What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-06 · 129 added, 117 removed, 780 unchanged (24% of the section changed)

10 unchanged sentences

• 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, political and policy uncertainties with the approach of the U.S.

presidential election, changes in U.S.

82 unchanged sentences

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

Second Quarter 2024 Results

Net income for the three months ended June 30, 2024 was $51.3 million, or $1.21 on a diluted earnings per share basis, as compared to $62.6 million, or $1.42 on a diluted earnings per share basis, for the three months ended June 30, 2023, representing decreases of 18.1% and 14.8%, respectively, due primarily to reductions in net interest income.

However, the second quarter of 2024 reflected solid overall business activity amidst a continued challenging environment, including the following key drivers:

• Disciplined loan growth of 0.5%;

• Net interest margin of 3.25%;

• Stable nonperforming asset levels, minimal charge-offs;

Third Quarter 2024 Results

Net income for the three months ended September 30, 2024 was $42.9 million, or $1.01 on a diluted earnings per share basis, as compared to $60.8 million, or $1.38 on a diluted earnings per share basis, for the three months ended September 30, 2023, representing decreases of 29.4% and 26.8%, respectively, due primarily to lower net interest income and the impact of an elevated provision for credit losses attributable to specific reserve allocations on one large commercial real estate loan.

Despite a rise in the provision for credit losses, third quarter 2024 results reflected solid overall business activity amidst a continued challenging environment, including the following key drivers:

• Net interest margin expansion to 3.29%;

• Robust core deposit growth, with average deposits up $330.0 million (8.74% annualized) for the quarter;

• Strong fee income;

• Focused expense management;

• Tangible book value per share growth of $0.85 for the quarter

• Strong capital levels, with tangible book value per share growth of $1.38 for the quarter.

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 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:

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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 half of 2024, total borrowings decreased by $525.0 million at June 30, 2024 as compared to December 31, 2023, primarily driven by a reduction in Federal Home Loan Bank borrowings, along with the full redemption of $50.0 million in subordinated debentures during the first quarter of 2024.

In conjunction with deposit growth during the first nine months of 2024, total borrowings decreased by $555.0 million at September 30, 2024 as compared to December 31, 2023, primarily driven by a reduction in Federal Home Loan Bank borrowings, along with the full redemption of $50.0 million in subordinated debentures during the first quarter of 2024.

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

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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 Company’s primary expenses arise from 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:

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

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

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

Non-GAAP Measures

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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 six months of 2024.

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

Refer to “Critical Accounting Estimates” in Item 7.

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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 $165.1 million, or 5.6%, at June 30, 2024 as compared to December 31, 2023, driven primarily by paydowns, calls and maturities.

As a result, the Company's ratio of securities to total assets decreased to 14.2% at June 30, 2024 compared to 15.1% at December 31, 2023.

Total securities decreased by $165.3 million, or 5.6%, at September 30, 2024 as compared to December 31, 2023, driven primarily by paydowns, calls and maturities, offset partially by new purchases of $48.3 million and $38.1 million of unrealized gains in the available for sale portfolio.

As a result, the Company's ratio of securities to total assets decreased to 14.2% at September 30, 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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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 six months ended June 30, 2024 and 2023, respectively.

The Company experienced a lower volume of residential real estate loan sales for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, driven primarily by reduced customer demand in the current interest rate environment.

The Company incurred no material losses related to residential mortgage repurchases during the three and nine months ended September 30, 2024 and 2023, respectively.

The Company experienced a lower volume of residential real estate loan sales for the three and nine months ended September 30, 2024 as compared to the same periods ended September 30, 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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2023 2024 2023

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Total closed loans $ 129,022 $ 172,108 $ 327,416 $ 450,435

During the three and six months ended June 30, 2024, a larger portion of new originations were sold in the secondary market versus retained in the Company's portfolio as compared to the same prior year periods, reflecting the Company's 2024 strategy to shift its residential production to the saleable market.

During the three and nine months ended September 30, 2024, a larger portion of new originations were sold in the secondary market versus retained in the Company's portfolio as compared to the same prior year periods, reflecting the Company's 2024 strategy to shift 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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2023 2024 2023

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may be recorded as an increase to income.

The principal balance of loans serviced by the Bank on behalf of investors was $291.1 million, $298.8 million and $311.5 million at June 30, 2024, December 31, 2023, and June 30, 2023, respectively.

The principal balance of loans serviced by the Bank on behalf of investors was $286.4 million, $298.8 million and $304.7 million at September 30, 2024, December 31, 2023, and September 30, 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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2023 2024 2023

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

Loan Portfolio The Company's total loan portfolio at June 30, 2024 increased by $122.9 million, or 0.9% (1.7% on an annualized basis), when compared to December 31, 2023.

The 2024 first half 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, along with modest growth in the commercial and industrial portfolio.

The small business portfolio also continued its steady growth, rising by 6.9% during the first half of 2024, while the total consumer real estate portfolio increased $35.3 million, or 1.0% (2.0% on an annualized basis).

Loan Portfolio The Company's total loan portfolio at September 30, 2024 increased by $82.7 million, or 0.6% (0.8% on an annualized basis), when compared to December 31, 2023.

The 2024 year-to-date growth was driven primarily by the consumer portfolio, which increased by $53.8 million, or 1.5%, during the period.

Total commercial loans also increased by $28.9 million, or 0.27%, during the first nine months of 2024, fueled primarily by continued steady growth in the small business portfolio, which rose $18.1 million, or 7.2%, while the combined commercial real state and construction portfolios remained relatively flat, increasing by $13.0 million, or 0.1%.

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 June 30, 2024:

The following pie chart shows the diversification of the commercial real estate loan portfolio as of September 30, 2024:

(1) Included in the total commercial real estate portfolio is $1.4 billion of owner occupied commercial real estate loans .

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

The following pie chart shows the diversification of the commercial and industrial portfolio as of June 30, 2024:

The following pie chart shows the diversification of the commercial and industrial portfolio as of September 30, 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 $3.6 billion at June 30, 2024, as noted below:

The residential real estate, home equity and other consumer portfolios totaled $3.6 billion at September 30, 2024, as noted below:

(Dollars in thousands)

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2024 December 31

2023 September 30

(Dollars in thousands)

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Other consumer 33 40 72

Total $ 104,248 $ 54,383 $ 39,168

Loans past due 90 days or more but still accruing

Other consumer — — 3

Total $ — $ — $ 3

Total nonperforming loans $ 104,248 $ 54,383 $ 39,171

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Table 5 - Activity in Nonperforming Assets

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

2024 September 30

2023 September 30

2024 September 30

(Dollars in thousands)

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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.

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, 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.

For the loans that will be individually assessed, the Company uses either a discounted cash flow approach or a fair

value of collateral approach.

For the loans that will be individually assessed, the Company uses either a discounted cash flow 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 allowance for credit loss estimate incorporates an economic forecast over a reasonable and supportable period of 12 months.

As of June 30, 2024, the forecast selected by management assum es t hat the Federal Reserve will begin easing rates gradually over the second half of 2024 , that inflation will stabilize and return to 2% target by early 2025, that fiscal policies will likely remain unchanged until after the U.S.

presidential election , that new home sales will remain robust given the current national housing deficit, and that the outlook for office real estate will remain bearish as uncertainty over occupancy and operating cash flows persists.

As of September 30, 2024, the forecast selected by management assumes that the Federal Reserve will cut the policy rate by 25 basis points during the fourth quarter of 2024, that inflation will stabilize and return to 2% target by early 2025, that new home sales will remain stable given the current national housing deficit, and that the outlook for office real estate will remain bearish 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.

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(Dollars in thousands)

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024

Commercial and industrial $ 5,883 $ 1,585,801 1.48 % $ 5,796 $ 1,576,580 0.49 %

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(Dollars in thousands)

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

Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

Commercial and industrial $ (111) $ 1,682,000 (0.03) % $ 23,339 $ 1,662,459 1.88 %

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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 decreased to $32.7 million at June 30, 2024 compared to $43.6 million at December 31, 2023, in conjunction with reduced levels of outstanding FHLB borrowings.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both June 30, 2024 and December 31, 2023.

The Company's investments in FHLB of Boston stock decreased to $29.9 million at September 30, 2024 compared to $43.6 million at December 31, 2023, in conjunction with reduced levels of outstanding FHLB borrowings.

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

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.

Accordingly, the Company performed its annual goodwill impairment testing during the third quarter of 2024 and determined that the Company’s goodwill was not impaired as of September 30, 2024.

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 second quarter of 2024 that indicated impairment of goodwill and other intangible assets.

There were no other events or changes during the third 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 $300.1 million at June 30, 2024 compared to $297.4 million at December 31, 2023.

The Company recorded tax exempt income from life insurance policies of $2.0 million and $1.9 million for the three months ended June 30, 2024 and 2023, respectively, and $3.9 million and $3.8 million for the six months ended June 30, 2024 and 2023, respectively.

The Company recorded no gains on life insurance benefits for the three months ended June 30, 2024 as compared to gains of $176,000 for the three months ended June 30, 2023, and recorded gains of $263,000, and $187,000 for the six months ended June 30, 2024 and 2023, respectively.

Deposits As of June 30, 2024, total deposits were $15.4 billion, representing a $544.0 million, or 3.7%, increase from December 31, 2023.

This increase was primarily driven by municipal deposit inflows and continued consumer demand for higher cost time deposits.

Though some level of product remixing persists, total noninterest bearing demand deposits comprised 28.7% of total deposits at June 30, 2024.

The total cost of deposits was 1.65% and 0.85% for the three months ended June 30, 2024 and 2023, respectively, and 1.56% and 0.72% for the six months ended June 30, 2024 and 2023, respectively.

The cash surrender value of life insurance policies was $302.1 million at September 30, 2024 compared to $297.4 million at December 31, 2023.

The Company recorded tax exempt income from life insurance policies of $2.0 million for each of the three months ended September 30, 2024 and 2023, and $5.9 million and $5.8 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company recorded no gains on life insurance benefits for the three months ended September 30, 2024 as compared to gains of $1.9 million for the three months ended September 30, 2023, and recorded gains of $263,000, and $2.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Deposits As of September 30, 2024, total deposits were $15.4 billion, representing a $575.5 million, or 3.9%, increase from December 31, 2023.

This increase was primarily driven by continued consumer demand for higher cost time deposits, along with strong business and municipal deposit inflows.

Total noninterest bearing demand deposits comprised 29.3% of total deposits at September 30, 2024, as compared to 30.7% at December 31, 2023.

The total cost of deposits was 1.74% and 1.07% for the three months ended September 30, 2024 and 2023, respectively, and 1.62% and 0.84% for the nine months ended September 30, 2024 and 2023, respectively.

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

The Company's ratio of core deposits to total deposits represented 81.9% and 84.6% of total deposits as of June 30, 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 June 30, 2024 and December 31, 2023, respectively.

The Company's ratio of core deposits to total deposits represented 81.7% and 84.6% of total deposits as of September 30, 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 $61.2 million and $100.9 million outstanding at September 30, 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 $979.0 million and $959.1 million at June 30, 2024 and December 31, 2023, respectively.

The estimated balance of uninsured deposits at the Bank were $5.1 billion and $4.6 billion as of June 30, 2024 and December 31, 2023, 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 $1.0 billion and $959.1 million at September 30, 2024 and December 31, 2023, respectively.

The estimated balances of uninsured deposits at the Bank were $5.1 billion and $4.6 billion as of September 30, 2024 and December 31, 2023, respectively.

Included in these amounts are $836.3 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 $693.4 million at June 30, 2024, representing a decrease of $525.0 million as compared to December 31, 2023.

This decrease was experienced primarily within Federal Home Loan Bank borrowings, which decreased $475.0 million in conjunction with deposit balance growth over the first half of 2024.

Borrowings were $663.4 million at September 30, 2024, representing a decrease of $555.0 million as compared to December 31, 2023.

This decrease was experienced primarily within Federal Home Loan Bank borrowings, which decreased $505.0 million in conjunction with deposit balance growth over the first nine months of 2024.

Additionally, the Company fully redeemed its outstanding subordinated debentures with an aggregate principal amount of $50.0 million during the first quarter of 2024.

The Company had $8.8 billion and $8.5 billion of assets pledged as collateral against borrowings at June 30, 2024 and December 31, 2023, respectively.

The Company had $8.8 billion and $8.5 billion of assets pledged as collateral against borrowings at September 30, 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 June 20, 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 July 1, 2024.

This dividend was paid on July 8, 2024.

Capital Resources On September 19, 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 September 30, 2024.

This dividend was paid on October 4, 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 June 30, 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.

At September 30, 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:

3 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio

June 30, 2024

September 30, 2024

(Dollars in thousands)

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

At June 30, 2024, the Company's capital levels exceeded the buffer.

At September 30, 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 $45.3 million and $55.9 million for the three months ended June 30, 2024 and 2023, respectively and totaled $93.2 million and $122.2 million for the six months ended June 30, 2024 and 2023, respectively.

Dividends paid by the Bank to the Company totaled $45.3 million and $56.0 million for the three months ended September 30, 2024 and 2023, respectively and totaled $138.5 million and $178.2 million for the nine months ended September 30, 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 both June 30, 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.

At both September 30, 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

2023 September 30

(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 $9.6 million and $8.9 million for the three months ended June 30, 2024 and 2023, respectively and $18.7 million and $17.0 million for the six months ended June 30, 2024 and 2023, respectively.

Total assets under administration at June 30, 2024 were $6.9 billion, including $401.3 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 Investment Management Group generated gross fee revenues of $9.7 million and $8.7 million for the three months ended September 30, 2024 and 2023, respectively and $28.4 million and $25.7 million for the nine months ended September 30, 2024 and 2023, respectively.

Total assets under administration at September 30, 2024 were $7.2 billion, including $427.8 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 June 30, 2024 and December 31, 2023 are assets under administration of $475.1 million and $449.8 million, respectively, related to Bright Rock.

Included in these same amounts as of September 30, 2024 and December 31, 2023 are assets under administration of $501.6 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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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 $1.4 million and $1.5 million for the three months ended June 30, 2024 and 2023, respectively, and $2.2 million and $3.1 million for the six months ended June 30, 2024 and 2023, respectively.

Retail investments and insurance revenue was $1.4 million and $1.6 million for the three months ended September 30, 2024 and 2023, respectively, and $3.6 million and $4.7 million for the nine months ended September 30, 2024 and 2023, respectively.

RESULTS OF OPERATIONS

The following table provides a summary of results of operations for the three and six months ended June 30, 2024 and 2023:

The following table provides a summary of results of operations for the three and nine months ended September 30, 2024 and 2023:

Table 10 - Summary of Results of Operations

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2023 2024 2023

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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 second quarter of 2024 was $139.1 million, representing a decrease of $14.5 million, or 9.5%, when compared to the second quarter of 2023.

For the six months ended June 30, 2024, the net interest income on a FTE basis was $277.7 million, representing a decrease of $36.0 million, or 11.5%, when compared to the six months ended June 30, 2023.

The decreases in net interest income for both the three and six month 2024 periods were primarily attributable to rising deposit costs, resulting in a net interest margin decrease of 29 basis points to 3.25% for the second quarter of 2024, compared to the same prior year quarter, and a net interest margin decrease of 43 basis points to 3.24% for the first half of 2024 as compared to the same prior year period.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and six months ended June 30, 2024 and 2023.

On a fully tax equivalent basis (“FTE”), net interest income for the third quarter of 2024 was $142.9 million, representing a decrease of $8.1 million, or 5.4%, when compared to the third quarter of 2023.

For the nine months ended September 30, 2024, the net interest income on a FTE basis was $420.6 million, representing a decrease of $44.2 million, or 9.5%, when compared to the nine months ended September 30, 2023.

These 2024 decreases in net interest income were primarily attributable to rising deposit costs, resulting in a net interest margin of 3.29% and 3.26% for the three and nine months ended September 30, 2024, respectively, representing decreases of 18 basis points and 34 basis points, respectively, compared to the same prior year periods.

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, 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 June 30

Three Months Ended September 30

Balance Interest

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Cost of total funding liabilities 1.86 % 1.31 %

(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 June 30, 2024 and 2023, respectively.

(1) The total amount of adjustment to interest income and yield on a FTE basis was $1.2 million for each of the three months ended September 30, 2024 and 2023.

(2) Includes average nonaccruing loans.

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

Six Months Ended June 30

Nine Months Ended September 30

Balance Interest

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Cost of total funding liabilities 1.83 % 1.06 %

(1) The total amount of adjustment to present interest income and yield on a FTE basis was $2.4 million and $2.2 million for the six months ended June 30, 2024 and 2023, respectively.

(1) The total amount of adjustment to present interest income and yield on a FTE basis was $3.6 million and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively.

(2) Includes average nonaccruing loans.

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Table 13 - Volume Rate Analysis

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 Compared To 2023 2024 Compared To 2023

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(1) Reflects income determined on a FTE basis.

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

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

(2) Loans include portfolio loans and nonaccrual loans;

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

The Company recorded a provision for credit loss of $4.3 million and $9.3 million for the three and six months ended June 30, 2024, respectively, as compared to a provision for credit loss of $5.0 million for the three months ended June 30, 2023 and $12.3 million for the six months ended June 30, 2023.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.05% at June 30, 2024, 1.00% at December 31, 2023, and 0.99% at June 30, 2023.

The Company recorded a provision for credit loss of $19.5 million and $28.8 million for the three and nine months ended September 30, 2024, respectively, as compared to a provision for credit loss of $5.5 million and $17.8 million for the three and nine months ended September 30, 2023.

The 2024 increase is primarily attributable to specific reserve allocations on commercial loans and, to a lesser extent, net loan growth over the first nine months of 2024.

The Company’s allowance for credit losses, as a percentage of total loans, was 1.14% at September 30, 2024, 1.00% at December 31, 2023, and 0.99% at September 30, 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

June 30 Change

September 30 Change

2024 2023 Amount %

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Total $ 33,549 $ 33,543 $ 6 0.02 %

Six Months Ended

June 30 Change

Nine Months Ended

September 30 Change

2024 2023 Amount %

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

• Deposit account fees were higher for the three and six months ended June 30, 2024 as compared to the same prior year periods driven primarily by increased overdraft and cash management fees.

• Interchange and ATM fees were higher for the three and six months ended June 30, 2024 as compared to the same prior year periods due primarily to increased transaction volumes.

• Investment management and advisory income increased, driven primarily by higher levels of assets under administration, which increased by $566.9 million, or 9.0%, to $6.9 billion at June 30, 2024 as compared to $6.3

billion at June 30, 2023.

This increase was partially offset by higher insurance and retail commission income recognized during the first half of 2023 as compared to the first half of 2024.

• Mortgage banking income increased for the three and six months ended June 30, 2024 as compared to the same prior year periods due primarily to a greater portion of new originations being sold in the secondary market versus being retained in the Company's portfolio during the first half of 2024 as compared to the first half of 2023.

• Loan level derivative income decreased for the three and six months ended June 30, 2024 in comparison to the same prior year periods due to lower demand.

• Other noninterest income for the three months ended June 30, 2024 was relatively flat compared to the same prior year period as higher FHLB dividend income and commercial loan fees recognized during the second quarter of 2024 were offset by reductions in interest income recognized from income tax return refunds as well as purchases of Massachusetts historical tax credits during the second quarter of 2023.

Other noninterest income for the six months ended June 30, 2024 was higher than the same prior year period, primarily attributable to increased FHLB dividend income, realized gains on sales of equity securities, and commercial loan fees, partially offset by discounted purchases of Massachusetts historical tax credits made during the first half of 2023 and reduced unrealized gains on equity securities during the first half of 2024 compared to the same prior year period.

• Deposit account fees were higher for the three and nine months ended September 30, 2024 as compared to the same prior year periods primarily to increased overdraft and cash management fees.

• Interchange and ATM fees were higher for the three and nine months ended September 30, 2024 as compared to the same prior year periods due primarily to higher transaction volumes.

• Investment management and advisory income increased, driven primarily by higher levels of assets under administration, which increased by $1.0 billion, or 17.0%, to $7.2 billion at September 30, 2024 as compared to $6.1 billion at September 30, 2023.

This increase was partially offset by lower insurance commission income recognized in 2024 as compared to the same 2023 periods.

• Mortgage banking income increased for the three and nine months ended September 30, 2024 as compared to the same prior year periods due primarily to a greater portion of new originations being sold in the secondary market versus being retained in the Company's portfolio during 2024 as compared to the same 2023 periods.

• The Company received minimal proceeds on life insurance policies during the nine months ended September 30, 2024 as compared to $2.1 million for the nine months ended September 30, 2023.

• Loan level derivative income increased during the three months ended September 30, 2024 and decreased for the nine months ended September 30, 2024 in comparison to the same prior year periods, reflecting fluctuations in customer demand fueled by changes in the macroeconomic environment.

• Other noninterest income for the three months ended September 30, 2024 was lower than the same prior year period, primarily attributable to outsized commercial loan fees recorded during the third quarter of 2023, as well as decreased discounted purchases of Massachusetts historical tax credits, partially offset by unrealized gains on equity securities.

Other noninterest income for the nine months ended September 30, 2024 was slightly higher than the same prior year period, primarily attributable to increased FHLB dividend income, realized gains on sales of equity securities, and commercial loan fees, partially offset by decreased discounted purchases of Massachusetts historical tax credits made during the first nine months of 2024.

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

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Three Months Ended

June 30 Change

September 30 Change

2024 2023 Amount %

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Consulting expense 1,429 2,753 (1,324) (48.09) %

Advertising expense 1,826 1,641 (125) (4.94) %

Debit card expense 614 2,319 (1,705) (73.52) %

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Total $ 100,443 $ 97,782 $ 2,661 2.72 %

Six Months Ended

June 30 Change

Nine Months Ended

September 30 Change

2024 2023 Amount %

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Consulting expense 4,854 6,765 (1,911) (28.25) %

Advertising expense 2,986 2,858 128 4.48 %

Debit card expense 4,694 6,707 (2,013) (30.01) %

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

• The increases in salaries and employee benefits was primarily attributable to increases in general salaries, incentive programs, medical plan insurance, and payroll taxes, partially offset by an outsized benefit related to the valuation of the Company’s split-dollar BOLI policies recognized during the second quarter of 2024 as well as reduced commissions expense over the first half of 2024 as compared to the first half of 2023.

• Occupancy and equipment expenses were relatively flat for the three months ended June 30, 2024 as compared to the same prior year period, and were higher for the first half of 2024 compared to the first half of 2023, driven primarily by one-time lease exit costs associated with acquired leased locations and increased depreciation expense, partially offset by decreased utilities costs.

• FDIC assessment was flat for the second quarter of 2024 as compared to the same prior year quarter, and increased for the six months ended June 30, 2024 compared to the same prior year period due primarily to an increase in the estimated FDIC special assessment recognized by the Company during the first quarter of 2024.

• Debit card expense decreased for the three and six months ended June 30, 2024, due primarily to reduced processing costs.

• Consulting expense was relatively flat for the second quarter of 2024, as compared to the same prior year quarter, and decreased for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, due primarily to the timing of strategic initiatives.

• Other noninterest expense was higher for the second quarter of 2024 compared to the same prior year quarter, driven primarily by software and subscriptions, examinations and audit fees, and communications expenses.

Other noninterest expense decreased for the six months ended June 30, 2024, as compared to the same prior year period, primarily due to decreases in recruitment expense, legal costs and contract labor, partially offset by increases in software and subscriptions, card issuance costs, internet banking, and communication fees.

• Salaries and employee benefits increased for the three and nine months ended September 30, 2024, primarily attributable to increases in general salaries, incentive programs, medical plan insurance, and payroll taxes.

The 2024 third quarter increase also reflected the impact of an outsized interest rate-driven valuation fluctuation related to the Company’s split-dollar bank-owned life insurance policies.

These increases were partially offset by decreased commissions expense for the three and nine months ended September 30, 2024 as compared to the same prior year periods.

• Occupancy and equipment expenses increased for the three months ended September 30, 2024 as compared to the same prior year period due primarily to higher utilities costs and depreciation expense.

Occupancy and equipment expenses were also higher for the nine months ended September 30, 2024 compared to the same prior year period, driven primarily by one-time lease exit costs associated with acquired leased locations as well as increased depreciation expense and cleaning costs, partially offset by decreased utilities costs.

• Software and subscriptions costs increased for both the three and nine months ended September 30, 2024 driven by the Company’s continued investment in its technology infrastructure.

• FDIC assessment was relatively flat for the third quarter of 2024 as compared to the same prior year quarter, and increased for the nine months ended September 30, 2024 compared to the same prior year period due primarily to an increase in the estimated FDIC special assessment recognized by the Company during the first quarter of 2024.

• Debit card expense decreased for the three and nine months ended September 30, 2024, due primarily to a one-time credit of $1.1 million recognized during the third quarter of 2024 as well as reduced processing costs.

• Consulting expense decreased for the three and nine months ended September 30, 2024, due primarily to the timing of strategic initiatives.

• Other noninterest expense was lower for both the three and nine months ended September 30, 2024 compared to the same prior year periods.

The 2024 third quarter decrease was driven primarily by decreased unrealized losses on equity securities, lower card issuance costs, recruitment expenses and other miscellaneous costs, partially offset by increased software and subscriptions, internet banking expenses and telecommunications costs.

The 2024 year-to-date decrease was driven primarily by lower recruitment expenses, reduced gains on sale of fixed assets, decreased legal costs, partially offset by increases in software and subscriptions, internet banking, and telecommunications costs.

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

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Table 16 - Tax Provision and Applicable Tax Rates

Three Months Ended Six Months Ended

June 30 June 30

Three Months Ended Nine Months Ended

September 30 September 30

2024 2023 2024 2023

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Blended statutory tax rate 27.91 % 27.85 % 27.91 % 27.85 %

The Company’s effective tax rate for the second 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 Company’s effective tax rate for the third 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 $258.3 million, of which $185.7 million had been funded as of June 30, 2024.

The total committed investment in these partnerships is $258.3 million, of which $192.5 million had been funded as of September 30, 2024.

It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.8 million for the fiscal year 2024 and a total of $37.3 million over the remaining life of the investments from the combination of the tax credits and operating losses.

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

The second line of defense 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 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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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 June 30, 2024.

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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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.

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.

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Table 17 - Liquidity Sources

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Outstanding Additional

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$ 1,761,176 $ 6,378,346 $ 2,278,370 $ 5,928,807

(1) Loans and securities with a carrying value of $3.8 billion and $3.9 billion at June 30, 2024 and December 31, 2023, respectively, were pledged to the FHLB of Boston.

(2) Loans and securities with a carrying value of $4.9 billion at June 30, 2024, and loans with a carrying value of $4.6 billion at December 31, 2023, were pledged to the Federal Reserve Bank of Boston at each respective period.

(1) Loans and securities with a carrying value of $3.9 billion at each of September 30, 2024 and December 31, 2023, were pledged to the FHLB of Boston.

(2) Loans and securities with a carrying value of $5.0 billion at September 30, 2024, and loans with a carrying value of $4.6 billion at December 31, 2023, were pledged to the Federal Reserve Bank of Boston at each respective period.

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

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+200 over 12 months 0.9 % 0.2 %

+400 over 24 months n/a 0.4 %

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 three months ended June 30, 2024 were the shape of the U.S.

The most significant market factors affecting the Company’s net interest income during the three months ended September 30, 2024 were the shape of the U.S.

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

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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 June 30, 2024.

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet arrangements during the three months ended September 30, 2024.

See Note 5, “Derivative and Hedging Activities” and Note 9, “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 June 30, 2024.

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