What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-02 · 192 added, 298 removed, 623 unchanged (44% of the section changed)

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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 2023 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 economic conditions in the regional and local economies within the New England region and the Company’s market area;

• events impacting the financial services industry, including high profile bank failures, and any resulting decreased confidence in banks among depositors, investors, and other counterparties, as well as competition for deposits, significant disruption, volatility and depressed valuations of equity and other securities of banks in the capital markets;

• the effects to the Company of an increasingly competitive labor market, including the possibility that the Company will have to devote significant resources to attract and retain qualified personnel;

• the instability or volatility in financial markets and unfavorable domestic or global general economic, political or business conditions, whether caused by geopolitical concerns, including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas and the possible expansion of such conflicts, changes in U.S.

and international trade policies, or other factors, and the potential impact of such factors on the Company and its customers, including the potential for decreases in deposits and loan demand, unanticipated loan delinquencies, loss of collateral and decreased service re venues;

• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on the Company’s local economies or the Company's business caused by adverse weather conditions and natural disasters, changes in climate, public health crises or other external events and any actions taken by governmental authorities in response to any such 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;

• changes in interest rates and any resulting impact on interest earning assets and/or interest bearing liabilities, the level of voluntary prepayments on loans and the receipt of payments on mortgage-backed securities, decreased loan demand or increased difficulty in the ability of borrowers to repay variable rate loans;

• 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;

• the effect of laws, regulations, new requirements or expectations, or additional regulatory oversight in the highly regulated financial services industry, including as a result of intensified regulatory scrutiny in the aftermath of recent bank failures and the resulting need to invest in technology to meet heightened regulatory expectations, increased costs of compliance or required adjustments to strategy;

• 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;

• increased competition in the Company’s market areas, including competition that could impact deposit gathering, retention of deposits and the cost of deposits, increased competition due to the demand for innovative products and service offerings, and competition from non-depository institutions which may be subject to fewer regulatory constraints and lower cost structures;

• a deterioration in the conditions of the securities markets;

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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;

• 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, including any inability to effectively implement new technology-driven products, such as artificial intelligence;

• electronic or other 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 effect of laws and regulations regarding the financial services industry, including the need to invest in technology to meet heightened regulatory expectations or introduction of new requirements or expectations resulting in increased costs of compliance or required adjustments to strategy;

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

• other unexpected material adverse changes in our operations or earnings.

• operational risks related to cyber threats, attacks, intrusions, and fraud which could lead to interruptions or disruptions of the Company's operating systems, including systems that are customer facing, and adversely impact the Company's business;

• any unexpected material adverse changes in the Company's operations or earnings;

• the other risks described in the section entitled “Risk Factors” in Part I.

Item 1A of the 2023 Form 10-K.

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.

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Three Months Ended

2023 March 31

2024 December 31

2023 September 30

2023 March 31

(Dollars in thousands, except per share data)

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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;

• Robust capital levels;

$100.0 million share repurchase authorization

First Quarter 2024 Results

Net income for the three months ended March 31, 2024 was $47.8 million, or $1.12 on a diluted earnings per share basis, as compared to $61.2 million, or $1.36 on a diluted earnings per share basis, for the three months ended March 31, 2023.

The 2024 first quarter results included the following key drivers:

• Disciplined loan growth and solid pipelines;

• Seasonal deposit growth with steady core household formation;

• Net interest margin at 3.23%, within expectations;

• Stable nonperforming asset levels;

minimal charge-offs;

• Solid core fee income;

• Focused expense management;

• Tangible book value per share growth of $0.21;

• $31.0 million of stock repurchases, marking completion of the Company's $100 million buyback program.

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:

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 relatively consistent balances of total interest-earning assets, with growth in the residential real estate portfolio offset by decreased securities balances.

The following table summarizes the Company's average interest-earning assets for each period presented:

Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets.

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Funding and Net Interest Margin

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

The Company's overall sources of funding reflect strong business and retail deposit growth with management's emphasis on core deposit growth to fund loans.

In conjunction with deposit growth during the first quarter of 2024, total borrowings decreased by $193.0 million at March 31, 2024 as compared to December 31, 2023, primarily driven by a reduction in Federal Home Loan Bank borrowings.

Additionally, the Company fully redeemed its outstanding subordinated debentures with an aggregate principal amount of $50.0 million.

The following chart shows sources of funding for the trailing five quarters:

The Company's ratio of core deposits to total deposits decreased over the last five quarters, primarily attributable to core deposit outflows in conjunction with existing deposit balances shifting into higher cost time deposits.

The following chart shows the percentage of core deposits for the trialing five quarters:

(1) The percentage of core deposits to total deposits presented above is inclusive of reciprocal deposits collected through the Company's participation in the IntraFi Network.

The following table shows the net interest margin and cost of deposits trends for the trailing five quarters:

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

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

Capital is primarily impacted by earnings retention, dividends, changes in other comprehensive income, 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.

The Company declared a quarterly cash dividend of $0.57 per share for the first quarter of 2024, representing an increase of 3.6% from the 2023 fourth quarter dividend rate of $0.55.

During the first quarter of 2024, the Company repurchased 532,266 shares of its common stock for $31.0 million at an average price per share of $58.22, marking the completion of its previously announced $100 million buyback program.

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.

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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

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.

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

2023 March 31

2024 December 31

2023 September 30

2023 March 31

(Dollars in thousands, except per share data)

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

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

There have been no material changes in critical accounting estimates during the first three months of 2024.

Refer to "Critical Accounting Estimates" in Item 7.

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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.

Securities Portfolio The Company's securities portfolio primarily consists of U.S.

Treasury, U.S.

government agency securities, agency mortgage-backed securities, agency collateralized mortgage obligations, and small business administration pooled securities.

Also included in the Company's securities portfolio are trading and equity securities related to certain employee benefit programs.

The majority of these securities are investment grade debt obligations with average lives of five years or less.

government agency securities entail a lesser degree of risk than loans made by the Bank by virtue of the guarantees that back them, require less capital under risk-based capital rules than noninsured or nonguaranteed mortgage loans, are more liquid than individual mortgage loans, and may be used to collateralize borrowings or other obligations of the Bank.

The Bank views its securities portfolio as a source of income and liquidity.

Interest and principal payments generated from securities provide a source of liquidity to fund loans and meet short-term cash needs.

Total securities decreased by $85.1 million, or 2.9%, at March 31, 2024 as compared to December 31, 2023, driven primarily by paydowns, calls, maturities, and unrealized losses of $4.0 million in the available for sale portfolio.

As a result, the Company's ratio of securities to total assets decreased to 14.7% at March 31, 2024 compared to 15.1% at December 31, 2023.

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

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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.

Residential Mortgage Loan Sales The Bank’s residential mortgage loans are generally originated in compliance with terms, conditions and documentation which permit the sale of such loans to investors in the secondary market.

Loan sales in the secondary market provide funds for additional lending and other banking activities.

Depending on market conditions, the Bank may sell the servicing of the sold loans for a servicing released premium, simultaneous with the sale of the loan.

For the remainder of the sold loans for which the Company retains the servicing, a mortgage servicing asset is recognized.

Additionally, as part of its asset/liability management strategy, the Bank may opt to retain certain residential real estate loan originations for its portfolio.

When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination.

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

The Company incurred no material losses related to residential mortgage repurchases during the three and nine months ended September 30, 2023 and 2022, respectively.

The Company incurred no material losses related to residential mortgage repurchases during the three months ended March 31, 2024 and 2023, respectively.

The Company experienced a lower volume of residential real estate loan sales for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, driven primarily by reduced customer demand in the current interest rate environment.

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

Three Months Ended March 31

(Dollars in thousands)

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Total closed loans $ 77,039 $ 101,460

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

Total residential real estate loan closings decreased during the quarter ended March 31, 2024 compared to March 31, 2023 , and a larger portion of new originations were sold in the secondary market versus retained in the Company's portfolio as compared to the prior year period, reflecting the Company's 2024 strategy to shift the majority of its residential production to the saleable market.

The table below reflects additional information related to the loans sold during the periods indicated and the sale or retention of the related servicing rights:

Table 2 - Residential Mortgage Loan Sales

Three Months Ended September 30 Nine Months Ended September 30

2023 2022 2023 2022

Three Months Ended March 31

(Dollars in thousands)

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Total loans sold $ 41,600 $ 11,589

(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.

(1) All loans sold with servicing rights retained during the above periods were sold without recourse.

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.

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

The principal balance of loans serviced by the Bank on behalf of investors was $304.7 million, $327.5 million and $336.2 million at September 30, 2023, December 31, 2022, and September 30, 2022, respectively.

The principal balance of loans serviced by the Bank on behalf of investors was $296.0 million, $298.8 million and $320.9 million at March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

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

Table 3 - Mortgage Servicing Asset

Three Months Ended September 30 Nine Months Ended September 30

2023 2022 2023 2022

Three Months Ended March 31

(Dollars in thousands)

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

Loan Portfolio Total loans at September 30, 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.

Loan Portfolio The Company's total loan portfolio at March 31, 2024 increased by $52.5 million, or 0.4% (1.5% on an annualized basis), when compared to December 31, 2023.

The 2024 first quarter growth was primarily within the commercial real estate loan portfolio, reflecting transfers from the construction portfolio, modest new origination activity, and reduced levels of paydowns.

The small business portfolio also continued its steady growth, rising by 3.86% during the first quarter of 2024, while the total consumer real estate portfolios remained generally in line with prior quarter.

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

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

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

(1) Included in the total commercial real estate balance are $1.4 billion, or 15.3%, of owner occupied commercial real estate loans.

The following pie chart shows the diversification of the commercial real estate loan portfolio as of March 31, 2024:

(Dollars in thousands)

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

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

The following pie chart shows the diversification of the commercial and industrial portfolio as of March 31, 2024:

(Dollars in thousands)

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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:

The residential real estate, home equity and other consumer portfolios totaled $3.6 billion at March 31, 2024, as noted below:

(Dollars in thousands)

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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.

Further details surrounding relevant asset quality categories are summarized below:

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

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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.

A loan remains on nonaccrual status until it becomes current with respect to principal and interest and remains current for a minimum period of 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 modify 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.

Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and 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.

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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.

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

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

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2024 December 31

2022 September 30

2023 March 31

(Dollars in thousands)

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Loans past due 90 days or more but still accruing

Other consumer 3 — —

Commercial real estate — — —

Home equity — — 23

Total $ — $ — $ 23

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Nonperforming assets as a percent of total assets 0.30 % 0.28 % 0.29 %

(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

2023 September 30

2022 September 30

2023 September 30

Three Months Ended

2024 March 31

(Dollars in thousands)

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Loans restored to performing status (8,855) (1,352)

Other 375 9 385 (57)

Nonperforming assets ending balance $ 57,051 $ 56,235

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The allowance is increased by providing for credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off.

In accordance with the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative

factors designed to address forecast risk and model risk inherent in the quantitative model output.

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

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

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

The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio, with an additional factor designed to capture model imprecision.

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.

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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.

Management's allowance for credit loss estimate incorporates an economic forecast over a reasonable and supportable period of 12 months.

As of March 31, 2024, the forecast selected by management assum es t hat the Federal Reserve will begin easing rates gradually in mid-20 24, inflation will return to 2% target by the end of 2024, job growth will slow in 2024 with unemployment rising modestly , home prices will remain stable through 2024, and that prices for office real estate will generally decrease as uncertainty over occupancy and operating cash flows persists.

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

The 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

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

Three Months Ended March 31, 2024

Commercial and industrial $ (85) $ 1,559,978 (0.02) %

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Total $ 274 $ 14,314,435 0.01 %

(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

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

(Dollars in thousands)

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

Three Months Ended March 31, 2023

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

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Total $ 538 $ 13,926,696 0.02 %

For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below.

(1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances and the associated net charge-offs.

For purposes of the allowance for credit losses, management segregates the portfolio based upon loans sharing similar risk characteristics.

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.

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2024 December 31

Amount Percent of

To Total Loans Allowance

Amount Percent of

To Total Loans

Amount Allowance Amount as a Percentage of Total Allowance Category of Loan as a Percentage of Total Loans Allowance

Amount Allowance Amount as a Percentage of Total Allowance Category of Loan as a Percentage of Total Loans

(Dollars in thousands)

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Other consumer 707 0.5 % 0.2 % 751 0.5 % 0.2 %

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.

Total $ 146,948 100.0 % 100.0 % $ 142,222 100.0 % 100.0 %

To determine if a loan should be charged-off, all possible sources of repayment are analyzed.

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

The 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.

The Company's investments in FHLB of Boston stock increased to $46.3 million at March 31, 2024 compared to $43.6 million at December 31, 2023.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both March 31, 2024 and December 31, 2023.

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.

Accordingly, the Company last performed its annual goodwill impairment testing during the third quarter of 2023, and determined that goodwill was not impaired as of August 31, 2023.

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

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

There were no other events or changes during the first quarter of 2024 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 cash surrender value of life insurance policies was $298.4 million at March 31, 2024 compared to $297.4 million at December 31, 2023.

The Company recorded tax exempt income from life insurance policies of $1.9 million for each of the three months ended March 31, 2024 and 2023.

There were $263,000 in gains on life insurance benefits recorded for the three months ended March 31, 2024 and $11,000 for the three months ended March 31, 2023.

Deposits As of March 31, 2024, total deposits were $15.0 billion, representing an $177.7 million, or 1.2%, increase from December 31, 2023.

This increase was primarily driven by municipal deposit inflows and consumer demand for higher cost time deposits, partially offset by seasonal business deposit outflows.

Though some level of product remixing persists, total noninterest bearing demand deposits comprised 29.71% of total deposits at March 31, 2024.

The total cost of deposits was 1.48% and 0.59% for the three months ended March 31, 2024 and 2023, respectively.

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 ratio of core deposits to total deposits represented 83.2% and 84.6% of total deposits as of March 31, 2024 and December 31, 2023, respectively, with the 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 $91.0 million and $100.9 million outstanding at March 31, 2024 and December 31, 2023, 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").

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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.

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 $933.0 million and $959.1 million at March 31, 2024 and December 31, 2023, respectively.

The estimated balance of uninsured deposits at the Bank were $4.7 billion and $4.6 billion as of March 31, 2024 and December 31, 2023, respectively.

Included in these amounts are $798.9 million and $720.5 million of collateralized deposits, which offer additional protection.

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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.

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.

Borrowings were $1.0 billion at March 31, 2024, representing a decrease of $193.0 million as compared to December 31, 2023.

This decrease was driven primarily by a reduction in Federal Home Loan Bank borrowings of $143.0 million, in conjunction with deposit balance growth during the quarter.

Additionally, the Company fully redeemed its outstanding subordinated debentures with an aggregate principal amount of $50.0 million during the quarter.

The Company had $8.5 billion of assets pledged as collateral against borrowings at both March 31, 2024 and December 31, 2023, respectively.

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

Capital Resources On March 21, 2024 the Company’s Board of Directors declared a cash dividend of $0.57 per share to shareholders of record as of the close of business on April 1, 2024.

This dividend was paid on April 5, 2024.

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

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

At September 30, 2023 and December 31, 2022, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods.

At March 31, 2024 and December 31, 2023, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods.

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

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Amount Ratio Amount Ratio Amount Ratio

September 30, 2023

March 31, 2024

(Dollars in thousands)

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

At September 30, 2023, the Company's capital levels exceeded the buffer.

At March 31, 2024, the Company's capital levels exceeded the buffer.

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

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

Dividends paid by the Bank to the Company totaled $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.

Dividends paid by the Bank to the Company totaled $47.9 million and $66.4 million for the three months ended March 31, 2024 and 2023, 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.

At both March 31, 2024 and December 31, 2023 there were $61.0 million in trust preferred securities included in the Tier 2 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

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

1 unchanged sentence

2024 December 31

2022 September 30

2023 March 31

(Dollars in thousands)

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

The Investment Management Group generated gross fee revenues of $8.7 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 Investment Management Group generated gross fee revenues of $9.1 million and $8.2 million for the three months ended March 31, 2024 and 2023, respectively.

Total assets under administration at March 31, 2024 were $6.8 billion, including $396.9 million of investment solutions designed by Rockland Trust that are administered and executed through its agreement with LPL Financial ("LPL"), compared to $6.5 billion and $383.0 million, respectively, at December 31, 2023.

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.

Included in these same amounts as of March 31, 2024 and December 31, 2023 are assets under administration of $484.8 million and $449.8 million, respectively, related to Bright Rock.

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

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

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

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

offer these products to the Bank’s customer base.

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

Retail investments and insurance revenue was $1.6 million and $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.

Retail investments and insurance revenue was $861,000 and $1.6 million for the three months ended March 31, 2024 and 2023, respectively.

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:

The following table provides a summary of results of operations for the three months ended March 31, 2024 and 2023:

Table 10 - Summary of Results of Operations

Three Months Ended September 30 Nine Months Ended September 30

2023 2022 2023 2022

Three Months Ended March 31

(Dollars in thousands, except per share data)

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

On a fully tax equivalent basis ("FTE"), net interest income for the third quarter of 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.

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.

On a fully tax equivalent basis ("FTE"), net interest income for the first quarter of 2024 was $138.6 million, representing a decrease of $21.5 million, or 13.4%, when compared to the first quarter of 2023, as rising deposit costs continued to counter the benefit of repriced assets, resulting in a reduction in net interest margin of 56 basis points to 3.23% for the first quarter of 2024.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three months ended March 31, 2024 and 2023.

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

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

Three Months Ended September 30

Three Months Ended March 31

Balance Interest

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Cost of total funding liabilities 1.77 % 0.71 %

(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.

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

Nine Months Ended September 30

Balance Interest

(Dollars in thousands)

Interest-earning assets

Interest-earning deposits with banks, federal funds sold, and short-term investments $ 144,558 $ 4,882 4.52 % $ 1,477,117 $ 10,222 0.93 %

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 %

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

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 %

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

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.

(1) The total amount of adjustment to interest income and yield on a FTE basis was $1.2 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively.

(2) Includes average nonaccruing loans.

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Table 12 - Volume Rate Analysis

Three Months Ended September 30 Nine Months Ended September 30

2023 Compared To 2022 2023 Compared To 2022

Volume Total Change Change

Three Months Ended March 31

2024 Compared To 2023

Volume Total Change

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(1) Reflects income determined on a FTE basis.

See footnote (1) to Tables 11 and 12 in this Report for the related adjustments.

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

(2) Loans include portfolio loans and nonaccrual loans;

however, unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.

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.

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

The Company recorded a provision for credit losses of $5.0 million and $7.3 million for the three months ended March 31, 2024 and March 31, 2023, respectively.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.03% at March 31, 2024, 1.00% at December 31, 2023, and 1.14% at March 31, 2023.

Refer to Note 3, "Loans, Allowance for Credit Losses and Credit Quality " within the Notes to Consolidated Financial Statements included in Part I.

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Three Months Ended

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

March 31 Change

2024 2023 Amount %

2 unchanged sentences

Interchange and ATM fees 4,452 4,184 268 6.41 %

Investment management 30,373 26,438 3,935 14.88 %

Investment management and advisory 9,941 9,779 162 1.66 %

Mortgage banking income 796 308 488 158.44 %

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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.

• 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.

• Deposit account fees increased during the three months ended March 31, 2024, as compared to the same prior year period driven primarily by increased cash management fees.

• Interchange and ATM fees for the three months ended March 31, 2024 increased as compared to the same prior year period due primarily to higher transaction volumes.

• Investment management and advisory income increased driven primarily by higher levels of assets under administration, which increased by $658.9 million, or 10.7%, to $6.8 billion at March 31, 2024 as compared to $6.1 billion at March 31, 2023.

This increase was partially offset by higher insurance and retail commission income recognized during the first quarter of 2023 as compared to the current quarter.

• Mortgage banking income increased for the three months ended March 31, 2024 as compared to the same prior year period due to a greater portion of new originations being sold in the secondary market versus being retained in the Company's portfolio.

• Loan level derivative income decreased for the three months ended March 31, 2024 in comparison to the same prior year periods due to lower demand.

• Other noninterest income increased for the three months ended March 31, 2024, primarily attributable to increased FHLB dividend income and realized gains on sales of equity securities, partially offset by discounted purchases of Massachusetts historical tax credits made during the first quarter of 2023 and reduced unrealized gains on equity securities during the first quarter of 2024 compared to the same prior year period.

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

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Three Months Ended

September 30 Change

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

March 31 Change

2024 2023 Amount %

3 unchanged sentences

Data processing & facilities management 2,483 2,527 (44) (1.74) %

Software maintenance 9,407 7,706 1,701 22.07 %

Software and subscriptions 4,094 2,949 1,145 38.83 %

FDIC assessment 2,982 2,610 372 14.25 %

2 unchanged sentences

Amortization of intangible assets 1,563 1,815 (252) (13.88) %

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

Other noninterest expenses 14,218 14,715 (497) (3.38) %

1 unchanged sentence

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.

• The increase in salaries and employee benefits was primarily attributable to increases in general salaries, incentive programs, medical plan insurance, and seasonal increases in payroll taxes, partially offset by decreased commissions and equity compensation.

• Occupancy and equipment expenses increased for the three months ended March 31, 2024, driven primarily by one-time lease exit costs associated with acquired leased locations as well as increased depreciation expense, partially offset by decreased utilities costs compared to the first quarter of 2023.

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

• FDIC assessment increased compared to the same prior year period primarily due to an increase in the estimated FDIC special assessment recognized by the Company.

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

• 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.

• Consulting expense decreased for the three months ended March 31, 2024 due primarily to the timing of strategic initiatives.

• Other noninterest expense decreased for the three months ended March 31, 2024, as compared to the same prior year period, primarily due to decreases in legal costs and examination and audit fees, partially offset by increases in card issuance costs and customer fraud reimbursements.

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

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Table 15 - Tax Provision and Applicable Tax Rates

Three Months Ended Nine Months Ended

September 30 September 30

2023 2022 2023 2022

Three Months Ended

(Dollars in thousands)

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Blended statutory tax rate 27.91 % 27.85 %

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

The Company’s effective tax rate for the first quarter of 2024 is lower as compared to the year ago period primarily due to lower pre-tax income as well as increased tax benefits from low income housing tax credits.

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

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

The total committed investment in these partnerships is $212.8 million, of which $159.3 million had been funded as of September 30, 2023.

The total committed investment in these partnerships is $237.3 million, of which $176.8 million had been funded as of March 31, 2024.

It is expected that the limited partnership investments will generate a net tax benefit of approximately $4.4 million for the fiscal year 2024 and a total of $34.9 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.

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

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 Company has implemented the “three lines of defense” enterprise risk management framework.

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

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

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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.

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.

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

This ratio, which is an analysis of the relationship between liquid assets plus available FHLB funding, less short-term liabilities relative to total assets, was within policy limits at September 30, 2023.

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

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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.

The Company prioritizes core deposits as a primary funding source and continues to maintain a variety of available liquidity sources, including FHLB advances, and Federal Reserve borrowing capacity.

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

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Table 16 - Liquidity Sources

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Outstanding Additional

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$ 2,049,392 $ 6,180,309 $ 2,278,370 $ 5,928,807

(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.

(1) Loans with a carrying value of $3.9 billion at both March 31, 2024 and December 31, 2023 were pledged to the FHLB of Boston.

(2) Loans with a carrying value of $4.7 billion and $4.6 billion at March 31, 2024 and December 31, 2023, respectively, were pledged to the Federal Reserve Bank of Boston.

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

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

In response to the 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.

The Company continually monitors both on and off balance sheet liquidity sources to understand vulnerabilities and when adjustments to the balance between sources and uses of funds may be necessary.

Management regularly performs various liquidity stress testing scenarios and other analyses to assess potential liquidity outflows or funding concerns resulting from economic or industry disruptions, volatility in the financial markets, or unforeseen credit events.

The results of these scenarios are used to inform the Company's Liquidity Contingency Plan and help provide the basis for its liquidity needs.

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

Interest rate risk is the most significant market risk to which the Company has exposure to due to the nature of its operations.

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 changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, which is the Company’s primary source of revenue.

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

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

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

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

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

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

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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).

, demand deposit, 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.

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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.

Given the volatility associated with market rates, and the uncertainty surrounding future rate movements, management has been proactive in achieving a more neutral interest rate risk position as compared to the prior year.

In 2023, management continued to increase the duration of its assets by marginally increasing exposure to fixed rate loans while deposit attrition reduced the amount of rate sensitive cash on hand at the Federal Reserve Bank.

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.

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+200 over 12 months (0.4) % 0.7 %

+400 over 24 months 0.2 % 2.3 %

+400 over 24 months n/a 0.7 %

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.

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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.

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.

The most significant market factors affecting the Company’s net interest income during the three months ended March 31, 2024 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.

prime interest rate, the secured overnight financing rate ("SOFR"), and other 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.

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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.

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet arrangements during the three months ended March 31, 2024.

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.

Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended March 31, 2024.

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis