counterparties contain various credit-risk related contingent provisions, such as requiring the Company to maintain a well-capitalized capital position. If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions. All derivative instruments with credit-risk related contingent features were in a net asset position at December 31, 2022. At December 31, 2021, the aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $ 34.8 million. Although none of the contingency provisions have applied at December 31, 2022 and December 31, 2021, the Company posted collateral to offset the net liability exposure with institutional counterparties at December 31, 2021. By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s Board of Directors. In addition, certain derivative contracts executed bilaterally with a dealer counterparty in the over-the-counter market are cleared through a clearinghouse, whereby the clearinghouse becomes the counterparty to the transaction. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote. The Company's exposure relating to institutional counterparties was $ 121.2 million and $ 28.3 million at December 31, 2022 and 2021, respectively. The Company’s exposure relating to customer counterparties was approximately $ 2.2 million and $ 62.4 million at December 31, 2022 and 2021, respectively. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. 114 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 11 INCOME TAXES The provision for income taxes is comprised of the following components: Years Ended December 31 2022 2021 2020 (Dollars in thousands) Current expense Federal $ 60,216 $ 21,539 $ 32,171 State 24,979 11,054 17,004 Total current expense 85,195 32,593 49,175 Deferred expense (benefit) Federal ( 970 ) 3,032 ( 10,872 ) State ( 284 ) 58 ( 6,634 ) Total deferred expense (benefit) ( 1,254 ) 3,090 ( 17,506 ) Total expense $ 83,941 $ 35,683 $ 31,669 The difference between the statutory federal income tax rate and the effective income tax rate reported for the last three years is detailed below: Years Ended December 31 2022 2021 2020 (Dollars in thousands) Computed statutory federal income tax provision $ 73,028 21.00 % $ 32,902 21.00 % $ 32,096 21.00 % State taxes, net of federal tax benefit 19,728 5.67 % 8,754 5.59 % 8,147 5.33 % Low Income Housing Project Investments ( 3,364 ) ( 0.97 ) % ( 2,308 ) ( 1.47 ) % ( 1,851 ) ( 1.21 ) % Nontaxable interest, net ( 3,191 ) ( 0.92 ) % ( 1,022 ) ( 0.65 ) % ( 723 ) ( 0.47 ) % Increase in cash surrender value of life insurance ( 1,885 ) ( 0.54 ) % ( 1,405 ) ( 0.90 ) % ( 1,345 ) ( 0.88 ) % Increase (decrease) in uncertain positions ( 1,035 ) ( 0.30 ) % 50 0.03 % — — % Stock-based compensation ( 202 ) ( 0.06 ) % ( 372 ) ( 0.24 ) % ( 1,067 ) ( 0.70 ) % CARES Act - net operating loss carryback (1) — — % — — % ( 4,809 ) ( 3.15 ) % Change in valuation allowance 52 0.01 % 26 0.02 % — — % Merger and other related costs (non-deductible) — — % 630 0.40 % — — % Other, net 810 0.25 % ( 1,572 ) ( 1.00 ) % 1,221 0.80 % Total expense $ 83,941 24.14 % $ 35,683 22.78 % $ 31,669 20.72 % (1) On March 27, 2020 the CARES Act was signed into law, allowing the Company to realize a $ 4.8 million discrete tax benefit. This discrete benefit was associated with revised net operating loss (NOL) carryback provisions. The difference in enacted tax rates between the year of carryback versus carryforward resulted in a benefit recognized in income during the period that included the enactment date. Accordingly, the discrete benefit was fully recognized during the first quarter of 2020. 115 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The tax-effected components of the net deferred tax asset at December 31 of the years presented were as follows: 2022 2021 (Dollars in thousands) Deferred tax assets Accrued expenses not deducted for tax purposes $ 16,162 $ 15,909 Allowance for credit losses 42,748 41,541 Derivatives fair value adjustment 14,328 — Employee and director equity compensation 1,388 1,489 Foreign Tax Credit Carryforward 89 89 Loan basis difference fair value adjustment 2,273 2,286 Net operating loss carry-forward 606 637 Net unrealized loss on securities available for sale 38,968 2,921 Operating lease liability 17,069 17,970 Other 791 1,188 Gross deferred tax assets $ 134,422 $ 84,030 Valuation allowance ( 358 ) ( 306 ) Total deferred tax assets net of valuation allowance $ 134,064 $ 83,724 Deferred tax liabilities Core deposit and other intangibles $ 4,137 $ 5,927 Deferred loan fees, net 8,281 6,107 Derivatives fair value adjustment — 5,536 Fixed assets 18,132 18,437 Goodwill 11,432 11,249 Prepaid pension 3,469 3,296 Right of use asset 16,565 16,829 Other 2,112 1,825 Gross deferred tax liabilities $ 64,128 $ 69,206 Total net deferred tax asset $ 69,936 $ 14,518 Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of the tax benefit depends upon the existence of sufficient taxable income in future periods. 116 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Uncertainty in Income Taxes The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as in various states. The Company is subject to U.S. federal, state and local income tax examinations by tax authorities for the 2019 through 2021 tax years including any related income tax filings from its recent acquisitions. The Company believes that its income tax returns have been filed based upon applicable statutes, regulations and case law in effect at the time of filing, however, the Internal Revenue Service ("IRS") and /or state jurisdictions could disagree with the Company's interpretation upon examination. The Company accounts for uncertainties in income taxes by providing a tax reserve for certain positions. The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits: (Dollars in thousands) Balance at December 31, 2019 $ 532 Reduction of tax positions for prior years $ ( 58 ) Balance at December 31, 2020 $ 474 Reduction of tax positions for prior years ( 29 ) Increase for current year tax positions 2,433 Balance at December 31, 2021 2,878 Reduction of tax positions for prior years ( 1,047 ) Increase for prior year tax positions 128 Increase for current year tax positions 761 Balance at December 31, 2022 $ 2,720 Increases to the Company's unrealized tax positions occur as a result of accruing for any unrecognized tax benefit, as well as the accrual of interest and penalties related to prior year positions. Decreases in the Company's unrealized tax positions occur as a result of the statute of limitation lapsing on prior year positions and/or settlements relating to outstanding positions. Additionally, the balances noted in the table above do not include the indirect federal benefit of state tax positions of approximately $ 544,000 and $604,000, at December 31, 2022 and 2021 respectively. The following table summarizes the changes in accrued interest and penalties related to uncertain tax positions for the periods presented: As of December 31 2022 2021 2020 (Dollars in thousands) Beginning Balance $ 920 $ 95 $ 43 Expense (benefit) recognized in provision for income taxes ( 335 ) 69 52 Acquired obligation for interest and penalties (1) — 756 — Ending Balance $ 585 $ 920 $ 95 (1) Represents balances of accrued interest and penalties assumed by the Company in connection with the Meridian acquisition. 117 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 12 LOW INCOME HOUSING PROJECT INVESTMENTS The Company has invested in low income housing projects that generate Low Income Housing Tax Credits ("LIHTC") which provide the Company with tax credits and operating loss tax benefits over a minimum of 15 years. None of the original investment is expected to be repaid. The following table presents certain information related to the Company's investments in low income housing projects as of December 31 of the years presented: 2022 2021 2020 (Dollars in thousands) Original investment value $ 197,124 $ 179,481 $ 128,752 Current recorded investment 139,454 135,497 97,435 Unfunded liability obligation 57,913 73,336 49,586 Tax credits and benefits earned during the year 17,011 14,198 9,404 Amortization of investments during the year 13,647 11,892 7,552 Net income tax benefit recognized during the year 3,364 2,306 1,851 NOTE 13 EMPLOYEE BENEFIT PLANS Pension Plans The Company maintains a multiemployer defined benefit pension plan (the "Pension Plan") administered by Pentegra Retirement Services (the "Fund" or "Pentegra Defined Benefit Plan for Financial Institutions"). The Fund does not segregate the assets or liabilities of all participating employers and accordingly, disclosure of plan assets, accumulated vested and nonvested benefits is not possible. Effective July 1, 2006, the Company froze the defined benefit plan by eliminating all future benefit accruals. In conjunction with the acquisition of Peoples Federal Bancshares, Inc., the parent of Peoples Federal Savings Bank ("Peoples") in 2015, the Company acquired the Peoples Federal Defined Benefit Pension Plan ("Peoples Plan"). The Peoples Plan was frozen at the date of acquisition and will be maintained in the same manner as the Pension Plan. The Peoples Plan is also administered by Pentegra Retirement Services under the same Fund as the Pension Plan. The Company’s participation in the Pension Plan and the Peoples Plan (the "Pension Plans") for the annual period ended December 31, 2022, is outlined in the table below. The "EIN/Pension Plan Number" column provides the Employer Identification Number ("EIN") and the three-digit plan number. The funding status of the Pension Plans is determined on the basis of the financial statements provided by the Fund using total plan assets and accumulated benefit obligation. The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement plan ("FIP") or a rehabilitation plan ("RP") is either pending or has been implemented. The "Expiration Date of Collective-Bargaining Agreement" column lists the expiration dates of any collective-bargaining agreement(s) to which the Pension Plans are subject. Financial information for the Fund is made available through the public Form 5500 which is available by April 15 th of the year following the plan year end. Funding Status of Pension Plan FIP/RP Status Pending/ Implemented Surcharge Imposed Expiration Date of Collective- Bargaining Agreement Minimum Contributions Required for Future Periods EIN/Pension Plan Number 2022 2021 Pentegra defined benefit plan for financial institutions 13-5645888/333 At least 80 percent At least 80 percent No No N/A $ — Contributions to the Fund are based on each individual employer’s experience. The Company bears the market risk relating to the Pension Plan and will continue to fund the Pension Plan as required. The Pension Plan year is July 1 through June 30. The Company’s total contributions to the Pension Plan did not represent more than 5 % of the total contributions to the Pension Plan as indicated in the Pension Plan’s most recently available annual report dated June 30, 2022. The comparability 118 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) of employer contributions is impacted by asset performance, discount rates and the reduction in the number of covered employees year over year. The Company’s contributions to the Pension Plans were as follows for the periods indicated: Required Contributions - Plan Year Allocation Contribution 2022-2023 2021-2022 2020-2021 (Dollars in thousands) 2022 $ 499 $ 499 $ — $ — 2021 $ 626 $ — $ 626 $ — 2020 $ 929 $ — $ — $ 929 In conjunction with the acquisition of Blue Hills Bancorp, Inc., parent of Blue Hills Bank (collectively, "BHB") in 2019, the Company acquired the Savings Banks Employees Retirement Association Pension Plan as adopted by BHB (the "BHB Plan"). The BHB Plan is administered by Savings Banks Employees Retirement Association ("SBERA") and was frozen on October 31, 2014. Accumulated benefits for participants earned through the end of October 2014 remain secured by the BHB Plan assets as of December 31, 2022 and 2021. Information pertaining to the BHB Plan is as follows: Years Ended December 31 2022 2021 (Dollars in thousands) Change in plan assets: Fair value of plan assets at beginning of year $ 14,099 $ 12,225 Actual return on plan assets ( 2,126 ) 1,480 Employer contribution — 950 Benefits paid ( 2,084 ) ( 556 ) Settlement payments — — Fair value of plan assets at end of year $ 9,889 $ 14,099 Change in benefit obligation: Benefit obligation at beginning of year 13,939 15,052 Interest cost 366 344 Actuarial gain ( 3,505 ) ( 901 ) Benefits paid ( 2,084 ) ( 556 ) Settlement payments — — Benefit obligation at end of year $ 8,716 $ 13,939 Funded status at end of year $ 1,173 $ 160 At December 31, 2022 and 2021, the discount rate used to determine the benefit obligation was 4.97 % and 2.68 %, respectively. 119 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The components of net period pension benefit are as follows: Years Ended December 31 2022 2021 (Dollars in thousands) Interest cost $ 366 $ 344 Expected return on plan assets ( 966 ) ( 891 ) Amortization of net actuarial loss 28 208 Settlement gain ( 31 ) — Net period pension benefit $ ( 603 ) $ ( 339 ) The discount rate used to determine net periodic pension cost for the years ended December 31, 2022 and 2021 was 2.68 % and 2.35 %, respectively. The expected long-term rate of return on plan assets used to determine the net periodic pension cost for the years ended December 31, 2022 and 2021 was 7.00 %. Assumptions with respect to the expected long-term rate of return are based on prevailing yields on high-quality, fixed-income investments increased by a premium for equity return expectations. During the year ended December 31, 2022, the Company's Board of Directors voted to terminate the BHB Plan. As a result, the assets of the BHB plan were transferred to a money market account until the termination is approved by all regulatory bodies. Prior to all assets being held in a money market account and classified within Level 1 of the fair value hierarchy, SBERA offered a common and collective trust as the underlying investment structure for pension plans participating in SBERA. As of December 31, 2021 the target allocation mix for the common and collective trust portfolio called for an equity-based investment range from 49 % to 63 % of total portfolio assets. The remainder of the portfolio was allocated to fixed income securities with a target range of 28 % to 42 % and other investments including global asset allocation and hedge funds from 3 % to 15 %. The Trustees of SBERA, through the Association's Investment Committee ("AIC"), selected investment managers for the common and collective trust portfolio. A professional investment advisory firm is retained by the AIC to provide allocation analysis, performance measurement and to assist with manager searches. The overall investment objective was to diversify equity investments across a spectrum of investment types to limit risks from large market swings. The fair value of major categories of the BHB Plan assets as of December 31, 2021 are summarized below: Fair Value Measurements at Reporting Date Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2021 (Dollars in thousands) Collective funds $ 1,542 1,542 $ — $ — Equity securities 3,391 3,391 — — Mutual funds 1,702 1,702 — — Total investments in the fair value hierarchy $ 6,635 $ 6,635 $ — $ — Investments measured at net asset value (1) 7,464 $ 14,099 (1) Under the Fair Value Measurements and Disclosure Topic of the FASB ASC, certain investments that were measured at fair value at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value hierarchy above was received from SBERA, the plan administrator. The BHB Plan assets measured at fair value in Level 1 are based on quoted market prices in an active exchange market. BHB Plan assets measured at fair value in Level 2, as applicable, are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. BHB Plan assets measured at fair value in Level 3, as applicable, are based on unobservable inputs, which include the SBERA’s assumptions and the best information available under the circumstance. 120 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Presented in the table below are the e stimated future benefit payments for the BHB Plan. These payments were calculated prior to the approval of the BHB Plan's termination. Amount (Dollars in thousands) 2023 $ 546 2024 $ 445 2025 $ 453 2026 $ 458 2027 $ 488 2028-2032 $ 2,731 The Company’s total defined benefit plan expense was $ 562,000 , $ 1.2 million, and $ 1.9 million, for the years ending December 31, 2022, 2021, and 2020, respectively. Supplemental Executive Retirement Plans The Bank maintains frozen defined benefit supplemental executive retirement plans ("SERP") for certain highly compensated employees designed to offset the impact of regulatory limits on benefits under qualified pension plans. The Bank also maintains defined benefit SERPs acquired from previous acquisitions. The Bank has established and funded rabbi trusts to accumulate funds in order to satisfy the contractual liability of these supplemental retirement plan benefits. These agreements provide for the Bank to pay all benefits from its general assets, and the establishment of these trust funds does not reduce nor otherwise affect the Bank’s continuing liability to pay benefits from such assets except that the Bank’s liability shall be offset by actual benefit payments made from the trusts. The related trust assets included in the Company's available for sale securities portfolio totaled $ 18.6 million and $ 20.3 million at December 31, 2022 and 2021, respectively. The following table shows the defined benefit supplemental retirement expense, and the contributions paid to the plans which were used only to pay the current year benefits for the years indicated: 2022 2021 2020 (Dollars in thousands) Retirement expense $ 1,681 $ 2,275 $ 1,770 Benefits paid $ 475 $ 475 $ 475 Expected future benefit payments for the defined benefit supplemental executive retirement plans are presented below: Defined Benefit Supplemental Executive Retirement Plans Expected Benefit Payments (Dollars in thousands) 2023 $ 471 2024 $ 1,202 2025 $ 1,241 2026 $ 1,230 2027 $ 1,191 2028-2032 $ 6,102 121 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The measurement date used to determine the defined benefit supplemental executive retirement plans' benefits is December 31 for each of the years reported. The following table illustrates the status of the defined benefit supplemental executive retirement plans at December 31 for the years presented: Defined Benefit Supplemental Executive Retirement Benefits 2022 2021 2020 (Dollars in thousands) Change in accumulated benefit obligation Benefit obligation at beginning of year $ 19,498 $ 20,752 $ 17,361 Service cost 561 574 505 Interest cost 492 424 518 Actuarial (gain) loss ( 4,365 ) ( 1,777 ) 2,843 Benefits paid ( 475 ) ( 475 ) ( 475 ) Benefit obligation at end of year $ 15,711 $ 19,498 $ 20,752 Change in plan assets Fair value of plan assets at beginning of year $ — $ — $ — Employer contribution 475 475 475 Benefits paid ( 475 ) ( 475 ) ( 475 ) Fair value of plan assets at end of year $ — $ — $ — Funded status at end of year $ ( 15,711 ) $ ( 19,498 ) $ ( 20,752 ) Assets — — — Liabilities ( 15,711 ) ( 19,498 ) ( 20,752 ) Funded status at end of year $ ( 15,711 ) $ ( 19,498 ) $ ( 20,752 ) Amounts recognized in accumulated other comprehensive income ("AOCI") Net (gain) loss $ ( 1,970 ) $ 3,002 $ 5,881 Prior service cost 22 43 218 Amounts recognized in AOCI $ ( 1,948 ) $ 3,045 $ 6,099 Information for plans with an accumulated benefit obligation in excess of plan assets Projected benefit obligation $ 15,711 $ 19,498 $ 20,752 Accumulated benefit obligation $ 15,711 $ 19,498 $ 20,752 Net periodic benefit cost Service cost $ 561 $ 574 $ 505 Interest cost 492 424 518 Amortization of prior service cost 22 174 276 Recognized net actuarial loss 606 1,103 471 Net periodic benefit cost $ 1,681 $ 2,275 $ 1,770 Discount rate used for benefit obligation 4.67 % - 4.93 % 1.28 % - 2.57 % 0.43 % - 2.18 % Discount rate used for net periodic benefit cost 1.28 % - 2.57 % 0.43 % - 2.18 % 2.00 % - 3.04 % Rate of compensation increase n/a n/a n/a Other Employee Benefits The Bank may choose to create an incentive compensation plan for senior management and other officers to participate in at varying levels. In addition, the Bank may also pay a discretionary bonus to senior management, officers, and/or non-officers of the Bank. The expense for these incentive plans amounted to $ 24.3 million, $ 21.2 million and $ 11.0 million in 2022, 2021 and 2020, respectively. The Bank has an Employee Savings Plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Employee Savings Plan, participating employees may defer a portion of their earnings, not to exceed the Internal Revenue Service annual contribution limits. The Bank matches 25 % of each employee’s contributions up to 122 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) the first 6 % of the employee’s eligible earnings. The 401(k) Plan incorporates an Employee Stock Ownership Plan for contributions invested in the Company’s common stock. The Company also provides three defined contributions under this Plan, providing the employees are deemed eligible. To be eligible for these contributions, an employee must complete one year and 1,000 hours of service. The defined contributions are made up of a safe harbor contribution, in which eligible employees receive a 3 % cash contribution of eligible earnings to the social security limit, a discretionary contribution in which eligible employees receive a 2 % cash contribution of eligible earnings up to the social security limit and a 5 % cash contribution of eligible earnings over the social security limit up to the maximum amount permitted by law. Benefits contributed to employees under this defined contribution plan vest immediately. The defined contribution plan expense was $ 8.7 million, $ 7.8 million and $ 7.2 million for the years ended December 2022, 2021 and 2020, respectively. The Company has a non-qualified deferred compensation plan which allows for deferrals of base salary and incentive payments until an elected distribution date in the future. This deferred compensation plan is available to certain highly compensated employees. Deferrals are invested at the election of the participant into one of the actively managed funds made available to the participant through the Company's Investment Management Group. The funds are held in a rabbi trust until the elected date of distribution. The Company has a non-qualified 401(k) Restoration Plan ("Restoration Plan") for certain executive officers. The Restoration Plan is intended to contribute to each participant the amount of matching and discretionary contributions which would have been made to the existing Rockland Trust 401(k) plan on the participant's behalf, but were prohibited due to Internal Revenue Code limitations. Deferrals are invested at the election of the participant into one of the actively managed funds made available to the participant through the Company's Investment Management Group or in the Company's stock. These funds are held in a rabbi trust until the elected date of distribution. The Company recognized expense of $ 505,000 , $ 303,000 and $ 400,000 related to this plan for services performed for the years ended December 31, 2022, 2021 and 2020, respectively. Also as part of the Peoples acquisition in 2015, the Company assumed various Salary Continuation Agreements with certain current and former senior executives. The agreements require the payment of specified benefits upon retirement over periods of ten or twenty years as described in each agreement. Expense related to the Salary Continuation Agreements was $ 213,000 , $ 210,000 and $ 207,000 for the years ended December 31, 2022, 2021 and 2020, respectively. Director Benefits The Company maintains two deferred compensation plans for the Company’s Board of Directors which permit non-employee directors to defer cash fees, one of which was in effect through December 31, 2018 and a new plan which was adopted effective January 1, 2019. Under the plan in effect through December 31, 2018, deferred compensation was invested in Company stock and held by the Company's Investment Management Group. Under the plan that took effect January 1, 2019, participating directors may defer all or a portion of their cash compensation into a choice of diversified investment portfolios comprised of stocks, bonds and cash. The amount of compensation deferred during 2022, 2021, and 2020 was $ 113,000 , $ 84,000 , and $ 101,000 , respectively. NOTE 14 FAIR VALUE MEASUREMENTS Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the assumptions applied by the Company when determining fair value reflect those that the Company determines market participants would use to price the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received if the asset were to be sold or that would be paid if the liability were to be transferred in an orderly market transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When determining fair value, the Company considers pricing information and other inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and other inputs may be reduced for certain instruments, or not available at all. The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another. The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to 123 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below: Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation Techniques There were no changes in the valuation techniques used during the year ended December 31, 2022. Securities Trading and Equity Securities These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied. U.S. Government Agency and U.S. Treasury Securities Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2. Agency Mortgage-Backed Securities Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2. Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. State, County, and Municipal Securities The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transaction, and yield relationships. These securities are categorized as Level 2. Single and Pooled Issuer Trust Preferred Securities The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. 124 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Loans Held for Sale The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2. Derivative Instruments Derivatives The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Additionally, in conjunction with fair value measurement guidance, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of December 31, 2022 and 2021, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2. Mortgage Derivatives The fair value of mortgage derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified as Level 2 within the fair value hierarchy. Individually Assessed Collateral Dependent Loans In accordance with the CECL standard, expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost or fair value of the underlying collateral less costs to sell. The inputs used in the appraisals of the collateral are not always observable, and in such cases the loans may be classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2. Other Real Estate Owned and Other Foreclosed Assets Other Real Estate Owned ("OREO") and Other Foreclosed Assets, when applicable, are valued at the lower of cost or fair value of the property, less estimated costs to sell. The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore OREO and Other Foreclosed Assets may be classified as Level 3 within the fair value hierarchy. Goodwill and Other Intangible Assets Goodwill and identified intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and a discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3. 125 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated: Fair Value Measurements at Reporting Date Using Balance Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2022 (Dollars in thousands) Recurring fair value measurements Assets Trading securities $ 3,888 $ 3,888 $ — $ — Equity securities 21,119 21,119 — — Securities available for sale U.S. government agency securities 202,300 — 202,300 — U.S. treasury securities 791,341 — 791,341 — Agency mortgage-backed securities 313,688 — 313,688 — Agency collateralized mortgage obligations 38,843 — 38,843 — State, county, and municipal securities 191 — 191 — Pooled trust preferred securities issued by banks and insurers 1,034 — 1,034 — Small business administration pooled securities 51,757 — 51,757 — Loans held for sale 2,803 — 2,803 — Derivative instruments 127,958 — 127,958 — Liabilities Derivative instruments 179,911 — 179,911 — Total recurring fair value measurements, net $ 1,375,011 $ 25,007 $ 1,350,004 $ — Nonrecurring fair value measurements Assets Individually assessed collateral dependent loans (1) $ 16,092 $ — $ — $ 16,092 Total nonrecurring fair value measurements $ 16,092 $ — $ — $ 16,092 126 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fair Value Measurements at Reporting Date Using Balance Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2021 (Dollars in thousands) Recurring fair value measurements Assets Trading securities $ 3,720 $ 3,720 $ — $ — Equity securities 23,173 23,173 — — Securities available for sale U.S. government agency securities 215,482 — 215,482 — U.S. treasury securities 861,448 — 861,448 — Agency mortgage-backed securities 363,933 — 363,933 — Agency collateralized mortgage obligations 79,677 — 79,677 — State, county, and municipal securities 203 — 203 — Single issuer trust preferred securities issued by banks and insurers 491 — 491 — Pooled trust preferred securities issued by banks and insurers 1,000 — 1,000 — Small business administration pooled securities 48,914 — 48,914 — Loans held for sale 24,679 — 24,679 — Derivative instruments 97,912 — 97,912 — Liabilities Derivative instruments 76,015 — 76,015 — Total recurring fair value measurements, net $ 1,644,617 $ 26,893 $ 1,617,724 $ — Nonrecurring fair value measurements Assets Individually assessed collateral dependent loans (1) $ 1,174 $ — $ — $ 1,174 Total nonrecurring fair value measurements $ 1,174 $ — $ — $ 1,174 (1) The carrying value of individually assessed collateral dependent loans is based on the lower of amortized cost or fair value of the underlying collateral less costs to sell. The fair value of the underlying collateral is generally determined through independent appraisals, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. 127 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated: Fair Value Measurements at Reporting Date Using Carrying Value Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2022 (Dollars in thousands) Financial assets Securities held to maturity (a) U.S. government agency securities $ 31,258 $ 29,036 $ — $ 29,036 $ — U.S. treasury securities 100,634 88,879 — 88,879 — Agency mortgage-backed securities 898,927 815,952 — 815,952 — Agency collateralized mortgage obligations 535,971 458,417 — 458,417 — Single issuer trust preferred securities issued by banks 1,500 1,508 — 1,508 — Small business administration pooled securities 136,830 130,918 — 130,918 — Loans, net of allowance for credit losses (b) 13,760,164 13,260,873 — — 13,260,873 Federal Home Loan Bank stock (c) 5,218 5,218 — 5,218 — Cash surrender value of life insurance policies (d) 293,323 293,323 — 293,323 — Financial liabilities Deposit liabilities, other than time deposits (e) $ 14,683,266 $ 14,683,266 $ — $ 14,683,266 $ — Time certificates of deposits (f) 1,195,741 1,164,892 — 1,164,892 — Federal Home Loan Bank borrowings (f) 637 563 — 563 — Junior subordinated debentures (g) 62,855 60,002 — 60,002 — Subordinated debentures (f) 49,885 45,891 — — 45,891 128 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fair Value Measurements at Reporting Date Using Carrying Value Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2021 Financial assets (Dollars in thousands) Securities held to maturity (a) U.S. government agency securities $ 32,987 $ 32,546 $ — $ 32,546 $ — U.S. treasury securities 102,560 102,242 $ — 102,242 — Agency mortgage-backed securities 493,012 497,236 — 497,236 — Agency collateralized mortgage obligations 415,736 408,845 — 408,845 — Single issuer trust preferred securities issued by banks 1,500 1,508 — 1,508 — Small business administration pooled securities 21,023 21,756 — 21,756 — Loans, net of allowance for loan losses (b) 13,439,190 13,389,515 — — 13,389,515 Federal Home Loan Bank stock (c) 11,407 11,407 — 11,407 — Cash surrender value of life insurance policies (d) 289,304 289,304 — 289,304 — Financial liabilities Deposit liabilities, other than time deposits (e) $ 15,385,894 $ 15,385,894 $ — $ 15,385,894 $ — Time certificates of deposits (f) 1,531,150 1,529,857 — 1,529,857 — Federal Home Loan Bank borrowings (f) 25,667 25,663 — 25,663 — Long-term borrowings (f) 14,063 13,989 — 13,989 — Junior subordinated debentures (g) 62,853 67,019 — 67,019 — Subordinated debentures (f) 49,791 45,532 — — 45,532 (a) The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analysis. (b) Fair value of loans is measured using the exit price valuation method, determined primarily by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows, while incorporating liquidity and credit assumptions. Additionally, this amount excludes individually assessed collateral dependent loans, which are deemed to be marked to fair value on a nonrecurring basis. (c) Federal Home Loan Bank stock has no quoted market value and is carried at cost, therefore the carrying amount approximates fair value. (d) Cash surrender value of life insurance is recorded at its cash surrender value (or the amount that can be realized upon surrender of the policy), therefore carrying amount approximates fair value. (e) Fair value of demand deposits, savings and interest checking accounts and money market deposits is the amount payable on demand at the reporting date. (f) Fair value was determined by discounting anticipated future cash payments using rates currently available for instruments with similar remaining maturities. (g) Fair value was determined based upon market prices of securities with similar terms and maturities. This summary excludes certain financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these may include cash and due from banks, federal funds sold and short-term investments. For financial liabilities, these may include federal funds purchased. These instruments would all be considered to be classified as Level 1 within the fair value hierarchy. Also excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described. The Company considers its financial instruments' current use to be the highest and best use of the instruments. 129 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 15 REVENUE RECOGNITION A portion of the Company's noninterest income is derived from contracts with customers, and as such, the revenue recognized depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance. To ensure its alignment with this core principle, the Company measures revenue and the timing of recognition by applying the following five steps: 1. Identify the contract(s) with customers 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Recognize revenue when (or as) the entity satisfies a performance obligation The Company has disaggregated its revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following table presents the revenue streams that the Company has disaggregated for the periods indicated: Years Ended December 31 2022 2021 2020 (Dollars in thousands) Deposit account fees (inclusive of cash management fees) $ 23,370 $ 16,745 $ 15,121 Interchange fees 10,881 8,862 12,564 ATM fees 3,866 2,989 2,476 Investment management - wealth management and advisory services 32,774 31,617 27,157 Investment management - retail investments and insurance revenue 4,058 3,691 2,275 Merchant processing income 1,534 1,362 1,299 Credit card income 1,833 1,231 778 Other noninterest income 6,099 5,312 4,235 Total noninterest income in-scope of ASC 606 Revenue Recognition 84,415 71,809 65,905 Total noninterest income out-of-scope of ASC 606 Revenue Recognition 30,252 34,041 45,535 Total noninterest income $ 114,667 105,850 $ 111,440 In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and service requirements are generally explicitly identified in the associated contracts. Additional information related to each of the revenue streams is further noted below. Deposit Account Fees The Company offers various deposit account products to its customers governed by specific deposit agreements applicable to either personal customers or business customers. These agreements identify the general conditions and obligations of both parties, and include standard information regarding deposit account related fees. Deposit account services include providing access to deposit accounts as well as access to the various deposit transactional services of the Company. These transactional services are primarily those that are identified in the standard fee schedule, and include, but are not limited to, services such as overdraft protection, wire transfer, and check collection. Revenue is recognized in conjunction with the various services being provided. For example, the Company may assess monthly fixed service fees associated with the customer having access to the deposit account, which can vary depending on the account type and daily account balance. In addition, the Company may also assess separate fixed fees associated with and at the time specific transactions are entered in to by the customer. As such, the Company considers its performance obligations to be met concurrently with providing the account access or completing the requested deposit transaction. 130 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Cash Management Cash management services are a subset of the Deposit account fees revenue stream. These services primarily include ACH transaction processing, positive pay and remote deposit services. These services are also governed by separate agreements entered into with the customer. The fee arrangement for these services is structured to assess fees under one of two scenarios, either a per transaction fee arrangement or an earnings credit analysis arrangement. Under the per transaction fee arrangement, fixed fees are assessed concurrently with customers executing the transactions, and as such, the Company considers its performance obligations to be met concurrently with completing the requested transaction. Under the earnings credit analysis arrangement, the Company provides a monthly earnings credit to the customer that is negotiated and determined based on various factors. The credit is then available to absorb the per transaction fees that are assessed on the customer's deposit account activity for the month. Any amount of the transactional fees in excess of the earnings credit is recognized as revenue in that month. Interchange Fees The Company earns interchange revenue from its issuance of credit and debit cards granted through its membership in various card payment networks. The Company provides credit cards and debit cards to its customers which are authorized and settled through these payment networks, and in exchange, the Company earns revenue as determined by each payment network's interchange program. The revenue is recognized concurrently with the settlement of card transactions within each network. ATM Fees The Company deploys automated teller machines (ATMs) as part of its overall branch network. Certain transactions performed at the ATMs require customers to acknowledge and pay a fee for the requested service. Certain ATM fees are disclosed in the deposit account agreement fee schedules, whereas those assessed to non-Rockland Trust deposit holders are solely determined during the transaction at the machine. The ATM fee is a fixed dollar per transaction amount, and as such, is recognized concurrently with the overall daily processing and settlement of the ATM activity. Investment Management - Wealth Management and Advisory Services The Company offers investment management and trust services to individuals, institutions, small businesses and charitable institutions. Each investment management product is governed by its own contract along with a separate identifiable fee schedule unique to that product. The Company also offers additional services, such as estate settlement, financial planning, tax services and other special services quoted at the client's request. Asset management and/or custody fees are based upon a percentage of the monthly valuation of the principal assets in the customer's account, whereas fees for additional or special services are fixed in nature and are charged as services are rendered. As the fees are dependent on assets under management, which are susceptible to market factors outside of the Company's control, this variable consideration is constrained and therefore no revenue is estimated at contract initiation. As such, all revenue is recognized in correlation to the monthly management fee determinations or as transactional services are provided. Due to the fact that payments are primarily made subsequent to the valuation period, the Company records a receivable for revenue earned but not received. The following table provides the amount of investment management revenue earned but not received as of the dates indicated: December 31, 2022 December 31, 2021 (Dollars in thousands) Receivables, included in other assets $ 5,261 $ 5,385 Investment Management - Retail Investments and Insurance Revenue The Company offers the sale of mutual fund shares, unit investment trust shares, third party model portfolios, general securities, fixed and variable annuities and life insurance products through registered representatives who are both employed by the Company and licensed and contracted with various Broker General Agents to offer these products to the Company’s customer base. As such, the Company performs these services as an agent and earns a fixed commission on the sales of these 131 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) products and services. To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds. In general, the Company recognizes commission revenue at the point of sale, and for certain insurance products, may also earn and recognize annual residual commissions commensurate with annual premiums being paid. Merchant Processing Income The Company refers customers to third party merchant processing partners in exchange for commission and fee income. The income earned is comprised of multiple components, including a fixed referral fee per each referred customer, a rebate amount determined primarily as a percentage of net revenue earned by the third party from services provided to each referred customer, and overall production bonus commissions if certain new account production thresholds are met. Merchant processing income is recognized in conjunction with either completing the referral to earn the fixed fee amount or as the merchant activity is processed to derive the Company's rebate and/or production bonus amounts. Credit Card Income The Company provides consumer and business credit card solutions to its customers by soliciting new accounts on behalf of a third party credit card provider in exchange for a fee. The income earned is comprised of new account incentive payments as well as a percentage of interchange income earned by the third party provider offering the consumer and business purpose revolving credit accounts. The credit card income is recognized in conjunction with the establishment of each new credit card member or as the interchange is earned by the third party in connection with net purchase transactions made by the credit card member. Other Noninterest Income The Company earns various types of other noninterest income that fall within the scope of the new revenue recognition rules, and have been aggregated into one general revenue stream in the table noted above. This amount includes, but is not limited to, the following types of revenue with customers: Safe Deposit Rent The Company rents out the use of safe deposit boxes to its customers, which can be accessed when the bank is open for business. The safe deposit box rental fee is paid upfront and is recognized as revenue ratably over the annual term of the contract. 1031 Exchange Fee Revenue The Company provides like-kind exchange services pursuant to Section 1031 of the Internal Revenue Code. Fee income is recognized in conjunction with completing the exchange transactions. Foreign Currency The Company earns fee income associated with various transactions related to foreign currency product offerings, including foreign currency bank notes and drafts and foreign currency wires. The majority of this income is derived from commissions earned related to customers executing the above mentioned foreign currency transactions through arrangements with third party correspondents. 132 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 16 OTHER COMPREHENSIVE INCOME (LOSS) The following tables present a reconciliation of the changes in the components of other comprehensive income (loss) for the periods indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss): Year Ended December 31, 2022 Pre-Tax Amount Tax (Expense) Benefit After Tax Amount (Dollars in thousands) Change in fair value of securities available for sale $ ( 155,037 ) $ 36,047 $ ( 118,990 ) Less: net security losses reclassified into other noninterest expense — — — Net change in fair value of securities available for sale ( 155,037 ) 36,047 ( 118,990 ) Change in fair value of cash flow hedges ( 65,586 ) 18,452 ( 47,134 ) Less: net cash flow hedge gains reclassified into interest income or interest expense 5,054 ( 1,421 ) 3,633 Net change in fair value of cash flow hedges ( 70,640 ) 19,873 ( 50,767 ) Net unamortized gain related to defined benefit pension and other postretirement adjustments arising during the period 5,603 ( 1,575 ) 4,028 Amortization of net actuarial losses 635 ( 179 ) 456 Amortization of net prior service costs 39 ( 11 ) 28 Amortization of net settlement credits ( 31 ) 9 ( 22 ) Net change in other comprehensive income for defined benefit postretirement plans (1) 6,246 ( 1,756 ) 4,490 Total other comprehensive loss $ ( 219,431 ) $ 54,164 $ ( 165,267 ) Year Ended December 31, 2021 Pre-Tax Amount Tax (Expense) Benefit After Tax Amount (Dollars in thousands) Change in fair value of securities available for sale $ ( 29,995 ) $ 7,073 $ ( 22,922 ) Less: net security losses reclassified into other noninterest expense — — — Net change in fair value of securities available for sale ( 29,995 ) 7,073 ( 22,922 ) Change in fair value of cash flow hedges ( 7,938 ) 2,234 ( 5,704 ) Less: net cash flow hedge gains reclassified into interest income or interest expense 18,691 ( 5,256 ) 13,435 Net change in fair value of cash flow hedges ( 26,629 ) 7,490 ( 19,139 ) Net unamortized gain related to defined benefit pension and other postretirement adjustments arising during the period 3,414 ( 960 ) 2,454 Amortization of net actuarial losses 1,331 ( 374 ) 957 Amortization of net prior service costs 192 ( 54 ) 138 Net change in other comprehensive income for defined benefit postretirement plans (1) 4,937 ( 1,388 ) 3,549 Total other comprehensive loss $ ( 51,687 ) $ 13,175 $ ( 38,512 ) 133 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Year Ended December 31, 2020 Pre-Tax Amount Tax (Expense) Benefit After Tax Amount (Dollars in thousands) Change in fair value of securities available for sale $ 11,686 $ ( 2,829 ) $ 8,857 Less: net security losses reclassified into other noninterest expense — — — Net change in fair value of securities available for sale 11,686 ( 2,829 ) 8,857 Change in fair value of cash flow hedges 36,994 ( 10,406 ) 26,588 Less: net cash flow hedge gains reclassified into interest income or interest expense 14,306 ( 4,023 ) 10,283 Less: loss on termination of hedge reclassified into noninterest expense ( 684 ) 192 ( 492 ) Net change in fair value of cash flow hedges 23,372 ( 6,575 ) 16,797 Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period ( 5,785 ) 1,627 ( 4,158 ) Amortization of net actuarial losses 982 ( 276 ) 706 Amortization of net prior service costs 276 ( 78 ) 198 Amortization of net settlement costs 176 ( 50 ) 126 Net change in other comprehensive income for defined benefit postretirement plans (1) ( 4,351 ) 1,223 ( 3,128 ) Total other comprehensive income $ 30,707 $ ( 8,181 ) $ 22,526 (1) The amortization of prior service costs is included in the computation of net periodic pension costs as disclosed in Note 13 - Employee Benefit Plans within the Notes to the Consolidated Financial Statements in Item 8. Information on the Company's accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the dates indicated: Unrealized Gain (Loss) on Securities Unrealized Gain (Loss) on Cash Flow Hedge Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss) (Dollars in Thousands) Beginning balance: January 1, 2020 $ 4,398 $ 16,479 $ ( 2,708 ) $ 18,169 Other comprehensive income (loss) 8,857 16,797 ( 3,128 ) 22,526 Ending balance: December 31, 2020 $ 13,255 $ 33,276 $ ( 5,836 ) $ 40,695 Other comprehensive income (loss) ( 22,922 ) ( 19,139 ) 3,549 ( 38,512 ) Ending balance: December 31, 2021 $ ( 9,667 ) $ 14,137 $ ( 2,287 ) $ 2,183 Other comprehensive income (loss) ( 118,990 ) ( 50,767 ) 4,490 ( 165,267 ) Ending balance: December 31, 2022 $ ( 128,657 ) $ ( 36,630 ) $ 2,203 $ ( 163,084 ) 134 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 17 LEASES As of December 31, 2022, the Company had entered into 117 noncancellable operating lease agreements for office space, parking , space for ATM locations and certain branch locations, several of which contain renewal options to extend lease terms for a period of 1 to 20 years. The Company has no financing leases outstanding and no leases with residual value guarantees. As of December 31, 2022, the Company did not have any material sub-lease agreements. The Company's right-of-use asset related to operating leases totaled $ 58.9 million and $ 60.2 million at December 31, 2022 and 2021, respectively, and is recognized in the Company's Consolidated Balance Sheet within other assets. When a decision is made to exit a leased location, the Company may perform a review for lease impairment and/or recognize termination costs associated with the exit. As a result of such exited locations, the Company recognized $ 4.4 million in termination costs during the year ended December 31, 2022, and impairment charges of $ 2.3 million and $ 4.2 million for the years ended December 31, 2021 and 2020, respectively. Exited locations related to the Meridian acquisition were recorded within merger and acquisition expense in the consolidated income statement. The following table provides information related to the Company's lease costs for the periods indicated: Years Ended December 31 2022 2021 2020 (Dollars in thousands) Operating lease costs (1) $ 17,322 $ 14,550 $ 16,881 Short-term lease costs 72 23 16 Variable lease costs — — — Total lease costs $ 17,394 $ 14,573 $ 16,897 Weighted-average remaining lease term - operating leases 5.46 years 5.72 years 5.59 years Weighted-average discount rate - operating leases 2.43 % 1.97 % 2.13 % (1) Operating lease cost for the years ended December 31, 2021 and 2020, respectively, is inclusive of impairment charges recognized by the Company in relation to branch closure decisions made during each year. There were no impairment charges recognized by the Company in the year ended December 31, 2022. The following table sets forth the undiscounted cash flows of base rent related to operating leases outstanding at December 31, 2022 with payments scheduled over the next five years and thereafter, including a reconciliation to the operating lease liability recognized in the Company's Consolidated Balance Sheet in other liabilities: (Dollars in thousands) 2023 $ 13,712 2024 13,241 2025 12,150 2026 9,874 2027 7,170 Thereafter 8,914 Total minimum lease payments 65,061 Less: amount representing interest 4,354 Present value of future minimum lease payments $ 60,707 135 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) NOTE 18 COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance Sheet Risk In the normal course of business, the Company enters into various transactions to meet the financing needs of its customers, which, in accordance with GAAP, are not included in its consolidated balance sheets. These transactions include commitments to extend credit, standby letters of credit, and loans sold with recourse, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of these commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. Standby letters of credit are written conditional commitments issued to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby letter of credit arrangements contain security and other covenants similar to those contained in loan agreements. The fees collected in connection with the issuance of standby letters of credit are representative of the fair value of the obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees, fees collected in connection with the issuance of standby letters of credit are deferred. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement. The deferred standby letter of credit fees represent the fair value of the Company's potential obligations under the standby letter of credit guarantees. The following table summarizes the above financial instruments at the dates indicated: As of December 31 2022 2021 (Dollars in thousands) Commitments to extend credit $ 4,566,041 $ 4,535,895 Loan exposures sold with recourse $ 167,274 $ 202,717 Standby letters of credit $ 24,941 $ 24,412 Deferred standby letter of credit fees $ 168 $ 124 Other Contingencies At December 31, 2022, Rockland Trust was involved in pending lawsuits that arose in the ordinary course of business. Management has reviewed these pending lawsuits with legal counsel and has taken into consideration the view of counsel as to their outcome. In the opinion of management, the final disposition of pending lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations. NOTE 19 REGULATORY MATTERS Regulatory Capital Requirements The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off- 136 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. At December 31, 2022 the most recent notification from the Federal Deposit Insurance Corporation indicated that the Bank's capital levels met or exceeded the minimum levels to be considered "well capitalized" for bank regulatory purposes. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, Common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. Management believes, as of December 31, 2022 and 2021, that the Company and the Bank met all capital adequacy requirements to which they are subject. The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2022 and 2021 are also presented in the table that follows: Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio December 31, 2022 (Dollars in thousands) Independent Bank Corp. Total capital (to risk weighted assets) $ 2,311,824 16.11 % $ 1,148,328 ≥ 8.0 % N/A N/A Common equity tier 1 capital (to risk weighted assets) $ 2,057,099 14.33 % $ 645,935 ≥ 4.5 % N/A N/A Tier 1 capital (to risk weighted assets) $ 2,057,099 14.33 % $ 861,246 ≥ 6.0 % N/A N/A Tier 1 capital (to average assets) leverage $ 2,057,099 10.99 % $ 748,775 ≥ 4.0 % N/A N/A Rockland Trust Company Total capital (to risk weighted assets) $ 2,162,752 15.07 % $ 1,148,329 ≥ 8.0 % $ 1,435,411 ≥ 10.0 % Common equity tier 1 capital (to risk weighted assets) $ 2,018,912 14.07 % $ 645,935 ≥ 4.5 % $ 933,017 ≥ 6.5 % Tier 1 capital (to risk weighted assets) $ 2,018,912 14.07 % $ 861,247 ≥ 6.0 % $ 1,148,329 ≥ 8.0 % Tier 1 capital (to average assets) leverage $ 2,018,912 10.78 % $ 748,828 ≥ 4.0 % $ 936,036 ≥ 5.0 % December 31, 2021 (Dollars in thousands) Independent Bank Corp. Total capital (to risk weighted assets) $ 2,262,740 16.04 % $ 1,128,900 ≥ 8.0 % N/A N/A Common equity tier 1 capital (to risk weighted assets) $ 2,017,497 14.30 % $ 635,006 ≥ 4.5 % N/A N/A Tier 1 capital (to risk weighted assets) $ 2,017,497 14.30 % $ 846,675 ≥ 6.0 % N/A N/A Tier 1 capital (to average assets) $ 2,017,497 12.03 % $ 670,659 ≥ 4.0 % N/A N/A Rockland Trust Company Total capital (to risk weighted assets) $ 2,083,689 14.77 % $ 1,128,536 ≥ 8.0 % $ 1,410,670 ≥ 10.0 % Common equity tier 1 capital (to risk weighted assets) $ 1,949,237 13.82 % $ 634,801 ≥ 4.5 % $ 916,935 ≥ 6.5 % Tier 1 capital (to risk weighted assets) $ 1,949,237 13.82 % $ 846,402 ≥ 6.0 % $ 1,128,536 ≥ 8.0 % Tier 1 capital (to average assets) $ 1,949,237 11.62 % $ 670,827 ≥ 4.0 % $ 838,534 ≥ 5.0 % In addition to the minimum risk-based capital requirements outlined in the table above, the Company is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the capital conservation buffer is 2.5%. The Company's capital levels exceeded the minimum requirement plus the buffer of 2.5% as of December 31, 2022 and 2021. 137 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Dividend Restrictions The Company is subject to capital and dividend requirements administered by federal and state bank regulators, and the Company will not declare a cash dividend that would cause the Company to violate regulatory requirements. The Company is, in the ordinary course of business, dependent upon the receipt of cash dividends from the Bank to pay cash dividends to shareholders and satisfy the Company’s other cash needs. Federal and state law impose limits on capital distributions by the Bank. Massachusetts-chartered banks, such as the Bank, may declare from net profits cash dividends not more frequently than quarterly and non-cash dividends at any time. No dividends may be declared, credited, or paid if the Bank’s capital stock would be impaired. Massachusetts Bank Commissioner approval is required if the total of all dividends declared by the Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. Dividends paid by the Bank to the Company for the year ended December 31, 2022 and 2021 totaled $ 209.2 million and $ 77.6 million, respectively. Trust Preferred Securities In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities have not been included in the consolidated financial statements of the Company. At both December 31, 2022 and 2021, there were $ 61.0 million in trust preferred securities that have been included within total capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines. For regulatory purposes, bank holding companies are allowed to include trust preferred securities in Tier 1 capital up to a certain limit. Provisions in the Dodd-Frank Act generally exclude trust preferred securities from Tier 1 capital, however, holding companies with consolidated assets of less than $15 billion at December 31, 2009, are able to permanently to include these instruments in Tier 1 capital, unless the Company crosses the consolidated assets threshold as a result of merger and acquisition activity. Accordingly, as the Company’s 2021 acquisition of Meridian resulted in the crossing of $15 billion in its consolidated assets, its trust preferred securities were phased out of Tier 1 capital and included within Tier 2 capital as of December 31, 2021, in accordance with applicable regulatory guidance. All obligations under these trust preferred securities are unconditionally guaranteed by the Company. NOTE 20 PARENT COMPANY FINANCIAL STATEMENTS Condensed financial information relative to the balance sheets of Independent Bank Corp., as the parent company, at December 31, 2022 and 2021 and the related statements of income and cash flows for the years ended December 31, 2022, 2021, and 2020 are presented below. The statement of stockholders’ equity is not presented below as the parent company’s stockholders’ equity is that of the consolidated Company. 138 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) BALANCE SHEETS December 31 2022 2021 (Dollars in thousands) Assets Cash (1) $ 169,977 $ 212,119 Investments in subsidiaries (2) 2,850,407 2,952,089 Prepaid income taxes 2,299 3,973 Deferred tax asset 453 472 Other assets (2) 2,297 — Total assets $ 3,025,433 $ 3,168,653 Liabilities and stockholders’ equity Dividends payable $ 25,103 $ 22,728 Long-term borrowings — 14,063 Junior subordinated debentures (less unamortized debt issuance costs of $ 33 and $ 35 ) 62,855 62,853 Subordinated debentures (less unamortized debt issuance costs of $ 115 and $ 209 ) 49,885 49,791 Other liabilities 889 769 Total liabilities 138,732 150,204 Stockholders’ equity 2,886,701 3,018,449 Total liabilities and stockholders’ equity $ 3,025,433 $ 3,168,653 (1) Entire balance eliminates in consolidation. (2) Majority of balance eliminates in consolidation . STATEMENTS OF INCOME Years Ended December 31 2022 2021 2020 (Dollars in thousands) Income Dividends received from subsidiaries (1) $ 209,257 $ 77,673 $ 166,033 Total income 209,257 77,673 166,033 Expenses Interest expense 4,626 4,493 5,432 Other expenses 1,680 — — Total expenses 6,306 4,493 5,432 Income before income taxes and equity in undistributed income of subsidiaries 202,951 73,180 160,601 Income tax benefit ( 1,731 ) ( 1,241 ) ( 1,499 ) Income of parent company 204,682 74,421 162,100 Equity (deficit) in undistributed income of subsidiaries 59,131 46,571 ( 40,933 ) Net income $ 263,813 $ 120,992 $ 121,167 (1) Majority of balance eliminates in consolidation. 139 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) STATEMENTS OF CASH FLOWS Years Ended December 31 2022 2021 2020 (Dollars in thousands) Cash flows from operating activities Net income $ 263,813 $ 120,992 $ 121,167 Adjustments to reconcile net income to cash provided by operating activities Amortization 96 137 152 Deferred income tax expense 28 12 284 Change in prepaid income taxes and other assets ( 623 ) ( 229 ) ( 475 ) Change in other liabilities 143 ( 1,873 ) ( 169 ) (Equity) deficit in undistributed income of subsidiaries ( 59,131 ) ( 46,571 ) 40,933 Net cash provided by operating activities 204,326 72,468 161,892 Cash flows provided by investing activities Net cash acquired in business combinations — 119,816 — Net cash provided by in investing activities — 119,816 — Cash flows used in financing activities Repayments of long-term debt, net of issuance costs ( 14,063 ) ( 18,750 ) ( 42,187 ) Restricted stock awards issued, net of awards surrendered ( 1,084 ) ( 1,249 ) ( 1,187 ) Net proceeds from exercise of stock options — ( 57 ) 197 Proceeds from shares issued under the direct stock purchase plan 2,359 2,023 2,132 Payments for shares repurchased under share repurchase program ( 139,946 ) — ( 95,091 ) Common dividends paid ( 93,734 ) ( 62,736 ) ( 60,840 ) Net cash used in financing activities ( 246,468 ) ( 80,769 ) ( 196,976 ) Net (decrease) increase in cash and cash equivalents ( 42,142 ) 111,515 ( 35,084 ) Cash and cash equivalents at the beginning of the year 212,119 100,604 135,688 Cash and cash equivalents at the end of the year $ 169,977 $ 212,119 $ 100,604 140 Table of Contents NOTE 21 TRANSACTIONS WITH RELATED PARTIES Certain directors and officers (including their affiliates, certain family members and entities in which they are principal owners) of the Company are customers of and have had, and are expected to have, transactions with the Company, within the ordinary course of business. These transactions include, but are not limited to, lending activities, deposit services, investment management, and property lease commitments. In the opinion of management, such transactions are consistent with prudent banking practices and are within applicable banking regulations. Further details relating to certain related party transactions are outlined below: Lending Activities The following information represents annual activity of loans to related parties for the periods indicated: 2022 2021 2020 (Dollars in thousands) Principal balance of loans outstanding at beginning of year $ 45,033 $ 26,343 $ 55,830 Loan advances (1) 40,427 57,983 45,308 Loan payments/payoffs ( 43,147 ) ( 39,293 ) ( 74,795 ) Reduction for retired directors and/or changes in director status ( 15,592 ) — — Principal balance of loans outstanding at end of year $ 26,721 $ 45,033 $ 26,343 (1) The 2021 amount includes $ 10.6 million of loans associated with a new director, which represent the outstanding loans balances at the effective date of appointment. At December 31, 2022 and 2021, there were no loans to related parties which were past due, on nonaccrual status or that had been restructured as part of a troubled debt restructuring. Deposits At December 31, 2022 and 2021, the amount of deposit balances of related parties totaled $ 18.5 million and $ 22.3 million, respectively. Lease Commitments At December 31, 2022 and 2021, there were no material leases with related parties. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None