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INDEPENDENT BANK CORP - Quarter Report: 2021 March (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 March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:1-9047
___________________________________________________
Independent Bank Corp.
(Exact name of registrant as specified in its charter)
 ___________________________________________________
MA04-2870273
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Office Address:2036 Washington Street,Hanover,MA02339
Mailing Address:288 Union Street,Rockland,MA02370
(Address of principal executive offices, including zip code)
(781) 878-6100
(Registrant’s telephone number, including area code)

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

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


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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 FilerxAccelerated Filer
Non-accelerated FilerSmaller 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.)YesNo
As of May 4, 2021, there were 33,030,954 shares of the issuer’s common stock outstanding, par value $0.01 per share.





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Condensed Notes to Consolidated Financial Statements - March 31, 2021
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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)
 
March 31
2021
December 31
2020
Assets
Cash and due from banks$126,651 $169,460 
Interest-earning deposits with banks1,642,688 1,127,176 
Securities
Trading3,269 2,838 
Equity22,419 22,107 
Available for sale (amortized cost $593,167 and $395,453)
600,213 412,860 
Held to maturity (fair value $820,430 and $752,177)
805,529 724,512 
Total securities1,431,430 1,162,317 
Loans held for sale (at fair value)41,632 58,104 
Loans
Commercial and industrial2,086,671 2,103,152 
Commercial real estate4,177,617 4,173,927 
Commercial construction516,362 553,929 
Small business174,211 175,023 
Residential real estate1,241,789 1,296,183 
Home equity - first position610,907 633,142 
Home equity - subordinate positions417,588 435,648 
Other consumer21,546 21,862 
   Total loans9,246,691 9,392,866 
Less: allowance for credit losses(107,549)(113,392)
Net loans9,139,142 9,279,474 
Federal Home Loan Bank stock10,250 10,250 
Bank premises and equipment, net115,945 116,393 
Goodwill506,206 506,206 
Other intangible assets21,689 23,107 
Cash surrender value of life insurance policies241,365 200,525 
Other assets 496,916 551,289 
Total assets$13,773,914 $13,204,301 
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand deposits$4,136,259 $3,762,306 
Savings and interest checking accounts4,242,235 4,047,332 
Money market2,346,985 2,232,903 
Time certificates of deposit of $100,000 and over
465,182 525,424 
Other time certificates of deposits402,863 425,205 
Total deposits11,593,524 10,993,170 
Borrowings
Federal Home Loan Bank borrowings35,717 35,740 
Long-term borrowings (less unamortized debt issuance costs of $26 and $40)
28,099 32,773 
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Junior subordinated debentures (less unamortized debt issuance costs of $37 and $37)
62,851 62,851 
Subordinated debentures (less unamortized debt issuance costs of $280 and $304)
49,720 49,696 
Total borrowings176,387 181,060 
Other liabilities288,632 327,386 
Total liabilities12,058,543 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: 33,024,882 shares at March 31, 2021 and 32,965,692 shares at December 31, 2020 (includes 144,790 and 135,205 shares of unvested participating restricted stock awards, respectively)
329 328 
Value of shares held in rabbi trust at cost: 83,629 shares at March 31, 2021 and 84,126 shares at December 31, 2020
(3,080)(3,066)
Deferred compensation and other retirement benefit obligations3,080 3,066 
Additional paid in capital946,002 945,638 
Retained earnings741,883 716,024 
Accumulated other comprehensive income, net of tax27,157 40,695 
Total stockholders’ equity1,715,371 1,702,685 
Total liabilities and stockholders' equity$13,773,914 $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
March 31
 20212020
Interest income
Interest and fees on loans$92,383 $99,022 
Taxable interest and dividends on securities6,627 7,957 
Nontaxable interest and dividends on securities
Interest on loans held for sale296 232 
Interest on federal funds sold and short-term investments326 160 
Total interest and dividend income99,637 107,380 
Interest expense
Interest on deposits2,711 10,892 
Interest on borrowings1,342 2,184 
Total interest expense4,053 13,076 
Net interest income95,584 94,304 
Provision for credit losses(2,500)25,000 
Net interest income after provision for credit losses98,084 69,304 
Noninterest income
Deposit account fees3,584 4,970 
Interchange and ATM fees2,720 4,896 
Investment management8,304 6,829 
Mortgage banking income5,740 861 
Increase in cash surrender value of life insurance policies1,323 1,276 
Gain on life insurance benefits258 357 
Loan level derivative income173 3,597 
Other noninterest income3,144 3,649 
Total noninterest income25,246 26,435 
Noninterest expenses
Salaries and employee benefits39,889 37,349 
Occupancy and equipment expenses9,273 9,317 
Data processing and facilities management1,665 1,658 
FDIC assessment1,050 — 
Consulting expense2,391 1,336 
Core deposit amortization1,392 1,531 
Software maintenance1,970 1,685 
Unrealized loss on equity securities— 1,799 
Other noninterest expenses12,052 12,165 
Total noninterest expenses69,682 66,840 
Income before income taxes53,648 28,899 
Provision for income taxes11,937 2,148 
Net income$41,711 $26,751 
Basic earnings per share$1.26 $0.78 
Diluted earnings per share$1.26 $0.78 
Weighted average common shares (basic)32,995,332 34,184,431 
Common share equivalents30,098 36,827 
Weighted average common shares (diluted)33,025,430 34,221,258 
Cash dividends declared per common share$0.48 $0.46 
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
March 31
 20212020
Net income$41,711 $26,751 
Other comprehensive income, net of tax
Net change in fair value of securities available for sale(7,774)9,347 
Net change in fair value of cash flow hedges(6,583)22,984 
Net change in other comprehensive income for defined benefit postretirement plans819 (772)
Total other comprehensive income (loss)(13,538)31,559 
Total comprehensive income $28,173 $58,310 
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 March 31, 2021 and 2020
(Unaudited—Dollars in thousands, except per share data)
Common Stock OutstandingCommon StockValue of Shares Held in Rabbi Trust at CostDeferred Compensation ObligationAdditional Paid in CapitalRetained EarningsAccumulated Other
Comprehensive Income (Loss)
Total
Balance December 31, 202032,965,692$328 $(3,066)$3,066 $945,638 $716,024 $40,695 $1,702,685 
Net income— — — — — 41,711 — 41,711 
Other comprehensive loss— — — — — — (13,538)(13,538)
Common dividend declared ($0.48 per share)
— — — — — (15,852)— (15,852)
Proceeds from exercise of stock options, net of cash paid4,744 — — — (57)— — (57)
Stock based compensation— — — — 1,150 — — 1,150 
Restricted stock awards issued, net of awards surrendered48,106 — — (1,221)— — (1,220)
Shares issued under direct stock purchase plan6,340 — — — 492 — — 492 
Deferred compensation and other retirement benefit obligations— — (14)14 — — — — 
Balance March 31, 202133,024,882 $329 $(3,080)$3,080 $946,002 $741,883 $27,157 $1,715,371 
Balance December 31, 201934,377,388 $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— — — — — 26,751 — 26,751 
Other comprehensive income— — — — — — 31,559 31,559 
Common dividend declared ($0.46 per share)
— — — — — (15,402)— (15,402)
Stock based compensation— — — — 850 — — 850 
Restricted stock awards issued, net of awards surrendered42,531 — — (1,133)— — (1,132)
Shares issued under direct stock purchase plan7,009 — — — 560 — — 560 
Shares repurchased under share repurchase program(1,166,923)(12)— — (73,214)— — (73,226)
Deferred compensation and other retirement benefit obligations— — 131 (131)— — — — 
Balance March 31, 202033,260,005 $331 $(4,604)$4,604 $962,513 $667,084 $49,728 $1,679,656 
(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)
 
 Three Months Ended
March 31
20212020
Cash flow from operating activities
Net income$41,711 $26,751 
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization8,228 6,992 
Change in unamortized net loan costs and premiums(10,318)(735)
Provision for credit losses(2,500)25,000 
Deferred income tax expense567 3,108 
Net (gain) loss on equity securities(316)1,801 
Net loss on bank premises and equipment420 
Realized gain on sale leaseback transaction(145)(145)
Stock based compensation1,150 850 
Increase in cash surrender value of life insurance policies(1,323)(1,276)
Gain on life insurance benefits(258)(357)
Operating lease payments(3,077)(2,926)
Change in fair value on loans held for sale1,764 (255)
Net change in:
Trading assets(431)(68)
Loans held for sale14,708 (10,194)
Other assets70,901 (151,830)
Other liabilities(53,201)92,461 
Total adjustments25,753 (37,154)
Net cash provided by (used in) operating activities67,464 (10,403)
Cash flows used in investing activities
Purchases of equity securities(124)(108)
Proceeds from maturities and principal repayments of securities available for sale26,092 31,280 
Purchases of securities available for sale(223,986)(30,095)
Proceeds from maturities and principal repayments of securities held to maturity68,497 48,183 
Purchases of securities held to maturity(149,453)(84,824)
Net purchases of Federal Home Loan Bank stock— (8,850)
Investments in low income housing projects(6,632)(5,934)
Purchases of life insurance policies(40,093)(93)
Proceeds from life insurance policies576 1,326 
Net (increase) decrease in loans153,150 (41,283)
Purchases of bank premises and equipment(2,524)(1,749)
Proceeds from the sale of bank premises and equipment
Net cash used in investing activities(174,493)(92,138)
Cash flows provided by financing activities
Net decrease in time deposits(82,569)(125,396)
Net increase in other deposits682,938 394,438 
Net advances of short-term Federal Home Loan Bank borrowings— 257,826 
Repayments of long-term Federal Home Loan Bank borrowings— (15,000)
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Repayments of long-term debt, net of issuance costs(4,688)— 
Net proceeds from exercise of stock options(57)— 
Restricted stock awards issued, net of awards surrendered(1,220)(1,132)
Proceeds from shares issued under direct stock purchase plan492 560 
Payments for shares repurchased under share repurchase program— (73,226)
Common dividends paid(15,164)(15,126)
Net cash provided by financing activities579,732 422,944 
Net increase in cash and cash equivalents472,703 320,403 
Cash and cash equivalents at beginning of year1,296,636 150,974 
Cash and cash equivalents at end of period$1,769,339 $471,377 
Supplemental schedule of noncash activities
Net increase in capital commitments relating to low income housing project investments$24,014 $14,394 
Right-of-use assets obtained in exchange for new lease obligations$— $2,223 
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 three months ended March 31, 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

    FASB 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 relationship 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.
NOTE 3 - SECURITIES
    
Trading Securities
The Company had trading securities of $3.3 million and $2.8 million as of March 31, 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 $22.4 million and $22.1 million as of March 31, 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.
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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
March 31
20212020
Dollars in thousands
Net gains (losses) recognized during the period on equity securities$316 $(1,801)
Less: net gains recognized during the period on equity securities sold during the period29 
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date$287 $(1,807)
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:
 March 31, 2021December 31, 2020
 Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized
Losses
Allowance for credit lossesFair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized
Losses
Allowance for credit lossesFair
Value
 (Dollars in thousands)
U.S. government agency securities$169,091 $1,209 $(2,244)$— $168,056 $22,476 $1,640 $— $— $24,116 
Agency mortgage-backed securities286,512 7,561 (3,898)— 290,175 224,293 9,337 (1)— 233,629 
Agency collateralized mortgage obligations78,952 2,688 (11)— 81,629 88,687 3,083 (87)— 91,683 
State, county, and municipal securities540 15 — — 555 790 17 — — 807 
Single issuer trust preferred securities issued by banks489 — (1)— 488 489 — (1)— 488 
Pooled trust preferred securities issued by banks and insurers 1,412 — (348)— 1,064 1,429 — (373)— 1,056 
Small business administration pooled securities56,171 2,075 — — 58,246 57,289 3,792 — — 61,081 
Total available for sale securities$593,167 $13,548 $(6,502)$— $600,213 $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 months ended March 31, 2021 and 2020. Excluded from the table above is accrued interest on available for sale securities of $2.0 million and $1.2 million as of March 31, 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 months ended March 31, 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 March 31, 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 months ended March 31, 2021 and 2020, and therefore no gains or losses were realized during the periods presented.
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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. 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:
 March 31, 2021
  Less than 12 months12 months or longerTotal
 # of 
holdings
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
 (Dollars in thousands)
U.S. government agency securities$113,171 $(2,244)$— $— $113,171 $(2,244)
Agency mortgage-backed securities98,873 (3,898)— — 98,873 (3,898)
Agency collateralized mortgage obligations9,519 (11)— — 9,519 (11)
Single issuer trust preferred securities issued by banks and insurers— — 488 (1)488 (1)
Pooled trust preferred securities issued by banks and insurers— — 1,064 (348)1,064 (348)
Total impaired available for sale securities15 $221,563 $(6,153)$1,552 $(349)$223,115 $(6,502)
December 31, 2020
Less than 12 months12 months or longerTotal
# of 
holdings
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(Dollars in thousands)
Agency mortgage-backed securities437 (1)— — 437 (1)
Agency collateralized mortgage obligations23,323 (87)— — 23,323 (87)
Single issuer trust preferred securities issued by banks and insurers488 (1)— — 488 (1)
Pooled trust preferred securities issued by banks and insurers— — 1,056 (373)1,056 (373)
Total impaired available for sale securities$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 for the three months ended March 31, 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 March 31, 2021:
U.S. Government Agency 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.
Single Issuer Trust Preferred Securities: This portfolio consists of one security, which is investment grade. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for the issuer, including regulatory capital ratios of the issuer.
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
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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:
 March 31, 2021December 31, 2020
 Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized
Losses
Allowance for credit lossesFair
Value
Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized
Losses
Allowance for credit lossesFair
Value
 (Dollars in thousands)
U.S. Treasury securities$4,014 $43 $— $— $4,057 $4,017 $60 $— $— $4,077 
Agency mortgage-backed securities417,811 13,069 (4,252)— 426,628 356,085 18,036 — — 374,121 
Agency collateralized mortgage obligations355,686 7,474 (2,158)— 361,002 335,993 8,466 (340)— 344,119 
Single issuer trust preferred securities issued by banks1,500 — — 1,508 1,500 — (2)— 1,498 
Small business administration pooled securities26,518 717 — — 27,235 26,917 1,445 — — 28,362 
Total held to maturity securities$805,529 $21,311 $(6,410)$— $820,430 $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 months ended March 31, 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 March 31, 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 months ended March 31, 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 March 31, 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 months ended March 31, 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 March 31, 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 March 31, 2021 is presented below:
Due in one year or lessDue after one year to five yearsDue after five to ten yearsDue after ten yearsTotal
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(Dollars in thousands)
Available for sale securities
U.S. government agency securities$10,001 $10,180 $— $— $159,090 $157,876 $— $— $169,091 $168,056 
Agency mortgage-backed securities— — 80,169 82,809 98,747 96,914 107,596 110,452 286,512 290,175 
Agency collateralized mortgage obligations— — — — — — 78,952 81,629 78,952 81,629 
State, county, and municipal securities350 351 — — 190 204 — — 540 555 
Single issuer trust preferred securities issued by banks— — — — — — 489 488 489 488 
Pooled trust preferred securities issued by banks and insurers — — — — — — 1,412 1,064 1,412 1,064 
Small business administration pooled securities— — — — — — 56,171 58,246 56,171 58,246 
Total available for sale securities$10,351 $10,531 $80,169 $82,809 $258,027 $254,994 $244,620 $251,879 $593,167 $600,213 
Held to maturity securities
U.S. Treasury securities$4,014 $4,057 $— $— $— $— $— $— $4,014 $4,057 
Agency mortgage-backed securities— — 4,614 4,869 128,958 127,901 284,239 293,858 417,811 426,628 
Agency collateralized mortgage obligations— — — — — — 355,686 361,002 355,686 361,002 
Single issuer trust preferred securities issued by banks— — — — 1,500 1,508 — — 1,500 1,508 
Small business administration pooled securities— — — — — — 26,518 27,235 26,518 27,235 
Total held to maturity securities$4,014 $4,057 $4,614 $4,869 $130,458 $129,409 $666,443 $682,095 $805,529 $820,430 
Total$14,365 $14,588 $84,783 $87,678 $388,485 $384,403 $911,063 $933,974 $1,398,696 $1,420,643 
Included in the table above are $3.3 million of callable securities at March 31, 2021.
The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $420.2 million and $419.6 million at March 31, 2021 and December 31, 2020, respectively.
At March 31, 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:
 Three Months Ended March 31, 2021
 (Dollars in thousands)
 Commercial and
Industrial
Commercial
Real Estate
Commercial
Construction
Small
Business
Residential
Real Estate
      
Home  Equity
Other ConsumerTotal
Allowance for credit losses
Beginning balance$21,086 $45,009 $5,397 $5,095 $14,275 $22,060 $470 $113,392 
Charge-offs(3,331)— — (66)— — (289)(3,686)
Recoveries64 57 — 11 13 197 343 
Provision for credit loss expense2,388 (718)(129)(1,419)(1,320)(1,357)55 (2,500)
Ending balance (1)$20,207 $44,348 $5,268 $3,621 $12,956 $20,716 $433 $107,549 
 Three Months Ended March 31, 2020
 (Dollars in thousands)
 Commercial and
Industrial
Commercial
Real Estate
Commercial
Construction
Small
Business
Residential
Real Estate
      
Home  Equity
Other ConsumerTotal
Allowance for credit losses
Beginning balance, 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— — — (109)— (138)(487)(734)
Recoveries42 — — 58 246 350 
Provision for credit loss expense5,948 9,274 1,346 1,694 1,155 5,083 500 25,000 
Ending balance (1)$21,649 $29,498 $3,747 $3,829 $14,847 $17,910 $896 $92,376 
(1)Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $33.4 million and $25.9 million as of March 31, 2021 and March 31, 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 $107.5 million as of March 31, 2021 represents a decrease of $5.8 million, or 5.2% compared to December 31, 2020. The decrease in the allowance was driven primarily by $3.3 million of charge-offs and $2.5 million of negative provision. The negative provision reflects improvements in asset quality metrics and overall macro-economic assumptions, as well as an overall reduction in loan balances for the quarter. 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 will have a material adverse impact on future losses across a broad range of loan segments.  As such, the allowance for credit losses as of March 31, 2021 reflects increased reserve allocations to loan segments that are considered to have elevated loss exposure associated with the COVID-19 pandemic in comparison to March 31, 2020.  These loan segments primarily include commercial relationships within industries that are subject to mandated closures and capacity limits that will potentially impede the borrowers’ ability to make loan payments, including loans in the following industry sections: Accommodations, Food Services, Retail Trade, Recreation and Entertainment, and Other Services (excluding Public Administration).  In addition to these industry exposures, additional risk of loss was attributable to non-owner occupied real estate borrowers with significant retail
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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.
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.
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Credit Quality
The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as adversely risk-rated, delinquent, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition.
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point credit risk-rating system, which assigns a risk-grade to each loan obligation based on a number of quantitative and qualitative factors associated with a commercial or small business loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-rating categories for the commercial portfolio are defined as follows:
Pass: Risk-rating “1” through “6” comprises of loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing or above average leverage and/or weakening market fundamentals that indicate below average asset quality, margins and market share. Collateral coverage is protective.
Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Company’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.
Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loans may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.
Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.
Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.
The Company utilizes a comprehensive, continuous strategy for evaluating and monitoring commercial credit quality. Initially, credit quality is determined at loan origination and is re-evaluated when subsequent actions, such as renewals, modifications or reviews, occur. Actively managed commercial borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by experienced credit professionals, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. Any changes in credit quality are reflected in risk-rating changes. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis. Commercial loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") 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 have not been categorized as delinquent loans.
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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:
 March 31, 2021
20212020201920182017PriorRevolving LoansRevolving converted to TermTotal
 (Dollars in thousands)
Commercial and
industrial
Pass (1)$420,682 $724,577 $127,454 $88,970 $25,737 $27,123 $589,448 $— $2,003,991 
Potential weakness3,424 14,991 2,636 2,148 4,288 3,205 12,252 — 42,944 
Definite weakness - loss unlikely17,912 663 1,116 1,327 2,768 482 6,927 — 31,195 
Partial loss probable— — — — — 143 8,398 — 8,541 
Definite loss— — — — — — — — — 
Total commercial and industrial$442,018 $740,231 $131,206 $92,445 $32,793 $30,953 $617,025 $— $2,086,671 
Commercial real estate
Pass$214,573 $1,043,424 $687,959 $432,728 $524,194 $966,331 $16,196 $— $3,885,405 
Potential weakness390 29,218 53,849 31,274 18,981 86,160 13,612 — 233,484 
Definite weakness - loss unlikely3,590 22,536 3,754 3,474 9,892 15,482 — — 58,728 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial real estate$218,553 $1,095,178 $745,562 $467,476 $553,067 $1,067,973 $29,808 $— $4,177,617 
Commercial construction
Pass$28,323 $239,954 $142,076 $28,189 $23,313 $6,628 $19,934 $— $488,417 
Potential weakness— 17,544 9,691 — — — 190 — 27,425 
Definite weakness - loss unlikely— — — 520 — — — — 520 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial construction$28,323 $257,498 $151,767 $28,709 $23,313 $6,628 $20,124 $— $516,362 
Small business
Pass$10,307 $41,418 $25,817 $17,750 $12,624 $29,309 $33,658 $— $170,883 
Potential weakness— — 389 204 10 202 634 — 1,439 
Definite weakness - loss unlikely— 677 51 59 17 301 758 — 1,863 
Partial loss probable— — — — — — 26 — 26 
Definite loss— — — — — — — — — 
Total small business$10,307 $42,095 $26,257 $18,013 $12,651 $29,812 $35,076 $— $174,211 
Residential real estate
Pass$80,657 $212,891 $126,359 $133,150 $130,580 $554,848 $— $— $1,238,485 
Default— — — 427 — 2,877 — — 3,304 
Total residential real estate$80,657 $212,891 $126,359 $133,577 $130,580 $557,725 $— $— $1,241,789 
Home equity
Pass$23,583 $77,497 $51,398 $46,648 $48,132 $140,376 $636,881 $1,762 $1,026,277 
Default— — — — — 210 2,008 — 2,218 
Total home equity$23,583 $77,497 $51,398 $46,648 $48,132 $140,586 $638,889 $1,762 $1,028,495 
Other consumer
Pass$46 $540 $326 $146 $620 $6,800 $12,939 $— $21,417 
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Default— — — — 15 111 — 129 
Total other consumer$46 $540 $326 $146 $635 $6,911 $12,942 $— $21,546 
Total$803,487 $2,425,930 $1,232,875 $787,014 $801,171 $1,840,588 $1,353,864 $1,762 $9,246,691 
March 31, 2020
20202019201820172016PriorRevolving LoansRevolving converted to TermTotal
(Dollars in thousands)
Commercial and
industrial
Pass (1)$119,886 $213,925 $138,376 $50,323 $36,685 $33,576 $736,304 $327 $1,329,402 
Potential weakness362 5,432 1,489 4,909 725 697 21,780 50 35,444 
Definite weakness - loss unlikely495 2,128 26,006 5,589 2,604 1,575 44,932 — 83,329 
Partial loss probable— — — — — 49 — — 49 
Definite loss— — — — — — — — — 
Total commercial and industrial$120,743 $221,485 $165,871 $60,821 $40,014 $35,897 $803,016 $377 $1,448,224 
Commercial real estate
Pass$260,217 $943,205 $586,125 $651,335 $468,824 $945,248 $48,056 $2,987 $3,905,997 
Potential weakness1,809 8,303 33,755 8,506 9,851 42,382 — — 104,606 
Definite weakness - loss unlikely— 3,612 7,432 20,395 6,993 12,312 — — 50,744 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial real estate$262,026 $955,120 $627,312 $680,236 $485,668 $999,942 $48,056 $2,987 $4,061,347 
Commercial construction
Pass$43,369 $221,773 $114,561 $73,493 $— $6,867 $44,225 $325 $504,613 
Potential weakness— 554 347 19,044 — — 347 — 20,292 
Definite weakness - loss unlikely— — 1,887 — — — 346 — 2,233 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total commercial construction$43,369 $222,327 $116,795 $92,537 $— $6,867 $44,918 $325 $527,138 
Small business
Pass$8,414 $31,651 $25,184 $17,848 $17,594 $26,734 $47,109 $— $174,534 
Potential weakness— 12 18 13 753 259 597 — 1,652 
Definite weakness - loss unlikely— 47 133 51 169 598 636 — 1,634 
Partial loss probable— — — — — — — — — 
Definite loss— — — — — — — — — 
Total small business$8,414 $31,710 $25,335 $17,912 $18,516 $27,591 $48,342 $— $177,820 
Residential real estate
Pass$39,122 $204,524 $260,899 $210,662 $283,255 $523,742 $— $— $1,522,204 
Default— — 427 435 — 5,350 — — 6,212 
Total residential real estate$39,122 $204,524 $261,326 $211,097 $283,255 $529,092 $— $— $1,528,416 
Home equity
Pass$23,397 $75,161 $70,081 $67,740 $51,106 $138,733 $715,169 $1,853 $1,143,240 
Default— — — 18 — 579 2,372 61 3,030 
Total home equity$23,397 $75,161 $70,081 $67,758 $51,106 $139,312 $717,541 $1,914 $1,146,270 
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Other consumer
Pass$414 $705 $356 $1,049 $1,000 $10,850 $12,767 $— $27,141 
Default— — — 19 — 39 16 — 74 
Total other consumer$414 $705 $356 $1,068 $1,000 $10,889 $12,783 $— $27,215 
Total$497,485 $1,711,032 $1,267,076 $1,131,429 $879,559 $1,749,590 $1,674,656 $5,603 $8,916,430 
(1)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 $846.3 million as of March 31, 2021, including $506.3 million and $340.0 million originated in 2020 and 2021, respectively.
    For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential 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:
March 31
2021
December 31
2020
Residential portfolio
FICO score (re-scored)(1)749 749 
LTV (re-valued)(2)56.5 %57.4 %
Home equity portfolio
FICO score (re-scored)(1)772 771 
LTV (re-valued)(2)(3)45.9 %46.0 %
(1)The average FICO scores at March 31, 2021 are based upon rescores from March 2021, as available for previously originated loans, or origination score data for loans booked in March 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 March 31, 2021 are based upon updated automated valuations as of February 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.
(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 March 31, 2021, and December 31, 2020 the Company's estimated reserve for unfunded commitments amounted to $1.0 million and $1.2 million, respectively.
Asset Quality
The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of collection specialists and the Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame.  As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. The Company also may use discretion regarding other loans 90 days or more delinquent if the loan is well secured and/or in process of collection.
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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 March 31, 2021 and December 31, 2020 was $220.6 million and $173.6 million, respectively. The majority of these loans with active deferrals 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 prior to December 31, 2019. Additionally, a majority of these are characterized as current and therefore are not impacting nonaccrual or delinquency totals as of March 31, 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
March 31, 2021December 31, 2020
With Allowance for Credit LossesWithout Allowance for Credit LossesTotalWith Allowance for Credit LossesWithout Allowance for Credit LossesTotal
 (Dollars in thousands)
Commercial and industrial$3,606 $26,179 $29,785 $3,804 $30,925 $34,729 
Commercial real estate9,635 — 9,635 10,195 — 10,195 
Small business660 — 660 815 10 825 
Residential real estate8,870 4,522 13,392 10,935 4,593 15,528 
Home equity5,592 — 5,592 5,427 — 5,427 
Other consumer136 — 136 156 — 156 
Total nonaccrual loans (1)$28,499 $30,701 $59,200 $31,332 $35,528 $66,860 
(1)Included in these amounts were $21.2 million and $22.2 million of nonaccruing TDRs at March 31, 2021 and December 31, 2020, respectively.
    It is the Company's policy to reverse any accrued interest when a loan is put on nonaccrual status, and, as such, the Company did not record any interest income on nonaccrual loans during the three months ended March 31, 2021 and March 31, 2020.
    In accordance with government moratorium orders established in response to the COVID-19 pandemic, new foreclosures pursued by the Company were on hold as of March 31, 2021, and in turn, all loan foreclosures in process as of March 31, 2021 had begun prior to the commencement of the moratorium orders. The following table shows information regarding foreclosed residential real estate property at the dates indicated:
March 31, 2021December 31, 2020
(Dollars in thousands)
Foreclosed residential real estate property held by the creditor$— $— 
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure$1,628 $1,750 
    The following tables show the age analysis of past due financing receivables as of the dates indicated:
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 March 31, 2021
 30-59 days60-89 days90 days or moreTotal Past Due Total
Financing
Receivables
Amortized Cost
>90 Days
and  Accruing
 Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
Current
 (Dollars in thousands)
Loan Portfolio
Commercial and industrial$510 — $— 10 $141 16 $651 $2,086,020 $2,086,671 $— 
Commercial real estate888 — — 511 1,399 4,176,218 4,177,617 — 
Commercial construction— — — — — — — — 516,362 516,362 — 
Small business56 36 94 174,117 174,211 — 
Residential real estate1,252 764 28 3,837 40 5,853 1,235,936 1,241,789 — 
Home equity425 87 27 2,217 36 2,729 1,025,766 1,028,495 — 
Other consumer (1)196 167 130 204 298 21,248 21,546 
Total226 $3,298 $854 79 $6,872 312 $11,024 $9,235,667 $9,246,691 $
 December 31, 2020
 30-59 days60-89 days90 days or moreTotal Past Due Total
Financing
Receivables
Recorded
Investment
>90 Days
and  Accruing
 Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
Number
of Loans
Principal
Balance
Current
 (Dollars in thousands)
Loan Portfolio
Commercial and industrial$318 $672 $785 11 $1,775 $2,101,377 $2,103,152 $— 
Commercial real estate409 — — 515 924 4,173,003 4,173,927 — 
Commercial construction— — 2,794 — — 2,794 551,135 553,929 — 
Small business14 421 273 59 24 753 174,270 175,023 — 
Residential real estate12 2,150 5,507 27 3,648 47 11,305 1,284,878 1,296,183 — 
Home equity10 733 203 33 2,633 48 3,569 1,065,221 1,068,790 — 
Other consumer (1)260 137 138 269 276 21,586 21,862 
Total301 $4,168 25 $9,450 82 $7,778 408 $21,396 $9,371,470 $9,392,866 $
(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:
March 31, 2021December 31, 2020
 (Dollars in thousands)
TDRs on accrual status$20,262 $16,983 
TDRs on nonaccrual21,167 22,209 
Total TDRs$41,429 $39,192 
Additional commitments to lend to a borrower who has been a party to a TDR$466 $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 troubled debt restructurings which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring:
 Three Months Ended
March 31, 2021
 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 (1)3,964 3,964 
Small business100 100 
Total$18,212 $18,212 
 Three Months Ended
March 31, 2020
 Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
 (Dollars in thousands)
Troubled debt restructurings
Commercial and industrial (1)$268 $268 
Commercial real estate (1)604 604 
Small business49 25 
Residential real estate177 209 
Total$1,098 $1,106 
(1)The pre-modification and post-modification balances represent the legal principal balance of the loan. During the first quarter of 2021 and 2020 there were two relationships amounting to $14.3 million and $872,000 that related to additional modifications on previously existing TDRs.
The following table shows the Company’s post-modification balance of TDRs listed by type of modification for the periods indicated:
Three Months Ended
 March 31
 20212020
 (Dollars in thousands)
Adjusted interest rate$— $604 
Combination rate and maturity14,148 — 
Court ordered concession— 25 
Extended maturity4,064 477 
Total$18,212 $1,106 
The Company considers a loan to have defaulted when it reaches 90 days past due. During the three months ended March 31, 2021 and March 31, 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 three months ended March 31, 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:
DateShares GrantedPlanGrant Date Fair Value Per Share Vesting Period
2/18/202149,550 2005 Employee Stock Plan$81.84 Ratably over 5 years from grant date
The fair value of the restricted stock awards is based upon the average of the high and low price at which the Company’s common stock traded on the date of grant. The holders of restricted stock awards are entitled to receive dividends and to vote from and as of the date of grant.
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, determined by the average of the high and low price at which the Company's common stock traded on the date of grant. The number of shares to be vested is contingent upon the Company's attainment of certain performance measures outlined in the award agreement and will be measured as of the end of the three year performance period, January 1, 2021 through 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. These awards are accounted for as equity awards due to the nature of these awards and the fact that these shares will not be settled in cash. The holders of these awards are not entitled to receive dividends or vote until the shares are vested.
    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:
March 31, 2021
Weighted Average Rate
Notional AmountAverage MaturityCurrent
Rate
Received
Pay Fixed
Swap Rate
Fair Value
(in thousands)(in years)(in thousands)
Interest rate swaps on borrowings$75,000 0.930.19 %1.53 %$(1,075)
Current Rate PaidReceive Fixed
Swap Rate
Interest rate swaps on loans 550,000 3.330.10 %2.16 %21,467 
Current Rate PaidReceive Fixed Swap Rate
Cap - Floor
Interest rate collars on loans 400,000 2.410.11 %
2.73% - 2.20%
17,942 
Total$1,025,000 $38,334 
December 31, 2020
Weighted Average Rate
Notional AmountAverage MaturityCurrent
Rate
Received
Pay Fixed
Swap Rate
Fair Value
(in thousands)(in years)(in thousands)
Interest rate swaps on borrowings$75,000 1.180.22 %1.53 %$(1,341)
Current Rate PaidReceive Fixed
Swap Rate
Interest rate swaps on loans 450,000 2.660.15 %2.37 %27,021 
Current Rate PaidReceive Fixed Swap Rate
Cap - Floor
Interest rate collars on loans 400,000 2.660.15 %
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 8.0 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 $19.4 million (pre-tax) to be reclassified as an increase to interest income and $844,000 (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 March 31, 2021.
The Company had no fair value hedges as of March 31, 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 yearLess than 2 yearsLess than 3 yearsLess than 4 yearsThereafterTotalFair Value
March 31, 2021
 (Dollars in thousands)
Loan level swaps
Receive fixed, pay variable302 $72,391 $105,368 $137,041 $177,153 $1,149,151 $1,641,104 $66,621 
Pay fixed, receive variable302 72,391 105,368 137,041 177,153 1,149,151 1,641,104 (66,615)
Foreign exchange contracts
Buys foreign currency, sells U.S. currency30 94,917 6,538 — — — 101,455 2,502 
Buys U.S. currency, sells foreign currency30 94,917 6,538 — — — 101,455 (2,493)
Risk participation agreements
Participation out12 6,642 — 2,665 31,804 68,040 109,151 195 
Participation in— 30,483 28,866 — 8,436 67,785 (73)
Notional Amount Maturing
Number of  Positions 
(1)
Less than 1 yearLess than 2 yearsLess than 3 yearsLess than 4 yearsThereafterTotalFair Value
December 31, 2020
 (Dollars in thousands)
Loan level swaps
Receive fixed, pay variable322 $102,999 $76,487 $149,265 $147,422 $1,222,557 $1,698,730 $127,226 
Pay fixed, receive variable313 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. currency33 87,557 5,300 — — — 92,857 (4,214)
Buys U.S. currency, sells foreign currency33 87,557 5,300 — — — 92,857 4,224 
Risk participation agreements
Participation out12 6,721 — 2,675 7,307 93,378 110,081 512 
Participation in— 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 will likely 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 decreased by $1.8 million and increased by $255,000 for the three month periods ended March 31, 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 $8.1 million and $4.5 million for the three months ended March 31, 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 atFair Value atFair Value atFair Value at
 March 31
2021
December 31
2020
March 31
2021
December 31
2020
 (Dollars in thousands)
Derivatives designated as hedges
Interest rate derivatives$40,776 (3)$48,786 (3)$2,442 (4)$1,342 (4)
Derivatives not designated as hedges
Customer Related Positions
Loan level derivatives86,890 (3)127,228 (3)86,884 (4)127,218 (4)
Foreign exchange contracts2,691 4,359 2,682 4,349 
Risk participation agreements195 513 73 119 
Mortgage Derivatives
Interest rate lock commitments1,652 6,513 — — 
Forward sale loan commitments370 — — 
Forward sale hedge commitments1,131 — — 1,035 
Total derivatives not designated as hedges92,929 138,613 89,639 132,722 
Total133,705 187,399 92,081 134,064 
Netting Adjustments (5)(8,027)23 7,107 16,105 
Net Derivatives on the Balance Sheet125,678 187,422 84,974 117,959 
Financial instruments (6)50,189 48,786 50,189 48,786 
Cash collateral pledged (received)— — 28,799 62,460 
Net Derivative Amounts$75,489 $138,636 $5,986 $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 $1.7 million of accrued interest receivable is included in the fair value of the interest rate and loan level asset derivatives, respectively, as of March 31, 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 $56,000 and $1.7 million of accrued interest payable is included in the fair value of the interest rate and loan level liability derivatives, respectively, as of March 31, 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 March 31, 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
March 31
 20212020
 (Dollars in thousands)
Derivatives designated as hedges
Gain (loss) in OCI on derivatives (effective portion), net of tax$(6,583)$22,984 
Gain reclassified from OCI into interest income or interest expense (effective portion)$4,380 $1,586 
Loss reclassified from OCI into noninterest expense (loss on termination)$— $— 
Interest expense$— $— 
Other expense— — 
Total$— $— 
Derivatives not designated as hedges
Changes in fair value of customer related positions
Other income$$22 
Other expense(283)(24)
Changes in fair value of mortgage derivatives
Mortgage banking income (2,324)(721)
Total$(2,601)$(723)

    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 $28.5 million and $79.8 million at March 31, 2021 and December 31, 2020, respectively. Although none of the contingency provisions have applied as of March 31, 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 $50.9 million and $48.8 million at March 31, 2021 and December 31, 2020, respectively. The Company’s exposure relating to customer counterparties was approximately $76.8 million and $127.2 million at March 31, 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 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.
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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 three months ended March 31, 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 Securities
Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.
Agency Mortgage-Backed Securities
Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.
Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities
The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
State, County, and Municipal Securities
The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transactions, and yield relationships. These securities are categorized as Level 2.
Single and Pooled Issuer Trust Preferred Securities
The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Loans Held for Sale
The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2.
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Derivative Instruments
Derivatives
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilizes. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Additionally, in conjunction with fair value measurement guidance, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate derivatives and risk participation agreements may also utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of March 31, 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
BalanceQuoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
 March 31, 2021
 (Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities$3,269 $3,269 $— $— 
Equity securities22,419 22,419 — — 
Securities available for sale
U.S. government agency securities168,056 — 168,056 — 
Agency mortgage-backed securities290,175 — 290,175 — 
Agency collateralized mortgage obligations81,629 — 81,629 — 
State, county, and municipal securities555 — 555 — 
Single issuer trust preferred securities issued by banks and insurers488 — 488 — 
Pooled trust preferred securities issued by banks and insurers1,064 — 1,064 — 
Small business administration pooled securities58,246 — 58,246 — 
Loans held for sale41,632 — 41,632 — 
Derivative instruments133,705 — 133,705 — 
Liabilities
Derivative instruments92,081 — 92,081 — 
Total recurring fair value measurements$709,157 $25,688 $683,469 $— 
Nonrecurring fair value measurements
Assets
Individually assessed collateral dependent loans (1)$31,213 $— $— $31,213 
Total nonrecurring fair value measurements$31,213 $— $— $31,213 
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  Fair Value Measurements at Reporting Date Using
BalanceQuoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
 December 31, 2020
 (Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities$2,838 $2,838 $— $— 
Equity securities22,107 22,107 — — 
Securities available for sale
U.S. government agency securities24,116 — 24,116 — 
Agency mortgage-backed securities233,629 — 233,629 — 
Agency collateralized mortgage obligations91,683 — 91,683 — 
State, county, and municipal securities807 — 807 — 
Single issuer trust preferred securities issued by banks and insurers488 — 488 — 
Pooled trust preferred securities issued by banks and insurers1,056 — 1,056 — 
Small business administration pooled securities61,081 — 61,081 — 
Loans held for sale58,104 — 58,104 — 
Derivative instruments187,399 — 187,399 — 
Liabilities
Derivative instruments134,064 — 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)
  
March 31, 2021
 (Dollars in thousands)
Financial assets
Securities held to maturity (a)
U.S. Treasury securities$4,014 $4,057 $— $4,057 $— 
Agency mortgage-backed securities417,811 426,628 — 426,628 — 
Agency collateralized mortgage obligations355,686 361,002 — 361,002 — 
Single issuer trust preferred securities issued by banks1,500 1,508 — 1,508 — 
Small business administration pooled securities26,518 27,235 — 27,235 — 
Loans, net of allowance for credit losses (b)9,107,929 9,072,683 — — 9,072,683 
Federal Home Loan Bank stock (c)10,250 10,250 — 10,250 — 
Cash surrender value of life insurance policies (d)241,365 241,365 — 241,365 — 
Financial liabilities
Deposit liabilities, other than time deposits (e)$10,725,479 $10,725,479 $— $10,725,479 $— 
Time certificates of deposits (f)868,045 871,056 — 871,056 — 
Federal Home Loan Bank borrowings (f)35,717 35,799 — 35,799 — 
Long-term borrowings (f)28,099 27,572 — 27,572 — 
Junior subordinated debentures (g)62,851 68,052 — 68,052 — 
Subordinated debentures (f)49,720 47,027 — — 47,027 
 
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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 securities356,085 374,121 — 374,121 — 
Agency collateralized mortgage obligations335,993 344,119 — 344,119 — 
Single issuer trust preferred securities issued by banks1,500 1,498 — 1,498 — 
Small business administration pooled securities26,917 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
March 31
2021
March 31
2020
(Dollars in thousands)
Deposit account fees (inclusive of cash management fees)$3,584 $4,970 
Interchange fees1,903 4,104 
ATM fees625 639 
Investment management - wealth management and advisory services7,402 6,289 
Investment management - retail investments and insurance revenue902 540 
Merchant processing income 320 393 
Credit card income236 183 
Other noninterest income1,125 1,212 
Total noninterest income in-scope of ASC 60616,097 18,330 
Total noninterest income out-of-scope of ASC 6069,149 8,105 
Total noninterest income$25,246 $26,435 

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:
March 31, 2021December 31, 2020
(Dollars in thousands)
Receivables, included in other assets $4,826 $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
March 31, 2021
Pre Tax
Amount
Tax (Expense)
Benefit
After Tax
Amount
 (Dollars in thousands)
Change in fair value of securities available for sale$(10,361)$2,587 $(7,774)
Less: net security losses reclassified into other noninterest expense— — — 
Net change in fair value of securities available for sale(10,361)2,587 (7,774)
Change in fair value of cash flow hedges(4,779)1,344 (3,435)
Less: net cash flow hedge gains reclassified into interest income or interest expense 4,380 (1,232)3,148 
Net change in fair value of cash flow hedges(9,159)2,576 (6,583)
Net unamortized gain related to defined benefit pension and other postretirement adjustments arising during the period653 (184)469 
Amortization of net actuarial losses442 (124)318 
Amortization of net prior service costs44 (12)32 
Net change in other comprehensive income for defined benefit postretirement plans (1)1,139 (320)819 
Total other comprehensive loss$(18,381)$4,843 $(13,538)
 Three Months Ended
March 31, 2020
 Pre Tax
Amount
Tax (Expense)
Benefit
After Tax
Amount
 (Dollars in thousands)
Change in fair value of securities available for sale$12,123 $(2,776)$9,347 
Less: net security losses reclassified into other noninterest expense— — — 
Net change in fair value of securities available for sale12,123 (2,776)9,347 
Change in fair value of cash flow hedges33,567 (9,443)24,124 
Less: net cash flow hedge gains reclassified into interest income or interest expense 1,586 (446)1,140 
Net change in fair value of cash flow hedges31,981 (8,997)22,984 
Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period(1,389)391 (998)
Amortization of net actuarial losses245 (69)176 
Amortization of net prior service costs69 (19)50 
Net change in other comprehensive income for defined benefit postretirement plans (1)(1,075)303 (772)
Total other comprehensive income $43,029 $(11,470)$31,559 

(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.
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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 on Cash Flow HedgeDefined Benefit Postretirement PlansAccumulated 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)(7,774)(6,583)819 (13,538)
Ending balance: March 31, 2021$5,481 $26,693 $(5,017)$27,157 
 2020
Beginning balance: January 1, 2020$4,398 $16,479 $(2,708)$18,169 
Net change in other comprehensive income (loss)9,347 22,984 (772)31,559 
Ending balance: March 31, 2020$13,745 $39,463 $(3,480)$49,728 


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:
March 31, 2021December 31, 2020
 (Dollars in thousands)
Commitments to extend credit$3,561,078 $3,301,692 
Standby letters of credit20,385 20,686 
Deferred standby letter of credit fees169 164 
Loan exposures with recourse261,713 303,265 
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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 1 to 10 years. During the fourth quarter of 2020, the Company committed to pay lease termination fees of $4.8 million, incurred in connection with two branch closure decisions. It is anticipated that these payments will be made in 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 March 31, 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 March 31, 2021. There was also no reserve requirement balance necessary at December 31, 2020 due to cash balances held at the Federal Reserve that were in excess of reserve requirements.

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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:
March 31
2021
December 31
2020
(Dollars in thousands)
Original investment value$152,766 $128,752 
Current recorded investment117,915 97,435 
Unfunded liability obligation66,968 49,586 
Tax credits and benefits 14,202 (1)9,404 
Amortization of investments 12,298 (1)7,552 
Net income tax benefit 1,904 (1)1,851 
(1) Amounts shown represent the full year impact for the year ended December 31, 2021.


NOTE 12 - SUBSEQUENT EVENTS

On April 22, 2021, the Company announced the signing of a definitive agreement under which the Company will
acquire Meridian Bancorp, Inc. ("Meridian") and Rockland Trust Company will merge with East Boston Savings Bank (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 Boards of Directors of each company unanimously approved the transaction, which is subject to certain conditions, including the receipt of required regulatory approvals, approval of both the stockholders of Meridian and the shareholders of the Company, and other customary conditions.


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,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” 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
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statements, in addition to those risk factors listed under the “Risk Factors” section of the 2020 Form 10-K include, but are not limited to:

further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including future weakening caused by the COVID-19 pandemic;
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;
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 or 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;
failure to consummate or a delay in consummating the acquisition of Meridian Bancorp, Inc., which is subject to certain standard conditions, including the receipt of required regulatory approvals, approval by the stockholders of Meridian Bancorp, Inc. and the shareholders of the Company, and other customary conditions;
the inability to realize expected revenue synergies from merger transactions in the amounts or in the timeframe anticipated;
inability to retain customers and employees, including those of previous 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. Statements about the COVID-19 pandemic and its potential impact on the Company's 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 the Company's control, including the scope, duration and extent of the pandemic and any resurgences, 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.

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    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
March 31
2021
December 31
2020
September 30
2020
June 30
2020
March 31
2020
 (Dollars in thousands, except per share data)
Financial condition data
Securities$1,431,430 $1,162,317 $1,106,782 $1,174,894 $1,236,780 
Loans9,246,691 9,392,866 9,405,193 9,359,648 8,916,430 
Allowance for credit losses(107,549)(113,392)(115,625)(112,176)(92,376)
Goodwill and other intangible assets527,894 529,313 530,749 532,202 533,672 
Total assets13,773,914 13,204,301 13,173,665 13,022,500 11,980,240 
Total deposits11,593,524 10,993,170 10,851,308 10,716,821 9,416,198 
Total borrowings176,387 181,060 295,734 295,701 545,985 
Stockholders’ equity1,715,371 1,702,685 1,689,724 1,671,692 1,679,656 
Nonperforming loans59,201 66,861 98,025 48,814 48,040 
Nonperforming assets59,201 66,861 98,025 48,814 48,040 
Income statement
Interest income$99,637 $96,805 $97,919 $99,965 $107,380 
Interest expense4,053 5,362 7,036 8,867 13,076 
Net interest income95,584 91,443 90,883 91,098 94,304 
Provision for credit losses(2,500)— 7,500 20,000 25,000 
Noninterest income25,246 27,468 29,347 28,190 26,435 
Noninterest expenses69,682 73,727 66,658 66,607 66,840 
Net income41,711 34,641 34,873 24,902 26,751 
Per share data
Net income—basic$1.26 $1.05 $1.06 $0.76 $0.78 
Net income—diluted1.26 1.05 1.06 0.76 0.78 
Cash dividends declared0.48 0.46 0.46 0.46 0.46 
Book value per share51.94 51.65 51.27 50.75 50.50 
Tangible book value per share (1)35.96 35.59 35.17 34.59 34.46 
Performance ratios
Return on average assets1.26 %1.04 %1.07 %0.79 %0.94 %
Return on average common equity9.87 %8.10 %8.21 %5.97 %6.22 %
Net interest margin (on a fully tax equivalent basis)3.25 %3.10 %3.13 %3.25 %3.74 %
Equity to assets12.45 %12.89 %12.83 %12.84 %14.02 %
Dividend payout ratio36.35 %43.76 %43.45 %61.85 %56.54 %
Asset Quality Ratios
Nonperforming loans as a percent of gross loans0.64 %0.71 %1.04 %0.52 %0.54 %
Nonperforming assets as a percent of total assets0.43 %0.51 %0.74 %0.37 %0.40 %
Allowance for credit losses as a percent of total loans1.16 %1.21 %1.23 %1.20 %1.04 %
Allowance for credit losses as a percent of nonperforming loans181.67 %169.59 %117.95 %229.80 %192.29 %
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Capital ratios
Equity to assets12.45 %12.89 %12.83 %12.84 %14.02 %
Tangible equity to tangible assets (1)8.96 %9.26 %9.17 %9.12 %10.01 %
Tier 1 leverage capital ratio9.63 %9.56 %9.52 %9.57 %10.74 %
Common equity tier 1 capital ratio13.16 %12.67 %12.41 %12.26 %11.95 %
Tier 1 risk-based capital ratio13.85 %13.34 %13.08 %12.94 %12.60 %
Total risk-based capital ratio15.61 %15.13 %14.87 %14.73 %14.13 %

(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 with Meridian Bancorp, Inc. ("Meridian"), which is expected to close in the fourth quarter of 2021. The closing of the Meridian acquisition is subject to certain conditions including approval of the transaction by Meridian 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 remains an active participant in the government-sponsored Paycheck Protection Program ("PPP") designed to help deploy stimulus funds in the form of loans to businesses within the community, funding an additional $340.0 million as part of the second round program during the first quarter of 2021, bringing total outstanding PPP loans to $846.3 million at March 31, 2021.

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. 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, primarily in the commercial and home equity portfolios however, during the first quarter of 2021, the increase in interest-earning assets was primarily driven by growth in cash balances attributable to elevated deposits from PPP fundings and government stimulus payments, as well as purchases of investment securities made during the quarter to effectively deploy the excess cash. Loan growth decreased slightly during the quarter as strong originations continued to be constrained by paydowns and refinancing activity.

indb-20210331_g1.jpg

    Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. In addition, management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and 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 first quarter of 2021, the Company realized growth in deposits, which increased $600.4 million, or 5.5%, from December 31, 2020 to $11.6 billion at March 31, 2021, primarily attributable to a combination of government stimulus payments and loan fundings under the second round of the PPP. Core deposits rose to 90.87% of total deposits at March 31, 2021, as the 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:

indb-20210331_g2.jpg

    The Company's net interest margin was 3.25% for the first quarter of 2021, reflecting a 15 basis point increase from the fourth quarter of 2020. The increase was primarily driven by increased PPP fee recognition of $5.8 million during the quarter. Also benefiting the margin was the reduced cost of deposits, which decreased 4 basis points during the first quarter of 2021 to 0.10%. The table below illustrates the factors that contributed to this increase in the net interest margin for the first quarter 2021:
Net interest margin for the three months ended December 31, 2020
3.10 %
Excess liquidity (cash) Levels(0.03)%
Securities(0.05)%
Loan yields(0.02)%
Nonaccrual interest impact, net(0.03)%
PPP loan impact0.20 %
Loan purchase accounting (fair value mark amortization/accretion)0.03 %
Decreased cost of funds0.05 %
Net interest margin for the three months ended March 31, 2021
3.25 %

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    The following table shows the net interest margin and cost of deposits trends for the trailing five quarters:
indb-20210331_g3.jpg

Noninterest Income

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

indb-20210331_g4.jpg














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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. 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:

indb-20210331_g5.jpg
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

Noninterest expense for the fourth quarter of 2020 included approximately $5.2 million in pre-tax expenses primarily attributable to branch closing decisions and loss on the sale of investments. Noninterest expenses decreased during the first quarter of 2021, as compared to the fourth quarter of 2020, but remained elevated primarily due to increases in salaries and employee benefits and consultant fees.
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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 of non-GAAP measures):

indb-20210331_g6.jpg
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

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

First Quarter 2021 Results

    Net income for the first quarter of 2021 was $41.7 million, or $1.26 on a diluted earnings per share basis, and increased 55.9% and 61.5%, respectively, as compared to $26.8 million, or $0.78 on a diluted earnings per share basis, for the prior year first quarter. First quarter 2021 results were positively impacted by a release of provision for credit loss of $2.5 million as well as increased interest income from fee amortization related to forgiven PPP loans, whereas the prior year ago period included provision for credit loss of $25 million as a result of the COVID-19 pandemic.

2021 Outlook

During the Company's first 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:

net loan growth is expected to remain challenged in the near future as attrition continues to mitigate strong closing activity;
excess liquidity and timing of PPP fee recognition will continue to create some level of volatility in net reported interest margin. Excluding those factors, core margin is expected to compress modestly as asset repricing slightly outpaces the Company's ability to further reduce funding costs;
provisions for credit losses will continue to reflect a combination of charge-off activity, net loan growth and general economic assumptions. As such, a relatively stable economic environment should continue to provide a framework for very modest provision levels following the significant reserve build in 2020;
fee income from the wealth management business is expected to remain strong, while mortgage gain on sales margins is expected to normalize down from first quarter 2021 levels. Continued challenges to swap fee income are expected as fixed rate alternatives continue to provide a compelling offer;
non-interest expense is expected to remain relatively consistent with first quarter 2021 levels; and,
the tax rate is expected to approximate 25% for the remainder of 2021.
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Non-GAAP Measures
    When management assesses the Company’s financial performance for purposes of making day-to-day and strategic decisions, it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and noninterest or fee income, reduced by operating expenses, the provision for credit losses, and the impact of income taxes and other noncore items shown in the 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 net operating earnings and operating EPS, noninterest income on an operating basis 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 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 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 operating earnings, operating EPS, operating return on average assets, operating return on average equity, tangible book value per share and the tangible common equity ratio, are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.    
    
Three Months Ended
March 31
2021
December 31
2020
September 30
2020
June 30
2020
March 31
2020
(Dollars in thousands)
Net interest income (GAAP)$95,584 $91,443 $90,883 $91,098 $94,304 (a)
Noninterest income (GAAP) $25,246 $27,468 $29,347 $28,190 $26,435 (b)
Noninterest expense (GAAP)$69,682 $73,727 $66,658 $66,607 $66,840 (d)
Less:
Loss on termination of derivative— — 684 — — 
Noninterest expense on an operating basis (Non-GAAP)$69,682 $73,727 $65,974 $66,607 $66,840 (e)
Total revenue (GAAP)$120,830 $118,911 $120,230 $119,288 $120,739 (a+b)
Ratios
  Efficiency ratio (GAAP based)57.67 %62.00 %55.44 %55.84 %55.36 %(d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP)57.67 %62.00 %54.87 %55.84 %55.36 %(e/(a+b))

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    The following table summarizes the calculation of the Company's tangible common equity ratio and tangible book value per share as of the dates indicated:
March 31
2021
December 31
2020
September 30
2020
June 30
2020
March 31
2020
(Dollars in thousands, except per share data)
Tangible common equity
Stockholders' equity (GAAP)$1,715,371 $1,702,685 $1,689,724 $1,671,692 $1,679,656 (a)
Less: Goodwill and other intangibles527,895 529,313 530,749 532,202 533,672 
Tangible common equity (Non-GAAP)1,187,476 1,173,372 1,158,975 1,139,490 1,145,984 (b)
Tangible assets
Assets (GAAP)13,773,914 13,204,301 13,173,665 13,022,500 11,980,240 (c)
Less: Goodwill and other intangibles527,895 529,313 530,749 532,202 533,672 
Tangible assets (Non-GAAP)$13,246,019 $12,674,988 $12,642,916 $12,490,298 $11,446,568 (d)
Common shares33,024,882 32,965,692 32,955,547 32,942,110 33,260,005 (e)
Common equity to assets ratio (GAAP)12.45 %12.89 %12.83 %12.84 %14.02 %(a/c)
Tangible common equity to tangible assets ratio (Non-GAAP)8.96 %9.26 %9.17 %9.12 %10.01 %(b/d)
Book value per share (GAAP)$51.94 $51.65 $51.27 $50.75 $50.50 (a/e)
Tangible book value per share (Non-GAAP)$35.96 $35.59 $35.17 $34.59 $34.46 (b/e)

Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.
There have been no material changes in critical accounting policies during the first three 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 $269.1 million, or 23.2%, at March 31, 2021 as compared to December 31, 2020, reflecting $373.4 million of purchases offset by paydowns, called securities, and maturities. The ratio of securities to total assets was 10.4% and 8.8% at March 31, 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” to the Consolidated Financial Statements included in Part I. Item 1 of this Report.

    Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans. The Company originates residential loans with the intention of selling them in the secondary market or to hold 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 months ended March 31, 2021 and 2020, respectively.

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    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 March 31
 20212020
 (Dollars in thousands)
Held in portfolio$81,921 $37,337 
Sold or held for sale in the secondary market270,161 169,253 
Total closed loans$352,082 $206,590 


    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 March 31
20212020
(Dollars in thousands)
Sold with servicing rights released$281,139 $121,784 
Sold with servicing rights retained (1)1,430 35,331 
Total loans sold$282,569 $157,115 
    
(1) All loans sold with servicing rights retained were sold with recourse during the three months ended March 31, 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 $401.2 million, $453.7 million and $610.4 million at March 31, 2021, December 31, 2020, and March 31, 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 March 31
 20212020
 (Dollars in thousands)
Balance at beginning of period$2,365 $5,116 
Additions13 333 
Amortization(243)(284)
Change in valuation allowance406 (661)
Balance at end of period $2,541 $4,504 
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 March 31, 2021 decreased by $146.2 million, or 1.6%, when compared to the prior quarter. Despite strong origination volumes and loan pipelines across all products, overall portfolio growth continued to be constrained by ongoing paydowns and re-financing activity. Exclusive of PPP activity, total commercial loans decreased 1.70% during the first quarter, primarily reflecting a slowdown in new construction financing and notably lower line utilization levels within the commercial and industrial ("C&I") portfolio, while commercial real estate balances remained relatively stable. Within C&I, PPP loan originations from the new 2021 program of $340.0 million outpaced PPP loan payoffs of $285.6 million on the prior year balances, resulting in a net PPP loan balance increase of $54.4 million for the first quarter of 2021 as compared to the fourth quarter of 2020. Within the consumer portfolios, the majority of mortgage production continued to be sold in the secondary market, while the low interest-rate environment and excess consumer liquidity position continued to drive elevated payoff activity along with low home equity line utilization, resulting in reductions of 4.2% and 3.8% within the mortgage and home equity portfolios, respectively.
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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 quarter of 2021, with outstanding balances totaling $846.3 million at March 31, 2021, comprising 40.6% of the total portfolio. Accordingly, the composition of the portfolio by sector is skewed as compared to periods prior to commencement of the PPP, as the PPP loans are reflected within the various sectors below. In connection with PPP loan originations during the current quarter, the Company received fee revenue of $13.1 million, which is deferred and amortized over the life of the loan. During the three months ended March 31, 2021, the Company amortized into income $9.5 million in PPP fee revenue related to forgiven loans. Balances of unamortized PPP loan fees will be amortized into income over the remaining loan maturities. The following pie chart shows the diversification of the commercial and industrial portfolio as of March 31, 2021:
indb-20210331_g7.jpg
(Dollars in thousands)
Average loan size (excluding floor plan tranches) $126 
Largest individual commercial and industrial loan outstanding $20,213 
Commercial and industrial nonperforming loans/commercial and industrial loans1.43 %
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 March 31, 2021:

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indb-20210331_g8.jpg
(Dollars in thousands)
Average loan size$1,107 
Largest individual commercial real estate mortgage outstanding$32,000 
Commercial real estate nonperforming loans/commercial real estate loans0.21 %
Owner occupied commercial real estate loans/commercial real estate loans14.4 %

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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 March 31, 2021, as noted below:
indb-20210331_g9.jpg


Asset Quality   The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, nonperforming and/or put on nonaccrual status. In the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR"). In addition, the Company has 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 may also put a junior lien mortgage on nonaccrual status as a result of delinquency with respect to the first position, which is held by another financial institution, while the junior lien is currently
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performing. 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
March 31
2021
December 31
2020
March 31
2020
 (Dollars in thousands)
Loans accounted for on a nonaccrual basis
Commercial and industrial $29,785 $34,729 $21,435 
Commercial real estate9,635 10,195 4,949 
Small business660 825 450 
Residential real estate13,392 15,528 14,502 
Home equity5,592 5,427 6,571 
Other consumer136 156 108 
Total (1)$59,200 $66,860 $48,015 
Loans past due 90 days or more but still accruing
Other consumer25 
Total$$$25 
Total nonperforming loans$59,201 $66,861 $48,040 
Other real estate owned— — — 
Total nonperforming assets$59,201 $66,861 $48,040 
Nonperforming loans as a percent of gross loans0.64 %0.71 %0.54 %
Nonperforming assets as a percent of total assets0.43 %0.51 %0.40 %

(1)Inclusive of TDRs on nonaccrual status of $21.2 million, $22.2 million, and $23.8 million at March 31, 2021, December 31, 2020, and March 31, 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
Three Months Ended
March 31
2021
March 31
2020
(Dollars in thousands)
Nonperforming assets beginning balance$66,861 $48,049 
New to nonperforming2,359 6,515 
Loans charged-off(3,686)(734)
Loans paid-off(4,025)(5,079)
Loans restored to performing status(2,559)(561)
Other251 (150)
Nonperforming assets ending balance$59,201 $48,040 

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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
March 31
2021
December 31
2020
March 31
2020
 (Dollars in thousands)
Performing troubled debt restructurings$20,262 $16,983 $18,129 
Nonaccrual troubled debt restructurings21,167 22,209 23,842 
Total$41,429 $39,192 $41,971 
Performing troubled debt restructurings as a % of total loans0.22 %0.18 %0.20 %
Nonaccrual troubled debt restructurings as a % of total loans0.23 %0.24 %0.27 %
Total troubled debt restructurings as a % of total loans0.45 %0.42 %0.47 %

The following table summarizes changes in TDRs for the periods indicated:
Table 7 - Activity in Troubled Debt Restructurings
Three Months Ended
March 31
2021
March 31
2020
 (Dollars in thousands)
TDRs beginning balance$39,192 $44,365 
New to TDR status3,836 185 
Paydowns(1,599)(2,557)
Charge-offs— (22)
TDRs ending balance$41,429 $41,971 
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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
 March 31
2021
March 31
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 $917 $709 
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income$264 $326 

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 March 31, 2021, there were 87 relationships, with an aggregate balance of $141.2 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 March 31, 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 March 31, 2021:
Table 9 - Deferrals by Modification Type
Deferral of Principal and InterestDeferral of Principal OnlyDeferral of Interest OnlyTotal DeferralsTotal Portfolio% Deferral
(Dollars in thousands)
Commercial and industrial$2,300 $1,636 $1,765 $5,701 $2,086,671 0.3 %
Commercial real estate (1)10,425 203,319 — 213,744 4,693,979 4.6 %
Business Banking294 645 — 939 174,211 0.5 %
Residential real estate87 — — 87 1,241,789 — %
Home equity153 — — 153 1,028,495 — %
Consumer— — — — 21,546 — %
Total active deferrals as of March 31, 2021
$13,259 $205,600 $1,765 $220,624 $9,246,691 2.4 %
(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 or could be potentially 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 will be more impacted due to social distancing and other measures put in place, as well as the duration of these restrictions. Management has identified approximately $1.3 billion of loans within highly impacted industries, such as Accommodations, Food Services, Retail Trade, Other Services (except Public Administration), and Arts, Entertainment & 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 dates 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
March 31, 2021
(Dollars in thousands)
Accommodations
Balance$402,259 
Average borrower loan size$4,193 
% secured by real estate99.8 %
Weighted average loan to value54.3 %
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 $167.5 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$135,480 
Average borrower loan size$363 
% secured by real estate69.4 %
Weighted average loan to value50.4 %
Other information:
The food services portfolio includes full-service restaurants (60%), limited service restaurants and fast food (38%), and other types of food service (caterers, bars, mobile food service 2%).
Retail Trade
Balance$530,544 
Average borrower loan size$492 
% secured by real estate42.7 %
Weighted average loan to value56.6 %
Other information:
The retail trade portfolio consists broadly of food and beverage stores (43%), motor vehicle and parts dealers (28%), 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$147,968 
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Average borrower loan size$259 
% secured by real estate51.0 %
Weighted average loan to value50.4 %
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 personal services, including car washes, beauty salons, laundry services, funeral homes, pet care and other types of services (28%).
Arts, Entertainment, and Recreation
Balance$99,919 
Average borrower loan size$805 
% secured by real estate83.9 %
Weighted average loan to value52.9 %
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 $107.5 million at March 31, 2021 represents a decrease of $5.8 million, or 5.2% compared to December 31, 2020. The Company recorded a release of provision for credit losses of $2.5 million during the first quarter of 2021, reflecting improvements in asset quality metrics and overall macro-economic assumptions, 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 will have a material adverse impact on future losses across a broad range of loan segments. As such, the allowance for credit losses at March 31, 2021 reflects increased reserve allocations to loan segments that are considered to have elevated loss exposure associated with the COVID-19 pandemic. In addition, management continues to reflect conservative assumptions, such as that the federal funds rates will remain near 0% through mid-2025 and that recent stimulus will be ineffective as consumers are reluctant to spend the funds, and some concerns about the speed of wide spread vaccine administration, 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 be qualitatively adjusted upward during the first quarter of 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. In addition to these industry exposures, qualitative adjustments were also made in order to provide coverage over the additional risk of loss
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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
March 31
2021
December 31
2020
September 30
2020
June 30
2020
March 31
2020
 (Dollars in thousands)
Average total loans$9,343,769 $9,396,192 $9,375,522 $9,311,877 $8,871,346 
Allowance for credit losses, beginning of period$113,392 $115,625 $112,176 $92,376 $67,740 
Cumulative effect accounting adjustment (1)— — — — (1,137)
Cumulative effect accounting adjustment (2)— — — — 1,157 
Charged-off loans
Commercial and industrial3,331 2,124 185 — — 
Commercial real estate— — 3,885 — — 
Commercial construction— — — — — 
Small business66 186 49 36 109 
Residential real estate— 105 — — — 
Home equity— — — 138 
Other consumer289 283 185 670 487 
Total charged-off loans3,686 2,698 4,304 710 734 
Recoveries on loans previously charged-off
Commercial and industrial64 242 42 
Commercial real estate57 — — — 
Commercial construction— — — — — 
Small business11 25 
Residential real estate— — 
Home equity13 36 21 95 58 
Other consumer197 162 219 408 246 
Total recoveries343 465 253 510 350 
Net loans charged-off (recovered)
Commercial and industrial3,267 1,882 184 (4)(42)
Commercial real estate(57)— 3,876 — — 
Commercial construction— — — — — 
Small business55 161 47 33 106 
Residential real estate(1)105 (1)— (1)
Home equity(13)(36)(21)(91)80 
Other consumer92 121 (34)262 241 
Total net loans charged-off 3,343 2,233 4,051 200 384 
Provision for credit losses(2,500)— 7,500 20,000 25,000 
Total allowance for credit losses, end of period$107,549 $113,392 $115,625 $112,176 $92,376 
Net loans charged-off as a percent of average total loans (annualized)0.15 %0.09 %0.17 %0.01 %0.02 %
Allowance for credit losses as a percent of total loans1.16 %1.21 %1.23 %1.20 %1.04 %
Allowance for credit losses as a percent of nonperforming loans181.67 %169.59 %117.95 %229.80 %192.29 %
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(1)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.
(2)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 adoption of Accounting Standards Update 2016-13. The adjustment represents a $1.2 million increase to the allowance resulting from the day one reclassification.
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
 
 March 31
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)$20,207 22.6 %$21,086 22.4 %
Commercial real estate44,348 45.2 %45,009 44.4 %
Commercial construction5,268 5.6 %5,397 5.9 %
Small business3,621 1.9 %5,095 1.9 %
Residential real estate12,956 13.4 %14,275 13.8 %
Home equity20,716 11.1 %22,060 11.4 %
Other consumer433 0.2 %470 0.2 %
Total allowance for credit losses$107,549 100.0 %$113,392 100.0 %
(1)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 $10.3 million at each of March 31, 2021 and December 31, 2020. 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
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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 $527.9 million and $529.3 million at March 31, 2021 and December 31, 2020, respectively. The decrease was primarily due to amortization of definite-lived intangibles.
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 first quarter of 2021 that indicated impairment of 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 $241.4 million and $200.5 million at March 31, 2021 and December 31, 2020, respectively, reflecting new policy purchases totaling $40.0 million during the first quarter of 2021. The Company recorded tax exempt income from life insurance policies of $1.3 million for each of the three month periods ended March 31, 2021 and 2020. The Company also recorded gains on life insurance benefits of $258,000, and $357,000 for the three months ended March 31, 2021 and 2020, respectively.
Deposits As of March 31, 2021, total deposits were $11.6 billion, representing a $600.4 million, or 5.5%, increase from December 31, 2020, as a combination of government stimulus payments and loan fundings under the second round of the PPP fueled significant growth during the first quarter of 2021. The total cost of deposits was 0.10% and 0.48% for the three months ended March 31, 2021 and 2020, respectively. Core deposits increased to 90.9% of total deposits as of March 31, 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 $233.2 million and $237.9 million at March 31, 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 $7.8 million and $8.5 million at March 31, 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
March 31
2021
December 31
2020
(Dollars in thousands)
Federal Home Loan Bank borrowings$35,717 $35,740 
Long-term borrowings 28,099 32,773 
Junior subordinated debentures62,851 62,851 
Subordinated debentures 49,720 49,696 
Total borrowings$176,387 $181,060 
Additionally, the Bank had $4.0 billion and $4.1 billion of assets pledged as collateral against borrowings at March 31, 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 March 18, 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 March 29, 2021. This dividend was paid on April 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 March 31, 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 
 ActualFor Capital Adequacy PurposesTo Be Well Capitalized Under Prompt
Corrective Action Provisions
 AmountRatioAmount RatioAmount Ratio
 March 31, 2021
 (Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)$1,395,973 15.61 %$715,596 8.0 %N/AN/A
Common equity tier 1 capital
(to risk weighted assets)
1,177,483 13.16 %402,522 4.5 %N/AN/A
Tier 1 capital (to risk weighted assets)1,238,483 13.85 %536,697 6.0 %N/AN/A
Tier 1 capital (to average assets)1,238,483 9.63 %514,262 4.0 %N/AN/A
Bank
Total capital (to risk weighted assets)$1,359,395 15.20 %$715,318 8.0 %$894,147 10.0 %
Common equity tier 1 capital
(to risk weighted assets)
1,251,598 14.00 %402,366 4.5 %581,196 6.5 %
Tier 1 capital (to risk weighted assets)1,251,598 14.00 %536,488 6.0 %715,318 8.0 %
Tier 1 capital (to average assets)1,251,598 9.73 %514,356 4.0 %642,945 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/AN/A
Common equity tier 1 capital
(to risk weighted assets)
1,150,177 12.67 %408,646 4.5 %N/AN/A
Tier 1 capital (to risk weighted assets)1,211,177 13.34 %544,861 6.0 %N/AN/A
Tier 1 capital (to average assets)1,211,177 9.56 %506,805 4.0 %N/AN/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 March 31, 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. There were no dividends paid by the Bank to the Company for the three months ended March 31, 2021 and $28.4 million in dividends were paid by the Bank to the Company for the three months ended March 31, 2020.
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 March 31, 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 March 31, 2021, the Rockland Trust Investment Management Group had assets under administration of $5.2 billion, representing 6,216 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 March 31, 2021 and December 31, 2020 were assets under administration of $395.8 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 $7.4 million and $6.3 million for the three months ended March 31, 2021 and 2020, respectively.
Retail investments and insurance revenue were $902,000 and $540,000 for the three months ended March 31, 2021 and 2020, respectively. This increase was primarily due to a strong sales volume.
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 months ended March 31, 2021 and 2020:
Table 15 - Summary of Results of Operations
 
 Three Months Ended March 31
 20212020
 (Dollars in thousands, except per share data)
Net income$41,711 $26,751 
Diluted earnings per share$1.26 $0.78 
Return on average assets1.26 %0.94 %
Return on average equity9.87 %6.22 %
Net interest margin3.25 %3.74 %

    The Company's results of operations for the first quarter of 2021 were positively impacted by a release of provision for credit losses in the amount of $2.5 million as well as elevated interest income from forgiven PPP loans. In comparison, results from the first quarter of 2020 reflected an increased provision for credit loss of $25.0 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 first quarter of 2021 was $95.8 million, representing an increase of $1.3 million, or 1.3%, when compared to the first quarter of 2020.
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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 months ended March 31, 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 March 31
 20212020
 Average
Balance
Interest
Earned/
Paid
Yield/RateAverage
Balance
Interest
Earned/
Paid
Yield/Rate
 (Dollars in thousands)
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short term investments$1,321,430 $326 0.10 %$72,552 $160 0.89 %
Securities
Securities - trading2,939 — — %2,263 — — %
Securities - taxable investments1,250,451 6,627 2.15 %1,189,965 7,957 2.69 %
Securities - nontaxable investments (1)642 3.79 %1,237 12 3.90 %
Total securities$1,254,032 $6,633 2.15 %$1,193,465 $7,969 2.69 %
Loans held for sale49,652 296 2.42 %28,045 232 3.33 %
Loans (2)
Commercial and industrial (1)2,115,069 23,046 4.42 %1,403,199 16,940 4.86 %
Commercial real estate (1)4,156,012 40,376 3.94 %4,012,125 45,851 4.60 %
Commercial construction555,153 5,283 3.86 %555,741 6,901 4.99 %
Small business174,320 2,281 5.31 %174,668 2,562 5.90 %
Total commercial7,000,554 70,986 4.11 %6,145,733 72,254 4.73 %
Residential real estate1,271,283 12,436 3.97 %1,560,839 14,619 3.77 %
Home equity1,050,234 8,757 3.38 %1,136,931 11,827 4.18 %
Total consumer real estate2,321,517 21,193 3.70 %2,697,770 26,446 3.94 %
Other consumer21,698 432 8.07 %27,843 572 8.26 %
Total loans$9,343,769 $92,611 4.02 %$8,871,346 $99,272 4.50 %
Total interest-earning assets$11,968,883 $99,866 3.38 %$10,165,408 $107,633 4.26 %
Cash and due from banks154,870 122,707 
Federal Home Loan Bank stock10,250 14,699 
Other assets1,241,651 1,166,775 
Total assets$13,375,654 $11,469,589 
Interest-bearing liabilities
Deposits
Savings and interest checking accounts$4,109,747 $423 0.04 %$3,270,719 $1,934 0.24 %
Money market2,288,030 521 0.09 %1,872,003 3,173 0.68 %
Time deposits906,613 1,767 0.79 %1,346,890 5,785 1.73 %
Total interest-bearing deposits$7,304,390 $2,711 0.15 %$6,489,612 $10,892 0.68 %
Borrowings
Federal Home Loan Bank borrowings$35,785 $188 2.13 %$131,225 $528 1.62 %
Long-term borrowings28,247 111 1.59 %74,912 561 3.01 %
Junior subordinated debentures62,851 426 2.75 %62,849 478 3.06 %
Subordinated debentures49,705 617 5.03 %49,612 617 5.00 %
Total borrowings$176,588 $1,342 3.08 %$318,598 $2,184 2.76 %
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Total interest-bearing liabilities$7,480,978 $4,053 0.22 %$6,808,210 $13,076 0.77 %
Noninterest bearing demand deposits3,895,447 2,680,718 
Other liabilities285,857 251,469 
Total liabilities$11,662,282 $9,740,397 
Stockholders' equity1,713,372 1,729,192 
Total liabilities and stockholders' equity$13,375,654 $11,469,589 
Net interest income (1)$95,813 $94,557 
Interest rate spread (3)3.16 %3.49 %
Net interest margin (4)3.25 %3.74 %
Supplemental information
Total deposits, including demand deposits$11,199,837 $2,711 $9,170,330 $10,892 
Cost of total deposits0.10 %0.48 %
Total funding liabilities, including demand deposits$11,376,425 $4,053 $9,488,928 $13,076 
Cost of total funding liabilities0.14 %0.55 %

(1)The total amount of adjustment to interest income and yield on a FTE basis was $229,000 and $253,000 for the three months ended March 31, 2021 and 2020, respectively. The FTE adjustment relates to tax exempt income relating to securities with average balances of $642,000 and $1.2 million and tax exempt income relating to loans with average balances of $70.2 million and $85.5 million, for the three months ended March 31, 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 17 - Volume Rate Analysis
Three Months Ended March 31
2021 Compared To 2020
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$(2,588)$2,754 $166 
Securities
Securities - taxable investments(1,734)404 (1,330)
Securities - nontaxable investments (1)— (6)(6)
Total securities(1,336)
Loans held for sale(115)179 64 
Loans
Commercial and industrial (1)(2,488)8,594 6,106 
Commercial real estate (1)(7,119)1,644 (5,475)
Commercial construction(1,611)(7)(1,618)
Small business(276)(5)(281)
Total commercial(1,268)
Residential real estate529 (2,712)(2,183)
Home equity(2,168)(902)(3,070)
Total consumer real estate(5,253)
Other consumer(14)(126)(140)
Total loans (1)(2)(6,661)
Total income of interest-earning assets$(7,767)
Expense of interest-bearing liabilities
Deposits
Savings and interest checking accounts$(2,007)$496 $(1,511)
Money market(3,357)705 (2,652)
Time certificates of deposits(2,127)(1,891)(4,018)
Total interest bearing deposits(8,181)
Borrowings
Federal Home Loan Bank borrowings44 (384)(340)
Line of Credit— — — 
Long-term borrowings(101)(349)(450)
Junior subordinated debentures(52)— (52)
Subordinated debentures(1)— 
Total borrowings(842)
Total expense of interest-bearing liabilities(9,023)
Change in net interest income$1,256 
 
(1)Reflects income determined on a FTE basis. See footnote (1) to tables 16 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 $2.5 million for the three months ended March 31, 2021, primarily due to an improved economic outlook coupled with lower loan balances. The Company recorded a provision expense of $25.0 million for the three months ended March 31, 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 1.16% at March 31, 2021, 1.21% at December 31, 2020, and 1.04% at March 31, 2020. The Company recorded net charge-offs of $3.3 million and $384,000 for the three months ended March 31, 2021 and March 31, 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 18 - Noninterest Income
Three Months Ended
 March 31Change
 20212020Amount%
(Dollars in thousands) 
Deposit account fees$3,584 $4,970 $(1,386)(27.89)%
Interchange and ATM fees2,720 4,896 (2,176)(44.44)%
Investment management8,304 6,829 1,475 21.60 %
Mortgage banking income5,740 861 4,879 566.67 %
Gain on life insurance benefits258 357 (99)(27.73)%
Increase in cash surrender value of life insurance policies1,323 1,276 47 3.68 %
Loan level derivative income173 3,597 (3,424)(95.19)%
Other noninterest income3,144 3,649 (505)(13.84)%
Total$25,246 $26,435 $(1,189)(4.50)%

The primary reasons for the variances in the noninterest income categories shown in the preceding table include:
Deposit account fees decreased for the three months ended March 31, 2021 in comparison to the year ago period, driven primarily by reductions in overdraft fees as customers benefited from government stimulus payments during the first quarter of 2021.
Interchange and ATM fees decreased for the three months ended March 31, 2021 in comparison to the year ago period, which 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, and 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 months ended March 31, 2021 in comparison to the year ago period primarily driven by more favorable market conditions during the first quarter of 2021, along with overall growth in assets under administration which increased 29.91% to $5.2 billion at March 31, 2021, from $4.0 billion at Mach 31, 2020.
Mortgage banking income increased for the three months ended March 31, 2021 in comparison to the year ago period primarily due to increased loan volume and continued strong demand largely driven by the low interest rate environment.
Loan level derivative income decreased for the three months ended March 31, 2021 primarily as a result of lower customer demand in comparison to the year ago period.
Other noninterest income decreased for the three months ended March 31, 2021, primarily attributable to decreases in equipment rental income, income on called securities, 1031 exchange fee income and FHLB dividend income, partially offset by increases in unrealized gains on equity securities and loan workout costs.
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Noninterest Expense The following table sets forth information regarding non-interest expense for the periods shown:
Table 19 - Noninterest Expense
 Three Months Ended
March 31Change
 20212020Amount%
 (Dollars in thousands) 
Salaries and employee benefits$39,889 $37,349 $2,540 6.80 %
Occupancy and equipment expenses9,273 9,317 (44)(0.47)%
Data processing & facilities management1,665 1,658 0.42 %
FDIC assessment1,050 — 1,050 100.00%
Consulting expense2,391 1,336 1,055 78.97 %
Core deposit amortization1,392 1,531 (139)(9.08)%
Software maintenance1,970 1,685 285 16.91 %
Unrealized loss on equity securities— 1,799 (1,799)(100.00)%
Other noninterest expenses12,052 12,165 (113)(0.93)%
Total$69,682 $66,840 $2,842 4.25 %

The primary reasons for the variances in the noninterest expense categories shown in the preceding table include:
The increase in salaries and employee benefits for the three months ended March 31, 2021 is due primarily to increases in incentive compensation expenses, commissions, retirement costs and payroll taxes.
FDIC assessment increased for the three months ended March 31, 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. In addition, the Company's assessment base increased due to the Company crossing the $10 billion asset threshold, resulting in an increase to fees incurred.
Consulting expense increased for the three months ended March 31, 2021 associated with the Company's overall growth, implementation of strategic initiatives, and projects and measures implemented in response to the COVID-19 pandemic.
Software maintenance increased for the three months ended March 31, 2021 primarily due to the Company's continued investment in its technology infrastructure.
Other noninterest expense remained relatively consistent when comparing the three months ended March 31, 2021 to the year ago period, with decreases in recruitment costs, amortization of other intangibles and sponsorships, offset by increases in in the provision for unfunded commitments, contactless card issuance costs and contract labor.

Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes. The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated:
Table 20 - Tax Provision and Applicable Tax Rates
Three Months Ended
 March 31
 20212020
 (Dollars in thousands)
Combined federal and state income tax provision$11,937 $2,148 
Effective income tax rate22.25 %7.43 %
Blended statutory tax rate27.92 %27.88 %

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    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 three months ended March 31, 2020 include 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 months ended March 31, 2021 is 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 $152.8 million, of which $85.8 million had been funded as of March 31, 2021. It is expected that the limited partnership investments will generate a net tax benefit of approximately $1.9 million for the fiscal year 2021 and a total of $20.6 million over the remaining life of the investments from the combination of the tax credits and operating losses.
Risk Management
    
    The Board of Directors and management have identified significant risks which affect the Company, including credit risk, market risk, liquidity risk, price risk, operations risk, cybersecurity risk, consumer compliance risk, reputation risk, and strategic risk. The Board of Directors has approved an Enterprise Risk Management Policy, and management has adopted a Risk Appetite Statement that addresses each risk category.  Management reviews key risks and their mitigation on an ongoing basis and provides regular enterprise risk management reports to the Board of Directors. The Board of Directors, with the assistance of the Board’s Risk Committee, oversees management’s enterprise risk assessment and management.
Credit Risk    Credit risk is the possibility that customers or other counterparties may not repay loans or other contractual obligations according to their terms. 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.
Operational Risk    Operational risk is the risk of loss from the Company’s operations due to inadequate or failed internal process, people, systems and controls, and external influences such as market conditions, fraudulent activities, natural disasters, and security risks. 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, but are not limited to, 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 failure on the part of the key individuals to perform properly. Management maintains an Operational Risk Committee to assess and mitigate operational risk which contributes to periodic enterprise risk management reporting to the Board of Directors.
Compliance Risk    Compliance risk is the risk of regulatory sanctions or financial loss resulting from the failure to comply with rules and regulations issued by the various banking agencies, the U.S. Securities and Exchange Commission, the NASDAQ Stock Market, and good banking practices. Activities which may expose the Company to compliance risk include money laundering, privacy and data protection, adherence to laws and regulations, community reinvestment initiatives, and employment and tax matters. Compliance risk is mitigated through the use of written policies and procedures, staff training, and continuous monitoring of activities for adherence to policies and procedures. Management maintains a Consumer Compliance Advisory Team to assess and mitigate compliance risk that contributes to periodic enterprise risk management reporting to Executive Management and the Board of Directors.
Strategic and Reputation Risk  Strategic and reputation risk is the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess current and new opportunities and threats in business, markets, and products. Management seeks to mitigate strategic and reputational risk through annual strategic planning, frequent
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executive review of strategic plan progress, ongoing competitive and technological observation, assessment processes of new products, new branches, and new business initiatives, adherence to ethical standards, a philosophy of customer advocacy, a structured process of customer complaint resolution, and ongoing reputational monitoring, crisis management planning, and management tools.
    
    Market Risk Market risk is the sensitivity of income to changes in interest rates, equity prices, foreign exchange rates, commodity prices, and other market-driven rates or prices. The Company’s most significant market risk exposure is interest rate risk.
Interest rate risk is the sensitivity of income due 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 maintains an Asset Liability Committee to manage interest rate risk, which 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 determines to be 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 simulation 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 exactly and actual behavior may differ from assumption.
Based upon the net interest income simulation models, the Company currently forecasts that the Bank’s assets re-price faster than the liabilities. As a result, the net interest income of the Bank will benefit as market rates increase, and contract if market rates decrease. The Company runs several scenarios to quantify and effectively assist in managing this position. These scenarios include 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 21 - Interest Rate Sensitivity
 March 31
 20212020
Year 1Year 2Year 1Year 2
Parallel rate shocks (basis points)
-100(2.8)%(14.0)%(1.1)%(3.5)%
+1006.8 %2.0 %3.7 %4.6 %
+20014.5 %12.6 %8.1 %11.2 %
+30022.7 %23.6 %12.7 %17.6 %
+40030.5 %34.0 %17.0 %23.8 %
Gradual rate shifts (basis points)
-100 over 12 months(1.1)%12.4 %(0.1)%(3.0)%
+200 over 12 months6.6 %10.2 %3.5 %9.2 %
+400 over 24 months6.7 %18.7 %3.5 %13.5 %
Alternative scenarios
Yield Curve Twist (1)n/an/a1.1 %5.6 %
Flat up 200 basis points scenario6.8 9.7 n/an/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 factors affecting market risk exposure of the Company’s net interest income during the three months ended March 31, 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. Additionally, 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 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 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. The amounts relating to the notional principal amount are not actually exchanged. Additionally, the Company may manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts. In an effort to mitigate that risk, forward delivery sales commitments are executed, 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.
    
    Liquidity Risk    Liquidity risk is the risk that the Company will not have the ability to generate adequate amounts of cash in the most economical way to meet its ongoing obligations to pay deposit withdrawals, repay borrowings, and fund loans. The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans
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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.
Management maintains an Asset Liability Committee to manage liquidity risk. 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 funding at the FHLB, less short-term liabilities relative to total assets, was within policy limits at March 31, 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, 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 measure include collateral requirements at the FHLB, changes in the securities portfolio, and the mix of deposits.
The Bank seeks to increase deposits without adversely impacting the weighted average cost of those funds. As part of a prudent liquidity risk management practice, the Company maintains various liquidity sources, some of which are only accessed on a contingency basis. Accordingly, Management has implemented funding strategies that include FHLB advances, Federal Reserve Bank borrowing capacity, and repurchase agreement lines. These funding sources are a contingent source of liquidity and, when profitable lending and investment opportunities exist, access to them provides a means to grow the balance sheet.
Borrowing capacity at the FHLB and the Federal Reserve is impacted by the amount and type of assets available to be pledged. For example, a prime, one-to-four family, residential loan, may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas, a commercial loan may provide a lower amount. As a result, the Company’s lending decisions can also affect its liquidity position.
The Company can 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. Some factors that will impact this source of liquidity are 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.
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As a result of PPP loan funding, government stimulus programs and a customer focus on retaining liquidity, the Company continued to experience significant growth in deposits and a buildup of liquidity through these sources during the first quarter of 2021. In addition to this excess liquidity as of March 31, 2021, the Company also maintains sufficient alternative sources of funding from which it may draw, if necessary. The table below shows current and unused liquidity capacity from various sources as of the dates indicated:
Table 22 - Sources of Liquidity
 March 31, 2021December 31, 2020
 OutstandingAdditional
Borrowing
Capacity
OutstandingAdditional
Borrowing  Capacity
 (Dollars in thousands)
Federal Home Loan Bank of Boston (1)$35,717 $1,261,506 $35,740 $1,372,671 
Federal Reserve Bank of Boston (2)— 1,382,439 — 1,355,809 
Unpledged Securities — 985,024 — 716,961 
Line of Credit — 50,000 — 50,000 
Long-term borrowing (3)28,099 — 32,773 — 
Junior subordinated debentures (3)62,851 — 62,851 — 
Subordinated debt (3)49,720 — 49,696 — 
Reciprocal deposits (3)233,179 — 237,902 — 
Brokered deposits (3)7,792 — 8,538 — 
$417,358 $3,678,969 $427,500 $3,495,441 
 
(1)Loans with a carrying value of $2.1 billion at each of March 31, 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 $1.9 billion at each of March 31, 2021 and December 31, 2020 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 policies used for managing operational liquidity, the Board of Directors and management recognize the need to establish reasonable guidelines for managing through an environment of heightened liquidity risk. Catalysts for elevated liquidity risk can be Bank-specific issues and/or systemic industry-wide events. It is therefore the responsibility of management to institute systems and controls to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute prompt responses that may alleviate or circumvent a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework for the Bank to help detect liquidity problems promptly and appropriately address potential liquidity problems 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. The Liquidity Crisis Task Force is responsible for monitoring the potential for a liquidity crisis and for establishing and executing an appropriate response.
Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended March 31, 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 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 March 31, 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.
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Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.  The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting. There were no changes in the Company's internal control over financial reporting that occurred during the first 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
At March 31, 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.


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.

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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.

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 March 31, 2021:
 Issuer Purchases of Equity Securities
 Total Number of Shares Purchased (1)Average Price Paid Per ShareTotal 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
January 1 to January 31, 20212,316 $76.97 — — 
February 1 to February 28, 202110,010 $81.88 — — 
March 1 to March 31, 20214,079 $98.36 — — 
Total16,405 $85.28 — 
(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.

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Item 4. Mine Safety Disclosures - Not Applicable.

Item 5. Other Information - None.

Item 6. Exhibits

Exhibit Index
 
No.Exhibit
2.1
31.1
31.2
32.1
32.2
101The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101).

*Filed herewith
+Furnished herewith


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INDEPENDENT BANK CORP.
(registrant)
 
May 6, 2021 /s/ Christopher Oddleifson
 Christopher Oddleifson
President and
Chief Executive Officer
(Principal Executive Officer)
 
May 6, 2021 /s/ Mark J. Ruggiero
 Mark J. Ruggiero
Chief Financial Officer
(Principal Financial Officer)

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