What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 243 added, 374 removed, 608 unchanged (50% of the section changed)

7 unchanged sentences

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the “Risk Factors” section of the 2022 Form 10-K, include but are not limited to:

• further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including any future weakening caused by the COVID-19 pandemic and any uncertainty regarding the length and extent of economic contraction as a result of the pandemic;

• the potential effects of inflationary pressures, labor market shortages and supply chain issues;

• the instability or volatility in financial markets and unfavorable general economic or business conditions, globally, nationally or regionally, caused by geopolitical concerns, including as a result of the conflict between Russia and Ukraine;

• further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area;

• the effects of inflationary pressures, labor market shortages and supply chain issues;

• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;

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• higher than expected tax expense, resulting from failure to comply with general tax laws and changes in tax laws;

• changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR;

• changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of the London Interbank Offered Rate ("LIBOR");

• increased competition in the Company’s market areas;

• adverse weather, changes in climate, natural disasters, geopolitical concerns, including those arising from the conflict between Russia and Ukraine;

• the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, any further resurgences or variants of the COVID-19 virus, the efficacy and availability of vaccines, boosters or other treatments, actions taken by governmental authorities in response thereto, other public health crises or man-made events, and their impact on the Company's local economies or the Company's operations;

• the emergence of widespread health emergencies or pandemics, any further resurgences or variants of the COVID-19 virus, actions taken by governmental authorities in response thereto, other public health crises or man-made events, and their impact on the Company's local economies or the Company's operations;

• a deterioration in the conditions of the securities markets;

• a deterioration of the credit rating for U.S.

long-term sovereign debt;

long-term sovereign debt, actions that the U.S.

government may take to avoid exceeding the debt ceiling, or uncertainties surrounding the debt ceiling and the federal budget;

• inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;

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• the effect of laws and regulations regarding the financial services industry;

• changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;

• the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;

• changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters including, but not limited to, changes to how the Company accounts for credit losses;

• changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business, including any such changes in laws and regulations as a result of recent disruptions in the banking industry, and the associated costs of such changes;

• the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions;

• cyber security attacks or intrusions that could adversely impact our businesses;

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Three Months Ended

2022 March 31

2023 December 31

2022 September 30

2022 March 31

(Dollars in thousands, except per share data)

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These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results.

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

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

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

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

Recent acquisitions include Meridian Bancorp, Inc.

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

Third Quarter 2022 Results

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

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

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

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

First Quarter 2023 Results

Net income for the three months ended March 31, 2023 was $61.2 million, or $1.36 on a diluted earnings per share basis, as compared to $53.1 million, or $1.12 on a diluted earnings per share basis, for the three months ended March 31, 2022, representing increases of 15.3% and 21.4%, respectively.

Results for three months ended March 31, 2022 reflect merger and acquisition-related costs of $7.1 million, pre-tax, associated with the Meridian Bancorp, Inc.

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

Excluding these merger and acquisition costs, operating net income was $58.2 million, or $1.23 on a diluted per share basis for three months ended March 31, 2022.

There were no such costs for the three months ended March 31, 2023.

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

Third quarter 2022 results reflected the following key drivers:

• Improved net interest margin for the quarter;

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

• Continued modest cash deployment into the securities portfolio;

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

• Modest provision for credit loss;

nonperforming assets remained flat;

• Strong fee income;

• 49% efficiency ratio for the quarter;

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

First quarter 2023 results reflected the following key drivers:

• Flat overall loan balances, reflecting decreased demand and a cautious posture over new commitments;

• 3.8% decrease in deposits;

• Increases in both on and off balance sheet liquidity;

• Number of households increased by 0.5% ;

• Increased provision due to specific reserve allocation;

asset quality metrics strong;

• Wealth Management assets under administration increased to $6.1 billion;

• 52.7% efficiency ratio;

• Completion of full $120.0 million stock buyback program;

• Modest tangible book value per share growth

Interest-Earning Assets

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

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

The results depicted in the following table reflect the trend of the Company's interest-earning assets over the past five quarters.

While the Company employs a longer term strategy that typically emphasizes loan growth commensurate with overall economic growth, changes over the five quarter period reflect a decline in interest-earning cash balances, largely attributable to a competitive rate environment, redeployment of excess customer liquidity, and the completion of two stock repurchase programs over the course of 2022 and through the first quarter of 2023.

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

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Funding and Net Interest Margin

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

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

Total borrowings increased by $879.0 million during the first quarter of 2023, in response to deposit balance reductions and share repurchase activity, along with preemptive measures to bolster on-balance sheet liquidity in response to the high deposit risk environment experienced across the banking industry during the month of March 2023.

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

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

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

Capital is primarily impacted by earnings retention, dividends and opportunistic share repurchases.

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

*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

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

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

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

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

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

The Company declared a quarterly cash dividend of $0.55 per share for the first quarter of 2023, representing an increase of 7.8% from the 2022 first quarter dividend rate of $0.51.

Additionally, during the first quarter of 2023 the Company repurchased 1.6 million shares of its common stock for $120.0 million at an average price of $74.18, marking the full completion of its stock repurchase program announced in October 2022.

Non-GAAP Measures

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

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

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

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

Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends.

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

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

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

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

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

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

The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities.

Management believes providing information excluding the impact of goodwill and other intangibles facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry.

Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP.

An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period.

An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of

substantial importance to the Company’s results for any particular period.

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

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

Three Months Ended September 30

Net Income Diluted

Earnings Per Share

2022 2021 2022 2021

(Dollars in thousands, except per share data)

Net income available to common shareholders (GAAP) $ 71,897 $ 40,007 $ 1.57 $ 1.21

Non-GAAP adjustments

Noninterest expense components

merger and acquisition expenses — 1,943 — 0.06

Noncore increases to income before taxes — 1,943 — 0.06

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

Noncore increases to net income — 1,397 — 0.04

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

Nine Months Ended September 30

Three Months Ended March 31

Net Income Diluted

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Three Months Ended

2022 March 31

2023 December 31

2022 September 30

2022 March 31

(Dollars in thousands)

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

2022 March 31

2023 December 31

2022 September 30

2022 March 31

(Dollars in thousands, except per share data)

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Tangible book value per share (Non-GAAP) $ 41.31 $ 41.12 $ 39.56 $ 40.31 $ 41.15 (b/e)

Critical Accounting Policies

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

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

There have been no material changes in critical accounting policies during the first nine months of 2022.

Refer to "Critical Accounting Policies and Estimates" in Item 7.

Critical Accounting Estimates

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

Certain estimates associated with these policies inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

These critical accounting estimates are defined as estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on financial condition or results of operations.

There have been no material changes in critical accounting estimates during the first three months of 2023.

Refer to "Critical Accounting Estimates" in Item 7.

"Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2022 Form 10-K for a complete listing of critical accounting policies.

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Securities Portfolio The Company’s securities portfolio consists of trading securities, equity securities, securities available for sale, and securities which management intends to hold until maturity.

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

The ratio of securities to total assets increased to 16.0% at September 30, 2022 compared to 13.0% at December 31, 2021, which reflects the ongoing strategy to deploy excess liquidity into increased investment security purchases.

Securities decreased by $19.3 million, or 0.6%, at March 31, 2023 as compared to December 31, 2022, driven primarily by paydowns, calls, and maturities, partially offset by unrealized gains of $22.2 million in the available for sale portfolio.

As a result, the Company's ratio of securities to total assets decreased to 16.0% at March 31, 2023 compared to 16.2% at December 31, 2022.

The Company estimates expected credit losses for its available for sale and held to maturity securities in accordance with the current expected credit loss ("CECL") methodology.

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

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

The Company incurred no material losses related to residential mortgage repurchases during the three months ended March 31, 2023 and 2022, respectively.

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

Table 1 - Closed Residential Real Estate Loans

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

Three Months Ended March 31

(Dollars in thousands)

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Total closed loans $ 101,460 $ 217,770

The Company experienced a lower volume of residential real estate loans sales for the three and nine months ended September 30, 2022 compared to the same prior year periods, driven primarily by reduced customer demand in the rising interest rate environment.

In addition, the volume of closed residential real estate loans held in portfolio increased during the three and nine months ended September 30, 2022.

The Company experienced a lower volume of residential real estate loans sales for the three months ended March 31, 2023 compared to the same prior year periods, driven primarily by reduced customer demand in the rising interest rate environment.

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

Table 2 - Residential Mortgage Loan Sales

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

Three Months Ended March 31

(Dollars in thousands)

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Total loans sold $ 11,589 $ 54,284

(1) All loans sold with servicing rights retained during the three and nine months ended September 30, 2022 and 2021, respectively, were sold without recourse.

(1) All loans sold with servicing rights retained during the three months ended March 31, 2022 were sold without recourse.

When a loan is sold, the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneously with the sale of the loan, or the Company may opt to sell the loan and retain the servicing.

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If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income.

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

The principal balance of loans serviced by the Bank on behalf of investors was $320.9 million, $327.5 million and $361.7 million at March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated:

Table 3 - Mortgage Servicing Asset

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

Three Months Ended March 31

(Dollars in thousands)

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

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

Excluding $205.1 million of net paydowns associated with PPP loans during the nine months ended September 30, 2022, t he loan portfolio increased by $318.1 million, or 2.4% (3.2% on an annualized basis), compared to December 31, 2021.

Organic loan growth was driven primarily by strong consumer loan activity, as the majority of residential real estate loan closings were retained on the balance sheet, while increased demand and line utilization fueled growth in home equity balances.

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

The Company's commercial loan portfolio is comprised primarily of commercial and industrial loans as well as commercial real estate loans.

Management considers the Company’s commercial and industrial portfolio to be well-diversified with loans to various types of industries.

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

(Dollars in thousands)

Average loan size (excluding floor plan tranches) $ 388

Largest individual commercial and industrial loan outstanding $ 37,650

Commercial and industrial nonperforming loans/commercial and industrial loans 1.77 %

Loan Portfolio Total loans at March 31, 2023 increased by $19.3 million, or 0.1%, (0.6% on an annualized basis) when compared to December 31, 2022.

The commercial portfolio decreased by $26.7 million, or 0.2% during the quarter, reflecting decreased demand and an overall cautious posture over new commitments.

Small business loans rose modestly in the first quarter.

As in prior quarters, the vast majority of residential real estate originations were retained on the balance sheet, resulting in growth of $60.1 million, or 3.0% for the quarter while home equity balances remained relatively flat.

The Company’s commercial real estate loan portfolio, inclusive of commercial construction, is the Company’s largest loan type concentration.

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Commercial real estate also includes loans secured by certain residential-related property types, including multi-family apartment buildings, residential development tracts and condominiums.

The following pie chart shows the diversification of the commercial real estate loan portfolio as of September 30, 2022:

The following pie chart shows the diversification of the commercial real estate loan portfolio as of March 31, 2023:

(1) Included in the total commercial real estate balance are $1.0 billion, or 11.8%, of owner occupied commercial real estate loans.

(Dollars in thousands)

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Commercial real estate nonperforming loans/commercial real estate loans 0.20 %

Owner occupied commercial real estate loans/commercial real estate loans 12.0 %

Management considers the Company’s commercial and industrial portfolio to be well-diversified with loans to various types of industries.

The following pie chart shows the diversification of the commercial and industrial portfolio as of March 31, 2023:

(Dollars in thousands)

Average loan size (excluding floor plan tranches) $ 419

Largest individual commercial and industrial loan outstanding $ 37,650

Commercial and industrial nonperforming loans/commercial and industrial loans 1.60 %

The Company's consumer portfolio primarily consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area.

The Company also provides home equity loans and lines of credit that may be made as a fixed-rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home.

Additionally, the Company makes loans for a wide variety of other personal needs.

Additionally, the Company makes loans for other personal needs.

Other consumer loans primarily consist of installment loans and overdraft protections.

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

The residential real estate, home equity and other consumer portfolios totaled $3.2 billion at March 31, 2023, as noted below:

(Dollars in thousands)

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In the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition.

If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR").

In addition, the Company has offered need-based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to the COVID-19 pandemic.

In accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), these modifications are not accounted for as TDRs or reflected as delinquent or non-accrual loans if the borrower was in compliance with the loan terms as of December 31, 2019.

Delinquency The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations.

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

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

the length of time that the loan has been delinquent.

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

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

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However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection.

Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income.

Income accruals are suspended on all nonaccrual loans and all previously accrued

and uncollected interest is reversed against current income.

A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses.

Troubled Debt Restructurings In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans.

Loan Modifications In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans.

The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default.

Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider.

Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral.

Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to term extensions, interest rates, other than insignificant payment delays and/or a combination thereof.

These actions are intended to minimize economic loss and avoid foreclosure or repossession of collateral.

If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated.

At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

All loan restructurings are reviewed by the Company to identify if a borrower is deemed to be experiencing financial difficulty at time of the restructuring.

It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status.

If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status.

Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or are delinquent for 90 days or more.

Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it may be determined that the borrower is performing under modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring.

Purchased Credit Deteriorated Loans Purchased Credit Deteriorated ("PCD") loans are acquired loans which have shown a more-than-insignificant deterioration in credit quality since origination.

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2023 December 31

2021 September 30

2022 March 31

(Dollars in thousands)

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Other consumer 129 475 393

Total (1) $ 56,212 $ 54,881 $ 56,618

Loans past due 90 days or more but still accruing

Home equity 23 — —

Total $ 23 $ — $ —

Total nonperforming loans $ 56,235 $ 54,881 $ 56,618

Total nonperforming assets (1) $ 56,235 $ 54,881 $ 56,618

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Nonperforming assets as a percent of total assets 0.29 % 0.28 % 0.28 %

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

(1) Inclusive of troubled debt restructurings ("TDRs") on nonaccrual status of $11.5 million at December 31, 2022, and $2.0 million at March 31, 2022, in accordance with previously applicable accounting guidance.

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

Table 5 - Activity in Nonperforming Assets

Three Months Ended Nine Months Ended

2022 September 30

2021 September 30

2022 September 30

Three Months Ended

2023 March 31

(Dollars in thousands)

6 unchanged sentences

Nonperforming assets ending balance $ 56,235 $ 56,618

The following table sets forth information regarding troubled debt restructured loans as of the dates indicated:

Table 6 - Troubled Debt Restructurings

2022 December 31

2021 September 30

(Dollars in thousands)

Performing troubled debt restructurings $ 11,549 $ 14,635 $ 15,950

Nonaccrual troubled debt restructurings 1,538 1,993 21,104

Total $ 13,087 $ 16,628 $ 37,054

Performing troubled debt restructurings as a % of total loans 0.09 % 0.11 % 0.18 %

Nonaccrual troubled debt restructurings as a % of total loans 0.01 % 0.01 % 0.24 %

Total troubled debt restructurings as a % of total loans 0.10 % 0.12 % 0.42 %

The following table summarizes changes in TDRs for the periods indicated:

Table 7 - Activity in Troubled Debt Restructurings

Three Months Ended Nine Months Ended

2022 September 30

2021 September 30

2022 September 30

(Dollars in thousands)

TDRs beginning balance $ 13,411 $ 39,707 $ 16,628 $ 39,192

New to TDR status 62 — 62 3,918

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

Charge-offs — (16) — (16)

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

Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income.

The table below shows interest income that was recognized or collected on all nonaccrual loans and TDRs for the periods indicated:

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

Three Months Ended Nine Months Ended

2022 September 30

2021 September 30

2022 September 30

(Dollars in thousands)

The amount of incremental gross interest income that would have been recorded if nonaccrual loans had been current in accordance with their original terms $ 1,802 $ 678 $ 4,666 $ 2,289

The amount of interest income on nonaccrual loans and performing TDRs that was included in net income $ 1,817 $ 257 $ 2,443 $ 673

Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms.

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

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

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

As previously noted, the Company has offered need-based payment relief options to its customers in response to the COVID-19 pandemic, primarily in the form of payment deferrals, all of which were granted prior to December 31, 2020.

Loans that were modified are not accounted for as TDRs or reflected as delinquent or nonaccrual loans if the borrower was in compliance with their loan terms as of December 31, 2019.

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

Allowance for Credit Losses The allowance for credit losses is maintained at a level that management considers appropriate to provide for the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost.

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In accordance with the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output.

The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments.

The model estimates

expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments.

Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which is a reversion to the Company's historical long-run average for a period of six months.

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The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable.

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

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

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

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

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

The forecast used by management also anticipates that the U.S.

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

The balance of allowance for credit losses increased to $159.1 million as of March 31, 2023 compared to $152.4 million at December 31, 2022, due primarily to an additional reserve allocation associated with further credit deterioration of a large commercial and industrial credit that migrated to nonperforming status during 2022, resulting in a full specific reserve allocation on the loan.

Management's forecast anticipates that the federal funds rates will continue to rise in the near term and that the recent U.S.

bank failures are not symptomatic of a serious broader problem in the financial system.

The forecast used by management also anticipates that a full-employment economy is expected to continue, that lawmakers will suspend or increase limits on the U.S.

debt ceiling prior to the default date, and that prices for office properties and houses are expected to decline over the course of 2023.

Additionally, the allowance for credit losses is qualitatively adjusted on a quarterly basis in order to ensure coverage for relationships that are deemed to be more at risk within certain industries, specific collateral types, or other specific characteristics that may be highly impacted by the current economic environment.

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Table 6 - Summary Net Charge-Offs to Average Loans Outstanding

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

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

(Dollars in thousands)

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

Three Months Ended March 31, 2023

Commercial and industrial $ 276 $ 1,618,330 0.07 %

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Total $ 538 $ 13,926,696 0.02 %

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

(Dollars in thousands)

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

Three Months Ended March 31, 2022

Commercial and industrial $ (13) $ 1,535,619 — %

27 unchanged sentences

Total allowance for credit losses $ 159,131 100.0 % $ 152,419 100.0 %

(1) Total loans in this category are inclusive of $11.1 million and $216.2 million in loans at September 30, 2022 and December 31, 2021, respectively, which were originated as part of the PPP established by the CARES Act.

(1) Total loans in this category are inclusive of $6.6 million and $9.1 million in loans at March 31, 2023 and December 31, 2022, respectively, which were originated as part of the Paycheck Protection Program ("PPP") established by the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act").

These loans have been excluded from the credit loss calculations as these loans are 100% guaranteed by the U.S.

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The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return.

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

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both September 30, 2022 and December 31, 2021.

The Company's investments in FHLB of Boston stock increased to $40.3 million at March 31, 2023 compared to $5.2 million at December 31, 2022, driven by an increase in FHLB borrowings during the quarter of $879.0 million.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both March 31, 2023 and December 31, 2022.

The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted.

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

In light of the turmoil experienced in the U.S.

banking industry during the first quarter of 2023, and the related industry wide impact on bank stock valuations, the Company performed an interim goodwill impairment testing during the quarter and determined that the Company's goodwill was not impaired as of March 31, 2023.

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

There were no events or changes during the third quarter of 2022 that indicated impairment of goodwill and other intangible assets.

There were no other events or changes during the first quarter of 2023 that indicated impairment of goodwill and other intangible assets.

Cash Surrender Value of Life Insurance Policies The Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans.

The cash surrender value of life insurance policies was $293.1 million at September 30, 2022 compared to $289.3 million at December 31, 2021, representing an increase of $3.8 million, or 1.3%, primarily due to income earned on the policies.

The Company recorded tax exempt income from life insurance policies of $1.9 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively, and $5.5 million and $4.5 million for the nine months ended September 30, 2022 and 2021, respectively.

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

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

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

Core deposits increased to 87.8% of total deposits as of September 30, 2022 from 84.5% at December 31, 2021.

The Company also participates in the IntraFi Network, allowing the Bank to provide easy access to multi-million dollar Federal Deposit Insurance Corporation ("FDIC") deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities.

This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market, and amounted to $751.1 million and $998.1 million at September 30, 2022 and December 31, 2021, respectively.

In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to $102.6 million and $141.6 million at September 30, 2022 and December 31, 2021, respectively.

The cash surrender value of life insurance policies was $295.3 million at March 31, 2023 compared to $293.3 million at December 31, 2022, representing an increase of $1.9 million, or 0.7%, primarily due to income earned on the policies.

The Company recorded tax exempt income from life insurance policies of $1.9 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively.

Deposits As of March 31, 2023, total deposits were $15.3 billion, representing a $606.8 million, or 3.8%, decrease from December 31, 2022, primarily reflective of industry wide dislocations in the first quarter along with seasonality, a competitive rate environment, and redeployment of customer excess liquidity due to inflationary and other factors.

The total cost of deposits increased 54 basis points to 0.59% for the three months ended March 31, 2023 as compared to 0.05% for the same prior year period.

The increase in the cost of deposits was driven by the higher rate environment driven by the Federal Reserve's rate hikes over the past year.

The Company's deposits are comprised primarily of core deposits (demand, savings, and money market), as well as time deposits.

Core deposits represented 85.6% and 87.9% of total deposits as of March 31, 2023 and December 31, 2022, respectively, with the first quarter 2023 decrease driven primarily by core deposit outflows in conjunction with growth in higher yielding time deposits.

In addition, the Company may also utilize brokered deposit sources, as needed, with balances of $95.4 million and $102.6 million outstanding at March 31, 2023 and December 31, 2022, respectively.

The Company's deposits accounts are insured to the maximum extent permitted by law the Deposit Insurance Fund which is administered by the Federal Deposit Insurance Corporation ("FDIC").

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

The Company participates in the IntraFi Network, allowing it to provide easy access to multi-million dollar FDIC deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities.

This channel, which is not included in the Company's core deposits, allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market, and amounted to $698.3 million and $653.6 million at March 31, 2023 and December 31, 2022, respectively.

The estimated balance of uninsured deposits at the Bank are $4.7 billion and $5.3 billion as of March 31, 2023 and December 31, 2022, respectively.

Included in these amounts are $659.0 million and $605.0 million of collateralized deposits, which offer additional protection.

Borrowings The Company's borrowings consist of both short-term and long-term borrowings and provide the Bank with one of its primary sources of funding.

Maintaining available borrowing capacity provides the Bank with a contingent source of liquidity.

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

Additionally, the Bank had $4.3 billion and $4.2 billion of assets pledged as collateral against borrowings at September 30, 2022 and December 31, 2021, respectively.

These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston.

Capital Resources On September 15, 2022 the Company’s Board of Directors declared a cash dividend of $0.51 per share to shareholders of record as of the close of business on September 26, 2022.

This dividend was paid on October 7, 2022.

Borrowings were $992.4 million at March 31, 2023, representing an increase of $879.0 million as compared to December 31, 2022, driven primarily by deposit balance reductions and share repurchase activity during the quarter, as well as preemptive measures to bolster on-balance sheet liquidity.

The additional borrowings were comprised primarily of short term borrowings from the FHLB.

In conjunction with these borrowings, the Company entered into $300.0 million of hedges resulting in a weighted average cost of 3.7% over an average term of 3.5 years.

Additionally, the Bank had $7.3 billion and $4.4 billion of assets pledged as collateral against borrowings at March 31, 2023 and December 31, 2022, respectively.

These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston and pledged amounts were proactively increased by management during the first quarter of 2023 as part of the Company's strategy to bolster off-balance sheet liquidity in response to recent industry events.

Capital Resources On March 16, 2023 the Company’s Board of Directors declared a cash dividend of $0.55 per share to shareholders of record as of the close of business on March 27, 2023.

This dividend was paid on April 6, 2023.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.

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Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 Capital and Common Equity Tier 1 Capital (as defined for regulatory purposes) to risk weighted assets (as defined for regulatory purposes) and Tier 1 Capital to average assets (as defined for regulatory purposes).

At September 30, 2022 and December 31, 2021, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods.

At March 31, 2023 and December 31, 2022, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods.

The Company’s and the Bank’s capital amounts and ratios are presented in the following table, along with the applicable minimum requirements as of each date indicated:

3 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio

September 30, 2022

March 31, 2023

(Dollars in thousands)

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

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

At March 31, 2023, the Company's capital levels exceeded the buffer.

Dividend Restrictions The Company is subject to capital and dividend requirements administered by federal and state bank regulators, and the Company will not declare a cash dividend that would cause the Company to violate regulatory requirements.

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Massachusetts Bank Commissioner approval is required if the total of all dividends declared by the Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock.

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

Dividends paid by the Bank to the Company totaled $66.4 million and $25.0 million for the three months ended March 31, 2023 and 2022, respectively.

Trust Preferred Securities In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities has not been included in the consolidated financial statements of the Company.

At each of September 30, 2022 and December 31, 2021 there were $61.0 million in trust preferred securities included in the Tier 2 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

At each of March 31, 2023 and December 31, 2022 there were $61.0 million in trust preferred securities included in the Tier 2 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

Investment Management The following table presents total assets under administration and number of accounts held by the Rockland Trust Investment Management Group at the following dates:

1 unchanged sentence

2023 December 31

2021 September 30

2022 March 31

(Dollars in thousands)

1 unchanged sentence

Number of trust, fiduciary and agency accounts 6,527 6,459 6,667

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

Included in these amounts as of September 30, 2022 and December 31, 2021 are assets under administration of $361.0 million and $447.4 million, respectively, relating to the Company’s registered investment advisor, Bright Rock Capital Management, LLC, which provides institutional quality investment management services to institutional and high net worth clients.

Revenue from the Investment Management Group was $7.8 million and $8.1 million for the three months ended September 30, 2022 and 2021, respectively, and $23.6 million for the nine months ended September 30, 2022 and 2021.

The Company's Investment Management Group provides investment management and trust services to individuals, institutions, small businesses, and charitable institutions.

Accounts maintained by the Investment Management Group consist of managed and nonmanaged accounts.

Managed accounts are those for which the Bank is responsible for administration and investment management and/or investment advice, while nonmanaged accounts are those for which the Bank acts solely as a custodian or directed trustee.

The Bank receives fees dependent upon the level and type of service(s) provided.

The Investment Management Group generated gross fee revenues of $8.2 million and $7.9 million for the three months ended March 31, 2023 and 2022, respectively.

Total assets under administration at March 31, 2023 were $6.1 billion, including $627.9 million of investment solutions designed by Rockland Trust that are administered and executed through its agreement with LPL Financial ("LPL"), compared to $5.8 billion and $603.7 million, respectively, at December 31, 2022.

The Company also has a subsidiary that is a registered investment advisor, Bright Rock Capital Management, LLC ("Bright Rock"), which provides institutional quality investment management services to both institutional and high net worth clients.

Included in these same amounts as of March 31, 2023 and December 31, 2022 are assets under administration of $411.6 million and $390.1 million, respectively, related to Bright Rock.

The administration of trust and fiduciary accounts is monitored by the Trust Committee of the Bank’s Board of Directors.

The Trust Committee has delegated administrative responsibilities to three committees, one for investments, one for administration, and one for operations, all of which are comprised of Investment Management Group officers who meet no less than quarterly.

The Bank has an agreement with LPL Financial ("LPL") and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., to offer the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance.

Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base.

The Bank has an agreement with LPL and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., to offer the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance.

Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to

offer these products to the Bank’s customer base.

These same agents are also approved and appointed with various other Broker General Agents for the purposes of processing insurance solutions for clients.

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

Retail investments and insurance revenue was $1.6 million and $769,000 for the three months ended March 31, 2023 and 2022, respectively.

RESULTS OF OPERATIONS

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

The following table provides a summary of results of operations for the three months ended March 31, 2023 and 2022:

Table 10 - Summary of Results of Operations

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

Three Months Ended March 31

(Dollars in thousands, except per share data)

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Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities.

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

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

The year-over-year increases in net interest income are primarily attributable to the Meridian acquisition which closed during the fourth quarter of 2021, as well as the positive impact of asset repricing in the rising rate environment and relatively stable funding costs experienced through September 30, 2022, partially offset by reduced PPP fee income.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and nine months ended September 30, 2022 and 2021.

On a fully tax equivalent basis ("FTE"), net interest income for the first quarter of 2023 was $160.1 million, representing an increase of $21.7 million, or 15.7%, when compared to the first quarter of 2022.

The year-over-year increase in net interest income was primarily attributable to the positive impact of asset repricing in the rising rate environment, partially offset by higher funding costs from elevated deposit pricing in comparison to the same prior year quarter, as well as increased borrowings assumed by the Company during the quarter ended March 31, 2023.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three months ended March 31, 2023 and 2022.

Nontaxable income from loans and securities is presented on a FTE basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing income tax rate that would have been paid if the income had been fully taxable.

Table 11 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date

Three Months Ended September 30

Three Months Ended March 31

Balance Interest

49 unchanged sentences

Cost of total funding liabilities 0.71 % 0.08 %

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

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

(2) Includes average nonaccruing loans.

(3) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(4) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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

Nine Months Ended September 30

Balance Interest

(Dollars in thousands)

Interest-earning assets

Interest-earning deposits with banks, federal funds sold, and short-term investments $ 1,477,117 $ 10,222 0.93 % $ 1,782,463 $ 1,654 0.12 %

Securities - trading 3,775 — — % 3,267 — — %

Securities - taxable investments 2,881,203 34,567 1.60 % 1,550,859 21,603 1.86 %

Securities - nontaxable investments (1) 198 5 3.38 % 555 17 4.10 %

Total securities $ 2,885,176 $ 34,572 1.60 % $ 1,554,681 $ 21,620 1.86 %

Loans held for sale 5,841 150 3.43 % 35,953 675 2.51 %

Commercial and industrial (1) 1,531,421 53,816 4.70 % 1,898,100 58,706 4.14 %

Commercial real estate (1) 7,832,534 238,085 4.06 % 4,195,200 123,377 3.93 %

Commercial construction 1,180,509 40,599 4.60 % 525,652 14,976 3.81 %

Small business 202,151 7,891 5.22 % 178,294 6,924 5.19 %

Total commercial 10,746,615 340,391 4.23 % 6,797,246 203,983 4.01 %

Residential real estate 1,774,355 45,109 3.40 % 1,242,991 34,449 3.71 %

Home equity 1,051,921 29,709 3.78 % 1,027,311 26,391 3.43 %

Total consumer real estate 2,826,276 74,818 3.54 % 2,270,302 60,840 3.58 %

Other consumer 31,092 1,519 6.53 % 23,382 1,241 7.10 %

Total loans $ 13,603,983 $ 416,728 4.10 % $ 9,090,930 $ 266,064 3.91 %

Total interest-earning assets $ 17,972,117 $ 461,672 3.43 % $ 12,464,027 $ 290,013 3.11 %

Cash and due from banks 184,754 147,269

Federal Home Loan Bank stock 7,780 9,516

Other assets 1,853,818 1,256,066

Total assets $ 20,018,469 $ 13,876,878

Interest-bearing liabilities

Savings and interest checking accounts $ 6,224,317 $ 3,418 0.07 % $ 4,292,992 $ 1,145 0.04 %

Money market 3,517,459 4,191 0.16 % 2,337,445 1,393 0.08 %

Time deposits 1,355,861 2,718 0.27 % 848,143 3,823 0.60 %

Total interest-bearing deposits $ 11,097,637 $ 10,327 0.12 % $ 7,478,580 $ 6,361 0.11 %

Federal Home Loan Bank borrowings $ 21,361 $ 311 1.95 % $ 34,185 $ 544 2.13 %

Long-term borrowings 2,988 31 1.39 % 23,434 282 1.61 %

Junior subordinated debentures 62,854 1,298 2.76 % 62,852 1,287 2.74 %

Subordinated debentures 49,824 1,852 4.97 % 49,729 1,852 4.98 %

Total borrowings $ 137,027 $ 3,492 3.41 % $ 170,200 $ 3,965 3.11 %

Total interest-bearing liabilities $ 11,234,664 $ 13,819 0.16 % $ 7,648,780 $ 10,326 0.18 %

Noninterest bearing demand deposits 5,544,476 4,213,764

Other liabilities 303,308 280,002

Total liabilities $ 17,082,448 $ 12,142,546

Stockholders' equity 2,936,021 1,734,332

Total liabilities and stockholders' equity $ 20,018,469 $ 13,876,878

Net interest income (1) $ 447,853 $ 279,687

Interest rate spread (3) 3.27 % 2.93 %

Net interest margin (4) 3.33 % 3.00 %

Supplemental information

Total deposit, including demand deposits $ 16,642,113 $ 10,327 $ 11,692,344 $ 6,361

Cost of total deposits 0.08 % 0.07 %

Total funding liabilities, including demand deposits $ 16,779,140 $ 13,819 $ 11,862,544 $ 10,326

Cost of total funding liabilities 0.11 % 0.12 %

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

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

(1) The total amount of adjustment to interest income and yield on a FTE basis was $1.1 million and $968,000 for the three months ended March 31, 2023 and 2022, respectively.

(2) Includes average nonaccruing loans.

5 unchanged sentences

Table 12 - Volume Rate Analysis

Three Months Ended September 30 Nine Months Ended September 30

2022 Compared To 2021 2022 Compared To 2021

Volume Total Change Change

Three Months Ended March 31

2023 Compared To 2022

Volume Total Change

31 unchanged sentences

(1) Reflects income determined on a FTE basis.

See footnote (1) to Table 14 and 15 in this Report for the related adjustments.

See footnote (1) to Table 11 in this Report for the related adjustments.

(2) Loans include portfolio loans and nonaccrual loans;

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Provision For Credit Losses The provision for credit losses represents the charge to expense that is required to maintain an appropriate level of allowance for credit losses.

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

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

The Company recorded net charge-offs of $6,000 and $609,000 for the three and nine months ended September 30, 2022, respectively, as compared to net charge-offs of $111,000 and $3.6 million for the three and nine months ended September 30, 2021, respectively.

Refer to Note 4 "Loans, Allowance for Credit Losses and Credit Quality " within the Note to Consolidated Financial Statements included in Part I.

The Company recorded a $7.3 million and a $2.0 million provision for credit losses for the three months ended March 31, 2023 and March 31, 2022, respectively.

The provision for credit losses for the three months ended March 31, 2023 primarily reflects an additional reserve allocation associated with further credit deterioration of a large commercial and industrial credit that migrated to nonperforming status during 2022, resulting in a full specific reserve allocation on the loan.

The Company’s allowance for credit losses as a percentage of total loans, was 1.14%, 1.09%, and 1.06% at March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

The Company recorded net charge-offs of $538,000 for the three months ended March 31, 2023, as compared to net charge-offs of $404,000 for the three months ended March 31, 2022.

Refer to Note 4 "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Part I.

Item 1 of this Report, for further details surrounding the primary drivers of the provision for credit losses for the period.

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Three Months Ended

September 30 Change

2022 2021 Amount %

(Dollars in thousands)

Deposit account fees $ 6,261 $ 4,298 $ 1,963 45.67 %

Interchange and ATM fees 4,331 3,441 890 25.86 %

Investment management 8,436 9,174 (738) (8.04) %

Mortgage banking income 585 2,825 (2,240) (79.29) %

Gain on life insurance benefits 477 — 477 100.00%

Increase in cash surrender value of life insurance policies 1,883 1,596 287 17.98 %

Loan level derivative income 471 586 (115) (19.62) %

Other noninterest income 5,751 4,537 1,214 26.76 %

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

Nine Months Ended

September 30 Change

March 31 Change

2023 2022 Amount %

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Total $ 28,242 $ 26,272 $ 1,970 7.50 %

The primary reasons for the variances in the noninterest income categories for the three and nine months ended September 30, 2022 as compared to the respective prior year periods shown in the preceding table include:

• Deposit account fees and interchange and ATM fees increased for the three and nine months ended September 30, 2022 in comparison to the same prior year periods driven primarily by increased transaction volume attributable to the larger customer base as a result of the Meridian acquisition.

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

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

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

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

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

The primary reasons for the variances in the noninterest income categories shown in the preceding table include:

• Deposit account fees increased driven primarily by increased overdraft fees.

• Interchange and ATM fees increased due to higher debit card service charges.

• Investment management income increased driven primarily by higher levels of assets under administration, which increased by $420.6 million, or 7.3%, to $6.1 billion at March 31, 2023 as compared to $5.7 billion at March 31, 2022, as well as higher retail and insurance commission income during the first quarter of 2023.

• Mortgage banking income decreased for the three months ended March 31, 2023 in comparison to the prior year period, primarily reflecting overall reduced volumes from rising interest rates.

• Loan level derivative income decreased primarily due to lower customer demand.

• Other noninterest income increased for the three months ended March 31, 2023, primarily attributable to increases in rental income from equipment leases, unrealized gains on equity securities and credit card fee income.

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

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Three Months Ended

September 30 Change

March 31 Change

2023 2022 Amount %

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Total $ 98,661 $ 95,500 $ 3,161 3.31 %

Nine Months Ended

September 30 Change

2022 2021 Amount %

(Dollars in thousands)

Salaries and employee benefits $ 150,957 $ 124,759 $ 26,198 21.00 %

Occupancy and equipment expenses 37,255 26,543 10,712 40.36 %

Data processing & facilities management 6,878 5,024 1,854 36.90 %

Merger and acquisition expenses 7,100 3,674 3,426 93.25 %

Software maintenance 7,706 5,903 1,803 30.54 %

Consulting expense 7,057 5,443 1,614 29.65 %

Amortization of intangible assets 5,801 4,037 1,764 43.70 %

Debit card expense 5,562 3,693 1,869 50.61 %

FDIC assessment 5,225 2,805 2,420 86.27 %

Other noninterest expenses 45,249 33,522 11,727 34.98 %

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

The primary reasons for the variances in the noninterest expense categories for the three and nine months ended September 30, 2022 as compared to the respective prior year periods shown in the preceding table include:

• The increase in salaries and employee benefits was primarily attributable to the Company's increased workforce base following the Meridian acquisition.

• Occupancy and equipment expenses increased year-over-year, primarily driven by costs associated with the Company's expanded branch network, real estate and other fixed assets resulting from the Meridian acquisition, as well as increased depreciation expense on leased equipment.

• Data processing and facilities management expenses increased primarily due to the timing of certain initiatives and general increases associated with higher transaction volumes.

• The Company incurred merger and acquisition costs related to the Meridian acquisition of $7.1 million during the first quarter of 2022, primarily related to lease terminations associated with exited branch locations, along with

additional integration costs and professional fees.

Meridian related merger and acquisition costs were also incurred, to a lesser extent, during the nine months ended September 30, 2021, leading up to deal close during the fourth quarter of 2021.

The primary reasons for the variances in the noninterest expense categories shown in the preceding table include:

• The increase in salaries and employee benefits was primarily attributable to CEO transition related expenses, general salary increases and payroll taxes.

• Occupancy and equipment expenses decreased, driven primarily by reduced snow removal costs costs and equipment maintenance and repairs, partially offset by increased utilities expenses.

• Consulting expense increased for the three months ended March 31, 2023, due primarily to the Company's overall growth and implementation of strategic initiatives.

• Software maintenance increased primarily due to the Company's continued investment in its technology infrastructure.

• FDIC assessment increased primarily due to an increased assessment base resulting from the Meridian acquisition.

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

• Other noninterest expense increased for the three and nine months ended September 30, 2022, primarily due to three full quarters of general increases associated with the Meridian acquisition, elevated unrealized losses on equity securities, and increased marketing and public relations costs.

• Debit card expense increased due to higher processing fees driven by volume.

• FDIC assessment increased primarily due to increased assessment rates.

No such costs were incurred during the first quarter of 2023.

• Other noninterest expense increased for the three months ended March 31, 2023, primarily due to increases in legal fees and timing of expenses such as trainings, subscriptions and recruitment, which are tied to various strategic initiatives, offset partially by decreases in unrealized losses on equity securities.

Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes.

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Table 15 - Tax Provision and Applicable Tax Rates

Three Months Ended Nine Months Ended

September 30 September 30

2022 2021 2022 2021

Three Months Ended

(Dollars in thousands)

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Blended statutory tax rate 27.85 % 27.11 %

The Company’s effective tax rate in 2022 thus far is higher as compared to the year ago period primarily due to higher pre-tax income, as well as the impact of discrete items, including tax benefits related to low income housing tax credits and equity compensation.

The effective tax rates in the table above are lower than the blended statutory tax rates due to the aforementioned discrete items as well as certain tax preference assets such as life insurance policies, tax exempt bonds, and federal tax credits.

The Company’s effective tax rate in 2023 thus far is higher as compared to the year ago period primarily due to higher pre-tax income.

The effective tax rates in the table above are lower than the blended statutory tax rates due to the impact of discrete items, including tax benefits related to low income housing tax credits and equity compensation, as well as certain tax preference assets such as life insurance policies, tax exempt bonds, and federal tax credits.

The Company invests in various low income housing projects, which are real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing developments.

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The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2039, which represents the period that the tax credits and other tax benefits will be utilized.

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

The total committed investment in these partnerships is $197.7 million, of which $152.9 million had been funded as of March 31, 2023.

It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.6 million for the fiscal year 2023 and a total of $22.1 million over the remaining life of the investments from the combination of the tax credits and operating losses.

Risk Management

The Board of Directors has approved an Enterprise Risk Management Policy and Risk Appetite Statement to state the Company’s goals and objectives in identifying, measuring, and managing the risks associated with the Company’s current and near future anticipated size and complexity.

The Board of Directors has approved an Enterprise Risk Management Policy to state the Company’s goals and objectives in identifying, measuring, and managing the risks associated with the Company’s current and near future anticipated size and complexity.

Management is responsible for comprehensive enterprise risk management, and continually strives to adopt and implement practices that strike an appropriate balance between risk and reward and permit the achievement of strategic goals in a controlled environment.

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The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks.

The second line of defense is the Chief Risk Officer and the risk department, who monitor and provide advice with respect to first line risk management.

The third line of

defense is independent assurance performed by the Chief Internal Auditor, who reports to the Audit Committee of the Company's Board of Directors, and by the Company's internal audit department.

The second line of defense monitors and provides risk management advice across all risk domains, and is comprised of the enterprise risk department, with oversight from the Chief Risk Officer.

The third line of defense is independent assurance performed by the Chief Internal Auditor, who reports to the Audit Committee of the Company's Board of Directors, and by the Company's internal audit department.

The Board of Directors, with the assistance of its Risk Committee, oversees management’s enterprise risk management practices.

As risks must be taken to create value, the Board of Directors has defined the acceptable residual risk tolerances for the Company and the eight major risk types identified as having the potential to create significant adverse impacts on the Company, such as financial losses, reputational damage, legal or regulatory actions, nonachievement of strategic objectives, diminished customer experience, and/or cultural erosion.

The eight major risk types identified by the Company and addressed in the Risk Appetite Statement are strategic risk, culture risk, credit risk, liquidity risk, interest rate risk, operational risk, technology risk, and reputation risk, each of which is discussed below.

Strategic Risk Strategic risk is the risk arising from adverse strategic or business decisions, misalignment of strategic direction with the Company’s mission and values, failure to execute strategies or tactics, or an inadequate adaptation or lack of responsiveness to industry and/or operating environment changes.

As risks must be taken to create value, the Board of Directors has approved a Risk Appetite Statement that defines the acceptable residual risk tolerances for the Company and the nine major risk types identified as having the potential to create significant adverse impacts on the Company, such as financial losses, reputational damage, legal or regulatory actions, failure to achieve strategic objectives, diminished customer experience, and/or cultural erosion.

The nine major risk types identified by the Company and addressed in the Risk Appetite Statement are strategic and emerging risk, culture risk, credit risk, liquidity risk, interest rate risk, operational risk, reputation risk, compliance risk, and technology risk, each of which is discussed below.

Strategic and Emerging Risk Strategic and emerging risk is the risk arising from adverse strategic or business decisions, misalignment of strategic direction with the Company’s mission and values, failure to execute strategies or tactics, or an inadequate adaptation or lack of responsiveness to industry and/or operating environment changes.

Management seeks to mitigate strategic risk through strategic planning, frequent executive review of strategic plan progress, monitoring of competitors and technology, assessment of new products, new branches, and new business initiatives, customer advocacy, and crisis management planning.

Culture Risk Culture risk is the risk arising from failed leadership and/or ineffective colleague engagement and workplace management that causes the Company to lose sight of core values and, through acts or omissions, damage the relationship-based culture which has been one of the foundations of the Company’s consistent success.

Management mitigates culture risk through effective employee relations, leadership that encourages continuous improvement, cultural development and reinforcement of core values, communication of clear ethical and behavioral standards, consistent enforcement of policies and programs, discipline of misbehavior, alignment of incentives and compensation, and by promoting diversity, equity, and inclusion.

Culture Risk Culture risk is the risk arising from failed leadership and/or ineffective colleague engagement and workplace management that causes the Company to lose sight of core values and, through acts or omissions, damage the relationship-based culture that has been one of the foundations of the Company’s consistent success.

Management seeks to mitigate culture risk through effective employee relations, leadership that encourages continuous improvement, cultural

development and reinforcement of core values, communication of clear ethical and behavioral standards, consistent enforcement of policies and programs, discipline of misbehavior, alignment of incentives and compensation, and by promoting diversity, equity, and inclusion.

Credit Risk Credit risk is the risk arising from the failure of a borrower or a counterparty to a contract to make payments as agreed, and includes the risks arising from inadequate collateral and mismanagement of loan concentrations.

While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results.

While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses that could have an adverse effect on its operating results.

The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans.

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These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts.

Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors.

Interest rates, economic conditions, and competitive factors greatly influence deposit levels.

The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets.

This ratio, which is an analysis of the relationship between liquid assets plus available Federal Home Loan Bank funding, less short-term liabilities relative to total assets, was within policy limits at September 30, 2022.

This ratio, which is an analysis of the relationship between liquid assets plus available FHLB funding, less short-term liabilities relative to total assets, was within policy limits at March 31, 2023.

The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings.

An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure.

Other factors affecting the Total Basic Surplus/Deficit include Federal Home Loan Bank collateral requirements, securities portfolio changes, and the mix of deposits.

The Company seeks to increase deposits without adversely impacting its weighted average funding cost.

The Company also maintains a variety of liquidity sources, including Federal Home Loan Bank advances, Federal Reserve borrowing capacity, and repurchase agreement lines.

Other factors affecting the Total Basic Surplus/Deficit include FHLB collateral requirements, securities portfolio changes, and the mix of deposits.

The Company prioritizes core deposits as a primary funding source.

The Company experienced a decline in its deposit balances during the first quarter of 2023, attributable to various factors, including seasonality, customer balance diversification due to FDIC insurance limits, and a competitive rate environment.

As a result of the deposit outflows, the Company’s Borrowings increased during the quarter.

The Company continues to maintain a variety of available liquidity sources, including FHLB advances, Federal Reserve borrowing capacity, and repurchase agreement lines.

These funding sources serve as a contingent source of liquidity and, when profitable lending and investment opportunities exist, the Company may access them to provide the liquidity needed to grow the balance sheet.

The amount and type of assets that the Company has available to pledge impacts the Company's Federal Home Loan Bank and Federal Reserve borrowing capacity.

The amount and type of assets that the Company has available to pledge affects the Company's FHLB and Federal Reserve borrowing capacity.

For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a pledged commercial loan may increase borrowing capacity in a lower amount.

The Company’s lending decisions, therefore, can also affect its liquidity position.

The Company can also raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past.

The Company may also have the ability to raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past.

Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion.

The availability and cost of equity or debt on an unsecured basis is dependent on many factors, including the Company’s financial position, the market environment, and the Company’s credit rating.

The Company monitors the factors that could impact its ability to raise liquidity through these channels.

The Company monitors the factors that could affect its ability to raise liquidity through these channels.

The following table depicts current and unused liquidity capacity from various sources as of the dates indicated:

Table 16 - Liquidity Sources

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Outstanding Additional

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Line of Credit — 85,000 — 85,000

Long-term borrowing (3) — — 14,063 —

Junior subordinated debentures (3) 62,856 — 62,855 —

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$ 1,786,131 $ 6,173,951 $ 869,658 $ 5,248,415

(1) Loans with a carrying value of $2.6 billion and $2.3 billion at September 30, 2022 and December 31, 2021, respectively, were pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.

(2) Loans with a carrying value of $1.7 billion and $1.8 billion at September 30, 2022 and December 31, 2021, respectively, were pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.

(1) Loans with a carrying value of $2.7 billion at both March 31, 2023 and December 31, 2022, were pledged to the FHLB of Boston resulting in this additional unused borrowing capacity.

(2) Loans with a carrying value of $4.6 billion and $1.7 billion at March 31, 2023 and December 31, 2022, respectively, were pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.

(3) The additional borrowing capacity has not been assessed for these categories.

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Catalysts for elevated liquidity risk can be Company-specific issues and/or systemic industry-wide events.

It is therefore the responsibility of management to institute systems and controls designed to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute responses that may alleviate or circumvent a potential liquidity crisis.

Management is therefore responsible for instituting systems and controls designed to provide advanced detection of potentially significant funding shortages, establishing methods for assessing and monitoring risk levels, and instituting responses that may alleviate or circumvent a potential liquidity crisis.

Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and appropriately address them in a timely manner.

In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and establish and execute an appropriate response.

In response to the recent turmoil within the banking industry, the Company has continued to operate under its Liquidity Contingency Plan, resulting in various immediate action items.

From a liquidity management perspective, the company proactively borrowed under its existing FHLB capacity to increase current cash on hand to improve direct on balance sheet liquidity, while also pledging additional assets to increase overall borrowing capacity.

In addition, the Company has created customer communications, increased internal discussion frequency, and continues to review both on and off balance sheet liquidity sources to understand vulnerabilities through application of various stress testing scenarios and other analyses.

Interest Rate Risk Interest rate risk is the risk arising from changes in interest rates and the value of investments due to market conditions or other external factors or events.

Interest rate risk includes market risk.

The Company’s primary market risk exposure is interest rate risk.

Interest rate risk is the sensitivity of income to changes in interest rates.

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Interest rate risk arises directly from the Company’s core banking activities.

In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects.

In addition to directly affecting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects.

Management strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons.

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It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and

interest-bearing liabilities and, when necessary within limits management deems prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.

interest-bearing liabilities and, when necessary within limits management deems prudent, with off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.

The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis.

Key assumptions in these analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers.

The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g., demand deposit, negotiable order of withdrawal, savings, and money market accounts).

In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans.

The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits ( e.g.

, demand deposit, negotiable order of withdrawal, savings, and money market accounts).

In the case of prepayment of mortgage assets, assumptions are derived from published median prepayment estimates for comparable mortgage loans.

The risk of prepayment tends to increase when interest rates fall.

Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined with precision and actual behavior may differ from assumptions to a significant degree.

Based upon the net interest income simulation models, the Company currently forecasts that assets are anticipated to re-price faster than liabilities.

Non-maturity deposits, assumptions over customer behavior, shifts in deposits categories, and magnitude of impact to the cost of deposits all may differ from what is currently anticipated by the models or analyses.

Based upon the net interest income simulation models, the Company anticipates that assets will generally re-price faster than liabilities over the long term, though short term volatility may exist depending on the current state of the overall rate cycle, as well as the pace and magnitude of interest rate changes.

As a result, net interest income will be positively impacted as market rates increase and negatively impacted if market rates decrease.

The Company runs several scenarios to quantify and effectively assist in managing interest rate risk, including instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary given the interest rate environment.

The Company measures the annual income from each scenario and then compares it against the current year base case scenario.

The results of those scenarios are summarized in the following table:

The relative results of all scenarios and the impact to net interest income as they compare to the year 1 base scenario are outlined in the table below:

Table 17 - Interest Rate Sensitivity

Year 1 Year 2 Year 1 Year 2

Year 1 Year 1

Parallel rate shocks (basis points)

-300 (15.2) % (21.8) % n/a n/a

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

-300 (11.2) % n/a

-200 (5.0) % n/a

-100 (1.5) % (4.8) %

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Gradual rate shifts (basis points)

-200 over 12 months (3.9) % (8.2) % n/a n/a

-200 over 12 months (1.5) % n/a

-100 over 12 months (0.7) % (2.1) %

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+400 over 24 months 0.7 % 5.0 %

Alternative scenarios

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

The results depicted in the table above are dependent on material assumptions.

For instance, asymmetrical rate behavior can have a material impact on the simulation results.

If competition for deposits prompts the Company to raise rates on those liabilities more quickly than is assumed in the simulation analysis without a corresponding increase in asset yields, net interest income would be negatively impacted.

Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted.

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

Alternatively, if the Company were able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted.

The most significant market factors affecting the Company’s net interest income during the year ended March 31, 2023 were the shape of the U.S.

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

prime interest

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

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

The Company manages the interest rate risk inherent in both its loan and borrowing portfolios by using interest rate swap agreements and interest rate caps and floors.

An interest rate swap is an agreement in which one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from the other party.

Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized.

While interest is paid or received in swap, cap, and floors agreements, the notional principal amount is not actually exchanged.

Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period to a second party if certain market interest rate thresholds are realized.

While interest is paid or received in swap, cap, and floors agreements, the notional principal amount is not exchanged.

The Company may also manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts under which the Company agrees to deliver whole mortgage loans to various investors.

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Item 1 of this Report for additional information regarding the Company’s derivative financial instruments.

The Company’s earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices.

Movements in foreign currency rates or commodity prices do not directly or materially affect the Company's earnings.

Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines.

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Operational Risk Operational risk is the risk arising from human error or misconduct, transaction errors or delays, inadequate or failed internal systems or processes, data unavailability, loss, or poor quality, or adverse external events.

Operational risk includes business resiliency risk, consumer compliance risk, data governance risk, fraud risk, legal risk, model risk, regulatory compliance risk, and third party vendor risk.

Operational risk includes fraud risk and model risk.

Potential operational risk exposure exists throughout the Company.

The continued effectiveness of colleagues, technical systems, operational infrastructure, and relationships with key third party service providers are integral to mitigating operational risk, and any shortcomings subject the Company to risks that vary in size, scale and scope.

Operational risks include operational failures, unlawful tampering, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or a failure of key individuals to perform properly.

The continued effectiveness of colleagues and operational infrastructure are integral to mitigating operational risk, and any shortcomings subject the Company to risks that vary in size, scale and scope.

Reputation Risk Reputation risk is the risk arising from negative public opinion of the Company and the Bank.

Management seeks to mitigate reputational risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring.

Compliance Risk Compliance risk is the risk arising from violations of laws or regulations, non-conformance with prescribed practices, internal bank policies and procedures, or ethical standards.

Compliance risk includes consumer compliance risk, legal risk, and regulatory compliance risk.

Management seeks to mitigate compliance risk through compliance training and regulatory change management processes.

Technology Risk Technology risk is the risk of losses or other impacts arising from the failure of technology systems to function in accordance with expectations and business requirements.

Technology risk includes information technology risk, information security risk, and cyber security.

Reputation Risk Reputational risk is the risk arising from negative public opinion of the Company and the Bank.

Management seeks to mitigate reputation risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring.

Technology risks include technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness or exposure due to interruption in third party support.

Management seeks to mitigate technology risk through appropriate security and controls over data and its technological environment.

Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet Financial Information

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

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet arrangements during the three months ended March 31, 2023.

See Note 7, "Derivative and Hedging Activities" and Note 11, "Commitments and Contingencies" within the Notes to Consolidated Financial Statements included in Part I.

Item 1 of this Report for more information relating to the Company's other off-balance sheet financial instruments.

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

Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended March 31, 2023.

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis