What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 232 added, 171 removed, 680 unchanged (37% of the section changed)

9 unchanged sentences

• the 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, and as a result of recent disruptions in the banking industry;

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

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

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;

long-term sovereign debt, or uncertainties surrounding 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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Three Months Ended

2023 March 31

2023 December 31

2022 September 30

2022 March 31

(Dollars in thousands, except per share data)

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Net interest income 152,546 158,998 168,355 162,601 144,861

Provision for (release of) credit losses 7,250 5,500 3,000 — (2,000)

Provision for credit losses 5,000 7,250 5,500 3,000 —

Noninterest income 30,757 28,242 32,302 28,195 27,898

31 unchanged sentences

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).

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.

Second Quarter 2023 Results

Net income for the three months ended June 30, 2023 was $62.6 million, or $1.42 on a diluted earnings per share basis, as compared to $61.8 million, or $1.32 on a diluted earnings per share basis, for the three months ended June 30, 2022, representing increases of 1.4% and 7.6%, respectively.

Results for the six months ended June 30, 2022 reflect merger and acquisition-related costs of $7.1 million, pre-tax, associated with the acquisition of Meridian Bancorp, Inc.

("Meridian") 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 $120.0 million, or $2.55 on a diluted per share basis for six months ended June 30, 2022.

There were no such costs for the six months ended June 30, 2023.

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

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;

Second quarter 2023 results reflected the following key drivers:

• Disciplined loan growth;

• Stabilizing deposit balances;

• Wealth Management assets under administration increased to $6.3 billion;

• Solid fee income growth;

• Asset quality remains solid;

• Prudent expense management;

52.1% efficiency ratio;

• Completion of full $120.0 million stock buyback program;

• Modest tangible book value per share growth

• $0.57 tangible book value per share growth;

• Robust capital levels

Interest-Earning Assets

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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.

Total borrowings increased by $787.9 million at June 30, 2023 as compared to December 31, 2022, primarily in response to deposit balance reductions and preemptive measures to bolster on-balance sheet liquidity in response to the high deposit risk environment experienced recently across the banking industry during the first half of 2023, as well as share repurchase activity during the first quarter of 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 primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment.

The following chart depicts the Company's efficiency ratio on a GAAP basis (calculated by dividing noninterest expense by the sum of noninterest income and net interest income), as well as the Company's efficiency ratio on a non-GAAP operating basis, if applicable (calculated by dividing noninterest expense, excluding certain noncore items, by the sum of noninterest income, excluding certain noncore items, and net interest income), over the past five quarters:

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

The following chart depicts the Company's efficiency ratio (calculated by dividing noninterest expense by the sum of noninterest income and net interest income) over the past five quarters:

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.

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

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.

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

Non-GAAP Measures

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

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

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

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

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

Three Months Ended March 31

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

The Company’s non-GAAP performance measures

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

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

Six Months Ended June 30

Net Income Diluted

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(1) The net tax benefit associated with noncore items is determined by assessing whether each noncore item is included or excluded from net taxable income and applying the Company's combined marginal tax rate to only those items included in net taxable income.

Three Months Ended

2023 December 31

2022 September 30

2022 March 31

(Dollars in thousands)

Net interest income (GAAP) $ 158,998 $ 168,355 $ 162,601 $ 144,861 $ 137,432 (a)

Noninterest income (GAAP) $ 28,242 $ 32,302 $ 28,195 $ 27,898 $ 26,272 (b)

Noninterest expense (GAAP) $ 98,661 $ 94,872 $ 92,728 $ 90,562 $ 95,500 (c)

Merger and acquisition expense — — — — 7,100

Noninterest expense on an operating basis (Non-GAAP) $ 98,661 $ 94,872 $ 92,728 $ 90,562 $ 88,400 (d)

Total revenue (GAAP) $ 187,240 $ 200,657 $ 190,796 $ 172,759 $ 163,704 (a+b)

Noninterest income as a % of revenue (GAAP based) 15.08 % 16.10 % 14.78 % 16.15 % 16.05 % (b/(a+b))

Efficiency ratio (GAAP based) 52.69 % 47.28 % 48.60 % 52.42 % 58.34 % (c/(a+b))

Efficiency ratio on an operating basis (Non-GAAP) 52.69 % 47.28 % 48.60 % 52.42 % 54.00 % (d/(a+b))

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:

2023 March 31

2023 December 31

2022 September 30

2022 March 31

(Dollars in thousands, except per share data)

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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.

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

Refer to "Critical Accounting Estimates" in Item 7.

2 unchanged sentences

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 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.

Securities decreased by $106.2 million, or 3.4%, at June 30, 2023 as compared to December 31, 2022, driven primarily by paydowns, calls, and maturities, partially offset by unrealized gains of $7.2 million in the available for sale portfolio.

As a result, the Company's ratio of securities to total assets decreased to 15.6% at June 30, 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 months ended March 31, 2023 and 2022, respectively.

The Company incurred no material losses related to residential mortgage repurchases during the three and six months ended June 30, 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 March 31

Three Months Ended June 30 Six Months Ended June 30

2023 2022 2023 2022

(Dollars in thousands)

2 unchanged sentences

Total closed loans $ 176,867 $ 244,264 $ 278,327 $ 462,034

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 March 31

Three Months Ended June 30 Six Months Ended June 30

2023 2022 2023 2022

(Dollars in thousands)

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Total loans sold $ 14,125 $ 22,197 $ 25,714 $ 76,481

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

(1) All loans sold with servicing rights retained during the three and six months ended June 30, 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 $320.9 million, $327.5 million and $361.7 million at March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

The principal balance of loans serviced by the Bank on behalf of investors was $311.5 million, $327.5 million and $348.1 million at June 30, 2023, December 31, 2022, and June 30, 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 March 31

Three Months Ended June 30 Six Months Ended June 30

2023 2022 2023 2022

(Dollars in thousands)

6 unchanged sentences

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

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.

Loan Portfolio Total loans at June 30, 2023 increased by $211.2 million, or 1.5%, (3.1% on an annualized basis) when compared to December 31, 2022.

The commercial portfolio increased by $27.1 million, or 0.3% during the six months ended June 30, 2023, primarily reflecting strong closing activity in the commercial and industrial and commercial real estate portfolios, as well as modest growth in small business loans.

On the consumer side, the vast majority of residential real estate originations were retained on the balance sheet during the six months ended June 30, 2023, resulting in growth of $185.8 million, or 9.1%, as compared to December 31, 2022.

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 March 31, 2023:

The following pie chart shows the diversification of the commercial real estate loan portfolio as of June 30, 2023:

(1) Included in the total commercial real estate balance are $1.3 billion, or 14.1%, of owner occupied commercial real estate loans.

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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:

The following pie chart shows the diversification of the commercial and industrial portfolio as of June 30, 2023:

(Dollars in thousands)

6 unchanged sentences

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

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

The residential real estate, home equity and other consumer portfolios totaled $3.3 billion at June 30, 2023, as noted below:

(Dollars in thousands)

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2023 December 31

2022 March 31

(Dollars in thousands)

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Total (1) $ 45,702 $ 54,881 $ 55,915

Loans past due 90 days or more but still accruing

Home equity 23 — —

Total $ 23 $ — $ —

Total nonperforming loans $ 45,702 $ 54,881 $ 55,915

Other real estate owned 110 — —

Total nonperforming assets (1) $ 45,812 $ 54,881 $ 55,915

1 unchanged sentence

Nonperforming assets as a percent of total assets 0.24 % 0.28 % 0.28 %

(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.

(1) Inclusive of troubled debt restructurings ("TDRs") on nonaccrual status of $11.5 million at December 31, 2022, and $1.7 million at June 30, 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

2023 March 31

Three Months Ended Six Months Ended

(Dollars in thousands)

9 unchanged sentences

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.

The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio.

The Company's qualitative

assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio.

Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting.

1 unchanged sentence

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

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.

The balance of allowance for credit losses decreased to $140.6 million as of June 30, 2023 compared to $152.4 million at December 31, 2022, driven primarily by outsized charge-offs and specific reserve allocations over certain commercial loans.

Management's forecast anticipates that the recent U.S.

bank failures are not symptomatic of a serious broader problem in the financial system, that a full-employment economy is expected to continue, that the U.S.

debt ceiling increase will have a modest dampening effect on the economy, and that home sales are expected to remain low reflecting a lack of inventory.

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.

The following table summarizes the ratio of net charge-offs to average loans outstanding within each major loan category for the periods presented:

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

Table 6 - Summary Net Charge-Offs/(Recoveries) to Average Loans Outstanding

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

(Dollars in thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023 Six Months Ended June 30, 2023

Commercial and industrial (1) $ 23,174 $ 1,686,348 5.51 % $ 23,450 $ 1,652,527 2.86 %

6 unchanged sentences

Total $ 23,484 $ 14,041,826 0.67 % $ 24,022 $ 13,984,579 0.35 %

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

(1) The increase in net charge-offs during the three and six months ended June 30, 2023 was driven primarily by the full charge-off of a single large nonperforming commercial and industrial credit which had previously been fully reserved for as of March 31, 2023.

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 March 31, 2022

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Commercial and industrial $ (29) $ 1,537,883 (0.01) % $ (42) $ 1,536,757 (0.01) %

27 unchanged sentences

Total allowance for credit losses $ 140,647 100.0 % $ 152,419 100.0 %

(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").

(1) Total loans in this category are inclusive of $5.7 million and $9.1 million in loans at June 30, 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.

11 unchanged sentences

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

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's investments in FHLB of Boston stock increased to $39.5 million at June 30, 2023 compared to $5.2 million at December 31, 2022, driven by an increase in FHLB borrowings of $787.8 million during the first half of 2023.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both June 30, 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.

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.

banking industry during the first half of 2023, and the related industry wide impact on bank stock valuations, the Company performed an interim goodwill impairment analysis during the quarter and determined that the Company's goodwill was not impaired as of June 30, 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 other events or changes during the first quarter of 2023 that indicated impairment of goodwill and other intangible assets.

There were no other events or changes during the second 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 $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 cash surrender value of life insurance policies was $296.7 million at June 30, 2023 compared to $293.3 million at December 31, 2022, representing an increase of $3.4 million, or 1.1%, primarily due to income earned on the policies.

The Company recorded tax exempt income from life insurance policies of $1.9 million for both the three months ended June 30, 2023 and 2022, respectively, and $3.8 million and $3.7 million for the six months ended June 30, 2023 and 2022, respectively.

Deposits As of June 30, 2023, total deposits were $15.2 billion, representing a $631.0 million, or 4.0%, decrease from December 31, 2022, primarily reflective of industry wide dislocations occurring during the first quarter of 2023, which subsequently began to stabilize during the second quarter, as well as a competitive rate environment and redeployment of customer excess liquidity due to inflationary and other factors.

The total cost of deposits was 0.85% and 0.05% for the three months ended June 30, 2023 and 2022, respectively, and 0.72% and 0.05% for the six months ended June 30, 2023 and 2022, respectively.

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").

Core deposits represented 82.6% and 87.9% of total deposits as of June 30, 2023 and December 31, 2022, respectively, with the 2023 first half 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 $95.5 million and $102.6 million outstanding at June 30, 2023 and December 31, 2022, respectively.

The Company's deposit accounts are insured to the maximum extent permitted by 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.

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 $822.8 million and $653.6 million at June 30, 2023 and December 31, 2022, respectively.

The estimated balance of uninsured deposits at the Bank were $4.9 billion and $5.3 billion as of June 30, 2023 and December 31, 2022, respectively.

Included in these amounts are $782.0 million and $605.0 million of collateralized deposits, which offer additional protection.

1 unchanged sentence

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

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.

Borrowings were $901.3 million at June 30, 2023, representing an increase of $787.9 million as compared to December 31, 2022, driven primarily by deposit balance reductions.

Additionally, the Bank had $8.3 billion and $4.4 billion of assets pledged as collateral against borrowings at June 30, 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.

Capital Resources On June 15, 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 June 26, 2023.

This dividend was paid on July 7, 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 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.

At June 30, 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:

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Amount Ratio Amount Ratio Amount Ratio

March 31, 2023

June 30, 2023

(Dollars in thousands)

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

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

At June 30, 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 $66.4 million and $25.0 million for the three months ended March 31, 2023 and 2022, respectively.

Dividends paid by the Bank to the Company totaled $55.9 million and $53.2 million for the three months ended June 30, 2023 and 2022, respectively and totaled $122.2 million and $78.2 million for the six months ended June 30, 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 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.

At each of June 30, 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:

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2023 December 31

2022 March 31

(Dollars in thousands)

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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 Investment Management Group generated gross fee revenues of $8.9 million and $7.8 million for the three months ended June 30, 2023 and 2022, respectively and $17.0 million and $15.7 million for the six months ended June 30, 2023 and 2022, respectively.

Total assets under administration at June 30, 2023 were $6.3 billion, including $637.0 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.

Included in these same amounts as of June 30, 2023 and December 31, 2022 are assets under administration of $432.3 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.

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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.

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 $1.6 million and $769,000 for the three months ended March 31, 2023 and 2022, respectively.

Retail investments and insurance revenue was $1.5 million for both the three months ended June 30, 2023 and 2022, and $3.1 million and $2.3 million for the six months ended June 30, 2023 and 2022, respectively.

RESULTS OF OPERATIONS

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

The following table provides a summary of results of operations for the three and six months ended June 30, 2023 and 2022:

Table 10 - Summary of Results of Operations

Three Months Ended March 31

Three Months Ended June 30 Six Months Ended June 30

2023 2022 2023 2022

(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 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.

On a fully tax equivalent basis ("FTE"), net interest income for the second quarter of 2023 was $153.7 million, representing an increase of $7.9 million, or 5.4%, when compared to the second quarter of 2022.

For the six months ended June 30, 2023, the net interest income on a FTE basis was $313.8 million, representing an increase of $29.5 million, or 10.4%, when compared to the six months ended June 30, 2022.

These year-over-year increase in net interest income were primarily attributable to the positive impact of asset repricing in the rising rate environment, partially offset by higher funding costs from elevated deposit pricing as well as increased borrowings assumed by the Company during the six months ended June 30, 2023.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the six months ended June 30, 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 March 31

Three Months Ended June 30

Balance Interest

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Federal Home Loan Bank borrowings $ 1,068,585 $ 12,576 4.72 % $ 25,654 $ 123 1.92 %

Long-term borrowings — — — % 9,063 31 1.39 %

Junior subordinated debentures 62,856 1,044 6.66 % 62,854 410 2.62 %

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Cost of total funding liabilities 1.14 % 0.08 %

(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.

(1) The total amount of adjustment to interest income and yield on a FTE basis was $1.1 million and $956,000 for the three months ended June 30, 2023 and 2022, respectively.

(2) Includes average nonaccruing loans.

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

Table 12 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date

Six Months Ended June 30

Balance Interest

(Dollars in thousands)

Interest-earning assets

Interest-earning deposits with banks, federal funds sold, and short-term investments $ 172,569 $ 3,977 4.65 % $ 1,640,264 $ 3,703 0.46 %

Securities - trading 4,292 — — % 3,798 — — %

Securities - taxable investments 3,094,263 30,890 2.01 % 2,808,213 21,324 1.53 %

Securities - nontaxable investments (1) 192 4 4.20 % 199 4 4.05 %

Total securities $ 3,098,747 $ 30,894 2.01 % $ 2,812,210 $ 21,328 1.53 %

Loans held for sale 2,727 73 5.40 % 6,643 99 3.01 %

Commercial and industrial (1) 1,652,527 56,023 6.84 % 1,536,757 34,527 4.53 %

Commercial real estate (1) 7,788,304 181,394 4.70 % 7,869,164 152,800 3.92 %

Commercial construction 1,089,311 33,679 6.23 % 1,192,013 25,724 4.35 %

Small business 226,479 6,720 5.98 % 199,408 5,072 5.13 %

Total commercial 10,756,621 277,816 5.21 % 10,797,342 218,123 4.07 %

Residential real estate 2,105,311 40,301 3.86 % 1,705,883 28,576 3.38 %

Home equity 1,091,707 33,638 6.21 % 1,039,661 17,840 3.46 %

Total consumer real estate 3,197,018 73,939 4.66 % 2,745,544 46,416 3.41 %

Other consumer 30,940 1,143 7.45 % 30,690 996 6.54 %

Total loans $ 13,984,579 $ 352,898 5.09 % $ 13,573,576 $ 265,535 3.94 %

Total interest-earning assets $ 17,258,622 $ 387,842 4.53 % $ 18,032,693 $ 290,665 3.25 %

Cash and due from banks 180,047 181,069

Federal Home Loan Bank stock 29,749 8,814

Other assets 1,835,669 1,853,285

Total assets $ 19,304,087 $ 20,075,861

Interest-bearing liabilities

Savings and interest checking accounts $ 5,628,535 $ 16,898 0.61 % $ 6,224,128 $ 1,308 0.04 %

Money market 3,143,355 22,724 1.46 % 3,547,066 1,166 0.07 %

Time deposits 1,462,929 14,962 2.06 % 1,411,275 1,744 0.25 %

Total interest-bearing deposits $ 10,234,819 $ 54,584 1.08 % $ 11,182,469 $ 4,218 0.08 %

Federal Home Loan Bank borrowings $ 685,626 $ 16,220 4.77 % $ 25,675 $ 256 2.01 %

Long-term borrowings — — — % 4,506 31 1.39 %

Junior subordinated debentures 62,856 2,045 6.56 % 62,854 709 2.27 %

Subordinated debentures 49,909 1,235 4.99 % 49,813 1,235 5.00 %

Total borrowings $ 798,391 $ 19,500 4.93 % $ 142,848 $ 2,231 3.15 %

Total interest-bearing liabilities $ 11,033,210 $ 74,084 1.35 % $ 11,325,317 $ 6,449 0.11 %

Noninterest bearing demand deposits 5,045,694 5,495,036

Other liabilities 355,097 292,023

Total liabilities $ 16,434,001 $ 17,112,376

Stockholders' equity 2,870,086 2,963,485

Total liabilities and stockholders' equity $ 19,304,087 $ 20,075,861

Net interest income (1) $ 313,758 $ 284,216

Interest rate spread (3) 3.18 % 3.14 %

Net interest margin (4) 3.67 % 3.18 %

Supplemental information

Total deposit, including demand deposits $ 15,280,513 $ 54,584 $ 16,677,505 $ 4,218

Cost of total deposits 0.72 % 0.05 %

Total funding liabilities, including demand deposits $ 16,078,904 $ 74,084 $ 16,820,353 $ 6,449

Cost of total funding liabilities 0.93 % 0.08 %

(1) The total amount of adjustment to present interest income and yield on a FTE basis was $2.2 million and $1.9 million for the six months ended June 30, 2023 and 2022, 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.

The following table presents certain information on a FTE basis regarding changes in the Company’s interest income and interest expense for the periods indicated.

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Table 13 - Volume Rate Analysis

Three Months Ended March 31

2023 Compared To 2022

Three Months Ended June 30 Six Months Ended June 30

2023 Compared To 2022 2023 Compared To 2022

Volume Total Change Change

Volume Total Change

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Federal Home Loan Bank borrowings 7,453 5,000 12,453 9,384 6,580 15,964

Line of Credit — — —

Long-term borrowings — — — — (31) (31)

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(1) Reflects income determined on a FTE basis.

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

See footnote (1) to Tables 11 and 12 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 $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.

The Company recorded a provision for credit loss of $5.0 million and $12.3 million for the three and six months ended June 30, 2023, respectively, as compared to no provision for the three months ended June 30, 2022 and a release of provision for credit loss of $2.0 million for the six months ended June 30, 2022.

The provision for credit losses for the first half of 2023 was driven primarily by reserve allocations associated with one large commercial and industrial credit which was fully reserved for as of March 31, 2023 and subsequently charged off during the second quarter, as well as a single large commercial real estate credit that migrated to non-performing status during the second quarter of 2023, as well as additional provisioning for loan growth.

The Company’s allowance for credit losses as a percentage of total loans, was 0.99%, 1.09%, and 1.06% at June 30, 2023, December 31, 2022, and June 30, 2022, respectively.

The Company recorded net charge-offs of $23.5 million and $24.0 million for the three and six months ended June 30, 2023, respectively, as compared to net charge-offs of $199,000 and $603,000 for the three and six months ended June 30, 2022, respectively.

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

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Three Months Ended

March 31 Change

June 30 Change

2023 2022 Amount %

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Total $ 30,757 $ 27,898 $ 2,859 10.25 %

Six Months Ended

June 30 Change

2023 2022 Amount %

(Dollars in thousands)

Deposit account fees $ 11,424 $ 11,321 $ 103 0.91 %

Interchange and ATM fees 8,662 7,636 1,026 13.44 %

Investment management 20,127 18,002 2,125 11.80 %

Mortgage banking income 978 2,404 (1,426) (59.32) %

Gain on life insurance benefits 187 123 64 52.03 %

Increase in cash surrender value of life insurance policies 3,794 3,666 128 3.49 %

Loan level derivative income 1,683 1,040 643 61.83 %

Other noninterest income 12,144 9,978 2,166 21.71 %

Total $ 58,999 $ 54,170 $ 4,829 8.91 %

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.

• Deposit account fees decreased during the three months ended June 30, 2023 as compared to the same prior year period, driven primarily by reduced overdraft fees stemming from the Company's policy changes, which went into effect in March 2023.

For the six months ended June 30, 2023, deposit account fees were largely consistent with prior year as cash management fees partially offset the impact of the aforementioned policy changes.

• Interchange and ATM fees for the three and six months ended June 30, 2023 increased as compared to the same prior year periods due primarily to higher volumes.

• Investment management income increased driven primarily by higher levels of assets under administration, which increased by $1.1 billion, or 22.2%, to $6.3 billion at June 30, 2023 as compared to $5.2 billion at June 30, 2022, as well as strong retail and insurance commission income during the first half of 2023.

• Mortgage banking income decreased for the three and six months ended June 30, 2023 in comparison to the same prior year periods, primarily reflecting overall reduced saleable volumes from rising interest rate environment.

• Loan level derivative income increased for the three and six months ended June 30, 2023 in comparison to the same prior year periods due to higher customer demand.

• Other noninterest income increased for the three and six months ended June 30, 2023, primarily attributable to interest income recognized from income tax return refunds received during the second quarter of 2023, increased unrealized gains on equity securities, and FHLB dividend income.

The six months ended June 30, 2023 also reflected increased rental income from equipment leases as compared to the same prior year period.

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

1 unchanged sentence

Three Months Ended

March 31 Change

June 30 Change

2023 2022 Amount %

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Data processing & facilities management 2,530 2,247 283 12.59 %

Consulting expense 2,077 1,750 327 18.69 %

Software maintenance 3,134 2,645 489 18.49 %

Amortization of intangible assets 1,815 2,001 (186) (9.30) %

FDIC assessment 2,674 1,743 931 53.41 %

Debit card expense 2,217 1,861 356 19.13 %

Consulting expense 1,935 2,760 (825) (29.89) %

Amortization of intangible assets 1,716 1,902 (186) (9.78) %

Other noninterest expenses 14,989 16,229 (1,240) (7.64) %

Total $ 95,555 $ 90,562 $ 4,993 5.51 %

Six Months Ended

June 30 Change

2023 2022 Amount %

(Dollars in thousands)

Salaries and employee benefits $ 110,950 $ 98,249 $ 12,701 12.93 %

Occupancy and equipment expenses 25,207 24,939 268 1.07 %

Data processing & facilities management 5,057 4,619 438 9.48 %

Software maintenance 6,083 5,209 874 16.78 %

FDIC assessment 5,284 3,548 1,736 48.93 %

Debit card expense 4,388 3,626 762 21.01 %

Consulting expense 4,012 4,510 (498) (11.04) %

Amortization of intangible assets 3,531 3,903 (372) (9.53) %

Merger and acquisition expenses — 7,100 (7,100) (100.00) %

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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.

• The increase in salaries and employee benefits was primarily attributable to non-recurring CEO transition related expenses incurred during the first quarter of 2023, as well as increases in general salaries, equity compensation, payroll taxes, and medical plan insurance, partially offset by decreases in incentive compensation.

• Occupancy and equipment expenses increased for both the three and six months ended June 30, 2023, driven primarily by increased utilities costs, equipment and furniture, and depreciation on leased equipment, partially offset by reduced snow removal costs.

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

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

• FDIC assessment increased primarily due to increased assessment rates.

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

• Consulting expense decreased for the three and six months ended June 30, 2023 as compared to the same prior year period due primarily to the timing of strategic initiatives.

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

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.

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

• Other noninterest expense decreased for the three and six months ended June 30, 2023, primarily due to decreases in unrealized losses on equity securities, partially offset by increased sponsorships and legal costs during the first half of 2023.

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 16 - Tax Provision and Applicable Tax Rates

Three Months Ended

Three Months Ended Six Months Ended

June 30 June 30

2023 2022 2023 2022

(Dollars in thousands)

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Blended statutory tax rate 27.85 % 27.11 % 27.85 % 27.11 %

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 Company’s effective tax rate in 2023 thus far is consistent with the year ago period.

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.

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The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2040, which represents the period that the tax credits and other tax benefits will be utilized.

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

The total committed investment in these partnerships is $212.8 million, of which $156.2 million had been funded as of June 30, 2023.

It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.5 million for the fiscal year 2023 and a total of $25.6 million over the remaining life of the investments from the combination of the tax credits and operating losses.

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

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

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.

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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.

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.

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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 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.

1 unchanged sentence

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.

The Company prioritizes core deposits as a primary funding source and 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.

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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 availability and cost of equity or debt on an unsecured basis is dependent on

many factors, including the Company’s financial position, the market environment, and the Company’s credit rating.

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

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Table 17 - Liquidity Sources

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Outstanding Additional

11 unchanged sentences

$ 1,819,541 $ 6,045,022 $ 869,658 $ 5,248,415

(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.

(1) Loans with a carrying value of $3.7 billion and $2.7 billion at June 30, 2023 and December 31, 2022, respectively, were pledged to the FHLB of Boston.

(2) Loans with a carrying value of $4.6 billion and $1.7 billion at June 30, 2023 and December 31, 2022, respectively, were pledged to the Federal Reserve Bank of Boston.

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

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

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.

In response to the recent turmoil within the banking industry, the Company has operated under its Liquidity Contingency Plan, resulting in various immediate action items taken during the first quarter.

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.

During the second quarter of 2023, the Company reduced its proactive borrowing position in conjunction with an overall stabilization in deposit balances.

The Company continues to monitor both on and off balance sheet liquidity sources to understand vulnerabilities through the 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.

5 unchanged sentences

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

The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure.

The Company attempts to manage interest

rate risk by identifying, quantifying, and, where appropriate, hedging exposure.

If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists.

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

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.

It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary within limits management deems prudent, with off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.

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

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-300 (6.9) % n/a

-200 (5.0) % n/a

-200 (2.3) % (13.4) %

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+300 (5.2) % 11.5 %

+400 (6.7) % 15.3 %

Gradual rate shifts (basis points)

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

-200 over 12 months (1.0) % (6.0) %

1 unchanged sentence

+200 over 12 months 0.4 % 4.0 %

+400 over 24 months 0.4 % 4.0 %

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

2 unchanged sentences

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.

The most significant market factors affecting the Company’s net interest income during the six months ended June 30, 2023 were the shape of the U.S.

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

25 unchanged sentences

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

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

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet arrangements during the three months ended June 30, 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 March 31, 2023.

Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended June 30, 2023.

Quantitative and Qualitative Disclosures About Market Risk

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis