INDEPENDENT BANK CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (the "2022 Form 10-K"). Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q (this "Report"), in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by forward-looking terminology such as “should,” “could,” “will,” “may,” “expect,” “believe,” “forecast,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” “estimate,” “intend,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. 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; • 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, whether caused by geopolitical concerns, including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas and the possible expansion of such conflicts, 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; • adverse changes or volatility in the local real estate market; • adverse changes in asset quality and any unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships; • acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles; • additional regulatory oversight and related compliance costs; • changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; • higher than expected tax expense, including as a result of 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; • increased competition in the Company’s market areas; • adverse weather, changes in climate, natural disasters, and geopolitical concerns; • 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; 51 Table of Contents • a deterioration in the conditions of the securities markets; • a deterioration of the credit rating for U.S. 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; • electronic fraudulent activity within the financial services industry, especially in the commercial banking sector; • adverse changes in consumer spending and savings habits; • 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, 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; • 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; • cyber security attacks or intrusions that could adversely impact our businesses; and • other unexpected material adverse changes in our operations or earnings. Except as required by law, the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether in response to new information, future events or otherwise. Any public statements or disclosures by the Company following this Report which modify or impact any of the forward-looking statements contained in this Report will be deemed to modify or supersede such statements in this Report. 52 Table of Contents Selected Quarterly Financial Data The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere in this Report. Three Months Ended September 30 2023 June 30 2023 March 31 2023 December 31 2022 September 30 2022 (Dollars in thousands, except per share data) Financial condition data Securities $ 2,973,974 $ 3,023,072 $ 3,109,950 $ 3,129,281 $ 3,147,123 Loans 14,224,235 14,139,911 13,947,952 13,928,675 13,700,350 Allowance for credit losses (140,569) (140,647) (159,131) (152,419) (147,313) Goodwill and other intangible assets 1,004,897 1,006,609 1,008,325 1,010,140 1,012,006 Total assets 19,368,109 19,400,931 19,442,402 19,294,174 19,703,269 Total deposits 15,059,526 15,248,051 15,272,172 15,879,007 16,338,994 Total borrowings 1,000,362 901,269 992,393 113,377 113,360 Stockholders’ equity 2,885,408 2,854,914 2,830,909 2,886,701 2,817,201 Nonperforming loans 39,171 45,702 56,235 54,881 56,017 Nonperforming assets 39,281 45,812 56,235 54,881 56,017 Income statement Interest income $ 202,928 $ 198,693 $ 186,935 $ 184,127 $ 169,971 Interest expense 53,048 46,147 27,937 15,772 7,370 Net interest income 149,880 152,546 158,998 168,355 162,601 Provision for credit losses 5,500 5,000 7,250 5,500 3,000 Noninterest income 33,543 30,757 28,242 32,302 28,195 Noninterest expenses 97,782 95,555 98,661 94,872 92,728 Net income 60,808 62,644 61,247 77,043 71,897 Per share data Net income—basic $ 1.38 $ 1.42 $ 1.36 $ 1.69 $ 1.57 Net income—diluted 1.38 1.42 1.36 1.69 1.57 Cash dividends declared 0.55 0.55 0.55 0.55 0.51 Book value per share 65.37 64.69 64.17 63.25 61.73 Tangible book value per share (1) 42.60 41.88 41.31 41.12 39.56 Performance ratios Return on average assets 1.25 % 1.29 % 1.30 % 1.56 % 1.43 % Return on average common equity 8.35 % 8.78 % 8.63 % 10.70 % 9.90 % Net interest margin (on a fully tax equivalent basis) 3.47 % 3.54 % 3.79 % 3.85 % 3.64 % Dividend payout ratio 39.92 % 38.87 % 40.99 % 30.21 % 32.78 % Asset Quality Ratios Nonperforming loans as a percent of gross loans 0.28 % 0.32 % 0.40 % 0.39 % 0.41 % Nonperforming assets as a percent of total assets 0.20 % 0.24 % 0.29 % 0.28 % 0.28 % Allowance for credit losses as a percent of total loans 0.99 % 0.99 % 1.14 % 1.09 % 1.08 % Allowance for credit losses as a percent of nonperforming loans 358.86 % 307.75 % 282.98 % 277.73 % 262.98 % Capital ratios 53 Table of Contents Equity to assets 14.90 % 14.72 % 14.56 % 14.96 % 14.30 % Tangible equity to tangible assets (1) 10.24 % 10.05 % 9.89 % 10.26 % 9.66 % Tier 1 leverage capital ratio 11.12 % 10.85 % 10.78 % 10.99 % 10.51 % Common equity tier 1 capital ratio 14.41 % 14.06 % 13.83 % 14.33 % 13.98 % Tier 1 risk-based capital ratio 14.41 % 14.06 % 13.83 % 14.33 % 13.98 % Total risk-based capital ratio 16.12 % 15.76 % 15.66 % 16.11 % 15.71 % (1) Represents a non-GAAP measure. For reconciliation to GAAP book value per share, see Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Level Overview - Non-GAAP Measures" below. 54 Table of Contents Executive Level Overview Management evaluates the Company's operating results and financial condition using measures that include net income, earnings per share, return on assets and equity, return on tangible common equity, net interest margin, tangible book value per share, asset quality indicators, and many others. These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results. The Company 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). Third Quarter 2023 Results Net income for the three months ended September 30, 2023 was $60.8 million, or $1.38 on a diluted earnings per share basis, as compared to $71.9 million, or $1.57 on a diluted earnings per share basis, for the three months ended September 30, 2022, representing decreases of 15.4% and 12.1%, respectively, as the third quarter of 2023 reflected solid overall business activity amidst a challenging environment, including the following key drivers: • Disciplined loan growth; • Seasonal deposit declines; stable product mix; • Margin compression of 7 basis points; • Solid fee income growth; • Nonperforming asset decrease; stable asset quality; • Prudent expense management; 53.3% efficiency ratio; • $0.72 tangible book value per share growth; and • Robust capital levels; $100.0 million share repurchase authorization 55 Table of Contents 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. 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 total interest-earning assets, driven primarily by decreases in cash balances commensurate with deposit balance reductions. The following table summarizes the Company's interest-earning assets as of the periods indicated: Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. In addition, management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and credit losses. 56 Table of Contents 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 substantially fund loans. Total borrowings increased by $887.0 million at September 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 across the banking industry during 2023. The following chart shows sources of funding and percentage of core deposits to total deposits for the trailing five quarters: The Company's ratio of core deposits to total deposits decreased over the first three quarters of 2023, primarily attributable to core deposit outflows in conjunction with existing deposit balances shifting into higher cost time deposits. 57 Table of Contents The following table shows the net interest margin and cost of deposits trends for the trailing five quarters: Noninterest Income Noninterest income is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income. The following chart shows trends in the components of noninterest income over the past five quarters: 58 Table of Contents Expense Control Management seeks to take a balanced approach to noninterest expense control by monitoring ongoing operating expenses while making needed capital expenditures and prudently investing in growth initiatives. The Company’s primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment. The following chart depicts the Company's efficiency ratio (calculated by dividing noninterest expense by the sum of noninterest income and net interest income) over the past five quarters: 59 Table of Contents Capital The Company's approach with respect to revenue and expense is designed to promote long-term earnings growth, which in turn contributes to capital growth. 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 $0.55 per share for the third quarter of 2023, representing an increase of 7.8% from the 2022 third quarter dividend rate of $0.51. Non-GAAP Measures When management assesses the Company’s financial performance for purposes of making day-to-day and strategic decisions, it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and noninterest or fee income, reduced by operating expenses, the provision for credit losses, and the impact of income taxes and other noncore items shown in the table that follows. There are items that impact the Company's results that management believes are unrelated to its core banking business such as gains or losses on the sales of securities, merger and acquisition expenses, provision for credit losses on acquired portfolios, loss on extinguishment of debt, impairment, and other items, such as one-time adjustments as a result of changes in laws and regulations. Management, therefore, excludes items management considers to be noncore when computing the Company’s non-GAAP operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis. Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items. Management also supplements its evaluation of financial performance with an analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or tangible common equity, by common shares outstanding) and with the Company's tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets) which are non-GAAP measures. The Company has included information on these tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends. The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry. 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 60 Table of Contents 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: Nine Months Ended September 30 Net Income Diluted Earnings Per Share 2023 2022 2023 2022 (Dollars in thousands, except per share data) Net income available to common shareholders (GAAP) $ 184,699 $ 186,770 $ 4.16 $ 4.00 Non-GAAP adjustments Noninterest expense components Add: merger and acquisition expenses — 7,100 — 0.15 Noncore increases to income before taxes — 7,100 — 0.15 Net tax benefit associated with noncore items (1) — (1,995) (0.04) Noncore increases to net income — 5,105 — 0.11 Operating net income (Non-GAAP) $ 184,699 $ 191,875 $ 4.16 $ 4.11 (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. 61 Table of Contents 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: September 30 2023 June 30 2023 March 31 2023 December 31 2022 September 30 2022 (Dollars in thousands, except per share data) Tangible common equity Stockholders' equity (GAAP) $ 2,885,408 $ 2,854,914 $ 2,830,909 $ 2,886,701 $ 2,817,201 (a) Less: Goodwill and other intangibles 1,004,897 1,006,609 1,008,325 1,010,140 1,012,006 Tangible common equity (Non-GAAP) 1,880,511 1,848,305 1,822,584 1,876,561 1,805,195 (b) Tangible assets Assets (GAAP) 19,368,109 19,400,931 19,442,402 19,294,174 19,703,269 (c) Less: Goodwill and other intangibles 1,004,897 1,006,609 1,008,325 1,010,140 1,012,006 Tangible assets (Non-GAAP) $ 18,363,212 $ 18,394,322 $ 18,434,077 $ 18,284,034 $ 18,691,263 (d) Common shares 44,141,973 44,130,901 44,114,827 45,641,238 45,634,626 (e) Common equity to assets ratio (GAAP) 14.90 % 14.72 % 14.56 % 14.96 % 14.30 % (a/c) Tangible common equity to tangible assets ratio (Non-GAAP) 10.24 % 10.05 % 9.89 % 10.26 % 9.66 % (b/d) Book value per share (GAAP) $ 65.37 $ 64.69 $ 64.17 $ 63.25 $ 61.73 (a/e) Tangible book value per share (Non-GAAP) $ 42.60 $ 41.88 $ 41.31 $ 41.12 $ 39.56 (b/e) 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 nine 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. FINANCIAL POSITION 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 $155.3 million, or 5.0%, at September 30, 2023 as compared to December 31, 2022, driven primarily by paydowns, calls, and maturities. As a result, the Company's ratio of securities to total assets decreased to 15.4% at September 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. Further details regarding the Company's measurement of expected credit losses on securities can be found in Note 2 “Securities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report. Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans. The Company originates residential loans with the intention of either selling them in the secondary market or holding them in the Company's residential real estate portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are found to be not accurate in all material respects. The Company incurred no material losses related to residential mortgage repurchases during the three and nine months ended September 30, 2023 and 2022, respectively. 62 Table of Contents 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 2023 2022 2023 2022 (Dollars in thousands) Held in portfolio $ 147,079 $ 165,065 $ 395,915 $ 571,115 Sold or held for sale in the secondary market 25,029 21,325 54,520 77,309 Total closed loans $ 172,108 $ 186,390 $ 450,435 $ 648,424 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 2023 2022 2023 2022 (Dollars in thousands) Sold with servicing rights released $ 27,579 $ 18,206 $ 53,293 $ 94,006 Sold with servicing rights retained (1) — 182 — 863 Total loans sold $ 27,579 $ 18,388 $ 53,293 $ 94,869 (1) All loans sold with servicing rights retained during the three and nine months ended September 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. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the Consolidated Balance Sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was $304.7 million, $327.5 million and $336.2 million at September 30, 2023, December 31, 2022, and September 30, 2022, respectively. 63 Table of Contents 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 2023 2022 2023 2022 (Dollars in thousands) Balance at beginning of period $ 2,772 $ 2,993 $ 2,947 $ 2,627 Additions — 2 — 8 Amortization (111) (153) (375) (510) Change in valuation allowance 124 103 213 820 Balance at end of period $ 2,785 $ 2,945 $ 2,785 $ 2,945 See Note 6, “Derivative and Hedging Activities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for more information on mortgage activity and mortgage related derivatives. Loan Portfolio Total loans at September 30, 2023 increased by $295.6 million, or 2.1% (2.8% on an annualized basis), when compared to December 31, 2022. The commercial portfolio decreased by $8.8 million, or 0.1% during the nine months ended September 30, 2023, reflecting reduced closing activity compared to prior years. On the consumer side, the vast majority of residential real estate originations were retained on the balance sheet during the nine months ended September 30, 2023, resulting in growth of $302.6 million, or 14.9%, within the residential portfolio, as compared to December 31, 2022. 64 Table of Contents The Company’s commercial real estate loan portfolio, inclusive of commercial construction, is the Company’s largest loan type concentration. The Company believes that this portfolio is also well-diversified with loans secured by a variety of property types, such as owner-occupied and nonowner-occupied commercial, retail, office, industrial, warehouse, and other special purpose properties, such as hotels, motels, nursing homes, restaurants, churches, recreational facilities, marinas, and golf courses. 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, 2023: (1) Included in the total commercial real estate balance are $1.4 billion, or 15.3%, of owner occupied commercial real estate loans. (Dollars in thousands) Average loan size $ 1,618 Largest individual commercial real estate mortgage outstanding $ 62,156 Commercial real estate nonperforming loans/commercial real estate loans 0.27 % 65 Table of Contents 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, 2023: (Dollars in thousands) Average loan size (excluding floor plan tranches) $ 418 Largest individual commercial and industrial loan outstanding $ 37,650 Commercial and industrial nonperforming loans/commercial and industrial loans 0.18 % 66 Table of Contents 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 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 $3.5 billion at September 30, 2023, as noted below: (Dollars in thousands) Average loan size $ 109 Largest individual consumer loan outstanding $ 5,031 Consumer nonperforming loans/consumer loans 0.35 % Asset Quality The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, nonperforming and/or put on nonaccrual status. In the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. Delinquency The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period. Nonaccrual Loans As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans and all previously accrued 67 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. 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. 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. Purchased Credit Deteriorated Loans Purchased Credit Deteriorated ("PCD") loans are acquired loans which have shown a more-than-insignificant deterioration in credit quality since origination. PCD loans are recorded at amortized cost with an allowance for credit losses recorded upon purchase. Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate owned ("OREO"). Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still accruing interest. OREO consists of real estate properties, which have primarily served as collateral to secure loans, that are controlled or owned by the Bank. These properties are recorded at fair value less estimated costs to sell at the date control is established, resulting in a new cost basis. The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) of the foreclosed asset is charged to the allowance for credit losses. Subsequent declines in the fair value of the foreclosed asset below the new cost basis are recorded through the use of a valuation allowance. Subsequent increases in the fair value are recorded as reductions in the valuation allowance, but not below zero. All costs incurred thereafter in maintaining the property are generally charged to noninterest expense. In the event the real estate is utilized as a rental property, net rental income and expenses are recorded as incurred within noninterest expense. 68 Table of Contents The following table sets forth information regarding nonperforming assets held by the Company at the dates indicated: Table 4 - Nonperforming Assets September 30 2023 December 31 2022 September 30 2022 (Dollars in thousands) Loans accounted for on a nonaccrual basis Commercial and industrial $ 2,953 $ 26,693 $ 27,393 Commercial real estate 23,867 15,730 15,982 Small business 372 104 50 Residential real estate 8,493 8,479 8,891 Home equity 3,411 3,400 3,485 Other consumer 72 475 216 Total (1) $ 39,168 $ 54,881 $ 56,017 Loans past due 90 days or more but still accruing Other consumer 3 — — Total $ 3 $ — $ — Total nonperforming loans $ 39,171 $ 54,881 $ 56,017 Other real estate owned 110 — — Total nonperforming assets (1) $ 39,281 $ 54,881 $ 56,017 Nonperforming loans as a percent of gross loans 0.28 % 0.39 % 0.41 % Nonperforming assets as a percent of total assets 0.20 % 0.28 % 0.28 % (1) Inclusive of troubled debt restructurings ("TDRs") on nonaccrual status of $11.5 million at December 31, 2022, and $1.5 million at September 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 Nine Months Ended September 30 2023 September 30 2022 September 30 2023 September 30 2022 (Dollars in thousands) Nonperforming assets beginning balance $ 45,812 $ 55,915 $ 54,881 $ 27,820 New to nonperforming 3,455 30,650 26,889 67,226 Loans charged-off (6,018) (741) (30,600) (1,992) Loans paid-off (2,915) (29,450) (8,814) (33,174) Loans restored to performing status (1,428) (366) (3,460) (3,806) Other 375 9 385 (57) Nonperforming assets ending balance $ 39,281 $ 56,017 $ 39,281 $ 56,017 Allowance for Credit Losses The allowance for credit losses is maintained at a level that management considers appropriate to provide for the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. The allowance is increased by providing for credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off. In accordance with the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative 69 Table of Contents factors designed to address forecast risk and model risk inherent in the quantitative model output. The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which is a reversion to the Company's historical long-run average for a period of six months. The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio. Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. Management's forecast anticipates that the Federal Reserve has finished tightening rates and will begin easing rates gradually in mid-2024, that the 10-year treasury yield will decline from recent highs and ease slightly until 2025, that the labor market will begin to weaken throughout 2024, that recent U.S. bank failures are not symptomatic of a serious broader problem in the financial system, that a decline in the commercial real estate price index will continue until 2025, and that home sales are expected to remain low reflecting a lack of inventory and high interest rates. 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. 70 Table of Contents The balance of allowance for credit losses decreased to $140.6 million as of September 30, 2023 compared to $152.4 million at December 31, 2022, driven primarily by outsized charge-offs on two large commercial loans, as shown in the table below, partially offset by net loan growth during the nine months ended September 30, 2023. 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/(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 September 30, 2023 Nine Months Ended September 30, 2023 Commercial and industrial (1) $ (111) $ 1,682,000 (0.03) % $ 23,339 $ 1,662,459 1.88 % Commercial real estate 5,072 7,823,525 0.26 % 5,072 7,800,173 0.09 % Commercial construction — 1,007,814 — % — 1,061,847 — % Small business 77 240,782 0.13 % 125 231,299 0.07 % Residential real estate — 2,276,882 — % — 2,163,130 — % Home equity (12) 1,093,479 — % (38) 1,092,304 — % Other consumer 552 30,775 7.12 % 1,102 30,885 4.77 % Total $ 5,578 $ 14,155,257 0.16 % $ 29,600 $ 14,042,097 0.28 % (1) The increase in net charge-offs during the nine months ended September 30, 2023 was driven primarily by the full charge-off of a single large nonperforming commercial and industrial credit. 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 Commercial and industrial $ (2) $ 1,520,924 — % $ (44) $ 1,531,421 — % Commercial real estate (268) 7,760,470 (0.01) % (271) 7,832,534 — % Commercial construction — 1,157,876 — % — 1,180,509 — % Small business (88) 207,546 (0.17) % (88) 202,151 (0.06) % Residential real estate — 1,909,066 — % — 1,774,355 — % Home equity (65) 1,076,040 (0.02) % 17 1,051,921 — % Other consumer 429 31,883 5.34 % 995 31,092 4.28 % Total $ 6 $ 13,663,805 — % $ 609 $ 13,603,983 0.01 % 71 Table of Contents For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for credit losses is made to each loan category using the analytical techniques and estimation methods described in this Report. While these amounts represent management’s best estimate of credit losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio. The following table sets forth the allocation of the allowance for credit losses by loan category at the dates indicated: Table 7 - Summary of Allocation of Allowance for Credit Losses September 30 2023 December 31 2022 Allowance Amount Percent of Loans In Category To Total Loans Allowance Amount Percent of Loans In Category To Total Loans (Dollars in thousands) Commercial and industrial (1) $ 16,934 11.6 % $ 27,559 11.7 % Commercial real estate 74,402 55.6 % 77,799 55.7 % Commercial construction 8,830 6.8 % 10,762 8.3 % Small business 3,914 1.7 % 2,834 1.6 % Residential real estate 23,147 16.4 % 20,973 14.6 % Home equity 12,546 7.7 % 11,504 7.8 % Other consumer 796 0.2 % 988 0.3 % Total allowance for credit losses $ 140,569 100.0 % $ 152,419 100.0 % (1) Total loans in this category are inclusive of $5.1 million and $9.1 million in loans at September 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. Government. To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of the Bank’s collateral, and the strength of co-makers or guarantors. When available information confirms that specific loans or portions thereof are uncollectible, these amounts are promptly charged-off against the allowance for credit losses and any recoveries of such previously charged-off amounts are credited to the allowance. Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral. For additional information regarding the Company’s allowance for credit losses, see Note 3 "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report. Federal Home Loan Bank Stock The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding as a tool to manage liquidity and interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company either purchases additional FHLB stock or is subject to redemption of FHLB stock proportional to the volume of funding received. The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. The Company's investments in FHLB of Boston stock increased to $43.9 million at September 30, 2023 compared to $5.2 million at December 31, 2022, driven by a net increase in FHLB borrowings of $886.9 million during the nine months of 2023. Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both September 30, 2023 and December 31, 2022. 72 Table of Contents 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 half of 2023, and the related industry wide impact on bank stock valuations, the Company performed interim goodwill impairment tests as of March 31, 2023 and June 30, 2023, both of which determined that goodwill was not impaired. During the third quarter of 2023, the Company performed its annual goodwill impairment testing and determined that the Company's goodwill was not impaired as of September 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 third 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 $295.7 million at September 30, 2023 compared to $293.3 million at December 31, 2022, representing an increase of $2.3 million, or 0.8%, primarily due to income earned on the policies. The Company recorded tax exempt income from life insurance policies of $2.0 million and $1.9 million for the three months ended September 30, 2023 and 2022, respectively, and $5.8 million and $5.5 million for the nine months ended September 30, 2023 and 2022, respectively. The Company recorded gains on life insurance benefits of $1.9 million and $477,000 for the three months ended September 30, 2023 and 2022, respectively, and $2.1 million and $600,000 for the nine months ended September 30, 2023 and 2022, respectively. Deposits As of September 30, 2023, total deposits were $15.1 billion, representing an $819.5 million, or 5.2%, decrease from December 31, 2022, primarily reflective of industry wide dislocations occurring during the first quarter of 2023 and seasonal declines in municipal accounts during the third quarter of 2023, coupled with an overall competitive rate environment and a redeployment of customer excess liquidity due to inflationary and other factors. The total cost of deposits was 1.07% and 0.15% for the three months ended September 30, 2023 and 2022, respectively, and 0.84% and 0.08% for the nine months ended September 30, 2023 and 2022, respectively. The increase in the cost of deposits was a result of the higher rate environment driven by the Federal Reserve's rate hikes over the latter half of 2022 and 2023. The Company's deposits are comprised primarily of core deposits (demand, savings, and money market), as well as time deposits. Core deposits represented 80.5% and 87.9% of total deposits as of September 30, 2023 and December 31, 2022, respectively, with the 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 $100.9 million and $102.6 million outstanding at September 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 allows the Company to access a reciprocal deposit exchange that can be used to benefit customers seeking increased FDIC insurance protection, and amounted to $920.4 million and $653.6 million at September 30, 2023 and December 31, 2022, respectively. The estimated balance of uninsured deposits at the Bank were $4.7 billion and $5.4 billion as of September 30, 2023 and December 31, 2022, respectively. Included in these amounts are $700.4 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 $1.0 billion at September 30, 2023, representing an increase of $887.0 million as compared to December 31, 2022, driven primarily by deposit balance reductions. Additionally, the Company had $8.5 billion and $4.4 billion of assets pledged as collateral against borrowings at September 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. 73 Table of Contents Capital Resources On September 21, 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 October 2, 2023. This dividend was paid on October 6, 2023. The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 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, 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: Table 8 - Company and Bank's Capital Amounts and Ratios Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio September 30, 2023 (Dollars in thousands) Company (consolidated) Total capital (to risk weighted assets) $ 2,301,466 16.12 % $ 1,142,219 ≥ 8.0 % N/A N/A Common equity tier 1 capital (to risk weighted assets) 2,057,638 14.41 % 642,498 ≥ 4.5 % N/A N/A Tier 1 capital (to risk weighted assets) 2,057,638 14.41 % 856,664 ≥ 6.0 % N/A N/A Tier 1 capital (to average assets) 2,057,638 11.12 % 740,271 ≥ 4.0 % N/A N/A Bank Total capital (to risk weighted assets) $ 2,172,447 15.21 % $ 1,142,972 ≥ 8.0 % $ 1,428,715 ≥ 10.0 % Common equity tier 1 capital (to risk weighted assets) 2,039,576 14.28 % 642,922 ≥ 4.5 % 928,665 ≥ 6.5 % Tier 1 capital (to risk weighted assets) 2,039,576 14.28 % 857,229 ≥ 6.0 % 1,142,972 ≥ 8.0 % Tier 1 capital (to average assets) 2,039,576 11.01 % 740,852 ≥ 4.0 % 926,066 ≥ 5.0 % December 31, 2022 (Dollars in thousands) Company (consolidated) Total capital (to risk weighted assets) $ 2,311,824 16.11 % $ 1,148,328 ≥ 8.0 % N/A N/A Common equity tier 1 capital (to risk weighted assets) 2,057,099 14.33 % 645,935 ≥ 4.5 % N/A N/A Tier 1 capital (to risk weighted assets) 2,057,099 14.33 % 861,246 ≥ 6.0 % N/A N/A Tier 1 capital (to average assets) 2,057,099 10.99 % 748,775 ≥ 4.0 % N/A N/A Bank Total capital (to risk weighted assets) $ 2,162,752 15.07 % $ 1,148,329 ≥ 8.0 % $ 1,435,411 ≥ 10.0 % Common equity tier 1 capital (to risk weighted assets) 2,018,912 14.07 % 645,935 ≥ 4.5 % 933,017 ≥ 6.5 % Tier 1 capital (to risk weighted assets) 2,018,912 14.07 % 861,247 ≥ 6.0 % 1,148,329 ≥ 8.0 % Tier 1 capital (to average assets) 2,018,912 10.78 % 748,828 ≥ 4.0 % 936,036 ≥ 5.0 % 74 Table of Contents In addition to the minimum risk-based capital requirements outlined in the table above, the Company is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the capital conservation buffer is 2.5%. At September 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. The Company is, in the ordinary course of business, dependent upon the receipt of cash dividends from the Bank to pay cash dividends to shareholders and satisfy the Company’s other cash needs. Federal and state law impose limits on capital distributions by the Bank. Massachusetts-chartered banks, such as the Bank, may declare from net profits cash dividends not more frequently than quarterly and non-cash dividends at any time. No dividends may be declared, credited, or paid if the Bank’s capital stock would be impaired. Massachusetts Bank Commissioner approval is required if the total of all dividends declared by the Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. Dividends paid by the Bank to the Company totaled $56.0 million and $64.5 million for the three months ended September 30, 2023 and 2022, respectively and totaled $178.2 million and $142.7 million for the nine months ended September 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 September 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: Table 9 - Assets Under Administration September 30 2023 December 31 2022 September 30 2022 (Dollars in thousands) Assets under administration $ 6,120,462 $ 5,792,857 $ 5,091,592 Number of trust, fiduciary and agency accounts 6,545 6,459 6,487 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 $8.7 million and $7.8 million for the three months ended September 30, 2023 and 2022, respectively and $25.7 million and $23.6 million for the nine months ended September 30, 2023 and 2022, respectively. Total assets under administration at September 30, 2023 were $6.1 billion, including $562.1 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 September 30, 2023 and December 31, 2022 are assets under administration of $418.5 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. 75 Table of Contents 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 $1.6 million and $601,000 for the three months ended September 30, 2023 and 2022, respectively, and $4.7 million and $2.9 million for the nine months ended September 30, 2023 and 2022, respectively. 76 Table of Contents RESULTS OF OPERATIONS The following table provides a summary of results of operations for the three and nine months ended September 30, 2023 and 2022: Table 10 - Summary of Results of Operations Three Months Ended September 30 Nine Months Ended September 30 2023 2022 2023 2022 (Dollars in thousands, except per share data) Net income $ 60,808 $ 71,897 $ 184,699 $ 186,770 Diluted earnings per share $ 1.38 $ 1.57 $ 4.16 $ 4.00 Return on average assets 1.25 % 1.43 % 1.28 % 1.25 % Return on average equity 8.35 % 9.90 % 8.58 % 8.51 % Net interest margin 3.47 % 3.64 % 3.60 % 3.33 % 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 2023 was $151.0 million, representing a decrease of $12.6 million, or 7.7%, when compared to the third quarter of 2022, as deposit cost increases outpaced asset repricing. For the nine months ended September 30, 2023, the net interest income on a FTE basis was $464.8 million, representing an increase of $16.9 million, or 3.8%, when compared to the nine months ended September 30, 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 as well as increased borrowings assumed by the Company during the nine months ended September 30, 2023. 77 Table of Contents 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, 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 2023 2022 Average Balance Interest Earned/ Paid Yield/Rate Average Balance Interest Earned/ Paid Yield/Rate (Dollars in thousands) Interest-earning assets Interest-earning deposits with banks, federal funds sold, and short term investments $ 89,449 $ 905 4.01 % $ 1,156,143 $ 6,519 2.24 % Securities Securities - trading 4,546 — — % 3,730 — — % Securities - taxable investments 3,000,736 14,817 1.96 % 3,024,802 13,243 1.74 % Securities - nontaxable investments (1) 188 1 2.11 % 196 1 2.02 % Total securities $ 3,005,470 $ 14,818 1.96 % $ 3,028,728 $ 13,244 1.73 % Loans held for sale 4,072 60 5.85 % 4,263 51 4.75 % Loans (2) Commercial and industrial (1) 1,682,000 30,739 7.25 % 1,520,924 19,289 5.03 % Commercial real estate (1) 7,823,525 94,861 4.81 % 7,760,470 85,284 4.36 % Commercial construction 1,007,814 16,829 6.62 % 1,157,876 14,875 5.10 % Small business 240,782 3,752 6.18 % 207,546 2,819 5.39 % Total commercial 10,754,121 146,181 5.39 % 10,646,816 122,267 4.56 % Residential real estate 2,276,882 23,197 4.04 % 1,909,066 16,533 3.44 % Home equity 1,093,479 18,313 6.64 % 1,076,040 11,869 4.38 % Total consumer real estate 3,370,361 41,510 4.89 % 2,985,106 28,402 3.77 % Other consumer 30,775 608 7.84 % 31,883 523 6.51 % Total loans $ 14,155,257 $ 188,299 5.28 % $ 13,663,805 $ 151,192 4.39 % Total interest-earning assets $ 17,254,248 $ 204,082 4.69 % $ 17,852,939 $ 171,006 3.80 % Cash and due from banks 184,003 192,003 Federal Home Loan Bank stock 38,252 5,745 Other assets 1,859,099 1,854,870 Total assets $ 19,335,602 $ 19,905,557 Interest-bearing liabilities Deposits Savings and interest checking accounts $ 5,393,209 $ 11,860 0.87 % $ 6,224,690 $ 2,110 0.13 % Money market 2,945,450 13,709 1.85 % 3,459,212 3,025 0.35 % Time deposits 1,860,440 15,144 3.23 % 1,246,841 974 0.31 % Total interest-bearing deposits $ 10,199,099 $ 40,713 1.58 % $ 10,930,743 $ 6,109 0.22 % Borrowings Federal Home Loan Bank borrowings $ 869,646 $ 10,568 4.82 % $ 12,876 $ 55 1.69 % Junior subordinated debentures 62,857 1,150 7.26 % 62,854 589 3.72 % Subordinated debentures 49,944 617 4.90 % 49,847 617 4.91 % Total borrowings $ 982,447 $ 12,335 4.98 % $ 125,577 $ 1,261 3.98 % 78 Table of Contents Total interest-bearing liabilities $ 11,181,546 $ 53,048 1.88 % $ 11,056,320 $ 7,370 0.26 % Noninterest bearing demand deposits 4,883,009 5,641,742 Other liabilities 381,483 325,507 Total liabilities $ 16,446,038 $ 17,023,569 Stockholders' equity 2,889,564 2,881,988 Total liabilities and stockholders' equity $ 19,335,602 $ 19,905,557 Net interest income (1) $ 151,034 $ 163,636 Interest rate spread (3) 2.81 % 3.54 % Net interest margin (4) 3.47 % 3.64 % Supplemental information Total deposits, including demand deposits $ 15,082,108 $ 40,713 $ 16,572,485 $ 6,109 Cost of total deposits 1.07 % 0.15 % Total funding liabilities, including demand deposits $ 16,064,555 $ 53,048 $ 16,698,062 $ 7,370 Cost of total funding liabilities 1.31 % 0.18 % (1) The total amount of adjustment to interest income and yield on a FTE basis was $1.2 million and $1.0 million for the three months ended September 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. 79 Table of Contents Table 12 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date Nine Months Ended September 30 2023 2022 Average Balance Interest Earned/ Paid Yield/ Rate Average Balance Interest Earned/ Paid Yield/ Rate (Dollars in thousands) Interest-earning assets Interest-earning deposits with banks, federal funds sold, and short-term investments $ 144,558 $ 4,882 4.52 % $ 1,477,117 $ 10,222 0.93 % Securities Securities - trading 4,377 — — % 3,775 — — % Securities - taxable investments 3,062,745 45,707 2.00 % 2,881,203 34,567 1.60 % Securities - nontaxable investments (1) 191 5 3.50 % 198 5 3.38 % Total securities $ 3,067,313 $ 45,712 1.99 % $ 2,885,176 $ 34,572 1.60 % Loans held for sale 3,180 133 5.59 % 5,841 150 3.43 % Loans (2) Commercial and industrial (1) 1,662,459 86,762 6.98 % 1,531,421 53,816 4.70 % Commercial real estate (1) 7,800,173 276,255 4.74 % 7,832,534 238,085 4.06 % Commercial construction 1,061,847 50,508 6.36 % 1,180,509 40,599 4.60 % Small business 231,299 10,472 6.05 % 202,151 7,891 5.22 % Total commercial 10,755,778 423,997 5.27 % 10,746,615 340,391 4.23 % Residential real estate 2,163,130 63,498 3.92 % 1,774,355 45,109 3.40 % Home equity 1,092,304 51,951 6.36 % 1,051,921 29,709 3.78 % Total consumer real estate 3,255,434 115,449 4.74 % 2,826,276 74,818 3.54 % Other consumer 30,885 1,751 7.58 % 31,092 1,519 6.53 % Total loans $ 14,042,097 $ 541,197 5.15 % $ 13,603,983 $ 416,728 4.10 % Total interest-earning assets $ 17,257,148 $ 591,924 4.59 % $ 17,972,117 $ 461,672 3.43 % Cash and due from banks 181,380 184,754 Federal Home Loan Bank stock 32,615 7,780 Other assets 1,843,564 1,853,818 Total assets $ 19,314,707 $ 20,018,469 Interest-bearing liabilities Deposits Savings and interest checking accounts $ 5,545,951 $ 28,758 0.69 % $ 6,224,317 $ 3,418 0.07 % Money market 3,079,942 36,433 1.58 % 3,517,459 4,191 0.16 % Time deposits 1,596,889 30,106 2.52 % 1,355,861 2,718 0.27 % Total interest-bearing deposits $ 10,222,782 $ 95,297 1.25 % $ 11,097,637 $ 10,327 0.12 % Borrowings Federal Home Loan Bank borrowings $ 747,640 $ 26,788 4.79 % $ 21,361 $ 311 1.95 % Long-term borrowings — — — % 2,988 31 1.39 % Junior subordinated debentures 62,856 3,195 6.80 % 62,854 1,298 2.76 % Subordinated debentures 49,921 1,852 4.96 % 49,824 1,852 4.97 % Total borrowings $ 860,417 $ 31,835 4.95 % $ 137,027 $ 3,492 3.41 % Total interest-bearing liabilities $ 11,083,199 $ 127,132 1.53 % $ 11,234,664 $ 13,819 0.16 % Noninterest bearing demand deposits 4,990,869 5,544,476 Other liabilities 363,989 303,308 80 Table of Contents Total liabilities $ 16,438,057 $ 17,082,448 Stockholders' equity 2,876,650 2,936,021 Total liabilities and stockholders' equity $ 19,314,707 $ 20,018,469 Net interest income (1) $ 464,792 $ 447,853 Interest rate spread (3) 3.06 % 3.27 % Net interest margin (4) 3.60 % 3.33 % Supplemental information Total deposit, including demand deposits $ 15,213,651 $ 95,297 $ 16,642,113 $ 10,327 Cost of total deposits 0.84 % 0.08 % Total funding liabilities, including demand deposits $ 16,074,068 $ 127,132 $ 16,779,140 $ 13,819 Cost of total funding liabilities 1.06 % 0.11 % (1) The total amount of adjustment to present interest income and yield on a FTE basis was $3.4 million and $3.0 million for the nine months ended September 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. 81 Table of Contents 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. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to: (1) changes in rate (change in rate multiplied by prior period volume), (2) changes in volume (change in volume multiplied by old rate), and (3) changes in volume/rate (change in volume multiplied by change in rate) which is allocated to the change due to rate column: Table 13 - Volume Rate Analysis Three Months Ended September 30 Nine Months Ended September 30 2023 Compared To 2022 2023 Compared To 2022 Change Due to Rate Change Due to Volume Total Change Change Due to Rate Change Due to Volume Total Change (Dollars in thousands) Income on interest-earning assets Interest earning deposits, federal funds sold and short term investments $ 401 $ (6,015) $ (5,614) $ 3,882 $ (9,222) $ (5,340) Securities Securities - taxable investments 1,679 (105) 1,574 8,962 2,178 11,140 Securities - nontaxable investments (1) — — — — — — Total securities 1,574 11,140 Loans held for sale 11 (2) 9 51 (68) (17) Loans Commercial and industrial (1) 9,407 2,043 11,450 28,341 4,605 32,946 Commercial real estate (1) 8,884 693 9,577 39,154 (984) 38,170 Commercial construction 3,882 (1,928) 1,954 13,990 (4,081) 9,909 Small business 482 451 933 1,443 1,138 2,581 Total commercial 23,914 83,606 Residential real estate 3,479 3,185 6,664 8,505 9,884 18,389 Home equity 6,252 192 6,444 21,101 1,141 22,242 Total consumer real estate 13,108 40,631 Other consumer 103 (18) 85 242 (10) 232 Total loans (1)(2) 37,107 124,469 Total income of interest-earning assets $ 33,076 $ 130,252 Expense of interest-bearing liabilities Deposits Savings and interest checking accounts $ 10,032 $ (282) $ 9,750 $ 25,713 $ (373) $ 25,340 Money market 11,133 (449) 10,684 32,763 (521) 32,242 Time certificates of deposits 13,691 479 14,170 26,905 483 27,388 Total interest bearing deposits 34,604 84,970 Borrowings Federal Home Loan Bank borrowings 6,853 3,660 10,513 15,903 10,574 26,477 Long-term borrowings — — — — (31) (31) Junior subordinated debentures 561 — 561 1,897 — 1,897 Subordinated debentures (1) 1 — (4) 4 — Total borrowings 11,074 28,343 Total expense of interest-bearing liabilities 45,678 113,313 Change in net interest income $ (12,602) $ 16,939 (1) Reflects income determined on a FTE basis. See footnote (1) to Tables 11 and 12 in this Report for the related adjustments. (2) Loans include portfolio loans and nonaccrual loans; however, unpaid interest on nonaccrual loans has not been included for purposes of determining interest income. 82 Table of Contents 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 provision for credit loss of $5.5 million and $17.8 million for the three and nine months ended September 30, 2023, respectively, as compared to $3.0 million provision for the three months ended September 30, 2022 and $1.0 million for the nine months ended September 30, 2022. The provision for credit losses in 2023 was driven primarily by outsized charge-offs on two large commercial loans as well as net loan growth during the nine months ended September 30, 2023. The Company’s allowance for credit losses as a percentage of total loans, was 0.99%, 1.09%, and 1.08% at September 30, 2023, December 31, 2022, and September 30, 2022, respectively. Refer to Note 3 "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. Noninterest Income The following table sets forth information regarding noninterest income for the periods shown: Table 14 - Noninterest Income Three Months Ended September 30 Change 2023 2022 Amount % (Dollars in thousands) Deposit account fees $ 5,936 $ 6,261 $ (325) (5.19) % Interchange and ATM fees 4,808 4,331 477 11.01 % Investment management 10,246 8,436 1,810 21.46 % Mortgage banking income 739 585 154 26.32 % Increase in cash surrender value of life insurance policies 1,983 1,883 100 5.31 % Gain on life insurance benefits 1,924 477 1,447 303.35 % Loan level derivative income 842 471 371 78.77 % Other noninterest income 7,065 5,751 1,314 22.85 % Total $ 33,543 $ 28,195 $ 5,348 18.97 % Nine Months Ended September 30 Change 2023 2022 Amount % (Dollars in thousands) Deposit account fees $ 17,360 $ 17,582 $ (222) (1.26) % Interchange and ATM fees 13,470 11,967 1,503 12.56 % Investment management 30,373 26,438 3,935 14.88 % Mortgage banking income 1,717 2,989 (1,272) (42.56) % Increase in cash surrender value of life insurance policies 5,777 5,549 228 4.11 % Gain on life insurance benefits 2,111 600 1,511 251.83 % Loan level derivative income 2,525 1,511 1,014 67.11 % Other noninterest income 19,209 15,729 3,480 22.12 % Total $ 92,542 $ 82,365 $ 10,177 12.36 % The primary reasons for the variances in the noninterest income categories shown in the preceding table include: • Deposit account fees decreased during the three and nine months ended September 30, 2023, as compared to the same prior year periods, driven primarily by reduced overdraft fees stemming from the Company's policy changes that went into effect in March 2023. These reductions were partially offset by increased cash management fees during both the three and none months ended September 30, 2023, as compared to the same prior year periods. • Interchange and ATM fees for the three and nine months ended September 30, 2023 increased as compared to the same prior year periods due primarily to higher transaction volumes. 83 Table of Contents • Investment management income increased driven primarily by higher levels of assets under administration, which increased by $1.0 billion, or 20.2%, to $6.1 billion at September 30, 2023 as compared to $5.1 billion at September 30, 2022, as well as strong retail and insurance commission income during the first nine months of 2023 as compared to the prior year. • Mortgage banking income increased for the three months ended September 30, 2023 as compared to the same prior year quarter, due to slightly higher saleable volumes, but decreased $1.3 million, or 42.6%, for the nine months ended September 30, 2023 in comparison to the same prior year period, primarily reflecting overall reduced saleable volumes as a result of the rising interest rate environment experienced throughout the first nine months of 2023. • Loan level derivative income increased for the three and nine months ended September 30, 2023 in comparison to the same prior year periods due to higher customer demand. • Other noninterest income increased for the three and nine months ended September 30, 2023, primarily attributable to increased FHLB dividend income, loan fees, and discounted purchases of Massachusetts historical tax credits. The nine months ended September 30, 2023 also reflected increased unrealized gains on equity securities, rental income from equipment leases, and credit card fee income as compared to the same prior year period. 84 Table of Contents Noninterest Expense The following table sets forth information regarding non-interest expense for the periods shown: Table 15 - Noninterest Expense Three Months Ended September 30 Change 2023 2022 Amount % (Dollars in thousands) Salaries and employee benefits $ 54,797 $ 52,708 $ 2,089 3.96 % Occupancy and equipment expenses 12,321 12,316 5 0.04 % Data processing & facilities management 2,404 2,259 145 6.42 % Software maintenance 3,324 2,497 827 33.12 % FDIC assessment 2,727 1,677 1,050 62.61 % Debit card expense 2,319 1,936 383 19.78 % Consulting expense 2,753 2,547 206 8.09 % Amortization of intangible assets 1,712 1,898 (186) (9.80) % Other noninterest expenses 15,425 14,890 535 3.59 % Total $ 97,782 $ 92,728 $ 5,054 5.45 % Nine Months Ended September 30 Change 2023 2022 Amount % (Dollars in thousands) Salaries and employee benefits $ 165,747 $ 150,957 $ 14,790 9.80 % Occupancy and equipment expenses 37,528 37,255 273 0.73 % Data processing & facilities management 7,461 6,878 583 8.48 % Software maintenance 9,407 7,706 1,701 22.07 % FDIC assessment 8,011 5,225 2,786 53.32 % Debit card expense 6,707 5,562 1,145 20.59 % Consulting expense 6,765 7,057 (292) (4.14) % Amortization of intangible assets 5,243 5,801 (558) (9.62) % Merger and acquisition expenses — 7,100 (7,100) (100.00) % Other noninterest expenses 45,129 45,249 (120) (0.27) % Total $ 291,998 $ 278,790 $ 13,208 4.74 % 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 increases in general salaries, medical insurance, severance, equity compensation, and payroll taxes, partially offset by decreases in incentive compensation. The nine months ended September 30, 2023 also reflect non-recurring CEO transition related expenses incurred during the first quarter of 2023. • Occupancy and equipment expenses increased for the nine months ended September 30, 2023, driven primarily by increased utilities costs and rent on leased properties. The increase for the nine months ended September 30, 2023 was partially offset by reduced snow removal costs as compared to the same prior year period. • Software maintenance increased primarily due to the Company's continued investment in its technology infrastructure. • FDIC assessment increased primarily due to increased assessment rates in the current year. • Debit card expense increased due to higher processing fees driven by increased volume. 85 Table of Contents • Consulting expense increased for the three months ended September 30, 2023, and decreased for the nine months ended September 30, 2023, as compared to the same respective prior year periods 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 nine months ended September 30, 2023. • Other noninterest expense increased for the three months ended September 30, 2023, as compared to the same prior year period, primarily due to increases in advertising costs and losses on sales of fixed assets. Other noninterest expense decreased slightly for the nine months ended September 30, 2023, driven primarily by reduced unrealized losses on equity securities and telecommunications costs, partially offset by increased expenses related to marketing and public relations, internet banking, and examinations and audits. Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes. The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated: Table 16 - Tax Provision and Applicable Tax Rates Three Months Ended Nine Months Ended September 30 September 30 2023 2022 2023 2022 (Dollars in thousands) Combined federal and state income tax provision $ 19,333 $ 23,171 $ 59,519 $ 60,699 Effective income tax rate 24.12 % 24.37 % 24.37 % 24.53 % Blended statutory tax rate 27.85 % 27.11 % 27.85 % 27.11 % The Company’s effective tax rate in 2023 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. The Company invests in various low income housing projects, which are real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing developments. As a limited partner in these operating partnerships, the Company will receive tax credits and tax deductions for losses incurred by the underlying properties. The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2040, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships is $212.8 million, of which $159.3 million had been funded as of September 30, 2023. It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.9 million for the fiscal year 2023 and a total of $26.4 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 to state the Company’s goals and objectives in identifying, measuring, and managing the risks associated with the Company’s current and near future anticipated size and complexity. Management is responsible for comprehensive enterprise risk management, and continually strives to adopt and implement practices that strike an appropriate balance between risk and reward and permit the achievement of strategic goals in a controlled environment. The Company has implemented the “three lines of defense” enterprise risk management model. The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks. The second line of defense monitors and provides risk management advice across all risk domains, and is comprised of the enterprise risk department, with oversight from the Chief Risk Officer. The third line of defense is independent assurance performed by the Chief Internal Auditor, who reports to the Audit Committee of the Company's Board of Directors, and by the Company's internal audit department. 86 Table of Contents The Board of Directors, with the assistance of its Risk Committee, oversees management’s enterprise risk management practices. As risks must be taken to create value, the Board of Directors has approved a Risk Appetite Statement that defines the acceptable residual risk tolerances for the Company and the nine major risk types identified as having the potential to create significant adverse impacts on the Company, such as financial losses, reputational damage, legal or regulatory actions, failure to achieve strategic objectives, diminished customer experience, and/or cultural erosion. The nine major risk categories identified by the Company and addressed in the Risk Appetite Statement are strategic and emerging risk, culture risk, credit risk, liquidity risk, interest rate risk, operational risk, reputation risk, compliance risk, and technology risk, each of which is discussed below. Strategic and Emerging Risk Strategic and emerging risk is the risk arising from adverse strategic or business decisions, misalignment of strategic direction with the Company’s mission and values, failure to execute strategies or tactics, or an inadequate adaptation or lack of responsiveness to industry and/or operating environment changes. Management seeks to mitigate strategic risk through strategic planning, frequent executive review of strategic plan progress, monitoring of competitors and technology, assessment of new products, new branches, and new business initiatives, customer advocacy, and crisis management planning. Culture Risk Culture risk is the risk arising from failed leadership and/or ineffective colleague engagement and workplace management that causes the Company to lose sight of core values and, through acts or omissions, damage the relationship-based culture that has been one of the foundations of the Company’s consistent success. Management seeks to mitigate culture risk through effective employee relations, leadership that encourages continuous improvement, cultural development and reinforcement of core values, communication of clear ethical and behavioral standards, consistent enforcement of policies and programs, discipline of misbehavior, alignment of incentives and compensation, and by promoting diversity, equity, and inclusion. Credit Risk Credit risk is the risk arising from the failure of a borrower or a counterparty to a contract to make payments as agreed, and includes the risks arising from inadequate collateral and mismanagement of loan concentrations. While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses that could have an adverse effect on its operating results. The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans. For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 3, “Loans, Allowance for Credit Losses and Credit Quality” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report . Liquidity Risk Liquidity risk is the risk arising from the Company being unable to meet obligations when due. Liquidity risk includes the inability to access funding sources or manage fluctuations in available funding levels. Liquidity risk also results from a failure to recognize or address market condition changes that affect the ability to liquidate assets quickly with minimal value loss. The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities. The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Interest rates, economic conditions, and competitive factors greatly influence deposit levels. The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which is an analysis of the relationship between liquid assets plus available FHLB funding, less short-term liabilities relative to total assets, was within policy limits at September 30, 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 FHLB collateral requirements, securities portfolio changes, and the mix of deposits. 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. 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. 87 Table of Contents The Company may also have the ability to raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion. The availability and cost of equity or debt on an unsecured basis is dependent on many factors, including the Company’s financial position, the market environment, and the Company’s credit rating. The Company monitors the factors that could affect its ability to raise liquidity through these channels. The following table depicts current and unused liquidity capacity from various sources as of the dates indicated: Table 17 - Liquidity Sources September 30, 2023 December 31, 2022 Outstanding Additional Borrowing Capacity Outstanding Additional Borrowing Capacity (Dollars in thousands) Federal Home Loan Bank of Boston (1) $ 887,548 $ 1,788,554 $ 637 $ 1,808,729 Federal Reserve Bank of Boston (2) — 3,074,338 — 1,210,451 Unpledged Securities — 1,187,590 — 2,144,235 Line of Credit — 85,000 — 85,000 Junior subordinated debentures (3) 62,857 — 62,855 — Subordinated debt (3) 49,957 — 49,885 — Reciprocal deposits (3) 920,372 — 653,638 — Brokered deposits (3) 100,889 — 102,643 — $ 2,021,623 $ 6,135,482 $ 869,658 $ 5,248,415 (1) Loans with a carrying value of $3.8 billion and $2.7 billion at September 30, 2023 and December 31, 2022, respectively, were pledged to the FHLB of Boston. (2) Loans with a carrying value of $4.7 billion and $1.7 billion at September 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. In addition to customary operational liquidity practices, the Board of Directors and management recognize the need to establish reasonable guidelines to manage a heightened liquidity risk environment. Catalysts for elevated liquidity risk can be Company-specific issues and/or systemic industry-wide events. Management is therefore responsible for instituting systems and controls designed to provide advanced detection of potentially significant funding shortages, establishing methods for assessing and monitoring risk levels, and instituting responses that may alleviate or circumvent a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and appropriately address them in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and execute an appropriate response. In response to the banking industry turmoil experienced earlier this year, the Company has been operating under the parameters of its Liquidity Contingency Plan, which resulted 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, while also pledging additional assets to increase overall borrowing capacity. On an ongoing basis, 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. Market and Interest Rate Risk Market and Interest rate risk is the risk arising from changes in interest rates and the value of investments due to market conditions or other external factors or events. Interest rate risk includes market risk. Interest rate risk is the sensitivity of income to changes in interest rates. Interest rate changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest rate risk arises directly from the Company’s core banking activities. In addition to directly affecting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects. 88 Table of Contents Management strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons. The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary within limits management deems prudent, with off-balance sheet hedging instruments such as interest rate swaps, floors, and caps. The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis. Key assumptions in these analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits ( e.g. , demand deposit, negotiable order of withdrawal, savings, and money market accounts). In the case of prepayment of mortgage assets, assumptions are derived from published median prepayment estimates for comparable mortgage loans. The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined with precision and actual behavior may differ from assumptions to a significant degree. 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. Management has been proactive in managing the Company's interest rate risk position with the intention of achieving a more neutral position, reflecting the general uncertainty of future rate changes. The Company runs several scenarios to quantify and effectively assist in managing interest rate risk, including instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary given the interest rate environment. The results of those scenarios are summarized in the following table: Table 18 - Interest Rate Sensitivity September 30 2023 2022 Year 1 Year 1 Parallel rate shocks (basis points) -300 (3.4) % (15.2) % -200 (1.9) % (9.8) % -100 (0.8) % (3.4) % +100 0.2 % 2.4 % +200 0.2 % 4.0 % +300 0.7 % 6.4 % +400 1.2 % 8.7 % Gradual rate shifts (basis points) -200 over 12 months (0.7) % (3.9) % -100 over 12 months (0.3) % (1.5) % +200 over 12 months 0.2 % 2.3 % +400 over 24 months 0.2 % 2.3 % The results depicted in the table above are dependent on material assumptions, such as prepayment rates, decay rates, pricing decisions on loans and deposits, and other factors, which management believes are reasonable. These assumptions may be impacted by customer preferences or competitive influences and therefore actual experience may differ from the assumptions in the model. Accordingly, although the tables provide an indication of the Company's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ. 89 Table of Contents The most significant market factors affecting the Company’s net interest income during the nine months ended September 30, 2023 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime interest rate, 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 from the other party. Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period to a second party if certain market interest rate thresholds are realized. While interest is paid or received in swap, cap, and floors agreements, the notional principal amount is not exchanged. The Company may also manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts under which the Company agrees to deliver whole mortgage loans to various investors. See Note 6, “ Derivative and Hedging Activities ” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for additional information regarding the Company’s derivative financial instruments. Movements in foreign currency rates or commodity prices do not directly or materially affect the Company's earnings. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines. See Note 2, “Securities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report. Operational Risk Operational risk is the risk arising from human error or misconduct, transaction errors or delays, inadequate or failed internal systems or processes, data unavailability, loss, or poor quality, or adverse external events. Operational risk includes fraud risk and model risk. Potential operational risk exposure exists throughout the Company. The continued effectiveness of colleagues and operational infrastructure are integral to mitigating operational risk, and any shortcomings subject the Company to risks that vary in size, scale and scope. Reputation Risk Reputation risk is the risk arising from negative public opinion of the Company and the Bank. Management seeks to mitigate reputational risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring. Regulatory and Compliance Risk Regulatory and 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 and Cyber Risk Technology and Cyber 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 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. The Bank manages cybersecurity threats proactively and maintains robust controls to protect its critical systems and data by investing in secure, reliable and resilient technology infrastructure, fostering a culture of technology risk awareness and continuously improving its technology risk management practices 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 September 30, 2023. See Note 6, "Derivative and Hedging Activities" and Note 10, "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, 2023. 90 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk Information required by this Item 3 is included in the "Risk Management" section of Part I. Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report and is incorporated herein by reference.