What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 314 added, 236 removed, 725 unchanged (43% of the section changed)

1 unchanged sentence

The following discussion should be read in conjunction with the Corporation’s Audited Consolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2021, and in conjunction with the condensed Unaudited Consolidated Financial Statements and notes thereto included in Item 1 of this report.

Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results for the full-year ended December 31, 2022 or any future period.

Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results for the full-year ended December 31, 2022 or any future period.

Forward-Looking Statements

4 unchanged sentences

Some of the factors that might cause these differences include the following:

• ongoing disruptions in our business and operations, and changes in consumer behavior due to the ongoing COVID-19 pandemic;

• ongoing disruptions in our business and operations, and changes in consumer behavior due to the COVID-19 pandemic;

• changes in political, business and economic conditions, including inflation, or legislative or regulatory initiatives;

• the possibility that future credits losses are higher than currently expected due to changes in economic assumptions or adverse economic developments;

• volatility in national and international financial markets;

• ongoing volatility in national and international financial markets;

• interest rate changes or volatility, as well as changes in the balance and mix of loans and deposits;

21 unchanged sentences

We believe the key to future growth is providing customers with convenient in-person service and digital banking solutions.

In 2022, we plan to open a new full-service branch in Cumberland, Rhode Island.

In July 2022, we opened a new commercial lending office adjacent to our existing wealth management office in New Haven, Connecticut.

In addition, we plan to open a new full-service branch in Cumberland, Rhode Island, in the third quarter of 2022.

Risk Management

24 unchanged sentences

Strategic and reputation risk represent the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess existing and new opportunities and threats in business, markets, and products.

Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, natural disasters and security risks.

Management's Discussion and Analysis

ERM is an overarching program that includes all areas of the Corporation.

4 unchanged sentences

They must report on and escalate their concerns.

Corporate functions such as Credit Risk Management, Financial Administration, Information Assurance and Compliance, comprise the second line of defense.

Corporate functions such as Credit Risk Management, Financial Administration, Information Assurance and Compliance, represent the second line of defense.

They are responsible for policy setting and for reviewing and challenging the risk management activities of the business units.

They collaborate closely with business units on planning and resource allocation with respect to risk management.

Internal Audit is the third line of defense.

Internal Audit and third party credit review represent the third line of defense.

They provide independent assurance to the Board of Directors of the effectiveness of the first and second lines in fulfilling their risk management responsibilities.

3 unchanged sentences

The following table presents a summarized consolidated statement of operations:

(Dollars in thousands) Change

Three months ended March 31, 2022 2021 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2022 2021 $ % 2022 2021 $ %

Net interest income $37,515 $34,754 $2,761 8 % $72,606 $67,625 $4,981 7 %

7 unchanged sentences

The following table presents a summary of performance metrics and ratios:

Three months ended March 31, 2022 2021

Three Months Six Months

Periods ended June 30, 2022 2021 2022 2021

Diluted earnings per common share $1.14 $1.00 $2.08 $2.17

4 unchanged sentences

Noninterest income as a percentage of total revenues 30 % 37 % 31 % 41 %

Net income totaled $16.5 million for the three months ended March 31, 2022, compared to $20.5 million for the same period in 2021.

In 2022, net interest income largely benefited from lower funding costs, a reduction in average wholesale funding balances and an increase in average interest-earning asset balances.

The decrease in noninterest income reflected lower mortgage banking revenues and other income, partially offset by higher wealth management revenues.

The provision for credit losses recognized for the three months ended March 31, 2022 was modest, reflecting continued low loss rates, strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions.

This compared to a release of credit loss reserves in first quarter of 2021.

Noninterest expenses for the three months ended March 31, 2021 included debt prepayment penalty expense of $3.3 million associated with paying off higher yielding FHLB advances, while there was no such expense incurred for the three months ended March 31, 2022.

The year-over-year decline in noninterest expenses also reflected a decrease in salaries and employee benefits expense.

Net income totaled $20.0 million and $36.4 million, respectively, for the three and six months ended June 30, 2022, compared to $17.5 million and $37.9 million, respectively, for the same periods in 2021.

In 2022, net interest income largely benefited from higher yields on, and growth in, average interest-earning assets, as well as a reduction in average wholesale funding balances.

Noninterest income declined in 2022 largely due to lower mortgage banking revenues, reflecting an overall reduction in mortgage origination and sales activity.

Results also benefited from negative provisions for credit losses in both years.

Noninterest expenses decreased, reflecting declines in debt prepayment penalty expense and salaries and employee benefits expense.

Management's Discussion and Analysis

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Nonaccrual loans, as well as interest recognized on these loans, are included in amounts presented for loans.

Three months ended March 31, 2022 2021 Change

Three months ended June 30, 2022 2021 Change

(Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

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Liabilities and Shareholders’ Equity:

Interest-bearing demand deposits $248,395 $70 0.11 $183,989 $96 0.21 $64,406 ($26) (0.10)

Interest-bearing demand deposits (in-market) $248,764 $222 0.36 $182,465 $49 0.11 $66,299 $173 0.25

NOW accounts 883,251 151 0.07 760,294 119 0.06 122,957 32 0.01

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Time deposits (in-market) 809,697 1,951 0.97 686,590 1,889 1.10 123,107 62 (0.13)

Total interest-bearing in-market deposits 3,625,584 2,903 0.32 2,985,274 3,219 0.44 640,310 (316) (0.12)

Interest-bearing in-market deposits 3,776,515 3,582 0.38 3,098,615 2,681 0.35 677,900 901 0.03

Wholesale brokered demand deposits 20,233 46 0.91 — — — 20,233 46 0.91

Wholesale brokered time deposits 352,438 335 0.38 662,541 280 0.17 (310,103) 55 0.21

Wholesale brokered deposits 372,671 381 0.41 662,541 280 0.17 (289,870) 101 0.24

Total interest-bearing deposits 4,149,186 3,963 0.38 3,761,156 2,961 0.32 388,030 1,002 0.06

16 unchanged sentences

(Dollars in thousands)

Three months ended March 31, 2022 2021 Change

Three months ended June 30, 2022 2021 Change

Commercial loans $276 $223 $53

Six months ended June 30, 2022 2021 Change

(Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

Cash, federal funds sold and short-term investments $146,852 $266 0.37 $150,580 $65 0.09 ($3,728) $201 0.28

Mortgage loans held for sale 27,688 490 3.57 59,429 846 2.87 (31,741) (356) 0.70

Taxable debt securities 1,084,246 9,148 1.70 973,214 6,683 1.38 111,032 2,465 0.32

FHLB stock 10,849 130 2.42 26,987 243 1.82 (16,138) (113) 0.60

Commercial real estate 1,625,537 25,386 3.15 1,632,725 23,060 2.85 (7,188) 2,326 0.30

Commercial & industrial 627,667 12,342 3.97 823,580 15,979 3.91 (195,913) (3,637) 0.06

Total commercial 2,253,204 37,728 3.38 2,456,305 39,039 3.21 (203,101) (1,311) 0.17

Residential real estate 1,788,431 28,997 3.27 1,484,571 25,737 3.50 303,860 3,260 (0.23)

Home equity 251,796 3,950 3.16 257,494 4,177 3.27 (5,698) (227) (0.11)

Other 16,349 378 4.66 20,545 495 4.86 (4,196) (117) (0.20)

Total consumer 268,145 4,328 3.25 278,039 4,672 3.39 (9,894) (344) (0.14)

Total loans 4,309,780 71,053 3.32 4,218,915 69,448 3.32 90,865 1,605 —

Total interest-earning assets 5,579,415 81,087 2.93 5,429,125 77,285 2.87 150,290 3,802 0.06

Noninterest-earning assets 273,521 343,889 (70,368)

Total assets $5,852,936 $5,773,014 $79,922

Liabilities and Shareholders’ Equity:

Interest-bearing demand deposits (in-market) $248,580 $292 0.24 $183,223 $145 0.16 $65,357 $147 0.08

NOW accounts 865,647 281 0.07 729,301 221 0.06 136,346 60 0.01

Money market accounts 1,221,923 1,753 0.29 930,656 1,266 0.27 291,267 487 0.02

Savings accounts 563,837 191 0.07 504,040 141 0.06 59,797 50 0.01

Time deposits (in-market) 801,479 3,968 1.00 695,038 4,127 1.20 106,441 (159) (0.20)

Interest-bearing in-market deposits 3,701,466 6,485 0.35 3,042,258 5,900 0.39 659,208 585 (0.04)

Wholesale brokered demand deposits 10,173 45 0.89 — — — 10,173 45 0.89

Wholesale brokered time deposits 403,826 536 0.27 621,075 724 0.24 (217,249) (188) 0.03

Wholesale brokered deposits 413,999 581 0.28 621,075 724 0.24 (207,076) (143) 0.04

Total interest-bearing deposits 4,115,465 7,066 0.35 3,663,333 6,624 0.36 452,132 442 (0.01)

FHLB advances 151,331 657 0.88 499,435 2,381 0.96 (348,104) (1,724) (0.08)

Junior subordinated debentures 22,681 237 2.11 22,681 186 1.65 — 51 0.46

Total interest-bearing liabilities 4,289,477 7,960 0.37 4,185,449 9,191 0.44 104,028 (1,231) (0.07)

Noninterest-bearing demand deposits 915,918 901,522 14,396

Other liabilities 123,321 149,622 (26,301)

Shareholders’ equity 524,220 536,421 (12,201)

Total liabilities and shareholders’ equity $5,852,936 $5,773,014 $79,922

Net interest income (FTE) $73,127 $68,094 $5,033

Interest rate spread 2.56 2.43 0.13

Net interest margin 2.64 2.53 0.11

Management's Discussion and Analysis

Interest income amounts presented in the preceding table include the following adjustments for taxable equivalency:

(Dollars in thousands)

Six months ended June 30, 2022 2021 Change

Commercial loans $521 $469 $52

Net Interest Income

Net interest income, the primary source of our operating income, totaled $35.1 million for the three months ended March 31, 2022, compared to $32.9 million for the same period in 2021.

Net interest income, the primary source of our operating income, totaled $37.5 million and $72.6 million, respectively, for the three and six months ended June 30, 2022, compared to $34.8 million and $67.6 million, respectively, for the same periods in 2021.

Net interest income is affected by the level of and changes in interest rates, and changes in the amount and composition of interest-earning assets and interest-bearing liabilities.

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The analysis of net interest income, NIM and the yield on loans may be impacted by the periodic recognition of prepayment penalty fee income associated with loan payoffs.

Prepayment penalty fee income associated with loan payoffs amounted to $76 thousand (or 0 basis point benefit to NIM) for the three months ended March 31, 2022, compared to $217 thousand (or 2 basis points benefit to NIM) for the same period in 2021.

Prepayment penalty fee income associated with loan payoffs amounted to $62 thousand (or 0 basis point benefit to NIM) and $138 thousand (or 0 basis point benefit to NIM), respectively, for the three and six months ended June 30, 2022, compared to $717 thousand (or 5 basis points benefit to NIM) and $934 thousand (or 4 basis points benefit to NIM), respectively, for the same periods in 2021.

The analysis of net interest income, NIM and the yield on loans is also impacted by changes in the level of net amortization of premiums and discounts on securities and loans, which is included in interest income.

Additionally, as PPP loans are forgiven by the SBA, related unamortized net fee balances are accelerated and amortized, increasing net interest income.

Changes in market interest rates affect the level of loan prepayments and the receipt of payments on mortgage-backed securities.

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Changes in prepayment speeds could increase or decrease the level of net amortization of premiums and discounts, thereby affecting interest income.

As noted in the Unaudited Consolidated Statements of Cash Flows, net amortization of premiums and discounts on securities and loans (a net reduction to interest income) amounted to $966 thousand for the three months ended March 31, 2022, compared $882 thousand for the same period in 2021.

Accelerated amortization of net deferred fee balances on PPP loans forgiven by the SBA amounted to $819 thousand (or 6 basis points benefit to NIM) for the three months ended March 31, 2022, compared to $1.2 million (or 10 basis points benefit to NIM) for the same period in 2021.

FTE net interest income for the three months ended March 31, 2022 amounted to $35.3 million, up by $2.2 million, or 7%, from the same period in 2021.

Declines in funding costs contributed $1.4 million of net interest income for the three months ended March 31, 2022.

In addition, growth in average interest-earning assets and declines in average interest-bearing liability balances contributed approximately $856 thousand of net interest income for the three months ended March 31, 2022.

NIM was 2.57% for the three months ended March 31, 2022, compared to 2.51% for the same period in 2021.

NIM benefited from lower funding costs and a reduction in average wholesale funding balances.

It also benefited from accelerated amortization of net deferred fee balances on PPP loans that were forgiven by the SBA and loan prepayment fees.

Excluding the impact of both accelerated net deferred fee amortization on PPP loans and commercial loan prepayment fee income, the NIM amounted to 2.51% for the three months ended March 31, 2022, compared to 2.40% for the same period in 2021.

Total average securities for the three months ended March 31, 2022 increased by $155.9 million, or 17%, from the average balances for the same period a year earlier.

The FTE rate of return on the securities portfolio for the three months ended March 31, 2022 was 1.60%, compared to 1.44% for the same period in 2021, reflecting purchases of relatively higher yielding debt securities and higher market interest rates.

Total average loan balances for the three months ended March 31, 2022 increased by $72.7 million, or 2%, from the average loan balances for the comparable 2021 period.

The increase reflected growth in average residential real estate loan balances, partially offset by a decline in commercial loans concentrated in PPP loans.

The yield on total loans for the three months ended March 31, 2022 was 3.25%, compared to 3.32% for the same period in 2021.

The yield on total loans benefited from accelerated amortization of net deferred fee balances on PPP loans that were forgiven by the SBA and commercial loan

Additionally, as PPP loans are forgiven by the SBA, related unamortized net fee balances are accelerated and amortized, increasing net interest income.

As noted in the Unaudited Consolidated Statements of Cash Flows, net amortization of premiums and discounts on securities and loans (a net reduction to interest income) amounted to $1.8 million for the six months ended June 30, 2022, compared $2.4 million for the same period in 2021.

Accelerated amortization of net deferred fee balances on PPP loans forgiven by the SBA amounted to $323 thousand (or 2 basis points benefit to NIM) and $1.1 million (or 4 basis points benefit to NIM), respectively, for the three and six months ended June 30, 2022, compared to $1.0 million (or 7 basis points benefit to NIM) and $2.2 million (or 9 basis points benefit to NIM), respectively, for the same periods in 2021.

FTE net interest income for the three and six months ended June 30, 2022 amounted to $37.8 million and $73.1 million, respectively, up by $2.8 million and $5.0 million, respectively, from the same periods in 2021.

In the three months ended June 30, 2022, increases in asset yields outpaced increases in funding costs, contributing $2.0 million of net interest income.

In the six months ended June 30, 2022, increases in asset yields and declines in funding costs contributed $3.4 million of net interest income.

In addition, growth in average interest-earning assets and declines in average interest-bearing liability balances contributed approximately $806 thousand and $1.7 million, respectively, of net interest income for the three and six months ended June 30, 2022.

NIM was 2.71% and 2.64%, respectively, for the three and six months ended June 30, 2022, compared to 2.55% and 2.53%, respectively, for the same periods in 2021 as NIM benefited from higher market interest rates.

Total average securities for the three and six months ended June 30, 2022 increased by $66.7 million and $111.0 million, respectively, from the average balances for the same periods a year earlier.

The FTE rate of return on the securities portfolio for the three and six months ended June 30, 2022 was 1.80% and 1.70%, respectively, compared to 1.34% and 1.38%, respectively, for the same periods in 2021, reflecting the impact of higher market interest rates in 2022.

Total average loan balances for the three and six months ended June 30, 2022 increased by $108.8 million and $90.9 million, respectively, from the average loan balances for the comparable 2021 periods.

The increase reflected growth in average

Management's Discussion and Analysis

prepayment fee income.

Excluding the impact of these items for both periods, the yield on total loans for the three months ended March 31, 2022 was 3.16%, down by 2 basis points, from 3.18% for the same period in 2021.

The average balance of FHLB advances for the three months ended March 31, 2022 decreased by $391.8 million, compared to the average balances for the same period in 2021.

The average rate paid on such advances for the three months ended March 31, 2022 was 0.66%, down by 37 basis points from 1.03% for the same period in 2021, reflecting maturities and payoffs of higher-yielding FHLB advances and lower market interest rates in the prior year.

Included in total average interest-bearing deposits were out-of-market wholesale brokered time deposits, which decreased by $123.4 million from the same period in 2021.

The average rate paid on wholesale brokered time deposits for the three months ended March 31, 2022 was 0.18%, compared to 0.31% for the same period in 2021, reflecting lower market interest rates in the prior year.

Average in-market interest-bearing deposits, which excludes wholesale brokered time deposits, for the three months ended March 31, 2022 increased by $640.3 million, or 21%, from the average balances for the same period in 2021.

The increases reflected growth across all in-market interest-bearing deposit categories.

The average rate paid on in-market interest-bearing deposits for the three months ended March 31, 2022 was 0.32%, down by 12 basis points from 0.44% for the same period in 2021, largely due to downward repricing of interest-bearing in-market deposits reflecting lower market interest rates in the prior year.

The average balance of noninterest-bearing demand deposits for the three months ended March 31, 2022 increased by $49.6 million, or 6%, from the average balance for the same period in 2021.

See additional disclosure under the caption “Sources of Funds.”

residential real estate loan balances, partially offset by a decline in commercial loans including PPP loans that were forgiven by the SBA.

The yield on total loans for the three and six months ended June 30, 2022 was 3.40% and 3.32%, respectively, compared to 3.32% in each of the corresponding periods in 2021.

The yield on total loans benefited from accelerated amortization of net deferred fee balances on PPP loans that were forgiven by the SBA and commercial loan prepayment fee income.

Excluding the impact of these items for both periods, the yield on total loans for the three and six months ended June 30, 2022 was 3.37% and 3.26%, respectively, up from 3.15% and 3.17%.

respectively, for the same periods in 2021, reflecting higher market interest rates.

The yield on total loans was also impacted by an elevated level of refinancing activity in 2021 that resulted in payoffs of higher yielding residential real estate loans.

The average balance of FHLB advances for the three and six months ended June 30, 2022 decreased by $304.9 million and $348.1 million, respectively, compared to the average balances for the same periods in 2021.

The average rate paid on such advances for the three months ended June 30, 2022 was 1.09%, up from 0.88% for the same period in 2021, reflecting recent increases in market interest rates.

The average rate paid on such advances for the six months ended June 30, 2022 was 0.88%, down from 0.96% for the same period in 2021, reflecting maturities and prepayments of higher-yielding FHLB advances, which were prepaid in the first half of 2021.

Included in total average interest-bearing deposits were wholesale brokered deposits, which decreased by $289.9 million and $207.1 million, respectively, from the same periods in 2021.

The average rate paid on wholesale brokered deposits for the three and six months ended June 30, 2022 was 0.41% and 0.28%, respectively, compared to 0.17% and 0.24%, respectively, for the same periods in 2021, reflecting recent increases in market interest rates.

Average in-market interest-bearing deposits, which excludes wholesale brokered deposits, for the three and six months ended June 30, 2022 increased by $677.9 million and $659.2 million, respectively, from the average balances for the same periods in 2021.

The increases reflected growth across all deposit categories.

The average rate paid on in-market interest-bearing deposits for the three months ended June 30, 2022 increased by 3 basis points from the same period in 2021, reflecting recent increases in market interest rates.

The average rate paid on in-market interest-bearing deposits for the six months ended June 30, 2022 decreased by 4 basis points from the same period in 2021, largely due to downward repricing of interest-bearing in-market time deposits resulting from maturities of higher rate promotional time deposits.

The average balance of noninterest-bearing demand deposits for the three and six months ended June 30, 2022 decreased by $20.4 million and increased by $14.4 million, respectively, from the average balance for the same periods in 2021.

Management's Discussion and Analysis

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The net change attributable to both volume and rate has been allocated proportionately.

(Dollars in thousands) Three Months Ended March 31, 2022 vs.

Change Due to

Volume Rate Net Change

(Dollars in thousands) Three Months Ended June 30, 2022 vs.

2021 Six Months Ended June 30, 2022 vs.

Change Due to Change Due to

Volume Rate Net Change Volume Rate Net Change

Interest on Interest-Earning Assets:

Cash, federal funds sold and other short-term investments

($10) $166 $156 ($2) $203 $201

Mortgage loans held for sale (261) 114 (147) (528) 172 (356)

12 unchanged sentences

Interest on Interest-Bearing Liabilities:

Interest-bearing demand deposits 27 (53) (26)

Interest-bearing demand deposits (in-market) 24 149 173 61 86 147

NOW accounts 16 16 32 32 28 60

2 unchanged sentences

Time deposits (in-market) 306 (244) 62 584 (743) (159)

Total interest-bearing in-market deposits 512 (828) (316)

Interest-bearing in-market deposits 574 327 901 1,092 (507) 585

Wholesale brokered demand deposits 46 — 46 45 — 45

Wholesale brokered time deposits (176) 231 55 (275) 87 (188)

Wholesale brokered deposits (130) 231 101 (230) 87 (143)

Total interest-bearing deposits 444 558 1,002 862 (420) 442

7 unchanged sentences

Estimating an appropriate level of ACL necessarily involves a high degree of judgment.

For the three months ended March 31, 2022, there was a positive $100 thousand provision for credit losses (or a charge) recognized, compared to a negative $2.0 million provision for credit losses (or a benefit) recognized for the same period in 2021.

For the three months ended March 31, 2022, the provision related to an increase in the ACL on unfunded commitments.

There was no provision for credit losses on loans recognized for the three months ended March 31, 2022, reflecting continued low loss rates, strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions.

The release of credit loss reserves in 2021 reflected an improvement in forecasted economic conditions following higher credit provisioning in 2020, which was attributable to the emergence of the COVID-19 pandemic.

The Corporation recorded a negative provision for credit losses (or a benefit) of $3.0 million for the three months ended June 30, 2022, compared to no provision for the same period in 2021, For the six months ended June 30, 2022, the Corporation recorded a negative provision for credit losses (or a benefit) of $2.9 million, compared to a negative provision (or a benefit) of $2.0 million for the same period in 2021.

The negative provision in 2022 reflected a continuation of low loss rates, strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions.

Management's Discussion and Analysis

Net recoveries totaled $148 thousand in the three months ended March 31, 2022, compared to net charge-offs of $18 thousand for the same period in 2021.

The ACL on loans was $39.2 million, or 0.92% of total loans, at March 31, 2022, compared to an ACL on loans of $39.1 million, or 0.91% of total loans, at December 31, 2021.

provision in 2021 reflected an improvement in forecasted economic conditions following higher credit provisioning in 2020, which was attributable to the emergence of the COVID-19 pandemic.

Net recoveries totaled $10 thousand and $158 thousand, respectively, in the three and six months ended June 30, 2022, compared to net charge-offs of $258 thousand and $276 thousand, respectively, for the same periods in 2021.

The ACL on loans was $36.3 million, or 0.81% of total loans, at June 30, 2022, compared to an ACL on loans of $39.1 million, or 0.91% of total loans, at December 31, 2021.

See additional discussion under the caption “Asset Quality” for further information on the ACL on loans.

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The principal categories of noninterest income are shown in the following table:

(Dollars in thousands) Change

Three months ended March 31, 2022 2021 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2022 2021 $ % 2022 2021 $ %

Noninterest income:

11 unchanged sentences

Noninterest Income Analysis

Revenue from wealth management services represented 61% of total noninterest income for the three months ended March 31, 2022, compared to 38% for the same period in 2021.

Revenue from wealth management services represented 62% of total noninterest income for the six months ended June 30, 2022, compared to 44% for the same period in 2021.

A substantial portion of wealth management revenues is dependent on the value of wealth management AUA and is closely tied to the performance of the financial markets.

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The categories of wealth management revenues are shown in the following table:

(Dollars in thousands) Change

Three months ended March 31, 2022 2021 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2022 2021 $ % 2022 2021 $ %

Wealth management revenues:

2 unchanged sentences

Total wealth management revenues $10,066 $10,428 ($362) (3 %) $20,597 $20,323 $274 1 %

Wealth management revenues for the three months ended March 31, 2022 increased by $636 thousand, or 6%, from the comparable period in 2021, reflecting growth in asset-based revenues.

The increase in asset-based revenues correlated with the increase in AUA balances.

Wealth management revenues for the three months ended June 30, 2022 decreased by $362 thousand, or 3%, from the same period in 2021, reflecting a decrease in asset-based revenues.

Wealth management revenues for the for the six months ended June 30, 2022 increased by $274 thousand, or 1% from the comparable period in 2021, reflecting growth in asset-based revenues.

The change in asset-based revenues correlated with the change in average AUA balances.

The average balance of AUA for the three months ended June 30, 2022 decreased by approximately 3% from the average balance for the same period

Management's Discussion and Analysis

The following table presents the changes in wealth management AUA:

For the six months ended June 30, 2022, the average balance of AUA increased by 2% from the average balance for the same period in 2021.

The following table presents the changes in wealth management AUA balances:

(Dollars in thousands)

Three months ended March 31, 2022 2021

Three Months Six Months

Periods ended June 30, 2022 2021 2022 2021

Wealth management assets under administration:

3 unchanged sentences

Balance at the end of period $6,650,097 $7,441,519 $6,650,097 $7,441,519

Wealth management AUA amounted to $7.5 billion at March 31, 2022, up by $443.7 million, or 6% from the balance at March 31, 2021, primarily due to net investment appreciation.

The average balance of AUA for the three months ended March 31, 2022 increased by approximately 9% from the average balance for the same period in 2021.

Mortgage banking revenues represented 20% of total noninterest income for the three months ended March 31, 2022, compared to 46% for the same period in 2021.

Wealth management AUA amounted to $6.7 billion at June 30, 2022.

Wealth management AUA balances declined in 2022, primarily due to net investment depreciation as a result of recent declines in the financial markets.

Mortgage banking revenues represented 17% of total noninterest income for the six months ended June 30, 2022, compared to 38% for the same period in 2021.

These revenues are dependent on mortgage origination volume and are sensitive to interest rates and the condition of housing markets.

The composition of mortgage banking revenues and the volume of loans sold to the secondary market are shown in the following table:

(Dollars in thousands) Change

Three months ended March 31, 2022 2021 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2022 2021 $ % 2022 2021 $ %

Mortgage banking revenues:

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(4) Includes brokered loans (loans originated for others).

For the three months ended March 31, 2022, mortgage banking revenues totaled $3.5 million, down by $8.4 million, or 71%, compared to the same period in 2021.

These revenues are dependent on mortgage origination volume and are sensitive to interest rates and the condition of housing markets.

Included in mortgage banking revenues are changes in the fair value of mortgage loans held for sale and forward loan commitments, which are primarily based on current market prices in the secondary market and correlate to changes in the size of the mortgage pipeline.

The decline in mortgage banking revenues was mainly attributable to a decline in sales volume and a reduction in the sales yield from the previously elevated level in the first quarter of 2021.

Mortgage loans sold to the secondary market totaled $130.1 million for the three months ended March 31, 2022, compared to $292.0 million for the same period in 2021, reflecting an overall reduction in mortgage origination and sales activity, as well as a larger proportion of loans originated for portfolio in 2022.

Other income for the three months ended March 31, 2022 decreased by $994 thousand from the same period in 2021, due to $1.0 million of income associated with a litigation settlement that was recognized in the first quarter of 2021.

For the three and six months ended June 30, 2022, mortgage banking revenues were down by $3.9 million and $12.3 million, respectively, compared to the same periods in 2021.

The decline in mortgage banking revenues was mainly attributable to a decline in sales volume and a reduction in the sales yield from the previously elevated level in the first half of 2021.

Mortgage loans sold to the secondary market totaled $79.7 million and $209.9 million, respectively, for the three and six months ended June 30, 2022, compared to $290.6 million and $582.6 million, respectively, for the same periods in 2021, reflecting an overall reduction in mortgage origination and sales activity, as well as a shift to a higher proportion of loans originated for retention in portfolio in 2022.

The decline in mortgage banking revenues was partially offset by changes in the fair value of mortgage loans held for sale and forward loan commitments, which are primarily based on current market prices in the secondary market and correlate to changes in the size of the mortgage pipeline.

In addition, the decline in mortgage banking revenues was partially offset by higher net loan servicing fee income associated with loans sold with servicing retained.

The increase in net loan servicing fee income was largely due to lower amortization of servicing rights, reflecting lower prepayment speeds on the serviced mortgage portfolio.

For the three and six months ended June 30, 2022, loan related derivative income decreased by $506 thousand and $672 thousand, respectively, from the comparable periods in 2021, reflecting changes in fair value of loan related derivative contracts.

Management's Discussion and Analysis

Other income for the six months ended June 30, 2022 decreased by $1.1 million from the same period in 2021, due to $1.0 million of income associated with a litigation settlement that was recognized in the first quarter of 2021.

Noninterest Expense

The following table presents noninterest expense comparisons:

(Dollars in thousands) Change

Three months ended March 31, 2022 2021 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2022 2021 $ % 2022 2021 $ %

Noninterest expense:

11 unchanged sentences

Noninterest Expense Analysis

Salaries and employee benefits expense for the three months ended March 31, 2022 decreased by $525 thousand compared to the same period in 2021.

This reflected volume-related decreases in mortgage originator compensation expense, partially offset by annual merit increases and staffing increases.

Debt prepayment penalty expense for the three months ended March 31, 2021 totaled $3.3 million, due to the prepayment of higher-yielding FHLB advances.

There were no such debt prepayments in the first quarter of 2022.

Salaries and employee benefits expense for the three and six months ended June 30, 2022 decreased by $1.7 million and $2.2 million, respectively, compared to the same periods in 2021.

This reflected volume-related decreases in mortgage originator compensation expense and lower performance and share-based compensation accruals, partially offset by annual merit increases.

Debt prepayment penalty expense for the three and six months ended June 30, 2021 totaled $895 thousand and $4.2 million, due to the prepayment of higher-yielding FHLB advances.

There were no such debt prepayments in the comparable periods in 2022.

The following table presents the Corporation’s income tax provision and applicable tax rates for the periods indicated:

(Dollars in thousands)

Three months ended March 31, 2022 2021

Three Months Six Months

Periods ended June 30, 2022 2021 2022 2021

Income tax expense $5,333 $4,875 $9,781 $10,536

Effective income tax rate 21.1 % 21.8 % 21.2 % 21.7 %

The effective income tax rates for the three months ended March 31, 2022 and 2021 differed from the federal rate of 21%, primarily due to state income tax expense, partially offset by the benefits of tax-exempt income, income from BOLI, federal tax credits and the recognition of excess tax expense or benefits associated with the settlement of share-based awards.

The decrease in the effective tax rate for the three months ended March 31, 2022 compared to the same period in 2021 reflected an increase in benefits from federal tax credits, partially offset by a decrease in benefits from tax-exempt income.

The effective income tax rates for the three and six months ended June 30, 2022 and 2021 differed from the federal rate of 21%, primarily due to state income tax expense, partially offset by the benefits of tax-exempt income, income from BOLI, federal tax credits and the recognition of excess tax expense or benefits associated with the settlement of share-based awards.

The decrease in the effective tax rate for the three and six months ended June 30, 2022 compared to the same periods in 2021 largely reflected an increase in benefits from federal tax credits and a decrease in state tax expense, partially offset by a decrease in benefits from tax-exempt income.

The Corporation’s net deferred tax assets amounted to $45.1 million at June 30, 2022, compared to $14.0 million at December 31, 2021.

The Corporation has determined that a valuation allowance is not required for any of the deferred tax assets since it is more-likely-than-not that these assets will be realized primarily through future reversals of existing taxable

Management's Discussion and Analysis

temporary differences or by offsetting projected future taxable income.

Net deferred tax assets increased in 2022, largely reflecting an increase in the deferred tax asset associated with the temporary decline in fair value of securities available for sale.

Segment Reporting

1 unchanged sentence

See Note 14 to the Unaudited Consolidated Financial Statements for additional disclosure related to business segments.

Management's Discussion and Analysis

Commercial Banking

The following table presents a summarized statement of operations for the Commercial Banking business segment:

(Dollars in thousands) Change

Three months ended March 31, 2022 2021 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2022 2021 $ % 2022 2021 $ %

Net interest income $37,563 $34,768 $2,795 8 % $72,671 $67,652 $5,019 7 %

7 unchanged sentences

Net income $18,223 $15,587 $2,636 17 % $32,625 $33,385 ($760) (2 %)

Net interest income for the Commercial Banking segment for the three months ended March 31, 2022, increased by $2.2 million from the same period in 2021.

Net interest income largely benefited from lower funding costs, a reduction in average wholesale funding balances and an increase in average interest-earning asset balances.

For the three months ended March 31, 2022, the provision related to an increase in the ACL on unfunded commitments.

Noninterest income derived from the Commercial Banking segment for the three months ended March 31, 2022 was down by $8.5 million from the comparable period in 2021, largely due to lower mortgage banking revenues.

See additional discussion regarding mortgage banking revenues under the caption “Noninterest Income” above.

Commercial Banking noninterest expenses for the three months ended March 31, 2022 were down by $3.9 million from the same period in 2021, largely reflecting decreases in debt prepayment penalties and salaries and employee benefits expense.

Net interest income for the Commercial Banking segment for the three and six months ended June 30, 2022, increased by $2.8 million and $5.0 million, respectively, from the same periods in 2021.

Net interest income largely benefited from higher yields on and growth in average interest-earning assets, as well as a reduction in average wholesale funding balances.

The negative provision for credit losses recognized in three and six months ended June 30, 2022 reflected a continuation of low loss rates, strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions.

In 2021, the negative provision reflected an improvement in forecasted economic conditions following higher credit provisioning in 2020, which was attributable to the emergence of the COVID-19 pandemic.

Noninterest income derived from the Commercial Banking segment for the three and six months ended June 30, 2022 was down by $4.5 million and $12.9 million, respectively, from the comparable periods in 2021, primarily due to lower mortgage banking revenues.

Noninterest income also included a decline in loan related derivative income.

See additional discussion regarding mortgage banking revenues and loan related derivative income under the caption “Noninterest Income” above.

Commercial Banking noninterest expenses for the three and six months ended June 30, 2022 were down by $1.8 million and $5.7 million, respectively, from the same periods in 2021, largely reflecting decreases in debt prepayment penalties and salaries and employee benefits expense.

See additional discussion under the caption “Noninterest Expense” above.

Management's Discussion and Analysis

Wealth Management Services

The following table presents a summarized statement of operations for the Wealth Management Services business segment:

(Dollars in thousands) Change

Three months ended March 31, 2022 2021 $ %

(Dollars in thousands) Three Months Six Months

Change Change

Periods ended June 30, 2022 2021 $ % 2022 2021 $ %

Net interest expense ($48) ($14) ($34) 243 % ($65) ($27) ($38) 141 %

4 unchanged sentences

Net income $1,734 $1,873 ($139) (7 %) $3,815 $4,546 ($731) (16 %)

For the three months ended March 31, 2022, noninterest income derived from the Wealth Management Services segment decreased by $337 thousand, compared to the same period in 2021.

The decrease reflected $1.0 million of income associated with a litigation settlement that was recognized in the first quarter of 2021, partially offset by growth in asset-based revenues.

For the three and six months ended June 30, 2022, noninterest income derived from the Wealth Management Services segment decreased by $281 thousand and $617 thousand, respectively, from the same periods in 2021.

The year-over-year decrease in second quarter noninterest income was due to a decrease in asset-based revenues.

The decline in year-to-date revenues was attributable to income of $1.0 million associated with a litigation settlement that was recognized in the first quarter of 2021.

See further discussion under the caption “Noninterest Income” above.

Management's Discussion and Analysis

For the three months ended March 31, 2022, noninterest expenses for the Wealth Management Services segment increased by $425 thousand from the same period in 2021, reflecting an increase in salaries and employee benefits expenses.

See further discussion under the caption “Noninterest Expense” above.

For the three and six months ended June 30, 2022, noninterest expenses for the Wealth Management Services segment decreased by $136 thousand and increased by $291 thousand, respectively, from the comparable periods in 2021.

These included modest changes across a variety of noninterest expense categories.

Financial Condition

10 unchanged sentences

Total shareholders’ equity 476,634 564,808 (88,174) (16)

Total assets amounted to $5.8 billion at March 31, 2022, down by $3.1 million, or 0.1%, from the end of 2021.

Cash and due from banks balances increased by $49.5 million, or 28%, from the end of 2021, reflecting higher cash balances with the FRBB .

The securities portfolio decreased by $34.7 million, or 3%, reflecting a temporary decline in fair value and pay-downs, partially offset by purchases.

Total loans increased by $10.9 million, or 0.3%, as loan originations were partially offset by payoffs, pay-downs and PPP loans that were forgiven by the SBA.

Total deposits increased by $147.9 million, or 3%, from the end of 2021, with an increase of $261.3 million, or 6%, in in-market deposits partially offset by a decrease of $113.4 million, or 22%, in wholesale brokered time deposits.

FHLB advances decreased by $90.0 million, or 62%, from December 31, 2021, as lower levels of wholesale funding were needed given the in-market deposits increase.

Total assets amounted to $6.0 billion at June 30, 2022, up by $131.8 million, or 2%, from the end of 2021.

Cash and due from banks balances declined by $79.7 million, or 45%, from the end of 2021, including a reduction in cash collateral pledged to derivative counterparties and lower cash balances with correspondent banks.

See Note 9 to the Unaudited Consolidated Financial Statements for additional disclosure regarding derivative financial instruments.

The securities portfolio decreased by $22.4 million, or 2%, from the end of 2021, reflecting a temporary decline in fair value and routine pay-downs on mortgage-backed securities, partially offset by purchases of debt securities.

Total loans increased by $206.9 million, or 5%, from the end of 2021, as loan originations were partially offset by payoffs, pay-downs and PPP loans that were forgiven by the SBA.

Management's Discussion and Analysis

Total deposits increased by $26.6 million, or 1%, from the end of 2021, with an increase of $83.1 million, or 2%, in in-market deposits partially offset by a decrease of $56.5 million, or 11%, in wholesale brokered deposits.

FHLB advances increased by $183.0 million, or 126%, from December 31, 2021.

Higher levels of wholesale funding were utilized to fund balance sheet growth.

Shareholders’ equity decreased by $88.2 million, or 16%, largely reflecting a decline in the AOCL component of shareholders' equity due to a temporary decrease in the fair value of available for sale securities and cash flow hedges.

8 unchanged sentences

Securities available for sale may be sold in response to changes in market conditions, prepayment risk, rate fluctuations, liquidity, or capital requirements.

Management's Discussion and Analysis

securities available for sale are reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of tax, until realized.

Debt securities available for sale are reported at fair value, with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity, net of tax, until realized.

Determination of Fair Value

6 unchanged sentences

In addition, management periodically performs independent price tests of securities to ensure proper valuation and to verify our understanding of how securities are priced.

As of March 31, 2022 and December 31, 2021, management did not make any adjustments to the prices provided by the pricing service.

As of June 30, 2022 and December 31, 2021, management did not make any adjustments to the prices provided by the pricing service.

Our fair value measurements generally utilize Level 2 inputs, representing quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and model-derived valuations in which all significant input assumptions are observable in active markets.

See Notes 3 and 10 to the Unaudited Consolidated Financial Statements for additional information regarding the determination of fair value of investment securities.

Management's Discussion and Analysis

Securities Portfolio

The carrying amounts of securities held are as follows:

(Dollars in thousands) March 31, 2022 December 31, 2021

(Dollars in thousands) June 30, 2022 December 31, 2021

Amount % Amount %

10 unchanged sentences

Total available for sale debt securities $1,020,469 100 % $1,042,859 100 %

The securities portfolio amounted to $1.0 billion, or 17% of total assets, as of March 31, 2022 compared to $1.0 billion, or 18% of total assets, as of December 31, 2021.

The securities portfolio amounted to $1.0 billion, or 17% of total assets, as of June 30, 2022 compared to $1.0 billion, or 18% of total assets, as of December 31, 2021.

The largest component of the securities portfolio is mortgage-backed securities, all of which are issued by U.S.

5 unchanged sentences

government-sponsored debt securities, including mortgage-backed securities, totaling $167.1 million, with a weighted average yield of 3.22%.

The carrying amount of available for sale debt securities included net unrealized losses of $74.0 million and $8.9 million, respectively, as of March 31, 2022 and December 31, 2021.

The carrying amount of available for sale debt securities included net unrealized losses of $121.3 million and $8.9 million, respectively, as of June 30, 2022 and December 31, 2021.

The decline in fair value of available for sale debt securities from the end of 2021 was primarily concentrated in obligations of U.S.

2 unchanged sentences

See Note 3 to the Unaudited Consolidated Financial Statements for additional information.

Total loans amounted to $4.3 billion at March 31, 2022, up by $10.9 million, or 0.3%, from the end of 2021, reflecting growth in the residential real estate portfolio partially offset by a decline in the commercial loan portfolio.

Management's Discussion and Analysis

Total loans amounted to $4.5 billion at June 30, 2022, up by $206.9 million, or 4.8%, from the end of 2021, reflecting growth in the residential real estate portfolio partially offset by a decline in the commercial loan portfolio.

The following is a summary of loans:

(Dollars in thousands) March 31, 2022 December 31, 2021

(Dollars in thousands) June 30, 2022 December 31, 2021

Amount % Amount %

17 unchanged sentences

(4) Other consists of loans to individuals secured by general aviation aircraft and other personal installment loans.

Management's Discussion and Analysis

COVID-19 Pandemic Related

3 unchanged sentences

The vast majority of the deferments qualified as eligible loan modifications and were not classified as TDRs.

As of March 31, 2022, all of these loans have exited their payment deferral period.

All of these loans with qualified deferments exited their payment deferral period prior to March 31, 2022.

Commercial Loans

The commercial loan portfolio represented 52% of total loans at March 31, 2022.

The commercial loan portfolio represented 50% of total loans at June 30, 2022.

In making commercial loans, we may occasionally solicit the participation of other banks.

1 unchanged sentence

In such cases, these loans are individually underwritten by us using standards similar to those employed for our self-originated loans.

Our participation in commercial loans originated by other banks amounted to $442.7 million and $451.6 million, respectively, at March 31, 2022 and December 31, 2021.

Our participation in commercial loans originated by other banks amounted to $445.8 million and $451.6 million, respectively, at June 30, 2022 and December 31, 2021.

Our participation in commercial loans originated by other banks also includes shared national credits.

9 unchanged sentences

Commercial Real Estate Loans

CRE loans totaled $1.6 billion at March 31, 2022, down by $10.4 million, or 1%, from the balance at December 31, 2021.

Included in CRE loans were construction and development loans with carrying values of $90.0 million and $122.4 million,

Management's Discussion and Analysis

respectively, as of March 31, 2022 and December 31, 2021.

For the three months ended March 31, 2022, CRE payoffs and pay-downs of approximately $100 million were partially offset by loan originations and advances.

Shared national credit balances outstanding included in the CRE loan portfolio totaled $5.0 million at March 31, 2022.

The balance was included in the pass-rated category of commercial loan credit quality and current with respect to contractual payment terms at March 31, 2022.

The following table presents a geographic summary of CRE loans by property location:

(Dollars in thousands) March 31, 2022 December 31, 2021

CRE loans totaled $1.6 billion at June 30, 2022, down by $29.4 million, or 2%, from the balance at December 31, 2021.

Included in CRE loans were construction and development loans with carrying values of $107.6 million and $122.4 million, respectively, as of June 30, 2022 and December 31, 2021.

For the six months ended June 30, 2022, CRE payoffs and pay-downs of approximately $220 million were partially offset by loan originations and advances.

Shared national credit balances outstanding included in the CRE loan portfolio totaled $6.0 million at June 30, 2022.

The balance was included in the pass-rated category of commercial loan credit quality and current with respect to contractual payment terms at June 30, 2022.

The following table presents a summary of CRE loans by property location:

(Dollars in thousands) June 30, 2022 December 31, 2021

Outstanding Balance % of Total Outstanding Balance % of Total

Connecticut $601,405 37 % $643,182 39 %

Rhode Island 394,011 24 408,496 25

Massachusetts 461,005 29 464,018 28

Rhode Island 387,498 24 408,496 25

Subtotal 1,449,908 90 1,515,696 92

1 unchanged sentence

Total $1,609,618 100 % $1,639,062 100 %

Management's Discussion and Analysis

The following table presents a summary of CRE loans by property type segmentation:

(Dollars in thousands) March 31, 2022 December 31, 2021

(Dollars in thousands) June 30, 2022 December 31, 2021

Count Outstanding Balance % of Total Count Outstanding Balance % of Total

15 unchanged sentences

Commercial and Industrial Loans

C&I loans amounted to $614.9 million at March 31, 2022, down by $26.7 million, or 4%, from the balance at December 31, 2021.

C&I loans amounted to $620.3 million at June 30, 2022, down by $21.3 million, or 3%, from the balance at December 31, 2021.

This included a net reduction in PPP loans of $36.1 million.

Excluding PPP loans, C&I loans decreased by approximately $1.2 million, with payoffs and pay-downs of approximately $22 million partially offset by new loan originations.

As of March 31, 2022, the carrying value of PPP loans was $12.5 million and included net unamortized loan origination fee balances of $425 thousand.

Excluding PPP loans, C&I loans increased by approximately $14.9 million, with loan originations and advances of $48 million, partially offset by payoffs and pay-downs.

As of June 30, 2022, the carrying value of PPP loans was $1.9 million and included net unamortized loan origination fee balances of $83 thousand.

The carrying value of PPP loans at December 31, 2021 was $38.0 million.

Shared national credit balances outstanding included in the C&I loan portfolio totaled $41.9 million at March 31, 2022.

All of these loans were included in the pass-rated category of commercial loan credit quality and were current with respect to contractual payment terms at March 31, 2022.

Shared national credit balances outstanding included in the C&I loan portfolio totaled $41.7 million at June 30, 2022.

All of these loans were included in the pass-rated category of commercial loan credit quality and were current with respect to contractual payment terms at June 30, 2022.

Management's Discussion and Analysis

The following table presents a summary of C&I loan by industry segmentation:

(Dollars in thousands) March 31, 2022 December 31, 2021

(Dollars in thousands) June 30, 2022 December 31, 2021

Count Outstanding Balance % of Total Count Outstanding Balance % of Total

24 unchanged sentences

Residential Real Estate Loans

The residential real estate loan portfolio represented 42% of total loans at March 31, 2022.

The residential real estate loan portfolio represented 44% of total loans at June 30, 2022.

Residential real estate loans held in portfolio amounted to $2.0 billion at June 30, 2022, up by $239.4 million, or 14%, from the balance at December 31, 2021, reflecting a higher proportion of loans originated for portfolio.

The following is a summary of residential real estate mortgages by property location:

(Dollars in thousands) June 30, 2022 December 31, 2021

Amount % of Total Amount % of Total

Massachusetts

$1,404,149 71 % $1,207,789 70 %

Rhode Island 402,015 21 365,831 21

136,874 7 132,430 8

Subtotal 1,943,038 99 1,706,050 99

All other states 23,303 1 20,925 1

$1,966,341 100 % $1,726,975 100 %

(1) Includes residential mortgage loans purchased from and serviced by other financial institutions totaling $66.2 million and $78.7 million, respectively, as of June 30, 2022 and December 31, 2021.

Residential real estate loans are originated both for sale to the secondary market as well as for retention in the Bank’s loan portfolio.

We also originate residential real estate loans for various investors in a broker capacity, including conventional mortgages and reverse mortgages.

Management's Discussion and Analysis

The table below presents residential real estate loan origination activity:

(Dollars in thousands)

Three months ended March 31, 2022 2021

Amount % of Total Amount % of Total

(Dollars in thousands) Three Months Six Months

Periods ended June 30, 2022 2021 2022 2021

Amount % of Total Amount % of Total Amount % of Total Amount % of Total

Originations for retention in portfolio (1) $263,762 75 % $244,821 50 % $428,163 69 % $376,612 40 %

3 unchanged sentences

(2) Includes brokered loans (loans originated for others).

Management's Discussion and Analysis

The table below presents residential real estate loan sales activity:

(Dollars in thousands)

Three months ended March 31, 2022 2021

Amount % of Total Amount % of Total

Three Months Six Months

Periods ended June 30, 2022 2021 2022 2021

Amount % of Total Amount % of Total Amount % of Total Amount % of Total

Loans sold with servicing rights retained $23,478 29 % $235,280 81 % $38,105 18 % $461,925 79 %

7 unchanged sentences

Loan servicing rights are included in other assets and are subsequently amortized as an offset to mortgage banking revenues over the estimated period of servicing.

The net balance of capitalized servicing rights amounted to $9.4 million and $9.8 million, respectively, as of March 31, 2022 and December 31, 2021.

The balance of residential mortgage loans serviced for others, which are not included in the Unaudited Consolidated Balance Sheets, amounted to $1.5 billion as of both March 31, 2022 and December 31, 2021.

Residential real estate loans held in portfolio amounted to $1.8 billion at March 31, 2022, up by $51.0 million, or 3%, from the balance at December 31, 2021, reflecting a higher proportion of loans originated for portfolio.

The following is a geographic summary of residential real estate mortgages by property location:

(Dollars in thousands) March 31, 2022 December 31, 2021

Amount % of Total Amount % of Total

Massachusetts

$1,250,376 70 % $1,207,789 70 %

Rhode Island 371,463 21 365,831 21

133,815 8 132,430 8

Subtotal 1,755,654 99 1,706,050 99

All other states 22,320 1 20,925 1

$1,777,974 100 % $1,726,975 100 %

(1) Includes residential mortgage loans purchased from and serviced by other financial institutions totaling $71.6 million and $78.7 million, respectively, as of March 31, 2022 and December 31, 2021.

The net balance of capitalized servicing rights amounted to $9.2 million and $9.8 million, respectively, as of June 30, 2022 and December 31, 2021.

The balance of residential mortgage loans serviced for others, which are not included in the Unaudited Consolidated Balance Sheets, amounted to $1.5 billion as of both June 30, 2022 and December 31, 2021.

Consumer Loans

Consumer loans include home equity loans and lines of credit and personal installment loans.

Home equity lines of credit and home equity loans represented 94% of the total consumer portfolio at March 31, 2022.

Home equity lines of credit and home equity loans represented 94% of the total consumer portfolio at June 30, 2022.

Our home equity line and home equity loan origination activities are conducted primarily in southern New England.

The Bank estimates that approximately 60% of the combined home equity lines of credit and home equity loan balances are first lien positions or subordinate to other Washington Trust mortgages.

The consumer loan portfolio totaled $262.4 million at March 31, 2022, down by $3.0 million, or 1%, from December 31, 2021.

Purchased consumer loans, consisting of loans to individuals secured by general aviation aircraft, amounted to $8.5 million and $9.4 million, respectively, at March 31, 2022 and December 31, 2021.

The consumer loan portfolio totaled $283.6 million at June 30, 2022, up by $18.3 million, or 7%, from December 31, 2021, reflecting increases in home equity lines and loans.

Purchased consumer loans, consisting of loans to individuals secured by general aviation aircraft, amounted to $9.1 million and $9.4 million, respectively, at June 30, 2022 and December 31, 2021.

Management's Discussion and Analysis

3 unchanged sentences

The following table presents nonperforming assets and additional asset quality data:

(Dollars in thousands) Mar 31,

(Dollars in thousands) Jun 30,

Commercial real estate $— $—

13 unchanged sentences

Total nonperforming assets decreased by $1.8 million from December 31, 2021, reflecting a decline in nonaccrual loans.

At March 31, 2022, there were no properties held in OREO.

Nonaccrual Loans

During the three months ended March 31, 2022, the Corporation made no changes in its practices or policies concerning the placement of loans into nonaccrual status.

During the six months ended June 30, 2022, the Corporation made no changes in its practices or policies concerning the placement of loans into nonaccrual status.

The following table presents the activity in nonaccrual loans:

(Dollars in thousands)

For the three months ended March 31, 2022 2021

(Dollars in thousands) Three Months Six Months

For the periods ended June 30, 2022 2021 2022 2021

Balance at beginning of period $12,589 $12,983 $14,203 $13,197

6 unchanged sentences

The following table presents additional detail on nonaccrual loans:

(Dollars in thousands) March 31, 2022 December 31, 2021

(Dollars in thousands) June 30, 2022 December 31, 2021

Days Past Due Days Past Due

13 unchanged sentences

(1) Percentage of nonaccrual loans to the total loans outstanding within the respective category.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at March 31, 2022.

As of both March 31, 2022 and December 31, 2021, the composition of nonaccrual loans was 100% residential and consumer.

Nonaccrual residential real estate mortgage loans amounted to $11.9 million at March 31, 2022, down by $1.7 million from the end of 2021.

As of March 31, 2022, the balance of nonaccrual residential mortgage loans was predominately secured by properties in Massachusetts, Connecticut and Rhode Island.

Included in total nonaccrual residential real estate loans at March 31, 2022 were four loans purchased for portfolio and serviced by others amounting to $1.2 million.

There were no significant commitments to lend additional funds to borrowers whose loans were on nonaccrual status at June 30, 2022.

As of both June 30, 2022 and December 31, 2021, the composition of nonaccrual loans was 100% residential and consumer.

Nonaccrual residential real estate mortgage loans amounted to $11.8 million at June 30, 2022, down by $1.8 million from the end of 2021.

As of June 30, 2022, the balance of nonaccrual residential mortgage loans was predominately secured by properties in Massachusetts, Connecticut and Rhode Island.

Included in total nonaccrual residential real estate loans at June 30, 2022 were four loans purchased for portfolio and serviced by others amounting to $1.2 million.

Management monitors the collection efforts of its third party servicers as part of its assessment of the collectability of nonperforming loans.

9 unchanged sentences

In years after the restructuring, a TDR is removed from this classification if the restructuring did not involve a below-market rate concession and the loan is performing in accordance with its modified contractual terms for a reasonable period of time.

As of March 31, 2022, there were no significant commitments to lend additional funds to borrowers whose loans had been restructured in a TDR.

As of June 30, 2022, there were no significant commitments to lend additional funds to borrowers whose loans had been restructured in a TDR.

See Note 2 for discussion on ASU No.

2022-02, a recently issued accounting pronouncement that is pending adoption.

2022-02, which becomes effective on January 1, 2023, updates the accounting treatment and related disclosure requirements for TDRs.

As noted above under the caption “Loans,” the Corporation elected to account for eligible loan

Management's Discussion and Analysis

See Note 4 for disclosure regarding the Corporation’s election to account for eligible loan modifications under Section 4013 of the CARES Act, as amended by the CRRSA Act.

modifications under Section 4013 of the CARES Act, as amended by the CRRSA Act.

Loan modifications that did not qualify for the TDR accounting relief provided under the CARES Act were classified as TDRs.

2 unchanged sentences

Accrued interest is not included in the carrying amounts set forth below.

(Dollars in thousands) Mar 31,

(Dollars in thousands) Jun 30,

Accruing TDRs

3 unchanged sentences

Total commercial

13,385 13,395

Residential Real Estate:

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Total TDRs $12,513 $19,147

As of both March 31, 2022 and December 31, 2021, the composition of TDRs was 70% commercial and 30% residential and consumer.

TDRs amounted to $19.1 million at March 31, 2022, down by $55 thousand from the end of 2021.

The ACL included specific reserves for TDRs of $146 thousand at March 31, 2022, compared to $148 thousand at December 31, 2021.

As of June 30, 2022 and December 31, 2021, the composition of TDRs was 55% commercial and 45% residential and consumer, compared to 70% commercial and 30% residential and consumer at December 31, 2021.

TDRs amounted to $12.5 million at June 30, 2022, down by $6.6 million from the end of 2021, largely due to a pay-down on one CRE TDR loan.

The ACL included specific reserves for TDRs of $143 thousand at June 30, 2022, compared to $148 thousand at December 31, 2021.

Management's Discussion and Analysis

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The following table presents past due loans by category:

(Dollars in thousands) March 31, 2022 December 31, 2021

(Dollars in thousands) June 30, 2022 December 31, 2021

Commercial real estate $— — % $— — %

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(1) Percentage of past due loans to the total loans outstanding within the respective category.

As of March 31, 2022, the composition of past due loans (loans past due 30 days or more) was 98% residential and consumer and 2% commercial, compared to 100% and 0%, respectively, at December 31, 2021.

As of both June 30, 2022 and December 31, 2021, the composition of past due loans (loans past due 30 days or more) was 100% residential and consumer.

Total past due loans decreased by $1.9 million from the end of 2021.

Total past due loans included $5.7 million of nonaccrual loans as of March 31, 2022, compared to $9.4 million as of December 31, 2021.

All loans 90 days or more past due at March 31, 2022 and December 31, 2021 were classified as nonaccrual.

Total past due loans included $6.8 million of nonaccrual loans as of June 30, 2022, compared to $9.4 million as of December 31, 2021.

All loans 90 days or more past due at June 30, 2022 and December 31, 2021 were classified as nonaccrual.

Potential Problem Loans

The Corporation classifies certain loans as “substandard,” “doubtful,” or “loss” based on criteria consistent with guidelines provided by banking regulators.

Potential problem loans include classified accruing commercial loans that were less than 90 days past due at March 31, 2022 and other loans for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future.

Potential problem loans include classified accruing commercial loans that were less than 90 days past due at June 30, 2022 and other loans for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future.

Potential problem loans are not included in the amounts of nonaccrual or TDRs presented above.

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Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual, become restructured, or require an increased allowance coverage and provision for credit losses on loans.

Management has identified two loans associated with one C&I relationship with carrying values totaling $759 thousand as potential problem loans at March 31, 2022.

Management has identified two loans associated with one C&I relationship with carrying values totaling $741 thousand as potential problem loans at June 30, 2022.

These two loans were current with respect to payment terms at June 30, 2022.

There were no potential problem loans identified at December 31, 2021.

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The following table presents additional detail on the Corporation’s loan portfolio and associated allowance:

(Dollars in thousands) March 31, 2022 December 31, 2021

(Dollars in thousands) June 30, 2022 December 31, 2021

Loans Related Allowance Allowance / Loans Loans Related Allowance Allowance / Loans

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Quantitative loss factors for pooled loans are also supplemented by certain qualitative risk factors reflecting management’s view of how losses may vary from those represented by quantitative loss rates.

The ACL on loans amounted to $39.2 million at March 31, 2022, up by $148 thousand from the balance at December 31, 2021.

There was no provision for credit losses on loans recognized in the first quarter of 2022, reflecting continued low loss rates, strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions.

Net recoveries totaled $148 thousand for the three months ended March 31, 2022,

The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.92% at March 31, 2022, compared to 0.91% at December 31, 2021.

The ACL on loans amounted to $36.3 million at June 30, 2022, down by $2.8 million from the balance at December 31, 2021.

The ACL on loans as a percentage of total loans, also known as the reserve coverage ratio, was 0.81% at June 30, 2022, compared to 0.91% at December 31, 2021.

For the three and six months ended June 30, 2022, the Corporation recorded a negative provision for credit losses (of a benefit) of $3.0 million and $2.9 million, respectively, reflecting a continuation of low loss rates, strong asset and credit quality metrics, as well as our current estimate of forecasted economic conditions.

Net recoveries totaled $10 thousand and $158 thousand, respectively, for the three and six months ended June 30, 2022.

The ACL on loans is an estimate and ultimate losses may vary from management’s estimate.

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The total ACL on loans is available to absorb losses from any segment of the loan portfolio.

(Dollars in thousands) March 31, 2022 December 31, 2021

(Dollars in thousands) June 30, 2022 December 31, 2021

Allocated ACL

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Sources of Funds

Our sources of funds include deposits, brokered time deposits, FHLB advances, other borrowings and proceeds from the sales, maturities and payments of loans and investment securities.

Our sources of funds include in-market deposits, wholesale brokered deposits, FHLB advances, other borrowings and proceeds from the sales, maturities and payments of loans and investment securities.

The Corporation uses funds to originate and purchase loans, purchase investment securities, conduct operations, expand the branch network and pay dividends to shareholders.

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As a program participant, we receive reciprocal amounts of deposits from other participating banks.

We consider these reciprocal deposit balances to be in-market deposits as distinguished from traditional out-of-market wholesale brokered deposits.

We consider these reciprocal deposit balances to be in-market deposits as distinguished from traditional wholesale brokered deposits.

Management's Discussion and Analysis

The following table presents a summary of deposits:

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Noninterest-bearing demand deposits $888,981 $945,229 ($56,248) (6 %)

Interest-bearing demand deposits 248,914 251,032 (2,118) (1)

Interest-bearing demand deposits (in market) 258,451 251,032 7,419 3

NOW accounts 887,678 867,138 20,540 2

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Time deposits (in-market) 800,898 773,383 27,515 4

Total in-market deposits 4,726,165 4,464,823 261,342 6

In-market deposits 4,547,935 4,464,823 83,112 2

Wholesale brokered demand deposits 31,003 — 31,003 100

Wholesale brokered time deposits 427,691 515,228 (87,537) (17)

Wholesale brokered deposits 458,694 515,228 (56,534) (11)

Total deposits $5,006,629 $4,980,051 $26,578 1 %

Total deposits amounted to $5.1 billion at March 31, 2022, up by $147.9 million, or 3%, from December 31, 2021.

Management's Discussion and Analysis

Out-of-market wholesale brokered time deposits amounted to $401.8 million at March 31, 2022, down by $113.4 million, or 22%, from December 31, 2021.

Excluding out-of-market wholesale brokered time deposits, in-market deposits were up by $261.3 million, or 6%, from the balance at December 31, 2021, with growth concentrated in money market accounts.

In-market deposits were up by $83.1 million, or 2%, from the balance at December 31, 2021, while wholesale brokered deposits declined by $56.5 million, or 11%.

Total deposits amounted to $5.0 billion at June 30, 2022, up by $26.6 million, or 1%, from December 31, 2021.

Borrowings primarily consist of FHLB advances, which are used as a source of funding for liquidity and interest rate risk management purposes.

FHLB advances totaled $55.0 million at March 31, 2022, down by $90.0 million, or 62%, from the balance at the end of 2021, as lower levels of wholesale funding were needed given the in-market deposits increase.

FHLB advances totaled $328.0 million at June 30, 2022, up by $183.0 million, or 126%, from the balance at the end of 2021, as higher levels of wholesale funding were utilized to fund balance sheet growth.

For additional information regarding FHLB advances see Note 7 to the Unaudited Consolidated Financial Statements.

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Liquidity is the ability of a financial institution to meet maturing liability obligations and customer loan demand.

The Corporation’s primary source of liquidity is in-market deposits, which funded approximately 78% of total average assets in the three months ended March 31, 2022.

The Corporation’s primary source of liquidity is in-market deposits, which funded approximately 79% of total average assets in the six months ended June 30, 2022.

While the generally preferred funding strategy is to attract and retain low-cost deposits, the ability to do so is affected by competitive interest rates and terms in the marketplace.

Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and brokered time deposits), cash flows from the investment securities portfolios and loan repayments.

Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and brokered deposits), cash flows from the investment securities portfolios and loan repayments.

Securities designated as available for sale may also be sold in response to short-term or long-term liquidity needs, although management has no intention to do so at this time.

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Borrowing capacity is impacted by the amount and type of assets available to be pledged.

Management's Discussion and Analysis

The table below presents unused funding capacity by source as of the dates indicated:

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Total $2,036,737 $2,362,259

(1) As of March 31, 2022 and December 31, 2021, loans with a carrying value of $2.2 billion and $2.2 billion, respectively, and securities available for sale with carrying values of $126.8 million and $163.2 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.

(2) As of March 31, 2022 and December 31, 2021, loans with a carrying value of $8.7 million and $8.2 million, respectively, and securities available for sale with a carrying value of $13.3 million and $13.5 million, respectively, were pledged to the FRBB for the discount window resulting in this additional unused borrowing capacity.

(1) As of June 30, 2022 and December 31, 2021, loans with a carrying value of $2.2 billion and $2.2 billion, respectively, and securities available for sale with carrying values of $114.1 million and $163.2 million, respectively, were pledged to the FHLB resulting in this additional borrowing capacity.

(2) As of June 30, 2022 and December 31, 2021, loans with a carrying value of $7.4 million and $8.2 million, respectively, and securities available for sale with a carrying value of $12.7 million and $13.5 million, respectively, were pledged to the FRBB for the discount window resulting in this additional unused borrowing capacity.

In addition to the amounts presented above, the Bank also had access to a $40.0 million unused line of credit with the FHLB, as well as a $102.0 million standby letter of credit with the FHLB.

Management's Discussion and Analysis

The ALCO establishes and monitors internal liquidity measures to manage liquidity exposure.

Liquidity remained within target ranges established by the ALCO during the three months ended March 31, 2022.

Liquidity remained within target ranges established by the ALCO during the six months ended June 30, 2022.

Based on its assessment of the liquidity considerations described above, management believes the Corporation’s sources of funding meet anticipated funding needs.

Net cash provided by operating activities amounted to $38.6 million for the three months ended March 31, 2022 reflecting net income of $16.5 million and mortgage banking related adjustments to reconcile net income to net cash provided by operating activities.

Net cash used in investing activities totaled $37.4 million for the three months ended March 31, 2022, reflecting outflows to fund purchases of debt securities and an increase in loans.

Net cash provided by operating activities amounted to $51.6 million for the six months ended June 30, 2022, reflecting net income of $36.4 million and mortgage banking related adjustments to reconcile net income to net cash provided by operating activities.

Net cash used in investing activities totaled $312.7 million for the six months ended June 30, 2022, reflecting outflows to fund purchases of debt securities, an increase in loans and a purchase of BOLI.

These outflows were partially offset by net inflows from maturities, calls and principal payments of debt securities.

For the three months ended March 31, 2022, net cash provided by financing activities amounted to $48.5 million, with growth in deposits, partially offset by a net decrease in FHLB advances and the payment of dividends to shareholders.

For the six months ended June 30, 2022, net cash provided by financing activities amounted to $181.2 million, with a net increase in FHLB advances and growth in deposits, partially offset by the payment of dividends to shareholders and purchases of treasury stock.

See the Unaudited Consolidated Statements of Cash Flows for further information about sources and uses of cash.

Capital Resources

Total shareholders’ equity amounted to $513.2 million at March 31, 2022, down by $51.6 million from December 31, 2021.

The decline reflected a decrease of $59.5 million in the AOCL component of shareholders' equity, due to a temporary decrease in the fair value of available for sale debt securities and cash flow hedges reflecting relative changes in market interest rates, as well as $9.5 million in dividend declarations.

These decreases were partially offset by net income of $16.5 million.

The Corporation declared a quarterly dividend of 54 cents per share for the three months ended March 31, 2022, compared to 52 cents per share declared for the same period in 2021.

The ratio of total equity to total assets was 8.78% at March 31, 2022, compared to a ratio of 9.65% at December 31, 2021.

Book value per share at March 31, 2022 and December 31, 2021 was $29.61 and $32.59, respectively.

The Bancorp and the Bank are subject to various regulatory capital requirements and are considered “well capitalized” with a total risk-based capital ratio of 14.15% at March 31, 2022, compared to 14.01% at December 31, 2021.

Total shareholders’ equity amounted to $476.6 million at June 30, 2022, down by $88.2 million from December 31, 2021.

The decline reflected a decrease of $98.1 million in the AOCL component of shareholders' equity, due to a temporary decrease in the fair value of available for sale debt securities and cash flow hedges reflecting relative changes in market interest rates.

In addition, the change in shareholders’ equity also included $18.9 million in dividend declarations and a net increase in treasury stock repurchases of $7.3 million, partially offset by net income of $36.4 million.

The Corporation declared a quarterly dividend of 54 cents per share for the three months ended June 30, 2022, compared to 52 cents per share declared for the same period in 2021.

On a year-to-date basis, dividend declarations totaled $1.08 per share in 2022, compared to $1.04 per share in 2021.

The ratio of total equity to total assets was 7.97% at June 30, 2022, compared to a ratio of 9.65% at December 31, 2021.

Book value per share at June 30, 2022 and December 31, 2021 was $27.73 and $32.59, respectively.

The Bancorp and the Bank are subject to various regulatory capital requirements and are considered “well capitalized” with a total risk-based capital ratio of 13.51% at June 30, 2022, compared to 14.01% at December 31, 2021.

See Note 8 to the Unaudited Consolidated Financial Statements for additional discussion of regulatory capital requirements and the election of the ASC 326 phase-in option provided by regulatory guidance, which phases in the impact of ASC 326 on regulatory capital over a three-year period that commenced January 1, 2022.

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Such transactions are used to meet the financing needs of its customers and to manage the exposure to fluctuations in interest rates.

These financial transactions include commitments to extend credit, standby letters of credit, forward loan commitments, loan related derivative contracts and interest rate risk management contracts.

These financial transactions include commitments to extend credit, standby letters of credit, forward loan

Management's Discussion and Analysis

commitments, loan related derivative contracts and interest rate risk management contracts.

These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk.

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The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Corporation’s liquidity, capital adequacy, growth, risk and profitability goals.

Management's Discussion and Analysis

The Corporation utilizes the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, off-balance sheet interest rate contracts and the pricing and structure of loans and deposits, to manage interest rate risk.

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The ALCO reviews simulation results to determine whether the Corporation’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure.

As of March 31, 2022 and December 31, 2021, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation.

As of June 30, 2022 and December 31, 2021, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Corporation.

All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Corporation’s balance sheet remain stable for a 60-month period.

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Because income simulations assume that the Corporation’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.

The following table sets forth the estimated change in net interest income from an unchanged rate scenario over the periods indicated for parallel changes in market interest rates using the Corporation’s on- and off-balance sheet financial instruments as of March 31, 2022 and December 31, 2021.

Interest rates are assumed to shift by a parallel 100, 200 or 300 basis points upward or 100 basis points downward over a 12-month period, except for core savings deposits, which are assumed to shift by lesser amounts due to their relative historical insensitivity to market interest rate movements.

Further, deposits are assumed to have certain minimum rate levels below which they will not fall.

Further, deposits are

Management's Discussion and Analysis

assumed to have certain minimum rate levels below which they will not fall.

It should be noted that the rate scenarios shown do not necessarily reflect the ALCO’s view of the “most likely” change in interest rates over the periods indicated.

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Months 1 - 12 Months 13 - 24 Months 1 - 12 Months 13 - 24

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300 basis point rate increase 5.90 1.08 10.32 11.72

The ALCO estimates that the negative exposure of net interest income to falling rates as compared to an unchanged rate scenario results from a more rapid decline in earning asset yields compared to rates paid on deposits.

The ALCO estimates that negative exposure of net interest income to falling rates as compared to an unchanged rate scenario results from a more rapid decline in earning asset yields compared to rates paid on deposits.

If market interest rates were to fall and remain lower for a sustained period, certain core savings and time deposit rates could decline more slowly and by a lesser amount than other market interest rates.

Asset yields would likely decline more rapidly than deposit costs as current asset holdings mature or reprice, since cash flow from mortgage-related prepayments and redemption of callable securities would increase as market interest rates fall.

Management's Discussion and Analysis

The overall positive exposure of net interest income to rising rates as compared to an unchanged rate scenario results from a more rapid projected relative rate of increase in asset yields than funding costs over the near term.

The ALCO estimates that positive exposure of net interest income to rising rates as compared to an unchanged rate scenario results from a more rapid projected relative rate of increase in asset yields than funding costs over the near term.

For simulation purposes, deposit rate changes are anticipated to lag behind other market interest rates in both timing and magnitude.

The ALCO’s estimate of interest rate risk exposure to rising rate environments, including those involving changes to the shape of the yield curve, incorporates certain assumptions regarding the shift in deposit balances from low-cost core savings categories to higher-cost deposit categories, which has characterized a shift in funding mix during the past rising interest rate cycles.

The relative change in interest rate sensitivity to rising rates from December 31, 2021 as shown in the above table was largely attributable to a higher level of longer-term fixed rate assets at March 31, 2022, as compared to December 31, 2021.

Fixed rate assets would not reprice upward in a rising rate environment.

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Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.

Management's Discussion and Analysis

The Corporation also monitors the potential change in market value of its available for sale debt securities in changing interest rate environments.

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Results are calculated using industry-standard analytical techniques and securities data.

Management's Discussion and Analysis

The following table summarizes the potential change in market value of the Corporation’s available for sale debt securities as of March 31, 2022 and December 31, 2021 resulting from immediate parallel rate shifts:

The following table summarizes the potential change in market value of the Corporation’s available for sale debt securities as of June 30, 2022 and December 31, 2021 resulting from immediate parallel rate shifts:

(Dollars in thousands)

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Trust preferred debt and other corporate debt securities (37) 42

Total change in market value as of March 31, 2022 $55,926 ($139,858)

Total change in market value as of June 30, 2022 $69,331 ($134,210)

Total change in market value as of December 31, 2021 $10,166 ($119,505)

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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