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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________ 
FORM 10-Q
___________________________________________________
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:1-9047
___________________________________________________
Independent Bank Corp.
(Exact name of registrant as specified in its charter)
 ___________________________________________________
MA04-2870273
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
Office Address:2036 Washington Street,Hanover,MA02339
Mailing Address:288 Union Street,Rockland,MA02370
(Address of principal executive offices, including zip code)
(781) 878-6100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each ClassTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par value per shareINDBThe Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large Accelerated FilerxAccelerated Filer☐
Non-accelerated Filer☐Smaller Reporting Company☐
Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Yes☐No☒
As of August 3, 2022, there were 45,899,764 shares of the issuer’s common stock outstanding, par value $0.01 per share.




Table of Contents
 PAGE
Notes to Consolidated Financial Statements - June 30, 2022
3
4
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited—Dollars in thousands)
 
June 30
2022		December 31
2021
Assets
Cash and due from banks$202,802 $141,581 
Interest-earning deposits with banks1,273,465 2,099,103 
Securities
Trading3,637 3,720 
Equity21,181 23,173 
Available for sale (amortized cost $1,626,890 and $1,583,736)
1,501,949 1,571,148 
Held to maturity (fair value $1,297,165 and $1,064,133)
1,408,189 1,066,818 
Total securities2,934,956 2,664,859 
Loans held for sale (at fair value)2,358 24,679 
Loans
Commercial and industrial1,541,046 1,563,279 
Commercial real estate7,791,757 7,992,344 
Commercial construction1,194,577 1,165,457 
Small business205,953 193,189 
Residential real estate1,844,057 1,604,686 
Home equity - first position587,314 589,550 
Home equity - subordinate positions478,196 450,061 
Other consumer32,864 28,720 
   Total loans13,675,764 13,587,286 
Less: allowance for credit losses(144,319)(146,922)
Net loans13,531,445 13,440,364 
Federal Home Loan Bank stock6,249 11,407 
Bank premises and equipment, net202,221 195,590 
Goodwill985,072 985,072 
Other intangible assets28,845 32,772 
Cash surrender value of life insurance policies292,807 289,304 
Other assets 522,230 538,674 
Total assets$19,982,450 $20,423,405 
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand deposits$5,562,174 $5,479,503 
Savings and interest checking accounts6,347,601 6,350,016 
Money market3,419,170 3,556,375 
Time certificates of deposit1,310,603 1,531,150 
Total deposits16,639,548 16,917,044 
Borrowings
Federal Home Loan Bank borrowings25,652 25,667 
Long-term borrowings— 14,063 
Junior subordinated debentures (less unamortized debt issuance costs of $34 and $35)
62,854 62,853 
5
Subordinated debentures (less unamortized debt issuance costs of $162 and $209)
49,838 49,791 
Total borrowings138,344 152,374 
Other liabilities333,373 335,538 
Total liabilities17,111,265 17,404,956 
Commitments and contingencies— — 
Stockholders' equity
Preferred stock, $0.01 par value, authorized: 1,000,000 shares, outstanding: none
— — 
Common stock, $0.01 par value, authorized: 75,000,000 shares,
issued and outstanding: 46,069,761 shares at June 30, 2022 and 47,349,778 shares at December 31, 2021 (includes 136,608 and 135,273 shares of unvested participating restricted stock awards, respectively)
459 472 
Value of shares held in rabbi trust at cost: 82,082 shares at June 30, 2022 and 82,565 shares at December 31, 2021
(3,196)(3,146)
Deferred compensation and other retirement benefit obligations3,196 3,146 
Additional paid in capital2,146,333 2,249,078 
Retained earnings833,857 766,716 
Accumulated other comprehensive income (loss), net of tax(109,464)2,183 
Total stockholders’ equity2,871,185 3,018,449 
Total liabilities and stockholders' equity$19,982,450 $20,423,405 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited—Dollars in thousands, except per share data)
Three Months EndedSix Months Ended
June 30June 30
 2022202120222021
Interest income
Interest and fees on loans$133,988 $88,814 $263,613 $181,197 
Taxable interest and dividends on securities11,281 7,184 21,324 13,811 
Nontaxable interest and dividends on securities2 5 3 10 
Interest on loans held for sale35 186 99 482 
Interest on federal funds sold and short-term investments2,817 513 3,703 839 
Total interest and dividend income148,123 96,702 288,742 196,339 
Interest expense
Interest on deposits2,111 2,017 4,218 4,728 
Interest on borrowings1,151 1,331 2,231 2,673 
Total interest expense3,262 3,348 6,449 7,401 
Net interest income144,861 93,354 282,293 188,938 
Release of provision for credit losses— (5,000)(2,000)(7,500)
Net interest income after provision for credit losses144,861 98,354 284,293 196,438 
Noninterest income
Deposit account fees5,828 3,822 11,321 7,406 
Interchange and ATM fees4,027 3,068 7,636 5,788 
Investment management9,329 8,872 18,002 17,176 
Mortgage banking income1,042 2,705 2,404 8,445 
Increase in cash surrender value of life insurance policies1,871 1,589 3,666 2,912 
Gain on life insurance benefits123 — 123 258 
Loan level derivative income436 116 1,040 289 
Other noninterest income5,242 4,795 9,978 7,939 
Total noninterest income27,898 24,967 54,170 50,213 
Noninterest expenses
Salaries and employee benefits49,538 42,635 98,249 82,524 
Occupancy and equipment expenses11,637 8,706 24,939 17,979 
Data processing and facilities management2,247 1,686 4,619 3,351 
Merger and acquisition expense— 1,731 7,100 1,731 
Software maintenance2,645 1,915 5,209 3,885 
Amortization of intangible assets1,902 1,314 3,903 2,727 
FDIC assessment1,743 775 3,548 1,825 
Debit card expense1,861 1,165 3,626 2,346 
Consulting expense2,760 1,492 4,510 3,883 
Other noninterest expenses16,229 11,883 30,359 22,733 
Total noninterest expenses90,562 73,302 186,062 142,984 
Income before income taxes82,197 50,019 152,401 103,667 
Provision for income taxes20,421 12,447 37,528 24,384 
Net income$61,776 $37,572 $114,873 $79,283 
Basic earnings per share$1.32 $1.14 $2.44 $2.40 
Diluted earnings per share$1.32 $1.14 $2.44 $2.40 
Weighted average common shares (basic)46,665,101 33,033,578 47,013,989 33,014,561 
Common share equivalents14,096 21,270 17,403 25,085 
Weighted average common shares (diluted)46,679,197 33,054,848 47,031,392 33,039,646 
Cash dividends declared per common share$0.51 $0.48 $1.02 $0.96 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7

INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited—Dollars in thousands)
 
 Three Months EndedSix Months Ended
June 30June 30
 2022202120222021
Net income$61,776 $37,572 $114,873 $79,283 
Other comprehensive income (loss), net of tax
Net change in fair value of securities available for sale(23,734)3,793 (86,290)(3,981)
Net change in fair value of cash flow hedges(7,649)(1,593)(25,599)(8,176)
Net change in other comprehensive income for defined benefit postretirement plans121 210 242 1,029 
Total other comprehensive income (loss)(31,262)2,410 (111,647)(11,128)
Total comprehensive income$30,514 $39,982 $3,226 $68,155 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

8
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended June 30, 2022 and 2021
(Unaudited—Dollars in thousands, except per share data)
Common Stock OutstandingCommon StockValue of Shares Held in Rabbi Trust at CostDeferred Compensation ObligationAdditional Paid in CapitalRetained EarningsAccumulated Other
Comprehensive Income (Loss)		Total
Balance March 31, 202247,377,125$472 $(3,179)$3,179 $2,247,518 $795,651 $(78,202)$2,965,439 
Net income— — — — — 61,776 — 61,776 
Other comprehensive loss— — — — — — (31,262)(31,262)
Common dividend declared ($0.51 per share)
— — — — — (23,570)— (23,570)
Stock based compensation— — — — 1,632 — — 1,632 
Restricted stock awards issued, net of awards surrendered5,231 — — — (22)— — (22)
Shares issued under direct stock purchase plan7,574 — — — 588 — — 588 
Shares repurchased under share repurchase program(1,320,169)(13)— — (103,383)— — (103,396)
Deferred compensation and other retirement benefit obligations— — (17)17 — — — — 
Balance June 30, 202246,069,761 $459 $(3,196)$3,196 $2,146,333 $833,857 $(109,464)$2,871,185 
Balance March 31, 202133,024,882 $329 $(3,080)$3,080 $946,002 $741,883 $27,157 $1,715,371 
Net income— — — — — 37,572 — 37,572 
Other comprehensive income— — — — — — 2,410 2,410 
Common dividend declared ($0.48 per share)
— — — — — (15,859)— (15,859)
Stock based compensation— — — — 1,610 — — 1,610 
Restricted stock awards issued, net of awards surrendered6,452 — — — (23)— — (23)
Shares issued under direct stock purchase plan6,525 — — — 541 — — 541 
Deferred compensation and other retirement benefit obligations— — (36)36 — — — — 
Balance June 30, 202133,037,859 $329 $(3,116)$3,116 $948,130 $763,596 $29,567 $1,741,622 

9
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Six Months Ended June 30, 2022 and 2021
(Unaudited—Dollars in thousands, except per share data)

Common Stock OutstandingCommon StockValue of Shares Held in Rabbi 
Trust at Cost		Deferred Compensation ObligationAdditional Paid in CapitalRetained EarningsAccumulated Other
Comprehensive Income (Loss)		Total
Balance December 31, 202147,349,778$472 $(3,146)$3,146 $2,249,078 $766,716 $2,183 $3,018,449 
Net income— — — — — 114,873 — 114,873 
Other comprehensive loss— — — — — — (111,647)(111,647)
Common dividend declared ($1.02 per share)
— — — — — (47,732)— (47,732)
Stock based compensation— — — — 2,466 — — 2,466 
Restricted stock awards issued, net of awards surrendered49,800 — — — (1,085)— — (1,085)
Shares issued under direct stock purchase plan14,176 — — — 1,159 — — 1,159 
Shares repurchased under share repurchase program(1,343,993)(13)— — (105,285)— — (105,298)
Deferred compensation and other retirement benefit obligations— — (50)50 — — — — 
Balance June 30, 202246,069,761 $459 $(3,196)$3,196 $2,146,333 $833,857 $(109,464)$2,871,185 
Balance December 31, 202032,965,692 $328 $(3,066)$3,066 $945,638 $716,024 $40,695 $1,702,685 
Net income— — — — — 79,283 — 79,283 
Other comprehensive loss— — — — — — (11,128)(11,128)
Common dividend declared ($0.96 per share)
— — — — — (31,711)— (31,711)
Proceeds from exercise of stock options, net of cash paid4,744 — — — (57)— — (57)
Stock based compensation— — — — 2,760 — — 2,760 
Restricted stock awards issued, net of awards surrendered54,558 1 — — (1,244)— — (1,243)
Shares issued under direct stock purchase plan12,865 — — — 1,033 — — 1,033 
Deferred compensation and other retirement benefit obligations— — (50)50 — — — — 
Balance June 30, 202133,037,859 $329 $(3,116)$3,116 $948,130 $763,596 $29,567 $1,741,622 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited—Dollars in thousands)
 
 Six Months Ended
June 30
20222021
Cash flow from operating activities
Net income$114,873 $79,283 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization19,957 16,354 
Change in unamortized net loan costs and premiums(5,662)(15,136)
Amortization (accretion) of acquired loans578 (3,422)
Release of provision for credit losses(2,000)(7,500)
Deferred income tax expense503 469 
Net loss (gain) on equity securities2,077 (864)
Net loss on bank premises and equipment426 60 
Realized gain on sale leaseback transaction(289)(289)
Stock based compensation2,466 2,760 
Increase in cash surrender value of life insurance policies(3,666)(2,912)
Gain on life insurance benefits(123)(258)
Operating lease payments(12,437)(6,088)
Operating lease termination payments— (4,750)
Change in fair value on loans held for sale426 1,459 
Net change in:
Trading assets83 (601)
Loans held for sale21,895 31,084 
Other assets38,380 79,393 
Other liabilities(5,049)(51,289)
Total adjustments57,565 38,470 
Net cash provided by operating activities172,438 117,753 
Cash flows used in investing activities
Proceeds from sales of equity securities — 1,164 
Purchases of equity securities(323)(1,415)
Proceeds from maturities and principal repayments of securities available for sale79,842 51,536 
Purchases of securities available for sale(123,289)(438,903)
Proceeds from maturities and principal repayments of securities held to maturity96,825 137,258 
Purchases of securities held to maturity(438,643)(274,781)
Net redemption of Federal Home Loan Bank stock5,158 1,171 
Investments in low income housing projects(13,733)(9,556)
Purchases of life insurance policies(101)(40,102)
Proceeds from life insurance policies218 576 
Net (increase) decrease in loans(83,997)468,901 
Purchases of bank premises and equipment(16,153)(6,970)
Proceeds from the sale of bank premises and equipment— 4 
Net cash used in investing activities(494,196)(111,117)
Cash flows (used in) provided by financing activities
Net decrease in time deposits(219,533)(133,295)
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Net (decrease) increase in other deposits(56,949)1,127,111 
Repayments of long-term debt, net of issuance costs(14,063)(9,375)
Net payments for exercise of stock options— (57)
Restricted stock awards issued, net of awards surrendered(1,085)(1,243)
Proceeds from shares issued under direct stock purchase plan1,159 1,033 
Payments for shares repurchased under share repurchase program(105,298)— 
Common dividends paid(46,890)(31,016)
Net cash (used in) provided by financing activities(442,659)953,158 
Net (decrease) increase in cash and cash equivalents(764,417)959,794 
Cash and cash equivalents at beginning of year2,240,684 1,296,636 
Cash and cash equivalents at end of period$1,476,267 $2,256,430 
Supplemental schedule of noncash activities
Net increase in capital commitments relating to low income housing project investments$4,472 $34,232 
Right-of-use assets obtained in exchange for new lease obligations$8,811 $5,873 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION
Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907.
All material intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Results for the six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any other interim period.
For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the "2021 Form 10-K").

NOTE 2 - RECENT ACCOUNTING STANDARDS UPDATES

    Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 848 "Reference Rate Reform" Update No. 2020-04. Update No. 2020-04 was issued in March 2020 to provide optional expedients and exceptions for applying GAAP to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The amendments will not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients that are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022. FASB ASC Topic 848 "Reference Rate Reform" Update No. 2021-01 was subsequently issued in January 2021 and expanded application of the optional expedients to derivative transactions affected by the discounting transition. The Company has not yet adopted the amendments in these updates, but has established a working group to guide the Company’s transition from LIBOR and has begun efforts to transition off the LIBOR index consistent with industry timelines. The working group has identified its products that utilize LIBOR and has implemented fallback language to facilitate the transition to alternative rates. The Company is also evaluating existing platforms and systems as well as alternative indices in its preparation to offer new products tied to the alternative indices. The Company does not anticipate that the adoption of these updates will have a material impact on the Company's financial statements.

FASB ASC Topic 260 "Earnings Per Share" Update No. 2020-06. In August 2020, the FASB issued update No. 2020-06 ("ASU 2020-06"). ASU 2020-06 included amendments to ASC 260 related to the earnings per share calculation, which were designed to simplify and improve consistency of the diluted earnings per share calculation. ASU 2020-06 is effective for public entities for annual periods beginning after December 15, 2021 and interim periods therein. Accordingly, the Company adopted ASU 2020-06 effective January 1, 2022 and the adoption did not have a material impact on the Company's financial statements.

FASB ASC Topic 815 "Derivatives and Hedging" Update No. 2022-01. Update No. 2022-01 was issued in March 2022 and its amendments allow for nonprepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. The expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets resulting in more consistent accounting for similar hedges. All amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on the Company's financial statements.

FASB ASC Topic 326 "Financial Instruments - Credit Losses" Update No. 2022-02. Update No. 2022-02 was issued in March 2022 and applies to public entities that have adopted ASU Topic 326. The amendments in this update eliminate the existing accounting guidance for troubled debt restructures ("TDRs") by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors and instead requires that an entity evaluate whether a modification
13
represents a new loan or a continuation of an existing loan. The amendments also enhance disclosure requirements for certain loan refinancing and restructuring by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 also requires additional disclosure of current period gross write-offs by year of origination for financing receivables to be included in the entity's vintage disclosure, as currently required under Topic 326. All amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on the Company's financial statements.














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NOTE 3 - SECURITIES
    
Trading Securities
The Company had trading securities of $3.6 million and $3.7 million as of June 30, 2022 and December 31, 2021, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s non-qualified 401(k) Restoration Plan and Non-qualified Deferred Compensation Plan.
Equity Securities
The Company had equity securities of $21.2 million and $23.2 million as of June 30, 2022 and December 31, 2021, respectively. These securities consist primarily of mutual funds held in a rabbi trust and will be used for future payments associated with the Company’s supplemental executive retirement plans.
The following table represents a summary of the gains and losses recognized within non-interest income and non-interest expense within the consolidated statements of income that relate to equity securities for the periods indicated:
Three Months EndedSix Months Ended
June 30June 30
2022202120222021
Dollars in thousands
Net gains (losses) recognized during the period on equity securities$(1,450)$548 (2,077)864 
Less: net gains recognized during the period on equity securities sold during the period4 112 8 141 
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date$(1,454)$436 $(2,085)$723 
Available for Sale Securities
The following table summarizes the amortized cost, allowance for credit losses, and fair value of available for sale securities and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated:
 June 30, 2022December 31, 2021
 Amortized
Cost		Gross
Unrealized
Gains		Gross Unrealized
Losses		Allowance for credit lossesFair
Value		Amortized
Cost		Gross
Unrealized
Gains		Gross Unrealized
Losses		Allowance for credit lossesFair
Value
 (Dollars in thousands)
Available for sale securities
U.S. government agency securities$231,304 $— $(21,849)$— $209,455 $217,393 $990 $(2,901)$— $215,482 
U.S. treasury securities873,748 — (64,650)— 809,098 873,467 172 (12,191)— 861,448 
Agency mortgage-backed securities409,695 246 (32,151)— 377,790 364,955 4,512 (5,534)— 363,933 
Agency collateralized mortgage obligations46,014 13 (1,550)— 44,477 78,966 1,282 (571)— 79,677 
State, county, and municipal securities192 5 — — 197 192 11 — — 203 
Single issuer trust preferred securities issued by banks489 — (21)— 468 489 2 — — 491 
Pooled trust preferred securities issued by banks and insurers 1,200 — (201)— 999 1,199 — (199)— 1,000 
Small business administration pooled securities64,248 — (4,783)— 59,465 47,075 1,839 — — 48,914 
Total available for sale securities$1,626,890 $264 $(125,205)$— $1,501,949 $1,583,736 $8,808 $(21,396)$— $1,571,148 

Excluded from the table above is accrued interest on available for sale securities of $3.0 million as of June 30, 2022 and December 31, 2021, which is included within other assets on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities during the three and six months ended
15
June 30, 2022 and 2021. Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status as of June 30, 2022 and December 31, 2021.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of securities available for sale during the three and six months ended June 30, 2022 and 2021, and therefore no gains or losses were realized during the periods presented.
The following tables show the gross unrealized losses and fair value of the Company’s available for sale securities in an unrealized loss position, and for which the Company has not recorded a provision for credit losses, as of the dates indicated. These available for sale securities are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position:
 June 30, 2022
  Less than 12 months12 months or longerTotal
 # of 
holdings		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
 (Dollars in thousands)
U.S. government agency securities9 $187,288 $(19,080)$22,167 $(2,769)$209,455 $(21,849)
U.S. treasury securities18 809,098 (64,649)— — 809,098 (64,649)
Agency mortgage-backed securities109 296,365 (22,055)58,480 (10,096)354,845 (32,151)
Agency collateralized mortgage obligations11 42,918 (1,550)— — 42,918 (1,550)
Single issuer trust preferred securities issued by banks and insurers1 468 (21)— — 468 (21)
Pooled trust preferred securities issued by banks and insurers1 — — 999 (201)999 (201)
Small business administration pooled securities8 59,465 (4,784)— — 59,465 (4,784)
Total impaired available for sale securities157 $1,395,602 $(112,139)$81,646 $(13,066)$1,477,248 $(125,205)
December 31, 2021
Less than 12 months12 months or longerTotal
# of 
holdings		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
(Dollars in thousands)
U.S. government agency securities6 $160,913 $(2,901)$— $— $160,913 $(2,901)
U.S. treasury securities17 811,993 (12,191)— — 811,993 (12,191)
Agency mortgage-backed securities12 214,678 (5,534)— — 214,678 (5,534)
Agency collateralized mortgage obligations1 22,960 (571)— — 22,960 (571)
Pooled trust preferred securities issued by banks and insurers1 — — 1,000 (199)1,000 (199)
Total impaired available for sale securities37 $1,210,544 $(21,197)$1,000 $(199)$1,211,544 $(21,396)
The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis. In addition, management does not believe that any of the securities are impaired due to reasons of credit quality. As a result, the Company did not recognize a provision for credit losses on these investments during the three and six months ended June 30, 2022 and 2021. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.
16
As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category were as follows at June 30, 2022:
•U.S. Government Agency Securities, U.S. Treasury Securities, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities: These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies.
•Single Issuer Trust Preferred Securities: This portfolio consists of one security, which is investment grade. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for the issuers, including regulatory capital ratios of the issuers.
•Pooled Trust Preferred Securities: This portfolio consists of one below investment grade security which is performing. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.

Held to Maturity Securities
The following table summarizes the amortized cost, fair value and allowance for credit losses of held to maturity securities and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated:
 June 30, 2022December 31, 2021
 Amortized
Cost		Gross
Unrealized
Gains		Gross Unrealized
Losses		Allowance for credit lossesFair
Value		Amortized
Cost		Gross
Unrealized
Gains		Gross Unrealized
Losses		Allowance for credit lossesFair
Value
 (Dollars in thousands)
U.S. government agency securities$32,128 $— $(1,828)$— $30,300 $32,987 $— $(441)$— $32,546 
U.S. treasury securities100,595 — (8,608)— 91,987 102,560 6 (324)— 102,242 
Agency mortgage-backed securities631,754 90 (47,770)— 584,074 493,012 8,495 (4,271)— 497,236 
Agency collateralized mortgage obligations577,183 6 (52,195)— 524,994 415,736 3,232 (10,123)— 408,845 
Single issuer trust preferred securities issued by banks1,500 8 — — 1,508 1,500 8 — — 1,508 
Small business administration pooled securities65,029 251 (978)— 64,302 21,023 733 — — 21,756 
Total held to maturity securities$1,408,189 $355 $(111,379)$— $1,297,165 $1,066,818 $12,474 $(15,159)$— $1,064,133 
Substantially all held to maturity securities held by the Company are guaranteed by the U.S. federal government or other government sponsored agencies and have a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation and therefore the Company did not record a provision for estimated credit losses on any held to maturity securities during the three and six months ended June 30, 2022 and 2021. Excluded from the table above is accrued interest on held to maturity securities of $2.9 million and $2.0 million as of June 30, 2022 and December 31, 2021, respectively, which is included within other assets on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities during the three and six months ended June 30, 2022 and 2021. Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status as of June 30, 2022 and December 31, 2021.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of held to maturity securities during the three and six months ended June 30, 2022 and 2021, and therefore no gains or losses were realized during the periods presented.

The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. As of June 30, 2022, all held to maturity securities held by the Company were rated investment grade or higher.
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The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of available for sale and held to maturity securities as of June 30, 2022 is presented below:
Due in one year or lessDue after one year to five yearsDue after five to ten yearsDue after ten yearsTotal
Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
(Dollars in thousands)
Available for sale securities
U.S. government agency securities$— $— $68,039 $63,455 $163,265 $146,000 $— $— $231,304 $209,455 
U.S. treasury securities— — 691,675 644,791 182,073 164,307 — — 873,748 809,098 
Agency mortgage-backed securities19,719 19,704 79,853 77,570 151,425 136,691 158,698 143,825 409,695 377,790 
Agency collateralized mortgage obligations— — — — — — 46,014 44,477 46,014 44,477 
State, county, and municipal securities— — 192 197 — — — — 192 197 
Single issuer trust preferred securities issued by banks— — — — — — 489 468 489 468 
Pooled trust preferred securities issued by banks and insurers — — — — — — 1,200 999 1,200 999 
Small business administration pooled securities— — — — — — 64,248 59,465 64,248 59,465 
Total available for sale securities$19,719 $19,704 $839,759 $786,013 $496,763 $446,998 $270,649 $249,234 $1,626,890 $1,501,949 
Held to maturity securities
U.S. government agency securities$— $— $32,128 $30,300 $— $— $— $— $32,128 $30,300 
U.S. treasury securities— — 49,753 45,873 50,842 46,114 — — 100,595 91,987 
Agency mortgage-backed securities— — 83,789 82,561 388,941 352,477 159,024 149,036 631,754 584,074 
Agency collateralized mortgage obligations— — 30,155 29,906 35,635 32,474 511,393 462,614 577,183 524,994 
Single issuer trust preferred securities issued by banks— — — — 1,500 1,508 — — 1,500 1,508 
Small business administration pooled securities— — — — — — 65,029 64,302 65,029 64,302 
Total held to maturity securities$— $— $195,825 $188,640 $476,918 $432,573 $735,446 $675,952 $1,408,189 $1,297,165 
Total$19,719 $19,704 $1,035,584 $974,653 $973,681 $879,571 $1,006,095 $925,186 $3,035,079 $2,799,114 
Included in the table above are $25.8 million of callable securities at June 30, 2022.
The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $876.4 million and $740.6 million at June 30, 2022 and December 31, 2021, respectively.
At June 30, 2022 and December 31, 2021, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated stockholders’ equity.






18
NOTE 4 - LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY
Loans Held for Investment and Allowance for Credit Losses
The following table summarizes the change in allowance for credit losses by loan category, and bifurcates the amount of loans allocated to each loan category for the period indicated:
 Three Months Ended June 30, 2022
 (Dollars in thousands)
 Commercial and
Industrial		Commercial
Real Estate		Commercial
Construction		Small
Business		Residential
Real Estate		      
Home  Equity		Other ConsumerTotal
Allowance for credit losses
Beginning balance$14,169 $84,436 $11,867 $3,159 $18,388 $11,750 $749 $144,518 
Charge-offs— — — (11)— (98)(435)(544)
Recoveries29 — — 33 — 14 269 345 
(Release of) provision for credit losses(91)(980)(157)(397)1,362 74 189 — 
Ending balance (1)$14,107 $83,456 $11,710 $2,784 $19,750 $11,740 $772 $144,319 
Three Months Ended June 30, 2021
(Dollars in thousands)
Commercial and
Industrial		Commercial
Real Estate		Commercial
Construction		Small
Business		Residential
Real Estate		Home  EquityOther ConsumerTotal
Allowance for credit losses
Beginning balance$20,207 $44,348 $5,268 $3,621 $12,956 $20,716 $433 $107,549 
Charge-offs(142)— — (35)— (69)(235)(481)
Recoveries35 — — 4 — 45 205 289 
(Release of) provision for credit losses(3,068)(23)(403)22 (942)(605)19 (5,000)
Ending balance (1)$17,032 $44,325 $4,865 $3,612 $12,014 $20,087 $422 $102,357 
Six Months Ended June 30, 2022
(Dollars in thousands)
Commercial and
Industrial		Commercial
Real Estate		Commercial
Construction		Small
Business		Residential
Real Estate		Home  EquityOther ConsumerTotal
Allowance for credit losses
Beginning balance$14,402 $83,486 $12,316 $3,508 $14,484 $17,986 $740 $146,922 
Charge-offs— — — (59)— (122)(1,069)(1,250)
Recoveries42 3 — 59 — 40 503 647 
(Release of) provision for credit losses(337)(33)(606)(724)5,266 (6,164)598 (2,000)
Ending balance (1)$14,107 $83,456 $11,710 $2,784 $19,750 $11,740 $772 $144,319 
 Six Months Ended June 30, 2021
 (Dollars in thousands)
 Commercial and
Industrial		Commercial
Real Estate		Commercial
Construction		Small
Business		Residential
Real Estate		      
Home  Equity		Other ConsumerTotal
Allowance for credit losses
Beginning balance$21,086 $45,009 $5,397 $5,095 $14,275 $22,060 $470 $113,392 
Charge-offs(3,473)— — (101)— (69)(524)(4,167)
Recoveries99 57 — 15 1 58 402 632 
(Release of) provision for credit losses(680)(741)(532)(1,397)(2,262)(1,962)74 (7,500)
Ending balance (1)$17,032 $44,325 $4,865 $3,612 $12,014 $20,087 $422 $102,357 
19
(1)Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $39.0 million and $29.9 million as of June 30, 2022 and June 30, 2021, respectively.
The balance of allowance for credit losses of $144.3 million as of June 30, 2022 represents a decrease of $2.6 million, or 1.8%, compared to December 31, 2021. The decrease in the allowance was primarily driven by a release of the provision for credit losses of $2.0 million recorded during the first quarter of 2022, reflecting a stabilized credit quality environment and continued strong asset quality metrics and attrition experienced during the second quarter of 2022, which were offset by increased reserves on individually evaluated loans and net loan growth, resulting in a zero provision recorded for the three months ended June 30, 2022.
   
For the purpose of estimating the allowance for credit losses, management segregated the loan portfolio into the portfolio segments detailed in the above tables.  Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment.  Some of the characteristics unique to each loan category include:
Commercial Portfolio
•Commercial and Industrial: Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment.  Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant and equipment, or real estate, if applicable. Repayment sources consist of primarily, operating cash flow, and secondarily, liquidation of assets.
•Commercial Real Estate: Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans are typically written with amortizing payment structures.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of, primarily, cash flow from operating leases and rents and, secondarily, liquidation of assets.
•Commercial Construction: Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property.  Project types include residential land development, one-to-four family, condominium, and multi-family home construction, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy and regulatory guidelines.  Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets.
•Small Business: Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment.  Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate if applicable.  Repayment sources consist primarily of operating cash flows and, secondarily, liquidation of assets.
For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests in the borrowing entities.
Consumer Portfolio
•Residential Real Estate: Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral.  Collateral consists of mortgage liens on one-to-four family residential properties.  Residential mortgage loans also include loans to construct owner-occupied one-to-four family residential properties.
•Home Equity: Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied one-to-four family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. The majority of home equity lines of credit have a variable rate and are billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued interest over a predetermined repayment period, as set forth in the note. Additionally, the Company has the option of renewing each line of credit for additional draw periods.  Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.
20
•Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as debt consolidation, personal expenses or overdraft protection.  Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.  These loans may be secured or unsecured.
Credit Quality
The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as adversely risk-rated, delinquent, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition.
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point credit risk-rating system, which assigns a risk-grade to each loan obligation based on a number of quantitative and qualitative factors associated with a commercial or small business loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-rating categories for the commercial portfolio are defined as follows:
•Pass: Risk-rating “1” through “6” comprises of loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing or above average leverage and/or weakening market fundamentals that indicate below average asset quality, margins and market share. Collateral coverage is protective.
•Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Company’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.
•Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loans may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.
•Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
•Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
The Company utilizes a comprehensive, continuous strategy for evaluating and monitoring commercial credit quality. Initially, credit quality is determined at loan origination and is re-evaluated when subsequent actions, such as renewals, modifications or reviews, occur. Actively managed commercial borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by experienced credit professionals, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. Any changes in credit quality are reflected in risk-rating changes. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis. Commercial loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") were assessed for potential downgrades of risk ratings.
For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. As a result, for this portfolio the Company utilizes a pass/default risk-rating system, based on an age
21
analysis (i.e., days past due) associated with each consumer loan. Under this structure, consumer loans less than 90 days past due are assigned a "pass" rating, while any consumer loans 90 days or more past due are assigned a "default" rating.
The following table details the amortized cost balances of the Company's loan portfolios, presented by credit quality indicator and origination year as of the dates indicated below:

22
 June 30, 2022
20222021202020192018PriorRevolving LoansRevolving converted to TermTotal (1)
 (Dollars in thousands)
Commercial and
industrial
Pass (2)$220,435 $188,007 $136,331 $79,699 $98,598 $26,321 $751,261 $— $1,500,652 
Potential weakness221 1,022 1,054 872 84 1,017 4,229 — 8,499 
Definite weakness - loss unlikely 354 1,283 — 44 407 2,645 27,162 — 31,895 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial and industrial$221,010 $190,312 $137,385 $80,615 $99,089 $29,983 $782,652 $— $1,541,046 
Commercial real estate
Pass$543,108 $1,488,142 $1,306,131 $874,026 $781,208 $2,122,989 $131,883 $516 $7,248,003 
Potential weakness40,003 63,294 53,347 5,996 68,671 197,553 13,620 2,578 445,062 
Definite weakness - loss unlikely1,113 8,181 4,263 2,904 14,822 67,409 — — 98,692 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial real estate$584,224 $1,559,617 $1,363,741 $882,926 $864,701 $2,387,951 $145,503 $3,094 $7,791,757 
Commercial construction
Pass$362,544 $369,399 $269,581 $65,520 $28,097 $11,420 $33,583 $3 $1,140,147 
Potential weakness13,054 — 3,319 — — 21,304 — — 37,677 
Definite weakness - loss unlikely— 16,753 — — — — — — 16,753 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial construction$375,598 $386,152 $272,900 $65,520 $28,097 $32,724 $33,583 $3 $1,194,577 
Small business
Pass$30,065 $48,840 $33,910 $18,528 $10,999 $22,481 $37,755 $— $202,578 
Potential weakness— 173 415 373 195 141 707 — 2,004 
Definite weakness - loss unlikely103 — 551 13 4 230 470 — 1,371 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total small business$30,168 $49,013 $34,876 $18,914 $11,198 $22,852 $38,932 $— $205,953 
Residential real estate
Pass$396,321 $432,105 $200,912 $99,019 $102,471 $610,183 $— $— $1,841,011 
Default— — 123 — 974 1,949 — — 3,046 
Total residential real estate$396,321 $432,105 $201,035 $99,019 $103,445 $612,132 $— $— $1,844,057 
Home equity
Pass$28,727 $63,208 $58,488 $33,501 $30,145 $130,197 $717,115 $2,559 $1,063,940 
Default— — — 122 — 292 1,156 — 1,570 
Total home equity$28,727 $63,208 $58,488 $33,623 $30,145 $130,489 $718,271 $2,559 $1,065,510 
Other consumer
Pass$379 $2,862 $2,317 $1,671 $576 $4,350 $20,697 $— $32,852 
Default— — — — — 12 — — 12 
Total other consumer$379 $2,862 $2,317 $1,671 $576 $4,362 $20,697 $— $32,864 
Total$1,636,427 $2,683,269 $2,070,742 $1,182,288 $1,137,251 $3,220,493 $1,739,638 $5,656 $13,675,764 

23
June 30, 2021
20212020201920182017PriorRevolving LoansRevolving converted to TermTotal (1)
(Dollars in thousands)
Commercial and
industrial
Pass (2)$552,640 $296,008 $113,698 $83,243 $18,357 $20,908 $577,872 $— $1,662,726 
Potential weakness4,726 11,553 3,292 1,772 1,141 2,531 8,596 — 33,611 
Definite weakness - loss unlikely18,026 338 1,023 1,105 2,714 244 6,711 — 30,161 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial and industrial$575,392 $307,899 $118,013 $86,120 $22,212 $23,683 $593,179 $— $1,726,498 
Commercial real estate
Pass$489,652 $1,029,017 $679,780 $373,916 $496,399 $862,508 $15,370 $— $3,946,642 
Potential weakness15,416 29,480 54,436 32,476 18,923 86,135 13,614 — 250,480 
Definite weakness - loss unlikely9,505 22,090 3,665 2,210 9,874 7,077 — — 54,421 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial real estate$514,573 $1,080,587 $737,881 $408,602 $525,196 $955,720 $28,984 $— $4,251,543 
Commercial construction
Pass$63,620 $235,629 $107,190 $24,374 $22,951 $6,568 $16,232 $1,998 $478,562 
Potential weakness— 17,560 — — — — 417 — 17,977 
Definite weakness - loss unlikely— — — — — — — — — 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial construction$63,620 $253,189 $107,190 $24,374 $22,951 $6,568 $16,649 $1,998 $496,539 
Small business
Pass$29,131 $40,220 $23,870 $16,104 $11,712 $25,050 $33,588 $— $179,675 
Potential weakness15 — 386 202 8 188 655 — 1,454 
Definite weakness - loss unlikely— 657 44 45 11 289 688 — 1,734 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total small business$29,146 $40,877 $24,300 $16,351 $11,731 $25,527 $34,931 $— $182,863 
Residential real estate
Pass$214,476 $201,684 $103,045 $109,323 $111,755 $496,981 $— $— $1,237,264 
Default— — — 414 — 2,601 — — 3,015 
Total residential real estate$214,476 $201,684 $103,045 $109,737 $111,755 $499,582 $— $— $1,240,279 
Home equity
Pass$46,378 $72,942 $45,918 $41,749 $45,468 $127,241 $633,065 $3,962 $1,016,723 
Default— — — — — 34 1,651 — 1,685 
Total home equity$46,378 $72,942 $45,918 $41,749 $45,468 $127,275 $634,716 $3,962 $1,018,408 
Other consumer
Pass$281 $400 $304 $108 $571 $6,179 $15,015 $— $22,858 
Default— — — — — — — — — 
Total other consumer$281 $400 $304 $108 $571 $6,179 $15,015 $— $22,858 
24
Total$1,443,866 $1,957,578 $1,136,651 $687,041 $739,884 $1,644,534 $1,323,474 $5,960 $8,938,988 
(1)Loan origination dates in the tables above reflect the original origination date, or the date of a material modification of a previously originated loan.
(2)Loans originated as part of the Paycheck Protection Program ("PPP") established by the CARES Act are included within commercial and industrial under the 2021 and 2020 vintage year and "pass" category as these loans are 100% guaranteed by the U.S. Government. Outstanding PPP loans totaled $30.6 million and $482.7 million as of June 30, 2022 and 2021, respectively.
    For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential real estate and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios at the dates indicated below:
June 30
2022		December 31
2021
Residential real estate portfolio
FICO score (re-scored)(1)752 749 
LTV (re-valued)(2)55.2 %54.4 %
Home equity portfolio
FICO score (re-scored)(1)771 772 
LTV (re-valued)(2)(3)41.4 %42.4 %
(1)The average FICO scores at June 30, 2022 are based upon rescores from June 2022, as available for previously originated loans, or origination score data for loans booked in June 2022.  The average FICO scores at December 31, 2021 were based upon rescores available from December 2021, as available for previously originated loans, or origination score data for loans booked in December 2021.
(2)The combined LTV ratios for June 30, 2022 are based upon updated automated valuations as of May 2022, when available, and/or the most current valuation data available.  The combined LTV ratios for December 31, 2021 were based upon updated automated valuations as of November 2021, when available, and/or the most current valuation data available as of such date.  The updated automated valuations provide new information on loans that may be available since the previous valuation was obtained.  If no new information is available, the valuation will default to the previously obtained data or most recent appraisal.
(3)For home equity loans and lines in a subordinate lien, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines.
Unfunded Commitments
Management evaluates the need for a reserve on unfunded lending commitments in a manner consistent with loans held for investment. At June 30, 2022 and December 31, 2021, the Company's estimated reserve for unfunded commitments amounted to $1.3 million and $1.5 million, respectively.
Asset Quality
The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of collection specialists and the Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame.  As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. The Company also may use discretion regarding other loans 90 days or more delinquent if the loan is well secured and/or in process of collection.
In response to the COVID-19 pandemic, the Company has granted loan modifications to allow deferral of payments for borrowers negatively impacted by the pandemic. The balance of loans with active deferrals as of June 30, 2022 and December 31, 2021 was $197.4 million and $383.1 million, respectively. The majority of these loans with active deferrals as of June 30, 2022 continue to be characterized as current loans. In accordance with regulatory guidance, these modifications are not considered to be troubled debt restructures ("TDRs") if they were performing as of December 31, 2019. Additionally, a majority of these modified loans are characterized as current and therefore are not impacting nonaccrual or delinquency totals as of June 30, 2022 and December 31, 2021. The Company does, however, consider all active deferrals when estimating loss reserves. As loans reach their deferral maturity date, consideration of TDR and delinquency status will resume in accordance with the Company's accounting policy.
25
The following table shows information regarding nonaccrual loans as of the dates indicated:
Nonaccrual Balances
June 30, 2022December 31, 2021
With Allowance for Credit LossesWithout Allowance for Credit LossesTotalWith Allowance for Credit LossesWithout Allowance for Credit LossesTotal
 (Dollars in thousands)
Commercial and industrial$3,465 $53 $3,518 $3,420 $19 $3,439 
Commercial real estate16,008 24,066 40,074 10,870 — 10,870 
Small business31 — 31 44 — 44 
Residential real estate7,980 583 8,563 8,580 602 9,182 
Home equity3,514 — 3,514 3,781 — 3,781 
Other consumer215 — 215 504 — 504 
Total nonaccrual loans (1)$31,213 $24,702 $55,915 $27,199 $621 $27,820 
(1)Included in these amounts were $1.7 million and $2.0 million of nonaccruing TDRs at June 30, 2022 and December 31, 2021, respectively.
It is the Company's policy to reverse any accrued interest when a loan is put on nonaccrual status, and, as such, the Company did not record any interest income on nonaccrual loans during the six months ended June 30, 2022 and 2021.
The following table shows information regarding foreclosed residential real estate property at the dates indicated:
June 30, 2022December 31, 2021
(Dollars in thousands)
Foreclosed residential real estate property held by the creditor$— $— 
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure$2,080 $1,426 
The following tables show the age analysis of past due financing receivables as of the dates indicated:
 June 30, 2022
 30-59 days60-89 days90 days or moreTotal Past Due Total
Financing
Receivables		Amortized Cost
>90 Days
and  Accruing
 Number
of Loans		Principal
Balance		Number
of Loans		Principal
Balance		Number
of Loans		Principal
Balance		Number
of Loans		Principal
Balance		Current
 (Dollars in thousands)
Loan Portfolio
Commercial and industrial6 $442 1 $188 4 $3,405 11 $4,035 $1,537,011 $1,541,046 $— 
Commercial real estate5 881 2 24,066 6 15,067 13 40,014 7,751,743 7,791,757 — 
Commercial construction— — 1 1,669 — — 1 1,669 1,192,908 1,194,577 — 
Small business3 100 1 5 5 30 9 135 205,818 205,953 — 
Residential real estate14 2,542 3 470 21 2,576 38 5,588 1,838,469 1,844,057 — 
Home equity8 799 3 153 20 1,570 31 2,522 1,062,988 1,065,510 — 
Other consumer (1)410 487 22 205 5 12 437 704 32,160 32,864 — 
Total446 $5,251 33 $26,756 61 $22,660 540 $54,667 $13,621,097 $13,675,764 $— 
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 December 31, 2021
 30-59 days60-89 days90 days or moreTotal Past Due Total
Financing
Receivables		Recorded
Investment
>90 Days
and  Accruing
 Number
of Loans		Principal
Balance		Number
of Loans		Principal
Balance		Number
of Loans		Principal
Balance		Number
of Loans		Principal
Balance		Current
 (Dollars in thousands)
Loan Portfolio
Commercial and industrial7 $143 2 $252 2 $24 11 $419 $1,562,860 $1,563,279 $— 
Commercial real estate15 32,845 — — 4 1,339 19 34,184 7,958,160 7,992,344 — 
Commercial construction— — — — — — — — 1,165,457 1,165,457 — 
Small business11 136 6 53 4 24 21 213 192,976 193,189 — 
Residential real estate12 2,709 5 714 76 3,922 93 7,345 1,597,341 1,604,686 — 
Home equity15 1,375 6 381 21 1,671 42 3,427 1,036,184 1,039,611 — 
Other consumer (1)458 719 41 277 16 112 515 1,108 27,612 28,720 — 
Total518 $37,927 60 $1,677 123 $7,092 701 $46,696 $13,540,590 $13,587,286 $— 
(1)Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances.

Troubled Debt Restructurings
In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Exclusive of loans modified under provisions of the CARES Act, any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.
The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated:
June 30, 2022December 31, 2021
 (Dollars in thousands)
TDRs on accrual status$11,734 $14,635 
TDRs on nonaccrual1,677 1,993 
Total TDRs$13,411 $16,628 
Additional commitments to lend to a borrower who has been a party to a TDR$144 $190 
The Company’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months subsequent to being modified before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Additionally, loans classified as TDRs are adjusted to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized.

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There were no new TDRs during the three or six months ended June 30, 2022. The following table shows the TDRs which occurred during the three and six months ended June 30, 2021 and the change in the recorded investment subsequent to the modifications occurring:
 Three Months EndedSix Months Ended
June 30, 2021June 30, 2021
 Number of
Contracts		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment 		Number of
Contracts		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment
 (Dollars in thousands)
Troubled debt restructurings
Commercial and industrial— $— $— 1 $14,148 $14,148 
Commercial real estate— — — 5 3,964 3,964 
Small business1 89 89 2 189 189 
Total (1)1 $89 $89 8 $18,301 $18,301 
(1)The pre-modification and post-modification balances represent the legal principal balance of the loan. Activity presented in the table above includes $14.3 million of modifications on existing TDR's occurring during the six months ended June 30, 2021.
The following table shows the Company’s post-modification balance of TDRs listed by type of modification for the periods indicated:
Three Months EndedSix Months Ended
 June 30June 30
 20212021
 (Dollars in thousands)
Combination rate and maturity— 14,148 
Extended maturity89 4,153 
Total89 $18,301 

The Company considers a loan to have defaulted when it reaches 90 days past due. During the six months ended June 30, 2022 and June 30, 2021, there were no loans modified during the prior twelve months that subsequently defaulted during the respective periods. The Company determines the amount of allowance on TDRs in accordance with CECL methodology using a discounted cash flow approach, or a fair value of collateral approach if the loan is determined to be individually evaluated.

NOTE 5 - STOCK BASED COMPENSATION
During the six months ended June 30, 2022, the Company had the following activity related to stock based compensation:
Time Vested Restricted Stock Awards
The Company made the following awards of time vested restricted stock:
DateShares GrantedPlanGrant Date Fair Value Per Share Vesting Period
2/17/202252,100 2005 Employee Stock Plan$84.70 Ratably over 5 years from grant date
5/24/20228,099 2018 Non-Employee Director Stock Plan$80.39 Shares vested immediately

Performance-Based Restricted Stock Awards
    On February 17, 2022, the Company granted 20,700 performance-based restricted stock awards, representing the maximum number of shares that may be earned under the awards, to certain executive level employees. These performance-based restricted stock awards were issued from the 2005 Employee Stock Plan and were determined to have a grant date fair value per share of $84.70. The number of shares to be vested are contingent upon the Company's attainment of certain performance criteria to be measured at the end of a three year performance period, ending December 31, 2024. The awards will
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vest upon the earlier of the date on which it is determined if the performance goal is achieved subsequent to the performance period or March 31, 2025.
    On March 10, 2022, the performance-based restricted stock awards that were awarded on February 21, 2019 vested at 50% of the maximum target shares awarded, or 7,450 shares.

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NOTE 6 - DERIVATIVE AND HEDGING ACTIVITIES
The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, the Company enters into interest rate derivatives, foreign exchange contracts and risk participation agreements to accommodate the business requirements of its customers (“customer related positions”). The Company minimizes the market and liquidity risks of customer related positions by entering into similar offsetting positions with broker-dealers. Derivative instruments are carried at fair value in the Company's financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship.
The Company does not enter into proprietary trading positions for any derivatives.
The Company is subject to over-the-counter derivative clearing requirements which require certain derivatives to be cleared through central clearing houses. Accordingly, the Company clears certain derivative transactions through the Chicago Mercantile Exchange Clearing House ("CME"). This clearing house requires the Company to post initial and variation margin to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts.
Interest Rate Positions
The Company may utilize various interest rate derivatives as hedging instruments against interest rate risk associated with the Company’s borrowings and loan portfolios. An interest rate derivative is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged.

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The following tables reflect the Company's derivative positions as of the dates indicated below for interest rate derivatives which qualify as cash flow hedges for accounting purposes:
June 30, 2022
Weighted Average Rate
Notional AmountAverage MaturityCurrent
Rate
Received		Pay Fixed
Swap Rate		Fair Value
(in thousands)(in years)(in thousands)
Interest rate swaps on borrowings$25,000 0.131.46 %1.88 %$(27)
Current Rate PaidReceive Fixed
Swap Rate
Interest rate swaps on loans 700,000 2.511.21 %2.32 %(12,749)
Current Rate PaidReceive Fixed Swap Rate
Cap - Floor
Interest rate collars on loans 500,000 2.311.22 %
3.09% - 2.28%
(2,327)
Total$1,225,000 $(15,103)
December 31, 2021
Weighted Average Rate
Notional AmountAverage MaturityCurrent
Rate
Received		Pay Fixed
Swap Rate		Fair Value
(in thousands)(in years)(in thousands)
Interest rate swaps on borrowings$25,000 0.620.16 %1.88 %$(294)
Current Rate PaidReceive Fixed
Swap Rate
Interest rate swaps on loans 550,000 2.580.11 %2.16 %11,830 
Current Rate PaidReceive Fixed Swap Rate
Cap - Floor
Interest rate collars on loans 400,000 1.660.11 %
2.73% - 2.20%
9,383 
Total$975,000 $20,919 

The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 6.7 years.
For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  The Company expects approximately $6.1 million (pre-tax) to be reclassified as a decrease to interest income and $13,000 (pre-tax) to be reclassified as an increase to interest expense, from OCI related to the Company’s cash flow hedges in the twelve months following June 30, 2022.  This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of June 30, 2022.
The Company had no fair value hedges as of June 30, 2022 or December 31, 2021.
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Customer Related Positions
Loan level derivatives, primarily interest rate swaps, offered to commercial borrowers through the Company’s loan level derivative program do not qualify as hedges for accounting purposes. The Company believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an offsetting dealer transaction. Derivatives with dealer counterparties are then either cleared through a clearinghouse or settled directly with a single counterparty. The commercial customer derivative program allows the Company to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. The amounts relating to the notional principal amount are not actually exchanged.
Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes. The Company acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions. The amounts relating to the notional principal amount are exchanged.
The Company has entered into risk participation agreements with other dealer banks in commercial loan agreements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and, therefore, changes in fair value are recognized in earnings. Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower for a fee received from the other bank.

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The following table reflects the Company’s customer related derivative positions as of the dates indicated below for those derivatives not designated as hedging:
  Notional Amount Maturing 
 Number of  Positions 
(1)		Less than 1 yearLess than 2 yearsLess than 3 yearsLess than 4 yearsThereafterTotalFair Value
June 30, 2022
 (Dollars in thousands)
Loan level swaps
Receive fixed, pay variable287 $57,970 $105,765 $203,076 $224,337 $990,654 $1,581,802 $(69,667)
Pay fixed, receive variable287 57,970 105,765 203,076 224,337 990,654 1,581,802 69,666 
Foreign exchange contracts
Buys foreign currency, sells U.S. currency62 142,758 36,475 — — — 179,233 (8,575)
Buys U.S. currency, sells foreign currency62 142,758 36,475 — — — 179,233 8,670 
Risk participation agreements
Participation out11 — 2,615 24,538 — 70,389 97,542 118 
Participation in9 40,985 16,440 — — 26,037 83,462 (37)
Notional Amount Maturing
Number of  Positions 
(1)		Less than 1 yearLess than 2 yearsLess than 3 yearsLess than 4 yearsThereafterTotalFair Value
December 31, 2021
 (Dollars in thousands)
Loan level swaps
Receive fixed, pay variable296 $37,589 $139,844 $123,507 $260,953 $1,060,276 $1,622,169 $55,984 
Pay fixed, receive variable296 37,589 139,844 123,507 260,953 1,060,276 1,622,169 (55,982)
Foreign exchange contracts
Buys foreign currency, sells U.S. currency52 149,588 8,784 — — — 158,372 5,734 
Buys U.S. currency, sells foreign currency52 149,588 8,784 — — — 158,372 (5,734)
Risk participation agreements
Participation out11 — 2,635 7,138 24,539 68,408 102,720 279 
Participation in7 29,972 28,235 — — 8,339 66,546 (55)

(1)The Company may enter into one dealer swap agreement which offsets multiple commercial borrower swap agreements.
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Mortgage Derivatives
The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that loans may be sold subsequently in the secondary market. Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. These commitments are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with changes in their fair values recorded within mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The fair value of loans held for sale increased by $122,000 and $305,000 for the three months ended June 30, 2022 and 2021, respectively. The fair value of loans held for sale decreased by $426,000 and $1.5 million for the six months ended June 30, 2022 and 2021, respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives.
Outstanding loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might change from inception of the rate lock to funding of the loan due to changes in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases. To protect against the price risk inherent in derivative loan commitments, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Mandatory delivery contracts are accounted for as derivative instruments. Included in the mandatory delivery forward commitments are To Be Announced securities ("TBAs"). Certain assumptions, including pull through rates and rate lock periods, are used in managing the existing and future hedges. The accuracy of underlying assumptions will impact the ultimate effectiveness of any hedging strategies.
With mandatory delivery contracts, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a "pair-off" fee, based on then-current market prices, to the investor/counterparty to compensate the investor for the shortfall. Generally, the Company makes this type of commitment once mortgage loans have been funded and are held for sale, in order to minimize the risk of failure to deliver the requisite volume of loans to the investor and paying pair-off fees as a result. The Company also sells TBA securities to offset potential changes in the fair value of derivative loan commitments. Generally, the Company sells TBA securities by entering into derivative loan commitments for settlement in 30 to 90 days. The Company expects that mandatory delivery contracts, including TBA securities, will experience changes in fair value opposite to the changes in the fair value of derivative loan commitments.
With best effort contracts, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, best efforts cash contracts have no pair off risk regardless of market movement. The price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these best efforts forward loan sale commitments will experience a net neutral shift in fair value with related derivative loan commitments.
The aggregate amount of net realized gains or losses on sales of such loans included within mortgage banking income was net realized losses of $278,000 and net realized gains of $4.2 million for the three months ended June 30, 2022 and 2021, respectively, and net realized gains of $321,000 and $12.3 million for the six months ended June 30, 2022 and 2021, respectively.
Balance Sheet Offsetting
The Company does not offset fair value amounts recognized for derivative instruments. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be maintained at dealer banks by the Company is monitored and adjusted as necessary.
A daily settlement occurs through the CME for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through the daily clearing agent. As a result, the total fair values of loan level derivative assets and liabilities recognized on the Company's financial statements are not equal and offsetting.

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The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet and the potential effect of netting arrangements on its financial position, at the dates indicated:
 Asset Derivatives (1)Liability Derivatives (2)
Fair Value atFair Value atFair Value atFair Value at
 June 30
2022		December 31
2021		June 30
2022		December 31
2021
 (Dollars in thousands)
Derivatives designated as hedges
Interest rate derivatives$1,240 (3)$21,951 (3)$16,343 (4)$1,032 (4)
Derivatives not designated as hedges
Customer Related Positions
Loan level derivatives73,737 (3)68,726 (3)73,738 (4)68,724 (4)
Foreign exchange contracts8,762 6,147 8,667 6,147 
Risk participation agreements118 279 37 55 
Mortgage Derivatives
Interest rate lock commitments185 753 — — 
Forward sale loan commitments— 56 14 — 
Forward sale hedge commitments— — 63 57 
Total derivatives not designated as hedges82,802 75,961 82,519 74,983 
Total84,042 97,912 98,862 76,015 
Netting Adjustments (5)(42,781)(5,727)8,983 6,769 
Net Derivatives on the Balance Sheet41,261 92,185 89,879 69,246 
Financial instruments (6)8,658 22,378 8,658 22,378 
Cash collateral pledged (received)— — 4 33,838 
Net Derivative Amounts$32,603 $69,807 $81,217 $13,030 
(1)All asset derivatives are reflected in other assets on the balance sheet.
(2)All liability derivatives are reflected in other liabilities on the balance sheet.
(3)Approximately $306,000 of accrued interest receivable is included in the fair value of interest rate derivative assets and $401,000 of accrued interest payable is included in the fair value of the loan level derivative assets at June 30, 2022, in comparison to accrued interest receivable of approximately $1.2 million and $1.5 million in included in the fair value of interest rate and loan level derivative assets, respectively, at December 31, 2021.
(4)Approximately $532,000 and $401,000 of accrued interest receivable is included in the fair value of interest rate and loan level derivative liabilities, respectively, at June 30, 2022. Accrued interest payable of approximately $5,000 and $1.5 million is included in the fair value of the interest rate and loan level derivative liabilities, respectively, at December 31, 2021.
(5)Netting adjustments represent the amounts recorded to convert derivative assets and liabilities cleared through CME from a gross basis to a net basis, inclusive of the variation margin payments, in accordance with applicable accounting guidance. As displayed in the table above, derivatives that cleared through the CME were either in a net asset position or a net liability position at June 30, 2022.
(6)Reflects offsetting derivative positions with the same counterparty that are not netted on the balance sheet.



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The table below presents the effect of the Company’s derivative financial instruments included in OCI and current earnings for the periods indicated:
Three Months EndedSix Months Ended
June 30June 30
 2022202120222021
 (Dollars in thousands)
Derivatives designated as hedges
Loss in OCI on derivatives (effective portion), net of tax$(7,649)$(1,593)$(25,599)$(8,176)
Gain reclassified from OCI into interest income or interest expense (effective portion)$3,515 $4,698 $8,020 $9,078 
Derivatives not designated as hedges
Changes in fair value of customer related positions
Other income$32 $77 $121 $83 
Other expense(89)(11)(172)(294)
Changes in fair value of mortgage derivatives
Mortgage banking income (225)(1,303)(644)(3,627)
Total$(282)$(1,237)$(695)$(3,838)

    The Company's derivative agreements with institutional counterparties contain various credit-risk related contingent provisions, such as requiring the Company to maintain a well-capitalized capital position. If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions. All derivative instruments with credit-risk contingent features were in a net asset position at June 30, 2022. At December 31, 2021, the aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $34.8 million. Although none of the contingency provisions have applied as of June 30, 2022 and December 31, 2021, the Company posted collateral to offset the net liability exposure with institutional counterparties at December 31, 2021.

    By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company's credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. Institutional counterparties must have an investment grade credit rating and be approved by the Company's Board of Directors. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. The Company's exposure relating to institutional counterparties was $72.9 million and $28.3 million at June 30, 2022 and December 31, 2021, respectively. The Company’s exposure relating to customer counterparties was approximately $2.0 million and $62.4 million at June 30, 2022 and December 31, 2021, respectively. Credit exposure may be reduced by the value of collateral pledged by the counterparty.


NOTE 7 - FAIR VALUE MEASUREMENTS
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the assumptions applied by the Company when determining fair value reflect those that the Company determines market participants would use to price the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received if the asset were to be sold or that would be or paid if the liability were to be transferred in an orderly market transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When determining fair value, the Company considers pricing information and other inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and other inputs may be reduced for certain instruments, or not available at all. The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another.
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to
36
unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation Techniques
There have been no changes in the valuation techniques used during the six months ended June 30, 2022.
Securities
Trading and Equity Securities
These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
U.S. Government Agency and U.S. Treasury Securities
Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.
Agency Mortgage-Backed Securities
Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.
Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities
The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
State, County, and Municipal Securities
The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transactions, and yield relationships. These securities are categorized as Level 2.
Single and Pooled Issuer Trust Preferred Securities
The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Loans Held for Sale
The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2.
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Derivative Instruments
Derivatives
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilizes. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Additionally, in conjunction with fair value measurement guidance, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate derivatives and risk participation agreements may also utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of June 30, 2022 and December 31, 2021, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are properly classified as Level 2.
Mortgage Derivatives
The fair value of mortgage derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified as Level 2 within the fair value hierarchy.
Individually Assessed Collateral Dependent Loans
In accordance with the CECL standard, expected credit losses on individually assessed loans deemed to be collateral dependent are valued based upon the lower of amortized cost or fair value of the underlying collateral less costs to sell.  The inputs used in the appraisals of the collateral are not always observable, and in such cases the loans may be classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Other Real Estate Owned and Other Foreclosed Assets
Other Real Estate Owned ("OREO") and Other Foreclosed Assets are valued at the lower of cost or fair value of the property, less estimated costs to sell. The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore OREO and Other Foreclosed Assets may be classified as Level 3 within the fair value hierarchy.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and a discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

38
Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows at the dates indicated:
  Fair Value Measurements at Reporting Date Using
BalanceQuoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 June 30, 2022
 (Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities$3,637 $3,637 $— $— 
Equity securities21,181 21,181 — — 
Securities available for sale
U.S. government agency securities209,455 — 209,455 — 
U.S. treasury securities809,098 — 809,098 — 
Agency mortgage-backed securities377,790 — 377,790 — 
Agency collateralized mortgage obligations44,477 — 44,477 — 
State, county, and municipal securities197 — 197 — 
Single issuer trust preferred securities issued by banks and insurers468 — 468 — 
Pooled trust preferred securities issued by banks and insurers999 — 999 — 
Small business administration pooled securities59,465 — 59,465 — 
Loans held for sale2,358 — 2,358 — 
Derivative instruments84,042 — 84,042 — 
Liabilities
Derivative instruments98,862 — 98,862 — 
Total recurring fair value measurements$1,514,305 $24,818 $1,489,487 $— 
Nonrecurring fair value measurements
Assets
Individually assessed collateral dependent loans (1)$24,649 $— $— $24,649 
Total nonrecurring fair value measurements$24,649 $— $— $24,649 
39
  Fair Value Measurements at Reporting Date Using
BalanceQuoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 December 31, 2021
 (Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities$3,720 $3,720 $— $— 
Equity securities23,173 23,173 — — 
Securities available for sale
U.S. government agency securities215,482 — 215,482 — 
U.S. treasury securities861,448 — 861,448 — 
Agency mortgage-backed securities363,933 — 363,933 — 
Agency collateralized mortgage obligations79,677 — 79,677 — 
State, county, and municipal securities203 — 203 — 
Single issuer trust preferred securities issued by banks and insurers491 — 491 — 
Pooled trust preferred securities issued by banks and insurers1,000 — 1,000 — 
Small business administration pooled securities48,914 — 48,914 — 
Loans held for sale24,679 — 24,679 — 
Derivative instruments97,912 — 97,912 — 
Liabilities
Derivative instruments76,015 — 76,015 — 
Total recurring fair value measurements$1,644,617 $26,893 $1,617,724 $— 
Nonrecurring fair value measurements
Assets
Individually assessed collateral dependent loans (1)$1,174 $— $— $1,174 
Total nonrecurring fair value measurements$1,174 $— $— $1,174 
(1) The carrying value of individually assessed collateral dependent loans is based on the lower of amortized cost or fair value of the underlying collateral less costs to sell. The fair value of the underlying collateral is generally determined through independent appraisals, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary.


40
The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below at the dates indicated:
   Fair Value Measurements at Reporting Date Using
 Carrying
Value		Fair
Value		Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
  
June 30, 2022
 (Dollars in thousands)
Financial assets
Securities held to maturity (a)
U.S. government agency securities$32,128 $30,300 $— $30,300 $— 
U.S. treasury securities100,595 91,987 — 91,987 — 
Agency mortgage-backed securities631,754 584,074 — 584,074 — 
Agency collateralized mortgage obligations577,183 524,994 — 524,994 — 
Single issuer trust preferred securities issued by banks1,500 1,508 — 1,508 — 
Small business administration pooled securities65,029 64,302 — 64,302 — 
Loans, net of allowance for credit losses (b)13,506,796 13,351,014 — — 13,351,014 
Federal Home Loan Bank stock (c)6,249 6,249 — 6,249 — 
Cash surrender value of life insurance policies (d)292,807 292,807 — 292,807 — 
Financial liabilities
Deposit liabilities, other than time deposits (e)$15,328,945 $15,328,945 $— $15,328,945 $— 
Time certificates of deposits (f)1,310,603 1,287,031 — 1,287,031 — 
Federal Home Loan Bank borrowings (f)25,652 25,577 — 25,577 — 
Junior subordinated debentures (g)62,854 61,704 — 61,704 — 
Subordinated debentures (f)49,838 44,172 — — 44,172 
 
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   Fair Value Measurements at Reporting Date Using
 Carrying
Value		Fair
Value		Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
  
December 31, 2021
 (Dollars in thousands)
Financial assets
Securities held to maturity (a)
U.S. government agency securities$32,987 $32,546 $— $32,546 $— 
U.S. treasury securities102,560 102,242 — 102,242 — 
Agency mortgage-backed securities493,012 497,236 — 497,236 — 
Agency collateralized mortgage obligations415,736 408,845 — 408,845 — 
Single issuer trust preferred securities issued by banks1,500 1,508 — 1,508 — 
Small business administration pooled securities21,023 21,756 — 21,756 — 
Loans, net of allowance for credit losses (b)13,439,190 13,389,515 — — 13,389,515 
Federal Home Loan Bank stock (c)11,407 11,407 — 11,407 — 
Cash surrender value of life insurance policies (d)289,304 289,304 — 289,304 — 
Financial liabilities
Deposit liabilities, other than time deposits (e)$15,385,894 $15,385,894 $— $15,385,894 $— 
Time certificates of deposits (f)1,531,150 1,529,857 — 1,529,857 — 
Federal Home Loan Bank borrowings (f)25,667 25,663 — 25,663 — 
Long-term borrowings (f)14,063 13,989 — 13,989 — 
Junior subordinated debentures (g)62,853 67,019 — 67,019 — 
Subordinated debentures (f)49,791 45,532 — — 45,532 
(a)The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analysis.
(b)Fair value of loans is measured using the exit price valuation method, determined primarily by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows, while incorporating liquidity and credit assumptions. Additionally, this amount excludes individually assessed collateral dependent loans, which are deemed to be marked to fair value on a nonrecurring basis.
(c)Federal Home Loan Bank stock has no quoted market value and is carried at cost; therefore the carrying amount approximates fair value.
(d)Cash surrender value of life insurance policies is recorded at its cash surrender value (or the amount that can be realized upon surrender of the policy), therefore, carrying amount approximates fair value.
(e)Fair value of demand deposits, savings and interest checking accounts and money market deposits is the amount payable on demand at the reporting date.
(f)Fair value was determined by discounting anticipated future cash payments using rates currently available for instruments with similar remaining maturities.
(g)Fair value was determined based upon market prices of securities with similar terms and maturities.
This summary excludes certain financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these may include cash and due from banks, federal funds sold and short-term investments. For financial liabilities, these may include federal funds purchased. These instruments would all be considered to be classified as Level 1 within the fair value hierarchy. Also excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described.
The Company considers its current use of financial instruments to be the highest and best use of the instruments.

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NOTE 8 - REVENUE RECOGNITION

A portion of the Company's noninterest income is derived from contracts with customers, and as such, the revenue recognized depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance. To ensure its alignment with this core principle, the Company measures revenue and the timing of recognition by applying the following five steps:

1.Identify the contract(s) with customers
2.Identify the performance obligations
3.Determine the transaction price
4.Allocate the transaction price to the performance obligations
5.Recognize revenue when (or as) the entity satisfies a performance obligation
    
The Company has disaggregated its revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following table presents the revenue streams that the Company has disaggregated as of the periods indicated:
Three Months EndedSix Months Ended
June 30
2022		June 30
2021		June 30
2022		June 30
2021
(Dollars in thousands)
Deposit account fees (inclusive of cash management fees)$5,828 $3,822 $11,321 $7,406 
Interchange fees2,738 2,141 5,210 4,044 
ATM fees993 735 1,834 1,360 
Investment management - wealth management and advisory services7,825 8,027 15,729 15,429 
Investment management - retail investments and insurance revenue1,504 845 2,273 1,747 
Merchant processing income 350 339 728 659 
Credit card income474 313 846 549 
Other noninterest income1,472 1,245 2,868 2,370 
Total noninterest income in-scope of ASC 60621,184 17,467 40,809 33,564 
Total noninterest income out-of-scope of ASC 6066,714 7,500 13,361 16,649 
Total noninterest income$27,898 $24,967 $54,170 $50,213 

In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and service requirements are generally explicitly identified in the associated contracts. Additional information related to each of the revenue streams is further noted below.

Deposit Account Fees

The Company offers various deposit account products to its customers governed by specific deposit agreements applicable to either personal customers or business customers. These agreements identify the general conditions and obligations of both parties, and include standard information regarding deposit account related fees.

Deposit account services include providing access to deposit accounts as well as access to the various deposit transactional services of the Company. These transactional services are primarily those that are identified in the standard fee schedule, and include, but are not limited to, services such as overdraft protection, wire transfer, and check collection. Revenue is recognized in conjunction with the various services being provided. For example, the Company may assess monthly fixed service fees associated with the customer having access to a deposit account, which can vary depending on the account type and daily account balance. In addition, the Company may also assess separate fixed fees associated with and at the time specific transactions are entered into by the customer. As such, the Company considers its performance obligations to be met concurrently with providing the account access or completing the requested deposit transaction.

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Cash Management
        
Cash management services are a subset of the deposit account fees revenue stream. These services primarily include ACH transaction processing, positive pay and remote deposit services. These services are also governed by separate agreements entered into with the customer. The fee arrangement for these services is structured to assess fees under one of two scenarios, either a per transaction fee arrangement or an earnings credit analysis arrangement. Under the per transaction fee arrangement, fixed fees are assessed concurrently with customers executing the transactions, and as such, the Company considers its performance obligations to be met concurrently with completing the requested transaction. Under the earnings credit analysis arrangement, the Company provides a monthly earnings credit to the customer that is negotiated and determined based on various factors. The credit is then available to absorb the per transaction fees that are assessed on the customer's deposit account activity for the month. Any amount of the transactional fees in excess of the earnings credit is recognized as revenue in that month.

Interchange Fees

The Company earns interchange revenue from its issuance of credit and debit cards granted through its membership in various card payment networks. The Company provides credit cards and debit cards to its customers which are authorized and settled through these payment networks, and in exchange, the Company earns revenue as determined by each payment network's interchange program. The revenue is recognized concurrently with the settlement of card transactions within each network.

ATM Fees

The Company deploys automated teller machines (ATMs) as part of its overall branch network. Certain transactions performed at the ATMs require customers to acknowledge and pay a fee for the requested service. Certain ATM fees are disclosed in the deposit account agreement fee schedules, whereas those assessed to non-Rockland Trust deposit holders are solely determined during the transaction at the machine.

The ATM fee is a fixed dollar per transaction amount, and as such, is recognized concurrently with the overall daily processing and settlement of the ATM activity.

Investment Management - Wealth Management and Advisory Services

The Company offers investment management and trust services to individuals, institutions, small businesses and charitable institutions. Each investment management product is governed by its own contract along with a separate identifiable fee schedule unique to that product. The Company also offers additional services, such as estate settlement, financial planning, tax services and other special services quoted at the client's request.

The asset management and/or custody fees are based upon a percentage of the monthly valuation of the principal assets in the customer's account, whereas fees for additional or special services are fixed in nature and are charged as services are rendered. As the fees are dependent on assets under management, which are susceptible to market factors outside of the Company's control, this variable consideration is constrained and therefore no revenue is estimated at contract initiation. As such, all revenue is recognized in correlation to the monthly management fee determinations or as transactional services are provided. Due to the fact that payments are primarily made subsequent to the valuation period, the Company records a receivable for revenue earned but not received. The following table provides the amount of investment management revenue earned but not received as of the dates indicated:
June 30, 2022December 31, 2021
(Dollars in thousands)
Receivables, included in other assets $5,124 $5,385 

Investment Management - Retail Investments and Insurance Revenue

The Company offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance products through registered representatives who are both employed by the Company and licensed and contracted with various broker general agents to offer these products to the Company’s customer base. As such, the Company performs these services as an agent and earns a fixed commission on the sales of these products and services. To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds.
44
In general, the Company recognizes commission revenue at the point of sale, and for certain insurance products, may also earn and recognize annual residual commissions commensurate with annual premiums being paid.

Merchant Processing Income
    
The Company refers customers to third party merchant processing partners in exchange for commission and fee income. The income earned is comprised of multiple components, including a fixed referral fee per each referred customer, a rebate amount determined primarily as a percentage of net revenue earned by the third party from services provided to each referred customer, and overall production bonus commissions if certain new account production thresholds are met. Merchant processing income is recognized in conjunction with either completing the referral to earn the fixed fee amount or as the merchant activity is processed to derive the Company's rebate and/or production bonus amounts.

Credit Card Income

The Company provides consumer and business credit card solutions to its customers by soliciting new accounts on behalf of a third party credit card provider in exchange for a fee. The income earned is comprised of new account incentive payments as well as a percentage of interchange income earned by the third party provider offering the consumer and business purpose revolving credit accounts. The credit card income is recognized in conjunction with the establishment of each new credit card member or as the interchange is earned by the third party in connection with net purchase transactions made by the credit card member.
    
Other Noninterest Income

The Company earns various types of other noninterest income that fall within the scope of the new revenue recognition rules, and have been aggregated into one general revenue stream in the table noted above. This amount includes, but is not limited to, the following types of revenue with customers:

Safe Deposit Rent

    The Company rents out the use of safe deposit boxes to its customers, which can be accessed when the bank is open for business. The safe deposit box rental fee is paid upfront and is recognized as revenue ratably over the annual term of the contract.

1031 Exchange Fee Revenue

    The Company provides like-kind exchange services pursuant to Section 1031 of the Internal Revenue Code. Fee income is recognized in conjunction with completing the exchange transactions.

Foreign Currency

    The Company earns fee income associated with various transactions related to foreign currency product offerings, including foreign currency bank notes and drafts and foreign currency wires. The majority of this income is derived from commissions earned related to customers executing the above mentioned foreign currency transactions through arrangements with third party correspondents.
45
NOTE 9 - OTHER COMPREHENSIVE INCOME (LOSS)
The following tables present a reconciliation of the changes in the components of other comprehensive income (loss) for the periods indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):
Three Months Ended
June 30, 2022		Six Months Ended
June 30, 2022
Pre-Tax
Amount		Tax (Expense)
Benefit		After Tax
Amount		Pre-Tax
Amount		Tax (Expense)
Benefit		After Tax
Amount
 (Dollars in thousands)
Change in fair value of securities available for sale$(30,734)$7,000 $(23,734)$(112,353)$26,063 $(86,290)
Less: net security losses reclassified into other noninterest expense— — — — — — 
Net change in fair value of securities available for sale(30,734)7,000 (23,734)(112,353)26,063 (86,290)
Change in fair value of cash flow hedges(7,126)2,004 (5,122)(27,606)7,772 (19,834)
Less: net cash flow hedge gains reclassified into interest income or interest expense 3,515 (988)2,527 8,020 (2,255)5,765 
Net change in fair value of cash flow hedges(10,641)2,992 (7,649)(35,626)10,027 (25,599)
Amortization of net actuarial losses158 (44)114 317 (89)228 
Amortization of net prior service costs9 (2)7 19 (5)14 
Net change in other comprehensive income for defined benefit postretirement plans (1)167 (46)121 336 (94)242 
Total other comprehensive loss$(41,208)$9,946 $(31,262)$(147,643)$35,996 $(111,647)
 Three Months Ended
June 30, 2021		Six Months Ended
June 30, 2021
 Pre-Tax
Amount		Tax (Expense)
Benefit		After Tax
Amount		Pre-Tax
Amount		Tax (Expense)
Benefit		After Tax
Amount
 (Dollars in thousands)
Change in fair value of securities available for sale$5,109 $(1,316)$3,793 $(5,252)$1,271 $(3,981)
Less: net security losses reclassified into other noninterest expense— — — — — — 
Net change in fair value of securities available for sale5,109 (1,316)3,793 (5,252)1,271 (3,981)
Change in fair value of cash flow hedges2,481 (697)1,784 (2,298)647 (1,651)
Less: net cash flow hedge gains reclassified into interest income or interest expense 4,698 (1,321)3,377 9,078 (2,553)6,525 
Net change in fair value of cash flow hedges(2,217)624 (1,593)(11,376)3,200 (8,176)
Net unamortized gain related to defined benefit pension and other postretirement adjustments arising during the period— — — 653 (184)469 
Amortization of net actuarial losses249 (70)179 691 (194)497 
Amortization of net prior service costs43 (12)31 87 (24)63 
Net change in other comprehensive income for defined benefit postretirement plans (1)292 (82)210 1,431 (402)1,029 
Total other comprehensive income (loss)$3,184 $(774)$2,410 $(15,197)$4,069 $(11,128)

(1)The amortization of prior service costs is included in the computation of net periodic pension cost as disclosed in Note 14 "Employee Benefit Plans" within the Notes to the Consolidated Financial Statements included in Item 8 of the Company's 2021 Form 10-K.
46
Information on the Company’s accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the dates indicated:
Unrealized Gain (Loss)
on Securities		Unrealized Gain (Loss) on Cash Flow HedgeDefined Benefit Postretirement PlansAccumulated Other Comprehensive Income (Loss)
(Dollars in thousands)
2022
Beginning balance: January 1, 2022$(9,667)$14,137 $(2,287)$2,183 
Net change in other comprehensive income (loss)(86,290)(25,599)242 (111,647)
Ending balance: June 30, 2022$(95,957)$(11,462)$(2,045)$(109,464)
 2021
Beginning balance: January 1, 2021$13,255 $33,276 $(5,836)$40,695 
Net change in other comprehensive income (loss)(3,981)(8,176)1,029 (11,128)
Ending balance: June 30, 2021$9,274 $25,100 $(4,807)$29,567 


NOTE 10 - COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
    In the normal course of business, the Company enters into various transactions to meet the financing needs of its customers, which, in accordance with GAAP, are not included in its consolidated balance sheets. These transactions include commitments to extend credit and standby letters of credit, and loan exposures with recourse, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
    The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of these commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding.
The Company has certain loan exposures for which there is recourse. These loan relationships could require the Company to repurchase or cover certain losses per agreements for certain loans that are either sold or referred to third parties.
    Standby letters of credit are written conditional commitments issued to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
    The fees collected in connection with the issuance of standby letters of credit are representative of the fair value of the Company's obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees, fees collected in connection with the issuance of standby letters of credit are deferred. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement. The deferred standby letter of credit fees represent the fair value of the Company's potential obligations under the standby letter of credit guarantees.
    The following table summarizes the above financial instruments at the dates indicated:
June 30, 2022December 31, 2021
 (Dollars in thousands)
Commitments to extend credit$4,604,012 $4,535,895 
Standby letters of credit25,445 24,412 
Deferred standby letter of credit fees210 124 
Loan exposures sold with recourse178,510 202,717 
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Lease Commitments
The Company leases office space, space for ATM locations, and certain branch locations under noncancellable operating leases. Several of these leases contain renewal options to extend lease terms for a period of 1 to 20 years. During the first quarter of 2022, the Company recognized approximately $4.4 million in costs associated with several terminated leased locations acquired from Meridian that were subsequently exited. These costs are reflected within merger and acquisition expense in the Consolidated Statement of Income.
There has been no significant change in the future minimum lease payments payable by the Company since December 31, 2021. See the Company's 2021 Form 10-K for information regarding leases and other commitments.
Other Contingencies
At June 30, 2022, the Bank was involved in pending lawsuits that arose in the ordinary course of business. Management has reviewed these pending lawsuits with legal counsel and has taken into consideration the view of counsel as to their outcome. In the opinion of management, the final disposition of pending lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.

48

NOTE 11 - LOW INCOME HOUSING PROJECT INVESTMENTS
The Company has invested in low income housing projects that generate Low Income Housing Tax Credits (“LIHTC”) which provide the Company with tax credits and operating loss tax benefits over a period of approximately 15 years. None of the original investment is expected to be repaid.
The following table presents certain information related to the Company's investments in low income housing projects as of the dates indicated:
June 30
2022		December 31
2021
(Dollars in thousands)
Original investment value$183,953 $179,481 
Current recorded investment133,086 135,497 
Unfunded liability obligation64,241 73,336 
Tax credits and benefits 17,477 (1)14,198 
Amortization of investments 13,968 (1)11,892 
Net income tax benefit 3,509 (1)2,306 
(1)Amounts shown represent the estimated full year impact for the year ended December 31, 2022.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the "2021 Form 10-K").

Cautionary Statement Regarding Forward-Looking Statements

    This Quarterly Report on Form 10-Q (this "Report"), in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by forward-looking terminology such as “should,” “could,” “will,” “may,” “expect,” “believe,” “forecast,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” “estimate,” “intend,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the “Risk Factors” section of the 2021 Form 10-K, include but are not limited to:

•further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including any future weakening caused by the COVID-19 pandemic and any uncertainty regarding the length and extent of economic contraction as a result of the pandemic;
•the potential effects of inflationary pressures, labor market shortages and supply chain issues;
•the instability or volatility in financial markets and unfavorable general economic or business conditions, globally, nationally or regionally, caused by geopolitical concerns, including as a result of the conflict between Russia and Ukraine;
•unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;
•adverse changes or volatility in the local real estate market;
•adverse changes in asset quality and any unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;
•acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;
•additional regulatory oversight and related compliance costs;
•changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
49
•higher than expected tax expense, resulting from failure to comply with general tax laws and changes in tax laws;
•changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR;
•increased competition in the Company’s market areas;
•adverse weather, changes in climate, natural disasters, geopolitical concerns, including those arising from the conflict between Russia and Ukraine;
•the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, other public health crises or man-made events, and their impact on the Company's local economies or the Company's operations;
•a deterioration in the conditions of the securities markets;
•a deterioration of the credit rating for U.S. long-term sovereign debt;
•inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
•electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
•adverse changes in consumer spending and savings habits;
•the effect of laws and regulations regarding the financial services industry;
•changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;
•the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;
•changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters including, but not limited to, changes to how the Company accounts for credit losses;
•cyber security attacks or intrusions that could adversely impact our businesses; and
•other unexpected material adverse changes in our operations or earnings.

Further, the foregoing factors may be exacerbated by the ultimate impact of the COVID-19 pandemic, which remains unknown at this time due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond the Company's control, including the scope, duration and extent of the pandemic and any further resurgences, the efficacy, availability and public acceptance of vaccines, boosters or other treatments, actions taken by governmental authorities in response to the pandemic and the direct and indirect impact of these actions and the pandemic generally on the Company’s employees, customers, business and third-parties with which the Company conducts business.

    Except as required by law, the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether in response to new information, future events or otherwise. Any public statements or disclosures by the Company following this Report which modify or impact any of the forward-looking statements contained in this Report will be deemed to modify or supersede such statements in this Report.
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Selected Quarterly Financial Data
The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere in this Report.
Three Months Ended
June 30
2022		March 31
2022		December 31
2021		September 30
2021		June 30
2021
 (Dollars in thousands, except per share data)
Financial condition data
Securities$2,934,956 $2,861,739 $2,664,859 $2,318,757 $1,682,751 
Loans13,675,764 13,580,027 13,587,286 8,808,013 8,938,988 
Allowance for credit losses(144,319)(144,518)(146,922)(92,246)(102,357)
Goodwill and other intangible assets1,013,917 1,015,831 1,017,844 525,261 526,576 
Total assets19,982,450 20,159,178 20,423,405 14,533,311 14,194,207 
Total deposits16,639,548 16,763,392 16,917,044 12,260,140 11,986,971 
Total borrowings138,344 138,328 152,374 157,045 171,713 
Stockholders’ equity2,871,185 2,965,439 3,018,449 1,755,954 1,741,622 
Nonperforming loans55,915 56,618 27,820 45,810 47,818 
Nonperforming assets55,915 56,618 27,820 45,810 47,818 
Income statement
Interest income$148,123 $140,619 $125,921 $93,016 $96,702 
Interest expense3,262 3,187 3,391 2,925 3,348 
Net interest income144,861 137,432 122,530 90,091 93,354 
Provision for credit losses— (2,000)35,705 (10,000)(5,000)
Noninterest income27,898 26,272 29,180 26,457 24,967 
Noninterest expenses90,562 95,500 117,126 72,419 73,302 
Net income61,776 53,097 1,702 40,007 37,572 
Per share data
Net income—basic$1.32 $1.12 $0.04 $1.21 $1.14 
Net income—diluted1.32 1.12 0.04 1.21 1.14 
Cash dividends declared0.51 0.51 0.48 0.48 0.48 
Book value per share62.32 62.59 63.75 53.14 52.72 
Tangible book value per share (1)40.31 41.15 42.25 37.24 36.78 
Performance ratios
Return on average assets1.24 %1.06 %0.04 %1.11 %1.08 %
Return on average common equity8.49 %7.16 %0.28 %9.04 %8.70 %
Net interest margin (on a fully tax equivalent basis)3.27 %3.09 %3.05 %2.78 %2.99 %
Dividend payout ratio39.11 %42.80 %931.90 %39.64 %42.19 %
Asset Quality Ratios
Nonperforming loans as a percent of gross loans0.41 %0.42 %0.20 %0.52 %0.53 %
Nonperforming assets as a percent of total assets0.28 %0.28 %0.14 %0.32 %0.34 %
Allowance for credit losses as a percent of total loans1.06 %1.06 %1.08 %1.05 %1.15 %
Allowance for credit losses as a percent of nonperforming loans258.10 %255.25 %528.12 %201.37 %214.06 %
Capital ratios
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Equity to assets14.37 %14.71 %14.78 %12.08 %12.27 %
Tangible equity to tangible assets (1)9.79 %10.18 %10.31 %8.79 %8.89 %
Tier 1 leverage capital ratio10.42 %10.62 %12.03 %9.36 %9.41 %
Common equity tier 1 capital ratio13.90 %14.45 %14.30 %13.53 %13.31 %
Tier 1 risk-based capital ratio13.90 %14.45 %14.30 %14.21 %13.98 %
Total risk-based capital ratio15.62 %16.18 %16.04 %15.78 %15.67 %

(1)     Represents a non-GAAP measure. For reconciliation to GAAP book value per share, see Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Executive Level Overview - Non-GAAP Measures" below.


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Executive Level Overview

    Management evaluates the Company's operating results and financial condition using measures that include net income, earnings per share, return on assets and equity, return on tangible common equity, net interest margin, tangible book value per share, asset quality indicators, and many others. These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results. The Company is focused on organic growth, but will also consider acquisition opportunities that are expected to provide a satisfactory financial return, including the recent acquisition of Meridian Bancorp, Inc. ("Meridian") and its subsidiary, East Boston Savings Bank ("EBSB"), which closed in the fourth quarter of 2021.

Second Quarter 2022 Results
    
Net income for the three months ended June 30, 2022 was $61.8 million, or $1.32 on a diluted earnings per share basis, as compared to $37.6 million, or $1.14 on a diluted earnings per share basis, for the three months ended June 30, 2021, representing an increase of 64.4% and 15.8%, respectively. Full year-to-date net income for the six months ended June 30, 2022 was $114.9 million, or $2.44 on a diluted earnings per share basis, as compared to $79.3 million, or $2.40 on a diluted earnings per share basis, for the six months ended June 30, 2021, representing an increase of 44.9% and 1.7%, respectively. First half 2022 results reflect merger-related costs of $7.1 million, pre-tax, associated with the Meridian acquisition, as compared to $1.7 million during the same prior year period. Excluding these merger and acquisition costs, operating net income was $120.0 million, or $2.55 on a diluted per share basis, for the six months ended June 30, 2022, as compared to $80.5 million, or $2.44 on a diluted per share basis for the six months ended June 30, 2021. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures.

Second quarter 2022 results reflected the following key drivers:

•4.9% annualized net loan growth, when excluding PPP runoff, driven primarily by strong consumer loan activity;
•Modest cash deployment into the securities portfolio, which resulted in enhanced profitability;
•Improved net interest margin when excluding purchase accounting and PPP related impact;
•Strong core deposit account openings, with an overall reduction in deposit balances driven primarily by lower time deposit balances;
•Zero provision for credit losses, driven primarily by continued strong asset quality metrics;
•Solid fee income results;
•Modest increase in operating expenses for the quarter, when excluding $7.1 million of merger and acquisition expenses incurred during the prior quarter, driven primarily by increased incentive compensation, salaries and benefits and consulting costs;
•1.3 million shares were repurchased under the Company's share repurchase program.

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Interest-Earning Assets

    The results depicted in the following table reflect the trend of the Company's interest-earning assets over the past five quarters. Management’s asset strategy typically emphasizes loan growth, however, the mix of interest earning assets has experienced volatility over the last five quarters due to the unique operating environment, as well as the Company's acquisition of Meridian during the fourth quarter of 2021. The following table summarizes the Company's interest-earning assets as of the periods indicated.

indb-20220630_g1.jpg

    Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. In addition, management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and credit losses.

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Funding and Net Interest Margin

    The Company's overall sources of funding reflect strong business and retail deposit growth with a management emphasis on core deposit growth to fund loans. The following chart shows the sources of funding and the percentage of core deposits to total deposits for the trailing five quarters:

indb-20220630_g2.jpg

    


    The following table shows the net interest margin and cost of deposits trends for the trailing five quarters:
indb-20220630_g3.jpg


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Noninterest Income

    Noninterest income is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income. The following chart shows the components of noninterest income over the past five quarters:

indb-20220630_g4.jpg

Expense Control

    Management seeks to take a balanced approach to noninterest expense control by monitoring ongoing operating expenses while making needed capital expenditures and prudently investing in growth initiatives. The Company’s primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment.

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

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indb-20220630_g5.jpg
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

Capital

    The Company's approach with respect to revenue and expense is designed to promote long-term earnings growth, which in turn contributes to capital growth. Strong earnings retention has contributed to capital growth, both on an absolute level and per share basis. The following chart shows the Company's book value and tangible book value per share over the past five quarters (see "Non-GAAP Measures" below for a reconciliation to GAAP financial measures):

indb-20220630_g6.jpg
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

    The Company declared a quarterly cash dividend of $0.51 per share for each of the first two quarters of 2022, representing an increase of 6.3% from the 2021 quarterly dividend rate of $0.48 per share. Additionally, the Company repurchased 1.3 million shares during the six months ended June 30, 2022 under the Company's previously announced buyback program, which totaled $105.3 million.



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Non-GAAP Measures
    When management assesses the Company’s financial performance for purposes of making day-to-day and strategic decisions, it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and noninterest or fee income, reduced by operating expenses, the provision for credit losses, and the impact of income taxes and other noncore items shown in the table that follows. There are items that impact the Company's results that management believes are unrelated to its core banking business such as gains or losses on the sales of securities, merger and acquisition expenses, provision for credit losses on acquired portfolios, loss on extinguishment of debt, impairment, and other items, such as one-time adjustments as a result of changes in laws and regulations. Management, therefore, excludes items management considers to be noncore when computing the Company’s non-GAAP operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis. Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items.
    
Management also supplements its evaluation of financial performance with an analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or tangible common equity, by common shares outstanding) and with the Company's tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets) which are non-GAAP measures. The Company has included information on these tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends.  The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities.  Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. The Company’s non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies.
    The following tables summarize adjustments for noncore items for the periods indicated below and reconcile non-GAAP measures:
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 Three Months Ended June 30
 Net IncomeDiluted
Earnings Per Share
 2022202120222021
 (Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)$61,776 $37,572 $1.32 $1.14 
Non-GAAP adjustments
Noninterest expense components
Add: merger and acquisition expenses— 1,731 — 0.05 
Noncore increases to income before taxes— 1,731 — 0.05 
Net tax benefit associated with noncore items (1)— (487)— (0.02)
Total tax impact— (487)— (0.02)
Noncore increases to net income— 1,244 — 0.03 
Operating net income (Non-GAAP)$61,776 $38,816 $1.32 $1.17 
 Six Months Ended June 30
 Net IncomeDiluted
Earnings Per Share
 2022202120222021
 (Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)$114,873 $79,283 $2.44 $2.40 
Non-GAAP adjustments
Noninterest expense components
Add: merger and acquisition expenses7,100 1,731 0.15 0.05 
Noncore increases to income before taxes7,100 1,731 0.15 0.05 
Net tax benefit associated with noncore items (1)(1,995)(487)(0.04)(0.02)
Noncore increases to net income5,105 1,244 0.11 0.03 
Operating net income (Non-GAAP) $119,978 $80,527 $2.55 $2.44 
(1)The net tax benefit associated with noncore items is determined by assessing whether each noncore item is included or excluded from net taxable income and applying the Company's combined marginal tax rate to only those items included in net taxable income.


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Three Months Ended
June 30
2022		March 31
2022		December 31
2021		September 30
2021		June 30
2021
(Dollars in thousands)
Net interest income (GAAP)$144,861 $137,432 $122,530 $90,091 $93,354 (a)
Noninterest income (GAAP) $27,898 $26,272 $29,180 $26,457 $24,967 (b)
Noninterest expense (GAAP)$90,562 $95,500 $117,126 $72,419 $73,302 (c)
Less:
Merger and acquisition expense— 7,100 37,166 1,943 1,731 
Noninterest expense on an operating basis (Non-GAAP)$90,562 $88,400 $79,960 $70,476 $71,571 (d)
Total revenue (GAAP)$172,759 $163,704 $151,710 $116,548 $118,321 (a+b)
Ratios
Noninterest income as a % of revenue (GAAP based)16.15 %16.05 %19.23 %22.70 %21.10 %(b/(a+b))
   Efficiency ratio (GAAP based)52.42 %58.34 %77.20 %62.14 %61.95 %(c/(a+b))
Efficiency ratio on an operating basis (Non-GAAP)52.42 %54.00 %52.71 %60.47 %60.49 %(d/(a+b))

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    The following table summarizes the calculation of the Company's tangible common equity to tangible assets ratio and tangible book value per share:
June 30
2022		March 31
2022		December 31
2021		September 30
2021		June 30
2021
(Dollars in thousands, except per share data)
Tangible common equity
Stockholders' equity (GAAP)$2,871,185 $2,965,439 $3,018,449 $1,755,954 $1,741,622 (a)
Less: Goodwill and other intangibles1,013,917 1,015,831 1,017,844 525,261 526,576 
Tangible common equity (Non-GAAP)1,857,268 1,949,608 2,000,605 1,230,693 1,215,046 (b)
Tangible assets
Assets (GAAP)19,982,450 20,159,178 20,423,405 14,533,311 14,194,207 (c)
Less: Goodwill and other intangibles1,013,917 1,015,831 1,017,844 525,261 526,576 
Tangible assets (Non-GAAP)$18,968,533 $19,143,347 $19,405,561 $14,008,050 $13,667,631 (d)
Common shares46,069,761 47,377,125 47,349,778 33,043,812 33,037,859 (e)
Common equity to assets ratio (GAAP)14.37 %14.71 %14.78 %12.08 %12.27 %(a/c)
Tangible common equity to tangible assets ratio (Non-GAAP)9.79 %10.18 %10.31 %8.79 %8.89 %(b/d)
Book value per share (GAAP)$62.32 $62.59 $63.75 $53.14 $52.72 (a/e)
Tangible book value per share (Non-GAAP)$40.31 $41.15 $42.25 $37.24 $36.78 (b/e)

Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.
There have been no material changes in critical accounting policies during the first six months of 2022. Refer to "Critical Accounting Policies and Estimates" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2021 Form 10-K for a complete listing of critical accounting policies.

FINANCIAL POSITION
Securities Portfolio The Company’s securities portfolio consists of trading securities, equity securities, securities available for sale, and securities which management intends to hold until maturity. Securities increased by $270.1 million, or 10.1%, at June 30, 2022 as compared to December 31, 2021, primarily reflecting $561.9 million of purchases which were partially offset by unrealized losses of $112.4 million related to the available for sale portfolio, as well as paydowns, calls, and maturities. The ratio of securities to total assets increased to 14.7% at June 30, 2022 compared to 13.0% at December 31, 2021, as management has been effectively deploying excess liquidity with increased investment security purchases. The Company estimates expected credit losses for its available for sale and held to maturity securities in accordance with the current expected credit loss ("CECL") methodology. Further details regarding the Company's measurement of expected credit losses on securities can be found in Note 3 “Securities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report.

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    Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans. The Company originates residential loans with the intention of selling them in the secondary market or holding them in the Company's residential real estate portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached. The Company incurred no material losses related to residential mortgage repurchases during the three and six months ended June 30, 2022 and 2021, respectively.

    The following table shows the total residential real estate loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market during the periods indicated:
Table 1 - Closed Residential Real Estate Loans
 Three Months Ended June 30Six Months Ended June 30
 2022202120222021
 (Dollars in thousands)
Held in portfolio$225,525 $131,423 $406,050 $213,344 
Sold or held for sale in the secondary market18,739 158,178 55,984 428,001 
Total closed loans$244,264 $289,601 $462,034 $641,345 

As shown in the above table, the Company experienced a lower volume of residential real estate loans sales for the three and six months ended June 30, 2022 in comparison to the same prior year periods, driven primarily by reduced customer demand in the rising interest rate environment. In addition, the volume of closed residential real estate loans held in portfolio increased during the three and six months ended June 30, 2022.


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

Table 2 - Residential Mortgage Loan Sales
Three Months Ended June 30Six Months Ended June 30
2022202120222021
(Dollars in thousands)
Sold with servicing rights released$21,936 $165,775 $75,800 $446,914 
Sold with servicing rights retained (1)261 6,657 681 8,087 
Total loans sold$22,197 $172,432 $76,481 $455,001 
(1)All loans sold with servicing rights retained during the three and six months ended June 30, 2022 and June 30, 2021 were sold without recourse.
    When a loan is sold, the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneously with the sale of the loan, or the Company may opt to sell the loan and retain the servicing. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the Consolidated Balance Sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was $348.1 million, $382.6 million and $373.2 million at June 30, 2022, December 31, 2021, and June 30, 2021, respectively.
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    The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated:
Table 3 - Mortgage Servicing Asset
 Three Months Ended June 30Six Months Ended June 30
 2022202120222021
 (Dollars in thousands)
Balance at beginning of period$2,805 $2,541 $2,627 $2,365 
Additions2 52 6 65 
Amortization(163)(282)(357)(525)
Change in valuation allowance349 (16)717 390 
Balance at end of period $2,993 $2,295 $2,993 $2,295 
See Note 6, “Derivative and Hedging Activities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for more information on mortgage activity and mortgage related derivatives.
Loan Portfolio Total loans at June 30, 2022 increased by $88.5 million, or 0.65%, when compared to December 31, 2021. Excluding $185.6 million of net paydowns associated with the PPP for the first six months of 2022, the loan portfolio increased by $274.1 million, or 4.1% on an annualized basis, compared to December 31, 2021. Organic loan growth was driven primarily by strong consumer loan activity, as the majority of residential real estate loan closings were retained on the balance sheet, while increased demand and line utilization fueled growth in home equity balances. Excluding the net reduction in PPP loans, the commercial portfolio remained relatively flat at June 30, 2022 in comparison to December 31, 2021, as increased line utilization and higher closing volumes in the commercial and industrial and construction categories were countered by elevated levels of attrition within commercial real estate.
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    The Company's commercial loan portfolio is comprised primarily of commercial and industrial loans as well as commercial real estate loans. Management considers the Company’s commercial and industrial portfolio to be well-diversified with loans to various types of industries. The Company's previous participation in the PPP resulted in significant loan fundings within the commercial and industrial category, which have now declined to $30.6 million or 2.0% of the total commercial and industrial category at June 30, 2022, primarily as a result of the ongoing forgiveness process, and are reflected within the various sectors below. During the three and six months ended June 30, 2022, the Company amortized into income $1.8 million and $3.5 million, respectively, in PPP fee revenue related to loans forgiven under the program. The following pie chart shows the diversification of the commercial and industrial portfolio as of June 30, 2022:
indb-20220630_g7.jpg
(Dollars in thousands)
Average loan size (excluding floor plan tranches) $367 
Largest individual commercial and industrial loan outstanding $37,650 
Commercial and industrial nonperforming loans/commercial and industrial loans0.23 %
The Company’s commercial real estate loan portfolio, inclusive of commercial construction, is the Company’s largest loan type concentration. The Company believes that this portfolio is also well-diversified with loans secured by a variety of property types, such as owner-occupied and nonowner-occupied commercial, retail, office, industrial, warehouse, and other special purpose properties, such as hotels, motels, nursing homes, restaurants, churches, recreational facilities, marinas, and golf courses. Commercial real estate also includes loans secured by certain residential-related property types, including multi-family apartment buildings, residential development tracts and condominiums. The following pie chart shows the diversification of the commercial real estate loan portfolio as of June 30, 2022:

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indb-20220630_g8.jpg
(Dollars in thousands)
Average loan size$1,587 
Largest individual commercial real estate mortgage outstanding$64,527 
Commercial real estate nonperforming loans/commercial real estate loans0.45 %
Owner occupied commercial real estate loans/commercial real estate loans11.6 %

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    The Company's consumer portfolio primarily consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area. The Company also provides home equity loans and lines of credit that may be made as a fixed-rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home. Additionally, the Company makes loans for a wide variety of other personal needs. Other consumer loans primarily consist of installment loans and overdraft protections. The residential real estate, home equity and other consumer portfolios totaled $2.9 billion at June 30, 2022, as noted below:
indb-20220630_g9.jpg


Asset Quality  The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, nonperforming and/or put on nonaccrual status. In the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR"). In addition, the Company has offered need-based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to the COVID-19 pandemic. In accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), these modifications are not accounted for as TDRs or reflected as delinquent or non-accrual loans if the borrower was in compliance with the loan terms as of December 31, 2019.
Delinquency    The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations.  The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame.  Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date).  Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment.  Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period.
Nonaccrual Loans    As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with
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respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses.
Troubled Debt Restructurings     In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default. Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.
    It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or are delinquent for 90 days or more. Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it may be determined that the borrower is performing under modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring.
    Purchased Credit Deteriorated Loans    Purchased Credit Deteriorated ("PCD") loans are acquired loans which have shown a more-than-insignificant deterioration in credit quality since origination. PCD loans are recorded at amortized cost with an allowance for credit losses recorded upon purchase.
Nonperforming Assets     Nonperforming assets are typically comprised of nonperforming loans and other real estate owned. Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still accruing interest.
    

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The following table sets forth information regarding nonperforming assets held by the Company at the dates indicated:
Table 4 - Nonperforming Assets
June 30
2022		December 31
2021		June 30
2021
 (Dollars in thousands)
Loans accounted for on a nonaccrual basis
Commercial and industrial $3,518 $3,439 $20,831 
Commercial real estate40,074 10,870 9,031 
Small business31 44 558 
Residential real estate8,563 9,182 12,786 
Home equity3,514 3,781 4,517 
Other consumer215 504 95 
Total nonperforming assets (1)$55,915 $27,820 $47,818 
Nonperforming loans as a percent of gross loans0.41 %0.20 %0.53 %
Nonperforming assets as a percent of total assets0.28 %0.14 %0.34 %

(1)Inclusive of TDRs on nonaccrual status of $1.7 million at June 30, 2022, $2.0 million at December 31, 2021, and $20.2 million at June 30, 2021.

    The following table summarizes the changes in nonperforming assets for the periods indicated:
Table 5 - Activity in Nonperforming Assets
20222021
Three Months EndedSix Months Ended
June 30
2022		June 30
2021		June 30
2022		June 30
2021
(Dollars in thousands)
Nonperforming assets beginning balance$56,618 $59,201 $27,820 $66,861 
New to nonperforming 2,822 2,233 36,576 4,592 
Loans charged-off(545)(481)(1,251)(4,167)
Loans paid-off(2,239)(10,364)(3,724)(14,389)
Loans restored to performing status(738)(2,771)(3,440)(5,330)
Other(3)— (66)251 
Nonperforming assets ending balance$55,915 $47,818 $55,915 $47,818 

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The following table sets forth information regarding troubled debt restructured loans as of the dates indicated:
Table 6 - Troubled Debt Restructurings
June 30
2022		December 31
2021		June 30
2021
 (Dollars in thousands)
Performing troubled debt restructurings$11,734 $14,635 $19,495 
Nonaccrual troubled debt restructurings1,677 1,993 20,212 
Total$13,411 $16,628 $39,707 
Performing troubled debt restructurings as a % of total loans0.09 %0.11 %0.21 %
Nonaccrual troubled debt restructurings as a % of total loans0.01 %0.01 %0.23 %
Total troubled debt restructurings as a % of total loans0.10 %0.12 %0.44 %
The following table summarizes changes in TDRs for the periods indicated:
Table 7 - Activity in Troubled Debt Restructurings
Three Months EndedSix Months Ended
June 30
2022		June 30
2021		June 30
2022		June 30
2021
 (Dollars in thousands)
TDRs beginning balance$15,260 $41,429 $16,628 $39,192 
New to TDR status— 82 — 3,918 
Paydowns(1,849)(1,804)(3,217)(3,403)
TDRs ending balance$13,411 $39,707 $13,411 $39,707 
    
    Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. The table below shows interest income that was recognized or collected on all nonaccrual loans and TDRs for the periods indicated:
Table 8 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings
 
Three Months EndedSix Months Ended
 June 30
2022		June 30
2021		June 30
2022		June 30
2021
 (Dollars in thousands)
The amount of incremental gross interest income that would have been recorded if nonaccrual loans had been current in accordance with their original terms $1,601 $693 $2,864 $1,610 
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income$168 $263 $315 $494 

Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms. At June 30, 2022, there were 47 relationships, with an aggregate balance of $162.9 million, deemed to be potential problem loans. These potential problem loans continued to perform with respect to payments. Management actively monitors these loans and strives to minimize any possible adverse impact to the Company. A portion of the potential problem loans identified by management were granted a deferral in accordance with the relief options offered in response to the COVID-19 pandemic.
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As previously noted, the Company has offered need-based payment relief options to its customers in response to the COVID-19 pandemic, primarily in the form of payment deferrals, all of which were granted prior to December 31, 2020. Loans that were modified are not accounted for as TDRs or reflected as delinquent or nonaccrual loans if the borrower was in compliance with their loan terms as of December 31, 2019. The following table summarizes active deferrals by modification type as of June 30, 2022:
Table 9 - Deferrals Maturity Schedule

Q4 202220232024Total Deferrals (2)Total Portfolio% Deferral
(Dollars in thousands)
Commercial real estate (1)$137,669 $51,072 $8,700 $197,441 8,986,334 2.2 %
Other portfolios— — — — 4,689,430 — %
Total active deferrals as of June 30, 2022
$137,669 $51,072 $8,700 $197,441 13,675,764 1.4 %
(1)Balances include commercial construction deferrals.
(2)All active deferrals as of June 30, 2022 were comprised of deferrals of principal only.
Allowance for Credit Losses  The allowance for credit losses is maintained at a level that management considers appropriate to provide for the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. The allowance is increased by providing for credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off.
In accordance with the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which is a reversion to the Company's historical long-run average for a period of six months. The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio. Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable.
The allowance for credit losses of $144.3 million at June 30, 2022 represents a decrease of $2.6 million, or 1.8% compared to December 31, 2021. The decrease in the allowance was primarily driven by a stabilized credit quality environment, continued strong asset quality metrics and overall consistent loan balances.
The aforementioned stabilization of credit quality and continued strong asset quality metrics experienced by the Company resulted in a lower quantitative allowance for credit loss reserve at June 30, 2022, as compared to December 31, 2021. Partially offsetting this decline was the impact of increased economic uncertainty over the reasonable and supportable forecast modeled in the allowance for credit losses. Management's forecast anticipates that the federal funds rates will rise in the near term, that supply chain issues will persist, inflation remains elevated, the military conflict between Russia and Ukraine will persist longer than originally anticipated for the foreseeable future, potentially impacting global oil supplies and the supply chain more generally and general economic conditions, as well as concerns regarding rising COVID-19 cases and the possibility of resurgences. The forecast used by management also anticipates that the U.S. economy will fall into a mild recession during the third quarter of 2022 and persist for the short term. Additionally, the allowance for credit losses continues to be qualitatively adjusted in order to ensure coverage for relationships that are deemed to be more at risk within certain industries, specific collateral types, or other specific characteristics that may be highly impacted by the current economic environment.


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

Table 10 - Summary Net Charge-Offs to Average Loans Outstanding
Net Charge-Offs (Recoveries)Average Amount OutstandingRatio of Annualized Net Charge-Offs/(Recoveries) to Average LoansNet Charge-Offs (Recoveries)Average Amount OutstandingRatio of Annualized Net Charge-Offs/(Recoveries) to Average Loans
(Dollars in thousands)
Three Months Ended June 30, 2022Six Months Ended June 30, 2022
Commercial and industrial$(29)$1,537,883 (0.01)%$(42)$1,536,757 (0.01)%
Commercial real estate— 7,827,442 — %(3)7,869,164 — %
Commercial construction— 1,193,353 — %— 1,192,013 — %
Small business(22)203,947 (0.04)%— 199,408 — %
Residential real estate— 1,761,986 — %— 1,705,883 — %
Home equity84 1,046,933 0.03 %82 1,039,661 0.02 %
Other consumer166 31,554 2.11 %566 30,690 3.72 %
Total$199 $13,603,098 0.01 %$603 $13,573,576 0.01 %
Net Charge-Offs (Recoveries)Average Amount OutstandingRatio of Annualized Net Charge-Offs/(Recoveries) to Average LoansNet Charge-Offs (Recoveries)Average Amount OutstandingRatio of Annualized Net Charge-Offs/(Recoveries) to Average Loans
(Dollars in thousands)
Three Months Ended June 30, 2021Six Months Ended June 30, 2021
Commercial and industrial$107 $1,944,026 0.02 %$3,374 $2,029,075 0.34 %
Commercial real estate— 4,196,171 — %(57)4,176,202 — %
Commercial construction— 514,935 — %— 534,933 — %
Small business31 178,525 0.07 %86 176,434 0.10 %
Residential real estate— 1,226,520 — %(1)1,248,778 — %
Home equity24 1,024,798 0.01 %11 1,037,446 — %
Other consumer30 22,471 0.54 %122 22,087 1.11 %
Total$192 $9,107,446 0.01 %$3,535 $9,224,955 0.08 %

As noted in the table above, net charge-offs incurred by the Company have been minimal for the periods presented, with larger losses being isolated to individual loan workouts, and are not indicative of declining credit quality in the Company's overall loan portfolio.
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For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for credit losses is made to each loan category using the analytical techniques and estimation methods described in this Report. While these amounts represent management’s best estimate of credit losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio.

The following table sets forth the allocation of the allowance for credit losses by loan category at the dates indicated:
Table 11 - Summary of Allocation of Allowance for Credit Losses
 
 June 30
2022		December 31
2021
 Allowance
Amount		Percent of
Loans
In  Category
To Total Loans		Allowance
Amount		Percent of
Loans
In  Category
To Total Loans
(Dollars in thousands)
Commercial and industrial (1)$14,107 11.3 %$14,402 11.5 %
Commercial real estate83,456 57.0 %83,486 58.8 %
Commercial construction11,710 8.7 %12,316 8.6 %
Small business2,784 1.5 %3,508 1.4 %
Residential real estate19,750 13.5 %14,484 11.8 %
Home equity11,740 7.8 %17,986 7.7 %
Other consumer772 0.2 %740 0.2 %
Total allowance for credit losses$144,319 100.0 %$146,922 100.0 %
(1)Total loans in this category are inclusive of $30.6 million and $216.2 million in loans, at June 30, 2022 and December 31, 2021, respectively, which were originated as part of the PPP established by the CARES Act. These loans have been excluded from the credit loss calculations as these loans are 100% guaranteed by the U.S. Government.
To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of the Bank’s collateral, and the strength of co-makers or guarantors. When available information confirms that specific loans or portions thereof are uncollectible, these amounts are promptly charged-off against the allowance for credit losses and any recoveries of such previously charged-off amounts are credited to the allowance.
Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral.
For additional information regarding the Company’s allowance for credit losses, see Note 4 "Loans, Allowance for Credit Losses and Credit Quality" within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report.
Federal Home Loan Bank Stock The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding as a tool to manage liquidity and interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company either purchases additional FHLB stock or is subject to redemption of FHLB stock proportional to the volume of funding received. The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. The Bank held investments in FHLB of Boston stock of $6.2 million and $11.4 million at June 30, 2022 and December 31, 2021, respectively, reflecting redemption activity occurring during the first half of 2022.
    Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both June 30, 2022 and December 31, 2021.
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The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted. Accordingly, the Company last performed its annual goodwill impairment testing during the third quarter of 2021 and determined that the Company's goodwill was not impaired as of September 30, 2021. Other intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. There were no events or changes during the second quarter of 2022 that indicated impairment of goodwill and other intangible assets.
Cash Surrender Value of Life Insurance Policies The Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans. The cash surrender value of life insurance policies was $292.8 million at June 30, 2022 compared to $289.3 million at December 31, 2021, representing an increase of $3.5 million, or 1.2%, primarily due to income earned on the policies.
The Company recorded tax exempt income from life insurance policies of $1.9 million and $1.6 million for the three months ended June 30, 2022 and 2021, respectively, and $3.7 million and $2.9 million for the six months ended June 30, 2022 and 2021, respectively. The Company recorded gains on life insurance benefits of $123,000 for the three and six months ended June 30, 2022, and $258,000 for the six months ended June 30, 2022. No gains were recognized during the three months ended June 30, 2021.
Deposits As of June 30, 2022, total deposits were $16.6 billion, representing a $277.5 million, or 1.6%, decrease from December 31, 2021, primarily attributable to continued runoff in higher cost time deposits. The total cost of deposits was 0.05% and 0.07% for the three months ended June 30, 2022 and 2021, respectively, and 0.05% and 0.08% for the six months ended June 30, 2022 and 2021, respectively. Core deposits increased to 86.8% of total deposits as of June 30, 2022 from 84.5% at December 31, 2021.
    The Company also participates in the IntraFi Network, allowing the Bank to provide easy access to multi-million dollar Federal Deposit Insurance Corporation ("FDIC") deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities. This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market, and amounted to $819.7 million and $998.1 million at June 30, 2022 and December 31, 2021, respectively. In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to $113.8 million and $141.6 million at June 30, 2022 and December 31, 2021, respectively.
Borrowings  The Company's borrowings consist of both short-term and long-term borrowings and provide the Bank with one of its primary sources of funding. Maintaining available borrowing capacity provides the Bank with a contingent source of liquidity. Borrowings were $138.3 million at June 30, 2022, a decrease of $14.0 million, or 9.2%, as compared to December 31, 2022, due primarily to the re-payment of a revolving loan credit facility during the first quarter of 2022.
Additionally, the Bank had $4.4 billion and $4.2 billion of assets pledged as collateral against borrowings at June 30, 2022 and December 31, 2021, respectively. These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston.

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Capital Resources On June 16, 2022 the Company’s Board of Directors declared a cash dividend of $0.51 per share to shareholders of record as of the close of business on June 27, 2022. This dividend was paid on July 8, 2022.
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 Capital and Common Equity Tier 1 Capital (as defined for regulatory purposes) to risk weighted assets (as defined for regulatory purposes) and Tier 1 Capital to average assets (as defined for regulatory purposes). At June 30, 2022 and December 31, 2021, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods. The Company’s and the Bank’s capital amounts and ratios are presented in the following table, along with the applicable minimum requirements as of each date indicated:
Table 12 - Company and Bank's Capital Amounts and Ratios 
 ActualFor Capital Adequacy PurposesTo Be Well Capitalized Under Prompt
Corrective Action Provisions
 AmountRatioAmount RatioAmount Ratio
 June 30, 2022
 (Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)$2,230,736 15.62 %$1,142,190 ≥8.0 %N/AN/A
Common equity tier 1 capital
(to risk weighted assets)		1,984,977 13.90 %642,482 ≥4.5 %N/AN/A
Tier 1 capital (to risk weighted assets)1,984,977 13.90 %856,643 ≥6.0 %N/AN/A
Tier 1 capital (to average assets)1,984,977 10.42 %762,182 ≥4.0 %N/AN/A
Bank
Total capital (to risk weighted assets)$2,128,013 14.91 %$1,142,018 ≥8.0 %$1,427,523 ≥10.0 %
Common equity tier 1 capital
(to risk weighted assets)		1,993,092 13.96 %642,385 ≥4.5 %927,890 ≥6.5 %
Tier 1 capital (to risk weighted assets)1,993,092 13.96 %856,514 ≥6.0 %1,142,018 ≥8.0 %
Tier 1 capital (to average assets)1,993,092 10.46 %762,170 ≥4.0 %952,712 ≥5.0 %
 December 31, 2021
(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)$2,262,740 16.04 %$1,128,900 ≥8.0 %N/AN/A
Common equity tier 1 capital
(to risk weighted assets)		2,017,497 14.30 %635,006 ≥4.5 %N/AN/A
Tier 1 capital (to risk weighted assets)2,017,497 14.30 %846,675 ≥6.0 %N/AN/A
Tier 1 capital (to average assets)2,017,497 12.03 %670,659 ≥4.0 %N/AN/A
Bank
Total capital (to risk weighted assets)$2,083,689 14.77 %$1,128,536 ≥8.0 %$1,410,670 ≥10.0 %
Common equity tier 1 capital
(to risk weighted assets)		1,949,237 13.82 %634,801 ≥4.5 %916,935 ≥6.5 %
Tier 1 capital (to risk weighted assets)1,949,237 13.82 %846,402 ≥6.0 %1,128,536 ≥8.0 %
Tier 1 capital (to average assets)1,949,237 11.62 %670,827 ≥4.0 %838,534 ≥5.0 %
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    In addition to the minimum risk-based capital requirements outlined in the table above, the Company is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the capital conservation buffer is 2.5%. At June 30, 2022, the Company's capital levels exceeded the buffer.
Dividend Restrictions The Company is subject to capital and dividend requirements administered by federal and state bank regulators, and the Company will not declare a cash dividend that would cause the Company to violate regulatory requirements. The Company is, in the ordinary course of business, dependent upon the receipt of cash dividends from the Bank to pay cash dividends to shareholders and satisfy the Company’s other cash needs. Federal and state law impose limits on capital distributions by the Bank. Massachusetts-chartered banks, such as the Bank, may declare from net profits cash dividends not more frequently than quarterly and non-cash dividends at any time. No dividends may be declared, credited, or paid if the Bank’s capital stock would be impaired. Massachusetts Bank Commissioner approval is required if the total of all dividends declared by the Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. Dividends paid by the Bank to the Company totaled $53.2 million and $5.0 million for the three months ended June 30, 2022 and 2021, respectively and totaled $78.2 million and $5.0 million for the six months ended June 30, 2022 and 2021, respectively.
Trust Preferred Securities In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities has not been included in the consolidated financial statements of the Company. At each of June 30, 2022 and December 31, 2021 there were $61.0 million in trust preferred securities included in the Tier 2 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.
Investment Management The following table presents total assets under administration and number of accounts held by the Rockland Trust Investment Management Group at the following dates:
Table 13 - Assets Under Administration
June 30
2022		December 31
2021		June 30
2021
(Dollars in thousands)
Assets under administration$5,156,575 $5,726,368 $5,407,211 
Number of trust, fiduciary and agency accounts6,721 6,379 6,283 
The decrease in assets under administration at June 30, 2022 was driven primarily by depressed market valuations experienced during the first half of 2022. Included in these amounts as of June 30, 2022 and December 31, 2021 are assets under administration of $376.3 million and $447.4 million, respectively, relating to the Company’s registered investment advisor, Bright Rock Capital Management, LLC, which provides institutional quality investment management services to institutional and high net worth clients. Revenue from the Investment Management Group was $7.8 million and $8.0 million for the three months ended June 30, 2022 and 2021, respectively, and $15.7 million and $15.4 million for the six months ended June 30, 2022 and 2021, respectively.
The administration of trust and fiduciary accounts is monitored by the Trust Committee of the Bank’s Board of Directors. The Trust Committee has delegated administrative responsibilities to three committees, one for investments, one for administration, and one for operations, all of which are comprised of Investment Management Group officers who meet no less than quarterly.
The Bank has an agreement with LPL Financial ("LPL") and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., to offer the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance. Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base. These same agents are also approved and appointed with various other Broker General Agents for the purposes of processing insurance solutions for clients. Retail investments and insurance revenue was $1.5 million and $845,000 for the three months ended June 30, 2022 and 2021, respectively, and $2.3 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively.
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RESULTS OF OPERATIONS
    The following table provides a summary of results of operations for the three and six months ended June 30, 2022 and 2021:
Table 14 - Summary of Results of Operations
 
 Three Months Ended June 30Six Months Ended June 30
 2022202120222021
 (Dollars in thousands, except per share data)
Net income$61,776 $37,572 $114,873 $79,283 
Diluted earnings per share$1.32 $1.14 $2.44 $2.40 
Return on average assets1.24 %1.08 %1.15 %1.17 %
Return on average equity8.49 %8.70 %7.82 %9.28 %
Net interest margin3.27 %2.99 %3.18 %3.12 %

Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities.
On a fully tax equivalent basis ("FTE"), net interest income for the second quarter of 2022 was $145.8 million, representing an increase of $52.3 million, or 55.9%, when compared to the second quarter of 2021. For the six months ended June 30, 2022, the net interest income on a FTE basis was $284.2 million, representing an increase of $94.8 million, or 50.1%, when compared to the year ago period. The year-over-year increases in net interest income are primarily attributable to the impact of the Meridian acquisition which closed during the fourth quarter of 2021, as well as the positive impact of asset repricing in the rising rate environment and relatively stable funding costs experienced during the first half of 2022.
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The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and six months ended June 30, 2022 and 2021. Nontaxable income from loans and securities is presented on a FTE basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing income tax rate that would have been paid if the income had been fully taxable.
Table 15 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date
 Three Months Ended June 30
 20222021
 Average
Balance		Interest
Earned/
Paid		Yield/RateAverage
Balance		Interest
Earned/
Paid		Yield/Rate
 (Dollars in thousands)
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short term investments$1,377,286 $2,817 0.82 %$1,882,285 $513 0.11 %
Securities
Securities - trading3,863 — — %3,359 — — %
Securities - taxable investments2,889,245 11,281 1.57 %1,514,336 7,184 1.90 %
Securities - nontaxable investments (1)197 3 6.11 %555 6 4.34 %
Total securities$2,893,305 $11,284 1.56 %$1,518,250 $7,190 1.90 %
Loans held for sale3,842 35 3.65 %28,279 186 2.64 %
Loans (2)
Commercial and industrial (1)1,537,883 17,496 4.56 %1,944,026 20,351 4.20 %
Commercial real estate (1)7,827,442 76,771 3.93 %4,196,171 41,532 3.97 %
Commercial construction1,193,353 13,456 4.52 %514,935 4,777 3.72 %
Small business203,947 2,656 5.22 %178,525 2,302 5.17 %
Total commercial10,762,625 110,379 4.11 %6,833,657 68,962 4.05 %
Residential real estate1,761,986 14,879 3.39 %1,226,520 11,058 3.62 %
Home equity1,046,933 9,178 3.52 %1,024,798 8,591 3.36 %
Total consumer real estate2,808,919 24,057 3.44 %2,251,318 19,649 3.50 %
Other consumer31,554 507 6.44 %22,471 411 7.34 %
Total loans$13,603,098 $134,943 3.98 %$9,107,446 $89,022 3.92 %
Total interest-earning assets$17,877,531 $149,079 3.34 %$12,536,260 $96,911 3.10 %
Cash and due from banks190,501 142,198 
Federal Home Loan Bank stock6,249 9,410 
Other assets1,855,351 1,258,056 
Total assets$19,929,632 $13,945,924 
Interest-bearing liabilities
Deposits
Savings and interest checking accounts$6,192,761 $710 0.05 %$4,339,645 $384 0.04 %
Money market3,486,017 607 0.07 %2,347,852 429 0.07 %
Time deposits1,356,507 794 0.23 %843,090 1,204 0.57 %
Total interest-bearing deposits$11,035,285 $2,111 0.08 %$7,530,587 $2,017 0.11 %
Borrowings
Federal Home Loan Bank borrowings$25,654 $123 1.92 %$35,704 $191 2.15 %
Long-term borrowings— — — %23,417 94 1.61 %
Junior subordinated debentures62,854 410 2.62 %62,852 429 2.74 %
Subordinated debentures49,825 618 4.97 %49,730 618 4.98 %
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Total borrowings$138,333 $1,151 3.34 %$171,703 $1,332 3.11 %
Total interest-bearing liabilities$11,173,618 $3,262 0.12 %$7,702,290 $3,349 0.17 %
Noninterest bearing demand deposits5,546,041 4,237,135 
Other liabilities290,467 273,449 
Total liabilities$17,010,126 $12,212,874 
Stockholders' equity2,919,506 1,733,050 
Total liabilities and stockholders' equity$19,929,632 $13,945,924 
Net interest income (1)$145,817 $93,562 
Interest rate spread (3)3.22 %2.93 %
Net interest margin (4)3.27 %2.99 %
Supplemental information
Total deposits, including demand deposits$16,581,326 $2,111 $11,767,722 $2,017 
Cost of total deposits0.05 %0.07 %
Total funding liabilities, including demand deposits$16,719,659 $3,262 $11,939,425 $3,349 
Cost of total funding liabilities0.08 %0.11 %

(1)The total amount of adjustment to interest income and yield on a FTE basis was $956,000 and $209,000 for the three months ended June 30, 2022 and 2021, respectively. The FTE adjustment relates to tax exempt income relating to securities with average balances of $197,000 and $555,000 and tax exempt income relating to loans with average balances of $402.7 million and $60.4 million, for the three months ended June 30, 2022 and 2021, respectively.
(2)Includes average nonaccruing loans.
(3)Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(4)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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Table 16 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date
 Six Months Ended June 30
 20222021
 Average
Balance		Interest
Earned/
Paid		Yield/
Rate		Average
Balance		Interest
Earned/
Paid		Yield/
Rate
 (Dollars in thousands)
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short-term investments$1,640,264 $3,703 0.46 %$1,603,407 $839 0.11 %
Securities
Securities - trading3,798 — — %3,150 — — %
Securities - taxable investments2,808,213 21,324 1.53 %1,383,122 13,811 2.01 %
Securities - nontaxable investments (1)199 4 4.05 %599 12 4.04 %
Total securities$2,812,210 $21,328 1.53 %$1,386,871 $13,823 2.01 %
Loans held for sale6,643 99 3.01 %38,907 482 2.50 %
Loans (2)
Commercial and industrial (1)1,536,757 34,527 4.53 %2,029,075 43,397 4.31 %
Commercial real estate (1)7,869,164 152,800 3.92 %4,176,202 81,908 3.96 %
Commercial construction1,192,013 25,724 4.35 %534,933 10,060 3.79 %
Small business199,408 5,072 5.13 %176,434 4,583 5.24 %
Total commercial10,797,342 218,123 4.07 %6,916,644 139,948 4.08 %
Residential real estate1,705,883 28,576 3.38 %1,248,778 23,494 3.79 %
Home equity1,039,661 17,840 3.46 %1,037,446 17,348 3.37 %
Total consumer real estate2,745,544 46,416 3.41 %2,286,224 40,842 3.60 %
Other consumer30,690 996 6.54 %22,087 843 7.70 %
Total loans$13,573,576 $265,535 3.94 %$9,224,955 $181,633 3.97 %
Total interest-earning assets$18,032,693 $290,665 3.25 %$12,254,140 $196,777 3.24 %
Cash and due from banks181,069 148,499 
Federal Home Loan Bank stock8,814 9,828 
Other assets1,853,285 1,249,898 
Total assets$20,075,861 $13,662,365 
Interest-bearing liabilities
Deposits
Savings and interest checking accounts$6,224,128 $1,308 0.04 %$4,225,331 $807 0.04 %
Money market3,547,066 1,166 0.07 %2,318,106 950 0.08 %
Time deposits1,411,275 1,744 0.25 %874,676 2,971 0.68 %
Total interest-bearing deposits$11,182,469 $4,218 0.08 %$7,418,113 $4,728 0.13 %
Borrowings
Federal Home Loan Bank borrowings$25,675 $256 2.01 %$35,746 $379 2.14 %
Long-term borrowings4,506 31 1.39 %25,818 205 1.60 %
Junior subordinated debentures62,854 709 2.27 %62,851 855 2.74 %
Subordinated debentures49,813 1,235 5.00 %49,717 1,235 5.01 %
Total borrowings$142,848 $2,231 3.15 %$174,132 $2,674 3.10 %
Total interest-bearing liabilities$11,325,317 $6,449 0.11 %$7,592,245 $7,402 0.20 %
Noninterest bearing demand deposits5,495,036 4,067,235 
Other liabilities292,023 279,620 
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Total liabilities$17,112,376 $11,939,100 
Stockholders' equity2,963,485 1,723,265 
Total liabilities and stockholders' equity$20,075,861 $13,662,365 
Net interest income (1)$284,216 $189,375 
Interest rate spread (3)3.14 %3.04 %
Net interest margin (4)3.18 %3.12 %
Supplemental information
Total deposit, including demand deposits$16,677,505 $4,218 $11,485,348 $4,728 
Cost of total deposits0.05 %0.08 %
Total funding liabilities, including demand deposits$16,820,353 $6,449 $11,659,480 $7,402 
Cost of total funding liabilities0.08 %0.13 %

(1)The total amount of adjustment to present interest income and yield on a FTE basis was $1.9 million and $438,000 for the six months ended June 30, 2022 and 2021, respectively. The FTE adjustment relates to nontaxable investment securities with average balances of $199,000 and $599,000 and tax exempt income relating to loans with average balances of $410.6 million and $65.3 million for the six months ended June 30, 2022 and 2021, respectively.
(2)Includes average nonaccruing loans.
(3)Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(4)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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The following table presents certain information on a FTE basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to: (1) changes in rate (change in rate multiplied by prior period volume), (2) changes in volume (change in volume multiplied by old rate), and (3) changes in volume/rate (change in volume multiplied by change in rate) which is allocated to the change due to rate column:
Table 17 - Volume Rate Analysis
Three Months Ended June 30Six Months Ended June 30
2022 Compared To 20212022 Compared To 2021
Change
Due to
Rate 		Change
Due to
Volume		Total ChangeChange
Due to
Rate 		Change
Due to
Volume		Total Change
 (Dollars in thousands)
Income on interest-earning assets
Interest earning deposits, federal funds sold and short term investments$2,442 $(138)$2,304 $2,845 $19 $2,864 
Securities
Securities - taxable investments(2,426)6,523 4,097 (6,717)14,230 7,513 
Securities - nontaxable investments (1)1 (4)(3)— (8)(8)
Total securities4,094 7,505 
Loans held for sale10 (161)(151)17 (400)(383)
Loans
Commercial and industrial (1)1,397 (4,252)(2,855)1,659 (10,529)(8,870)
Commercial real estate (1)(702)35,941 35,239 (1,538)72,430 70,892 
Commercial construction2,385 6,294 8,679 3,307 12,357 15,664 
Small business26 328 354 (108)597 489 
Total commercial41,417 78,175 
Residential real estate(1,007)4,828 3,821 (3,518)8,600 5,082 
Home equity401 186 587 455 37 492 
Total consumer real estate4,408 5,574 
Other consumer(70)166 96 (175)328 153 
Total loans (1)(2)45,921 83,902 
Total income of interest-earning assets$52,168 $93,888 
Expense of interest-bearing liabilities
Deposits
Savings and interest checking accounts$162 $164 $326 $119 $382 $501 
Money market(30)208 178 (288)504 216 
Time certificates of deposits(1,143)733 (410)(3,050)1,823 (1,227)
Total interest bearing deposits94 (510)
Borrowings
Federal Home Loan Bank borrowings(14)(54)(68)(16)(107)(123)
Line of Credit— — — — 
Long-term borrowings— (94)(94)(5)(169)(174)
Junior subordinated debentures(19)— (19)(146)— (146)
Subordinated debentures(1)1 — (2)2 — 
Total borrowings(181)(443)
Total expense of interest-bearing liabilities(87)(953)
Change in net interest income$52,255 $94,841 
 
(1)Reflects income determined on a FTE basis. See footnote (1) to Table 15 and 16 in this Report for the related adjustments.
(2)Loans include portfolio loans and nonaccrual loans; however, unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.

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Provision For Credit Losses The provision for credit losses represents the charge to expense that is required to maintain an appropriate level of allowance for credit losses. The Company recorded no provision for credit losses for the three months ended June 30, 2022 and a release of provision for credit losses of $2.0 million for the six months ended June 30, 2022, as compared to a release of provision for credit losses of $5.0 million and $7.5 million for the three and six months ended June 30, 2021. The Company’s allowance for credit losses, as a percentage of total loans, was 1.06% at June 30, 2022, 1.08% at December 31, 2021, and 1.15% at June 30, 2021. The Company recorded net charge-offs of $199,000 and $603,000 for the three and six months ended June 30, 2022, respectively, as compared to net charge-offs of $192,000 and $3.5 million for the three and six months ended June 30, 2021, respectively. Refer to Note 4 "Loans, Allowance for Credit Losses and Credit Quality" within the Note to Consolidated Financial Statements included in Part I. Item 1 of this Report, for further details surrounding the primary drivers of the provision for credit losses for the period.

Noninterest Income The following table sets forth information regarding noninterest income for the periods shown:
Table 18 - Noninterest Income
Three Months Ended
 June 30Change
 20222021Amount%
 (Dollars in thousands)
Deposit account fees$5,828 $3,822 $2,006 52.49 %
Interchange and ATM fees4,027 3,068 959 31.26 %
Investment management9,329 8,872 457 5.15 %
Mortgage banking income1,042 2,705 (1,663)(61.48)%
Gain on life insurance benefits123 — 123 100.00%
Increase in cash surrender value of life insurance policies1,871 1,589 282 17.75 %
Loan level derivative income436 116 320 275.86 %
Other noninterest income5,242 4,795 447 9.32 %
Total$27,898 $24,967 $2,931 11.74 %
Six Months Ended
 June 30Change
 20222021Amount%
(Dollars in thousands) 
Deposit account fees$11,321 $7,406 $3,915 52.86 %
Interchange and ATM fees7,636 5,788 1,848 31.93 %
Investment management18,002 17,176 826 4.81 %
Mortgage banking income2,404 8,445 (6,041)(71.53)%
Gain on life insurance benefits123 258 (135)(52.33)%
Increase in cash surrender value of life insurance policies3,666 2,912 754 25.89 %
Loan level derivative income1,040 289 751 259.86 %
Other noninterest income9,978 7,939 2,039 25.68 %
Total$54,170 $50,213 $3,957 7.88 %

The primary reasons for the variances in the noninterest income categories for the three and six months ended June 30, 2022 as compared to the respective prior year periods shown in the preceding table include:
•Deposit account fees and interchange and ATM fees increased for the three and six months ended June 30, 2022 in comparison to the same prior year periods driven by increased volume attributable to the Meridian acquisition.
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•Investment management income increased for the three and six months ended June 30, 2022, driven primarily by fluctuations in assets under management as well as strong retail and insurance commission income during the first half of 2022.
•Mortgage banking income decreased in comparison to the prior year, despite strong origination volumes, as a greater portion of new originations were retained in the Company's portfolio versus being sold in the secondary market during the first half of 2022.
•The cash surrender value of life insurance policies increased primarily due the impact of policies acquired from Meridian.
•Loan level derivative income increased primarily as a result of higher customer demand.
•Other noninterest income increased for the three and six months ended June 30, 2022, primarily attributable to increases in rental income from equipment leases, discounted purchases of Massachusetts historical tax credits, credit card fee income and foreign currency exchange fees, partially offset by decreases in income from other investments and reduced unrealized gains on equity securities.
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Noninterest Expense The following table sets forth information regarding non-interest expense for the periods shown:
Table 19 - Noninterest Expense
 Three Months Ended
June 30Change
 20222021Amount%
 (Dollars in thousands) 
Salaries and employee benefits$49,538 $42,635 $6,903 16.19 %
Occupancy and equipment expenses11,637 8,706 2,931 33.67 %
Data processing & facilities management2,247 1,686 561 33.27 %
Consulting expense2,760 1,492 1,268 84.99 %
Software maintenance2,645 1,915 730 38.12 %
Amortization of intangible assets1,902 1,314 588 44.75 %
Debit card expense1,861 1,165 696 59.74 %
FDIC assessment1,743 775 968 124.90 %
Merger and acquisition expenses— 1,731 (1,731)(100.00)%
Other noninterest expenses16,229 11,883 4,346 36.57 %
Total$90,562 $73,302 $17,260 23.55 %
Six Months Ended
 June 30Change
 20222021Amount%
 (Dollars in thousands) 
Salaries and employee benefits$98,249 $82,524 $15,725 19.06 %
Occupancy and equipment expenses24,939 17,979 6,960 38.71 %
Data processing & facilities management4,619 3,351 1,268 37.84 %
Merger and acquisition expenses7,100 1,731 5,369 310.17 %
Software maintenance5,209 3,885 1,324 34.08 %
Consulting expense4,510 3,883 627 16.15 %
Amortization of intangible assets3,903 2,727 1,176 43.12 %
Debit card expense3,626 2,346 1,280 54.56 %
FDIC assessment3,548 1,825 1,723 94.41 %
Other noninterest expenses30,359 22,733 7,626 33.55 %
Total$186,062 $142,984 $43,078 30.13 %

The primary reasons for the variances in the noninterest expense categories for the three and six months ended June 30, 2022 as compared to the respective prior year periods shown in the preceding table include:
•The increase in salaries and employee benefits was primarily attributable to the Company's increased workforce base following the Meridian acquisition.
•Occupancy and equipment expenses increased year-over-year, primarily driven by costs associated with the Company's expanded branch network, real estate and other fixed assets resulting from the Meridian acquisition, as well as increased snow removal costs incurred during the first half of 2022.
•Data processing and facilities management expenses increased primarily due to timing of certain initiatives and general increases associated with higher transaction volumes.
•The Company incurred merger and acquisition costs related to the Meridian acquisition of $7.1 million for the six months ended June 30, 2022, all of which were incurred during the first quarter of 2022 and primarily related to
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lease terminations associated with exited branch locations, along with additional integration costs and professional fees. Meridian related merger and acquisition costs were also incurred, to a lesser extent, during the six months ended June 30, 2021, leading up to deal close during the fourth quarter of 2021.
•Software maintenance increased primarily due to the Company's continued investment in its technology infrastructure.
•FDIC assessment increased primarily due to an increased assessment base resulting from the Meridian acquisition.
•Consulting expense increased for the three and six months ended June 30, 2022, primarily due to timing of strategic initiatives.
•Other noninterest expense increased for the three and six months ended June 30, 2022, primarily due to two full quarters of general increases associated with the Meridian acquisition, elevated unrealized losses on equity securities, and increased marketing and public relations costs.

Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes. The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated:
Table 20 - Tax Provision and Applicable Tax Rates
Three Months EndedSix Months Ended
 June 30June 30
 2022202120222021
 (Dollars in thousands)
Combined federal and state income tax provision$20,421 $12,447 $37,528 $24,384 
Effective income tax rate24.84 %24.88 %24.62 %23.52 %
Blended statutory tax rate27.11 %27.92 %27.11 %27.92 %

The Company’s effective tax rate in 2022 thus far is higher as compared to the year ago period primarily due to higher pre-tax income, as well as the impact of discrete items, including tax benefits related to low income housing tax credits and equity compensation.  The effective tax rates in the table above are lower than the blended statutory tax rates due to the aforementioned discrete items as well as certain tax preference assets such as life insurance policies, tax exempt bonds, and federal tax credits.

The Company invests in various low income housing projects, which are real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing developments. As a limited partner in these operating partnerships, the Company will receive tax credits and tax deductions for losses incurred by the underlying properties. The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2039, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships is $184.0 million, of which $119.7 million had been funded as of June 30, 2022. It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.5 million for the fiscal year 2022 and a total of $23.3 million over the remaining life of the investments from the combination of the tax credits and operating losses.
Risk Management

The Board of Directors has approved an Enterprise Risk Management Policy and Risk Appetite Statement to state the Company’s goals and objectives in identifying, measuring, and managing the risks associated with the Company’s current and near future anticipated size and complexity. Management is responsible for comprehensive enterprise risk management, and continually strives to adopt and implement practices that strike an appropriate balance between risk and reward and permit the achievement of strategic goals in a controlled environment.

The Company has implemented the “three lines of defense” enterprise risk management model. The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks. The second line of defense is the Chief Risk Officer and the risk department, who monitor and provide advice with respect to first line risk management. The third line of
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defense is independent assurance performed by the Chief Internal Auditor, who reports to the Audit Committee of the Company's Board of Directors, and by the Company's internal audit department.

The Board of Directors, with the assistance of its Risk Committee, oversees management’s enterprise risk management practices. As risks must be taken to create value, the Board of Directors has defined the acceptable residual risk tolerances for the Company and the eight major risk types identified as having the potential to create significant adverse impacts on the Company, such as financial losses, reputational damage, legal or regulatory actions, nonachievement of strategic objectives, diminished customer experience, and/or cultural erosion. The eight major risk types identified by the Company and addressed in the Risk Appetite Statement are strategic risk, culture risk, credit risk, liquidity risk, interest rate risk, operational risk, technology risk, and reputation risk, each of which is discussed below.

Strategic Risk   Strategic risk is the risk arising from adverse strategic or business decisions, misalignment of strategic direction with the Company’s mission and values, failure to execute strategies or tactics, or an inadequate adaptation or lack of responsiveness to industry and/or operating environment changes. Management seeks to mitigate strategic risk through strategic planning, frequent executive review of strategic plan progress, monitoring of competitors and technology, assessment of new products, new branches, and new business initiatives, customer advocacy, and crisis management planning.

Culture Risk    Culture risk is the risk arising from failed leadership and/or ineffective colleague engagement and workplace management that causes the Company to lose sight of core values and, through acts or omissions, damage the relationship-based culture which has been one of the foundations of the Company’s consistent success. Management mitigates culture risk through effective employee relations, leadership that encourages continuous improvement, cultural development and reinforcement of core values, communication of clear ethical and behavioral standards, consistent enforcement of policies and programs, discipline of misbehavior, alignment of incentives and compensation, and by promoting diversity, equity, and inclusion.

Credit Risk    Credit risk is the risk arising from the failure of a borrower or a counterparty to a contract to make payments as agreed, and includes the risks arising from inadequate collateral and mismanagement of loan concentrations. While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results. The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans. For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 4, “Loans, Allowance for Credit Losses and Credit Quality” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report.

Liquidity Risk    Liquidity risk is the risk arising from the Company being unable to meet obligations when due. Liquidity risk includes the inability to access funding sources or manage fluctuations in available funding levels. Liquidity risk also results from a failure to recognize or address market condition changes that affect the ability to liquidate assets quickly with minimal value loss.

The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities. The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors.
The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which is an analysis of the relationship between liquid assets plus available Federal Home Loan Bank funding, less short-term liabilities relative to total assets, was within policy limits at June 30, 2022. The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings. An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure. Other factors affecting the Total Basic Surplus/Deficit include Federal Home Loan Bank collateral requirements, securities portfolio changes, and the mix of deposits.

The Company seeks to increase deposits without adversely impacting its weighted average funding cost. The Company also maintains a variety of liquidity sources, including Federal Home Loan Bank advances, Federal Reserve borrowing capacity, and repurchase agreement lines. These funding sources serve as a contingent source of liquidity and, when profitable lending and investment opportunities exist, the Company may access them to provide the liquidity needed to grow the balance sheet. The amount and type of assets that the Company has available to pledge impacts the Company's Federal Home Loan Bank and Federal Reserve borrowing capacity. For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a pledged commercial loan may increase borrowing capacity in a lower amount. The Company’s lending decisions, therefore, can also affect its liquidity position.
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The Company can also raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion. The availability and cost of equity or debt on an unsecured basis is dependent on many factors, including the Company’s financial position, the market environment, and the Company’s credit rating. The Company monitors the factors that could impact its ability to raise liquidity through these channels.

The following table depicts current and unused liquidity capacity from various sources as of the dates indicated:

Table 21 - Liquidity Sources
 June 30, 2022December 31, 2021
 OutstandingAdditional
Borrowing
Capacity		OutstandingAdditional
Borrowing  Capacity
 (Dollars in thousands)
Federal Home Loan Bank of Boston (1)$25,652 $1,821,345 $25,667 $1,622,494 
Federal Reserve Bank of Boston (2)— 1,282,323 — 1,176,486 
Unpledged Securities — 2,033,494 — 1,897,148 
Line of Credit — 85,000 — 85,000 
Long-term borrowing (3)— — 14,063 — 
Junior subordinated debentures (3)62,854 — 62,853 — 
Subordinated debt (3)49,838 — 49,791 — 
Reciprocal deposits (3)819,685 — 998,121 — 
Brokered deposits (3)113,757 — 141,572 — 
$1,071,786 $5,222,162 $1,292,067 $4,781,128 
 
(1)Loans with a carrying value of $2.6 billion and $2.3 billion at June 30, 2022 and December 31, 2021, respectively, were pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.
(2)Loans with a carrying value of $1.8 billion at both June 30, 2022 and December 31, 2021 were pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.
(3)The additional borrowing capacity has not been assessed for these categories.

In addition to customary operational liquidity practices, the Board of Directors and management recognize the need to establish reasonable guidelines to manage a heightened liquidity risk environment. Catalysts for elevated liquidity risk can be Company-specific issues and/or systemic industry-wide events. It is therefore the responsibility of management to institute systems and controls designed to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute responses that may alleviate or circumvent a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and appropriately address them in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and establish and execute an appropriate response.
    
Interest Rate Risk Interest rate risk is the risk arising from changes in interest rates and the value of investments due to market conditions or other external factors or events. Interest rate risk includes market risk. The Company’s primary market risk exposure is interest rate risk.

Interest rate risk is the sensitivity of income to changes in interest rates. Interest rate changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest rate risk arises directly from the Company’s core banking activities. In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects.

Management strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons. The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and
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interest-bearing liabilities and, when necessary within limits management deems prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.

The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis. Key assumptions in these analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g., demand deposit, negotiable order of withdrawal, savings, and money market accounts). In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans. The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined with precision and actual behavior may differ from assumptions to a significant degree.

Based upon the net interest income simulation models, the Company currently forecasts that assets are anticipated to re-price faster than liabilities. As a result, net interest income will be positively impacted as market rates increase and negatively impacted if market rates decrease. The Company runs several scenarios to quantify and effectively assist in managing interest rate risk, including instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary given the interest rate environment. The Company measures the annual income from each scenario and then compares it against the current year base case scenario.
The relative results of all scenarios and the impact to net interest income as they compare to the year 1 base scenario are outlined in the table below:
Table 22 - Interest Rate Sensitivity
June 30
 20222021
Year 1Year 2Year 1Year 2
Parallel rate shocks (basis points)
-200(13.4)%(18.0)%n/an/a
-100(7.2)%(6.7)%(3.3)%(9.7)%
+1004.1 %13.7 %9.3 %10.4 %
+2007.5 %20.1 %19.6 %24.4 %
+30011.5 %28.0 %30.4 %38.5 %
+40015.3 %35.7 %40.7 %52.3 %
Gradual rate shifts (basis points)
-200 over 12 months(6.0)%(14.3)%n/an/a
-100 over 12 months(3.0)%(5.3)%(1.5)%(8.0)%
+200 over 12 months4.0 %19.2 %9.7 %22.1 %
+400 over 24 months4.0 %24.4 %9.7 %34.2 %
Alternative scenarios
Flat up 200 basis points scenario3.2 %15.0 %9.2 %19.6 %

The results depicted in the table above are dependent on material assumptions. For instance, asymmetrical rate behavior can have a material impact on the simulation results. If competition for deposits prompts the Company to raise rates on those liabilities more quickly than is assumed in the simulation analysis without a corresponding increase in asset yields, net interest income would be negatively impacted. Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted.

The most significant market factors affecting the Company’s net interest income during the six months ended June 30, 2022 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime interest rate, LIBOR rates, the secured overnight financing rates ("SOFR"), and the interest rates being offered on long-term fixed rate loans.

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The Company manages the interest rate risk inherent in both its loan and borrowing portfolios by using interest rate swap agreements and interest rate caps and floors. An interest rate swap is an agreement in which one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from the other party. Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized. While interest is paid or received in swap, cap, and floors agreements, the notional principal amount is not actually exchanged. The Company may also manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts under which the Company agrees to deliver whole mortgage loans to various investors. See Note 6, “Derivative and Hedging Activities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for additional information regarding the Company’s derivative financial instruments.

The Company’s earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines. See Note 3, “Securities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report.

Operational Risk    Operational risk is the risk arising from human error or misconduct, transaction errors or delays, inadequate or failed internal systems or processes, data unavailability, loss, or poor quality, or adverse external events. Operational risk includes business resiliency risk, consumer compliance risk, data governance risk, fraud risk, legal risk, model risk, regulatory compliance risk, and third party vendor risk. Potential operational risk exposure exists throughout the Company. The continued effectiveness of colleagues, technical systems, operational infrastructure, and relationships with key third party service providers are integral to mitigating operational risk, and any shortcomings subject the Company to risks that vary in size, scale and scope. Operational risks include operational failures, unlawful tampering, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or a failure of key individuals to perform properly.

Technology Risk      Technology risk is the risk of losses or other impacts arising from the failure of technology systems to function in accordance with expectations and business requirements. Technology risk includes information technology risk, information security risk, and cyber security.

Reputation Risk Reputational risk is the risk arising from negative public opinion of the Company and the Bank. Management seeks to mitigate reputation risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring.
Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet Financial Information
Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended June 30, 2022.
See Note 6, "Derivative and Hedging Activities" and Note 10, "Commitments and Contingencies" within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for more information relating to the Company's other off-balance sheet financial instruments.
Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended June 30, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this Item 3 is included in the "Risk Management" section of Part I. Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report and is incorporated herein by reference.

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Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.  The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting. There were no changes in the Company's internal control over financial reporting that occurred during the second quarter of 2022 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item  1. Legal Proceedings
At June 30, 2022, the Bank was involved in pending lawsuits that arose in the ordinary course of business. Management has reviewed these pending lawsuits with legal counsel and has taken into consideration the view of counsel as to their outcome. In the opinion of management, the final disposition of pending lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.


Item 1A. Risk Factors

    The section titled Risk Factors in Part I, Item 1A of the 2021 Form 10-K includes a discussion of the material risks and uncertainties the Company faces, any one or more of which could have a material adverse effect on the Company's business, results of operations, or financial condition (including capital and liquidity). As of the date of this Report, there have been no material changes with regard to the Risk Factors disclosed in Item 1A of the 2021 Form 10-K which are incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended June 30, 2022:
 Issuer Purchases of Equity Securities
 Total Number of Shares Purchased (1)Average Price Paid Per Share (2)Total Number of
Shares Purchased as
Part of Publicly
Announced Plan or
Program (3)		Maximum Number of Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Plan or Program (3)
Period
April 1 to April 30, 2022529,699 $78.27 529,554 $96,652,690 
May 1 to May 31, 2022429,049 $77.70 428,967 $63,319,851 
June 1 to June 30, 2022361,699 $79.13 361,648 $34,701,602 
Total1,320,447 $78.32 1,320,169 
(1)Of these shares, 145 shares, 82 shares, and 51 shares were surrendered in April 2022, May 2022, and June 2022, respectively, in connection with the exercise and/or vesting of equity compensation grants to satisfy related tax withholding obligations.
(2)During the three months ended June 30, 2022, the average price per share of repurchased shares was $78.32 and the average price of surrendered shares related to tax withholding obligations was $79.54.
(3)On January 20, 2022, the Company announced that its Board of Directors authorized a share repurchase program of up to $140 million in shares of the Company's common stock. The program is scheduled to expire on January 18, 2023 and may be modified, suspended or discontinued without prior notice at any time.

Item 3. Defaults Upon Senior Securities - None.

Item 4. Mine Safety Disclosures - Not Applicable.

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Item 5. Other Information - None.

Item 6. Exhibits

Exhibit Index
 
No.Exhibit
31.1
31.2
32.1
32.2
101The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.*
104Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101).*

*Filed herewith
+Furnished herewith



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INDEPENDENT BANK CORP.
(registrant)
 
August 4, 2022 /s/ Christopher Oddleifson
 Christopher Oddleifson
President and
Chief Executive Officer
(Principal Executive Officer)
 
August 4, 2022 /s/ Mark J. Ruggiero
 Mark J. Ruggiero
Chief Financial Officer
(Principal Financial Officer)

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