株探米国株
英語
エドガーで原本を確認する
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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 September 30, 2023
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)
 ___________________________________________________
MA 04-2870273
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
Office Address: 2036 Washington Street, Hanover, MA 02339
Mailing Address: 288 Union Street, Rockland, MA 02370
(Address of principal executive offices, including zip code)
(781) 878-6100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Trading Symbol Name of each exchange on which registered
Common Stock, $0.01 par value per share INDB The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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Yes x No o Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer x Accelerated Filer ☐
Non-accelerated Filer ☐ Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
As of November 1, 2023, there were 43,853,307 shares of the issuer’s common stock outstanding, par value $0.01 per share.




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  PAGE
Notes to Consolidated Financial Statements - September 30, 2023
3
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4
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements

INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited—Dollars in thousands)
 
September 30
2023		 December 31
2022
Assets
Cash and due from banks $ 176,930  $ 175,843 
Interest-earning deposits with banks 43,198  177,090 
Securities
Trading 4,476  3,888 
Equity 21,475  21,119 
Available for sale (amortized cost $1,524,555 and $1,566,779)
 1,353,744  1,399,154 
Held to maturity (fair value $1,384,430 and $1,524,710)
 1,594,279  1,705,120 
Total securities 2,973,974  3,129,281 
Loans held for sale (at fair value) 3,998  2,803 
Loans
Commercial and industrial 1,653,003  1,635,103 
Commercial real estate 7,896,230  7,760,230 
Commercial construction 965,442  1,154,413 
Small business 245,335  219,102 
Residential real estate 2,338,102  2,035,524 
Home equity - first position 529,938  566,166 
Home equity - subordinate positions 565,617  522,584 
Other consumer 30,568  35,553 
   Total loans 14,224,235  13,928,675 
Less: allowance for credit losses (140,569) (152,419)
Net loans 14,083,666  13,776,256 
Federal Home Loan Bank stock 43,878  5,218 
Bank premises and equipment, net 191,560  196,504 
Goodwill 985,072  985,072 
Other intangible assets 19,825  25,068 
Cash surrender value of life insurance policies 295,670  293,323 
Other assets 550,338  527,716 
Total assets $ 19,368,109  $ 19,294,174 
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand deposits $ 4,796,148  $ 5,441,584 
Savings and interest checking accounts 5,398,322  5,898,009 
Money market 2,852,293  3,343,673 
Time certificates of deposit 2,012,763  1,195,741 
Total deposits 15,059,526  15,879,007 
Borrowings
Federal Home Loan Bank borrowings 887,548  637 
Junior subordinated debentures (less unamortized debt issuance costs of $31 and $33)
 62,857  62,855 
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Subordinated debentures (less unamortized debt issuance costs of $43 and $115)
 49,957  49,885 
Total borrowings 1,000,362  113,377 
Other liabilities 422,813  415,089 
Total liabilities 16,482,701  16,407,473 
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: 44,141,973 shares at September 30, 2023 and 45,641,238 shares at December 31, 2022 (includes 162,464 and 135,712 shares of unvested participating restricted stock awards, respectively)
 440  455 
Value of shares held in rabbi trust at cost: 81,943 shares at September 30, 2023 and 80,965 shares at December 31, 2022
(3,335) (3,227)
Deferred compensation and other retirement benefit obligations 3,335  3,227 
Additional paid in capital 1,999,448  2,114,888 
Retained earnings 1,046,266  934,442 
Accumulated other comprehensive loss, net of tax (160,746) (163,084)
Total stockholders’ equity 2,885,408  2,886,701 
Total liabilities and stockholders' equity $ 19,368,109  $ 19,294,174 
The accompanying 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 Nine Months Ended
September 30 September 30
  2023 2022 2023 2022
Interest income
Interest and fees on loans $ 187,145  $ 150,157  $ 537,830  $ 413,770 
Taxable interest and dividends on securities 14,817  13,243  45,707  34,567 
Nontaxable interest and dividends on securities 1  1  4  4 
Interest on loans held for sale 60  51  133  150 
Interest on federal funds sold and short-term investments 905  6,519  4,882  10,222 
Total interest and dividend income 202,928  169,971  588,556  458,713 
Interest expense
Interest on deposits 40,713  6,109  95,297  10,327 
Interest on borrowings 12,335  1,261  31,835  3,492 
Total interest expense 53,048  7,370  127,132  13,819 
Net interest income 149,880  162,601  461,424  444,894 
Provision for credit losses 5,500  3,000  17,750  1,000 
Net interest income after provision for credit losses 144,380  159,601  443,674  443,894 
Noninterest income
Deposit account fees 5,936  6,261  17,360  17,582 
Interchange and ATM fees 4,808  4,331  13,470  11,967 
Investment management 10,246  8,436  30,373  26,438 
Mortgage banking income 739  585  1,717  2,989 
Increase in cash surrender value of life insurance policies 1,983  1,883  5,777  5,549 
Gain on life insurance benefits 1,924  477  2,111  600 
Loan level derivative income 842  471  2,525  1,511 
Other noninterest income 7,065  5,751  19,209  15,729 
Total noninterest income 33,543  28,195  92,542  82,365 
Noninterest expenses
Salaries and employee benefits 54,797  52,708  165,747  150,957 
Occupancy and equipment expenses 12,321  12,316  37,528  37,255 
Data processing and facilities management 2,404  2,259  7,461  6,878 
Consulting expense 2,753  2,547  6,765  7,057 
Software maintenance 3,324  2,497  9,407  7,706 
Debit card expense 2,319  1,936  6,707  5,562 
Amortization of intangible assets 1,712  1,898  5,243  5,801 
FDIC assessment 2,727  1,677  8,011  5,225 
Merger and acquisition expense —  —  —  7,100 
Other noninterest expenses 15,425  14,890  45,129  45,249 
Total noninterest expenses 97,782  92,728  291,998  278,790 
Income before income taxes 80,141  95,068  244,218  247,469 
Provision for income taxes 19,333  23,171  59,519  60,699 
Net income $ 60,808  $ 71,897  $ 184,699  $ 186,770 
Basic earnings per share $ 1.38  $ 1.57  $ 4.16  $ 4.01 
Diluted earnings per share $ 1.38  $ 1.57  $ 4.16  $ 4.00 
Weighted average common shares (basic) 44,135,487  45,839,555  44,419,731  46,618,209 
Common share equivalents 11,417  16,856  12,851  17,221 
Weighted average common shares (diluted) 44,146,904  45,856,411  44,432,582  46,635,430 
Cash dividends declared per common share $ 0.55  $ 0.51  $ 1.65  $ 1.53 
The accompanying 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 Nine Months Ended
September 30 September 30
  2023 2022 2023 2022
Net income $ 60,808  $ 71,897  $ 184,699  $ 186,770 
Other comprehensive (loss) income, net of tax
Net change in fair value of securities available for sale (7,921) (42,582) (2,304) (128,872)
Net change in fair value of cash flow hedges 202  (27,144) 4,917  (52,743)
Net change in other comprehensive income for defined benefit postretirement plans (92) 121  (275) 363 
Total other comprehensive (loss) income (7,811) (69,605) 2,338  (181,252)
Total comprehensive income $ 52,997  $ 2,292  $ 187,037  $ 5,518 
The accompanying 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 September 30, 2023 and 2022
(Unaudited—Dollars in thousands, except per share data)
Common Stock Outstanding Common Stock Value of Shares Held in Rabbi Trust at Cost Deferred Compensation Obligation Additional Paid in Capital Retained Earnings Accumulated Other
Comprehensive Loss		 Total
Balance June 30, 2023 44,130,901 $ 440  $ (3,289) $ 3,289  $ 1,997,674  $ 1,009,735  $ (152,935) $ 2,854,914 
Net income —  —  —  —  —  60,808  —  60,808 
Other comprehensive loss —  —  —  —  —  —  (7,811) (7,811)
Common dividend declared ($0.55 per share)
 —  —  —  —  —  (24,277) —  (24,277)
Proceeds from exercise of stock options, net of cash paid 1,572  —  —  —  1  —  —  1 
Stock based compensation —  —  —  —  1,128  —  —  1,128 
Restricted stock awards issued, net of awards surrendered (4,838) —  —  —  (26) —  —  (26)
Shares issued under direct stock purchase plan 14,338  —  —  —  671  —  —  671 
Deferred compensation and other retirement benefit obligations —  —  (46) 46  —  —  —  — 
Balance September 30, 2023 44,141,973  $ 440  $ (3,335) $ 3,335  $ 1,999,448  $ 1,046,266  $ (160,746) $ 2,885,408 
Balance June 30, 2022 46,069,761  $ 459  $ (3,196) $ 3,196  $ 2,146,333  $ 833,857  $ (109,464) $ 2,871,185 
Net income —  —  —  —  —  71,897  —  71,897 
Other comprehensive loss —  —  —  —  —  —  (69,605) (69,605)
Common dividend declared ($0.51 per share)
 —  —  —  —  —  (23,251) —  (23,251)
Stock based compensation —  —  —  —  1,017  —  —  1,017 
Restricted stock awards issued, net of awards surrendered 296  —  —  —  —  —  —  — 
Shares issued under direct stock purchase plan 7,541  —  —  —  606  —  —  606 
Shares repurchased under share repurchase program (442,972) (5) (34,643) (34,648)
Deferred compensation and other retirement benefit obligations —  —  (43) 43  —  —  —  — 
Balance September 30, 2022 45,634,626  $ 454  $ (3,239) $ 3,239  $ 2,113,313  $ 882,503  $ (179,069) $ 2,817,201 

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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2023 and 2022
(Unaudited—Dollars in thousands, except per share data)

Common Stock Outstanding Common Stock Value of Shares Held in Rabbi 
Trust at Cost		 Deferred Compensation Obligation Additional Paid in Capital Retained Earnings Accumulated Other
Comprehensive Income (Loss)		 Total
Balance December 31, 2022 45,641,238 $ 455  $ (3,227) $ 3,227  $ 2,114,888  $ 934,442  $ (163,084) $ 2,886,701 
Net income —  —  —  —  —  184,699  —  184,699 
Other comprehensive income —  —  —  —  —  —  2,338  2,338 
Common dividend declared ($1.65 per share)
 —  —  —  —  —  (72,875) —  (72,875)
Proceeds from exercise of stock options, net of cash paid 3,238  —  —  —  81  —  —  81 
Stock based compensation —  —  —  —  4,721  —  —  4,721 
Restricted stock awards issued, net of awards surrendered 81,721  1  —  —  (1,137) —  —  (1,136)
Shares issued under direct stock purchase plan 32,809  —  —  —  1,990  —  —  1,990 
Shares repurchased under share repurchase program (1) (1,617,033) (16) —  —  (121,095) —  —  (121,111)
Deferred compensation and other retirement benefit obligations —  —  (108) 108  —  —  —  — 
Balance September 30, 2023 44,141,973  $ 440  $ (3,335) $ 3,335  $ 1,999,448  $ 1,046,266  $ (160,746) $ 2,885,408 
Balance December 31, 2021 47,349,778  $ 472  $ (3,146) $ 3,146  $ 2,249,078  $ 766,716  $ 2,183  $ 3,018,449 
Net income —  —  —  —  —  186,770  —  186,770 
Other comprehensive loss —  —  —  —  —  —  (181,252) (181,252)
Common dividend declared ($1.53 per share)
 —  —  —  —  —  (70,983) —  (70,983)
Stock based compensation —  —  —  —  3,483  —  —  3,483 
Restricted stock awards issued, net of awards surrendered 50,096  —  —  —  (1,085) —  —  (1,085)
Shares issued under direct stock purchase plan 21,717  —  —  —  1,765  —  —  1,765 
Shares repurchased under share repurchase program (1,786,965) (18) —  —  (139,928) —  —  (139,946)
Deferred compensation and other retirement benefit obligations —  —  (93) 93  —  —  —  — 
Balance September 30, 2022 45,634,626  $ 454  $ (3,239) $ 3,239  $ 2,113,313  $ 882,503  $ (179,069) $ 2,817,201 
(1)     Inclusive of $1.2 million impact of excise tax attributable to shares repurchased under the share repurchase program during the nine months ended September 30, 2023.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited—Dollars in thousands)
 
  Nine Months Ended
September 30
2023 2022
Cash flow from operating activities
Net income $ 184,699  $ 186,770 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 27,575  29,528 
Change in unamortized net loan costs and fees (1,199) (6,397)
Accretion of acquired loans (1,057) (65)
Provision for credit losses 17,750  1,000 
Deferred income tax expense 13  271 
Net (gain) loss on equity securities (272) 2,819 
Net loss on bank premises and equipment 304  217 
Realized gain on sale leaseback transaction (193) (433)
Stock based compensation 4,721  3,483 
Increase in cash surrender value of life insurance policies (5,786) (5,549)
Gain on life insurance benefits (2,111) (600)
Operating lease payments (10,381) (15,867)
Change in fair value on loans held for sale 31  620 
Net change in:
Trading assets (588) 182 
Loans held for sale (1,226) 18,959 
Other assets (2,317) 32,252 
Other liabilities 13,526  58,669 
Total adjustments 38,790  119,089 
Net cash provided by operating activities 223,489  305,859 
Cash flows used in investing activities
Proceeds from sales of equity securities —  30 
Purchases of equity securities (440) (471)
Proceeds from maturities and principal repayments of securities available for sale 42,087  100,790 
Purchases of securities available for sale —  (123,289)
Proceeds from maturities and principal repayments of securities held to maturity 114,698  132,997 
Purchases of securities held to maturity —  (763,987)
Net (purchases) redemptions of Federal Home Loan Bank stock (38,660) 6,189 
Investments in low income housing projects (20,086) (14,896)
Purchases of life insurance policies (114) (115)
Proceeds from life insurance policies 3,934  2,273 
Net increase in loans (322,904) (107,211)
Purchases of bank premises and equipment (9,541) (18,019)
Proceeds from the sale of bank premises and equipment 104  1,228 
Net cash used in investing activities (230,922) (784,481)
Cash flows used in financing activities
Net increase (decrease) in time deposits 816,896  (351,458)
Net decrease in other deposits (1,636,503) (225,519)
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Net advances from (repayments of) short-term Federal Home Loan Bank borrowings 887,000  (25,000)
Repayments of long-term debt, net of issuance costs —  (14,063)
Net proceeds from exercise of stock options 80  — 
Restricted stock awards issued, net of awards surrendered (1,143) (1,085)
Proceeds from shares issued under direct stock purchase plan 1,977  1,765 
Payments for shares repurchased under share repurchase program (119,951) (139,946)
Common dividends paid (73,728) (70,460)
Net cash used in financing activities (125,372) (825,766)
Net decrease in cash and cash equivalents (132,805) (1,304,388)
Cash and cash equivalents at beginning of year 352,933  2,240,684 
Cash and cash equivalents at end of period $ 220,128  $ 936,296 
Supplemental schedule of noncash investing and financing activities
Net increase in capital commitments relating to low income housing project investments $ 15,718  $ 4,408 
Recognition of operating lease at commencement and/or at extension $ 5,747  $ 14,124 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION
Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907.
All material intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 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, 2022, filed with the Securities and Exchange Commission (the "2022 Form 10-K").

NOTE 2 - SECURITIES
    
Trading Securities
The Company had trading securities of $4.5 million and $3.9 million as of September 30, 2023 and December 31, 2022, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s non-qualified 401(k) Restoration Plan and Non-qualified Deferred Compensation Plan.
Equity Securities
The Company had equity securities of $21.5 million and $21.1 million as of September 30, 2023 and December 31, 2022, 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 Nine Months Ended
September 30 September 30
2023 2022 2023 2022
Dollars in thousands
Net (losses) gains recognized during the period on equity securities $ (363) $ (742) 272  (2,819)
Less: net (losses) gains recognized during the period on equity securities sold during the period (34) —  (33) 8 
Unrealized (losses) gains recognized during the reporting period on equity securities still held at the reporting date $ (329) $ (742) $ 305  $ (2,827)
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:
  September 30, 2023 December 31, 2022
  Amortized
Cost		 Gross
Unrealized
Gains		 Gross Unrealized
Losses		 Allowance for credit losses Fair
Value		 Amortized
Cost		 Gross
Unrealized
Gains		 Gross Unrealized
Losses		 Allowance for credit losses Fair
Value
  (Dollars in thousands)
U.S. government agency securities $ 230,387  $ —  $ (30,877) $ —  $ 199,510  $ 230,936  $ —  $ (28,636) $ —  $ 202,300 
U.S. treasury securities 874,463  —  (75,576) —  798,887  874,035  —  (82,694) —  791,341 
Agency mortgage-backed securities 326,318  2  (51,612) —  274,708  359,068  54  (45,434) —  313,688 
Agency collateralized mortgage obligations 37,159  —  (3,510) —  33,649  41,874  —  (3,031) —  38,843 
State, county, and municipal securities 194  —  (10) —  184  193  —  (2) —  191 
Pooled trust preferred securities issued by banks and insurers 1,204  —  (161) —  1,043  1,203  —  (169) —  1,034 
Small business administration pooled securities 54,830  —  (9,067) —  45,763  59,470  —  (7,713) —  51,757 
Total available for sale securities $ 1,524,555  $ 2  $ (170,813) $ —  $ 1,353,744  $ 1,566,779  $ 54  $ (167,679) $ —  $ 1,399,154 

Excluded from the table above is accrued interest on available for sale securities of $3.9 million and $3.6 million at September 30, 2023 and December 31, 2022, respectively, which is included within other assets on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities during the three and nine months ended September 30, 2023 and 2022. Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status at September 30, 2023 and December 31, 2022.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of securities available for sale during the three and nine months ended September 30, 2023 and 2022, 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 as of the dates indicated. These available for sale securities are aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position:
  September 30, 2023
    Less than 12 months 12 months or longer Total
  # of 
holdings		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
  (Dollars in thousands)
U.S. government agency securities 9  $ —  $ —  $ 199,509  $ (30,877) $ 199,509  $ (30,877)
U.S. treasury securities 18  —  —  798,887  (75,576) 798,887  (75,576)
Agency mortgage-backed securities 133  3,182  (67) 271,047  (51,545) 274,229  (51,612)
Agency collateralized mortgage obligations 13  2,530  (35) 31,119  (3,475) 33,649  (3,510)
State, county, and municipal securities 1  184  (10) —  —  184  (10)
Pooled trust preferred securities issued by banks and insurers 1  —  —  1,043  (161) 1,043  (161)
Small business administration pooled securities 8  —  —  45,763  (9,067) 45,763  (9,067)
Total impaired available for sale securities 183  $ 5,896  $ (112) $ 1,347,368  $ (170,701) $ 1,353,264  $ (170,813)
December 31, 2022
Less than 12 months 12 months or longer Total
# of 
holdings		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
(Dollars in thousands)
U.S. government agency securities 9  $ 60,575  $ (7,292) $ 141,725  $ (21,344) $ 202,300  $ (28,636)
U.S. treasury securities 18  43,035  (6,350) 748,306  (76,344) 791,341  (82,694)
Agency mortgage-backed securities 123  155,944  (15,186) 154,653  (30,248) 310,597  (45,434)
Agency collateralized mortgage obligations 13  38,843  (3,031) —  —  38,843  (3,031)
State, county, and municipal securities 1  191  (2) —  —  191  (2)
Pooled trust preferred securities issued by banks and insurers 1  —  —  1,034  (169) 1,034  (169)
Small business administration pooled securities 8  34,511  (3,550) 17,246  (4,163) 51,757  (7,713)
Total impaired available for sale securities 173  $ 333,099  $ (35,411) $ 1,062,964  $ (132,268) $ 1,396,063  $ (167,679)
The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis. In addition, management does not believe that any of the securities are impaired due to reasons of credit quality. As a result, the Company did not recognize a provision for credit losses on these investments during the three and nine months ended September 30, 2023 and 2022. 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 September 30, 2023:
•U.S. Government Agency Securities, U.S. Treasury Securities, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities: These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies.
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•State, County and Municipal Securities: This portfolio has 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.
•Pooled Trust Preferred Securities: This portfolio consists of one below investment grade security which is performing. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.

Held to Maturity Securities
The following table summarizes the amortized cost, fair value and allowance for credit losses of held to maturity securities and the corresponding amounts of gross unrealized gains and losses recognized at the dates indicated:
  September 30, 2023 December 31, 2022
  Amortized
Cost		 Gross
Unrealized
Gains		 Gross Unrealized
Losses		 Allowance for credit losses Fair
Value		 Amortized
Cost		 Gross
Unrealized
Gains		 Gross Unrealized
Losses		 Allowance for credit losses Fair
Value
  (Dollars in thousands)
U.S. government agency securities $ 29,961  $ —  $ (1,619) $ —  $ 28,342  $ 31,258  $ —  $ (2,222) $ —  $ 29,036 
U.S. treasury securities 100,693  —  (12,362) —  88,331  100,634  —  (11,755) —  88,879 
Agency mortgage-backed securities 839,945  5  (97,955) —  741,995  898,927  408  (83,383) —  815,952 
Agency collateralized mortgage obligations 490,011  —  (85,867) —  404,144  535,971  —  (77,554) —  458,417 
Single issuer trust preferred securities issued by banks 1,500  —  (165) —  1,335  1,500  8  —  —  1,508 
Small business administration pooled securities 132,169  —  (11,886) —  120,283  136,830  313  (6,225) —  130,918 
Total held to maturity securities $ 1,594,279  $ 5  $ (209,854) $ —  $ 1,384,430  $ 1,705,120  $ 729  $ (181,139) $ —  $ 1,524,710 
Substantially all held to maturity securities held by the Company are guaranteed by the U.S. federal government or other government sponsored agencies and have a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation and therefore the Company did not record a provision for estimated credit losses on any held to maturity securities during the three and nine months ended September 30, 2023 and 2022. Excluded from the table above is accrued interest on held to maturity securities of $4.6 million and $4.4 million as of September 30, 2023 and December 31, 2022, respectively, which is included within other assets on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities during the three and nine months ended September 30, 2023 and 2022. Furthermore, no securities held by the Company were delinquent on contractual payments nor were any securities placed on non-accrual status at September 30, 2023 and December 31, 2022.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of held to maturity securities during the three and nine months ended September 30, 2023 and 2022, and therefore no gains or losses were realized for such periods.

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 September 30, 2023, 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 September 30, 2023 is presented below:
Due in one year or less Due after one year to five years Due after five to ten years Due after ten years Total
Amortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value		 Amortized
Cost		 Fair
Value
(Dollars in thousands)
Available for sale securities
U.S. government agency securities $ —  $ —  $ 166,540  $ 145,530  $ 63,847  $ 53,980  $ —  $ —  $ 230,387  $ 199,510 
U.S. treasury securities 199,926  195,410  674,537  603,477  —  —  —  —  874,463  798,887 
Agency mortgage-backed securities 7,100  7,047  87,234  77,321  95,989  79,094  135,995  111,246  326,318  274,708 
Agency collateralized mortgage obligations —  —  —  —  3,010  2,681  34,149  30,968  37,159  33,649 
State, county, and municipal securities —  —  194  184  —  —  —  —  194  184 
Pooled trust preferred securities issued by banks and insurers —  —  —  —  —  —  1,204  1,043  1,204  1,043 
Small business administration pooled securities —  —  —  —  —  —  54,830  45,763  54,830  45,763 
Total available for sale securities $ 207,026  $ 202,457  $ 928,505  $ 826,512  $ 162,846  $ 135,755  $ 226,178  $ 189,020  $ 1,524,555  $ 1,353,744 
Held to maturity securities
U.S. government agency securities $ —  $ —  $ 29,961  $ 28,342  $ —  $ —  $ —  $ —  $ 29,961  $ 28,342 
U.S. treasury securities —  —  99,701  87,547  992  784  —  —  100,693  88,331 
Agency mortgage-backed securities —  —  303,005  279,374  333,049  280,954  203,891  181,667  839,945  741,995 
Agency collateralized mortgage obligations —  —  43,985  40,115  40,959  35,101  405,067  328,928  490,011  404,144 
Single issuer trust preferred securities issued by banks —  —  1,500  1,335  —  —  —  —  1,500  1,335 
Small business administration pooled securities —  —  —  —  6,305  5,628  125,864  114,655  132,169  120,283 
Total held to maturity securities $ —  $ —  $ 478,152  $ 436,713  $ 381,305  $ 322,467  $ 734,822  $ 625,250  $ 1,594,279  $ 1,384,430 
Total $ 207,026  $ 202,457  $ 1,406,657  $ 1,263,225  $ 544,151  $ 458,222  $ 961,000  $ 814,270  $ 3,118,834  $ 2,738,174 
Included in the table above are $24.7 million of callable securities at September 30, 2023.
The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $1.8 billion and $959.8 million at September 30, 2023 and December 31, 2022, respectively.
At September 30, 2023 and December 31, 2022, 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 3 - 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 September 30, 2023
  (Dollars in thousands)
  Commercial and
Industrial		 Commercial
Real Estate		 Commercial
Construction		 Small
Business		 Residential
Real Estate		       
Home  Equity		 Other Consumer Total
Allowance for credit losses
Beginning balance $ 15,142  $ 78,396  $ 9,038  $ 3,606  $ 21,465  $ 12,433  $ 567  $ 140,647 
Charge-offs —  (5,072) —  (112) —  —  (834) (6,018)
Recoveries 111  —  —  35  —  12  282  440 
Provision for (release of) credit losses 1,681  1,078  (208) 385  1,682  101  781  5,500 
Ending balance (1) $ 16,934  $ 74,402  $ 8,830  $ 3,914  $ 23,147  $ 12,546  $ 796  $ 140,569 
Three Months Ended September 30, 2022
(Dollars in thousands)
Commercial and
Industrial		 Commercial
Real Estate		 Commercial
Construction		 Small
Business		 Residential
Real Estate		 Home  Equity Other Consumer Total
Allowance for credit losses
Beginning balance $ 14,107  $ 83,456  $ 11,710  $ 2,784  $ 19,750  $ 11,740  $ 772  $ 144,319 
Charge-offs —  (62) —  —  —  —  (679) (741)
Recoveries 2  330  —  88  —  65  251  736 
Provision for (release of) credit losses 6,060  (3,688) (291) (248) 852  (154) 469  3,000 
Ending balance (1) $ 20,169  $ 80,036  $ 11,419  $ 2,624  $ 20,602  $ 11,651  $ 812  $ 147,313 
Nine Months Ended September 30, 2023
(Dollars in thousands)
Commercial and
Industrial		 Commercial
Real Estate		 Commercial
Construction		 Small
Business		 Residential
Real Estate		 Home  Equity Other Consumer Total
Allowance for credit losses
Beginning balance $ 27,559  $ 77,799  $ 10,762  $ 2,834  $ 20,973  $ 11,504  $ 988  $ 152,419 
Charge-offs (23,471) (5,072) —  (199) —  —  (1,858) (30,600)
Recoveries 132  —  —  74  —  38  756  1,000 
Provision for (release of) credit losses 12,714  1,675  (1,932) 1,205  2,174  1,004  910  17,750 
Ending balance (1) $ 16,934  $ 74,402  $ 8,830  $ 3,914  $ 23,147  $ 12,546  $ 796  $ 140,569 
  Nine Months Ended September 30, 2022
  (Dollars in thousands)
  Commercial and
Industrial		 Commercial
Real Estate		 Commercial
Construction		 Small
Business		 Residential
Real Estate		       
Home  Equity		 Other Consumer Total
Allowance for credit losses
Beginning balance $ 14,402  $ 83,486  $ 12,316  $ 3,508  $ 14,484  $ 17,986  $ 740  $ 146,922 
Charge-offs —  (62) —  (59) —  (122) (1,749) (1,992)
Recoveries 44  333  —  147  —  105  754  1,383 
Provision for (release of) credit losses 5,723  (3,721) (897) (972) 6,118  (6,318) 1,067  1,000 
Ending balance (1) $ 20,169  $ 80,036  $ 11,419  $ 2,624  $ 20,602  $ 11,651  $ 812  $ 147,313 
(1)Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $58.1 million and $42.7 million as of September 30, 2023 and September 30, 2022, respectively.

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The balance of allowance for credit losses decreased to $140.6 million as of September 30, 2023 compared to $152.4 million at December 31, 2022, driven primarily by outsized charge-offs on two large commercial loans, partially offset by net loan growth during the nine months ended September 30, 2023.
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: Consists 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 accounts receivable, inventory, plant and equipment, real estate, or other business assets. The primary source of repayment is operating cash flow and, secondarily, liquidation of assets.
•Commercial Real Estate: Consists 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 and is inclusive of owner-occupied commercial properties.  Loans are typically written with amortizing payment structures.  Collateral values are determined based upon third party appraisals and evaluations.  Permissible loan to value ratios at origination are governed by Company policy and regulatory guidelines. The primary source of repayment is cash flow from operating leases and rents and, secondarily, liquidation of assets.
•Commercial Construction: Consists of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property.  Project types include residential land development, one-to-four family, condominium, and multi-family home construction, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project.  Collateral values are determined based upon third party appraisals and evaluations.  Permissible loan to value ratios at origination are governed by Company policy and regulatory guidelines.  Repayment sources vary depending upon the type of project and may consist of proceeds from the sale or lease of units, operating cash flows or liquidation of other assets.
•Small Business: Consists 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.  The primary source of repayment is operating cash flows and, secondarily, liquidation of assets.
For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests in the borrowing entities.
Consumer Portfolio
•Residential Real Estate: Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral.  Collateral consists of mortgage liens on one-to-four family residential properties.  Residential mortgage loans also include loans to construct owner-occupied one-to-four family residential properties.
•Home Equity: Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied one-to-four family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. The majority of home equity lines of credit have a variable rate and are billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued interest over a predetermined repayment period, as set forth in the note. Additionally, the Company has the option of renewing each line of credit for additional draw periods.  Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.
•Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as debt consolidation, personal expenses or overdraft protection.  Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.  These loans may be secured or unsecured.
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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 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.

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.
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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:

  September 30, 2023
2023 2022 2021 2020 2019 Prior Revolving Loans Revolving converted to Term Total (1)
  (Dollars in thousands)
Commercial and
industrial
Pass (2) $ 303,838  $ 188,559  $ 94,714  $ 73,366  $ 45,741  $ 116,052  $ 737,335  $ —  $ 1,559,605 
Potential weakness 6,511  2,417  614  10,278  90  132  46,706  —  66,748 
Definite weakness - loss unlikely 1,933  4,707  1,074  132  1,165  806  16,833  —  26,650 
Partial loss probable —  —  —  —  —  —  —  —  — 
Definite loss —  —  —  —  —  —  —  —  — 
Total commercial and industrial $ 312,282  $ 195,683  $ 96,402  $ 83,776  $ 46,996  $ 116,990  $ 800,874  $ —  $ 1,653,003 
Current-period gross write-offs $ —  $ —  $ —  $ —  $ —  $ 34  $ 23,437  $ —  $ 23,471 
Commercial real estate
Pass $ 795,830  $ 1,160,497  $ 1,338,792  $ 1,312,240  $ 610,009  $ 2,188,221  $ 68,496  $ 858  $ 7,474,943 
Potential weakness 62,572  37,695  57,987  14,662  2,945  118,830  —  —  294,691 
Definite weakness - loss unlikely 30,667  27,504  23,568  4,321  19,211  21,325  —  —  126,596 
Partial loss probable —  —  —  —  —  —  —  —  — 
Definite loss —  —  —  —  —  —  —  —  — 
Total commercial real estate $ 889,069  $ 1,225,696  $ 1,420,347  $ 1,331,223  $ 632,165  $ 2,328,376  $ 68,496  $ 858  $ 7,896,230 
Current-period gross write-offs $ —  $ 5,072  $ —  $ —  $ —  $ —  $ —  $ —  $ 5,072 
Commercial construction
Pass $ 146,278  $ 491,098  $ 201,730  $ 9,939  $ 27,304  $ 1,569  $ 17,248  $ —  $ 895,166 
Potential weakness 13,484  —  4,823  —  —  —  —  —  18,307 
Definite weakness - loss unlikely 9,440  26,199  16,330  —  —  —  —  —  51,969 
Partial loss probable —  —  —  —  —  —  —  —  — 
Definite loss —  —  —  —  —  —  —  —  — 
Total commercial construction $ 169,202  $ 517,297  $ 222,883  $ 9,939  $ 27,304  $ 1,569  $ 17,248  $ —  $ 965,442 
Current-period gross write-offs $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Small business
Pass $ 40,551  $ 52,883  $ 40,706  $ 26,759  $ 13,759  $ 23,458  $ 43,759  $ —  $ 241,875 
Potential weakness —  —  —  155  —  186  295  —  636 
Definite weakness - loss unlikely 429  324  126  295  —  615  1,035  —  2,824 
Partial loss probable —  —  —  —  —  —  —  —  — 
Definite loss —  —  —  —  —  —  —  —  — 
Total small business $ 40,980  $ 53,207  $ 40,832  $ 27,209  $ 13,759  $ 24,259  $ 45,089  $ —  $ 245,335 
Current-period gross write-offs $ —  $ —  $ 22  $ 37  $ —  $ —  $ 140  $ —  $ 199 
Residential real estate
Pass $ 391,121  $ 645,593  $ 408,752  $ 186,334  $ 89,911  $ 612,878  $ —  $ —  $ 2,334,589 
Default 219  —  393  135  942  1,824  —  —  3,513 
Total residential real estate $ 391,340  $ 645,593  $ 409,145  $ 186,469  $ 90,853  $ 614,702  $ —  $ —  $ 2,338,102 
Current-period gross write-offs $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
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Home equity
Pass $ 21,729  $ 39,251  $ 56,216  $ 50,724  $ 30,039  $ 126,897  $ 765,079  $ 4,190  $ 1,094,125 
Default —  —  —  —  —  —  1,289  141  1,430 
Total home equity $ 21,729  $ 39,251  $ 56,216  $ 50,724  $ 30,039  $ 126,897  $ 766,368  $ 4,331  $ 1,095,555 
Current-period gross write-offs $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Other consumer (3)
Pass $ 538  $ 320  $ 1,370  $ 912  $ 410  $ 2,154  $ 24,843  $ —  $ 30,547 
Default —  —  —  —  —  19  2  —  21 
Total other consumer $ 538  $ 320  $ 1,370  $ 912  $ 410  $ 2,173  $ 24,845  $ —  $ 30,568 
Current-period gross write-offs $ 1,836  $ —  $ —  $ —  $ —  $ 7  $ 15  $ —  $ 1,858 
Total $ 1,825,140  $ 2,677,047  $ 2,247,195  $ 1,690,252  $ 841,526  $ 3,214,966  $ 1,722,920  $ 5,189  $ 14,224,235 
Total current-period gross write-offs $ 1,836  $ 5,072  $ 22  $ 37  $ —  $ 41  $ 23,592  $ —  $ 30,600 

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September 30, 2022
2022 2021 2020 2019 2018 Prior Revolving Loans Revolving converted to Term Total (1)
(Dollars in thousands)
Commercial and
industrial
Pass (2) $ 292,601  $ 149,588  $ 122,752  $ 67,591  $ 82,911  $ 22,943  $ 759,390  $ 3,362  $ 1,501,138 
Potential weakness 1,540  973  1,038  1,844  3,955  715  6,557  —  16,622 
Definite weakness - loss unlikely 2,485  935  —  39  —  111  27,019  —  30,589 
Partial loss probable —  —  —  —  —  —  —  —  — 
Definite loss —  —  —  —  —  —  —  —  — 
Total commercial and industrial $ 296,626  $ 151,496  $ 123,790  $ 69,474  $ 86,866  $ 23,769  $ 792,966  $ 3,362  $ 1,548,349 
Commercial real estate
Pass $ 922,772  $ 1,467,370  $ 1,265,711  $ 773,102  $ 733,621  $ 1,976,282  $ 47,317  $ 1,070  $ 7,187,245 
Potential weakness 32,579  53,096  41,164  14,147  68,298  205,234  —  —  414,518 
Definite weakness - loss unlikely 26,684  2,224  4,722  2,585  17,928  21,836  —  —  75,979 
Partial loss probable —  —  —  —  —  175  —  —  175 
Definite loss —  —  —  —  —  —  —  —  — 
Total commercial real estate $ 982,035  $ 1,522,690  $ 1,311,597  $ 789,834  $ 819,847  $ 2,203,527  $ 47,317  $ 1,070  $ 7,677,917 
Commercial construction
Pass $ 388,627  $ 392,229  $ 231,336  $ 57,768  $ 26,263  $ 7,844  $ 21,457  $ 632  $ 1,126,156 
Potential weakness 40,631  —  3,387  —  —  —  —  —  44,018 
Definite weakness - loss unlikely 2,138  12,845  —  —  —  —  —  —  14,983 
Partial loss probable —  —  —  —  —  —  —  —  — 
Definite loss —  —  —  —  —  —  —  —  — 
Total commercial construction $ 431,396  $ 405,074  $ 234,723  $ 57,768  $ 26,263  $ 7,844  $ 21,457  $ 632  $ 1,185,157 
Small business
Pass $ 41,923  $ 46,581  $ 31,968  $ 17,536  $ 10,454  $ 20,227  $ 37,455  $ —  $ 206,144 
Potential weakness —  163  394  369  193  129  697  —  1,945 
Definite weakness - loss unlikely 194  —  442  7  20  224  591  —  1,478 
Partial loss probable —  —  —  —  —  —  —  —  — 
Definite loss —  —  —  —  —  —  —  —  — 
Total small business $ 42,117  $ 46,744  $ 32,804  $ 17,912  $ 10,667  $ 20,580  $ 38,743  $ —  $ 209,567 
Residential real estate
Pass $ 557,643  $ 426,721  $ 196,538  $ 95,689  $ 96,828  $ 582,830  $ —  $ —  $ 1,956,249 
Default —  —  676  466  376  1,487  —  —  3,005 
Total residential real estate $ 557,643  $ 426,721  $ 197,214  $ 96,155  $ 97,204  $ 584,317  $ —  $ —  $ 1,959,254 
Home equity
Pass $ 37,298  $ 61,898  $ 56,262  $ 32,761  $ 27,906  $ 124,325  $ 741,952  $ 3,190  $ 1,085,592 
Default —  —  —  122  —  285  1,171  —  1,578 
Total home equity $ 37,298  $ 61,898  $ 56,262  $ 32,883  $ 27,906  $ 124,610  $ 743,123  $ 3,190  $ 1,087,170 
Other consumer (3)
Pass $ 383  $ 2,498  $ 1,969  $ 1,370  $ 380  $ 3,630  $ 22,680  $ —  $ 32,910 
Default —  14  —  —  —  11  1  —  26 
Total other consumer $ 383  $ 2,512  $ 1,969  $ 1,370  $ 380  $ 3,641  $ 22,681  $ —  $ 32,936 
Total $ 2,347,498  $ 2,617,135  $ 1,958,359  $ 1,065,396  $ 1,069,133  $ 2,968,288  $ 1,666,287  $ 8,254  $ 13,700,350 
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(1)Loan origination dates in the tables above reflect the original origination date, or the date of a material modification of a previously originated loan.
(2)Loans originated as part of the Paycheck Protection Program ("PPP") established by the Coronavirus Aid, Relief and Economic Security Act (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 $5.1 million and $11.1 million as of September 30, 2023 and 2022, respectively.
(3)Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances and the associated gross write-offs.
    For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential real estate and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios at the dates indicated below:
September 30
2023		 December 31
2022
Residential real estate portfolio
FICO score (re-scored)(1) 753  753 
LTV (re-valued)(2) 59.4  % 57.0  %
Home equity portfolio
FICO score (re-scored)(1) 770  771 
LTV (re-valued)(2)(3) 43.1  % 41.3  %
(1)The average FICO scores at September 30, 2023 are based upon rescores from September 2023, as available for previously originated loans, or origination score data for loans booked in September 2023.  The average FICO scores at December 31, 2022 were based upon rescores available from December 2022, as available for previously originated loans, or origination score data for loans booked in December 2022.
(2)The combined LTV ratios for September 30, 2023 are based upon updated automated valuations as of August 2023, when available, and/or the most current valuation data available.  The combined LTV ratios for December 31, 2022 were based upon updated automated valuations as of November 2022, 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 September 30, 2023 and December 31, 2022, the Company's estimated reserve for unfunded commitments amounted to $1.5 million and $1.3 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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Table of Contents
The following table shows information regarding nonaccrual loans as of the dates indicated:
Nonaccrual Balances
September 30, 2023 December 31, 2022
With Allowance for Credit Losses Without Allowance for Credit Losses (2) Total With Allowance for Credit Losses Without Allowance for Credit Losses (2) Total (1)
  (Dollars in thousands)
Commercial and industrial $ 2,655  $ 298  $ 2,953  $ 26,395  $ 298  $ 26,693 
Commercial real estate 12,178  11,689  23,867  12,961  2,769  15,730 
Small business 368  4  372  99  5  104 
Residential real estate 8,493  —  8,493  8,479  —  8,479 
Home equity 3,411  —  3,411  3,400  —  3,400 
Other consumer 72  —  72  475  —  475 
Total nonaccrual loans $ 27,177  $ 11,991  $ 39,168  $ 51,809  $ 3,072  $ 54,881 
(1)Nonaccrual balances at December 31, 2022 included $11.5 million of nonaccruing troubled debt restructures ("TDRs").
(2)Nonaccrual balances reported above without an allowance for credit losses are attributable to loans evaluated on an individual basis where it was determined that there was no risk of loss due to sufficient underlying collateral values.
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 nine months ended September 30, 2023 and 2022, except for instances where nonaccrual loans were paid off in excess of the recorded book balance.
The following table shows information regarding foreclosed residential real estate property at the dates indicated:
September 30, 2023 December 31, 2022
(Dollars in thousands)
Foreclosed residential real estate property held by the creditor $ 110  $ — 
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure $ 1,667  $ 1,615 
The following tables show the age analysis of past due financing receivables as of the dates indicated:
  September 30, 2023
  30-59 days 60-89 days 90 days or more Total Past Due   Total
Financing
Receivables		 Amortized Cost
>90 Days
and  Accruing
  Number
of Loans		 Principal
Balance		 Number
of Loans		 Principal
Balance		 Number
of Loans		 Principal
Balance		 Number
of Loans		 Principal
Balance		 Current
  (Dollars in thousands)
Loan Portfolio
Commercial and industrial 1  $ 63  2  $ 527  3  $ 390  6  $ 980  $ 1,652,023  $ 1,653,003  $ — 
Commercial real estate 2  736  1  659  2  11,688  5  13,083  7,883,147  7,896,230  — 
Commercial construction 1  7,499  —  —  —  —  1  7,499  957,943  965,442  — 
Small business 7  91  4  69  11  204  22  364  244,971  245,335  — 
Residential real estate 14  2,405  8  1,446  14  2,067  36  5,918  2,332,184  2,338,102  — 
Home equity 11  919  4  185  17  1,431  32  2,535  1,093,020  1,095,555  — 
Other consumer (1) 409  691  12  42  4  24  425  757  29,811  30,568  3 
Total 445  $ 12,404  31  $ 2,928  51  $ 15,804  527  $ 31,136  $ 14,193,099  $ 14,224,235  $ 3 
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Table of Contents
  December 31, 2022
  30-59 days 60-89 days 90 days or more Total Past Due   Total
Financing
Receivables		 Amortized Cost
>90 Days
and  Accruing
  Number
of Loans		 Principal
Balance		 Number
of Loans		 Principal
Balance		 Number
of Loans		 Principal
Balance		 Number
of Loans		 Principal
Balance		 Current
  (Dollars in thousands)
Loan Portfolio
Commercial and industrial 3  $ 49  1  $ 175  3  $ 23,726  7  $ 23,950  $ 1,611,153  $ 1,635,103  $ — 
Commercial real estate 7  2,052  5  4,971  3  2,977  15  10,000  7,750,230  7,760,230  — 
Commercial construction —  —  —  —  —  —  —  —  1,154,413  1,154,413  — 
Small business 12  111  3  25  3  5  18  141  218,961  219,102  — 
Residential real estate 8  1,654  8  1,105  16  1,725  32  4,484  2,031,040  2,035,524  — 
Home equity 19  1,647  3  201  17  965  39  2,813  1,085,937  1,088,750  — 
Other consumer (1) 432  421  15  83  4  28  451  532  35,021  35,553  — 
Total 481  $ 5,934  35  $ 6,560  46  $ 29,426  562  $ 41,920  $ 13,886,755  $ 13,928,675  $ — 
(1)Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances.
(2)The amount of net deferred costs on originated loans included in the ending balance was $6.1 million and $5.0 million at September 30, 2023 and December 31, 2022, respectively.

Loan Modifications

In the course of resolving nonperforming 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 foreclosure actions. 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 principal forgiveness, interest rate reductions, term extensions, other-than-insignificant payment delays, and/or any combinations thereof. Any loans that are modified are reviewed by the Company to determine whether the modification is the direct result of a borrower experiencing financial difficulty, as the Company adopted the accounting and disclosure requirements for loan modifications made to borrowers experiencing financial difficulty and ceased to recognize TDRs effective January 1, 2023.

Loan modifications made to borrowers experiencing financial difficulty are evaluated on a collective basis with loans sharing similar risk characteristics in accordance with the current expected credit loss ("CECL") methodology. Under previously applicable accounting guidance, the Company determined the amount of allowance for credit losses on TDRs using a discounted cash flow analysis or a fair value of collateral approach if the loan was determined to be individually evaluated. This change in methodology did not have a material impact on the Company's allowance for credit loss estimate.



















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The following tables present the amortized cost basis of loans modified to borrowers experiencing financial difficulty during the periods presented, disaggregated by class of financing receivable and type of modification granted. The amortized cost basis amounts presented in these tables are as of the modification date and, in certain instances, may include multiple modifications of the same loan during the periods presented.

Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023
Term Extension
Amortized Cost Basis % of Total Class of Financing Receivable Amortized Cost Basis % of Total Class of Financing Receivable
Loan Category (Dollars in thousands)
Commercial and industrial $ 7,915  0.48% $ 16,108  0.97%
Commercial real estate 719  0.01% 19,180  0.24%
Commercial construction —  —% 2,369  0.25%
Small business —  —% 105  0.04%
Total $ 8,634  $ 37,762 
Other-Than-Insignificant Payment Delay
Amortized Cost Basis % of Total Class of Financing Receivable Amortized Cost Basis % of Total Class of Financing Receivable
Loan Category (Dollars in thousands)
Commercial and industrial $ —  —% $ 2,805  0.17%
Commercial real estate —  —% 7,013  0.09%
Total $ —  $ 9,818 
Combination - Interest Rate Reduction and Term Extension
Amortized Cost Basis % of Total Class of Financing Receivable Amortized Cost Basis % of Total Class of Financing Receivable
Loan Category (Dollars in thousands)
Small business $ —  —% $ 44  0.02%
Total $ —  $ 44 
Combination - Term Extension and Other-Than-Insignificant Payment Delay
Amortized Cost Basis % of Total Class of Financing Receivable Amortized Cost Basis % of Total Class of Financing Receivable
Loan Category (Dollars in thousands)
Commercial and industrial $ —  —% $ 1,965  0.12%
Commercial real estate —  —% 6,857  0.09%
Total $ —  $ 8,822 

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The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the periods indicated:
Three Months Ended September 30, 2023
Term Extension
Loan Category Financial Effect
Commercial and industrial
Added a weighted-average contractual term of 2 months to the life of the loans
Commercial real estate
Added a weighted-average contractual term of 2.9 years to the life of the loans
Nine Months Ended September 30, 2023
Term Extension
Loan Category Financial Effect
Commercial and industrial
Added a weighted-average contractual term of 2 months to the life of the loans
Commercial real estate
Added a weighted-average contractual term of 1.8 years to the life of the loans
Commercial construction
Added a weighted-average contractual term of 2 months to the life of the loans
Combination - Interest Rate Reduction and Term Extension
Loan Category Financial Effect
Small business
Reduced weighted-average contractual interest rate from 10.00% to 6.50% and added a weighted-average contractual term of 4.3 years to the life of the loan

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the amortized cost and payment status of loans that have been modified in the last 12 months as of September 30, 2023:
Payment Status (Amortized Cost Basis)
Current 30-89 Days Past Due 90+ Days Past Due Nonaccrual Status
(Dollars in thousands)
Loan Type
Commercial and industrial $ 7,409  $ 504  $ —  $ 2,446 
Commercial real estate 16,252  660  —  6,850 
Small business 140  —  —  — 
Total $ 23,801  $ 1,164  $ —  $ 9,296 

The Company considers a loan to have defaulted when it reaches 90 days past due. During the three and nine months ended September 30, 2023, there was one commercial real estate loan that had a payment default and was modified within the previous 12 months as a combination term extension and other-than-insignificant payment delay, which had an amortized cost basis of $6.7 million at September 30, 2022.
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During the nine months ended September 30, 2022 there were no TDRs modified during the previous 12 months that subsequently defaulted.
At September 30, 2023, the Company did not have any additional commitments to lend to borrowers experiencing financial difficulty who were party to a loan modification.
As previously noted, the Company adopted the accounting and disclosure requirements for loan modifications made to borrowers experiencing financial difficulty and ceased to recognize TDRs effective January 1, 2023. As such, the following table and related disclosures show the Company’s total TDRs and other pertinent TDR information as of December 31, 2022 and for the prior applicable periods:
  (Dollars in thousands)
TDRs on accrual status $ 11,278 
TDRs on nonaccrual 11,520 
Total TDRs $ 22,798 
During the three and nine months ended September 30, 2022, one new TDR occurred within the commercial and industrial category and was comprised of an extended maturity modification, with a pre-modification outstanding recorded investment of $68,000 and a post-modification outstanding recorded investment of $67,000.
At December 31, 2022, the Company had additional commitments to lend to borrowers who had been a party to a TDR of $64,000.

NOTE 4 - BORROWINGS

Federal Home Loan Bank Borrowings

During the nine months ended September 30, 2023, the Company began utilizing FHLB advances for certain short-term and long-term borrowing needs, as deemed necessary, which were comprised of the following as of September 30, 2023:

Weighted
Average Effective Rate,
Total Contractual Net of
Outstanding Rate Hedges
(Dollars in thousands)
Overnight Borrowings $ 287,000  5.57  % n/a
1-Month Term 200,000  5.50  % n/a
1-Month Term 400,000  5.51  % 3.87  %
Amortizing 548  1.40  % n/a
Total $ 887,548 

At September 30, 2023 and December 31, 2022, the Company had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB's collateral pledging program. The Company’s FHLB advances are collateralized by a blanket pledge agreement on the Bank’s FHLB stock, certain qualified investment securities, deposits at the FHLB, residential mortgages, and by certain commercial real estate loans held in the Bank’s portfolio. The carrying value of loans pledged as collateral for these borrowings totaled $3.8 billion and $2.7 billion at September 30, 2023 and December 31, 2022, respectively, resulting in available borrowing capacity with the FHLB of $1.8 billion both September 30, 2023 and December 31, 2022 The following table summarizes long-term debt, net of debt issuances costs, at the dates indicated:

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Long-Term Debt

  September 30 December 31
  2023 2022
  (Dollars in thousands)
Junior subordinated debentures
Capital Trust V 51,516  51,514 
  Central Trust I 5,258  5,258 
  Central Trust II 6,083  6,083 
Subordinated debentures 49,957  49,885 
Total long-term debt $ 112,814  $ 112,740 
     
The interest expense on long-term debt was $1.8 million and $5.0 million for the three and nine months ended September 30, 2023, respectively, and $1.2 million and $3.2 million for the three and nine months ended September 30, 2022, respectively.

Junior Subordinated Debentures: The junior subordinated debentures are issued to various trust subsidiaries of the Company. These trusts were formed for the purpose of issuing trust preferred securities, which were then sold in a private placement offering. The proceeds from the sale of the securities and the issuance of common stock by these trusts were invested in these Junior Subordinated Debentures issued by the Company. These trust preferred securities bear interest at a rate of three-month Secured Overnight Financing Rate ("SOFR") (5.41% at September 30, 2023) plus applicable spread.

Information relating to these trust preferred securities at September 30, 2023 is as follows:
Trust Principal Amount Maturity Date Interest Rate Spread All-in Rate
(Dollars in thousands)
Capital Trust V $ 50,000  3/15/2037 1.48% 7.15%
Central Trust I (1) $ 5,100  9/16/2034 2.44% 8.11%
Central Trust II (1) $ 5,900  3/15/2037 1.65% 7.32%
(1)These securities noted above are callable quarterly until maturity.

Subordinated Debentures: On March 14, 2019 the Company issued subordinated debentures with an aggregate principal amount of $50.0 million in a private placement transaction to institutional accredited investors, which remained outstanding at September 30, 2023 and December 31, 2022. The subordinated debentures mature on March 15, 2029. However, with regulatory approval, the Company may redeem the subordinated debentures without penalty at any scheduled payment date on or after March 15, 2024 with 30 days' notice. The subordinated debentures carry a fixed rate of interest of 4.75% through March 15, 2024, after which interest converts to a variable rate of the then current three-month SOFR rate plus 219 basis points.

At September 30, 2023, the Company held no long-term debt scheduled to mature within the next 5 years.


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NOTE 5 - STOCK BASED COMPENSATION
During the nine months ended September 30, 2023, the Company had the following activity related to stock based compensation:
Time Vested Restricted Stock Awards
The Company made the following awards of time vested restricted stock:
Date Shares Granted Plan Grant Date Fair Value Per Share Vesting Period
2/16/2023 77,525  2005 Employee Stock Plan $ 80.65  Ratably over 3 years from grant date
2/16/2023 12,309  2005 Employee Stock Plan $ 80.65  Ratably over 5 years, on each anniversary of February 6, 2023 start date
5/15/2023 1,080  2005 Employee Stock Plan $ 46.21  Ratably over 3 years from grant date
5/23/2023 12,410  2018 Non-Employee Director Stock Plan $ 48.35  Shares vested immediately
5/30/2023 890  2023 Omnibus Incentive Plan (1) $ 45.09  Ratably over 3 years from grant date
9/15/2023 5,270  2023 Omnibus Incentive Plan (1) $ 51.44  Ratably over 5 years from grant date
9/15/2023 3,020  2023 Omnibus Incentive Plan (1) $ 51.44  Ratably over 3 years from grant date
(1)The 2023 Omnibus Incentive Plan was approved by the Company's shareholders on May 18, 2023 and replaces the Company's Second Amended and Restated 2005 Employee Stock Plan.
Performance-Based Restricted Stock Awards
    On February 16, 2023, the Company granted 32,200 performance-based restricted stock awards, representing the maximum number of shares that may be earned under the awards, to certain executive level employees. These performance-based restricted stock awards were issued from the 2005 Employee Stock Plan and were determined to have a grant date fair value per share of $80.65. The number of shares to be vested is contingent upon the Company's attainment of certain performance criteria to be measured at the end of a three year performance period ending December 31, 2025. 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, 2026.
    On March 13, 2023, the performance-based restricted stock awards that were awarded on February 27, 2020 vested at 80% of the maximum target shares awarded, or 12,880 shares, net of forfeitures.

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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 at the dates indicated below for interest rate swaps which qualify as cash flow hedges for accounting purposes:
September 30, 2023
Weighted Average Rate
Notional Amount Average Maturity Current
Rate
Received		 Pay Fixed
Swap Rate		 Fair Value
(in thousands) (in years) (in thousands)
Interest rate swaps on borrowings $ 400,000  2.84 5.32  % 3.67  % $ 10,459 
Current Rate Paid Receive Fixed
Swap Rate
Interest rate swaps on loans 900,000  2.61 5.43  % 2.73  % (46,841)
Current Rate Paid Receive Fixed Swap Rate
Cap - Floor
Interest rate collars on loans 400,000  1.52 5.43  %
3.09% - 2.19%
 (9,353)
Total $ 1,700,000  $ (45,735)
December 31, 2022
Weighted Average Rate
Notional Amount Average Maturity Current Rate Paid Receive Fixed
Swap Rate		 Fair Value
(in thousands) (in years) (in thousands)
Interest rate swaps on loans $ 1,050,000  2.97 4.24  % 2.66  % $ (42,005)
Current Rate Paid Receive Fixed Swap Rate
Cap - Floor
Interest rate collars on loans 400,000  2.27 4.22  %
3.09% - 2.19%
 (10,239)
Total $ 1,450,000  $ (52,244)

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 5.5 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 and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  The Company expects approximately $6.4 million (pre-tax) to be reclassified as an increase to interest income and $28.1 million (pre-tax) to be reclassified as an increase to interest expense, from OCI related to the Company’s cash flow hedges in the twelve months following September 30, 2023.  This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve at September 30, 2023.
The Company had no fair value hedges as of September 30, 2023 or December 31, 2022.
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.
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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 at the dates indicated below for those derivatives not designated as hedging:
    Notional Amount Maturing  
  Number of  Positions 
(1)		 Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value
September 30, 2023
  (Dollars in thousands)
Loan level swaps
Receive fixed, pay variable 283  $ 67,347  $ 248,602  $ 204,413  $ 247,437  $ 987,554  $ 1,755,353  $ (146,746)
Pay fixed, receive variable 283  67,347  248,602  204,413  247,437  987,554  1,755,353  146,649 
Foreign exchange contracts
Buys foreign currency, sells U.S. currency 22  54,498  16,089  —  —  —  70,587  (335)
Buys U.S. currency, sells foreign currency 22  54,498  16,089  —  —  —  70,587  366 
Risk participation agreements
Participation out 17  —  24,322  —  3,666  123,961  151,949  102 
Participation in 7  10,586  —  —  19,078  8,097  37,761  (4)
Notional Amount Maturing
Number of  Positions 
(1)		 Less than 1 year Less than 2 years Less than 3 years Less than 4 years Thereafter Total Fair Value
December 31, 2022
  (Dollars in thousands)
Loan level swaps
Receive fixed, pay variable 283  $ 80,531  $ 96,613  $ 256,924  $ 193,096  $ 1,016,312  $ 1,643,476  $ (118,930)
Pay fixed, receive variable 283  80,531  96,613  256,924  193,096  1,016,312  1,643,476  118,928 
Foreign exchange contracts
Buys foreign currency, sells U.S. currency 49  124,982  13,363  —  —  —  138,345  306 
Buys U.S. currency, sells foreign currency 49  124,982  13,363  —  —  —  138,345  (232)
Risk participation agreements
Participation out 13  2,595  —  24,538  —  95,514  122,647  161 
Participation in 6  27,365  —  —  —  25,849  53,214  (15)
(1)The Company may enter into one dealer swap agreement which offsets multiple commercial borrower swap agreements.
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Mortgage Derivatives
The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that loans may be sold subsequently in the secondary market. Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. These commitments are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with changes in their fair values recorded within mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The fair value of loans held for sale decreased by $28,000 and $194,000 for the three months ended September 30, 2023 and 2022, respectively, and decreased by $31,000 and $620,000 for the nine months ended September 30, 2023 and 2022, 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 on sales of such loans included within mortgage banking income was $333,000 and $229,000 for the three months ended September 30, 2023 and 2022, respectively, and $677,000 and $550,000 for the nine months ended September 30, 2023 and 2022, respectively.
Balance Sheet Offsetting
The Company does not offset fair value amounts recognized for derivative instruments. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be maintained at dealer banks by the Company is monitored and adjusted as necessary.
A daily settlement occurs through the CME for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through the daily clearing agent. As a result, the total fair values of loan level derivative assets and liabilities recognized on the Company's financial statements are not equal and offsetting.

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The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet and the potential effect of netting arrangements on its financial position, at the dates indicated:
  Asset Derivatives (1) Liability Derivatives (2)
Fair Value at Fair Value at Fair Value at Fair Value at
  September 30
2023		 December 31
2022		 September 30
2023		 December 31
2022
  (Dollars in thousands)
Derivatives designated as hedges
Interest rate derivatives $ 10,459  (3) $ —  $ 56,194  (4) $ 52,244  (4)
Derivatives not designated as hedges
Customer Related Positions
Loan level derivatives 146,657  (3) 123,372  (3) 146,754  (4) 123,374  (4)
Foreign exchange contracts 2,050  4,352  2,019  4,278 
Risk participation agreements 102  161  4  15 
Mortgage Derivatives
Interest rate lock commitments 125  43  —  — 
Forward sale loan commitments 94  30  —  — 
Total derivatives not designated as hedges 149,028  127,958  148,777  127,667 
Total 159,487  127,958  204,971  179,911 
Netting Adjustments (5) (74,610) (57,784) 43,694  33,245 
Net Derivatives on the Balance Sheet 84,877  70,174  161,277  146,666 
Financial instruments (6) 12,399  20,019  12,399  20,019 
Cash collateral pledged (received) (34,109) (17,720) —  — 
Net Derivative Amounts $ 38,369  $ 32,435  $ 148,878  $ 126,647 
(1)All asset derivatives are reflected in other assets on the balance sheet.
(2)All liability derivatives are reflected in other liabilities on the balance sheet.
(3)As of September 30, 2023, approximately $405,000 and $3.2 million of accrued interest receivable is included in the fair value of interest rate and loan level derivative assets, respectively. Accrued interest receivable of approximately $2.2 million is included in the fair value of loan level derivative assets at December 31, 2022.
(4)Approximately $2.0 million and $3.2 million of accrued interest payable is included in the fair value of interest rate and loan level derivative liabilities, respectively, at September 30, 2023, in comparison to accrued interest payable of approximately $1.3 million and $2.2 million, respectively, at December 31, 2022.
(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.
(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 Nine Months Ended
September 30 September 30
  2023 2022 2023 2022
  (Dollars in thousands)
Derivatives designated as hedges
Gain (loss) in OCI on derivatives (effective portion), net of tax $ 202  $ (27,144) $ 4,917  $ (52,743)
(Loss) gain reclassified from OCI into interest income or interest expense (effective portion) $ (7,547) $ 407  $ (20,806) $ 8,427 
Derivatives not designated as hedges
Changes in fair value of customer related positions
Other income $ 29  $ 26  $ 399  $ 147 
Other expense (300) (67) (585) (239)
Changes in fair value of mortgage derivatives
Mortgage banking income (6) 41  146  (603)
Total $ (277) $ —  $ (40) $ (695)

    The Company's derivative agreements with institutional counterparties contain various credit-risk related contingent provisions, such as requiring the Company to maintain a well-capitalized capital position. If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions. All derivative instruments with credit-risk contingent features were in a net asset position at September 30, 2023 and December 31, 2022.

    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. In addition, certain derivative contracts executed bilaterally with a dealer counterparty in the over-the-counter market are cleared through a clearinghouse, whereby the clearinghouse becomes the counterparty to the transaction. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote. The Company's exposure relating to institutional counterparties was $157.1 million and $121.2 million at September 30, 2023 and December 31, 2022, respectively. The Company’s exposure relating to customer counterparties was approximately $4,000 and $2.2 million at September 30, 2023 and December 31, 2022, 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 paid if the liability were to be transferred in an orderly market transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When determining fair value, the Company considers pricing information and other inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and other inputs may be reduced for certain instruments, or not available at all. The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another.
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to 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:
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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 were no changes in the valuation techniques used during the nine months ended September 30, 2023.
Securities
Trading and Equity Securities
These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
U.S. Government Agency and U.S. Treasury Securities
Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.
Agency Mortgage-Backed Securities
Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.
Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities
The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
State, County, and Municipal Securities
The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transactions, and yield relationships. These securities are categorized as Level 2.
Single and Pooled Issuer Trust Preferred Securities
The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Loans Held for Sale
The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2.
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Derivative Instruments
Derivatives
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. 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 September 30, 2023 and December 31, 2022, 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, when applicable, 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 at the dates indicated:
    Fair Value Measurements at Reporting Date Using
Balance Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
  September 30, 2023
  (Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities $ 4,476  $ 4,476  $ —  $ — 
Equity securities 21,475  21,475  —  — 
Securities available for sale
U.S. government agency securities 199,510  —  199,510  — 
U.S. treasury securities 798,887  —  798,887  — 
Agency mortgage-backed securities 274,708  —  274,708  — 
Agency collateralized mortgage obligations 33,649  —  33,649  — 
State, county, and municipal securities 184  —  184  — 
Pooled trust preferred securities issued by banks and insurers 1,043  —  1,043  — 
Small business administration pooled securities 45,763  —  45,763  — 
Loans held for sale 3,998  —  3,998  — 
Derivative instruments 159,487  —  159,487  — 
Liabilities
Derivative instruments 204,971  —  204,971  — 
Total recurring fair value measurements $ 1,338,209  $ 25,951  $ 1,312,258  $ — 
Nonrecurring fair value measurements
Assets
Individually assessed collateral dependent loans (1) $ 11,991  $ —  $ —  $ 11,991 
Total nonrecurring fair value measurements $ 11,991  $ —  $ —  $ 11,991 
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    Fair Value Measurements at Reporting Date Using
Balance Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
  December 31, 2022
  (Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities $ 3,888  $ 3,888  $ —  $ — 
Equity securities 21,119  21,119  —  — 
Securities available for sale
U.S. government agency securities 202,300  —  202,300  — 
U.S. treasury securities 791,341  —  791,341  — 
Agency mortgage-backed securities 313,688  —  313,688  — 
Agency collateralized mortgage obligations 38,843  —  38,843  — 
State, county, and municipal securities 191  —  191  — 
Pooled trust preferred securities issued by banks and insurers 1,034  —  1,034  — 
Small business administration pooled securities 51,757  —  51,757  — 
Loans held for sale 2,803  —  2,803  — 
Derivative instruments 127,958  —  127,958  — 
Liabilities
Derivative instruments 179,911  —  179,911  — 
Total recurring fair value measurements, net $ 1,375,011  $ 25,007  $ 1,350,004  $ — 
Nonrecurring fair value measurements
Assets
Individually assessed collateral dependent loans (1) $ 16,092  $ —  $ —  $ 16,092 
Total nonrecurring fair value measurements $ 16,092  $ —  $ —  $ 16,092 
(1) The carrying value of individually assessed collateral dependent loans is based on the lower of amortized cost or fair value of the underlying collateral less costs to sell. The fair value of the underlying collateral is generally determined through independent appraisals, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary.


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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 at the dates indicated:
      Fair Value Measurements at Reporting Date Using
  Carrying
Value		 Fair
Value		 Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
  
 September 30, 2023
  (Dollars in thousands)
Financial assets
Securities held to maturity (a)
U.S. government agency securities $ 29,961  $ 28,342  $ —  $ 28,342  $ — 
U.S. treasury securities 100,693  88,331  —  88,331  — 
Agency mortgage-backed securities 839,945  741,995  —  741,995  — 
Agency collateralized mortgage obligations 490,011  404,144  —  404,144  — 
Single issuer trust preferred securities issued by banks 1,500  1,335  —  1,335  — 
Small business administration pooled securities 132,169  120,283  —  120,283  — 
Loans, net of allowance for credit losses (b) 14,071,675  13,102,058  —  —  13,102,058 
Federal Home Loan Bank stock (c) 43,878  43,878  —  43,878  — 
Cash surrender value of life insurance policies (d) 295,670  295,670  —  295,670  — 
Financial liabilities
Deposit liabilities, other than time deposits (e) $ 13,046,763  $ 13,046,763  $ —  $ 13,046,763  $ — 
Time certificates of deposits (f) 2,012,763  1,990,899  —  1,990,899  — 
Federal Home Loan Bank borrowings (f) 887,548  886,799  —  886,799  — 
Junior subordinated debentures (g) 62,857  57,347  —  57,347  — 
Subordinated debentures (f) 49,957  45,990  —  —  45,990 
 
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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, 2022
  (Dollars in thousands)
Financial assets
Securities held to maturity (a)
U.S. government agency securities $ 31,258  $ 29,036  $ —  $ 29,036  $ — 
U.S. treasury securities 100,634  88,879  —  88,879  — 
Agency mortgage-backed securities 898,927  815,952  —  815,952  — 
Agency collateralized mortgage obligations 535,971  458,417  —  458,417  — 
Single issuer trust preferred securities issued by banks 1,500  1,508  —  1,508  — 
Small business administration pooled securities 136,830  130,918  —  130,918  — 
Loans, net of allowance for credit losses (b) 13,760,164  13,260,873  —  —  13,260,873 
Federal Home Loan Bank stock (c) 5,218  5,218  —  5,218  — 
Cash surrender value of life insurance policies (d) 293,323  293,323  —  293,323  — 
Financial liabilities
Deposit liabilities, other than time deposits (e) $ 14,683,266  $ 14,683,266  $ —  $ 14,683,266  $ — 
Time certificates of deposits (f) 1,195,741  1,164,892  —  1,164,892  — 
Federal Home Loan Bank borrowings (f) 637  563  —  563  — 
Junior subordinated debentures (g) 62,855  60,002  —  60,002  — 
Subordinated debentures (f) 49,885  45,891  —  —  45,891 
(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)FHLB 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 accounts for such revenues in accordance with ASC 606 - Revenue from Contracts with Customers and 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 Nine Months Ended
September 30
2023		 September 30
2022		 September 30
2023		 September 30
2022
(Dollars in thousands)
Deposit account fees (inclusive of cash management fees) $ 5,936  $ 6,261  $ 17,360  $ 17,582 
Interchange fees 3,026  2,833  8,822  8,043 
ATM fees 1,202  1,066  3,140  2,900 
Investment management - wealth management and advisory services 8,674  7,834  25,717  23,563 
Investment management - retail investments and insurance revenue 1,572  602  4,656  2,875 
Merchant processing income 370  412  1,272  1,140 
Credit card income 536  495  1,584  1,341 
Other noninterest income 1,407  1,782  4,412  4,650 
Total noninterest income in-scope of ASC 606 22,723  21,285  66,963  62,094 
Total noninterest income out-of-scope of ASC 606 10,820  6,910  25,579  20,271 
Total noninterest income $ 33,543  $ 28,195  $ 92,542  $ 82,365 

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.

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:
September 30, 2023 December 31, 2022
(Dollars in thousands)
Receivables, included in other assets $ 5,291  $ 5,261 

Investment Management - Retail Investments and Insurance Revenue

The Company offers the sale of mutual fund shares, unit investment trust shares, third party model portfolios, 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.
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To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds.

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
September 30, 2023		 Nine Months Ended
September 30, 2023
Pre-Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount		 Pre-Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount
  (Dollars in thousands)
Change in fair value of securities available for sale $ (10,378) $ 2,457  $ (7,921) $ (3,186) $ 882  $ (2,304)
Less: net security losses reclassified into other noninterest expense —  —  —  —  —  — 
Net change in fair value of securities available for sale (10,378) 2,457  (7,921) (3,186) 882  (2,304)
Change in fair value of cash flow hedges (7,266) 2,043  (5,223) (13,966) 3,927  (10,039)
Less: net cash flow hedge losses reclassified into interest income or interest expense (7,547) 2,122  (5,425) (20,806) 5,850  (14,956)
Net change in fair value of cash flow hedges 281  (79) 202  6,840  (1,923) 4,917 
Amortization of net actuarial gains (137) 38  (99) (411) 115  (296)
Amortization of net prior service costs 10  (3) 7  29  (8) 21 
Net change in other comprehensive income for defined benefit postretirement plans (1) (127) 35  (92) (382) 107  (275)
Total other comprehensive (loss) income $ (10,224) $ 2,413  $ (7,811) $ 3,272  $ (934) $ 2,338 
  Three Months Ended
September 30, 2022		 Nine Months Ended
September 30, 2022
  Pre-Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount		 Pre-Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount
  (Dollars in thousands)
Change in fair value of securities available for sale $ (55,461) $ 12,879  $ (42,582) $ (167,814) $ 38,942  $ (128,872)
Less: net security losses reclassified into other noninterest expense —  —  —  —  —  — 
Net change in fair value of securities available for sale (55,461) 12,879  (42,582) (167,814) 38,942  (128,872)
Change in fair value of cash flow hedges (37,357) 10,505  (26,852) (64,963) 18,277  (46,686)
Less: net cash flow hedge gains reclassified into interest income or interest expense 407  (115) 292  8,427  (2,370) 6,057 
Net change in fair value of cash flow hedges (37,764) 10,620  (27,144) (73,390) 20,647  (52,743)
Amortization of net actuarial losses 159  (45) 114  476  (134) 342 
Amortization of net prior service costs 10  (3) 7  29  (8) 21 
Net change in other comprehensive income for defined benefit postretirement plans (1) 169  (48) 121  505  (142) 363 
Total other comprehensive loss $ (93,056) $ 23,451  $ (69,605) $ (240,699) $ 59,447  $ (181,252)

(1)The amortization of prior service costs is included in the computation of net periodic pension cost as disclosed in Note 13 - Employee Benefit Plans within the Notes to the Consolidated Financial Statements included in Item 8 of the Company's 2022 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 (Loss) on Cash Flow Hedge Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss)
(Dollars in thousands)
2023
Beginning balance: January 1, 2023 $ (128,657) $ (36,630) $ 2,203  $ (163,084)
Net change in other comprehensive income (loss) (2,304) 4,917  (275) 2,338 
Ending balance: September 30, 2023 $ (130,961) $ (31,713) $ 1,928  $ (160,746)
  2022
Beginning balance: January 1, 2022 $ (9,667) $ 14,137  $ (2,287) $ 2,183 
Net change in other comprehensive income (loss) (128,872) (52,743) 363  (181,252)
Ending balance: September 30, 2022 $ (138,539) $ (38,606) $ (1,924) $ (179,069)


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:
September 30, 2023 December 31, 2022
  (Dollars in thousands)
Commitments to extend credit $ 4,651,504  $ 4,566,041 
Loan exposures sold with recourse 156,142  167,274 
Standby letters of credit 24,093  24,941 
Deferred standby letter of credit fees 206  168 
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Lease Commitments
The Company leases office and parking space, space for ATM locations, and certain branch locations under noncancellable operating leases. Several of these leases contain renewal options to extend lease terms for a period of 1 to 20 years.
There has been no significant change in the future minimum lease payments payable by the Company since December 31, 2022. See the Company's 2022 Form 10-K for information regarding leases and other commitments.
Other Contingencies
At September 30, 2023, 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 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, 2022, filed with the Securities and Exchange Commission (the "2022 Form 10-K").

Cautionary Statement Regarding Forward-Looking Statements

    This Quarterly Report on Form 10-Q (this "Report"), in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by forward-looking terminology such as “should,” “could,” “will,” “may,” “expect,” “believe,” “forecast,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” “estimate,” “intend,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the “Risk Factors” section of the 2022 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;
•the effects of inflationary pressures, labor market shortages and supply chain issues;
•the instability or volatility in financial markets and unfavorable general economic or business conditions, globally, nationally or regionally, whether caused by geopolitical concerns, including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas and the possible expansion of such conflicts, recent disruptions in the banking industry, or other factors;
•unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;
•adverse changes or volatility in the local real estate market;
•adverse changes in asset quality and any unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;
•acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;
•additional regulatory oversight and related compliance costs;
•changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
•higher than expected tax expense, including as a result of failure to comply with general tax laws and changes in tax laws;
•changes in market interest rates for interest earning assets and/or interest bearing liabilities;
•increased competition in the Company’s market areas;
•adverse weather, changes in climate, natural disasters, and geopolitical concerns;
•the emergence of widespread health emergencies or pandemics, any further resurgences or variants of the "COVID-19 virus", actions taken by governmental authorities in response thereto, other public health crises or man-made events, and their impact on the Company's local economies or the Company's operations;
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•a deterioration in the conditions of the securities markets;
•a deterioration of the credit rating for U.S. long-term sovereign debt, or uncertainties surrounding the federal budget;
•inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
•electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
•adverse changes in consumer spending and savings habits;
•the effect of laws and regulations regarding the financial services industry;
•changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business, including any such changes in laws and regulations as a result of recent disruptions in the banking industry, and the associated costs of such changes;
•the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions;
•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;
•cyber security attacks or intrusions that could adversely impact our businesses; and
•other unexpected material adverse changes in our operations or earnings.

    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
September 30
2023		 June 30
2023		 March 31
2023		 December 31
2022		 September 30
2022
  (Dollars in thousands, except per share data)
Financial condition data
Securities $ 2,973,974  $ 3,023,072  $ 3,109,950  $ 3,129,281  $ 3,147,123 
Loans 14,224,235  14,139,911  13,947,952  13,928,675  13,700,350 
Allowance for credit losses (140,569) (140,647) (159,131) (152,419) (147,313)
Goodwill and other intangible assets 1,004,897  1,006,609  1,008,325  1,010,140  1,012,006 
Total assets 19,368,109  19,400,931  19,442,402  19,294,174  19,703,269 
Total deposits 15,059,526  15,248,051  15,272,172  15,879,007  16,338,994 
Total borrowings 1,000,362  901,269  992,393  113,377  113,360 
Stockholders’ equity 2,885,408  2,854,914  2,830,909  2,886,701  2,817,201 
Nonperforming loans 39,171  45,702  56,235  54,881  56,017 
Nonperforming assets 39,281  45,812  56,235  54,881  56,017 
Income statement
Interest income $ 202,928  $ 198,693  $ 186,935  $ 184,127  $ 169,971 
Interest expense 53,048  46,147  27,937  15,772  7,370 
Net interest income 149,880  152,546  158,998  168,355  162,601 
Provision for credit losses 5,500  5,000  7,250  5,500  3,000 
Noninterest income 33,543  30,757  28,242  32,302  28,195 
Noninterest expenses 97,782  95,555  98,661  94,872  92,728 
Net income 60,808  62,644  61,247  77,043  71,897 
Per share data
Net income—basic $ 1.38  $ 1.42  $ 1.36  $ 1.69  $ 1.57 
Net income—diluted 1.38  1.42  1.36  1.69  1.57 
Cash dividends declared 0.55  0.55  0.55  0.55  0.51 
Book value per share 65.37  64.69  64.17  63.25  61.73 
Tangible book value per share (1) 42.60  41.88  41.31  41.12  39.56 
Performance ratios
Return on average assets 1.25  % 1.29  % 1.30  % 1.56  % 1.43  %
Return on average common equity 8.35  % 8.78  % 8.63  % 10.70  % 9.90  %
Net interest margin (on a fully tax equivalent basis) 3.47  % 3.54  % 3.79  % 3.85  % 3.64  %
Dividend payout ratio 39.92  % 38.87  % 40.99  % 30.21  % 32.78  %
Asset Quality Ratios
Nonperforming loans as a percent of gross loans 0.28  % 0.32  % 0.40  % 0.39  % 0.41  %
Nonperforming assets as a percent of total assets 0.20  % 0.24  % 0.29  % 0.28  % 0.28  %
Allowance for credit losses as a percent of total loans 0.99  % 0.99  % 1.14  % 1.09  % 1.08  %
Allowance for credit losses as a percent of nonperforming loans 358.86  % 307.75  % 282.98  % 277.73  % 262.98  %
Capital ratios
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Equity to assets 14.90  % 14.72  % 14.56  % 14.96  % 14.30  %
Tangible equity to tangible assets (1) 10.24  % 10.05  % 9.89  % 10.26  % 9.66  %
Tier 1 leverage capital ratio 11.12  % 10.85  % 10.78  % 10.99  % 10.51  %
Common equity tier 1 capital ratio 14.41  % 14.06  % 13.83  % 14.33  % 13.98  %
Tier 1 risk-based capital ratio 14.41  % 14.06  % 13.83  % 14.33  % 13.98  %
Total risk-based capital ratio 16.12  % 15.76  % 15.66  % 16.11  % 15.71  %

(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 focuses on organic growth, but will also consider growth through acquisition. Any potential acquisition opportunities are evaluated for the potential to provide a satisfactory financial return as well as other criteria (ease of integration, synergies, geographical location).

Third Quarter 2023 Results
    
Net income for the three months ended September 30, 2023 was $60.8 million, or $1.38 on a diluted earnings per share basis, as compared to $71.9 million, or $1.57 on a diluted earnings per share basis, for the three months ended September 30, 2022, representing decreases of 15.4% and 12.1%, respectively, as the third quarter of 2023 reflected solid overall business activity amidst a challenging environment, including the following key drivers:

•Disciplined loan growth;
•Seasonal deposit declines; stable product mix;
•Margin compression of 7 basis points;
•Solid fee income growth;
•Nonperforming asset decrease; stable asset quality;
•Prudent expense management; 53.3% efficiency ratio;
•$0.72 tangible book value per share growth; and
•Robust capital levels; $100.0 million share repurchase authorization


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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. While the Company employs a longer term strategy that typically emphasizes loan growth commensurate with overall economic growth, changes over the five quarter period reflect a decline in total interest-earning assets, driven primarily by decreases in cash balances commensurate with deposit balance reductions. The following table summarizes the Company's interest-earning assets as of the periods indicated:

2721

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

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Funding and Net Interest Margin

    The Company's overall sources of funding reflect strong business and retail deposit growth with a management strategy of relying upon core deposit growth to substantially fund loans. Total borrowings increased by $887.0 million at September 30, 2023 as compared to December 31, 2022, primarily in response to deposit balance reductions and preemptive measures to bolster on-balance sheet liquidity in response to the high deposit risk environment experienced across the banking industry during 2023. The following chart shows sources of funding and percentage of core deposits to total deposits for the trailing five quarters:

3723
The Company's ratio of core deposits to total deposits decreased over the first three quarters of 2023, primarily attributable to core deposit outflows in conjunction with existing deposit balances shifting into higher cost time deposits.

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    The following table shows the net interest margin and cost of deposits trends for the trailing five quarters:
3841



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 trends in the components of noninterest income over the past five quarters:

4120




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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 (calculated by dividing noninterest expense by the sum of noninterest income and net interest income) over the past five quarters:

4720


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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. Capital is primarily impacted by earnings retention, dividends and opportunistic share repurchases. The following chart shows the Company's book value and tangible book value per share over the past five quarters:

5105
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

    The Company declared a quarterly cash dividend of $0.55 per share for the third quarter of 2023, representing an increase of 7.8% from the 2022 third quarter dividend rate of $0.51.

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

These non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. The Company’s non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies.
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    The following table summarizes adjustments for noncore items for the periods indicated below and shows the reconciliation of non-GAAP measures:
  Nine Months Ended September 30
  Net Income Diluted
Earnings Per Share
  2023 2022 2023 2022
  (Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP) $ 184,699  $ 186,770  $ 4.16  $ 4.00 
Non-GAAP adjustments
Noninterest expense components
Add: merger and acquisition expenses —  7,100  —  0.15 
Noncore increases to income before taxes —  7,100  —  0.15 
Net tax benefit associated with noncore items (1) —  (1,995) (0.04)
Noncore increases to net income —  5,105  —  0.11 
Operating net income (Non-GAAP) $ 184,699  $ 191,875  $ 4.16  $ 4.11 
(1)The net tax benefit associated with noncore items is determined by assessing whether each noncore item is included or excluded from net taxable income and applying the Company's combined marginal tax rate to only those items included in net taxable income.


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    The following table summarizes the calculation of tangible common equity to tangible assets ratio and tangible book value per share and shows the reconciliation of non-GAAP measures:
September 30
2023		 June 30
2023		 March 31
2023		 December 31
2022		 September 30
2022
(Dollars in thousands, except per share data)
Tangible common equity
Stockholders' equity (GAAP) $ 2,885,408  $ 2,854,914  $ 2,830,909  $ 2,886,701  $ 2,817,201  (a)
Less: Goodwill and other intangibles 1,004,897  1,006,609  1,008,325  1,010,140  1,012,006 
Tangible common equity (Non-GAAP) 1,880,511  1,848,305  1,822,584  1,876,561  1,805,195  (b)
Tangible assets
Assets (GAAP) 19,368,109  19,400,931  19,442,402  19,294,174  19,703,269  (c)
Less: Goodwill and other intangibles 1,004,897  1,006,609  1,008,325  1,010,140  1,012,006 
Tangible assets (Non-GAAP) $ 18,363,212  $ 18,394,322  $ 18,434,077  $ 18,284,034  $ 18,691,263  (d)
Common shares 44,141,973  44,130,901  44,114,827  45,641,238  45,634,626  (e)
Common equity to assets ratio (GAAP) 14.90  % 14.72  % 14.56  % 14.96  % 14.30  % (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) 10.24  % 10.05  % 9.89  % 10.26  % 9.66  % (b/d)
Book value per share (GAAP) $ 65.37  $ 64.69  $ 64.17  $ 63.25  $ 61.73  (a/e)
Tangible book value per share (Non-GAAP) $ 42.60  $ 41.88  $ 41.31  $ 41.12  $ 39.56  (b/e)

Critical Accounting Estimates

Critical accounting policies are defined as those that are reflective of significant management judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Certain estimates associated with these policies inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. These critical accounting estimates are defined as estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on financial condition or results of operations.
There have been no material changes in critical accounting estimates during the first nine months of 2023. Refer to "Critical Accounting Estimates" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2022 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 decreased by $155.3 million, or 5.0%, at September 30, 2023 as compared to December 31, 2022, driven primarily by paydowns, calls, and maturities. As a result, the Company's ratio of securities to total assets decreased to 15.4% at September 30, 2023 compared to 16.2% at December 31, 2022. 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 2 “Securities” within the Notes to 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 either selling them in the secondary market or holding them in the Company's residential real estate portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are found to be not accurate in all material respects. The Company incurred no material losses related to residential mortgage repurchases during the three and nine months ended September 30, 2023 and 2022, respectively.

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    The following table shows the total residential real estate loans closed and the breakdown of amounts held in portfolio or sold (or held for sale) in the secondary market during the periods indicated:
Table 1 - Closed Residential Real Estate Loans
  Three Months Ended September 30 Nine Months Ended September 30
  2023 2022 2023 2022
  (Dollars in thousands)
Held in portfolio $ 147,079  $ 165,065  $ 395,915  $ 571,115 
Sold or held for sale in the secondary market 25,029  21,325  54,520  77,309 
Total closed loans $ 172,108  $ 186,390  $ 450,435  $ 648,424 



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

Table 2 - Residential Mortgage Loan Sales
Three Months Ended September 30 Nine Months Ended September 30
2023 2022 2023 2022
(Dollars in thousands)
Sold with servicing rights released $ 27,579  $ 18,206  $ 53,293  $ 94,006 
Sold with servicing rights retained (1) —  182  —  863 
Total loans sold $ 27,579  $ 18,388  $ 53,293  $ 94,869 
(1)All loans sold with servicing rights retained during the three and nine months ended September 30, 2022 were sold without recourse.
    When a loan is sold, the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneously with the sale of the loan, or the Company may opt to sell the loan and retain the servicing. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the Consolidated Balance Sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was $304.7 million, $327.5 million and $336.2 million at September 30, 2023, December 31, 2022, and September 30, 2022, 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 September 30 Nine Months Ended September 30
  2023 2022 2023 2022
  (Dollars in thousands)
Balance at beginning of period $ 2,772  $ 2,993  $ 2,947  $ 2,627 
Additions —  2  —  8 
Amortization (111) (153) (375) (510)
Change in valuation allowance 124  103  213  820 
Balance at end of period $ 2,785  $ 2,945  $ 2,785  $ 2,945 
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 September 30, 2023 increased by $295.6 million, or 2.1% (2.8% on an annualized basis), when compared to December 31, 2022. The commercial portfolio decreased by $8.8 million, or 0.1% during the nine months ended September 30, 2023, reflecting reduced closing activity compared to prior years. On the consumer side, the vast majority of residential real estate originations were retained on the balance sheet during the nine months ended September 30, 2023, resulting in growth of $302.6 million, or 14.9%, within the residential portfolio, as compared to December 31, 2022.

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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 September 30, 2023:
1353
(1)Included in the total commercial real estate balance are $1.4 billion, or 15.3%, of owner occupied commercial real estate loans.

(Dollars in thousands)
Average loan size $ 1,618 
Largest individual commercial real estate mortgage outstanding $ 62,156 
Commercial real estate nonperforming loans/commercial real estate loans 0.27  %


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    Management considers the Company’s commercial and industrial portfolio to be well-diversified with loans to various types of industries. The following pie chart shows the diversification of the commercial and industrial portfolio as of September 30, 2023:
330
(Dollars in thousands)
Average loan size (excluding floor plan tranches) $ 418 
Largest individual commercial and industrial loan outstanding $ 37,650 
Commercial and industrial nonperforming loans/commercial and industrial loans 0.18  %

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    The Company's consumer portfolio primarily consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area. The Company also provides home equity loans and lines of credit that may be made as a fixed-rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home. Additionally, the Company makes loans for other personal needs. Other consumer loans primarily consist of installment loans and overdraft protections. The residential real estate, home equity and other consumer portfolios totaled $3.5 billion at September 30, 2023, as noted below:
1082

(Dollars in thousands)
Average loan size $ 109 
Largest individual consumer loan outstanding $ 5,031 
Consumer nonperforming loans/consumer loans 0.35  %

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.
Delinquency     The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations.  The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame.  Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date).  Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment.  Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period.
Nonaccrual Loans As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income.
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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.

Loan Modifications 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. 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 term extensions, interest rates, other than insignificant payment delays and/or a combination thereof. These actions are 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. All loan restructurings are reviewed by the Company to identify if a borrower is deemed to be experiencing financial difficulty at time of the restructuring.

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.
    Purchased Credit Deteriorated Loans    Purchased Credit Deteriorated ("PCD") loans are acquired loans which have shown a more-than-insignificant deterioration in credit quality since origination. PCD loans are recorded at amortized cost with an allowance for credit losses recorded upon purchase.
Nonperforming Assets     Nonperforming assets are typically comprised of nonperforming loans and other real estate owned ("OREO"). Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still accruing interest.

OREO consists of real estate properties, which have primarily served as collateral to secure loans, that are controlled or owned by the Bank. These properties are recorded at fair value less estimated costs to sell at the date control is established, resulting in a new cost basis. The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) of the foreclosed asset is charged to the allowance for credit losses. Subsequent declines in the fair value of the foreclosed asset below the new cost basis are recorded through the use of a valuation allowance. Subsequent increases in the fair value are recorded as reductions in the valuation allowance, but not below zero. All costs incurred thereafter in maintaining the property are generally charged to noninterest expense. In the event the real estate is utilized as a rental property, net rental income and expenses are recorded as incurred within noninterest expense.

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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
September 30
2023		 December 31
2022		 September 30
2022
  (Dollars in thousands)
Loans accounted for on a nonaccrual basis
Commercial and industrial $ 2,953  $ 26,693  $ 27,393 
Commercial real estate 23,867  15,730  15,982 
Small business 372  104  50 
Residential real estate 8,493  8,479  8,891 
Home equity 3,411  3,400  3,485 
Other consumer 72  475  216 
Total (1) $ 39,168  $ 54,881  $ 56,017 
Loans past due 90 days or more but still accruing
Other consumer 3  —  — 
Total $ 3  $ —  $ — 
Total nonperforming loans $ 39,171  $ 54,881  $ 56,017 
Other real estate owned 110  —  — 
Total nonperforming assets (1) $ 39,281  $ 54,881  $ 56,017 
Nonperforming loans as a percent of gross loans 0.28  % 0.39  % 0.41  %
Nonperforming assets as a percent of total assets 0.20  % 0.28  % 0.28  %

(1)Inclusive of troubled debt restructurings ("TDRs") on nonaccrual status of $11.5 million at December 31, 2022, and $1.5 million at September 30, 2022, in accordance with previously applicable accounting guidance.

    The following table summarizes the changes in nonperforming assets for the periods indicated:
Table 5 - Activity in Nonperforming Assets
Three Months Ended Nine Months Ended
September 30
2023		 September 30
2022		 September 30
2023		 September 30
2022
(Dollars in thousands)
Nonperforming assets beginning balance $ 45,812  $ 55,915  $ 54,881  $ 27,820 
New to nonperforming 3,455  30,650  26,889  67,226 
Loans charged-off (6,018) (741) (30,600) (1,992)
Loans paid-off (2,915) (29,450) (8,814) (33,174)
Loans restored to performing status (1,428) (366) (3,460) (3,806)
Other 375  9  385  (57)
Nonperforming assets ending balance $ 39,281  $ 56,017  $ 39,281  $ 56,017 

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.
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The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which is a reversion to the Company's historical long-run average for a period of six months. 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.
Management's forecast anticipates that the Federal Reserve has finished tightening rates and will begin easing rates gradually in mid-2024, that the 10-year treasury yield will decline from recent highs and ease slightly until 2025, that the labor market will begin to weaken throughout 2024, that recent U.S. bank failures are not symptomatic of a serious broader problem in the financial system, that a decline in the commercial real estate price index will continue until 2025, and that home sales are expected to remain low reflecting a lack of inventory and high interest rates. Additionally, the allowance for credit losses is qualitatively adjusted on a quarterly basis in order to ensure coverage for relationships that are deemed to be more at risk within certain industries, specific collateral types, or other specific characteristics that may be highly impacted by the current economic environment.

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The balance of allowance for credit losses decreased to $140.6 million as of September 30, 2023 compared to $152.4 million at December 31, 2022, driven primarily by outsized charge-offs on two large commercial loans, as shown in the table below, partially offset by net loan growth during the nine months ended September 30, 2023.
    
The following table summarizes the ratio of net charge-offs to average loans outstanding within each major loan category for the periods presented:

Table 6 - Summary Net Charge-Offs/(Recoveries) to Average Loans Outstanding
Net Charge-Offs/(Recoveries) Average Loans Outstanding Ratio of Annualized Net Charge-Offs/(Recoveries) to Average Loans Net Charge-Offs (Recoveries) Average Loans Outstanding Ratio of Annualized Net Charge-Offs/(Recoveries) to Average Loans
(Dollars in thousands)
Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023
Commercial and industrial (1) $ (111) $ 1,682,000  (0.03) % $ 23,339  $ 1,662,459  1.88  %
Commercial real estate 5,072  7,823,525  0.26  % 5,072  7,800,173  0.09  %
Commercial construction —  1,007,814  —  % —  1,061,847  —  %
Small business 77  240,782  0.13  % 125  231,299  0.07  %
Residential real estate —  2,276,882  —  % —  2,163,130  —  %
Home equity (12) 1,093,479  —  % (38) 1,092,304  —  %
Other consumer 552  30,775  7.12  % 1,102  30,885  4.77  %
Total $ 5,578  $ 14,155,257  0.16  % $ 29,600  $ 14,042,097  0.28  %
(1)The increase in net charge-offs during the nine months ended September 30, 2023 was driven primarily by the full charge-off of a single large nonperforming commercial and industrial credit.
Net Charge-Offs/ (Recoveries) Average Loans Outstanding Ratio of Annualized Net Charge-Offs/(Recoveries) to Average Loans Net Charge-Offs (Recoveries) Average Loans Outstanding Ratio of Annualized Net Charge-Offs/(Recoveries) to Average Loans
(Dollars in thousands)
Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022
Commercial and industrial $ (2) $ 1,520,924  —  % $ (44) $ 1,531,421  —  %
Commercial real estate (268) 7,760,470  (0.01) % (271) 7,832,534  —  %
Commercial construction —  1,157,876  —  % —  1,180,509  —  %
Small business (88) 207,546  (0.17) % (88) 202,151  (0.06) %
Residential real estate —  1,909,066  —  % —  1,774,355  —  %
Home equity (65) 1,076,040  (0.02) % 17  1,051,921  —  %
Other consumer 429  31,883  5.34  % 995  31,092  4.28  %
Total $ 6  $ 13,663,805  —  % $ 609  $ 13,603,983  0.01  %


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For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for credit losses is made to each loan category using the analytical techniques and estimation methods described in this Report. While these amounts represent management’s best estimate of credit losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio.

The following table sets forth the allocation of the allowance for credit losses by loan category at the dates indicated:
Table 7 - Summary of Allocation of Allowance for Credit Losses
 
  September 30
2023		 December 31
2022
  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) $ 16,934  11.6  % $ 27,559  11.7  %
Commercial real estate 74,402  55.6  % 77,799  55.7  %
Commercial construction 8,830  6.8  % 10,762  8.3  %
Small business 3,914  1.7  % 2,834  1.6  %
Residential real estate 23,147  16.4  % 20,973  14.6  %
Home equity 12,546  7.7  % 11,504  7.8  %
Other consumer 796  0.2  % 988  0.3  %
Total allowance for credit losses $ 140,569  100.0  % $ 152,419  100.0  %
(1)Total loans in this category are inclusive of $5.1 million and $9.1 million in loans at September 30, 2023 and December 31, 2022, respectively, which were originated as part of the Paycheck Protection Program ("PPP") established by the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). These loans have been excluded from the credit loss calculations as these loans are 100% guaranteed by the U.S. Government.
To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of the Bank’s collateral, and the strength of co-makers or guarantors. When available information confirms that specific loans or portions thereof are uncollectible, these amounts are promptly charged-off against the allowance for credit losses and any recoveries of such previously charged-off amounts are credited to the allowance.
Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral.
For additional information regarding the Company’s allowance for credit losses, see Note 3 "Loans, Allowance for Credit Losses and Credit Quality" within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report.
Federal Home Loan Bank Stock The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding as a tool to manage liquidity and interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company either purchases additional FHLB stock or is subject to redemption of FHLB stock proportional to the volume of funding received. The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. The Company's investments in FHLB of Boston stock increased to $43.9 million at September 30, 2023 compared to $5.2 million at December 31, 2022, driven by a net increase in FHLB borrowings of $886.9 million during the nine months of 2023.
    Goodwill and Other Intangible Assets Goodwill and other intangible assets were $1.0 billion at both September 30, 2023 and December 31, 2022.
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The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted. In light of the turmoil experienced in the U.S. banking industry during the first half of 2023, and the related industry wide impact on bank stock valuations, the Company performed interim goodwill impairment tests as of March 31, 2023 and June 30, 2023, both of which determined that goodwill was not impaired. During the third quarter of 2023, the Company performed its annual goodwill impairment testing and determined that the Company's goodwill was not impaired as of September 30, 2023. Other intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. There were no other events or changes during the third quarter of 2023 that indicated impairment of goodwill and other intangible assets.
Cash Surrender Value of Life Insurance Policies The Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans. The cash surrender value of life insurance policies was $295.7 million at September 30, 2023 compared to $293.3 million at December 31, 2022, representing an increase of $2.3 million, or 0.8%, primarily due to income earned on the policies.
The Company recorded tax exempt income from life insurance policies of $2.0 million and $1.9 million for the three months ended September 30, 2023 and 2022, respectively, and $5.8 million and $5.5 million for the nine months ended September 30, 2023 and 2022, respectively.
The Company recorded gains on life insurance benefits of $1.9 million and $477,000 for the three months ended September 30, 2023 and 2022, respectively, and $2.1 million and $600,000 for the nine months ended September 30, 2023 and 2022, respectively.
Deposits As of September 30, 2023, total deposits were $15.1 billion, representing an $819.5 million, or 5.2%, decrease from December 31, 2022, primarily reflective of industry wide dislocations occurring during the first quarter of 2023 and seasonal declines in municipal accounts during the third quarter of 2023, coupled with an overall competitive rate environment and a redeployment of customer excess liquidity due to inflationary and other factors. The total cost of deposits was 1.07% and 0.15% for the three months ended September 30, 2023 and 2022, respectively, and 0.84% and 0.08% for the nine months ended September 30, 2023 and 2022, respectively. The increase in the cost of deposits was a result of the higher rate environment driven by the Federal Reserve's rate hikes over the latter half of 2022 and 2023.
The Company's deposits are comprised primarily of core deposits (demand, savings, and money market), as well as time deposits. Core deposits represented 80.5% and 87.9% of total deposits as of September 30, 2023 and December 31, 2022, respectively, with the 2023 decrease driven primarily by core deposit outflows in conjunction with growth in higher yielding time deposits. In addition, the Company may also utilize brokered deposit sources, as needed, with balances of $100.9 million and $102.6 million outstanding at September 30, 2023 and December 31, 2022, respectively.
The Company's deposit accounts are insured to the maximum extent permitted by the Deposit Insurance Fund which is administered by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC offers insurance coverage on deposits up to the federally insured limit of $250,000. The Company participates in the IntraFi Network, allowing it to provide easy access to multi-million dollar FDIC deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities. This channel allows the Company to access a reciprocal deposit exchange that can be used to benefit customers seeking increased FDIC insurance protection, and amounted to $920.4 million and $653.6 million at September 30, 2023 and December 31, 2022, respectively. The estimated balance of uninsured deposits at the Bank were $4.7 billion and $5.4 billion as of September 30, 2023 and December 31, 2022, respectively. Included in these amounts are $700.4 million and $605.0 million of collateralized deposits, which offer additional protection.
Borrowings  The Company's borrowings consist of both short-term and long-term borrowings and provide the Bank with one of its primary sources of funding. Maintaining available borrowing capacity provides the Bank with a contingent source of liquidity. Borrowings were $1.0 billion at September 30, 2023, representing an increase of $887.0 million as compared to December 31, 2022, driven primarily by deposit balance reductions.
Additionally, the Company had $8.5 billion and $4.4 billion of assets pledged as collateral against borrowings at September 30, 2023 and December 31, 2022, respectively. These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston and pledged amounts were proactively increased by management during the first quarter of 2023 as part of the Company's strategy to bolster off-balance sheet liquidity in response to recent industry events.

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Capital Resources On September 21, 2023 the Company’s Board of Directors declared a cash dividend of $0.55 per share to shareholders of record as of the close of business on October 2, 2023. This dividend was paid on October 6, 2023.
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 September 30, 2023 and December 31, 2022, 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 8 - Company and Bank's Capital Amounts and Ratios 
  Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt
Corrective Action Provisions
  Amount Ratio Amount   Ratio Amount   Ratio
  September 30, 2023
  (Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets) $ 2,301,466  16.12  % $ 1,142,219  ≥ 8.0  % N/A N/A
Common equity tier 1 capital
(to risk weighted assets)		 2,057,638  14.41  % 642,498  ≥ 4.5  % N/A N/A
Tier 1 capital (to risk weighted assets) 2,057,638  14.41  % 856,664  ≥ 6.0  % N/A N/A
Tier 1 capital (to average assets) 2,057,638  11.12  % 740,271  ≥ 4.0  % N/A N/A
Bank
Total capital (to risk weighted assets) $ 2,172,447  15.21  % $ 1,142,972  ≥ 8.0  % $ 1,428,715  ≥ 10.0  %
Common equity tier 1 capital
(to risk weighted assets)		 2,039,576  14.28  % 642,922  ≥ 4.5  % 928,665  ≥ 6.5  %
Tier 1 capital (to risk weighted assets) 2,039,576  14.28  % 857,229  ≥ 6.0  % 1,142,972  ≥ 8.0  %
Tier 1 capital (to average assets) 2,039,576  11.01  % 740,852  ≥ 4.0  % 926,066  ≥ 5.0  %
  December 31, 2022
(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets) $ 2,311,824  16.11  % $ 1,148,328  ≥ 8.0  % N/A N/A
Common equity tier 1 capital
(to risk weighted assets)		 2,057,099  14.33  % 645,935  ≥ 4.5  % N/A N/A
Tier 1 capital (to risk weighted assets) 2,057,099  14.33  % 861,246  ≥ 6.0  % N/A N/A
Tier 1 capital (to average assets) 2,057,099  10.99  % 748,775  ≥ 4.0  % N/A N/A
Bank
Total capital (to risk weighted assets) $ 2,162,752  15.07  % $ 1,148,329  ≥ 8.0  % $ 1,435,411  ≥ 10.0  %
Common equity tier 1 capital
(to risk weighted assets)		 2,018,912  14.07  % 645,935  ≥ 4.5  % 933,017  ≥ 6.5  %
Tier 1 capital (to risk weighted assets) 2,018,912  14.07  % 861,247  ≥ 6.0  % 1,148,329  ≥ 8.0  %
Tier 1 capital (to average assets) 2,018,912  10.78  % 748,828  ≥ 4.0  % 936,036  ≥ 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 September 30, 2023, the Company's capital levels exceeded the buffer.
Dividend Restrictions The Company is subject to capital and dividend requirements administered by federal and state bank regulators, and the Company will not declare a cash dividend that would cause the Company to violate regulatory requirements. The Company is, in the ordinary course of business, dependent upon the receipt of cash dividends from the Bank to pay cash dividends to shareholders and satisfy the Company’s other cash needs. Federal and state law impose limits on capital distributions by the Bank. Massachusetts-chartered banks, such as the Bank, may declare from net profits cash dividends not more frequently than quarterly and non-cash dividends at any time. No dividends may be declared, credited, or paid if the Bank’s capital stock would be impaired. Massachusetts Bank Commissioner approval is required if the total of all dividends declared by the Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. Dividends paid by the Bank to the Company totaled $56.0 million and $64.5 million for the three months ended September 30, 2023 and 2022, respectively and totaled $178.2 million and $142.7 million for the nine months ended September 30, 2023 and 2022, respectively.
Trust Preferred Securities In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities has not been included in the consolidated financial statements of the Company. At each of September 30, 2023 and December 31, 2022 there were $61.0 million in trust preferred securities included in the Tier 2 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.
Investment Management The following table presents total assets under administration and number of accounts held by the Rockland Trust Investment Management Group at the following dates:
Table 9 - Assets Under Administration
September 30
2023		 December 31
2022		 September 30
2022
(Dollars in thousands)
Assets under administration $ 6,120,462  $ 5,792,857  $ 5,091,592 
Number of trust, fiduciary and agency accounts 6,545  6,459  6,487 
The Company's Investment Management Group provides investment management and trust services to individuals, institutions, small businesses, and charitable institutions.

Accounts maintained by the Investment Management Group consist of managed and nonmanaged accounts. Managed accounts are those for which the Bank is responsible for administration and investment management and/or investment advice, while nonmanaged accounts are those for which the Bank acts solely as a custodian or directed trustee. The Bank receives fees dependent upon the level and type of service(s) provided. The Investment Management Group generated gross fee revenues of $8.7 million and $7.8 million for the three months ended September 30, 2023 and 2022, respectively and $25.7 million and $23.6 million for the nine months ended September 30, 2023 and 2022, respectively. Total assets under administration at September 30, 2023 were $6.1 billion, including $562.1 million of investment solutions designed by Rockland Trust that are administered and executed through its agreement with LPL Financial ("LPL"), compared to $5.8 billion and $603.7 million, respectively, at December 31, 2022. The Company also has a subsidiary that is a registered investment advisor, Bright Rock Capital Management, LLC ("Bright Rock"), which provides institutional quality investment management services to both institutional and high net worth clients. Included in these same amounts as of September 30, 2023 and December 31, 2022 are assets under administration of $418.5 million and $390.1 million, respectively, related to Bright Rock.
The administration of trust and fiduciary accounts is monitored by the Trust Committee of the Bank’s Board of Directors. The Trust Committee has delegated administrative responsibilities to three committees, one for investments, one for administration, and one for operations, all of which are comprised of Investment Management Group officers who meet no less than quarterly.
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The Bank has an agreement with LPL and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., to offer the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance. Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base. These same agents are also approved and appointed with various other Broker General Agents for the purposes of processing insurance solutions for clients. Retail investments and insurance revenue was $1.6 million and $601,000 for the three months ended September 30, 2023 and 2022, respectively, and $4.7 million and $2.9 million for the nine months ended September 30, 2023 and 2022, respectively.
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RESULTS OF OPERATIONS
    The following table provides a summary of results of operations for the three and nine months ended September 30, 2023 and 2022:
Table 10 - Summary of Results of Operations
 
  Three Months Ended September 30 Nine Months Ended September 30
  2023 2022 2023 2022
  (Dollars in thousands, except per share data)
Net income $ 60,808  $ 71,897  $ 184,699  $ 186,770 
Diluted earnings per share $ 1.38  $ 1.57  $ 4.16  $ 4.00 
Return on average assets 1.25  % 1.43  % 1.28  % 1.25  %
Return on average equity 8.35  % 9.90  % 8.58  % 8.51  %
Net interest margin 3.47  % 3.64  % 3.60  % 3.33  %

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 third quarter of 2023 was $151.0 million, representing a decrease of $12.6 million, or 7.7%, when compared to the third quarter of 2022, as deposit cost increases outpaced asset repricing. For the nine months ended September 30, 2023, the net interest income on a FTE basis was $464.8 million, representing an increase of $16.9 million, or 3.8%, when compared to the nine months ended September 30, 2022. The year-over-year increase in net interest income was primarily attributable to the positive impact of asset repricing in the rising rate environment, partially offset by higher funding costs from elevated deposit pricing as well as increased borrowings assumed by the Company during the nine months ended September 30, 2023.
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The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and nine months ended September 30, 2023 and 2022. Nontaxable income from loans and securities is presented on a FTE basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing income tax rate that would have been paid if the income had been fully taxable.
Table 11 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date
  Three Months Ended September 30
  2023 2022
  Average
Balance		 Interest
Earned/
Paid		 Yield/Rate Average
Balance		 Interest
Earned/
Paid		 Yield/Rate
  (Dollars in thousands)
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short term investments $ 89,449  $ 905  4.01  % $ 1,156,143  $ 6,519  2.24  %
Securities
Securities - trading 4,546  —  —  % 3,730  —  —  %
Securities - taxable investments 3,000,736  14,817  1.96  % 3,024,802  13,243  1.74  %
Securities - nontaxable investments (1) 188  1  2.11  % 196  1  2.02  %
Total securities $ 3,005,470  $ 14,818  1.96  % $ 3,028,728  $ 13,244  1.73  %
Loans held for sale 4,072  60  5.85  % 4,263  51  4.75  %
Loans (2)
Commercial and industrial (1) 1,682,000  30,739  7.25  % 1,520,924  19,289  5.03  %
Commercial real estate (1) 7,823,525  94,861  4.81  % 7,760,470  85,284  4.36  %
Commercial construction 1,007,814  16,829  6.62  % 1,157,876  14,875  5.10  %
Small business 240,782  3,752  6.18  % 207,546  2,819  5.39  %
Total commercial 10,754,121  146,181  5.39  % 10,646,816  122,267  4.56  %
Residential real estate 2,276,882  23,197  4.04  % 1,909,066  16,533  3.44  %
Home equity 1,093,479  18,313  6.64  % 1,076,040  11,869  4.38  %
Total consumer real estate 3,370,361  41,510  4.89  % 2,985,106  28,402  3.77  %
Other consumer 30,775  608  7.84  % 31,883  523  6.51  %
Total loans $ 14,155,257  $ 188,299  5.28  % $ 13,663,805  $ 151,192  4.39  %
Total interest-earning assets $ 17,254,248  $ 204,082  4.69  % $ 17,852,939  $ 171,006  3.80  %
Cash and due from banks 184,003  192,003 
Federal Home Loan Bank stock 38,252  5,745 
Other assets 1,859,099  1,854,870 
Total assets $ 19,335,602  $ 19,905,557 
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 5,393,209  $ 11,860  0.87  % $ 6,224,690  $ 2,110  0.13  %
Money market 2,945,450  13,709  1.85  % 3,459,212  3,025  0.35  %
Time deposits 1,860,440  15,144  3.23  % 1,246,841  974  0.31  %
Total interest-bearing deposits $ 10,199,099  $ 40,713  1.58  % $ 10,930,743  $ 6,109  0.22  %
Borrowings
Federal Home Loan Bank borrowings $ 869,646  $ 10,568  4.82  % $ 12,876  $ 55  1.69  %
Junior subordinated debentures 62,857  1,150  7.26  % 62,854  589  3.72  %
Subordinated debentures 49,944  617  4.90  % 49,847  617  4.91  %
Total borrowings $ 982,447  $ 12,335  4.98  % $ 125,577  $ 1,261  3.98  %
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Total interest-bearing liabilities $ 11,181,546  $ 53,048  1.88  % $ 11,056,320  $ 7,370  0.26  %
Noninterest bearing demand deposits 4,883,009  5,641,742 
Other liabilities 381,483  325,507 
Total liabilities $ 16,446,038  $ 17,023,569 
Stockholders' equity 2,889,564  2,881,988 
Total liabilities and stockholders' equity $ 19,335,602  $ 19,905,557 
Net interest income (1) $ 151,034  $ 163,636 
Interest rate spread (3) 2.81  % 3.54  %
Net interest margin (4) 3.47  % 3.64  %
Supplemental information
Total deposits, including demand deposits $ 15,082,108  $ 40,713  $ 16,572,485  $ 6,109 
Cost of total deposits 1.07  % 0.15  %
Total funding liabilities, including demand deposits $ 16,064,555  $ 53,048  $ 16,698,062  $ 7,370 
Cost of total funding liabilities 1.31  % 0.18  %

(1)The total amount of adjustment to interest income and yield on a FTE basis was $1.2 million and $1.0 million for the three months ended September 30, 2023 and 2022, respectively.
(2)Includes average nonaccruing loans.
(3)Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(4)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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Table 12 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date
  Nine Months Ended September 30
  2023 2022
  Average
Balance		 Interest
Earned/
Paid		 Yield/
Rate		 Average
Balance		 Interest
Earned/
Paid		 Yield/
Rate
  (Dollars in thousands)
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short-term investments $ 144,558  $ 4,882  4.52  % $ 1,477,117  $ 10,222  0.93  %
Securities
Securities - trading 4,377  —  —  % 3,775  —  —  %
Securities - taxable investments 3,062,745  45,707  2.00  % 2,881,203  34,567  1.60  %
Securities - nontaxable investments (1) 191  5  3.50  % 198  5  3.38  %
Total securities $ 3,067,313  $ 45,712  1.99  % $ 2,885,176  $ 34,572  1.60  %
Loans held for sale 3,180  133  5.59  % 5,841  150  3.43  %
Loans (2)
Commercial and industrial (1) 1,662,459  86,762  6.98  % 1,531,421  53,816  4.70  %
Commercial real estate (1) 7,800,173  276,255  4.74  % 7,832,534  238,085  4.06  %
Commercial construction 1,061,847  50,508  6.36  % 1,180,509  40,599  4.60  %
Small business 231,299  10,472  6.05  % 202,151  7,891  5.22  %
Total commercial 10,755,778  423,997  5.27  % 10,746,615  340,391  4.23  %
Residential real estate 2,163,130  63,498  3.92  % 1,774,355  45,109  3.40  %
Home equity 1,092,304  51,951  6.36  % 1,051,921  29,709  3.78  %
Total consumer real estate 3,255,434  115,449  4.74  % 2,826,276  74,818  3.54  %
Other consumer 30,885  1,751  7.58  % 31,092  1,519  6.53  %
Total loans $ 14,042,097  $ 541,197  5.15  % $ 13,603,983  $ 416,728  4.10  %
Total interest-earning assets $ 17,257,148  $ 591,924  4.59  % $ 17,972,117  $ 461,672  3.43  %
Cash and due from banks 181,380  184,754 
Federal Home Loan Bank stock 32,615  7,780 
Other assets 1,843,564  1,853,818 
Total assets $ 19,314,707  $ 20,018,469 
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 5,545,951  $ 28,758  0.69  % $ 6,224,317  $ 3,418  0.07  %
Money market 3,079,942  36,433  1.58  % 3,517,459  4,191  0.16  %
Time deposits 1,596,889  30,106  2.52  % 1,355,861  2,718  0.27  %
Total interest-bearing deposits $ 10,222,782  $ 95,297  1.25  % $ 11,097,637  $ 10,327  0.12  %
Borrowings
Federal Home Loan Bank borrowings $ 747,640  $ 26,788  4.79  % $ 21,361  $ 311  1.95  %
Long-term borrowings —  —  —  % 2,988  31  1.39  %
Junior subordinated debentures 62,856  3,195  6.80  % 62,854  1,298  2.76  %
Subordinated debentures 49,921  1,852  4.96  % 49,824  1,852  4.97  %
Total borrowings $ 860,417  $ 31,835  4.95  % $ 137,027  $ 3,492  3.41  %
Total interest-bearing liabilities $ 11,083,199  $ 127,132  1.53  % $ 11,234,664  $ 13,819  0.16  %
Noninterest bearing demand deposits 4,990,869  5,544,476 
Other liabilities 363,989  303,308 
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Total liabilities $ 16,438,057  $ 17,082,448 
Stockholders' equity 2,876,650  2,936,021 
Total liabilities and stockholders' equity $ 19,314,707  $ 20,018,469 
Net interest income (1) $ 464,792  $ 447,853 
Interest rate spread (3) 3.06  % 3.27  %
Net interest margin (4) 3.60  % 3.33  %
Supplemental information
Total deposit, including demand deposits $ 15,213,651  $ 95,297  $ 16,642,113  $ 10,327 
Cost of total deposits 0.84  % 0.08  %
Total funding liabilities, including demand deposits $ 16,074,068  $ 127,132  $ 16,779,140  $ 13,819 
Cost of total funding liabilities 1.06  % 0.11  %

(1)The total amount of adjustment to present interest income and yield on a FTE basis was $3.4 million and $3.0 million for the nine months ended September 30, 2023 and 2022, 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 13 - Volume Rate Analysis
Three Months Ended September 30 Nine Months Ended September 30
2023 Compared To 2022 2023 Compared To 2022
Change
Due to
Rate 		Change
Due to
Volume		 Total Change Change
Due to
Rate 		Change
Due to
Volume		 Total Change
  (Dollars in thousands)
Income on interest-earning assets
Interest earning deposits, federal funds sold and short term investments $ 401  $ (6,015) $ (5,614) $ 3,882  $ (9,222) $ (5,340)
Securities
Securities - taxable investments 1,679  (105) 1,574  8,962  2,178  11,140 
Securities - nontaxable investments (1) —  —  —  —  —  — 
Total securities 1,574  11,140 
Loans held for sale 11  (2) 9  51  (68) (17)
Loans
Commercial and industrial (1) 9,407  2,043  11,450  28,341  4,605  32,946 
Commercial real estate (1) 8,884  693  9,577  39,154  (984) 38,170 
Commercial construction 3,882  (1,928) 1,954  13,990  (4,081) 9,909 
Small business 482  451  933  1,443  1,138  2,581 
Total commercial 23,914  83,606 
Residential real estate 3,479  3,185  6,664  8,505  9,884  18,389 
Home equity 6,252  192  6,444  21,101  1,141  22,242 
Total consumer real estate 13,108  40,631 
Other consumer 103  (18) 85  242  (10) 232 
Total loans (1)(2) 37,107  124,469 
Total income of interest-earning assets $ 33,076  $ 130,252 
Expense of interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 10,032  $ (282) $ 9,750  $ 25,713  $ (373) $ 25,340 
Money market 11,133  (449) 10,684  32,763  (521) 32,242 
Time certificates of deposits 13,691  479  14,170  26,905  483  27,388 
Total interest bearing deposits 34,604  84,970 
Borrowings
Federal Home Loan Bank borrowings 6,853  3,660  10,513  15,903  10,574  26,477 
Long-term borrowings —  —  —  —  (31) (31)
Junior subordinated debentures 561  —  561  1,897  —  1,897 
Subordinated debentures (1) 1  —  (4) 4  — 
Total borrowings 11,074  28,343 
Total expense of interest-bearing liabilities 45,678  113,313 
Change in net interest income $ (12,602) $ 16,939 
 
(1)Reflects income determined on a FTE basis. See footnote (1) to Tables 11 and 12 in this Report for the related adjustments.
(2)Loans include portfolio loans and nonaccrual loans; however, unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.

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Provision For Credit Losses The provision for credit losses represents the charge to expense that is required to maintain an appropriate level of allowance for credit losses. The Company recorded a provision for credit loss of $5.5 million and $17.8 million for the three and nine months ended September 30, 2023, respectively, as compared to $3.0 million provision for the three months ended September 30, 2022 and $1.0 million for the nine months ended September 30, 2022. The provision for credit losses in 2023 was driven primarily by outsized charge-offs on two large commercial loans as well as net loan growth during the nine months ended September 30, 2023. The Company’s allowance for credit losses as a percentage of total loans, was 0.99%, 1.09%, and 1.08% at September 30, 2023, December 31, 2022, and September 30, 2022, respectively. Refer to Note 3 "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 14 - Noninterest Income
Three Months Ended
  September 30 Change
  2023 2022 Amount %
  (Dollars in thousands)
Deposit account fees $ 5,936  $ 6,261  $ (325) (5.19) %
Interchange and ATM fees 4,808  4,331  477  11.01  %
Investment management 10,246  8,436  1,810  21.46  %
Mortgage banking income 739  585  154  26.32  %
Increase in cash surrender value of life insurance policies 1,983  1,883  100  5.31  %
Gain on life insurance benefits 1,924  477  1,447  303.35  %
Loan level derivative income 842  471  371  78.77  %
Other noninterest income 7,065  5,751  1,314  22.85  %
Total $ 33,543  $ 28,195  $ 5,348  18.97  %
Nine Months Ended
  September 30 Change
  2023 2022 Amount %
(Dollars in thousands)  
Deposit account fees $ 17,360  $ 17,582  $ (222) (1.26) %
Interchange and ATM fees 13,470  11,967  1,503  12.56  %
Investment management 30,373  26,438  3,935  14.88  %
Mortgage banking income 1,717  2,989  (1,272) (42.56) %
Increase in cash surrender value of life insurance policies 5,777  5,549  228  4.11  %
Gain on life insurance benefits 2,111  600  1,511  251.83  %
Loan level derivative income 2,525  1,511  1,014  67.11  %
Other noninterest income 19,209  15,729  3,480  22.12  %
Total $ 92,542  $ 82,365  $ 10,177  12.36  %

The primary reasons for the variances in the noninterest income categories shown in the preceding table include:
•Deposit account fees decreased during the three and nine months ended September 30, 2023, as compared to the same prior year periods, driven primarily by reduced overdraft fees stemming from the Company's policy changes that went into effect in March 2023. These reductions were partially offset by increased cash management fees during both the three and none months ended September 30, 2023, as compared to the same prior year periods.
•Interchange and ATM fees for the three and nine months ended September 30, 2023 increased as compared to the same prior year periods due primarily to higher transaction volumes.
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•Investment management income increased driven primarily by higher levels of assets under administration, which increased by $1.0 billion, or 20.2%, to $6.1 billion at September 30, 2023 as compared to $5.1 billion at September 30, 2022, as well as strong retail and insurance commission income during the first nine months of 2023 as compared to the prior year.
•Mortgage banking income increased for the three months ended September 30, 2023 as compared to the same prior year quarter, due to slightly higher saleable volumes, but decreased $1.3 million, or 42.6%, for the nine months ended September 30, 2023 in comparison to the same prior year period, primarily reflecting overall reduced saleable volumes as a result of the rising interest rate environment experienced throughout the first nine months of 2023.
•Loan level derivative income increased for the three and nine months ended September 30, 2023 in comparison to the same prior year periods due to higher customer demand.
•Other noninterest income increased for the three and nine months ended September 30, 2023, primarily attributable to increased FHLB dividend income, loan fees, and discounted purchases of Massachusetts historical tax credits. The nine months ended September 30, 2023 also reflected increased unrealized gains on equity securities, rental income from equipment leases, and credit card fee income as compared to the same prior year period.
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Noninterest Expense The following table sets forth information regarding non-interest expense for the periods shown:
Table 15 - Noninterest Expense
  Three Months Ended
September 30 Change
  2023 2022 Amount %
  (Dollars in thousands)  
Salaries and employee benefits $ 54,797  $ 52,708  $ 2,089  3.96  %
Occupancy and equipment expenses 12,321  12,316  5  0.04  %
Data processing & facilities management 2,404  2,259  145  6.42  %
Software maintenance 3,324  2,497  827  33.12  %
FDIC assessment 2,727  1,677  1,050  62.61  %
Debit card expense 2,319  1,936  383  19.78  %
Consulting expense 2,753  2,547  206  8.09  %
Amortization of intangible assets 1,712  1,898  (186) (9.80) %
Other noninterest expenses 15,425  14,890  535  3.59  %
Total $ 97,782  $ 92,728  $ 5,054  5.45  %
Nine Months Ended
  September 30 Change
  2023 2022 Amount %
  (Dollars in thousands)  
Salaries and employee benefits $ 165,747  $ 150,957  $ 14,790  9.80  %
Occupancy and equipment expenses 37,528  37,255  273  0.73  %
Data processing & facilities management 7,461  6,878  583  8.48  %
Software maintenance 9,407  7,706  1,701  22.07  %
FDIC assessment 8,011  5,225  2,786  53.32  %
Debit card expense 6,707  5,562  1,145  20.59  %
Consulting expense 6,765  7,057  (292) (4.14) %
Amortization of intangible assets 5,243  5,801  (558) (9.62) %
Merger and acquisition expenses —  7,100  (7,100) (100.00) %
Other noninterest expenses 45,129  45,249  (120) (0.27) %
Total $ 291,998  $ 278,790  $ 13,208  4.74  %

The primary reasons for the variances in the noninterest expense categories shown in the preceding table include:
•The increase in salaries and employee benefits was primarily attributable to increases in general salaries, medical insurance, severance, equity compensation, and payroll taxes, partially offset by decreases in incentive compensation. The nine months ended September 30, 2023 also reflect non-recurring CEO transition related expenses incurred during the first quarter of 2023.
•Occupancy and equipment expenses increased for the nine months ended September 30, 2023, driven primarily by increased utilities costs and rent on leased properties. The increase for the nine months ended September 30, 2023 was partially offset by reduced snow removal costs as compared to the same prior year period.
•Software maintenance increased primarily due to the Company's continued investment in its technology infrastructure.
•FDIC assessment increased primarily due to increased assessment rates in the current year.
•Debit card expense increased due to higher processing fees driven by increased volume.
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•Consulting expense increased for the three months ended September 30, 2023, and decreased for the nine months ended September 30, 2023, as compared to the same respective prior year periods due primarily to the timing of strategic initiatives.
•The Company incurred merger and acquisition costs related to the Meridian acquisition of $7.1 million during the first quarter of 2022, primarily related to lease terminations associated with exited branch locations, along with additional integration costs and professional fees. No such costs were incurred during the nine months ended September 30, 2023.
•Other noninterest expense increased for the three months ended September 30, 2023, as compared to the same prior year period, primarily due to increases in advertising costs and losses on sales of fixed assets. Other noninterest expense decreased slightly for the nine months ended September 30, 2023, driven primarily by reduced unrealized losses on equity securities and telecommunications costs, partially offset by increased expenses related to marketing and public relations, internet banking, and examinations and audits.

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 16 - Tax Provision and Applicable Tax Rates
Three Months Ended Nine Months Ended
  September 30 September 30
  2023 2022 2023 2022
  (Dollars in thousands)
Combined federal and state income tax provision $ 19,333  $ 23,171  $ 59,519  $ 60,699 
Effective income tax rate 24.12  % 24.37  % 24.37  % 24.53  %
Blended statutory tax rate 27.85  % 27.11  % 27.85  % 27.11  %

The Company’s effective tax rate in 2023 is consistent with the year ago period. The effective tax rates in the table above are lower than the blended statutory tax rates due to the impact of discrete items, including tax benefits related to low income housing tax credits and equity compensation, as well as certain tax preference assets such as life insurance policies, tax exempt bonds, and federal tax credits.

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 2040, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships is $212.8 million, of which $159.3 million had been funded as of September 30, 2023. It is expected that the limited partnership investments will generate a net tax benefit of approximately $3.9 million for the fiscal year 2023 and a total of $26.4 million over the remaining life of the investments from the combination of the tax credits and operating losses.
Risk Management

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

The Company has implemented the “three lines of defense” enterprise risk management model. The first line of defense are the executives in charge of business units, operational areas, and corporate functions who, sometimes assisted by management committees, teams, and working groups, own and manage risks. The second line of defense monitors and provides risk management advice across all risk domains, and is comprised of the enterprise risk department, with oversight from the Chief Risk Officer. The third line of defense is independent assurance performed by the Chief Internal Auditor, who reports to the Audit Committee of the Company's Board of Directors, and by the Company's internal audit department.
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The Board of Directors, with the assistance of its Risk Committee, oversees management’s enterprise risk management practices. As risks must be taken to create value, the Board of Directors has approved a Risk Appetite Statement that defines the acceptable residual risk tolerances for the Company and the nine major risk types identified as having the potential to create significant adverse impacts on the Company, such as financial losses, reputational damage, legal or regulatory actions, failure to achieve strategic objectives, diminished customer experience, and/or cultural erosion. The nine major risk categories identified by the Company and addressed in the Risk Appetite Statement are strategic and emerging risk, culture risk, credit risk, liquidity risk, interest rate risk, operational risk, reputation risk, compliance risk, and technology risk, each of which is discussed below.

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

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

Credit Risk   Credit risk is the risk arising from the failure of a borrower or a counterparty to a contract to make payments as agreed, and includes the risks arising from inadequate collateral and mismanagement of loan concentrations. While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses that 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 3, “Loans, Allowance for Credit Losses and Credit Quality” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report.

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

The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities. The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Interest rates, economic conditions, and competitive factors greatly influence deposit levels.

The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which is an analysis of the relationship between liquid assets plus available FHLB funding, less short-term liabilities relative to total assets, was within policy limits at September 30, 2023. The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings. An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure. Other factors affecting the Total Basic Surplus/Deficit include FHLB collateral requirements, securities portfolio changes, and the mix of deposits.

The Company prioritizes core deposits as a primary funding source and continues to maintain a variety of available liquidity sources, including FHLB advances, Federal Reserve borrowing capacity, and repurchase agreement lines. These funding sources serve as a contingent source of liquidity and, when profitable lending and investment opportunities exist, the Company may access them to provide the liquidity needed to grow the balance sheet. The amount and type of assets that the Company has available to pledge affects the Company's FHLB and Federal Reserve borrowing capacity. For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a pledged commercial loan may increase borrowing capacity in a lower amount. The Company’s lending decisions, therefore, can also affect its liquidity position.
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The Company may also have the ability to raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into repurchase agreements or acquire brokered deposits at its discretion. The availability and cost of equity or debt on an unsecured basis is dependent on many factors, including the Company’s financial position, the market environment, and the Company’s credit rating. The Company monitors the factors that could affect its ability to raise liquidity through these channels.

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

Table 17 - Liquidity Sources
  September 30, 2023 December 31, 2022
  Outstanding Additional
Borrowing
Capacity		 Outstanding Additional
Borrowing  Capacity
  (Dollars in thousands)
Federal Home Loan Bank of Boston (1) $ 887,548  $ 1,788,554  $ 637  $ 1,808,729 
Federal Reserve Bank of Boston (2) —  3,074,338  —  1,210,451 
Unpledged Securities —  1,187,590  —  2,144,235 
Line of Credit —  85,000  —  85,000 
Junior subordinated debentures (3) 62,857  —  62,855  — 
Subordinated debt (3) 49,957  —  49,885  — 
Reciprocal deposits (3) 920,372  —  653,638  — 
Brokered deposits (3) 100,889  —  102,643  — 
$ 2,021,623  $ 6,135,482  $ 869,658  $ 5,248,415 
 
(1)Loans with a carrying value of $3.8 billion and $2.7 billion at September 30, 2023 and December 31, 2022, respectively, were pledged to the FHLB of Boston.
(2)Loans with a carrying value of $4.7 billion and $1.7 billion at September 30, 2023 and December 31, 2022, respectively, were pledged to the Federal Reserve Bank of Boston.
(3)The additional borrowing capacity has not been assessed for these categories.

In addition to customary operational liquidity practices, the Board of Directors and management recognize the need to establish reasonable guidelines to manage a heightened liquidity risk environment. Catalysts for elevated liquidity risk can be Company-specific issues and/or systemic industry-wide events. Management is therefore responsible for instituting systems and controls designed to provide advanced detection of potentially significant funding shortages, establishing methods for assessing and monitoring risk levels, and instituting responses that may alleviate or circumvent a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework to detect potential liquidity problems and appropriately address them in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force to monitor the potential for a liquidity crisis and execute an appropriate response.

In response to the banking industry turmoil experienced earlier this year, the Company has been operating under the parameters of its Liquidity Contingency Plan, which resulted in various immediate action items taken during the first quarter. From a liquidity management perspective, the Company proactively borrowed under its existing FHLB capacity to increase current cash on hand, while also pledging additional assets to increase overall borrowing capacity. On an ongoing basis, the Company continues to monitor both on and off balance sheet liquidity sources to understand vulnerabilities through the application of various stress testing scenarios and other analyses.

    
Market and Interest Rate Risk  Market and Interest rate risk is the risk arising from changes in interest rates and the value of investments due to market conditions or other external factors or events. Interest rate risk includes market risk.

Interest rate risk is the sensitivity of income to changes in interest rates. Interest rate changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest rate risk arises directly from the Company’s core banking activities. In addition to directly affecting 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.
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Management strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons. The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary within limits management deems prudent, with off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.

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

Management has been proactive in managing the Company's interest rate risk position with the intention of achieving a more neutral position, reflecting the general uncertainty of future rate changes. The Company runs several scenarios to quantify and effectively assist in managing interest rate risk, including instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary given the interest rate environment. The results of those scenarios are summarized in the following table:
Table 18 - Interest Rate Sensitivity
September 30
  2023 2022
Year 1 Year 1
Parallel rate shocks (basis points)
-300 (3.4) % (15.2) %
-200 (1.9) % (9.8) %
-100 (0.8) % (3.4) %
+100 0.2  % 2.4  %
+200 0.2  % 4.0  %
+300 0.7  % 6.4  %
+400 1.2  % 8.7  %
Gradual rate shifts (basis points)
-200 over 12 months (0.7) % (3.9) %
-100 over 12 months (0.3) % (1.5) %
+200 over 12 months 0.2  % 2.3  %
+400 over 24 months 0.2  % 2.3  %

The results depicted in the table above are dependent on material assumptions, such as prepayment rates, decay rates, pricing decisions on loans and deposits, and other factors, which management believes are reasonable. These assumptions may be impacted by customer preferences or competitive influences and therefore actual experience may differ from the assumptions in the model. Accordingly, although the tables provide an indication of the Company's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ.


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The most significant market factors affecting the Company’s net interest income during the nine months ended September 30, 2023 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime interest rate, the secured overnight financing rates ("SOFR"), and interest rates offered on long-term fixed rate loans.

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

Movements in foreign currency rates or commodity prices do not directly or materially affect the Company's earnings. 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 2, “Securities” within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report.

Operational Risk Operational risk is the risk arising from human error or misconduct, transaction errors or delays, inadequate or failed internal systems or processes, data unavailability, loss, or poor quality, or adverse external events. Operational risk includes fraud risk and model risk. Potential operational risk exposure exists throughout the Company. The continued effectiveness of colleagues and operational infrastructure are integral to mitigating operational risk, and any shortcomings subject the Company to risks that vary in size, scale and scope.

Reputation Risk Reputation risk is the risk arising from negative public opinion of the Company and the Bank. Management seeks to mitigate reputational risk through actions that include a structured process of customer complaint resolution and ongoing reputational monitoring.

Regulatory and Compliance Risk Regulatory and Compliance risk is the risk arising from violations of laws or regulations, non-conformance with prescribed practices, internal bank policies and procedures, or ethical standards. Compliance risk includes consumer compliance risk, legal risk, and regulatory compliance risk. Management seeks to mitigate compliance risk through compliance training and regulatory change management processes.

Technology and Cyber Risk Technology and Cyber risk is the risk of losses or other impacts arising from the failure of technology systems to function in accordance with expectations and business requirements. Technology risks include technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness or exposure due to interruption in third party support. Management seeks to mitigate technology risk through appropriate security and controls over data and its technological environment. The Bank manages cybersecurity threats proactively and maintains robust controls to protect its critical systems and data by investing in secure, reliable and resilient technology infrastructure, fostering a culture of technology risk awareness and continuously improving its technology risk management practices

Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet Financial Information
Off-Balance Sheet Arrangements There were no material changes in off-balance sheet arrangements during the three months ended September 30, 2023.
See Note 6, "Derivative and Hedging Activities" and Note 10, "Commitments and Contingencies" within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for more information relating to the Company's other off-balance sheet financial instruments.
Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended September 30, 2023.

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

Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.  The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting. There were no changes in the Company's internal control over financial reporting that occurred during the third quarter of 2023 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item  1. Legal Proceedings
At September 30, 2023, 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 2022 Form 10-K, as updated in Part II, Item 1A of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 ("First Quarter 2023 Form 10-Q"), includes a discussion of the material risks and uncertainties the Company faces, any one or more of which could have a material adverse effect on the Company's business, results of operations, or financial condition (including capital and liquidity).
As of the date of this Report, there have been no material changes with regard to the Risk Factors disclosed in Item 1A of the 2022 Form 10-K as updated by the below Risk Factor substantially set forth in the First Quarter 2023 Form 10-Q.
Risks Related to Recent Events Impacting the Financial Services Industry

Recent events impacting the financial services industry, including several high profile bank failures, have resulted in decreased confidence in banks among depositors, investors and other counterparties, as well as significant disruption, volatility and depressed valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in increased unrealized losses on certain investment securities, increased competition for bank deposits and may increase the risk of a potential recession. These recent events have, and could continue to adversely impact the market price and volatility of the Company’s common stock. Additionally, the cost of resolving recent bank failures prompted the FDIC to announce plans to collect additional special assessments. These recent events may also result in potentially adverse changes to laws or regulations applicable to the Company, which could have a material impact on the Company’s business and result in increased costs necessary to comply with any such changes.

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 September 30, 2023:
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  Issuer Purchases of Equity Securities
  Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plan or
Program		 Maximum Number of Shares (or Approximate Dollar Value) That May Yet Be Purchased Under the Plan or Program
Period
July 1 to July 31, 2023 377  $ 46.17  —  $ — 
August 1 to August 31, 2023 170  $ 53.47  —  $ — 
September 1 to September 30, 2023 3,428  $ 51.75  —  $ — 
Total 3,975  $ 51.29  — 
(1)These shares were surrendered in connection with the exercise and/or vesting of equity compensation grants to satisfy exercise price and/or related tax withholding obligations.

On October 19, 2023, the Company also announced a stock buyback plan which authorizes repurchases by the Company of up to $100 million in common stock. Repurchases under the plan may be made from time to time on the open market and in privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. The extent to which the Company repurchases shares and the size and timing of these repurchases will depend on a variety of factors, including pricing, market and economic conditions, the Company’s capital position and amount of retained earnings and legal and contractual requirements. The repurchase plan is scheduled to expire October 18, 2024 and may be modified, suspended or discontinued without prior notice at any time.


Item 3. Defaults Upon Senior Securities - None.

Item 4. Mine Safety Disclosures - Not Applicable.

Item 5. Other Information

(a)None

(b)None

(c)Insider Rule 10b5-1 Trading Plans. During the quarter ended September 30, 2023, none of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K.

Item 6. Exhibits

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

* Filed herewith
+ Furnished herewith
# Management contract or compensatory plan or arrangement



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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)
 
November 2, 2023   /s/ Jeffrey J. Tengel
  Jeffrey J. Tengel
President and
Chief Executive Officer
(Principal Executive Officer)
 
November 2, 2023   /s/ Mark J. Ruggiero
  Mark J. Ruggiero
Chief Financial Officer
(Principal Financial Officer)

93
EX-31.1 2 exhibit311-indb0930202310x.htm EX-31.1 - CEO 302 CERTIFICATION Document
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey J. Tengel, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Independent Bank Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 2, 2023

/s/ JEFFREY J. TENGEL
Jeffrey J. Tengel
Chief Executive Officer/President


EX-31.2 3 exhibit312-indb09x30x20231.htm EX-31.2 - CFO 302 CERTIFICATION Document

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark J. Ruggiero, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Independent Bank Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 2, 2023

/s/  MARK J. RUGGIERO
Mark J. Ruggiero
Chief Financial Officer


EX-32.1 4 exhibit321-indb09x30x20231.htm EX-32.1 - CEO 906 CERTIFICATION Document
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Independent Bank Corp. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the undersigned’s best knowledge and belief:
(a)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
(b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 2, 2023

Independent Bank Corp.
(“Company”)
/s/ JEFFREY J. TENGEL
Jeffrey J. Tengel
Chief Executive Officer/President
A signed original of this written statement required by Section 906 has been provided to Independent Bank Corp. and will be retained by Independent Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.


EX-32.2 5 exhibit322-indb09x30x20231.htm EX-32.2 - CFO 906 CERTIFICATION Document

Exhibit 32.2

CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Independent Bank Corp. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the undersigned’s best knowledge and belief:
(a)the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
(b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 2, 2023

Independent Bank Corp.
(“Company”)
/s/  MARK J. RUGGIERO
Mark J. Ruggiero
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Independent Bank Corp. and will be retained by Independent Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.