INDEPENDENT BANK CORP - Quarter Report: 2021 June (Form 10-Q)

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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, 2021


☐			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)

___________________________________________________


MA			04-2870273
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

Office Address:

2036 Washington Street,

Hanover,

02339

Mailing Address:

288 Union Street,

Rockland,

02370

(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 Class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value per share	INDB	The 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

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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 Filer	x	Accelerated 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

☐

☒

As of August 4, 2021, there were 33,044,479 shares of the issuer’s common stock outstanding, par value $0.01 per share.

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			PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - June 30, 2021 and December 31, 2020			5
Consolidated Statements of Income - Three and Six months ended June 30, 2021 and 2020			7
Consolidated Statements of Comprehensive Income -Three and Six months ended June 30, 2021 and 2020			8
Consolidated Statements of Stockholders’ Equity - Three and Six months ended June 3 0 , 2021 and 2020			9
Consolidated Statements of Cash Flows - Six months ended June 3 0 , 2021 and 2020			11

Condensed Notes to Consolidated Financial Statements - June 30, 2021
Note 1 - Basis of Presentation			13
Note 2 - Recent Accounting Standards Updates			13
Note 3 - Securities			14
Note 4 - Loans, Allowance for Credit Losses, and Credit Quality			18
Note 5 - Stock Based Compensation			29
Note 6 - Derivative and Hedging Activities			30
Note 7 - Fair Value Measurements			36
Note 8 - Revenue Recognition			43
Note 9 - Comprehensive Income (Loss)			46
Note 10 - Commitments and Contingencies			47
Note 11 - Low Income Housing Project Investments			49
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			49
Table 1 - Closed Residential Real Estate Loans			63
Table 2 - Residential Mortgage Loan Sales			63
Table 3 - Mortgage Servicing Asset			64
Table 4 - Nonperforming Assets			69
Table 5 - Activity in Nonperforming Assets			69
Table 6 - Troubled Debt Restructurings			70
Table 7 - Activity in Troubled Debt Restructurings			70
Table 8 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings			71
Table 9 - Deferral by Modification Type			71
Table 10 - Industries Highly Impacted By COVID-19 - Details			72
Table 11 - Summary of Changes in the Allowance for Credit Losses			75
Table 12 - Summary of Allocation of the Allowance for Credit Losses			76
Table 13 - Borrowings			77
Table 14 - Company and Bank’s Capital Amounts and Ratios			78
Table 15 - Summary of Results of Operations			80
Table 16 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date			81
Table 17 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date			83
Table 18 - Volume Rate Analysis			85
Table 19 - Noninterest Income			86
Table 20 - Noninterest Expense			88
Table 21 - Tax Provision and Applicable Tax Rates			89
Table 22 - Sources of Liquidity			91
Table 23 - Interest Rate Sensitivity			93

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Item 3. Quantitative and Qualitative Disclosures About Market Risk			94
Item 4. Controls and Procedures			94

PART II. OTHER INFORMATION			94
Item 1. Legal Proceedings			94
Item 1A. Risk Factors			95
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			96
Item 3. Defaults Upon Senior Securities			96
Item 4. Mine Safety Disclosures			96
Item 5. Other Information			96
Item 6. Exhibits			97
Signatures			98

Exhibit 31.1 – Certification 302
Exhibit 31.2 – Certification 302
Exhibit 32.1 – Certification 906
Exhibit 32.2 – Certification 906

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEPENDENT BANK CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited—Dollars in thousands)


	June 30 2021		December 31 2020
Assets
Cash and due from banks	$	141,953	$	169,460
Interest-earning deposits with banks	2,114,477		1,127,176
Securities
Trading	3,439		2,838
Equity	22,975		22,107
Available for sale (amortized cost $782,361 and $395,453)	794,516		412,860
Held to maturity (fair value $877,801 and $752,177)	861,821		724,512
Total securities	1,682,751		1,162,317
Loans held for sale (at fair value)	25,561		58,104
Loans
Commercial and industrial	1,726,498		2,103,152
Commercial real estate	4,251,543		4,173,927
Commercial construction	496,539		553,929
Small business	182,863		175,023
Residential real estate	1,240,279		1,296,183
Home equity - first position	606,332		633,142
Home equity - subordinate positions	412,076		435,648
Other consumer	22,858		21,862
Total loans	8,938,988		9,392,866
Less: allowance for credit losses	(102,357)		(113,392)
Net loans	8,836,631		9,279,474
Federal Home Loan Bank stock	9,079		10,250
Bank premises and equipment, net	117,435		116,393
Goodwill	506,206		506,206
Other intangible assets	20,370		23,107
Cash surrender value of life insurance policies	242,963		200,525

Other assets	496,781		551,289
Total assets	$	14,194,207	$	13,204,301
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand deposits	$	4,370,852	$	3,762,306
Savings and interest checking accounts	4,445,903		4,047,332
Money market	2,352,897		2,232,903
Time certificates of deposit of $100,000 and over	429,811		525,424
Other time certificates of deposits	387,508		425,205
Total deposits	11,986,971		10,993,170
Borrowings
Federal Home Loan Bank borrowings	35,693		35,740



Long-term borrowings (less unamortized debt issuance costs of $13 and $40)	23,425		32,773

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Junior subordinated debentures (less unamortized debt issuance costs of $36 and $37)	62,852		62,851
Subordinated debentures (less unamortized debt issuance costs of $257 and $304)	49,743		49,696
Total borrowings	171,713		181,060
Other liabilities	293,901		327,386
Total liabilities	12,452,585		11,501,616
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: 33,037,859 shares at June 30, 2021 and 32,965,692 shares at December 31, 2020 (includes 137,005 and 135,205 shares of unvested participating restricted stock awards, respectively)	329		328
Value of shares held in rabbi trust at cost: 83,634 shares at June 30, 2021 and 84,126 shares at December 31, 2020	(3,116)		(3,066)
Deferred compensation and other retirement benefit obligations	3,116		3,066
Additional paid in capital	948,130		945,638
Retained earnings	763,596		716,024
Accumulated other comprehensive income, net of tax	29,567		40,695
Total stockholders’ equity	1,741,622		1,702,685
Total liabilities and stockholders' equity	$	14,194,207	$	13,204,301

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited—Dollars in thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020
Interest income
Interest and fees on loans	$	88,814	$	91,634	$	181,197	$	190,656
Taxable interest and dividends on securities	7,184		7,831		13,811		15,788
Nontaxable interest and dividends on securities	5		9		10		18
Interest on loans held for sale	186		359		482		591
Interest on federal funds sold and short-term investments	513		132		839		292
Total interest and dividend income	96,702		99,965		196,339		207,345
Interest expense
Interest on deposits	2,017		7,027		4,728		17,919
Interest on borrowings	1,331		1,840		2,673		4,024
Total interest expense	3,348		8,867		7,401		21,943
Net interest income	93,354		91,098		188,938		185,402
Provision for credit losses	(5,000)		20,000		(7,500)		45,000
Net interest income after provision for credit losses	98,354		71,098		196,438		140,402
Noninterest income
Deposit account fees	3,822		2,829		7,406		7,799
Interchange and ATM fees	3,068		5,214		5,788		10,110
Investment management	8,872		7,296		17,176		14,125
Mortgage banking income	2,705		5,005		8,445		5,866
Increase in cash surrender value of life insurance policies	1,589		1,312		2,912		2,588
Gain on life insurance benefits	—		335		258		692
Loan level derivative income	116		2,864		289		6,461
Unrealized gain on equity securities	436		1,386		723		1,386

Other noninterest income	4,359		1,949		7,216		5,598
Total noninterest income	24,967		28,190		50,213		54,625
Noninterest expenses
Salaries and employee benefits	42,635		37,269		82,524		74,618
Occupancy and equipment expenses	8,706		9,273		17,979		18,590
Data processing and facilities management	1,686		1,459		3,351		3,117
FDIC assessment	775		503		1,825		503

Consulting expense	1,492		1,603		3,883		2,939
Core deposit amortization	1,293		1,433		2,685		2,964


Merger and acquisition expense	1,731		—		1,731		—
Software maintenance	1,915		1,780		3,885		3,465

Other noninterest expenses	13,069		13,287		25,121		27,251
Total noninterest expenses	73,302		66,607		142,984		133,447
Income before income taxes	50,019		32,681		103,667		61,580
Provision for income taxes	12,447		7,779		24,384		9,927
Net income	$	37,572	$	24,902	$	79,283	$	51,653
Basic earnings per share	$	1.14	$	0.76	$	2.40	$	1.54
Diluted earnings per share	$	1.14	$	0.76	$	2.40	$	1.54
Weighted average common shares (basic)	33,033,578		32,944,761		33,014,561		33,564,596
Common share equivalents	21,270		28,098		25,085		31,991
Weighted average common shares (diluted)	33,054,848		32,972,859		33,039,646		33,596,587
Cash dividends declared per common share	$	0.48	$	0.46	$	0.96	$	0.92

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited—Dollars in thousands)


	Three Months Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020
Net income	$	37,572	$	24,902	$	79,283	$	51,653
Other comprehensive income (loss), net of tax
Net change in fair value of securities available for sale	3,793		1,695		(3,981)		11,042
Net change in fair value of cash flow hedges	(1,593)		197		(8,176)		23,181
Net change in other comprehensive income for defined benefit postretirement plans	210		225		1,029		(547)
Total other comprehensive income (loss)	2,410		2,117		(11,128)		33,676
Total comprehensive income	$	39,982	$	27,019	$	68,155	$	85,329

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2021 and 2020

(Unaudited—Dollars in thousands, except per share data)


	Common Stock Outstanding	Common Stock		Value of Shares Held in Rabbi Trust at Cost		Deferred Compensation Obligation		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balance March 31, 2021	33,024,882	$	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 surrendered	6,452	—		—		—		(23)		—		—		(23)
Shares issued under direct stock purchase plan	6,525	—		—		—		541		—		—		541

Deferred compensation and other retirement benefit obligations	—	—		(36)		36		—		—		—		—
Balance June 30, 2021	33,037,859	$	329	$	(3,116)	$	3,116	$	948,130	$	763,596	$	29,567	$	1,741,622

Balance March 31, 2020	33,260,005	$	331	$	(4,604)	$	4,604	$	962,513	$	667,084	$	49,728	$	1,679,656
Net income	—	—		—		—		—		24,902		—		24,902
Other comprehensive income	—	—		—		—		—		—		2,117		2,117
Common dividend declared ($0.46 per share)	—	—		—		—		—		(15,152)		—		(15,152)

Proceeds from exercise of stock options, net of cash paid	873	—		—		—		(26)		—		—		(26)
Stock based compensation	—	—		—		—		1,579		—		—		1,579
Restricted stock awards issued, net of awards surrendered	6,761	—		—		—		(51)		—		—		(51)
Shares issued under direct stock purchase plan	7,548	—		—		—		532		—		—		532
Shares repurchased under share repurchase program	(333,077)	(3)						(21,862)						(21,865)
Deferred compensation and other retirement benefit obligations	—	—		(45)		45		—		—		—		—
Balance June 30, 2020	32,942,110	$	328	$	(4,649)	$	4,649	$	942,685	$	676,834	$	51,845	$	1,671,692

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INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2021 and 2020

(Unaudited—Dollars in thousands, except per share data)


	Common Stock Outstanding	Common Stock		Value of Shares Held in Rabbi Trust at Cost		Deferred Compensation Obligation		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance December 31, 2020	32,965,692	$	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 paid	4,744	—		—		—		(57)		—		—		(57)
Stock based compensation	—	—		—		—		2,760		—		—		2,760
Restricted stock awards issued, net of awards surrendered	54,558	1		—		—		(1,244)		—		—		(1,243)
Shares issued under direct stock purchase plan	12,865	—		—		—		1,033		—		—		1,033

Deferred compensation and other retirement benefit obligations	—	—		(50)		50		—		—		—		—
Balance June 30, 2021	33,037,859	329		(3,116)		3,116		948,130		763,596		29,567		1,741,622

Balance December 31, 2019	34,377,388	$	342	$	(4,735)	$	4,735	$	1,035,450	$	654,182	$	18,169	$	1,708,143
Cumulative effect accounting adjustment (1)	—	—		—		—		—		1,553		—		1,553

Net income	—	—		—		—		—		51,653		—		51,653
Other comprehensive income	—	—		—		—		—		—		33,676		33,676
Common dividend declared ($0.92 per share)	—	—		—		—		—		(30,554)		—		(30,554)

Proceeds from exercise of stock options, net of cash paid	873	—		—		—		(26)		—		—		(26)
Stock based compensation	—	—		—		—		2,429		—		—		2,429
Restricted stock awards issued, net of awards surrendered	49,292	1		—		—		(1,184)		—		—		(1,183)
Shares issued under direct stock purchase plan	14,557	—		—		—		1,092		—		—		1,092
Shares repurchased under share repurchase program	(1,500,000)	(15)		—		—		(95,076)		—		—		(95,091)
Deferred compensation and other retirement benefit obligations	—	—		86		(86)		—		—		—		—
Balance June 30, 2020	32,942,110	328		(4,649)		4,649		942,685		676,834		51,845		1,671,692

(1) Represents adjustment needed to reflect the cumulative impact on retained earnings pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment presented includes $1.1 million ($817,000, net of tax) attributable to the change in accounting methodology for estimating the allowance for credit losses and $1.0 million ($736,000, net of tax) related to the reserve for unfunded commitments resulting from the Company's adoption of the standard. Amount shown in the table above is presented net of tax.

The accompanying condensed 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
	2021		2020
Cash flow from operating activities
Net income	$	79,283	$	51,653
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization	16,354		14,112
Change in unamortized net loan costs and premiums	(18,558)		(4,064)

Provision for credit losses	(7,500)		45,000
Deferred income tax expense	469		3,045
Net (gain) loss on equity securities	(864)		415


Net loss on bank premises and equipment	60		368




Realized gain on sale leaseback transaction	(289)		(289)
Stock based compensation	2,760		2,429

Increase in cash surrender value of life insurance policies	(2,912)		(2,588)
Gain on life insurance benefits	(258)		(692)
Operating lease payments	(6,088)		(5,887)
Operating lease termination payments	(4,750)		—
Change in fair value on loans held for sale	1,459		(839)
Net change in:
Trading assets	(601)		(362)

Loans held for sale	31,084		(11,249)
Other assets	79,393		(191,261)
Other liabilities	(51,289)		86,847
Total adjustments	38,470		(65,015)
Net cash provided by (used in) operating activities	117,753		(13,362)
Cash flows used in investing activities
Proceeds from sales of equity securities	1,164		—

Purchases of equity securities	(1,415)		(212)

Proceeds from maturities and principal repayments of securities available for sale	51,536		50,262
Purchases of securities available for sale	(438,903)		(30,095)
Proceeds from maturities and principal repayments of securities held to maturity	137,258		105,272
Purchases of securities held to maturity	(274,781)		(95,017)
Net redemption (purchases) of Federal Home Loan Bank stock	1,171		(666)
Investments in low income housing projects	(9,556)		(14,008)
Purchases of life insurance policies	(40,102)		(101)
Proceeds from life insurance policies	576		2,629
Net (increase) decrease in loans	468,901		(481,372)

Purchases of bank premises and equipment	(6,970)		(5,186)
Proceeds from the sale of bank premises and equipment	4		23



Net cash used in investing activities	(111,117)		(468,471)
Cash flows provided by financing activities
Net decrease in time deposits	(133,295)		(302,738)
Net increase in other deposits	1,127,111		1,872,552

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Net advances of short-term Federal Home Loan Bank borrowings	—		55,000

Repayments of long-term Federal Home Loan Bank borrowings	—		(25,000)





Repayments of long-term debt, net of issuance costs	(9,375)		(37,500)


Net payments for exercise of stock options	(57)		(26)
Restricted stock awards issued, net of awards surrendered	(1,243)		(1,183)
Proceeds from shares issued under direct stock purchase plan	1,033		1,092
Payments for shares repurchased under share repurchase program	—		(95,091)
Common dividends paid	(31,016)		(30,527)
Net cash provided by financing activities	953,158		1,436,579
Net increase in cash and cash equivalents	959,794		954,746
Cash and cash equivalents at beginning of year	1,296,636		150,974
Cash and cash equivalents at end of period	$	2,256,430	$	1,105,720
Supplemental schedule of noncash activities


Net increase in capital commitments relating to low income housing project investments	$	34,232	$	27,937

Right-of-use assets obtained in exchange for new lease obligations	$	5,873	$	5,356

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

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CONDENSED 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, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 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, 2020, filed with the Securities and Exchange Commission (the "2020 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 and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact of the transition away from LIBOR.

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NOTE 3 - SECURITIES

Trading Securities

The Company had trading securities of $3.4 million and $2.8 million as of June 30, 2021 and December 31, 2020, 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 $23.0 million and $22.1 million as of June 30, 2021 and December 31, 2020, 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 Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020
	Dollars in thousands
Net gains (losses) recognized during the period on equity securities	$	548	$	1,386	864		(415)
Less: net gains recognized during the period on equity securities sold during the period	112		—		141		6
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	436	$	1,386	$	723	$	(421)

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, 2021										December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for credit losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for credit losses		Fair Value
	(Dollars in thousands)
Available for sale securities
U.S. government agency securities	$	192,829	$	2,080	$	(867)	$	—	$	194,042	$	22,476	$	1,640	$	—	$	—	$	24,116
U.S. treasury securities	132,247		136		(32)		—		132,351		—		—		—		—		—
Agency mortgage-backed securities	308,670		7,256		(1,830)		—		314,096		224,293		9,337		(1)		—		233,629
Agency collateralized mortgage obligations	93,307		2,535		(5)		—		95,837		88,687		3,083		(87)		—		91,683

State, county, and municipal securities	541		14		—		—		555		790		17		—		—		807
Single issuer trust preferred securities issued by banks	489		1		—		—		490		489		—		(1)		—		488
Pooled trust preferred securities issued by banks and insurers	1,409		—		(348)		—		1,061		1,429		—		(373)		—		1,056
Small business administration pooled securities	52,869		3,215		—		—		56,084		57,289		3,792		—		—		61,081
Total available for sale securities	$	782,361	$	15,237	$	(3,082)	$	—	$	794,516	$	395,453	$	17,869	$	(462)	$	—	$	412,860

The Company did not record a provision for estimated credit losses on any available for sale securities during the three and six months ended June 30, 2021 and 2020. Excluded from the table above is accrued interest on available for sale securities of $2.1 million and $1.2 million as of June 30, 2021 and December 31, 2020, 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 available for sale securities during the three and six months ended June 30, 2021 and 2020. Furthermore, no

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securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status as of June 30, 2021 and December 31, 2020.

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 or six months ended June 30, 2021 and 2020, 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 dated 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, 2021
		Less than 12 months				12 months or longer				Total
	# of holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. government agency securities	4	$	114,362	$	(867)	$	—	$	—	$	114,362	$	(867)
U.S. treasury securities	1	35,115		(32)		—		—		35,115		(32)
Agency mortgage-backed securities	9	134,589		(1,829)		287		(1)		134,876		(1,830)
Agency collateralized mortgage obligations	1	7,240		(5)		—		—		7,240		(5)


Pooled trust preferred securities issued by banks and insurers	1	—		—		1,061		(348)		1,061		(348)

Total impaired available for sale securities	16	$	291,306	$	(2,733)	$	1,348	$	(349)	$	292,654	$	(3,082)

	December 31, 2020
		Less than 12 months				12 months or longer				Total
	# of holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)

Agency mortgage-backed securities	3	$	437	$	(1)	$	—	$	—	$	437	$	(1)
Agency collateralized mortgage obligations	2	23,323		(87)		—		—		23,323		(87)

Single issuer trust preferred securities issued by banks and insurers	1	488		(1)		—		—		488		(1)
Pooled trust preferred securities issued by banks and insurers	1	—		—		1,056		(373)		1,056		(373)

Total impaired available for sale securities	7	$	24,248	$	(89)	$	1,056	$	(373)	$	25,304	$	(462)

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, 2021 and 2020. 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.

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, 2021:

•U.S. Government Agency Securities, U.S. Treasury Securities, Agency Mortgage-Backed Securities and Agency Collateralized Mortgage Obligations: 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.

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•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, 2021										December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for credit losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for credit losses		Fair Value
	(Dollars in thousands)
U.S. government agency securities	$	33,853	$	—	$	(123)	$	—	$	33,730	$	—	$	—	$	—	$	—	$	—
U.S. treasury securities	3,010		28		—		—		3,038		4,017		60		—		—		4,077
Agency mortgage-backed securities	381,030		12,507		(1,495)		—		392,042		356,085		18,036		—		—		374,121
Agency collateralized mortgage obligations	418,112		6,347		(2,618)		—		421,841		335,993		8,466		(340)		—		344,119

Single issuer trust preferred securities issued by banks	1,500		8		—		—		1,508		1,500		—		(2)		—		1,498
Small business administration pooled securities	24,316		1,326		—		—		25,642		26,917		1,445		—		—		28,362

Total held to maturity securities	$	861,821	$	20,216	$	(4,236)	$	—	$	877,801	$	724,512	$	28,007	$	(342)	$	—	$	752,177

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, 2021 and 2020. Excluded from the table above is accrued interest on held to maturity securities of $1.6 million and $1.5 million as of June 30, 2021 and December 31, 2020, 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, 2021 and 2020. 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, 2021 and December 31, 2020.

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, 2021 and 2020, 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, 2021, 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, 2021 is presented below:


	Due in one year or less				Due after one year to five years				Due after five to ten years				Due after ten years				Total
	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	$	10,000	$	10,123	$	—	$	—	$	182,829	$	183,919	$	—	$	—	$	192,829	$	194,042
U.S. treasury securities	—		—		—		—		132,247		132,351		—		—		132,247		132,351
Agency mortgage-backed securities	—		—		80,105		82,563		97,297		97,247		131,268		134,286		308,670		314,096
Agency collateralized mortgage obligations	—		—		—		—		—		—		93,307		95,837		93,307		95,837

State, county, and municipal securities	350		351		—		—		191		204		—		—		541		555
Single issuer trust preferred securities issued by banks	—		—		—		—		—		—		489		490		489		490
Pooled trust preferred securities issued by banks and insurers	—		—		—		—		—		—		1,409		1,061		1,409		1,061
Small business administration pooled securities	—		—		—		—		—		—		52,869		56,084		52,869		56,084
Total available for sale securities	$	10,350	$	10,474	$	80,105	$	82,563	$	412,564	$	413,721	$	279,342	$	287,758	$	782,361	$	794,516
Held to maturity securities
U.S. government agency securities	$	—	$	—	$	33,853	$	33,730	$	—	$	—	$	—	$	—	$	33,853	$	33,730
U.S. treasury securities	3,010		3,038		—		—		—		—		—		—		3,010		3,038
Agency mortgage-backed securities	—		—		3,995		4,221		124,640		126,003		252,395		261,818		381,030		392,042
Agency collateralized mortgage obligations	—		—		—		—		—		—		418,112		421,841		418,112		421,841

Single issuer trust preferred securities issued by banks	—		—		—		—		1,500		1,508		—		—		1,500		1,508
Small business administration pooled securities	—		—		—		—		—		—		24,316		25,642		24,316		25,642

Total held to maturity securities	$	3,010	$	3,038	$	37,848	$	37,951	$	126,140	$	127,511	$	694,823	$	709,301	$	861,821	$	877,801
Total	$	13,360	$	13,512	$	117,953	$	120,514	$	538,704	$	541,232	$	974,165	$	997,059	$	1,644,182	$	1,672,317

Included in the table above are $3.3 million of callable securities at June 30, 2021.

The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $447.4 million and $419.6 million at June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021 and December 31, 2020, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated stockholders’ equity.

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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:

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	Three Months Ended June 30, 2021
	(Dollars in thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
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)
Recoveries	35		—		—		4		—		45		205		289
Provision for credit loss expense	(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

	Three Months Ended June 30, 2020
	(Dollars in thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
Allowance for credit losses
Beginning balance	$	21,649	$	29,498	$	3,747	$	3,829	$	14,847	$	17,910	$	896	$	92,376
Charge-offs	—		—		—		(36)		—		(4)		(670)		(710)
Recoveries	4		—		—		3		—		95		408		510
Provision for credit loss expense	4,009		7,458		754		765		199		6,859		(44)		20,000
Ending balance (1)	$	25,662	$	36,956	$	4,501	$	4,561	$	15,046	$	24,860	$	590	$	112,176

	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 Consumer		Total
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)
Recoveries	99		57		—		15		1		58		402		632
Provision for credit loss expense	(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

	Six Months Ended June 30, 2020
	(Dollars in thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
Allowance for credit losses
Beginning balance, pre adoption of ASU 2016-13	$	17,594	$	32,935	$	6,053	$	1,746	$	3,440	$	5,576	$	396	$	67,740
Cumulative effect accounting adjustment (2)	(1,984)		(13,048)		(3,652)		495		9,828		7,012		212		(1,137)
Cumulative effect accounting adjustment (3)	49		337		—		—		423		319		29		1,157
Charge-offs	—		—		—		(145)		—		(142)		(1,157)		(1,444)
Recoveries	46		—		—		6		1		153		654		860
Provision for credit loss expense	9,957		16,732		2,100		2,459		1,354		11,942		456		45,000
Ending balance (1)	$	25,662	$	36,956	$	4,501	$	4,561	$	15,046	$	24,860	$	590	$	112,176

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(1)Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $29.9 million and $32.9 million as of June 30, 2021 and June 30, 2020, respectively.

(2)Represents adjustment needed to reflect the cumulative day one impact pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment represents a $1.1 million decrease to the allowance attributable to the change in accounting methodology for estimating the allowance for credit losses resulting from the Company's adoption of the standard.

(3)Represents adjustment needed to reflect the day one reclassification of the Company's PCI loan balances to PCD and the associated gross-up, pursuant to the Company's adoption of Accounting Standards Update 2016-13. The adjustment represents a $1.2 million increase to the allowance resulting from the day one reclassification.

The balance of allowance for credit losses of $102.4 million as of June 30, 2021 represents a decrease of $5.2 million, or 4.8%, compared to March 31, 2021. The decrease in the allowance was primarily driven by $5.0 million of negative provision recorded during the quarter, reflecting improvements in overall macro-economic forecast assumptions, continued strong asset quality metrics, and modest overall loan growth (excluding the PPP loan activity.) While management is unable to know with certainty the direct, indirect, and future impacts of the COVID-19 pandemic, it is expected that the pandemic could have a significant adverse impact on future losses across a broad range of loan segments. As such, the allowance for credit losses at June 30, 2021 continues to reflect increased reserve allocations to loan segments that are considered to have elevated loss exposure associated with the COVID-19 pandemic. These loan segments primarily include commercial relationships within industries that have been subject to mandated closures and capacity limits that have impeded and could potentially impede the borrowers’ ability to make loan payments, including loans in the following industry sections: Accommodations, Food Services, Retail Trade, Other Services (excluding Public Administration), and Arts, Entertainment and Recreation. In addition to these industry exposures, additional risk of loss was attributable to non-owner occupied real estate borrowers with significant retail tenant exposure, as well as home equity loans within a junior lien position. Leveraging actual historical loss given default (LGD) rates combined with stressing of assumptions over probability of default rates over these higher risk segments, qualitative adjustments were made to the initially model-driven calculated loss reserves.

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, 1-4 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.

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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 1-4 family residential properties. Residential mortgage loans also include loans to construct owner-occupied 1-4 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 1-4 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.

•Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, 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.

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•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") have been 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 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. Consumer loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the CARES Act were not categorized as delinquent loans.

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:


	June 30, 2021
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving converted to Term		Total (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 weakness	4,726		11,553		3,292		1,772		1,141		2,531		8,596		—		33,611
Definite weakness - loss unlikely	18,026		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 weakness	15,416		29,480		54,436		32,476		18,923		86,135		13,614		—		250,480
Definite weakness - loss unlikely	9,505		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	—		—		—		—		—		—		—		—		—

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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 weakness	15		—		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

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


	June 30, 2020
	2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving converted to Term		Total (1)
	(Dollars in thousands)
Commercial and industrial
Pass (2)	$	911,414	$	193,832	$	129,199	$	44,664	$	27,640	$	25,095	$	565,953	$	2,668	$	1,900,465
Potential weakness	1,896		1,818		1,426		4,787		1,609		544		12,515		50		24,645
Definite weakness - loss unlikely	2,124		1,779		23,609		5,552		2,555		1,430		42,437		—		79,486
Partial loss probable	—		—		—		—		—		49		—		—		49
Definite loss	—		—		—		—		—		—		—		—		—
Total commercial and industrial	$	915,434	$	197,429	$	154,234	$	55,003	$	31,804	$	27,118	$	620,905	$	2,718	$	2,004,645

Commercial real estate
Pass	$	490,280	$	895,594	$	546,513	$	607,633	$	438,455	$	846,195	$	48,889	$	14,854	$	3,888,413
Potential weakness	5,218		6,423		4,821		23,123		14,159		47,055		—		—		100,799
Definite weakness - loss unlikely	3,747		2,992		37,155		21,091		4,525		12,325		—		—		81,835
Partial loss probable	—		—		—		—		—		—		—		—		—
Definite loss	—		—		—		—		—		—		—		—		—
Total commercial real estate	$	499,245	$	905,009	$	588,489	$	651,847	$	457,139	$	905,575	$	48,889	$	14,854	$	4,071,047

Commercial construction
Pass	$	91,981	$	241,910	$	95,253	$	66,282	$	—	$	6,810	$	32,012	$	1,095	$	535,343
Potential weakness	—		367		382		—		—		—		177		—		926
Definite weakness - loss unlikely	—		—		1,519		—		—		—		—		—		1,519
Partial loss probable	—		—		—		—		—		—		—		—		—
Definite loss	—		—		—		—		—		—		—		—		—

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Total commercial construction	$	91,981	$	242,277	$	97,154	$	66,282	$	—	$	6,810	$	32,189	$	1,095	$	537,788

Small business
Pass	$	14,711	$	30,764	$	22,702	$	16,803	$	16,109	$	25,521	$	39,804	$	—	$	166,414
Potential weakness	—		11		17		12		748		246		563		—		1,597
Definite weakness - loss unlikely	186		444		80		173		114		447		833		—		2,277
Partial loss probable	—		—		—		—		—		—		—		—		—
Definite loss	—		—		—		—		—		—		—		—		—
Total small business	$	14,897	$	31,219	$	22,799	$	16,988	$	16,971	$	26,214	$	41,200	$	—	$	170,288

Residential real estate
Pass	$	78,072	$	185,896	$	213,340	$	187,713	$	263,749	$	495,816	$	—	$	—	$	1,424,586
Default	—		—		427		939		369		4,808		—		—		6,543

Total residential real estate	$	78,072	$	185,896	$	213,767	$	188,652	$	264,118	$	500,624	$	—	$	—	$	1,431,129

Home equity
Pass	$	43,516	$	70,369	$	64,874	$	64,569	$	49,347	$	130,900	$	691,110	$	2,635	$	1,117,320
Default	—		—		—		15		—		419		2,466		303		3,203

Total home equity	$	43,516	$	70,369	$	64,874	$	64,584	$	49,347	$	131,319	$	693,576	$	2,938	$	1,120,523

Other consumer
Pass	$	451	$	566	$	266	$	916	$	836	$	9,193	$	11,965	$	—	$	24,193
Default	—		—		—		—		—		35		—		—		35

Total other consumer	$	451	$	566	$	266	$	916	$	836	$	9,228	$	11,965	$	—	$	24,228

Total	$	1,643,596	$	1,632,765	$	1,141,583	$	1,044,272	$	820,215	$	1,606,888	$	1,448,724	$	21,605	$	9,359,648

(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 $482.7 million as of June 30, 2021, including $112.2 million and $370.5 million originated in 2020 and 2021, respectively, while outstanding PPP loans as of June 30, 2020 totaled $793.0 million.

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 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 2021		December 31 2020
Residential portfolio
FICO score (re-scored)(1)	749		749
LTV (re-valued)(2)	56.6	%	57.4	%
Home equity portfolio
FICO score (re-scored)(1)	772		771
LTV (re-valued)(2)(3)	45.5	%	46.0	%

(1)The average FICO scores at June 30, 2021 are based upon rescores from June 2021, as available for previously originated loans, or origination score data for loans booked in June 2021. The average FICO scores at December 31, 2020 were based upon rescores available from December 2020, as available for previously originated loans, or origination score data for loans booked in December 2020.

(2)The combined LTV ratios for June 30, 2021 are based upon updated automated valuations as of May 2021, when available, and/or the most current valuation data available. The combined LTV ratios for December 31, 2020 were based upon updated automated valuations as of November 2020, 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.

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(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 each of June 30, 2021, and December 31, 2020 the Company's estimated reserve for unfunded commitments amounted to $1.2 million.

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, 2021 and December 31, 2020 was $233.8 million and $173.6 million, respectively. The majority of these loans with active deferrals as of June 30, 2021 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 are modified loans are characterized as current and therefore are not impacting nonaccrual or delinquency totals as of June 30, 2021 and December 31, 2020. 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.

The following table shows information regarding nonaccrual loans as of the dates indicated:


	Nonaccrual Balances
	June 30, 2021						December 31, 2020
	With Allowance for Credit Losses		Without Allowance for Credit Losses		Total		With Allowance for Credit Losses		Without Allowance for Credit Losses		Total
	(Dollars in thousands)
Commercial and industrial	$	3,465	$	17,366	$	20,831	$	3,804	$	30,925	$	34,729
Commercial real estate	9,031		—		9,031		10,195		—		10,195

Small business	558		—		558		815		10		825
Residential real estate	8,952		3,834		12,786		10,935		4,593		15,528
Home equity	4,517		—		4,517		5,427		—		5,427
Other consumer	95		—		95		156		—		156
Total nonaccrual loans (1)	$	26,618	$	21,200	$	47,818	$	31,332	$	35,528	$	66,860

(1)Included in these amounts were $20.2 million and $22.2 million of nonaccruing TDRs at June 30, 2021 and December 31, 2020, 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, 2021 and June 30, 2020.

In accordance with government moratorium orders established in response to the COVID-19 pandemic, new foreclosures pursued by the Company have been on hold through June 30, 2021, and all loan foreclosures in process as of June 30, 2021 were in compliance with the orders. The following table shows information regarding foreclosed residential real estate property at the dates indicated:


	June 30, 2021		December 31, 2020
	(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	$	1,401	$	1,750

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The following tables show the age analysis of past due financing receivables as of the dates indicated:


	June 30, 2021
	30-59 days			60-89 days			90 days or more			Total 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 industrial	4	$	1,384	—	$	—	—	$	—	4	$	1,384	$	1,725,114	$	1,726,498	$	—
Commercial real estate	2	202		1	162		3	291		6	655		4,250,888		4,251,543		—
Commercial construction	—	—		—	—		—	—		—	—		496,539		496,539		—
Small business	4	18		1	61		4	32		9	111		182,752		182,863		—
Residential real estate	9	1,167		2	153		22	3,223		33	4,543		1,235,736		1,240,279		—
Home equity	12	572		7	520		20	1,684		39	2,776		1,015,632		1,018,408		—
Other consumer (1)	233	173		—	—		1	1		234	174		22,684		22,858		—
Total	264	$	3,516	11	$	896	50	$	5,231	325	$	9,643	$	8,929,345	$	8,938,988	$	—


	December 31, 2020
	30-59 days			60-89 days			90 days or more			Total 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 industrial	2	$	318	1	$	672	8	$	785	11	$	1,775	$	2,101,377	$	2,103,152	$	—
Commercial real estate	3	409		—	—		4	515		7	924		4,173,003		4,173,927		—
Commercial construction	—	—		2	2,794		—	—		2	2,794		551,135		553,929		—
Small business	14	421		6	273		4	59		24	753		174,270		175,023		—
Residential real estate	12	2,150		8	5,507		27	3,648		47	11,305		1,284,878		1,296,183		—
Home equity	10	733		5	203		33	2,633		48	3,569		1,065,221		1,068,790		—
Other consumer (1)	260	137		3	1		6	138		269	276		21,586		21,862		1
Total	301	$	4,168	25	$	9,450	82	$	7,778	408	$	21,396	$	9,371,470	$	9,392,866	$	1

(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. 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.

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The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated:


		June 30, 2021		December 31, 2020
	(Dollars in thousands)
TDRs on accrual status		$	19,495	$	16,983
TDRs on nonaccrual		20,212		22,209
Total TDRs		$	39,707	$	39,192
Additional commitments to lend to a borrower who has been a party to a TDR		$	412	$	263

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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The following table shows the TDRs which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring:


	Three Months Ended					Six Months Ended
	June 30, 2021					June 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 business	1	89		89		2	189		189



Total (1)	1	$	89	$	89	8	$	18,301	$	18,301


	Three Months Ended					Six Months Ended
	June 30, 2020					June 30, 2020
	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	$	40	$	40	3	$	308	$	308
Commercial real estate	4	1,170		1,170		5	1,774		1,774
Small business	1	63		63		2	112		88
Residential real estate	1	382		433		2	559		642


Total (1)	7	$	1,655	$	1,706	12	$	2,753	$	2,812

(1)The pre-modification and post-modification balances represent the legal principal balance of the loan. Activity presented in the tables above includes no modifications on existing TDRs during the three months ended June 30, 2021, $14.3 million of modifications on existing TDRs during the six months ended June 30, 2021, and $510,000 and $1.4 million of modifications on existing TDRs during the three and six months ended June 30, 2020, respectively.

The following table shows the Company’s post-modification balance of TDRs listed by type of modification for the periods indicated:


	Three Months Ended		Six Months Ended
	June 30		June 30
	2021	2020	2021		2020
	(Dollars in thousands)
Adjusted interest rate	—	—	$	—	$	604
Combination rate and maturity	—	—	14,148		—
Court ordered concession	—	—	—		25
Extended maturity	89	1,706	4,153		2,183
Total	89	1,706	$	18,301	$	2,812

The Company considers a loan to have defaulted when it reaches 90 days past due. During the six months ended June 30, 2021 and June 30, 2020, there were no loans modified during the prior twelve months that subsequently defaulted during the respective periods.

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NOTE 5 - STOCK BASED COMPENSATION

During the six months ended June 30, 2021, 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:

Date

Shares Granted

Plan

Grant Date Fair Value Per Share

Vesting Period

2/18/2021

49,550

2005 Employee Stock Plan

81.84

Ratably over 5 years from grant date

5/25/2021

7,680

2018 Non-Employee Director Stock Plan

78.18

Shares vested immediately

Performance-Based Restricted Stock Awards

On February 18, 2021, the Company granted 18,900 performance-based restricted stock 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 $81.84. 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, 2023. The awards will 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, 2024.

On March 12, 2021, the performance-based restricted stock awards that were awarded on February 15, 2018 vested at 85% of the maximum target shares awarded, or 13,005 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, 2021
				Weighted Average Rate
	Notional Amount		Average Maturity	Current Rate Received		Pay Fixed Swap Rate		Fair Value
	(in thousands)		(in years)					(in thousands)
Interest rate swaps on borrowings	$	75,000	0.68	0.13	%	1.53	%	$	(845)

				Current Rate Paid		Receive Fixed Swap Rate
Interest rate swaps on loans	550,000		3.08	0.09	%	2.16	%	20,985

				Current Rate Paid		Receive Fixed Swap Rate Cap - Floor
Interest rate collars on loans	400,000		2.17	0.08	%	2.73% - 2.20%		15,964

Total	$	1,025,000						$	36,104


December 31, 2020
				Weighted Average Rate
	Notional Amount		Average Maturity	Current Rate Received		Pay Fixed Swap Rate		Fair Value
	(in thousands)		(in years)					(in thousands)
Interest rate swaps on borrowings	$	75,000	1.18	0.22	%	1.53	%	$	(1,341)

				Current Rate Paid		Receive Fixed Swap Rate
Interest rate swaps on loans	450,000		2.66	0.15	%	2.37	%	27,021

				Current Rate Paid		Receive Fixed Swap Rate Cap - Floor
Interest rate collars on loans	400,000		2.66	0.15	%	2.73% - 2.20%		21,764

Total	$	925,000						$	47,444

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 7.7 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 $19.3 million (pre-tax) to be reclassified as an increase to interest income and $713,000 (pre-tax) to be reclassified as an increase to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months. 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, 2021.

The Company had no fair value hedges as of June 30, 2021 or December 31, 2020.

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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 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	June 30, 2021
	(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	295	$	53,462	$	119,443	$	139,057	$	211,198	$	1,083,785	$	1,606,945	$	78,200
Pay fixed, receive variable	295	53,462		119,443		139,057		211,198		1,083,785		1,606,945		(78,200)
Foreign exchange contracts
Buys foreign currency, sells U.S. currency	43	132,804		—		—		—		—		132,804		(2,269)
Buys U.S. currency, sells foreign currency	43	132,804		—		—		—		—		132,804		2,273
Risk participation agreements
Participation out	11	—		—		2,655		31,761		67,927		102,343		275
Participation in	7	—		42,099		16,875		—		8,404		67,378		(76)

		Notional Amount Maturing
	Number of Positions (1)	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	December 31, 2020
	(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	322	$	102,999	$	76,487	$	149,265	$	147,422	$	1,222,557	$	1,698,730	$	127,226
Pay fixed, receive variable	313	102,999		76,487		149,265		147,422		1,222,557		1,698,730		(127,216)
Foreign exchange contracts
Buys foreign currency, sells U.S. currency	33	87,557		5,300		—		—		—		92,857		(4,214)
Buys U.S. currency, sells foreign currency	33	87,557		5,300		—		—		—		92,857		4,224
Risk participation agreements
Participation out	12	6,721		—		2,675		7,307		93,378		110,081		512
Participation in	8	—		30,649		29,072		—		15,844		75,565		(118)

(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 $305,000 and $583,000 for the three month periods ended June 30, 2021 and 2020, respectively. The fair value of loans held for sale decreased by $1.5 million and increased by $839,000 for the six month periods ended June 30, 2021 and 2020, 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 $4.2 million and $6.1 million for the three month periods ended June 30, 2021 and 2020, respectively, and $12.3 million and $10.6 million for the six months ended June 30, 2021 and 2020, 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 at			Fair Value at			Fair Value at			Fair Value at
	June 30 2021			December 31 2020			June 30 2021			December 31 2020
	(Dollars in thousands)
Derivatives designated as hedges
Interest rate derivatives	$	37,046	(3)	$	48,786	(3)	$	942	(4)	$	1,342	(4)
Derivatives not designated as hedges
Customer Related Positions
Loan level derivatives	85,193		(3)	127,228		(3)	85,193		(4)	127,218		(4)
Foreign exchange contracts	2,459			4,359			2,455			4,349
Risk participation agreements	275			513			76			119
Mortgage Derivatives
Interest rate lock commitments	2,071			6,513			—			—
Forward sale loan commitments	—			—			8			1
Forward sale hedge commitments	—			—			213			1,035
Total derivatives not designated as hedges	89,998			138,613			87,945			132,722
Total	127,044			187,399			88,887			134,064

Netting Adjustments (5)	(4,021)			23			6,918			16,105
Net Derivatives on the Balance Sheet	123,023			187,422			81,969			117,959

Financial instruments (6)	40,457			48,786			40,457			48,786
Cash collateral pledged (received)	—			—			38,765			62,460
Net Derivative Amounts	$	82,566		$	138,636		$	2,747		$	6,713

(1)All asset derivatives are located in other assets on the balance sheet.

(2)All liability derivatives are located in other liabilities on the balance sheet.

(3)Approximately $1.2 million and $1.6 million of accrued interest receivable is included in the fair value of the interest rate and loan level asset derivatives, respectively, as of June 30, 2021. Accrued interest receivable of approximately and $1.2 million and $2.0 million is included in the fair value of the interest rate and loan level asset derivatives, respectively, as of December 31, 2020.

(4)Approximately $58,000 and $1.6 million of accrued interest payable is included in the fair value of the interest rate and loan level liability derivatives, respectively, as of June 30, 2021. Accrued interest payable of approximately $81,000 and $2.0 million is included in the fair value of the interest rate and loan level derivative liabilities, respectively, as of December 31, 2020.

(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 as of June 30, 2021.

(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 Ended				Six Months Ended
	June 30				June 30
	2021		2020		2021		2020
	(Dollars in thousands)
Derivatives designated as hedges
Gain (loss) in OCI on derivatives (effective portion), net of tax	$	(1,593)	$	197	$	(8,176)	$	23,181
Gain reclassified from OCI into interest income or interest expense (effective portion)	$	4,698	$	3,976	$	9,078	$	5,562
Loss reclassified from OCI into noninterest expense (loss on termination)	$	—	$	—	$	—	$	—
Interest expense	$	—	$	—	$	—	$	—
Other expense	—		—		—		—
Total	$	—	$	—	$	—	$	—
Derivatives not designated as hedges
Changes in fair value of customer related positions
Other income	$	77	$	3	$	83	$	25
Other expense	(11)		—		(294)		(24)
Changes in fair value of mortgage derivatives
Mortgage banking income	(1,303)		3,347		(3,627)		2,626
Total	$	(1,237)	$	3,350	$	(3,838)	$	2,627

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. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $42.2 million and $79.8 million at June 30, 2021 and December 31, 2020, respectively. Although none of the contingency provisions have applied as of June 30, 2021 and December 31, 2020, the Company has posted collateral to offset the net liability exposure with institutional counterparties.

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 $40.5 million and $48.8 million at June 30, 2021 and December 31, 2020, respectively. The Company’s exposure relating to customer counterparties was approximately $81.7 million and $127.2 million at June 30, 2021 and December 31, 2020, 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

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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 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, 2021.

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.

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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.

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, 2021 and December 31, 2020, 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.

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Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated:


			Fair Value Measurements at Reporting Date Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	June 30, 2021
	(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	3,439	$	3,439	$	—	$	—
Equity securities	22,975		22,975		—		—
Securities available for sale
U.S. government agency securities	194,042		—		194,042		—
U.S. treasury securities	132,351		—		132,351		—
Agency mortgage-backed securities	314,096		—		314,096		—
Agency collateralized mortgage obligations	95,837		—		95,837		—

State, county, and municipal securities	555		—		555		—
Single issuer trust preferred securities issued by banks and insurers	490		—		490		—
Pooled trust preferred securities issued by banks and insurers	1,061		—		1,061		—
Small business administration pooled securities	56,084		—		56,084		—
Loans held for sale	25,561		—		25,561		—
Derivative instruments	127,044		—		127,044		—
Liabilities
Derivative instruments	88,887		—		88,887		—
Total recurring fair value measurements	$	884,648	$	26,414	$	858,234	$	—

Nonrecurring fair value measurements
Assets
Individually assessed collateral dependent loans (1)	$	30,276	$	—	$	—	$	30,276

Total nonrecurring fair value measurements	$	30,276	$	—	$	—	$	30,276

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			Fair Value Measurements at Reporting Date Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	December 31, 2020
	(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	2,838	$	2,838	$	—	$	—
Equity securities	22,107		22,107		—		—
Securities available for sale
U.S. government agency securities	24,116		—		24,116		—
Agency mortgage-backed securities	233,629		—		233,629		—
Agency collateralized mortgage obligations	91,683		—		91,683		—

State, county, and municipal securities	807		—		807		—
Single issuer trust preferred securities issued by banks and insurers	488		—		488		—
Pooled trust preferred securities issued by banks and insurers	1,056		—		1,056		—
Small business administration pooled securities	61,081		—		61,081		—
Loans held for sale	58,104		—		58,104		—
Derivative instruments	187,399		—		187,399		—
Liabilities
Derivative instruments	134,064		—		134,064		—
Total recurring fair value measurements	$	549,244	$	24,945	$	524,299	$	—

Nonrecurring fair value measurements:
Assets
Individually assessed collateral dependent loans (1)	$	31,510	$	—	$	—	$	31,510

Total nonrecurring fair value measurements	$	31,510	$	—	$	—	$	31,510

(1) The fair value of individually assessed collateral dependent loans is generally determined through independent appraisals of the underlying collateral, 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.

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The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of 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, 2021
	(Dollars in thousands)
Financial assets
Securities held to maturity (a)
U.S. government agency securities	$	33,853	$	33,730	$	—	$	33,730	$	—
U.S. treasury securities	$	3,010	$	3,038	$	—	$	3,038	$	—
Agency mortgage-backed securities	381,030		392,042		—		392,042		—
Agency collateralized mortgage obligations	418,112		421,841		—		421,841		—

Single issuer trust preferred securities issued by banks	1,500		1,508		—		1,508		—
Small business administration pooled securities	24,316		25,642		—		25,642		—

Loans, net of allowance for credit losses (b)	8,806,355		8,782,780		—		—		8,782,780
Federal Home Loan Bank stock (c)	9,079		9,079		—		9,079		—
Cash surrender value of life insurance policies (d)	242,963		242,963		—		242,963		—
Financial liabilities
Deposit liabilities, other than time deposits (e)	$	11,169,652	$	11,169,652	$	—	$	11,169,652	$	—
Time certificates of deposits (f)	817,319		819,067		—		819,067		—
Federal Home Loan Bank borrowings (f)	35,693		35,723		—		35,723		—



Long-term borrowings (f)	23,425		23,095		—		23,095		—
Junior subordinated debentures (g)	62,852		68,545		—		68,545		—
Subordinated debentures (f)	49,743		47,146		—		—		47,146

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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, 2020
	(Dollars in thousands)
Financial assets
Securities held to maturity (a)

U.S. treasury securities	$	4,017	$	4,077	$	—	$	4,077	$	—
Agency mortgage-backed securities	356,085		374,121		—		374,121		—
Agency collateralized mortgage obligations	335,993		344,119		—		344,119		—

Single issuer trust preferred securities issued by banks	1,500		1,498		—		1,498		—
Small business administration pooled securities	26,917		28,362		—		28,362		—

Loans, net of allowance for credit losses (b)	9,247,964		9,253,381		—		—		9,253,381
Federal Home Loan Bank stock (c)	10,250		10,250		—		10,250		—
Cash surrender value of life insurance policies (d)	200,525		200,525		—		200,525		—
Financial liabilities
Deposit liabilities, other than time deposits (e)	$	10,042,541	$	10,042,541	$	—	$	10,042,541	$	—
Time certificates of deposits (f)	950,629		955,598		—		955,598		—
Federal Home Loan Bank borrowings (f)	35,740		35,885		—		35,885		—
Long-term borrowings (f)	32,773		32,033		—		32,033		—


Junior subordinated debentures (g)	62,851		70,238		—		70,238		—
Subordinated debentures (f)	49,696		46,486		—		—		46,486

(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 Ended				Six Months Ended
	June 30 2021		June 30 2020		June 30 2021		June 30 2020
	(Dollars in thousands)
Deposit account fees (inclusive of cash management fees)	$	3,822	$	2,829	$	7,406	$	7,799
Interchange fees	2,141		4,536		4,044		8,640
ATM fees	735		525		1,360		1,164
Investment management - wealth management and advisory services	8,027		6,827		15,429		13,116
Investment management - retail investments and insurance revenue	845		469		1,747		1,009
Merchant processing income	339		277		659		670
Credit card income	313		151		549		334
Other noninterest income	1,245		534		2,370		1,746
Total noninterest income in-scope of ASC 606	17,467		16,148		33,564		34,478
Total noninterest income out-of-scope of ASC 606	7,500		12,042		16,649		20,147
Total noninterest income	$	24,967	$	28,190	$	50,213	$	54,625

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, 2021		December 31, 2020
	(Dollars in thousands)
Receivables, included in other assets	$	5,177	$	4,636

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.

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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.

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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, 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 sale	5,109		(1,316)		3,793		(5,252)		1,271		(3,981)

Change in fair value of cash flow hedges	2,481		(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 losses	249		(70)		179		691		(194)		497
Amortization of net prior service costs	43		(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)


	Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
	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	$	2,332	$	(637)	$	1,695	$	14,455	$	(3,413)	$	11,042
Less: net security losses reclassified into other noninterest expense	—		—		—		—		—		—
Net change in fair value of securities available for sale	2,332		(637)		1,695		14,455		(3,413)		11,042

Change in fair value of cash flow hedges	4,250		(1,195)		3,055		37,817		(10,638)		27,179
Less: net cash flow hedge gains reclassified into interest income or interest expense	3,976		(1,118)		2,858		5,562		(1,564)		3,998

Net change in fair value of cash flow hedges	274		(77)		197		32,255		(9,074)		23,181

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period	(1)		—		(1)		(1,390)		391		(999)

Amortization of net actuarial losses	246		(69)		177		491		(138)		353
Amortization of net prior service costs	69		(20)		49		138		(39)		99

Net change in other comprehensive income for defined benefit postretirement plans (1)	314		(89)		225		(761)		214		(547)
Total other comprehensive income (loss)	$	2,920	$	(803)	$	2,117	$	45,949	$	(12,273)	$	33,676

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(1)The amortization of prior service costs is included in the computation of net periodic pension cost as disclosed in Note 15 "Employee Benefit Plans" within the Notes to the Consolidated Financial Statements included in Item 8 of the Company's 2020 Form 10-K.

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 Hedge		Defined Benefit Postretirement Plans		Accumulated Other Comprehensive Income (Loss)
	(Dollars in thousands)
	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
	2020
Beginning balance: January 1, 2020	$	4,398	$	16,479	$	(2,708)	$	18,169


Net change in other comprehensive income (loss)	11,042		23,181		(547)		33,676
Ending balance: June 30, 2020	$	15,440	$	39,660	$	(3,255)	$	51,845

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, 2021		December 31, 2020
	(Dollars in thousands)
Commitments to extend credit	$	3,638,399	$	3,301,692
Standby letters of credit	20,592		20,686
Deferred standby letter of credit fees	128		164
Loan exposures with recourse	233,167		303,265

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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 3 to 10 years. During the fourth quarter of 2020, the Company recognized $4.8 million in lease termination costs associated with two branch closure decisions. These termination fees were paid by the Company during the second quarter of 2021.

There has been no significant change in the future minimum lease payments payable by the Company since December 31, 2020. See the Company's 2020 Form 10-K for information regarding leases and other commitments.

Other Contingencies

At June 30, 2021, 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.

Historically, the Bank was required to maintain certain reserve requirements of vault cash and/or deposits with the Federal Reserve Bank of Boston, however the reserve requirement was reduced to zero by the Federal Reserve during the first quarter of 2020 in response to the COVID-19 pandemic, and as such, there was no reserve requirement at June 30, 2021 or at December 31, 2020.

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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 2021			December 31 2020
	(Dollars in thousands)
Original investment value	$	162,984		$	128,752
Current recorded investment	125,066			97,435
Unfunded liability obligation	74,262			49,586
Tax credits and benefits	14,477		(1)	9,404
Amortization of investments	12,526		(1)	7,552
Net income tax benefit	1,951		(1)	1,851

(1) Amounts shown represent the full year impact for the year ended December 31, 2021.

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, 2020, filed with the Securities and Exchange Commission (the "2020 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,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” “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 2020 Form 10-K and the Quarterly Report on Form 10-Q for the period ended March 31, 2021, 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 future weakening caused by the COVID-19 pandemic, and any impact of inflationary pressure;

•the length and extent of economic contraction as a result of the COVID-19 pandemic;

•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, including the additional costs associated with the Company's increase in assets to over $10 billion;

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•changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

•higher than expected tax expense, 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, 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 could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of 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, including as a result of rising inflation;

•the failure to consummate or delay in consummating the acquisition of Meridian Bancorp, Inc. ("Meridian"), which is subject to certain standard closing conditions, including the receipt of required regulatory approvals, approval by the stockholders of Meridian and the shareholders of the Company, and other customary closing conditions;

•the possibility that the anticipated benefits of the Meridian acquisition are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company and Meridian do business;

•the inability to retain customers and employees, including those of previous and pending mergers;

•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 is unknown at this time, particularly given the recent rise in cases associated with the Delta variant in certain jurisdictions. Statements about the COVID-19 pandemic and its potential impact on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that actual results may differ, possibly materially, from what is reflected in such statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the pandemic and any resurgences, vaccination rates, actions taken by governmental authorities in response to the pandemic and the direct and indirect impact 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 2021			March 31 2021			December 31 2020			September 30 2020			June 30 2020
	(Dollars in thousands, except per share data)
Financial condition data
Securities	$	1,682,751		$	1,431,430		$	1,162,317		$	1,106,782		$	1,174,894
Loans	8,938,988			9,246,691			9,392,866			9,405,193			9,359,648
Allowance for credit losses	(102,357)			(107,549)			(113,392)			(115,625)			(112,176)
Goodwill and other intangible assets	526,576			527,894			529,313			530,749			532,202
Total assets	14,194,207			13,773,914			13,204,301			13,173,665			13,022,500
Total deposits	11,986,971			11,593,524			10,993,170			10,851,308			10,716,821
Total borrowings	171,713			176,387			181,060			295,734			295,701
Stockholders’ equity	1,741,622			1,715,371			1,702,685			1,689,724			1,671,692
Nonperforming loans	47,818			59,201			66,861			98,025			48,814
Nonperforming assets	47,818			59,201			66,861			98,025			48,814
Income statement
Interest income	$	96,702		$	99,637		$	96,805		$	97,919		$	99,965
Interest expense	3,348			4,053			5,362			7,036			8,867
Net interest income	93,354			95,584			91,443			90,883			91,098
Provision for credit losses	(5,000)			(2,500)			—			7,500			20,000
Noninterest income	24,967			25,246			27,468			29,347			28,190
Noninterest expenses	73,302			69,682			73,727			66,658			66,607
Net income	37,572			41,711			34,641			34,873			24,902
Per share data
Net income—basic	$	1.14		$	1.26		$	1.05		$	1.06		$	0.76
Net income—diluted	1.14			1.26			1.05			1.06			0.76
Cash dividends declared	0.48			0.48			0.46			0.46			0.46
Book value per share	52.72			51.94			51.65			51.27			50.75
Tangible book value per share (1)	36.78			35.96			35.59			35.17			34.59
Performance ratios
Return on average assets	1.08		%	1.26		%	1.04		%	1.07		%	0.79		%
Return on average common equity	8.70		%	9.87		%	8.10		%	8.21		%	5.97		%
Net interest margin (on a fully tax equivalent basis)	2.99		%	3.25		%	3.10		%	3.13		%	3.25		%
Equity to assets	12.27		%	12.45		%	12.89		%	12.83		%	12.84		%
Dividend payout ratio	42.19		%	36.35		%	43.76		%	43.45		%	61.85		%
Asset Quality Ratios
Nonperforming loans as a percent of gross loans	0.53		%	0.64		%	0.71		%	1.04		%	0.52		%
Nonperforming assets as a percent of total assets	0.34		%	0.43		%	0.51		%	0.74		%	0.37		%
Allowance for credit losses as a percent of total loans	1.15		%	1.16		%	1.21		%	1.23		%	1.20		%
Allowance for credit losses as a percent of nonperforming loans	214.06		%	181.67		%	169.59		%	117.95		%	229.80		%

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Capital ratios
Equity to assets	12.27	%	12.45	%	12.89	%	12.83	%	12.84	%
Tangible equity to tangible assets (1)	8.89	%	8.96	%	9.26	%	9.17	%	9.12	%
Tier 1 leverage capital ratio	9.41	%	9.63	%	9.56	%	9.52	%	9.57	%
Common equity tier 1 capital ratio	13.31	%	13.16	%	12.67	%	12.41	%	12.26	%
Tier 1 risk-based capital ratio	13.98	%	13.85	%	13.34	%	13.08	%	12.94	%
Total risk-based capital ratio	15.67	%	15.61	%	15.13	%	14.87	%	14.73	%

(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 can provide a satisfactory financial return.

On April 22, 2021 the Company announced the signing of a definitive merger agreement under which the Company will acquire Meridian Bancorp, Inc. ("Meridian"), with the Company as the surviving entity, and East Boston Savings Bank will merger with and into Rockland Trust (the “Merger Agreement”). Under the Merger Agreement, each share of Meridian common stock will be exchanged for 0.2750 shares of the Company’s common stock. The transaction is intended to qualify as a tax-free reorganization for federal income tax purposes and to provide Meridian stockholders with a tax-free exchange for the Company common stock consideration they will receive in the merger. The Company anticipates issuing approximately 14.2 million shares of its common stock in the merger. Based upon the closing price of $79.57 per share of the Company’s common stock on April 21, 2021, the transaction is valued at approximately $1.15 billion. The closing of the Meridian acquisition, which is expected to occur during the fourth quarter of 2021, is subject to certain conditions including approval of the transaction by Meridian’s stockholders and the Company's shareholders, receipt of required regulatory approvals, and other standard conditions.

During the ongoing COVID-19 pandemic, the Company has been and remains committed to supporting and working with its customers as they navigate these unprecedented times. The Company has abided by government mandates requiring a temporary moratorium on foreclosures and has offered a variety of relief measures to its customers consistent with prudent banking principles and regulatory guidance. These relief measures have included temporary deferrals of loan payments, waiving certain fees and permitting customers easier access to their deposits. The Company’s charitable foundations have engaged and will continue to engage in outreach to local communities during this difficult time and have committed funds to be made available to key nonprofits with urgent needs, such as local food banks. The Company concluded its participation in the government-sponsored Paycheck Protection Program ("PPP"), designed to help deploy stimulus funds in the form of loans to businesses within the community, after the second round PPP closed to new applicants. During the first half of 2021, the Company funded an additional $370.0 million of PPP loans in the second round of the program.

While the full macroeconomic impacts of the COVID-19 pandemic have yet to be fully determined, overall conditions have begun to improve as a result of vaccine availability, leading to the re-opening of businesses and loosening of certain travel restrictions and social distancing measures. Despite the observed improvements, the future outlook of the COVID-19 pandemic remains highly dependent on the speed of vaccine administration, the efficacy of the vaccines and the possibility for resurgences of COVID-19 or other variants of the virus, including the Delta variant. As a result, the Company is not able to provide any assurances that the Company’s earnings, asset quality, regulatory capital ratios and economic condition will not be materially adversely impacted on a short term or long term basis.

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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. With significant growth in deposits over this time period, along with over $300 million of PPP loans being forgiven and repaid during the second quarter of 2021, securities and interest earning cash balances have increased significantly, while loan growth has been challenging. However, during the second quarter of 2021, excluding PPP loans, loan balances increased $55.9 million, or 0.7%, driven primarily by growth in commercial real estate loans (see "Non-GAAP Measures" below for a reconciliation to the GAAP financial measure).

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 loan 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. During the second quarter of 2021, the Company realized growth in deposits, which increased $393.4 million, or 3.4%, from March 31, 2021 to $12.0 billion at June 30, 2021, reflecting continued growth across all deposit products, as well as impacts from government stimulus payments. Core deposits rose to 91.6% of total deposits at June 30, 2021, as higher-cost time deposits continued to run-off. The following chart shows the sources of funding and the percentage of core deposits to total deposits for the trailing five quarters:

The 2021 second quarter net interest margin was heavily impacted by the increased excess liquidity position, decreasing by 26 basis points from the prior quarter to 2.99%. Net interest income for the second quarter decreased to $93.4 million compared to $95.6 million for the prior quarter, driven in part by a reduction in PPP fee income recognition, with $7.2 million of PPP fee income recognized in the second quarter compared to $9.5 million in the prior quarter. The table below illustrates the factors that contributed to the decrease in net interest margin for the second quarter of 2021:


Net interest margin for the three months ended March 31, 2021	3.25	%
Excess liquidity - cash and securities	(0.19)	%
Loan yields	(0.03)	%
PPP loan impact	(0.06)	%
Other noncore adjustments	(0.01)	%
Decreased cost of funds	0.03	%
Net interest margin for the three months ended June 30, 2021	2.99	%

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

Noninterest Income

Noninterest income is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income. The increases in deposit fees, interchange and ATM fees were offset by decreases in mortgage banking, which was driven by lower gain on sale margins and an increase in the percentage of closings retained in the balance sheet portfolio versus sold in the secondary market. The following chart shows the components of noninterest income over the past five quarters:

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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. Noninterest expense increased during the second quarter of 2021, primarily due to increases in incentive compensation and merger related costs, which, combined with lower total revenues, resulted in an elevated efficiency ratio for the three months ended June 30, 2021. 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:

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

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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):

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

The Company declared quarterly cash dividends of $0.48 per share for each of the first two quarters of 2021, representing an increase of 4.3% from the 2020 quarterly dividend rate of $0.46 per share.

Second Quarter 2021 Results

Net income for the second quarter of 2021 was $37.6 million, or $1.14 on a diluted earnings per share basis, and increased 50.9% and 50.0%, respectively, as compared to $24.9 million, or $0.76 on a diluted earnings per share basis, for the prior year second quarter. Second quarter 2021 results were positively impacted by a release of provision for credit losses of $5.0 million, in contrast to the prior year period results which included a provision for credit losses of $25 million reflecting management's assumptions and expectations related to the COVID-19 pandemic.

2021 Outlook

During the Company's second quarter 2021 earnings call, the Company's Chief Financial Officer provided the following key expectations regarding business activity to serve as near term guidance for the remainder of 2021:

•Anticipated continuation of healthy pipelines across all loan products should serve for low single digit annualized commercial loan growth moving forward, excluding the impact of PPP loans. Mortgage retention and home equity utilization rates will continue to challenge net growth within consumer portfolios;

•Any future deposit growth will likely be more muted which, in turn, will affect the level of excess cash being deployed into securities;

•While deployment of cash into securities will provide some level of incremental interest income, a reduction in net interest income is expected as accelerated PPP fee income for the third quarter is anticipated to be approximately $5.5 million less than second quarter results, with any significant acceleration of PPP fee income from the second round not expected until 2022;

•Assuming an anticipated trend of improving general economic factors and no significant changes in overall asset quality, the Company's provision for credit losses will likely continue to track at levels below net charge-offs to serve as further reductions in the overall allowance;

•Overall noninterest income and noninterest expense is expected to remain relatively consistent with the second quarter 2021 results;

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•The tax rate is expected to remain consistent for the remainder of the year.

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 tables that follow. There are items that impact the Company's results that management believes are unrelated to its core banking business such as merger and acquisition expenses and other items. Management, therefore, computes certain non-GAAP measures including operating net income and operating EPS, noninterest income on an operating basis, noninterest expense on an operating basis, operating return on average assets, operating return on average equity, and efficiency ratio on an operating basis, which exclude items management considers to be noncore. 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 analyses 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 the tangible common equity to tangible assets ratio (which is computed by dividing tangible common equity by "tangible assets", defined as total assets less goodwill and other intangibles). The Company has included information on tangible book value per share and the tangible common equity to tangible assets ratio because management believes that investors may find it useful to have access to the same analytical tools used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles. 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, provides a framework to compare 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 operating results and other financial measures 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 quarter or year. The Company’s non-GAAP performance measures including those non-GAAP measures referenced above, are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.

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The following tables summarize adjustments for noncore items for the periods indicated below and reconcile non-GAAP measures:


	Three Months Ended June 30
	Net Income				Diluted Earnings Per Share
	2021		2020		2021		2020
	(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)	$	37,572	$	24,902	$	1.14	$	0.76
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)		—


Noncore increases to net income	1,244		—		0.03		—
Operating net income (Non-GAAP)	$	38,816	$	24,902	$	1.17	$	0.76



	Six Months Ended June 30
	Net Income				Diluted Earnings Per Share
	2021		2020		2021		2020
	(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)	$	79,283	$	51,653	$	2.40	$	1.54
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)		—

Noncore increases to net income	1,244		—		0.03		—
Operating net income (Non-GAAP)	$	80,527	$	51,653	$	2.44	$	1.54

(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 2021			March 31 2021			December 31 2020			September 30 2020			June 30 2020
	(Dollars in thousands)
Net interest income (GAAP)	$	93,354		$	95,584		$	91,443		$	90,883		$	91,098		(a)

Noninterest income (GAAP)	$	24,967		$	25,246		$	27,468		$	29,347		$	28,190		(b)






Noninterest expense (GAAP)	$	73,302		$	69,682		$	73,727		$	66,658		$	66,607		(c)
Less:

Merger and acquisition expense	1,731			—			—			—			—


Loss on termination of derivative	—			—			—			684			—
Noninterest expense on an operating basis (Non-GAAP)	$	71,571		$	69,682		$	73,727		$	65,974		$	66,607		(d)

Total revenue (GAAP)	$	118,321		$	120,830		$	118,911		$	120,230		$	119,288		(a+b)


Ratios
Noninterest income as a % of revenue (GAAP based)	21.10		%	20.89		%	23.10		%	24.41		%	23.63		%	(b/(a+b))

Efficiency ratio (GAAP based)	61.95		%	57.67		%	62.00		%	55.44		%	55.84		%	(c/(a+b))
Efficiency ratio on an operating basis (Non-GAAP)	60.49		%	57.67		%	62.00		%	54.87		%	55.84		%	(d/(a+b))

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The following table summarizes the calculation of the Company's tangible common equity to tangible assets ratio, tangible book value per share, and loan and allowance metrics, exclusive of PPP loan balances as of the dates indicated:


	June 30 2021			March 31 2021			December 31 2020			September 30 2020			June 30 2020
	(Dollars in thousands, except per share data)
Tangible common equity
Stockholders' equity (GAAP)	$	1,741,622		$	1,715,371		$	1,702,685		$	1,689,724		$	1,671,692		(a)
Less: Goodwill and other intangibles	526,576			527,895			529,313			530,749			532,202
Tangible common equity (Non-GAAP)	1,215,046			1,187,476			1,173,372			1,158,975			1,139,490			(b)
Tangible assets
Assets (GAAP)	14,194,207			13,773,914			13,204,301			13,173,665			13,022,500			(c)
Less: Goodwill and other intangibles	526,576			527,895			529,313			530,749			532,202
Tangible assets (Non-GAAP)	$	13,667,631		$	13,246,019		$	12,674,988		$	12,642,916		$	12,490,298		(d)
Common shares	33,037,859			33,024,882			32,965,692			32,955,547			32,942,110			(e)

Common equity to assets ratio (GAAP)	12.27		%	12.45		%	12.89		%	12.83		%	12.84		%	(a/c)
Tangible common equity to tangible assets ratio (Non-GAAP)	8.89		%	8.96		%	9.26		%	9.17		%	9.12		%	(b/d)
Book value per share (GAAP)	$	52.72		$	51.94		$	51.65		$	51.27		$	50.75		(a/e)
Tangible book value per share (Non-GAAP)	$	36.78		$	35.96		$	35.59		$	35.17		$	34.59		(b/e)

Total loans (GAAP)	$	8,938,988		$	9,246,691		$	9,392,866		$	9,405,193		$	9,359,648
Total loans, excluding PPP (Non-GAAP)	$	8,456,338		$	8,400,390		$	8,600,956		$	8,593,470		$	8,566,665

Allowance as a % of total loans (GAAP)	1.15		%	1.16		%	1.21		%	1.23		%	1.20		%
Allowance as a % of total loans, excluding PPP (Non-GAAP)	1.21		%	1.28		%	1.32		%	1.35		%	1.31		%

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 2021. Refer to the Company's 2020 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 $520.4 million, or 44.8%, at June 30, 2021 as compared to December 31, 2020, reflecting $713.7 million of purchases offset by paydowns, called securities, and maturities. Purchases made during the first half of 2021 reflect the Company's continued direct strategy to deploy a portion of excess cash balances into securities. The ratio of securities to total assets was 11.9% and 8.8% at June 30, 2021 and December 31, 2020, respectively. 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 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 mortgage repurchases during the three and six months ended June 30, 2021 and 2020, respectively.

The Company experienced strong closing volumes within the residential portfolio during the second quarter of 2021, with a larger portion of residential closings being retained in the portfolio rather than sold into the secondary market as compared to prior periods. The following table shows the total residential 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 30				Six Months Ended June 30
	2021		2020		2021		2020
	(Dollars in thousands)
Held in portfolio	$	131,423	$	33,229	$	213,344	$	70,566
Sold or held for sale in the secondary market	158,178		223,196		428,001		392,449
Total closed loans	$	289,601	$	256,425	$	641,345	$	463,015

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 30				Six Months Ended June 30
	2021		2020		2021		2020
	(Dollars in thousands)
Sold with servicing rights released	$	165,775	$	206,515	$	446,914	$	328,299
Sold with servicing rights retained (1)	6,657		10,063		8,087		45,394
Total loans sold	$	172,432	$	216,578	$	455,001	$	373,693

(1) All loans sold with servicing rights retained were sold with recourse during the three and six months ended June 30, 2021 and 2020, respectively.

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 $373.2 million, $453.7 million and $563.0 million at June 30, 2021, December 31, 2020, and June 30, 2020, 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 30				Six Months Ended June 30
	2021		2020		2021		2020
	(Dollars in thousands)
Balance at beginning of period	$	2,541	$	4,504	$	2,365	$	5,116
Additions	52		91		65		424

Amortization	(282)		(327)		(525)		(611)
Change in valuation allowance	(16)		(947)		390		(1,608)
Balance at end of period	$	2,295	$	3,321	$	2,295	$	3,321

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, 2021 decreased by $453.9 million, or 4.83%, when compared to December 31, 2020, which was primarily attributable to a net reduction in PPP loan balances. Despite strong origination volumes and loan pipelines across all products, overall portfolio growth continued to be constrained by ongoing paydowns and re-financing activity. Excluding PPP loans of $482.7 million and $791.9 million outstanding at June 30, 2021 and December 31, 2020, respectively, total loans declined by $144.6 million or 1.68%, during the first half of 2021. Exclusive of PPP loans, commercial loan balances decreased slightly by $39.3 million, or 0.63%, primarily reflecting a slowdown in new construction financing and lower line utilization levels within the commercial and industrial portfolio, countered by strong closings in commercial real estate throughout the first half of 2021. Decreases were also observed in the consumer portfolio, as the low rate environment increased prepayments and refinancing, as well as lower home equity line utilization, resulting in reductions of 4.3% and 4.7% within the mortgage and home equity portfolios, respectively. (see "Non-GAAP Measures" in the "Executive Level Overview" above for a reconciliation to the GAAP financial measure).

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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 participation in the PPP resulted in significant loan fundings within the commercial and industrial portfolio throughout 2020 and the first six months of 2021, with outstanding balances totaling $482.7 million at June 30, 2021, comprising 28.0% of the total portfolio. Accordingly, the composition of the portfolio by sector is skewed as compared to periods prior to the commencement of the PPP in the second quarter of 2020, as the PPP loans are reflected within the various sectors below. In connection with PPP loan originations during the first six months of 2021, the Company received fee revenue of $18.2 million, which is deferred and amortized over the life of the loan. During the six months ended June 30, 2021, the Company amortized into income $16.7 million in PPP fee revenue related to forgiven loans. The following pie chart shows the diversification of the commercial and industrial portfolio as of June 30, 2021:


	(Dollars in thousands)
Average loan size (excluding floor plan tranches)	$	327
Largest individual commercial and industrial loan outstanding	$	26,700
Commercial and industrial nonperforming loans/commercial and industrial loans	1.21		%

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, 2021:

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	(Dollars in thousands)
Average loan size	$	1,122
Largest individual commercial real estate mortgage outstanding	$	33,400
Commercial real estate nonperforming loans/commercial real estate loans	0.19		%
Owner occupied commercial real estate loans/commercial real estate loans	14.5		%

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The Company's consumer portfolio 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 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, home equity and other consumer portfolios totaled $2.3 billion at June 30, 2021, as noted below:

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 been offering 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. The Company monitors junior lien positions on mortgage loans, both where it holds the first position and where the first position is held by another institution, and may place a loan on nonaccrual status if

signs of delinquency are observed on the first position, despite the performance of the junior lien. 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 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, as appropriate.

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 2021			December 31 2020			June 30 2020
	(Dollars in thousands)
Loans accounted for on a nonaccrual basis
Commercial and industrial	$	20,831		$	34,729		$	20,736
Commercial real estate	9,031			10,195			6,313
Small business	558			825			619
Residential real estate	12,786			15,528			14,561
Home equity	4,517			5,427			6,437
Other consumer	95			156			90
Total (1)	$	47,818		$	66,860		$	48,756
Loans past due 90 days or more but still accruing



Other consumer	—			1			58
Total	$	—		$	1		$	58
Total nonperforming loans	$	47,818		$	66,861		$	48,814

Other real estate owned	—			—			—

Total nonperforming assets	$	47,818		$	66,861		$	48,814
Nonperforming loans as a percent of gross loans	0.53		%	0.71		%	0.52		%
Nonperforming assets as a percent of total assets	0.34		%	0.51		%	0.37		%

(1)Inclusive of TDRs on nonaccrual status of $20.2 million, $22.2 million, and $24.1 million at June 30, 2021, December 31, 2020, and June 30, 2020, respectively.

The following table summarizes the changes in nonperforming assets for the periods indicated:

Table 5 - Activity in Nonperforming Assets


	Three Months Ended
	March 31
	2021				2020
	Three Months Ended				Six Months Ended
	June 30 2021		June 30 2020		June 30 2021		June 30 2020
	(Dollars in thousands)
Nonperforming assets beginning balance	$	59,201	$	48,040	$	66,861	$	48,049
New to nonperforming	2,233		8,215		4,592		14,730

Loans charged-off	(481)		(710)		(4,167)		(1,444)
Loans paid-off	(10,364)		(2,210)		(14,389)		(7,289)

Loans restored to performing status	(2,771)		(4,529)		(5,330)		(5,090)






Other	—		8		251		(142)
Nonperforming assets ending balance	$	47,818	$	48,814	$	47,818	$	48,814

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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 2021			December 31 2020			June 30 2020
	(Dollars in thousands)
Performing troubled debt restructurings	$	19,495		$	16,983		$	17,741
Nonaccrual troubled debt restructurings	20,212			22,209			24,098
Total	$	39,707		$	39,192		$	41,839
Performing troubled debt restructurings as a % of total loans	0.21		%	0.18		%	0.19		%
Nonaccrual troubled debt restructurings as a % of total loans	0.23		%	0.24		%	0.26		%
Total troubled debt restructurings as a % of total loans	0.44		%	0.42		%	0.45		%

The following table summarizes changes in TDRs for the periods indicated:

Table 7 - Activity in Troubled Debt Restructurings


	Three Months Ended				Six Months Ended
	June 30 2021		June 30 2020		June 30 2021		June 30 2020
	(Dollars in thousands)
TDRs beginning balance	$	41,429	$	41,971	$	39,192	$	44,365
New to TDR status	82		1,064		3,918		1,249

Paydowns	(1,804)		(1,196)		(3,403)		(3,753)
Charge-offs	—		—		—		(22)
TDRs ending balance	$	39,707	$	41,839	$	39,707	$	41,839

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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 Ended				Six Months Ended
	June 30 2021		June 30 2020		June 30 2021		June 30 2020
	(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	$	693	$	457	$	1,610	$	1,166
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income	$	263	$	259	$	494	$	524

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, 2021, there were 81 relationships, with an aggregate balance of $137.3 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 during 2020 in accordance with the relief options offered in response to the COVID-19 pandemic. If applicable, these potential problem loans with an active deferral as of June 30, 2021 have been included in the table below.

As previously noted, the Company has been offering need-based payment relief options to its customers in response to the COVID-19 pandemic, primarily in the form of payment deferrals. 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, 2021:

Table 9 - Deferrals by Modification Type


	Deferral of Principal and Interest		Deferral of Principal Only		Total Deferrals		Total Portfolio		% Deferral
	(Dollars in thousands)
Commercial and industrial	$	—	$	1,972	$	1,972	$	1,726,498	0.1	%
Commercial real estate (1)	590		230,589		231,179		4,748,082		4.9	%
Business banking	—		636		636		182,863		0.3	%
Residential real estate	—		—		—		1,240,279		—	%
Home equity	—		—		—		1,018,408		—	%
Consumer	—		—		—		22,858		—	%
Total active deferrals as of June 30, 2021	$	590	$	233,197	$	233,787	$	8,938,988	2.6	%

(1) Balances include commercial construction deferrals.

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Additionally, as a result of the COVID-19 pandemic, management has also enhanced monitoring of loan portfolios in certain industries that have been highly impacted. While management is unable to predict the full impact of all industries affected by the COVID-19 pandemic, there are assumptions as to which industries are more greatly impacted by social distancing and other restrictive measures, as well as the duration or reimposition of any such restrictions. Management has identified approximately $1.3 billion of loans within highly impacted industries, including Accommodations, Food Services, Retail Trade, Other Services (except Public Administration), and Arts, Entertainment and Recreation. Loss exposure within these industries is mitigated by a number of factors such as collateral values, loan-to-value ratios, and other key indicators, however, some degree of credit loss is expected and has been incorporated into the allowance for credit loss recognition under the CECL model.

The table below provides total outstanding balances of commercial loans as of the date indicated within industries that management has deemed to be highly impacted by the COVID-19 pandemic:

Table 10 - Industries Highly Impacted By COVID-19 - Details


	June 30, 2021
	(Dollars in thousands)
Accommodations
Balance	$	400,463
Average borrower loan size	$	4,200
% secured by real estate	99.8		%
Weighted average loan to value	54.1		%
Other information:
–The accommodation portfolio consists of 68 properties representing a combination of flagged (59%) and non-flagged (41%) hotels, motels and inns.
–Loans secured by hotel properties deemed to be located in areas of leisure comprise $166.1 million, or 42% of the hotel portfolio.
–Approximately 89% of the balances outstanding are secured by properties located within the six New England states with the largest concentration in Massachusetts (58%).

Food Services
Balance	$	136,613
Average borrower loan size	$	360
% secured by real estate	70.3		%
Weighted average loan to value	49.8		%
Other information:
–The food services portfolio includes full-service restaurants (59%), limited service restaurants and fast food (39%), and other types of food service (caterers, bars, mobile food service 2%).

Retail Trade
Balance	$	528,404
Average borrower loan size	$	498
% secured by real estate	43.0		%
Weighted average loan to value	57.3		%
Other information:
–The retail trade portfolio consists broadly of food and beverage stores (46%), motor vehicle and parts dealers (25%), and gasoline stations (14%). All other retailers account for 15% of the current outstanding balance.
–Collateral for these loans varies and may consist of real estate, motor vehicles inventories, other types of inventories and general business assets.

Other Services (except Public Administration)
Balance	$	146,270

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Average borrower loan size	$	258
% secured by real estate	52.6		%
Weighted average loan to value	51.2		%
Other information:
–The other services portfolio consists of various for-profit and not-for-profit services diversified across religious, civic and social service organizations (41%), repair and maintenance business (31%) and other personal services, including beauty salons, laundry services, pet care and other types of services (28%).



Arts, Entertainment, and Recreation
Balance	$	96,837
Average borrower loan size	$	775
% secured by real estate	84.2		%
Weighted average loan to value	52.1		%
Other information:
–Amusement, gambling and recreational industries make up a majority of this category (94%) and include amusement/theme parks, bowling centers, fitness centers, golf courses, marinas, and other recreational industries. Other industries including museums, performing arts, and spectator sports account for the remaining outstanding balances (6%).

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 6 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 $102.4 million at June 30, 2021 represents a decrease of $11.0 million, or 9.7% compared to December 31, 2020. The Company recorded a release of provision for credit losses of $7.5 million during the six months ended June 30, 2021, reflecting improvements in overall macro-economic assumptions,and continued strong asset quality metrics, along with lower loan levels.

While management is unable to know with certainty the direct, indirect, and future impacts of the COVID-19 pandemic, it is expected that the pandemic could potentially have a significant impact on future losses across a broad range of loan segments. As such, the allowance for credit losses at June 30, 2021 continues to reflect elevated reserve allocations to those loan segments that management considers to have heightened loss exposure associated with the COVID-19 pandemic. The reasonable and supportable forecast modeled in the allowance for credit losses incorporates an economic scenario which reflects management's assumption that some uncertainty remains as the economy recovers, such as that the federal funds rates will remain near 0% through 2023 and that recent federal stimulus activity will be less effective as consumers are reluctant to spend the funds, some concerns about the speed of widespread vaccine administration, and the efficacy of the vaccines and the possibility for resurgences of COVID-19 or other variants of the virus.

The allowance for credit losses continued to include an upward qualitative adjustment at June 30, 2021 in order to ensure coverage for highly impacted relationships as management performed detailed analysis consisting of a review of maximum levels of historic loss given default ("LGD") and stressed probability of default ("PD") scenarios for loans that were deemed to be more at risk within the industries that are highly impacted by the COVID-19 pandemic, however the overall adjustment

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necessary was reduced in comparison to the prior quarter as a result of improving economic conditions. In addition to these industry exposures, qualitative adjustments were also made in order to provide coverage over the additional risk of loss attributable to collateral values associated with non-owner occupied real estate with significant retail tenant exposure, as well as home equity loans within a junior lien position.

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The following table summarizes changes in the allowance for credit losses and other selected statistics for the periods presented:

Table 11 - Summary of Changes in the Allowance for Credit Losses


	Three Months Ended
	June 30 2021			March 31 2021			December 31 2020			September 30 2020			June 30 2020
	(Dollars in thousands)
Average total loans	$	9,107,446		$	9,343,769		$	9,396,192		$	9,375,522		$	9,311,877
Allowance for credit losses, beginning of period	$	107,549		$	113,392		$	115,625		$	112,176		$	92,376


Charged-off loans
Commercial and industrial	142			3,331			2,124			185			—
Commercial real estate	—			—			—			3,885			—
Commercial construction	—			—			—			—			—
Small business	35			66			186			49			36
Residential real estate	—			—			105			—			—
Home equity	69			—			—			—			4
Other consumer	235			289			283			185			670
Total charged-off loans	481			3,686			2,698			4,304			710
Recoveries on loans previously charged-off
Commercial and industrial	35			64			242			1			4
Commercial real estate	—			57			—			9			—
Commercial construction	—			—			—			—			—
Small business	4			11			25			2			3
Residential real estate	—			1			—			1			—
Home equity	45			13			36			21			95
Other consumer	205			197			162			219			408
Total recoveries	289			343			465			253			510
Net loans charged-off (recovered)
Commercial and industrial	107			3,267			1,882			184			(4)
Commercial real estate	—			(57)			—			3,876			—
Commercial construction	—			—			—			—			—
Small business	31			55			161			47			33
Residential real estate	—			(1)			105			(1)			—
Home equity	24			(13)			(36)			(21)			(91)
Other consumer	30			92			121			(34)			262
Total net loans charged-off	192			3,343			2,233			4,051			200
Provision for credit losses	(5,000)			(2,500)			—			7,500			20,000
Total allowance for credit losses, end of period	$	102,357		$	107,549		$	113,392		$	115,625		$	112,176
Net loans charged-off as a percent of average total loans (annualized)	0.01		%	0.15		%	0.09		%	0.17		%	0.01		%
Allowance for credit losses as a percent of total loans	1.15		%	1.16		%	1.21		%	1.23		%	1.20		%
Allowance for credit losses as a percent of nonperforming loans	214.06		%	181.67		%	169.59		%	117.95		%	229.80		%

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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 12 - Summary of Allocation of Allowance for Credit Losses


	June 30 2021				December 31 2020
	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)	$	17,032	19.2	%	$	21,086	22.4	%
Commercial real estate	44,325		47.6	%	45,009		44.4	%
Commercial construction	4,865		5.6	%	5,397		5.9	%
Small business	3,612		2.0	%	5,095		1.9	%
Residential real estate	12,014		13.9	%	14,275		13.8	%
Home equity	20,087		11.4	%	22,060		11.4	%
Other consumer	422		0.3	%	470		0.2	%
Total allowance for credit losses	$	102,357	100.0	%	$	113,392	100.0	%

(1)This loan category includes loans originated as part of the PPP established by the CARES Act, which have been excluded from the credit loss calculations because 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 Bank held investments in FHLB of Boston stock of $9.1 million and $10.3 million at June 30, 2021 and December 31, 2020, respectively. 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.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were $526.6 million and $529.3 million at June 30, 2021 and December 31, 2020, respectively. The decrease was primarily due to amortization of definite-lived intangibles.

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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 2020 and determined that the Company's goodwill was not impaired as of September 30, 2020. 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 2021 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 $243.0 million and $200.5 million at June 30, 2021 and December 31, 2020, respectively, primarily due to new policy purchases during the first half of 2021. The Company recorded tax exempt income from life insurance policies of $1.6 million and $1.3 million for the three months ended June 30, 2021 and 2020, respectively, and $2.9 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively. There were no gains on life insurance benefits recorded for the three months ended June 30, 2021 and $335,000 of gains on life insurance benefits recorded for the three months ended June 30, 2020. The Company recorded gains on life insurance benefits of $258,000, and $692,000 for the six months ended June 30, 2021 and 2020, respectively.

Deposits As of June 30, 2021, total deposits were $12.0 billion, representing a $993.8 million, or 9.0%, increase from December 31, 2020, as robust new account opening activity and the ongoing impact of government stimulus payments continued to fuel significant growth. The total cost of deposits was 0.07% and 0.28% for the three months ended June 30, 2021 and 2020, respectively and 0.08% and 0.37% for the six months ended June 30, 2021 and 2020, respectively. Core deposits increased to 91.6% of total deposits as of June 30, 2021, as noncore time deposits continued to runoff.

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 $233.0 million and $237.9 million at June 30, 2021 and December 31, 2020, respectively. In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to $7.3 million and $8.5 million at June 30, 2021 and December 31, 2020, 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.

The following table presents the components of borrowings as of the dates indicated:

Table 13 - Borrowings


	June 30 2021		December 31 2020
	(Dollars in thousands)
Federal Home Loan Bank borrowings	$	35,693	$	35,740

Long-term borrowings	23,425		32,773
Junior subordinated debentures	62,852		62,851
Subordinated debentures	49,743		49,696
Total borrowings	$	171,713	$	181,060

Additionally, the Bank had $3.8 billion and $4.1 billion of assets pledged as collateral against borrowings at June 30, 2021 and December 31, 2020, 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 17, 2021, the Company’s Board of Directors declared a cash dividend of $0.48 per share to shareholders of record as of the close of business on June 28, 2021. This dividend was paid on July 9, 2021.

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, 2021 and December 31, 2020, 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 14 - Company and Bank's Capital Amounts and Ratios


	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
	June 30, 2021
	(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)	$	1,415,933	15.67	%	$	722,767	≥	8.0	%	N/A			N/A
Common equity tier 1 capital (to risk weighted assets)	1,202,333		13.31	%	406,556		≥	4.5	%	N/A			N/A
Tier 1 capital (to risk weighted assets)	1,263,333		13.98	%	542,075		≥	6.0	%	N/A			N/A
Tier 1 capital (to average assets)	1,263,333		9.41	%	537,227		≥	4.0	%	N/A			N/A
Bank
Total capital (to risk weighted assets)	$	1,390,342	15.39	%	$	722,657	≥	8.0	%	$	903,322	≥	10.0	%
Common equity tier 1 capital (to risk weighted assets)	1,287,472		14.25	%	406,495		≥	4.5	%	587,159		≥	6.5	%
Tier 1 capital (to risk weighted assets)	1,287,472		14.25	%	541,993		≥	6.0	%	722,657		≥	8.0	%
Tier 1 capital (to average assets)	1,287,472		9.59	%	537,128		≥	4.0	%	671,410		≥	5.0	%
	December 31, 2020
	(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)	$	1,374,349	15.13	%	$	726,482	≥	8.0	%	N/A			N/A
Common equity tier 1 capital (to risk weighted assets)	1,150,177		12.67	%	408,646		≥	4.5	%	N/A			N/A
Tier 1 capital (to risk weighted assets)	1,211,177		13.34	%	544,861		≥	6.0	%	N/A			N/A
Tier 1 capital (to average assets)	1,211,177		9.56	%	506,805		≥	4.0	%	N/A			N/A
Bank
Total capital (to risk weighted assets)	$	1,320,056	14.54	%	$	726,313	≥	8.0	%	$	907,892	≥	10.0	%
Common equity tier 1 capital (to risk weighted assets)	1,206,566		13.29	%	408,551		≥	4.5	%	590,130		≥	6.5	%
Tier 1 capital (to risk weighted assets)	1,206,566		13.29	%	544,735		≥	6.0	%	726,313		≥	8.0	%
Tier 1 capital (to average assets)	1,206,566		9.54	%	505,747		≥	4.0	%	632,184		≥	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, 2021, 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 of $5.0 million and $95.2 million were paid by the Bank to the Company for the three months ended June 30, 2021 and June 30, 2020, respectively, and dividends of $5.0 million and $123.6 million were paid by the Bank to the Company for the six months ended June 30, 2021 and June 30, 2020, 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, 2021 and December 31, 2020 there were $61.0 million in trust preferred securities included in the Tier 1 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

Investment Management As of June 30, 2021, the Rockland Trust Investment Management Group had assets under administration of $5.4 billion, representing 6,283 trust, fiduciary, and agency accounts. At December 31, 2020, assets under administration were $4.9 billion, representing approximately 6,175 trust, fiduciary, and agency accounts. Included in these amounts as of June 30, 2021 and December 31, 2020 are assets under administration of $422.0 million and $369.6 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 $8.0 million and $6.8 million for the three months ended June 30, 2021 and 2020, respectively, and $15.4 million and $13.1 million for the six months ended June 30, 2021 and 2020, respectively.

Retail investments and insurance revenue was $845,000 and $469,000 for the three months ended June 30, 2021 and 2020, respectively, and $1.7 million and $1.0 million for the six months ended June 30, 2021 and 2020, respectively.

Retail investments and insurance revenue include commission revenue from LPL Financial (“LPL”) and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., which offers 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 purpose of processing insurance solutions for clients.

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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, 2021 and 2020:

Table 15 - Summary of Results of Operations


	Three Months Ended June 30						Six Months Ended June 30
	2021			2020			2021			2020
	(Dollars in thousands, except per share data)
Net income	$	37,572		$	24,902		$	79,283		$	51,653
Diluted earnings per share	$	1.14		$	0.76		$	2.40		$	1.54
Return on average assets	1.08		%	0.79		%	1.17		%	0.86		%
Return on average equity	8.70		%	5.97		%	9.28		%	6.10		%
Net interest margin	2.99		%	3.25		%	3.12		%	3.48		%

The Company's results of operations for the first half of 2021 were positively impacted by a release of provision for credit losses in the amount of $7.5 million, as well as elevated interest income from forgiven PPP loans. In comparison, results from the first half of 2020 reflected an increased provision for credit loss of $45.0 million, driven by anticipated credit losses related to the COVID-19 pandemic.

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 2021 was $93.6 million, representing an increase of $2.2 million, or 2.4%, when compared to the second quarter of 2020. For the six months ended June 30, 2021, the net interest income on a FTE basis was $189.4 million, representing an increase of $3.5 million, or 1.9%, when compared to the year ago period.

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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, 2021 and 2020. 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 16 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date




	Three Months Ended June 30
	2021						2020
	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	$	1,882,285	$	513	0.11	%	$	724,634	$	132	0.07	%
Securities
Securities - trading	3,359		—		—	%	2,393		—		—	%
Securities - taxable investments	1,514,336		7,184		1.90	%	1,206,631		7,831		2.61	%
Securities - nontaxable investments (1)	555		6		4.34	%	1,145		11		3.86	%
Total securities	$	1,518,250	$	7,190	1.90	%	$	1,210,169	$	7,842	2.61	%
Loans held for sale	28,279		186		2.64	%	50,613		359		2.85	%
Loans (2)
Commercial and industrial (1)	1,944,026		20,351		4.20	%	1,914,830		17,363		3.65	%
Commercial real estate (1)	4,196,171		41,532		3.97	%	4,051,342		42,371		4.21	%
Commercial construction	514,935		4,777		3.72	%	538,767		5,314		3.97	%
Small business	178,525		2,302		5.17	%	174,438		2,388		5.51	%
Total commercial	6,833,657		68,962		4.05	%	6,679,377		67,436		4.06	%
Residential real estate	1,226,520		11,058		3.62	%	1,474,495		13,801		3.76	%
Home equity	1,024,798		8,591		3.36	%	1,133,034		10,132		3.60	%
Total consumer real estate	2,251,318		19,649		3.50	%	2,607,529		23,933		3.69	%
Other consumer	22,471		411		7.34	%	24,971		500		8.05	%
Total loans	$	9,107,446	$	89,022	3.92	%	$	9,311,877	$	91,869	3.97	%
Total interest-earning assets	$	12,536,260	$	96,911	3.10	%	$	11,297,293	$	100,202	3.57	%
Cash and due from banks	142,198						119,692
Federal Home Loan Bank stock	9,410						23,175
Other assets	1,258,056						1,287,620
Total assets	$	13,945,924					$	12,727,780
Interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	4,339,645	$	384	0.04	%	$	3,679,729	$	1,101	0.12	%
Money market	2,347,852		429		0.07	%	1,972,986		1,377		0.28	%
Time deposits	843,090		1,204		0.57	%	1,186,189		4,549		1.54	%
Total interest-bearing deposits	$	7,530,587	$	2,017	0.11	%	$	6,838,904	$	7,027	0.41	%
Borrowings
Federal Home Loan Bank borrowings	$	35,704	$	191	2.15	%	$	339,393	$	433	0.51	%



Long-term borrowings	23,417		94		1.61	%	71,629		343		1.93	%
Junior subordinated debentures	62,852		429		2.74	%	62,849		446		2.85	%
Subordinated debentures	49,730		618		4.98	%	49,635		618		5.01	%

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Total borrowings	$	171,703	$	1,332	3.11	%	$	523,506	$	1,840	1.41	%
Total interest-bearing liabilities	$	7,702,290	$	3,349	0.17	%	$	7,362,410	$	8,867	0.48	%
Noninterest bearing demand deposits	4,237,135						3,371,262
Other liabilities	273,449						315,979
Total liabilities	$	12,212,874					$	11,049,651
Stockholders' equity	1,733,050						1,678,129
Total liabilities and stockholders' equity	$	13,945,924					$	12,727,780
Net interest income (1)			$	93,562					$	91,335
Interest rate spread (3)					2.93	%					3.09	%
Net interest margin (4)					2.99	%					3.25	%
Supplemental information
Total deposits, including demand deposits	$	11,767,722	$	2,017			$	10,210,166	$	7,027
Cost of total deposits					0.07	%					0.28	%
Total funding liabilities, including demand deposits	$	11,939,425	$	3,349			$	10,733,672	$	8,867
Cost of total funding liabilities					0.11	%					0.33	%

(1)The total amount of adjustment to interest income and yield on a FTE basis was $209,000 and $237,000 for the three months ended June 30, 2021 and 2020, respectively. The FTE adjustment relates to tax exempt income relating to securities with average balances of $555,000 and $1.1 million and tax exempt income relating to loans with average balances of $60.4 million and $82.0 million, for the three months ended June 30, 2021 and 2020, 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 17 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date




	Six Months Ended June 30
	2021						2020
	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	$	1,603,407	$	839	0.11	%	$	398,593	$	292	0.15	%
Securities
Securities - trading	3,150		—		—	%	2,328		—		—	%

Securities - taxable investments	1,383,122		13,811		2.01	%	1,198,298		15,788		2.65	%
Securities - nontaxable investments (1)	599		12		4.04	%	1,191		23		3.88	%
Total securities	$	1,386,871	$	13,823	2.01	%	$	1,201,817	$	15,811	2.65	%
Loans held for sale	38,907		482		2.50	%	39,329		591		3.02	%
Loans (2)
Commercial and industrial (1)	2,029,075		43,397		4.31	%	1,659,014		34,303		4.16	%
Commercial real estate (1)	4,176,202		81,908		3.96	%	4,031,734		88,222		4.40	%
Commercial construction	534,933		10,060		3.79	%	547,254		12,215		4.49	%
Small business	176,434		4,583		5.24	%	174,553		4,950		5.70	%
Total commercial	6,916,644		139,948		4.08	%	6,412,555		139,690		4.38	%
Residential real estate	1,248,778		23,494		3.79	%	1,517,667		28,420		3.77	%
Home equity	1,037,446		17,348		3.37	%	1,134,983		21,959		3.89	%
Total consumer real estate	2,286,224		40,842		3.60	%	2,652,650		50,379		3.82	%
Other consumer	22,087		843		7.70	%	26,406		1,072		8.16	%
Total loans	$	9,224,955	$	181,633	3.97	%	$	9,091,611	$	191,141	4.23	%
Total interest-earning assets	$	12,254,140	$	196,777	3.24	%	$	10,731,350	$	207,835	3.89	%
Cash and due from banks	148,499						121,199
Federal Home Loan Bank stock	9,828						18,937
Other assets	1,249,898						1,227,199
Total assets	$	13,662,365					$	12,098,685
Interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	4,225,331	$	807	0.04	%	$	3,475,223	$	3,035	0.18	%
Money market	2,318,106		950		0.08	%	1,922,495		4,550		0.48	%
Time deposits	874,676		2,971		0.68	%	1,266,540		10,334		1.64	%
Total interest-bearing deposits	$	7,418,113	$	4,728	0.13	%	$	6,664,258	$	17,919	0.54	%
Borrowings
Federal Home Loan Bank borrowings	$	35,746	$	379	2.14	%	$	235,309	$	961	0.82	%



Long-term borrowings	25,818		205		1.60	%	73,271		904		2.48	%
Junior subordinated debentures	62,851		855		2.74	%	62,849		924		2.96	%
Subordinated debentures	49,717		1,235		5.01	%	49,623		1,235		5.00	%
Total borrowings	$	174,132	$	2,674	3.10	%	$	421,052	$	4,024	1.92	%
Total interest-bearing liabilities	$	7,592,245	$	7,402	0.20	%	$	7,085,310	$	21,943	0.62	%
Noninterest bearing demand deposits	4,067,235						3,025,990
Other liabilities	279,620						283,724

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Total liabilities	$	11,939,100					$	10,395,024
Stockholders' equity	1,723,265						1,703,661
Total liabilities and stockholders' equity	$	13,662,365					$	12,098,685
Net interest income (1)			$	189,375					$	185,892
Interest rate spread (3)					3.04	%					3.27	%
Net interest margin (4)					3.12	%					3.48	%
Supplemental information
Total deposit, including demand deposits	$	11,485,348	$	4,728			$	9,690,248	$	17,919
Cost of total deposits					0.08	%					0.37	%
Total funding liabilities, including demand deposits	$	11,659,480	$	7,402			$	10,111,300	$	21,943
Cost of total funding liabilities					0.13	%					0.44	%

(1)The total amount of adjustment to present interest income and yield on a FTE basis was $438,000 and $490,000 for the six months ended June 30, 2021 and 2020, respectively. The FTE adjustment relates to nontaxable investment securities with average balances of $599,000 and $1.2 million and tax exempt income relating to loans with average balances of $65.3 million and $83.8 million for the six months ended June 30, 2021 and 2020, 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 18 - Volume Rate Analysis


	Three Months Ended June 30						Six Months Ended June 30
	2021 Compared To 2020						2021 Compared To 2020
	Change Due to Rate		Change Due to Volume		Total Change		Change Due to Rate		Change Due to Volume		Total Change
	(Dollars in thousands)
Income on interest-earning assets
Interest earning deposits, federal funds sold and short term investments	$	170	$	211	$	381	$	(336)	$	883	$	547
Securities

Securities - taxable investments	(2,644)		1,997		(647)		(4,412)		2,435		(1,977)
Securities - nontaxable investments (1)	1		(6)		(5)		—		(11)		(11)
Total securities					(652)						(1,988)
Loans held for sale	(15)		(158)		(173)		(103)		(6)		(109)
Loans
Commercial and industrial (1)	2,723		265		2,988		1,442		7,652		9,094
Commercial real estate (1)	(2,354)		1,515		(839)		(9,475)		3,161		(6,314)
Commercial construction	(302)		(235)		(537)		(1,880)		(275)		(2,155)
Small business	(142)		56		(86)		(420)		53		(367)
Total commercial					1,526						258
Residential real estate	(422)		(2,321)		(2,743)		109		(5,035)		(4,926)
Home equity	(573)		(968)		(1,541)		(2,724)		(1,887)		(4,611)
Total consumer real estate					(4,284)						(9,537)
Other consumer	(39)		(50)		(89)		(54)		(175)		(229)
Total loans (1)(2)					(2,847)						(9,508)
Total income of interest-earning assets					$	(3,291)					$	(11,058)
Expense of interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	(914)	$	197	$	(717)	$	(2,883)	$	655	$	(2,228)
Money market	(1,210)		262		(948)		(4,536)		936		(3,600)
Time certificates of deposits	(2,029)		(1,316)		(3,345)		(4,166)		(3,197)		(7,363)
Total interest bearing deposits					(5,010)						(13,191)
Borrowings
Federal Home Loan Bank borrowings	145		(387)		(242)		233		(815)		(582)


Line of Credit	—		—		—						—
Long-term borrowings	(18)		(231)		(249)		(114)		(585)		(699)
Junior subordinated debentures	(17)		—		(17)		(69)		—		(69)
Subordinated debentures	(1)		1		—		(2)		2		—
Total borrowings					(508)						(1,350)
Total expense of interest-bearing liabilities					(5,518)						(14,541)
Change in net interest income					$	2,227					$	3,483

(1)Reflects income determined on a FTE basis. See footnote (1) to tables 16 and 17 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 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, primarily due to an improved overall macro-economic outlook, continued strong asset quality metrics, as well as lower loan balances during the first half of 2021. In comparison, the Company recorded a provision expense of $20.0 million and $45.0 million for the three and six months ended June 30, 2020, which was primarily driven by anticipated loan losses related to the COVID-19 pandemic. The Company’s allowance for credit losses, as a percentage of total loans, was 1.15% at June 30, 2021, 1.21% at December 31, 2020, and 1.20% at June 30, 2020. The Company recorded net charge-offs of $192,000 and $3.5 million for the three and six months ended June 30, 2021, respectively, as compared to $200,000 and $584,000 for the three and six months ended June 30, 2020, respectively. Refer to 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, 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 19 - Noninterest Income


	Three Months Ended
	June 30				Change
	2021		2020		Amount		%
	(Dollars in thousands)
Deposit account fees	$	3,822	$	2,829	$	993	35.10	%
Interchange and ATM fees	3,068		5,214		(2,146)		(41.16)	%
Investment management	8,872		7,296		1,576		21.60	%
Mortgage banking income	2,705		5,005		(2,300)		(45.95)	%
Gain on life insurance benefits	—		335		(335)		(100.00)	%
Increase in cash surrender value of life insurance policies	1,589		1,312		277		21.11	%

Loan level derivative income	116		2,864		(2,748)		(95.95)	%
Unrealized gain on equity securities	436		1,386		(950)		(68.54)	%
Other noninterest income	4,359		1,949		2,410		123.65	%
Total	$	24,967	$	28,190	$	(3,223)	(11.43)	%

	Six Months Ended
	June 30				Change
	2021		2020		Amount		%
	(Dollars in thousands)
Deposit account fees	$	7,406	$	7,799	$	(393)	(5.04)	%
Interchange and ATM fees	5,788		10,110		(4,322)		(42.75)	%
Investment management	17,176		14,125		3,051		21.60	%
Mortgage banking income	8,445		5,866		2,579		43.97	%
Gain on life insurance benefits	258		692		(434)		(62.72)	%
Increase in cash surrender value of life insurance policies	2,912		2,588		324		12.52	%

Loan level derivative income	289		6,461		(6,172)		(95.53)	%
Unrealized gain on equity securities	723		1,386		(663)		(47.84)	%
Other noninterest income	7,216		5,598		1,618		28.90	%
Total	$	50,213	$	54,625	$	(4,412)	(8.08)	%

The primary reasons for the variances in the noninterest income categories for the three and six months ended June 30, 2021 as compared to the respective prior year periods shown in the preceding table include:

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•Deposit fee income was impacted by the timing and extent of government mandated shutdowns and social distancing measures, as well as the timing of economic stimulus payments received by customers.

•Interchange and ATM fees decreased for the three and six months ended June 30, 2021 in comparison to the year ago periods. The decrease primarily reflects the negative impact of the Durbin Amendment, which the Company became subject to effective July 1, 2020 as a result of crossing the $10 billion asset threshold, coupled with an overall decrease in consumer spending as customers focused on retaining liquidity following the onset of COVID-19 pandemic late in the first quarter of 2020.

•Investment management income increased for the three and six months ended June 30, 2021 in comparison to the year ago periods, primarily driven by more favorable market conditions during the first half of 2021, along with overall growth in assets under administration which increased 23.0% to $5.4 billion at June 30, 2021 from $4.4 billion at June 30, 2020.

•Mortgage banking income decreased during the three months ended June 30, 2021 and increased for the six months ended June 30, 2021 in comparison to the year ago periods. The quarter-over-quarter decrease was primarily attributable to the Company's strategic decision to retain a larger portion of new originations in its residential portfolio during the second quarter of 2021. The year-over-year increase reflects a full six-month period of elevated volume in the low interest rate environment in 2021, in comparison to the prior year period when increased volume from rate reductions was not realized until late in the first quarter of 2020.

•Loan level derivative income decreased for the three and six months ended June 30, 2021 primarily as a result of lower customer demand in comparison to the year ago periods.

•Unrealized gain on equity securities decreased for the three and six months ended June 30, 2021, due primarily to significant market volatility during the first half of 2020 caused by the onset of the COVID-19 pandemic, the result of which was a sell-off late in the first quarter of 2020, followed by a period of market correction during the second quarter of 2020.

•Other noninterest income increased for the three and six months ended June 30, 2021 compared to the prior year periods, primarily attributable to income recognized from other investments.

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

Table 20 - Noninterest Expense


	Three Months Ended
	June 30				Change
	2021		2020		Amount		%
	(Dollars in thousands)
Salaries and employee benefits	$	42,635	$	37,269	$	5,366	14.40	%
Occupancy and equipment expenses	8,706		9,273		(567)		(6.11)	%
Data processing & facilities management	1,686		1,459		227		15.56	%
FDIC assessment	775		503		272		54.08	%

Consulting expense	1,492		1,603		(111)		(6.92)	%
Core deposit amortization	1,293		1,433		(140)		(9.77)	%






Merger and acquisition expenses	1,731		—		1,731		100.00%

Software maintenance	1,915		1,780		135		7.58	%

Other noninterest expenses	13,069		13,287		(218)		(1.64)	%
Total	$	73,302	$	66,607	$	6,695	10.05	%

	Six Months Ended
	June 30				Change
	2021		2020		Amount		%
	(Dollars in thousands)
Salaries and employee benefits	$	82,524	$	74,618	$	7,906	10.60	%
Occupancy and equipment expenses	17,979		18,590		(611)		(3.29)	%
Data processing & facilities management	3,351		3,117		234		7.51	%
FDIC assessment	1,825		503		1,322		262.82	%

Consulting expense	3,883		2,939		944		32.12	%
Core deposit amortization	2,685		2,964		(279)		(9.41)	%






Merger and acquisition expenses	1,731		—		1,731		100.00%

Software maintenance	3,885		3,465		420		12.12	%
Other noninterest expenses	25,121		27,251		(2,130)		(7.82)	%
Total	$	142,984	$	133,447	$	9,537	7.15	%

The primary reasons for the variances in the noninterest expense categories for the three and six months ended June 30, 2021 as compared to the respective prior year periods shown in the preceding table include:

•The increase in salaries and employee benefits for the three and six months ended June 30, 2021 as compared to the prior year periods is primarily due to increases in incentive compensation expense, commissions, general salary increases, retirement costs and payroll taxes.

•Occupancy and equipment decreased during both the three and six months ended June 30, 2021 as compared to the prior year periods. The decreases were primarily due to reductions in depreciation expense from disposals of equipment, as well as increased computer hardware and software costs necessary to facilitate remote work for employees during the prior year period after onset of the COVID-19 pandemic. Partially offsetting the decrease for the six months ended June 30, 2021 were increases in cleaning costs in response to the COVID-19 pandemic and snow removal expenses in comparison to the prior year period.

•Data processing and facilities management expenses increased for both the three and six months ended June 30, 2021 as compared to the prior year periods, primarily due to timing of certain initiatives and system upgrades.

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•FDIC assessment increased for the three and six months ended June 30, 2021, in comparison to year ago period. The Company previously benefited from a small bank assessment credit, which resulted in no expense during the first quarter of 2020 and reduced expense during the second quarter of 2020.

•Consulting expense increased for the six months ended June 30, 2021, in comparison to the prior year period, primarily due to the Company's overall growth, implementation of strategic initiatives, and projects and measures implemented in response to the COVID-19 pandemic. Consulting costs were slightly higher for the three months ended June 30, 2020 as compared to the three months ended June 30, 2021, which primarily reflects timing of the commencement of COVID-19 related projects.

•The Company recorded merger and acquisitions expenses of $1.7 million during the second quarter of 2021 relating to the Meridian acquisition. No such costs were incurred during 2020.

•Software maintenance increased for the three and six months ended June 30, 2021 as compared to the prior year periods, primarily due to the Company's continued investment in its technology infrastructure.

•Other noninterest expense for the three months ended June 30, 2021 remained relatively consistent compared to the prior year period, with decreases in retail branch traffic control, office supplies and prepayment fees on borrowings, offset somewhat by increases in advertising and training expenses. Other noninterest expense decreased for the six months ended June 30, 2021 compared to the prior year period mainly due to decreases in unrealized loss on equity securities, prepayment fees on borrowings, loss on the sale of fixed assets, office supplies, retail branch traffic control, and recruitment expenses.

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 21 - Tax Provision and Applicable Tax Rates


	Three Months Ended						Six Months Ended
	June 30						June 30
	2021			2020			2021			2020
	(Dollars in thousands)
Combined federal and state income tax provision	$	12,447		$	7,779		$	24,384		$	9,927
Effective income tax rate	24.88		%	23.80		%	23.52		%	16.12		%
Blended statutory tax rate	27.92		%	27.88		%	27.92		%	27.88		%

The Company’s effective tax rate in 2021 thus far is higher as compared to the year ago period primarily due to higher net income, as well as the impact of discrete items, including tax benefits related to low income housing tax credits and equity compensation. The discrete tax amounts for the six months ended June 30, 2020 also reflect a benefit of $4.7 million associated with the net operating loss (NOL) carryback provision of the CARES Act. The NOL was generated in relation to the acquisition of Blue Hills Bancorp, Inc. in 2019. 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’s blended statutory tax rate for the three and six months ended June 30, 2021 are comparable to the year ago period.

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 $163.0 million, of which $88.7 million had been funded as of June 30, 2021. It is expected that the limited partnership investments will generate a net tax benefit of approximately $2.0 million for the fiscal year 2021 and a total of $22.3 million over the remaining life of the investments from the combination of the tax credits and operating losses.

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Risk Management

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

The Company has implemented the “three lines of defense” enterprise risk management model. The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks. The second line of defense 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 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 approved a Risk Appetite Statement that defines the acceptable residual risk tolerances for the Company and the seven 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, non‐achievement of strategic objectives, diminished customer experience, and/or cultural erosion. The seven major risk types identified by the Company and addressed in the Risk Appetite Statement are strategic risk, culture risk, credit risk, liquidity risk, market risk, operational 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, 2021. 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,

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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. As a result of PPP loan funding, government stimulus programs, and a customer focus on retaining liquidity, the Company has experienced significant deposit growth and a buildup of liquidity through the second quarter of 2021.

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.

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 22 - Liquidity Sources


	June 30, 2021				December 31, 2020
	Outstanding		Additional Borrowing Capacity		Outstanding		Additional Borrowing Capacity
	(Dollars in thousands)
Federal Home Loan Bank of Boston (1)	$	35,693	$	1,363,597	$	35,740	$	1,372,671
Federal Reserve Bank of Boston (2)	—		1,174,088		—		1,355,809
Unpledged Securities	—		1,208,383		—		716,961
Line of Credit	—		50,000		—		50,000
Long-term borrowing (3)	23,425		—		32,773		—

Junior subordinated debentures (3)	62,852		—		62,851		—
Subordinated debt (3)	49,743		—		49,696		—
Reciprocal deposits (3)	232,971		—		237,902		—
Brokered deposits (3)	7,294		—		8,538		—
	$	411,978	$	3,796,068	$	427,500	$	3,495,441

(1)Loans with a carrying value of $2.1 billion at each of June 30, 2021 and December 31, 2020 were pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.

(2)Loans with a carrying value of $1.7 billion and $1.9 billion at June 30, 2021 and December 31, 2020, respectively, 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.

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Market Risk Market 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. 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 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.

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The results of all scenarios and the impact to net interest income are outlined in the table below:

Table 23 - Interest Rate Sensitivity


	June 30
	2021				2020
	Year 1		Year 2		Year 1		Year 2
Parallel rate shocks (basis points)

-100	(3.3)	%	(9.7)	%	(1.1)	%	(7.6)	%
+100	9.3	%	10.4	%	5.5	%	3.2	%
+200	19.6	%	24.4	%	11.5	%	11.9	%
+300	30.4	%	38.5	%	18.0	%	20.7	%
+400	40.7	%	52.3	%	24.1	%	29.1	%

Gradual rate shifts (basis points)

-100 over 12 months	(1.5)	%	(8.0)	%	0.1	%	(7.0)	%
+200 over 12 months	9.7	%	22.1	%	5.2	%	9.6	%
+400 over 24 months	9.7	%	34.2	%	5.2	%	16.0	%

Alternative scenarios
Yield Curve Twist (1)	n/a		n/a		1.5	%	4.4	%
Flat up 200 basis points scenario	9.2		19.6		n/a		n/a

(1)In the yield curve twist scenario, rates increase 200 basis points over a two year horizon. The parallel shift occurs faster on the long end of the curve than it does on the short end, creating a temporary increase in the steepness of the curve during the interim period of the twist.

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, 2021 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime interest rate and LIBOR rates, and the interest rates being offered on long-term fixed rate loans. The full economic impact of the COVID-19 pandemic on these factors remains uncertain.

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.

There were no material changes in off-balance sheet financial instruments during the three months ended June 30, 2021. See Note 6, “Derivative and Hedging Activities” and Note 10, "Commitments and Contingencies" within the Notes to

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Consolidated Financial Statements included in Part I. of Item 1 of this Report for more information relating to the Company's other off-balance sheet financial instruments.

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, information security risk, information technology 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 or technical failures, unlawful tampering with technical systems, cyber security, 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.

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, 2021.

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, 2021.

Refer to the 2020 Form 10-K for a complete table of contractual obligations, commitments and contingencies.

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.

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 2021 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting. The Company has not experienced any material impact to the Company’s internal control over financial reporting due to the fact that most of the Company’s employees responsible for financial reporting are working remotely during the COVID-19 pandemic. The Company is continually monitoring and assessing the impact of the COVID-19 pandemic on the Company’s internal control over financial reporting to minimize any impact on the design and operating effectiveness.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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Item 1A. Risk Factors

The section titled Risk Factors in Part I, Item 1A of the 2020 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). The information presented below provides an update to, and should be read in conjunction with, the risk factors and other information contained in the 2020 Form 10-K as well as any updated to our risk factors included in subsequent Quarterly Reports on Form 10-Q.

Except as presented below, there have been no material changes to the risk factors described in the 2020 Form 10-K.

Failure to complete the acquisition of Meridian Bancorp, Inc. for any reason could negatively impact future business and financial results of the Company.

On April 22, 2021, the Company announced the entry into a definitive agreement (the “Merger Agreement”) under which the Company will acquire Meridian Bancorp, Inc. (“Meridian”) and Rockland Trust Company will acquire East Boston Savings Bank (the “Merger”). Completion of the Merger is subject to customary closing conditions, including, among others, (i) approval of the issuance of shares of the Company’s common stock pursuant to the Merger Agreement (the “Company share issuance”) and adoption and approval by Meridian’s stockholders of the Merger Agreement, (ii) authorization for listing on the Nasdaq Stock Market of the shares of the Company’s common stock to be issued in the Merger, subject to official notice of issuance, (iii) the receipt of all required regulatory approvals, including the approval of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Massachusetts Commissioner of Banks, the Massachusetts Housing Partnership Fund and the Depositors Insurance Fund, without the imposition of a burdensome condition, (iv) the effectiveness of the registration statement on Form S-4 to be filed with the Securities and Exchange Commission by the Company in connection with the transactions contemplated by the Merger Agreement and (v) the absence of any order, injunction, decree or other legal restraint preventing the completion of the transactions contemplated by the Merger Agreement or making them illegal. Each party’s obligation to complete the Merger is also subject to additional customary conditions, including, subject to certain exceptions, the accuracy of the representations and warranties of the other party and the performance in all material respects by each party of its obligations under the Merger Agreement.

The Merger Agreement provides certain termination rights for both the Company and Meridian, including that a termination fee of $44.2 million will be payable by either the Company or Meridian, as applicable, in connection with the termination of the Merger Agreement under certain circumstances.

If the Merger is not completed for any reason, the business of the Company may be adversely affected and, without realizing any of the benefits of having completed the Merger, the Company could be subject to a number of risks. In this regard, the Company faces risks and uncertainties due both to the pendency of the Merger and the potential failure to consummate the merger, including:

•the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

•the risk that Meridian’s stockholders may not adopt and approve the Merger Agreement;

•the risk that the Company’s shareholders may not approve the Company share issuance;

•the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated;

•delays in closing the Merger or other risks that any of the closing conditions to the Merger may not be satisfied in a timely manner;

•the diversion of management’s time and resources from ongoing business operations due to issues relating to the Merger;

•material adverse changes in the Company’s or Meridian’s operations or earnings; and

•potential litigation in connection with the Merger.

In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. If the Merger is not consummated, the Company could have to recognize these and other expenses without realized the expected benefits of the Merger.

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The acquisition of Meridian may be more difficult, costly or time consuming than expected, and the expected benefits of the merger may not be realized.

Cost or difficulties relating to integration matters might be greater than expected and the Company may be unable to realize expected cost savings and synergies from the Merger in the amounts and in the timeframe anticipated. For example, it is possible that the integration process could result in the loss of key employees, the disruption of the Company’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect the combined bank’s ability to maintain relationships with customers and employees or to achieve the anticipated benefits and cost savings of the Merger. The loss of key employees could adversely affect the Company’s ability to successfully conduct its business in the markets in which Meridian now operates, which could have an adverse effect on the Company’s financial results and the value of its common stock. The Company’s belief that cost savings and revenue enhancements are achievable is a forward-looking statement that is inherently uncertain. The combined company’s actual cost savings and revenue enhancements, if any, cannot be quantified at this time. Any actual cost savings or revenue enhancements will depend on future expense levels and operating results, the timing of certain events and general industry, regulatory and business conditions. Many of these events will be beyond the control of the combined company.

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, 2021:


	Issuer Purchases of Equity Securities
	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Shares That May Yet Be Purchased Under the Plan or Program
Period
April 1 to April 30, 2021	145	$	83.65	—	—
May 1 to May 31, 2021	82	$	79.52	—	—
June 1 to June 30, 2021	51	$	79.79	—	—
Total	278	$	81.72	—

(1)Reflects shares withheld in connection with the exercise and/or vesting of equity compensation grants to satisfy related tax withholding obligations.

Item 3. Defaults Upon Senior Securities - None.

Item 4. Mine Safety Disclosures - Not Applicable.

Item 5. Other Information - None.

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Item 6. Exhibits

Exhibit Index


No.			Exhibit


2.1			Agreement and Plan of Merger dated April 22, 2021 by and among Independent Bank Corp., Bradford Merger Sub Inc., Rockland Trust Company, Meridian Bancorp, Inc. and East Boston Savings, is incorporated by reference to Exhibit 2.1 to Form 8-K filed on April 26, 2021.
31.1			Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.*
31.2			Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.*
32.1			Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
32.2			Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
101			The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104			Cover 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, 2021						/s/ Christopher Oddleifson
						Christopher Oddleifson President and Chief Executive Officer (Principal Executive Officer)


August 4, 2021						/s/ Mark J. Ruggiero
						Mark J. Ruggiero Chief Financial Officer (Principal Financial Officer)