Table of Contents

 
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, 2018March 31, 2019
Commission File Number: 1-9047

Independent Bank Corp.
(Exact name of registrant as specified in its charter)
 ___________________________________________________
Massachusetts04-2870273
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Office Address: 2036 Washington Street, Hanover Massachusetts 02339
Mailing Address: 288 Union Street, Rockland, Massachusetts 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 ClassTrading SymbolName of each exchange on which registered
Common Stock, $01 par value per shareINDBNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large Accelerated FilerxAccelerated Filero
    
Non-accelerated FileroSmaller Reporting Companyo
    
  Emerging Growth Companyo
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  o    No  x
As of October 31, 2018,May 6, 2019, there were 27,551,58134,310,487 shares of the issuer’s common stock outstanding, par value $0.01 per share.
 



 
Table of Contents
 PAGE
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited)
 
Consolidated Balance Sheets - September 30, 2018March 31, 2019 and December 31, 20172018
45
Consolidated Statements of Income - Three and nine months ended September 30,March 31, 2019 and 2018 and 2017
67
Consolidated Statements of Comprehensive Income -Three and nine months ended September 30,March 31, 2019 and 2018 and 2017
8
Consolidated Statements of Stockholders’ Equity - NineThree months ended September 30,March 31, 2019 and 2018 and 2017
9
Consolidated Statements of Cash Flows - NineThree months ended September 30,March 31, 2019 and 2018 and 2017
10
  
Condensed Notes to Consolidated Financial Statements - September 30, 2018March 31, 2019 
Note 1 - Basis of Presentation
12
Note 2 - Recent Accounting Standards Updates
12
Note 3 - Securities
1412
Note 4 - Loans, Allowance for Loan Losses, and Credit Quality
1817
Note 5 - Earnings Per ShareBorrowings
3028
Note 6 - Stock Based CompensationEarnings Per Share
3129
Note 7 - Repurchase AgreementsStock Based Compensation
3230
Note 8 - Derivative and Hedging Activities
3231
Note 9 - Balance Sheet Offsetting
3736
Note 10 - Fair Value Measurements
3837
Note 11 - Revenue Recognition
4745
Note 12 - Comprehensive Income (Loss)
5048
Note 13 - Leases
50
Note 14 - Commitments and Contingencies
51
Note 15 - Low Income Housing Project Investments
52
Note 1416 - Low Income Housing Project InvestmentsSubsequent Event
5352
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
5453
Table 1 - Closed Residential Real Estate Loans
6563
Table 2 - Mortgage Servicing Asset
6663
Table 3 - Nonperforming Assets
7068
Table 4 - Activity in Nonperforming Assets
7068
Table 5 - Troubled Debt Restructurings
7169
Table 6 - Activity in Troubled Debt Restructurings
7169
Table 7 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings
7169
Table 8 - Summary of Changes in the Allowance for Loan Losses
7371
Table 9 - Summary of Allocation of the Allowance for Loan Losses
7472
Table 10 - Borrowings
76
Table 11 - Company and Bank’s Capital Amounts and Ratios
7774
Table 1211 - Summary of Results of Operations
7976
Table 1312 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date
8077
Table 13 - Volume Rate Analysis
79
Table 14 - Average Balance, Interest Earned/Paid & Average Yields Year-to-DateNoninterest Income - Three Months Ended
82
Table 15 - Volume Rate AnalysisNoninterest Expense - Three Months Ended
8482
Table 16 - Noninterest Income - ThreeTax Provision and Nine Months EndedApplicable Tax Rates
8683

Table of Contents
Table 17 - Noninterest Expense - Three and Nine Months EndedInterest Rate Sensitivity
8786
Table 18 - Tax Provision and Applicable Tax Rates
88
Table 19 - New Markets Tax Credit Recognition Schedule
88
Table 20 - Interest Rate Sensitivity
91
Table 21 - Sources of Liquidity
9388
Item 3. Quantitative and Qualitative Disclosures About Market Risk
9388
Item 4. Controls and Procedures
9489
  
PART II. OTHER INFORMATION
9489
Item 1. Legal Proceedings
9489
Item 1A. Risk Factors
9489
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
9589
Item 3. Defaults Upon Senior Securities
9589
Item 4. Mine Safety Disclosures
9589
Item 5. Other Information
9589
Item 6. Exhibits
9690
Signatures
9791
  
Exhibit 31.1 – Certification 302 
Exhibit 31.2 – Certification 302 
Exhibit 32.1 – Certification 906 
Exhibit 32.2 – Certification 906 

PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited—Dollars in thousands)
 
September 30,
2018		 December 31
2017		March 31,
2019		 December 31
2018
Assets
Cash and due from banks$102,540
 $103,485
$106,748
 $127,503
Interest-earning deposits with banks148,307
 109,631
185,526
 122,952
Securities      
Trading1,581
 1,324
1,837
 1,504
Equities20,430
 —
20,357
 19,477
Available for sale435,861
 447,498
437,689
 442,752
Held to maturity (fair value $534,622 and $494,194)553,705
 497,688
Held to maturity (fair value $623,156 and $603,640)623,243
 611,490
Total securities1,011,577
 946,510
1,083,126
 1,075,223
Loans held for sale (at fair value)10,431
 4,768
5,586
 6,431
Loans      
Commercial and industrial1,003,780
 888,528
1,150,632
 1,093,629
Commercial real estate3,132,491
 3,116,561
3,254,085
 3,251,248
Commercial construction352,491
 401,797
373,517
 365,165
Small business149,200
 132,370
166,410
 164,676
Residential real estate801,810
 754,329
935,238
 923,294
Home equity - first position647,132
 612,990
642,451
 654,083
Home equity - subordinate positions426,829
 439,098
438,290
 438,001
Other consumer13,669
 9,880
16,249
 16,098
Total loans6,527,402
 6,355,553
6,976,872
 6,906,194
Less: allowance for loan losses(63,235) (60,643)(65,140) (64,293)
Net loans6,464,167
 6,294,910
6,911,732
 6,841,901
Federal Home Loan Bank stock13,107
 11,597
7,667
 15,683
Bank premises and equipment, net95,941
 94,722
98,843
 97,581
Goodwill231,806
 231,806
256,105
 256,105
Other intangible assets7,379
 9,341
14,339
 15,250
Cash surrender value of life insurance policies153,186
 151,528
161,521
 160,456
Other real estate owned and other foreclosed assets190
 612
Other assets136,866
 123,119
166,264
 132,507
Total assets$8,375,497
 $8,082,029
$8,997,457
 $8,851,592
Liabilities and Stockholders' Equity
Deposits      
Demand deposits$2,337,221
 $2,159,396
$2,329,566
 $2,450,907
Savings and interest checking accounts2,621,926
 2,599,922
2,914,367
 2,865,349
Money market1,353,641
 1,325,634
1,496,118
 1,399,761
Time certificates of deposit of $100,000 and over317,761
 278,531
362,632
 351,629
Other time certificates of deposits345,690
 365,770
360,919
 359,474
Total deposits6,976,239
 6,729,253
7,463,602
 7,427,120
Borrowings      
Federal Home Loan Bank borrowings25,752
 147,806

Federal Home Loan Bank borrowings50,767
 53,264
Customer repurchase agreements141,176
 162,679
Junior subordinated debentures (less unamortized debt issuance costs of $119 and $125)73,078
 73,073
Subordinated debentures (less unamortized debt issuance costs of $283 and $318)34,717
 34,682
Line of credit (less unamortized debt issuance costs of $7)49,993
 —
Long-term borrowings (less unamortized debt issuance costs of $86)74,914
 —
Junior subordinated debentures (less unamortized debt issuance costs of $116 and $118)73,082
 76,173
Subordinated debentures (less unamortized debt issuance costs of $701 and $272)84,299
 34,728
Total borrowings299,738
 323,698
308,040
 258,707
Other liabilities101,215
 85,269
121,277
 92,275
Total liabilities7,377,192
 7,138,220
7,892,919
 7,778,102
Commitments and contingencies—
 —
—
 —
Stockholders' equity      
Preferred stock, $.01 par value, authorized: 1,000,000 shares, outstanding: none—
 —
—
 —
Common stock, $.01 par value, authorized: 75,000,000 shares,
issued and outstanding: 27,540,843 shares at September 30, 2018 and 27,450,190 shares at December 31, 2017 (includes 159,809 and 177,191 shares of unvested participating restricted stock awards, respectively)		274
 273
Value of shares held in rabbi trust at cost: 157,872 shares at September 30, 2018 and 164,438 shares at December 31, 2017(4,784) (4,590)
Common stock, $.01 par value, authorized: 75,000,000 shares,
issued and outstanding: 28,137,504 shares at March 31, 2019 and 28,080,408 shares at December 31, 2018 (includes 155,012 and 153,459 shares of unvested participating restricted stock awards, respectively)		280
 279
Value of shares held in rabbi trust at cost: 144,166 shares at March 31, 2019 and 153,226 shares at December 31, 2018(4,599) (4,718)
Deferred compensation and other retirement benefit obligations4,784
 4,590
4,599
 4,718
Additional paid in capital483,222
 479,430
527,795
 527,648
Retained earnings527,473
 465,937
569,582
 546,736
Accumulated other comprehensive loss, net of tax(12,664) (1,831)
Accumulated other comprehensive income (loss), net of tax6,881
 (1,173)
Total stockholders’ equity998,305
 943,809
1,104,538
 1,073,490
Total liabilities and stockholders' equity$8,375,497
 $8,082,029
$8,997,457
 $8,851,592
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.


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
 2018 2017 2018 2017
Interest income       
Interest and fees on loans$75,220
 $65,667
 $214,486
 $186,747
Taxable interest and dividends on securities6,664
 5,642
 19,381
 16,618
Nontaxable interest and dividends on securities14
 19
 46
 71
Interest on loans held for sale61
 33
 110
 68
Interest on federal funds sold and short-term investments916
 417
 1,768
 814
Total interest and dividend income82,875
 71,778
 235,791
 204,318
Interest expense       
Interest on deposits5,251
 3,331
 13,773
 9,010
Interest on borrowings1,390
 1,374
 4,145
 4,280
Total interest expense6,641
 4,705
 17,918
 13,290
Net interest income76,234
 67,073
 217,873
 191,028
Provision for loan losses1,075
 —
 3,575
 1,650
Net interest income after provision for loan losses75,159
 67,073
 214,298
 189,378
Noninterest income       
Deposit account fees4,658
 4,401
 13,640
 13,337
Interchange and ATM fees4,947
 4,525
 13,889
 12,881
Investment management6,564
 5,967
 19,528
 17,576
Mortgage banking income1,222
 1,338
 3,130
 3,609
Gain on life insurance benefits1,463
 —
 1,463
 —
Gain on sale of equity securities4
 12
 6
 19
Increase in cash surrender value of life insurance policies984
 1,019
 2,929
 3,000
Loan level derivative income392
 784
 1,547
 2,727
Other noninterest income3,030
 2,724
 8,882
 7,931
Total noninterest income23,264
 20,770
 65,014
 61,080
Noninterest expenses       
Salaries and employee benefits31,095
 29,289
 92,483
 86,267
Occupancy and equipment expenses6,310
 6,085
 20,215
 18,302
Data processing and facilities management1,287
 1,272
 3,837
 3,732
FDIC assessment725
 673
 2,214
 2,234
Advertising expense1,395
 1,359
 3,684
 4,018
Consulting expense1,128
 937
 2,973
 2,753
Debit card expense755
 992
 2,405
 2,616
Legal fees752
 1,423
 2,084

2,074
Loss on sale of equity securities—
 1
 —
 6
Merger and acquisition expense2,688
 —
 3,122
 3,393
Software maintenance1,079
 888
 3,048
 2,714
Other noninterest expenses8,225
 8,391
 25,513
 24,783
Total noninterest expenses55,439
 51,310
 161,578
 152,892
Income before income taxes42,984
 36,533
 117,734
 97,566
Provision for income taxes9,969
 12,681
 26,046
 32,426
Net income$33,015
 $23,852
 $91,688
 $65,140
Basic earnings per share$1.20
 $0.87
 $3.33
 $2.39

Three Months Ended
March 31
2019 2018
Interest income   
Interest and fees on loans$83,608
 $67,184
Taxable interest and dividends on securities7,465
 6,219
Nontaxable interest and dividends on securities13
 16
Interest on loans held for sale31
 19
Interest on federal funds sold and short-term investments426
 311
Total interest and dividend income91,543
 73,749
Interest expense   
Interest on deposits7,028
 3,935
Interest on borrowings1,990
 1,343
Total interest expense9,018
 5,278
Net interest income82,525
 68,471
Provision for loan losses1,000
 500
Net interest income after provision for loan losses81,525
 67,971
Noninterest income   
Deposit account fees4,406
 4,431
Interchange and ATM fees4,516
 4,173
Investment management6,748
 6,142
Mortgage banking income806
 870
Increase in cash surrender value of life insurance policies972
 947
Loan level derivative income641
 447
Other noninterest income3,444
 2,853
Total noninterest income21,533
 19,863
Noninterest expenses   
Salaries and employee benefits33,117
 31,100
Occupancy and equipment expenses7,130
 7,408
Data processing and facilities management1,326
 1,286
FDIC assessment616
 798
Advertising expense1,213
 1,123
Merger and acquisition expense1,032
 —
Software maintenance1,165
 972
Other noninterest expenses10,712
 10,764
Total noninterest expenses56,311
 53,451
Income before income taxes46,747
 34,383
Provision for income taxes11,522
 6,828
Net income$35,225
 $27,555
Basic earnings per share$1.25
 $1.00
Diluted earnings per share$1.20
 $0.87
 $3.32
 $2.38
$1.25
 $1.00
Weighted average common shares (basic)27,537,841
 27,436,792
 27,517,210
 27,242,902
28,106,184
 27,486,573
Common share equivalents63,499
 76,307
 62,596
 78,043
54,466
 67,381
Weighted average common shares (diluted)27,601,340
 27,513,099
 27,579,806
 27,320,945
28,160,650
 27,553,954
Cash dividends declared per common share$0.38
 $0.32
 $1.14
 $0.96
$0.44
 $0.38
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited—Dollars in thousands)
 
Three Months Ended Nine Months EndedThree Months Ended
September 30 September 30March 31
2018 2017 2018 20172019 2018
Net income$33,015
 $23,852
 $91,688
 $65,140
$35,225
 $27,555
Other comprehensive income (loss), net of tax          
Net change in fair value of securities available for sale(2,262) 188
 (9,654) 1,511
4,729
 (5,468)
Net change in fair value of cash flow hedges(405) 109
 (302) 8
3,285
 215
Net change in other comprehensive income for defined benefit postretirement plans117
 78
 351
 234
40
 117
Total other comprehensive income (loss)(2,550) 375
 (9,605) 1,753
8,054
 (5,136)
Total comprehensive income$30,465
 $24,227
 $82,083
 $66,893
$43,279
 $22,419
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.


INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited—Dollars in thousands, except per share data)
Common Stock Outstanding Common Stock Value of Shares Held in Rabbi Trust at Cost Deferred Compensation and Other Retirement Benefit Obligations Additional Paid in Capital Retained Earnings Accumulated Other
Comprehensive Income/(Loss)		 Total
Balance December 31, 201828,080,408
 $279
 $(4,718) $4,718
 $527,648
 $546,736
 $(1,173) $1,073,490
Net income—
 —
 —
 —
 —
 35,225
 —
 35,225
Other comprehensive income—
 —
 —
 —
 —
 —
 8,054
 8,054
Common dividend declared ($0.44 per share)—
 —
 —
 —
 —
 (12,379) —
 (12,379)
Proceeds from exercise of stock options, net of cash paid6,000
 —
 —
 —
 165
 —
 —
 165
Stock based compensation—
 —
 —
 —
 915
 —
 —
 915
Restricted stock awards issued, net of awards surrendered44,407
 1
 —
 —
 (1,420) —
 —
 (1,419)
Shares issued under direct stock purchase plan6,689
 —
 —
 —
 487
 —
 —
 487
Deferred compensation and other retirement benefit obligations—
 —
 119
 (119) —
 —
 —
 —
Balance March 31, 201928,137,504
 $280
 $(4,599) $4,599
 $527,795
 $569,582
 $6,881
 $1,104,538
Common Stock Outstanding Common Stock Value of Shares Held in Rabbi Trust at Cost Deferred Compensation and Other Retirement Benefit Obligations Additional Paid in Capital Retained Earnings Accumulated Other
Comprehensive Income (Loss)		 Total               
Balance December 31, 201727,450,190
 $273
 $(4,590) $4,590
 $479,430
 $465,937
 $(1,831) $943,809
27,450,190
 $273
 $(4,590) $4,590
 $479,430
 $465,937
 $(1,831) $943,809
Opening balance reclassification (1)—
 —
 —
 —
 —
 397
 (397) —
—
 —
 —
 —
 —
 397
 (397) —
Cumulative effect accounting adjustment (2)—
 —
 —
 —
 —
 831
 (831) —
—
 —
 —
 —
 —
 831
 (831) —
Net income—
 —
 —
 —
 —
 91,688
 —
 91,688
—
 —
 —
 —
 —
 27,555
 

 27,555
Other comprehensive loss—
 —
 —
 —
 —
 —
 (9,605) (9,605)—
 —
 —
 —
 —
 —
 (5,136) (5,136)
Common dividend declared ($1.14 per share)—
 —
 —
 —
 —
 (31,380) —
 (31,380)
Common dividend declared ($0.38 per share)—
 —
 —
 —
 —
 (10,454) —
 (10,454)
Proceeds from exercise of stock options, net of cash paid23,195
 —
 —
 —
 184
 —
 —
 184
19,256
 —
 —
 —
 143
 —
 —
 143
Stock based compensation—
 —
 —
 —
 3,161
 —
 —
 3,161
—
 —
 —
 —
 1,041
 —
 —
 1,041
Restricted stock awards issued, net of awards surrendered43,174
 1
 —
 —
 (1,345) —
 —
 (1,344)36,961
 —
 —
 —
 (1,318) —
 —
 (1,318)
Shares issued under direct stock purchase plan24,284
 —
 —
 —
 1,792
 —
 —
 1,792
5,921
 —
 —
 —
 419
 —
 —
 419
Deferred compensation and other retirement benefit obligations—
 —
 (194) 194
 —
 —
 —
 —
—
 —
 (1) 1
 —
 —
 —
 —
Balance September 30, 201827,540,843
 $274
 $(4,784) $4,784
 $483,222
 $527,473
 $(12,664) $998,305
               
Balance December 31, 201627,005,813
 $268
 $(4,277) $4,277
 $451,664
 $414,095
 $(1,337) $864,690
Cumulative effect accounting adjustment (3)—
 —
 —
 —
 542
 (365) —
 177
Net income—
 —
 —
 —
 —
 65,140
 —
 65,140
Other comprehensive income—
 —
 —
 —
 —
 —
 1,753
 1,753
Common dividend declared ($0.96 per share)—
 —
 —
 —
 —
 (26,212) —
 (26,212)
Common stock issued for acquisition369,286
 4
 —
 —
 23,464
 —
 —
 23,468
Proceeds from exercise of stock options, net of cash paid11,590
 —
 —
 —
 (5) —
 —
 (5)
Stock based compensation—
 —
 —
 —
 2,346
 —
 —
 2,346
Restricted stock awards issued, net of awards surrendered32,476
 1
 —
 —
 (1,364) —
 —
 (1,363)
Shares issued under direct stock purchase plan18,626
 —
 —
 —
 1,230
 —
 —
 1,230
Deferred compensation and other retirement benefit obligations—
 —
 (228) 228
 —
 —
 —
 —
Balance September 30, 201727,437,791
 $273
 $(4,505) $4,505
 $477,877
 $452,658
 $416
 $931,224
Balance March 31, 201827,512,328
 $273
 $(4,591) $4,591
 $479,715
 $484,266
 $(8,195) $956,059
(1)Represents adjustment needed to reflect the cumulative impact on retained earnings for reclassification of the income tax effects attributable to accumulated other comprehensive income, as a result of the Tax Cuts and Jobs Act (the "Tax Act"). Pursuant to the Company's adoption of Accounting Standards Update 2018-02, the Company has elected to reclassify amounts stranded in other comprehensive income to retained earnings.
(2)Represents adjustment needed to reflect the cumulative impact on retained earnings for the classification and measurement of investments in equity securities. Pursuant to the Company's adoption of Accounting Standards Update 2016-01, the Company's investments in equity securities will no longer be classified as available for sale, therefore the Company was required to reclassify the net unrealized gain recognized on the change in fair value of these equity securities from other comprehensive income to retained earnings.
(3)Represents adjustment needed to reflect the cumulative impact on retained earnings for previously recognized stock based compensation, which included an adjustment for estimated forfeitures. Pursuant to the Company's adoption of Accounting Standards Update 2016-09, the Company has elected to recognize stock based compensation without inclusion of a forfeiture estimate, and as such has recognized this adjustment to present retained earnings consistent with this election.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited—Dollars in thousands)
 
Nine Months EndedThree Months Ended
September 30March 31
2018 20172019 2018
Cash flow from operating activities      
Net income$91,688
 $65,140
$35,225
 $27,555
Adjustments to reconcile net income to net cash provided by operating activities      
Depreciation and amortization12,088
 11,497
3,648
 4,181
Provision for loan losses3,575
 1,650
1,000
 500
Deferred income tax expense176
 443
539
 359
Net unrealized loss on equity securities113
 —
Net gain on sale of securities(6) (13)
Net (gain) loss on equity securities(907) 485
Net (gain) loss on bank premises and equipment8
 (93)25
 (7)
Net loss on other real estate owned and foreclosed assets1
 308
—
 1
Realized gain on sale leaseback transaction(585) (775)(145) (258)
Stock based compensation3,161
 2,346
915
 1,041
Increase in cash surrender value of life insurance policies(2,929) (3,000)(972) (947)
Gain on life insurance benefits(1,463) —
Operating lease payments(2,165) —
Change in fair value on loans held for sale(147) 102
(1) 26
Net change in:      
Trading assets(257) (494)(333) (277)
Loans held for sale(5,516) 578
846
 805
Other assets(12,179) 4,561
1,721
 2,594
Other liabilities16,066
 6,177
(5,228) (2,175)
Total adjustments12,106
 23,287
(1,057) 6,328
Net cash provided by operating activities103,794
 88,427
34,168
 33,883
Cash flows used in investing activities      
Proceeds from sales of equity securities30
 —
Purchases of equity securities(305) —
(105) (78)
Proceeds from sales of securities available for sale—
 523
Proceeds from maturities and principal repayments of securities available for sale41,964
 40,228
11,318
 11,040
Purchases of securities available for sale(63,844) (104,284)—
 (37,201)
Proceeds from maturities and principal repayments of securities held to maturity62,650
 58,308
19,003
 22,888
Purchases of securities held to maturity(118,256) (49,802)(30,502) (53,995)
Net redemption (purchases) of Federal Home Loan Bank stock(1,510) 386
8,016
 (1,430)
Investments in low income housing projects(2,598) (4,713)(292) (1,213)
Purchases of life insurance policies(116) (115)(93) (93)
Proceeds from life insurance policies2,850
 —
Net increase in loans(173,224) (138,622)(70,378) (6,856)
Cash acquired in business combinations, net of cash paid—
 6,289
Purchases of bank premises and equipment(8,123) (18,643)(3,713) (2,803)
Proceeds from the sale of bank premises and equipment96
 1,919
13
 52
Proceeds from the sale of other real estate owned and foreclosed assets308
 1,531
—
 253
Net cash used in investing activities(260,078) (206,995)(66,733) (69,436)
Cash flows provided by financing activities   
Net increase in time deposits12,464
 10,486
Net increase in other deposits24,034
 11,804
Net repayments of short-term Federal Home Loan Bank borrowings(122,046) —
Net increase (decrease) in customer repurchase agreements—
 (24,765)

Cash flows provided by financing activities   
Net increase (decrease) in time deposits19,226
 (35,947)
Net increase in other deposits227,836
 147,331
Repayments of long-term Federal Home Loan Bank borrowings(2,475) —
Net increase (decrease) in customer repurchase agreements(21,503) 2,757
Proceeds from exercise of stock options, net of cash paid184
 (5)
Restricted stock awards issued, net of awards surrendered(1,344) (1,363)
Proceeds from shares issued under direct stock purchase plan1,792
 1,230
Common dividends paid(29,701) (25,265)
Net cash provided by financing activities194,015
 88,738
Net increase (decrease) in cash and cash equivalents37,731
 (29,830)
Cash and cash equivalents at beginning of year213,116
 289,095
Cash and cash equivalents at end of period$250,847
 $259,265
Supplemental schedule of noncash investing and financing activities   
Transfer of loans to other real estate owned & foreclosed assets$—
 $564
Net increase in capital commitments relating to low income housing project investments$65
 $248
In conjunction with the Company's acquisitions, assets were acquired and liabilities were assumed as follows   
Common stock issued for acquisition$—
 $23,468
Fair value of assets acquired, net of cash acquired$—
 $179,252
Fair value of liabilities assumed$—
 $162,073
Proceeds from line of credit, net of issuance costs49,993
 —
Proceeds from long-term debt, net of issuance costs74,914
 —
Repayments of junior subordinated debentures(3,093) —
Proceeds from subordinated debentures, net of issuance costs49,556
 —
Net proceeds from exercise of stock options165
 143
Restricted stock awards issued, net of awards surrendered(1,419) (1,318)
Proceeds from shares issued under direct stock purchase plan487
 419
Common dividends paid(10,671) (8,784)
Net cash provided by (used in) financing activities74,384
 (12,015)
Net increase (decrease) in cash and cash equivalents41,819
 (47,568)
Cash and cash equivalents at beginning of year250,455
 213,116
Cash and cash equivalents at end of period$292,274
 $165,548
Supplemental schedule of noncash activities   
Net increase in capital commitments relating to low income housing project investments$—
 $9
Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1)$32,777
 $—
Initial recognition of operating lease at commencement$2,926
 $—
(1) Represents adjustment needed to reflect the opening balance of the Company's ROU assets and lease liabilities pursuant to the adoption of Accounting Standards Update 2016-02 effective January 1, 2019. Upon adoption, the Company recognized on its balance sheet Right of Use ("ROU") assets of approximately $32.8 million, with a corresponding operating lease liability of approximately $34.1 million, with an adjustment to remove the Company's existing deferred rent liability of approximately $1.3 million.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION
Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907.
All material intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Results for the quarter ended September 30, 2018March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 20182019 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, 2017,2018, filed with the Securities and Exchange Commission.

NOTE 2 - RECENT ACCOUNTING STANDARDS UPDATES

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 326 "Financial Instruments - Credit Losses" Update No. 2016-13. Update No. 2016-13 was issued in June 2016 to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company will adopt the update on January 1, 2020 and is currently assessing the impact of the adoption of this standard on the Company's consolidated financial position. To date, the Company has been assessing the key differences and gaps between its current allowance methodologies and models with those it is considering to use upon adoption.  ThisIn particular, the Company has included assessingcompleted the adequacydevelopment and validation of existinghistorical loss and recovery data, developing models for default and is working on identification and layering of various assumptions needed to translate the data into a life of loan loss estimates, and finalizing vendor selection. Theestimate.  In addition, the Company has also begun developing accounting policies, as well as considering the need for new internal controls relevant to the updated methodologies and models.  The Company expects to validate its models and execute a parallel run beginning in early 2019.
FASB ASC Topic 842 "Leases"Since the Update No. 2016-02. Update No. 2016-02 was issued in February 2016 and affects any entity that enters into a lease (as that term is defined in this update), with some specified scope exemptions. The core principle of this update is that a lessee should recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease have not significantly changed from previous GAAP. In addition, the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently in the process of reviewing its current lease agreements to assess the impact of the adoption of this standard, however it has been determined that the Company will elect the package of practical expedients offered within this update. The Company does not anticipate electing the hindsight practical expedient.
Since the issuance of Update 2016-02,2016-13, the FASB has issued codification improvements toan amendment intended on improving the standard inclarification of the amendment, FASB ASC Topic 842 "Leases"326 "Financial Instruments - Credit Losses" Update No. 2018-102018-19. and FASB ASC Topic 842 "Leases"The amendment in Update No. 2018-11. The amendments in Update 2018-10 affect narrow aspects of the guidance issued in the amendments in Update 2016-02 and provide improvements or clarification to the previously issued update. The amendments in update 2018-11 are related to the transition relief on comparative reporting at adoption, which allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This update applies to all entities with

lease contracts that choose the additional transition method. The Company plans to elect this method of transition upon implementation.
FASB ASC Topic 820 "Fair Value Measurement" Update No. 2018-13. Update No. 2018-132018-19 was issued in AugustNovember 2018 and applieswas intended to all entitiesclarify that receivables arising from operating leases are required, under existing GAAP, to add, modify, or remove various disclosures related to recurring or nonrecurring fair value measurements. The amendmentsnot within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019,accordance with certain amendments to be applied prospectively while others are to be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and delay adoption of the additional disclosures until their effective date. The adoption of this standard will not have an impact on the Company's consolidated financial position.Topic 842, Leases.

FASB ASC Subtopic 715-20 "Compensation - Retirement Benefits - Defined Benefit Plans - General" Update No. 2018-14. Update No. 2018-14 was issued in August 2018 to remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add certain disclosure requirements. The amendments in this update are effective for fiscal years ending after December 15, 2020, for public business entities. Early adoption is permitted. An entity should apply the amendments in this update on a retrospective basis to all periods presented. The adoption of this standard will not have an impact on the Company's consolidated financial position.

NOTE 3 - SECURITIES
Trading Securities
The Company had trading securities of $1.6$1.8 million and $1.3$1.5 million as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s nonqualified 401(k) Restoration Plan and Nonqualified Deferred Compensation Plan.
Equity Securities
The Company had equity securities of $20.4 million and $19.5 million as of September 30, 2018.March 31, 2019 and December 31, 2018, 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. These securities were previously classified as available for sale
The following table represents a summary of the gains and were reclassified aslosses that relates to equity securities due to a change in accounting guidance effective January 1, 2018. The equity securities had a fair value of $20.6 million as of December 31, 2017 and are reflected accordingly as available for sale in the table below.periods indicated:

 Three Months Ended
 March 31
 2019 2018
Net gains (losses) recognized during the period on equity securities$907
 $(485)
Less: net gains recognized during the period on equity securities sold during the period3
 2
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date$904
 $(487)

Available for Sale and Held to Maturity Securities
The following table presents a summary of the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale and securities held to maturity for the periods indicated:
September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized
Losses
 
Fair
Value
(Dollars in thousands)(Dollars in thousands)
Available for sale securities                              
U.S. government agency securities$32,479
 $—
 $(907) $31,572
 $35,475
 $86
 $(131) $35,430
$32,477
 $25
 $(47) $32,455
 $32,477
 $—
 $(439) $32,038
Agency mortgage-backed securities213,159
 874
 (6,510) 207,523
 214,934
 1,897
 (1,067) 215,764
217,163
 1,674
 (1,042) 217,795
 222,491
 1,020
 (3,406) 220,105
Agency collateralized mortgage obligations143,764
 83
 (6,202) 137,645
 124,098
 78
 (2,164) 122,012
133,025
 338
 (1,832) 131,531
 138,149
 197
 (3,435) 134,911
State, county, and municipal securities1,973
 8
 —
 1,981
 2,237
 37
 —
 2,274
1,716
 23
 —
 1,739
 1,719
 16
 —
 1,735
Single issuer trust preferred securities issued by banks1,000
 4
 —
 1,004
 2,012
 4
 —
 2,016
717
 4
 —
 721
 717
 —
 (10) 707
Pooled trust preferred securities issued by banks and insurers2,159
 —
 (359) 1,800
 2,179
 —
 (539) 1,640
1,660
 —
 (346) 1,314
 1,678
 —
 (349) 1,329
Small business administration pooled securities55,961
 —
 (1,625) 54,336
 47,852
 44
 (118) 47,778
52,549
 160
 (575) 52,134
 53,317
 —
 (1,390) 51,927
Equity securities—
 —
 —
 —
 19,432
 1,594
 (442) 20,584
Total available for sale securities$450,495
 $969
 $(15,603) $435,861
 $448,219
 $3,740
 $(4,461) $447,498
$439,307
 $2,224
 $(3,842) $437,689
 $450,548
 $1,233
 $(9,029) $442,752
Held to maturity securities                              
U.S. Treasury securities$1,004
 $2
 $—
 $1,006
 $1,006
 $29
 $—
 $1,035
$1,004
 $13
 $—
 $1,017
 $1,004
 $11
 $—
 $1,015
Agency mortgage-backed securities189,479
 136
 (5,527) 184,088
 204,768
 1,791
 (736) 205,823
259,599
 3,238
 (955) 261,882
 252,484
 1,548
 (3,104) 250,928
Agency collateralized mortgage obligations336,346
 28
 (12,858) 323,516
 262,998
 397
 (4,987) 258,408
337,804
 2,208
 (4,307) 335,705
 332,775
 869
 (6,920) 326,724
Single issuer trust preferred securities issued by banks1,500
 —
 (10) 1,490
 1,500
 29
 —
 1,529
1,500
 —
 (10) 1,490
 1,500
 —
 (10) 1,490
Small business administration pooled securities25,376
 —
 (854) 24,522
 27,416
 183
 (200) 27,399
23,336
 115
 (389) 23,062
 23,727
 105
 (349) 23,483
Total held to maturity securities$553,705
 $166
 $(19,249) $534,622
 $497,688
 $2,429
 $(5,923) $494,194
$623,243
 $5,574
 $(5,661) $623,156
 $611,490
 $2,533
 $(10,383) $603,640
Total$1,004,200
 $1,135
 $(34,852) $970,483
 $945,907
 $6,169
 $(10,384) $941,692
$1,062,550
 $7,798
 $(9,503) $1,060,845
 $1,062,038
 $3,766
 $(19,412) $1,046,392

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.
 

The actual maturities of certain 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 securities available for sale and securities held to maturity as of September 30, 2018March 31, 2019 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 TotalDue 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
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
(Dollars in thousands)(Dollars in thousands)
Available for sale securities                                      
U.S. government agency securities$—
 $—
 $20,012
 $19,728
 $12,467
 $11,844
 $—
 $—
 $32,479
 $31,572
$10,005
 $9,965
 $10,003
 $10,028
 $12,469
 $12,462
 $—
 $—
 $32,477
 $32,455
Agency mortgage-backed securities278
 281
 44,914
 43,697
 99,439
 96,667
 68,528
 66,878
 213,159
 207,523
7
 7
 52,054
 51,871
 88,335
 88,705
 76,767
 77,212
 217,163
 217,795
Agency collateralized mortgage obligations—
 —
 —
 —
 —
 —
 143,764
 137,645
 143,764
 137,645
—
 —
 —
 —
 —
 —
 133,025
 131,531
 133,025
 131,531
State, county, and municipal securities—
 —
 1,022
 1,023
 951
 958
 —
 —
 1,973
 1,981
—
 —
 1,022
 1,026
 694
 713
 —
 —
 1,716
 1,739
Single issuer trust preferred securities issued by banks—
 —
 —
 —
 —
 —
 1,000
 1,004
 1,000
 1,004
—
 —
 —
 —
 —
 —
 717
 721
 717
 721
Pooled trust preferred securities issued by banks and insurers—
 —
 —
 —
 —
 —
 2,159
 1,800
 2,159
 1,800
—
 —
 —
 —
 —
 —
 1,660
 1,314
 1,660
 1,314
Small business administration pooled securities—
 —
 —
 —
 —
 —
 55,961
 54,336
 55,961
 54,336
—
 —
 —
 —
 —
 —
 52,549
 52,134
 52,549
 52,134
Total available for sale securities$278
 $281
 $65,948
 $64,448
 $112,857
 $109,469
 $271,412
 $261,663
 $450,495
 $435,861
$10,012
 $9,972
 $63,079
 $62,925
 $101,498
 $101,880
 $264,718
 $262,912
 $439,307
 $437,689
Held to maturity securities                                      
U.S. Treasury securities$—
 $—
 $1,004
 $1,006
 $—
 $—
 $—
 $—
 $1,004
 $1,006
$—
 $—
 $1,004
 $1,017
 $—
 $—
 $—
 $—
 $1,004
 $1,017
Agency mortgage-backed securities—
 —
 12,442
 12,191
 37,473
 36,481
 139,564
 135,416
 189,479
 184,088
—
 —
 11,786
 11,724
 34,127
 34,044
 213,686
 216,114
 259,599
 261,882
Agency collateralized mortgage obligations—
 —
 —
 —
 941
 936
 335,405
 322,580
 336,346
 323,516
—
 —
 —
 —
 553
 551
 337,251
 335,154
 337,804
 335,705
Single issuer trust preferred securities issued by banks—
 —
 —
 —
 1,500
 1,490
 —
 —
 1,500
 1,490
—
 —
 —
 —
 1,500
 1,490
 —
 —
 1,500
 1,490
Small business administration pooled securities—
 —
 —
 —
 —
 —
 25,376
 24,522
 25,376
 24,522
—
 —
 —
 —
 —
 —
 23,336
 23,062
 23,336
 23,062
Total held to maturity securities$—
 $—
 $13,446
 $13,197
 $39,914
 $38,907
 $500,345
 $482,518
 $553,705
 $534,622
$—
 $—
 $12,790
 $12,741
 $36,180
 $36,085
 $574,273
 $574,330
 $623,243
 $623,156
Total$10,012
 $9,972
 $75,869
 $75,666
 $137,678
 $137,965
 $838,991
 $837,242
 $1,062,550
 $1,060,845
Inclusive in the table above is $6.3$5.3 million of callable securities at September 30, 2018.March 31, 2019.
The carrying value of securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law, was $523.6$388.7 million and $547.2$361.1 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
At September 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of stockholders’ equity.
Other-Than-Temporary Impairment ("OTTI")
The Company continually reviews investment securities for the existence of OTTI, taking into consideration current market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, the credit worthiness of the obligor of the security, volatility of earnings, current analysts’ evaluations, the Company’s intent to sell the security, whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.

The following tables show the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company has not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
September 30, 2018March 31, 2019
  Less than 12 months 12 months or longer Total  Less than 12 months 12 months or longer Total
# of holdings 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
# of 
holdings
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
(Dollars in thousands)(Dollars in thousands)
U.S. government agency securities3
 $31,572
 $(907) $—
 $—
 $31,572
 $(907)3
 $4,306
 $(1) $22,428
 $(46) $26,734
 $(47)
Agency mortgage-backed securities154
 284,810
 (8,375) 77,412
 (3,662) 362,222
 (12,037)110
 —
 —
 246,113
 (1,997) 246,113
 (1,997)
Agency collateralized mortgage obligations57
 294,626
 (8,847) 154,168
 (10,213) 448,794
 (19,060)41
 —
 —
 285,297
 (6,139) 285,297
 (6,139)
Single issuer trust preferred securities issued by banks and insurers1
 1,490
 (10) —
 —
 1,490
 (10)1
 1,490
 (10) —
 —
 1,490
 (10)
Pooled trust preferred securities issued by banks and insurers1
 —
 —
 1,800
 (359) 1,800
 (359)1
 —
 —
 1,314
 (346) 1,314
 (346)
Small business administration pooled securities8
 38,264
 (685) 40,594
 (1,794) 78,858
 (2,479)6
 —
 —
 59,347
 (964) 59,347
 (964)
Total temporarily impaired securities224
 $650,762
 $(18,824) $273,974
 $(16,028) $924,736
 $(34,852)162
 $5,796
 $(11) $614,499
 $(9,492) $620,295
 $(9,503)

December 31, 2017December 31, 2018
  Less than 12 months 12 months or longer Total  Less than 12 months 12 months or longer Total
# of holdings 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
# of 
holdings
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
(Dollars in thousands)(Dollars in thousands)
U.S.government agency securities4
 $24,343
 $(131) $—
 $—
 $24,343
 $(131)3
 $9,960
 $(43) $22,078
 $(396) $32,038
 $(439)
Agency mortgage-backed securities84
 235,411
 (1,493) 14,886
 (310) 250,297
 (1,803)144
 104,616
 (1,363) 222,850
 (5,147) 327,466
 (6,510)
Agency collateralized mortgage obligations42
 178,142
 (1,579) 159,506
 (5,572) 337,648
 (7,151)48
 57,871
 (398) 279,229
 (9,957) 337,100
 (10,355)
Single issuer trust preferred securities issued by banks and insurers2
 2,197
 (20) —
 —
 2,197
 (20)
Pooled trust preferred securities issued by banks and insurers1
 —
 —
 1,640
 (539) 1,640
 (539)1
 —
 —
 1,329
 (349) 1,329
 (349)
Small business administration pooled securities4
 34,553
 (223) 9,647
 (95) 44,200
 (318)7
 28,257
 (662) 40,621
 (1,077) 68,878
 (1,739)
Equity securities28
 3,290
 (39) 7,619
 (403) 10,909
 (442)
Total temporarily impaired securities163
 $475,739
 $(3,465) $193,298
 $(6,919) $669,037
 $(10,384)205
 $202,901
 $(2,486) $566,107
 $(16,926) $769,008
 $(19,412)

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. As a result, the Company does not consider these investments to be OTTI and accordingly, there was no OTTI recorded for the three months ended March 31, 2019 and 2018. There was no cumulative credit related component of OTTI for the three and nine months ended September 30, 2018 and 2017.as of March 31, 2019 or December 31, 2018. 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 are as follows at September 30, 2018:March 31, 2019:
•
U.S. Government Agency Securities, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities: These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies.

•
Single Issuer Trust Preferred Securities: This portfolio consists of one security, which is investment grade. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for the issuers, including regulatory capital ratios of the issuers.
•
Pooled Trust Preferred Securities: This portfolio consists of one below investment grade security which is performing. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic and regulatory environment. Management evaluates collateral credit and instrument structure, including current and expected deferral and default rates and timing. In addition, discount rates are determined by evaluating comparable spreads observed currently in the market for similar instruments.



NOTE 4 - LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
The following tables bifurcate the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis as of the periods indicated:
September 30, 2018 March 31, 2019 
(Dollars in thousands) (Dollars in thousands) 
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 Other Consumer Total 
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 Other Consumer Total 
Financing receivables ending balance:                                
Collectively evaluated for impairment$972,842
 $3,114,414
 $352,491
 $148,609
 $784,533
 $1,067,389
 $13,425
 $6,453,703
  $1,122,411
 $3,238,857
 $373,206
 $165,931
 $919,599
 $1,074,668
 $16,062
 $6,910,734
  
Individually evaluated for impairment$30,938
 $13,023
 $—
 $591
 $12,825
 $6,410
 $244
 $64,031
  $28,221
 $10,323
 $311
 $479
 $12,061
 $5,900
 $187
 $57,482
  
Purchased credit impaired loans$—
 $5,054
 $—
 $—
 $4,452
 $162
 $—
 $9,668
 $—
 $4,905
 $—
 $—
 $3,578
 $173
 $—
 $8,656
 
Total loans by group$1,003,780
 $3,132,491
 $352,491
 $149,200
 $801,810
 $1,073,961
 $13,669
 $6,527,402
(1)$1,150,632
 $3,254,085
 $373,517
 $166,410
 $935,238
 $1,080,741
 $16,249
 $6,976,872
(1)
December 31, 2017 December 31, 2018 
(Dollars in thousands) (Dollars in thousands) 
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 Other Consumer Total 
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 Other Consumer Total 
Financing receivables ending balance:                                
Collectively evaluated for impairment$853,885
 $3,093,945
 $401,797
 $131,667
 $733,809
 $1,045,053
 $9,573
 $6,269,729
 $1,064,800
 $3,235,418
 $365,165
 $164,135
 $906,959
 $1,085,961
 $15,901
 $6,838,339
 
Individually evaluated for impairment$34,643
 $16,638
 $—
 $703
 $13,684
 $6,826
 $307
 $72,801
  $28,829
 $10,839
 $—
 $541
 $12,706
 $5,948
 $197
 $59,060
  
Purchased credit impaired loans$—
 $5,978
 $—
 $—
 $6,836
 $209
 $—
 $13,023
 $—
 $4,991
 $—
 $—
 $3,629
 $175
 $—
 $8,795
 
Total loans by group$888,528
 $3,116,561
 $401,797
 $132,370
 $754,329
 $1,052,088
 $9,880
 $6,355,553
(1)$1,093,629
 $3,251,248
 $365,165
 $164,676
 $923,294
 $1,092,084
 $16,098
 $6,906,194
(1)
 
(1)The amount of net deferred costs on originated loans included in the ending balance was $6.9$7.3 million and $6.1$7.1 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $8.6$14.3 million and $9.4$15.2 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
    













The following tables summarize changes in allowance for loan losses by loan category for the periods indicated:
 Three Months Ended September 30, 2018
 (Dollars in thousands)
 Commercial and
Industrial		 Commercial
Real Estate		 Commercial
Construction		 Small
Business		 Residential
Real Estate		 
Home Equity		 Other Consumer Total
Allowance for loan losses               
Beginning balance$14,788
 $32,095
 $5,216
 $1,709
 $2,909
 $5,468
 $372
 $62,557
Charge-offs(218) (82) —
 (111) —
 (87) (349) (847)
Recoveries108
 29
 —
 10
 9
 71
 223
 450
Provision (benefit)430
 226
 (189) 160
 153
 102
 193
 1,075
Ending balance$15,108
 $32,268
 $5,027
 $1,768
 $3,071
 $5,554
 $439
 $63,235
                
 Three Months Ended September 30, 2017
 (Dollars in thousands)
 Commercial and
Industrial		 Commercial
Real Estate		 Commercial
Construction		 Small
Business		 Residential
Real Estate		 
Home Equity		 Other Consumer Total
Allowance for loan losses               
Beginning balance$13,544
 $30,947
 $4,814
 $1,613
 $2,693
 $5,353
 $515
 $59,479
Charge-offs(124) —
 —
 (164) (43) (81) (405) (817)
Recoveries404
 286
 —
 17
 15
 65
 261
 1,048
Provision (benefit)(994) (233) 806
 140
 111
 89
 81
 —
Ending balance$12,830
 $31,000
 $5,620
 $1,606
 $2,776
 $5,426
 $452
 $59,710



Nine Months Ended September 30, 2018Three Months Ended March 31, 2019
(Dollars in thousands)(Dollars in thousands)
Commercial and
Industrial		 Commercial
Real Estate		 Commercial
Construction		 Small
Business		 Residential
Real Estate		 
Home Equity		 Other Consumer TotalCommercial and
Industrial		 Commercial
Real Estate		 Commercial
Construction		 Small
Business		 Residential
Real Estate		 
Home Equity		 Other Consumer Total
Allowance for loan losses                              
Beginning balance$13,256
 $31,453
 $5,698
 $1,577
 $2,822
 $5,390
 $447
 $60,643
$15,760
 $32,370
 $5,158
 $1,756
 $3,219
 $5,608
 $422
 $64,293
Charge-offs(355) (82) —
 (237) (148) (261) (926) (2,009)—
 —
 —
 (145) ��
 (113) (301) (559)
Recoveries179
 67
 —
 29
 12
 128
 611
 1,026
124
 33
 —
 27
 1
 66
 155
 406
Provision (benefit)2,028
 830
 (671) 399
 385
 297
 307
 3,575
988
 (354) 197
 146
 14
 (54) 63
 1,000
Ending balance$15,108
 $32,268
 $5,027
 $1,768
 $3,071
 $5,554
 $439
 $63,235
$16,872
 $32,049
 $5,355
 $1,784
 $3,234
 $5,507
 $339
 $65,140
Ending balance: collectively evaluated for impairment$15,101
 $32,234
 $5,027
 $1,767
 $2,197
 $5,386
 $426
 $62,138
$16,814
 $31,974
 $5,355
 $1,783
 $2,432
 $5,346
 $332
 $64,036
Ending balance: individually evaluated for impairment$7
 $34
 $—
 $1
 $874
 $168
 $13
 $1,097
$58
 $75
 $—
 $1
 $802
 $161
 $7
 $1,104
Nine Months Ended September 30, 2017Three Months Ended March 31, 2018
(Dollars in thousands)(Dollars in thousands)
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 Other Consumer Total
Commercial and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 
Small
Business
 
Residential
Real Estate
 

Home Equity
 Other Consumer Total
Allowance for loan losses                              
Beginning balance$16,921
 $30,369
 $4,522
 $1,502
 $2,621
 $5,238
 $393
 $61,566
$13,256
 $31,453
 $5,698
 $1,577
 $2,822
 $5,390
 $447
 $60,643
Charge-offs(3,715) —
 —
 (258) (182) (217) (1,151) (5,523)(133) —
 —
 (24) (39) (79) (318) (593)
Recoveries604
 343
 —
 96
 29
 167
 778
 2,017
12
 20
 —
 9
 2
 34
 235
 312
Provision (benefit)(980) 288
 1,098
 266
 308
 238
 432
 1,650
398
 (14) (19) 31
 52
 14
 38
 500
Ending balance$12,830
 $31,000
 $5,620
 $1,606
 $2,776
 $5,426
 $452
 $59,710
$13,533
 $31,459
 $5,679
 $1,593
 $2,837
 $5,359
 $402
 $60,862
Ending balance: collectively evaluated for impairment$12,759
 $30,951
 $5,620
 $1,605
 $1,756
 $5,169
 $433
 $58,293
$13,524
 $31,422
 $5,679
 $1,590
 $1,893
 $5,111
 $386
 $59,605
Ending balance: individually evaluated for impairment$71
 $49
 $—
 $1
 $1,020
 $257
 $19
 $1,417
$9
 $37
 $—
 $3
 $944
 $248
 $16
 $1,257

For the purpose of estimating the allowance for loan losses, management segregates 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 risk characteristics unique to each loan category include:
Commercial Portfolio
•
Commercial and Industrial: Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment.  Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant and equipment, or real estate, if applicable. Repayment sources consist of primarily, operating cash flow, and secondarily, liquidation of assets.
•
Commercial Real Estate: Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans are typically written with amortizing payment structures.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of, primarily, cash flow from operating leases and rents and, secondarily, liquidation of assets.
•
Commercial Construction: Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property.  Project types include residential 1-4 family, condominium and multi-family homes, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties.  Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project.  Collateral values are determined based upon third party appraisals and evaluations.  Loan to value ratios at origination are governed by established policy and regulatory

guidelines.  Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets.

•
Small Business: Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment.  Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate if applicable.  Repayment sources consist primarily of operating cash flows and, secondarily, liquidation of assets.
For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests of the borrowing entities.
Consumer Portfolio
•
Residential Real Estate: Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral.  Collateral consists of mortgage liens on 1-4 family residential properties.  Residential mortgage loans also include loans to construct owner-occupied 1-4 family residential properties.
•
Home Equity: Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. Each home equity line of credit has a variable rate and is billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued interest over a predetermined repayment period, as set forth in the note. Additionally, the Company has the option of renewing each line of credit for additional draw periods.  Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.
•
Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, debt consolidation, personal expenses or overdraft protection.  Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.  These loans may be secured or unsecured.
Credit Quality
The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as adversely risk-rated, delinquent, impaired, 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. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring (“TDR”).
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-ratings categories are defined as follows:
•
1- 6 Rating — Pass: Risk-rating grades “1” through “6” comprise those 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.
•
7 Rating — 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.
•
8 Rating — Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loan 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.

•
9 Rating — 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.
•
10 Rating — 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 credit quality of the commercial loan portfolio is actively monitored and any changes in credit quality are reflected in risk-rating changes. Risk-ratings are assigned or reviewed for all new loans, when advancing significant additions to existing relationships (over $50,000), at least quarterly for all actively managed loans, and any time a significant event occurs, including at renewal of the loan.
The Company utilizes a comprehensive strategy for monitoring commercial credit quality. 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 an experienced credit analysis group, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. 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.
The following tables detail the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s commercial portfolio:
  September 30, 2018  March 31, 2019
Category
Risk
Rating
 
Commercial  and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 Small Business Total
Risk
Rating
 
Commercial  and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 Small Business Total
  (Dollars in thousands)  (Dollars in thousands)
Pass1 - 6 $935,769
 $3,041,551
 $352,190
 $146,809
 $4,476,319
1 - 6 $1,043,472
 $3,135,926
 $368,450
 $163,671
 $4,711,519
Potential weakness7 17,655
 52,089
 301
 1,053
 71,098
7 53,712
 85,126
 2,248
 867
 141,953
Definite weakness-loss unlikely8 45,399
 38,453
 —
 1,338
 85,190
8 53,448
 33,033
 2,819
 1,872
 91,172
Partial loss probable9 4,957
 398
 —
 —
 5,355
9 —
 —
 —
 —
 —
Definite loss10 —
 —
 —
 —
 —
10 —
 —
 —
 —
 —
Total $1,003,780
 $3,132,491
 $352,491
 $149,200
 $4,637,962
 $1,150,632
 $3,254,085
 $373,517
 $166,410
 $4,944,644

  December 31, 2017  December 31, 2018
Category
Risk
Rating
 
Commercial  and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 Small Business Total
Risk
Rating
 
Commercial  and
Industrial
 
Commercial
Real Estate
 
Commercial
Construction
 Small Business Total
  (Dollars in thousands)  (Dollars in thousands)
Pass1 - 6 $806,331
 $3,007,672
 $400,964
 $130,265
 $4,345,232
1 - 6 $1,014,370
 $3,156,989
 $361,884
 $161,851
 $4,695,094
Potential weakness7 16,563
 69,788
 —
 1,471
 87,822
7 16,860
 56,840
 298
 888
 74,886
Definite weakness-loss unlikely8 59,415
 38,637
 833
 631
 99,516
8 58,909
 37,419
 2,983
 1,937
 101,248
Partial loss probable9 6,219
 464
 —
 3
 6,686
9 3,490
 —
 —
 —
 3,490
Definite loss10 —
 —
 —
 —
 —
10 —
 —
 —
 —
 —
Total $888,528
 $3,116,561
 $401,797
 $132,370
 $4,539,256
 $1,093,629
 $3,251,248
 $365,165
 $164,676
 $4,874,718


For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios as of the periods indicated below:
September 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Residential portfolio      
FICO score (re-scored)(1)748
 745
748
 749
LTV (re-valued)(2)58.2% 59.2%58.6% 58.6%
Home equity portfolio      
FICO score (re-scored)(1)767
 766
767
 767
LTV (re-valued)(2)(3)48.9% 50.1%49.6% 49.3%
 
(1)The average FICO scores at September 30,March 31, 2019 are based upon rescores available from March 11, 2019 and origination score data for loans booked for the remainder of March 2019. The average FICO scores at December 31, 2018 are based upon rescores available from AugustNovember 2018 and origination score data for loans booked in SeptemberDecember 2018. The average FICO scores at December 31, 2017 are based upon rescores available from August 2017 and origination score data for loans booked between September and December 2017.
(2)The combined LTV ratios for September 30, 2018March 31, 2019 are based upon updated automated valuations as of August 2018,February 2019, when available, or the most current valuation data available. The combined LTV ratios for December 31, 20172018 are based upon updated automated valuations as of August 2017,November 2018, when available, and/or the most current valuation data available. 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.

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 more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and/or in process of collection.
The following table shows information regarding nonaccrual loans at the dates indicated:
September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Commercial and industrial$28,742
 $32,055
$25,879
 $26,310
Commercial real estate1,960
 3,123
1,228
 3,015
Commercial construction311
 311
Small business191
 230
180
 235
Residential real estate8,076
 8,129
8,517
 8,251
Home equity6,367
 6,022
7,202
 7,278
Other consumer49
 71
9
 13
Total nonaccrual loans (1)$45,385
 $49,630
$43,326
 $45,413

(1)Included in these amounts were $3.4$28.9 million and $6.1$29.3 million of nonaccruing TDRs at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.

The following table shows information regarding foreclosed residential real estate property at the dates indicated:
 September 30, 2018 December 31, 2017
 (Dollars in thousands)
Foreclosed residential real estate property held by the creditor$190
 $612
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure$3,880
 $2,971
 March 31, 2019 December 31, 2018
 (Dollars in thousands)
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure$4,186
 $3,174

The following tables show the age analysis of past due financing receivables as of the dates indicated:
September 30, 2018March 31, 2019
30-59 days 60-89 days 90 days or more Total Past Due   
Total
Financing
Receivables
 
Recorded
Investment
>90 Days
and  Accruing
30-59 days 60-89 days 90 days or more Total Past Due   
Total
Financing
Receivables
 
Recorded
Investment
>90 Days
and  Accruing
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 Current 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 Current 
(Dollars in thousands)(Dollars in thousands)
Loan Portfolio                                          
Commercial and industrial3
 $265
 5
 $431
 10
 $28,694
 18
 $29,390
 $974,390
 $1,003,780
 $—
2
 $70
 —
 $—
 4
 $413
 6
 $483
 $1,150,149
 $1,150,632
 $—
Commercial real estate7
 2,188
 5
 849
 6
 1,430
 18
 4,467
 3,128,024
 3,132,491
 —
9
 2,156
 —
 —
 3
 274
 12
 2,430
 3,251,655
 3,254,085
 —
Commercial construction—
 —
 —
 —
 —
 —
 —
 —
 352,491
 352,491
 —
1
 387
 —
 —
 1
 311
 2
 698
 372,819
 373,517
 —
Small business9
 483
 6
 60
 17
 139
 32
 682
 148,518
 149,200
 —
22
 361
 23
 100
 13
 104
 58
 565
 165,845
 166,410
 —
Residential real estate10
 1,129
 12
 2,367
 19
 3,367
 41
 6,863
 794,947
 801,810
 —
12
 1,467
 9
 1,231
 27
 4,852
 48
 7,550
 927,688
 935,238
 —
Home equity16
 909
 9
 797
 25
 2,825
 50
 4,531
 1,069,430
 1,073,961
 —
28
 1,711
 8
 693
 29
 3,017
 65
 5,421
 1,075,320
 1,080,741
 —
Other consumer (1)272
 118
 8
 20
 13
 46
 293
 184
 13,485
 13,669
 9
246
 242
 13
 47
 10
 10
 269
 299
 15,950
 16,249
 5
Total317
 $5,092
 45
 $4,524
 90
 $36,501
 452
 $46,117
 $6,481,285
 $6,527,402
 $9
320
 $6,394
 53
 $2,071
 87
 $8,981
 460
 $17,446
 $6,959,426
 $6,976,872
 $5
December 31, 2017December 31, 2018
30-59 days 60-89 days 90 days or more Total Past Due   
Total
Financing
Receivables
 
Recorded
Investment
>90 Days
and Accruing
30-59 days 60-89 days 90 days or more Total Past Due   
Total
Financing
Receivables
 
Recorded
Investment
>90 Days
and Accruing
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 Current 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 
Number
of Loans
 
Principal
Balance
 Current 
(Dollars in thousands)(Dollars in thousands)
Loan Portfolio                                          
Commercial and industrial2
 $195
 2
 $370
 14
 $32,007
 18
 $32,572
 $855,956
 $888,528
 $—
—
 $—
 4
 $382
 11
 $26,311
 15
 $26,693
 $1,066,936
 $1,093,629
 $—
Commercial real estate7
 3,060
 —
 —
 9
 1,793
 16
 4,853
 3,111,708
 3,116,561
 —
9
 1,627
 —
 —
 8
 2,250
 17
 3,877
 3,247,371
 3,251,248
 —
Commercial construction—
 —
 —
 —
 —
 —
 —
 —
 401,797
 401,797
 —
1
 1,271
 —
 —
 1
 311
 2
 1,582
 363,583
 365,165
 —
Small business17
 339
 11
 144
 10
 57
 38
 540
 131,830
 132,370
 —
15
 506
 19
 87
 24
 162
 58
 755
 163,921
 164,676
 —
Residential real estate6
 870
 13
 2,385
 22
 3,471
 41
 6,726
 747,603
 754,329
 —
23
 3,486
 6
 521
 25
 4,382
 54
 8,389
 914,905
 923,294
 —
Home equity22
 1,310
 6
 451
 20
 2,025
 48
 3,786
 1,048,302
 1,052,088
 —
22
 1,331
 12
 855
 29
 2,663
 63
 4,849
 1,087,235
 1,092,084
 —
Other consumer (1)265
 197
 16
 27
 17
 45
 298
 269
 9,611
 9,880
 8
330
 181
 15
 9
 12
 13
 357
 203
 15,895
 16,098
 5
Total319
 $5,971
 48
 $3,377
 92
 $39,398
 459
 $48,746
 $6,306,807
 $6,355,553
 $8
400
 $8,402
 56
 $1,854
 110
 $36,092
 566
 $46,348
 $6,859,846
 $6,906,194
 $5


(1) Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances.
Troubled Debt Restructurings
In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated:
September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(Dollars in thousands)(Dollars in thousands)
TDRs on accrual status$24,554
 $25,852
$23,053
 $23,849
TDRs on nonaccrual3,370
 6,067
28,908
 29,348
Total TDRs$27,924
 $31,919
$51,961
 $53,197
Amount of specific reserves included in the allowance for loan losses associated with TDRs$1,097
 $1,342
$1,051
 $1,079
Additional commitments to lend to a borrower who has been a party to a TDR$1,224
 $487
$865
 $982

The Company’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months subsequent to being modified before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Additionally, loans classified as TDRs are adjusted to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized.
The following tables show the modifications which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring:
Three Months Ended Nine Months EndedThree Months Ended
September 30, 2018 September 30, 2018March 31, 2019
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment (1)
 
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment (1)
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
(Dollars in thousands)(Dollars in thousands)
Troubled debt restructurings                
Commercial and industrial2
 $126
 $126
 2
 $126
 $126
Commercial real estate1
 205
 205
 2
 650
 650
1
 150
 150
Residential real estate3
 503
 523
 4
 652
 672
Home equity2
 74
 74
 8
 546
 546
1
 75
 75
Total8
 $908
 $928
 16
 $1,974
 $1,994
2
 $225
 $225
 
Three Months Ended Nine Months EndedThree Months Ended
September 30, 2017 September 30, 2017March 31, 2018
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment (1)
 
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment (1)
Number of
Contracts
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
(Dollars in thousands)(Dollars in thousands)
Troubled debt restructurings                
Commercial and industrial1
 $196
 $196
 9
 $1,575
 $1,575
Commercial real estate—
 —
 —
 6
 1,884
 1,884
1
 445
 445
Small business2
 183
 183
 10
 447
 447
Residential real estate—
 —
 —
 5
 889
 900
Home equity4
 436
 436
 14
 1,427
 1,430
2
 242
 242
Total7
 $815
 $815
 44
 $6,222
 $6,236
3
 $687
 $687
 
(1)The post-modification balances represent the legal principal balance of the loan on the date of modification. These amounts may show an increase when modifications include a capitalization of interest.


The following table shows the Company’s post-modification balance of TDRs listed by type of modification during the periods indicated:
Three Months Ended Nine Months EndedThree Months Ended
September 30 September 30March 31
2018 2017 2018 20172019 2018
(Dollars in thousands) (Dollars in thousands)(Dollars in thousands)
Adjusted interest rate$150
 $—
Court ordered concession75
 242
Extended maturity$617
 $486
 $1,062
 $4,565
—
 445
Combination rate and maturity237
 196
 237
 196
Court ordered concession74
 133
 695
 1,475
Total$928
 $815
 $1,994
 $6,236
$225
 $687

The Company considers a loan to have defaulted when it reaches 90 days past due. As of September 30,During the three months ended March 31, 2019 and March 31, 2018, there were no loans modified during the past twelve months that subsequently defaulted during the three and nine month periods ended September 30, 2018. There were no loans modified during the preceding twelve months that subsequently defaulted during the three month period ended September 30, 2017. There was one residential real estate loan modified during the preceding twelve months with a recorded investment of $205,000, which subsequently defaulted during the nine month period ended September 30, 2017.defaulted.
All TDR loans are considered impaired and therefore are subject to a specific review for impairment. The impairment analysis appropriately discounts the present value of the anticipated cash flows by the loan’s contractual rate of interest in effect prior to the loan’s modification. The amount of impairment, if any, is recorded as a specific loss allocation to each individual loan in the allowance for loan losses. Commercial loans (commercial and industrial, commercial construction, commercial real estate and small business loans), residential loans, and home equity loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent. In such an instance, any shortfall between the value of the collateral and the carrying value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less costs to sell. The Company charges off the amount of any confirmed loan loss in the period when the loans, or portion of loans, are deemed uncollectible. Smaller balance consumer TDR loans are reviewed for performance to determine when a charge-off is appropriate.
Impaired Loans
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.




The tables below set forth information regarding the Company’s impaired loans by loan portfolio at the dates indicated:
September 30, 2018March 31, 2019
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
(Dollars in thousands)(Dollars in thousands)
With no related allowance recorded          
Commercial and industrial$30,618
 $38,297
 $—
$27,724
 $37,327
 $—
Commercial real estate11,329
 11,962
 —
8,652
 8,868
 —
Commercial construction311
 311
 —
Small business445
 523
 —
299
 347
 —
Residential real estate4,783
 4,925
 —
4,402
 4,574
 —
Home equity4,973
 5,181
 —
4,921
 5,169
 —
Other consumer60
 61
 —
51
 51
 —
Subtotal52,208
 60,949
 —
46,360
 56,647
 —
With an allowance recorded          
Commercial and industrial$320
 $320
 $7
$497
 $497
 $58
Commercial real estate1,694
 1,694
 34
1,671
 1,671
 75
Small business146
 152
 1
180
 220
 1
Residential real estate8,042
 8,921
 874
7,659
 8,669
 802
Home equity1,437
 1,620
 168
979
 1,137
 161
Other consumer184
 187
 13
136
 138
 7
Subtotal11,823
 12,894
 1,097
11,122
 12,332
 1,104
Total$64,031
 $73,843
 $1,097
$57,482
 $68,979
 $1,104
December 31, 2017December 31, 2018
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
(Dollars in thousands)(Dollars in thousands)
With no related allowance recorded          
Commercial and industrial$34,267
 $38,329
 $—
$28,459
 $35,913
 $—
Commercial real estate13,245
 14,374
 —
9,552
 9,832
 —
Small business556
 619
 —
358
 439
 —
Residential real estate4,264
 4,397
 —
4,518
 4,686
 —
Home equity4,950
 5,056
 —
4,957
 5,199
 —
Other consumer91
 92
 —
56
 56
 —
Subtotal57,373
 62,867
 —
47,900
 56,125
 —
With an allowance recorded          
Commercial and industrial$376
 $376
 $10
$370
 $370
 $7
Commercial real estate3,393
 3,399
 42
1,287
 1,287
 37
Small business147
 153
 1
183
 223
 1
Residential real estate9,420
 10,154
 1,007
8,188
 9,217
 862
Home equity1,876
 2,110
 265
991
 1,149
 164
Other consumer216
 217
 17
141
 143
 8
Subtotal15,428
 16,409
 1,342
11,160
 12,389
 1,079
Total$72,801
 $79,276
 $1,342
$59,060
 $68,514
 $1,079


The following tables set forth information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated:
Three Months Ended Nine Months EndedThree Months Ended
September 30, 2018 September 30, 2018March 31, 2019
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Average
Recorded
Investment
 
Interest
Income
Recognized
(Dollars in thousands)(Dollars in thousands)
With no related allowance recorded          
Commercial and industrial$31,376
 $28
 $32,424
 $89
$30,198
 $35
Commercial real estate12,040
 135
 12,423
 428
8,873
 104
Commercial construction311
 —
Small business432
 4
 478
 13
323
 2
Residential real estate4,798
 56
 4,826
 173
4,421
 54
Home equity5,078
 58
 5,185
 168
4,952
 55
Other consumer62
 1
 66
 3
53
 1
Subtotal53,786
 282
 55,402
 874
49,131
 251
With an allowance recorded          
Commercial and industrial$324
 $4
 $330
 $11
$498
 $3
Commercial real estate1,701
 24
 1,715
 71
1,682
 24
Small business148
 3
 154
 8
181
 2
Residential real estate8,057
 69
 8,194
 207
7,665
 64
Home equity1,453
 14
 1,467
 39
985
 12
Other consumer187
 1
 194
 4
138
 1
Subtotal11,870
 115
 12,054
 340
11,149
 106
Total$65,656
 $397
 $67,456
 $1,214
$60,280
 $357



Three Months Ended Nine Months EndedThree Months Ended
September 30, 2017 September 30, 2017March 31, 2018
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Average
Recorded
Investment
 
Interest
Income
Recognized
(Dollars in thousands)(Dollars in thousands)
With no related allowance recorded          
Commercial and industrial$33,935
 $18
 $36,329
 $179
$33,784
 $31
Commercial real estate14,569
 151
 14,798
 460
14,855
 157
Small business682
 5
 702
 17
710
 5
Residential real estate3,928
 51
 3,962
 152
4,254
 53
Home equity4,883
 50
 4,935
 146
5,280
 53
Other consumer99
 2
 104
 5
87
 1
Subtotal58,096
 277
 60,830
 959
58,970
 300
With an allowance recorded          
Commercial and industrial$1,698
 $21
 $1,768
 $65
$227
 $2
Commercial real estate4,569
 65
 4,599
 195
1,730
 24
Small business305
 3
 315
 11
131
 2
Residential real estate9,752
 79
 9,838
 234
9,060
 71
Home equity1,765
 14
 1,782
 41
1,688
 12
Other consumer229
 2
 237
 5
211
 2
Subtotal18,318
 184
 18,539
 551
13,047
 113
Total$76,414
 $461
 $79,369
 $1,510
$72,017
 $413


Purchased Credit Impaired Loans

Certain loans acquired by the Company may have shown evidence of deterioration of credit quality since origination and it was therefore deemed unlikely that the Company would be able to collect all contractually required payments. As such, these loans were deemed to be PCI loans and the carrying value and prospective income recognition are predicated upon future cash flows expected to be collected. The following table displays certain information pertaining to PCI loans at the dates indicated:
September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Outstanding balance$10,725
 $14,485
$9,592
 $9,749
Carrying amount$9,668
 $13,023
$8,656
 $8,795


The following table summarizes activity in the accretable yield for the PCI loan portfolio:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2018 2017 2018 20172019 2018
(Dollars in thousands)(Dollars in thousands)
Beginning balance$1,604
 $2,185
 $1,791
 $2,370
$1,191
 $1,791
Accretion(518) (359) (931) (968)(141) (215)
Other change in expected cash flows (1)104
 167
 308
 573
114
 44
Reclassification from nonaccretable difference for loans which have paid off (2)203
 70
 225
 88
—
 22
Ending balance$1,393
 $2,063
 $1,393
 $2,063
$1,164
 $1,642


(1) Represents changes in cash flows expected to be collected and resulting in increased interest income as a prospective yield adjustment over the remaining life of the loan(s).
(2) Results in increased interest income during the period in which the loan paid off at amount greater than originally expected.

NOTE 5 - BORROWINGS

On March 14, 2019, the Company issued $50.0 million of fixed to floating rate subordinated notes in a private placement transaction to institutional accredited investors. The subordinated debentures mature on March 15, 2029, however with regulatory approval, the Company may redeem the subordinated debt without penalty at any scheduled payment date on or after March 15, 2024 with 30 days notice. The subordinated notes carry interest at a fixed rate of 4.75% through March 15, 2024, after which it converts to a variable rate.

On March 28, 2019, the Company entered into a credit facility for an aggregate principal amount of $125.0 million, including a $50.0 million senior unsecured revolving loan credit facility and a $75.0 million senior unsecured term loan credit facility. Advances under the revolving loan facility and term loan facility shall bear interest at an interest rate equal to the one-month LIBOR rate plus 1.15% for the revolving loan facility and one-month LIBOR plus 1.25% for the term loan facility, which is due and payable in full on March 28, 2022. The Company used the proceeds of these borrowings for the funding needs related to the second quarter closing of Blue Hills Bancorp, Inc. ("BHB"). Subsequent to March 31, 2019, the Company repaid the full $50.0 million of the senior unsecured revolving loan facility.






NOTE 56 -EARNINGS PER SHARE
Earnings per share consisted of the following components for the periods indicated:

Three Months Ended Nine Months EndedThree Months Ended
September 30 September 30March 31
2018 2017 2018 20172019 2018
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Net income$33,015
 $23,852
 $91,688
 $65,140
$35,225
 $27,555
          
Weighted Average Shares    
Basic shares27,537,841
 27,436,792
 27,517,210
 27,242,902
28,106,184
 27,486,573
Effect of dilutive securities63,499
 76,307
 62,596
 78,043
54,466
 67,381
Diluted shares27,601,340
 27,513,099
 27,579,806
 27,320,945
28,160,650
 27,553,954
          
Net income per share          
Basic EPS$1.20
 $0.87
 $3.33
 $2.39
$1.25
 $1.00
Effect of dilutive securities—
 —
 (0.01) (0.01)—
 —
Diluted EPS$1.20
 $0.87
 $3.32
 $2.38
$1.25
 $1.00


During the three and nine months ended September 30, 2018 and 2017March 31, 2019 there were no options to purchase common stock orand 6,890 shares of performance-based restricted stock that were excluded from the calculation of diluted earnings per share because they were anti-dilutive. During the three months ended March 31, 2018 there were 143 options to purchase common stock and no shares of performance-based restricted stock that were excluded from the calculation of diluted earnings per share because they were anti-dilutive.


NOTE 67 - STOCK BASED COMPENSATION
Time Vested Restricted Stock Awards
During the ninethree months ended September 30, 2018,March 31, 2019, the Company made the following awards of restricted stock:
Date Shares Granted Plan Grant Date Fair Value Per Share Vesting Period
2/15/2018 39,950
 2005 Employee Stock Plan $71.75
 Ratably over 5 years from grant date
2/27/2018 1,150
 2005 Employee Stock Plan $72.60
 Ratably over 5 years from grant date
5/15/2018 530
 2005 Employee Stock Plan $74.00
 Ratably over 5 years from grant date
5/22/2018 6,000
 2018 Non-Employee Director Stock Plan $76.58
 Shares vested immediately
Date Shares Granted Plan Grant Date Fair Value Per Share Vesting Period
2/21/2019 43,250
 2005 Employee Stock Plan $83.87
 Ratably over 5 years from grant date
3/15/2019 600
 2005 Employee Stock Plan $79.55
 Ratably over 5 years from grant date

The fair value of the restricted stock awards is based upon the average of the high and low price at which the Company’s common stock traded on the date of grant. The holders of restricted stock awards are entitled to receive dividends and to vote from and as of the date of grant.
Performance-Based Restricted Stock Awards
On February 15, 2018,21, 2019, the Company granted 16,30015,900 performance-based restricted stock awards to certain executive level employees. These performance-based restricted stock awards were issued from the 2005 Employee Stock Plan and were determined to have a grant date fair value per share of $71.75,$83.87, determined by the average of the high and low price at which the Company's common stock traded on the date of grant. The number of shares to be vested will be contingent upon the Company's attainment of certain performance measures outlined in the award agreement and will be measured as of the end of the three year performance period, January 1, 20182019 through December 31, 2020.2021. 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, 2021.2022. These awards are accounted for as equity awards due to the nature of these awards and the fact that these shares will not be settled in cash.
The holders of these awards are not entitled to receive dividends or vote until the shares are vested.
    On February 27, 2018,26, 2019, the performance-based restricted stock awards that were awarded on February 12, 201511, 2016 vested at 100% of the maximum target shares awarded, or 16,42717,947 shares.
Stock Options
The Company has made the followingdid not grant any awards of nonqualified options to purchase shares of common stock during the ninethree months ended September 30, 2018:
 Nine Months Ended
September 30, 2018
Date of grant4/3/2018
Plan2010 Non-Employee Director Stock Plan
Options granted5,000
Vesting period (1)21 months
Expiration date4/3/2028
Expected volatility21.15%
Expected life (years)5.5
Expected dividend yield1.94%
Risk free interest rate2.62%
Fair value per option$13.46
(1)    Vesting period began on the grant date.March 31, 2019.


NOTE 7 - REPURCHASE AGREEMENTS

The Company can raise additional liquidity by entering into repurchase agreements at its discretion. These repurchases are accounted for as a secured borrowing transaction for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement the Company is subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, the Company enters into repurchase agreements that stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by the Company's safekeeping agents.

The table below sets forth information regarding the Company’s repurchase agreements allocated by source of collateral at the dates indicated:    
 September 30,
2018		 December 31,
2017
 (Dollars in thousands)
Sources of collateral 
U.S. government agency securities$14,664
 $16,867
Agency mortgage-backed securities57,378
 51,273
Agency collateralized mortgage obligations69,134
 94,539
Total customer repurchase agreements (1)$141,176
 $162,679

(1)    All customer repurchase agreements have an overnight and continuous maturity date.

For further information regarding the Company's repurchase agreements see Note 9 - Balance Sheet Offsetting.

NOTE 8 - DERIVATIVE AND HEDGING ACTIVITIES
The Company early adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities as of January 1, 2018 to incorporate the new standard’s alignment of hedge accounting qualifications with the Company’s interest rate risk management with respect to new hedges entered into during the first quarter of 2018.  This new standard was adopted under a modified retrospective transition, resulting in no changes to the accounting for hedge positions entered in to prior to January 1, 2018. 
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 and foreign exchange contracts 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.
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.






The following tables reflect the Company's derivative positions for the periods indicated below for interest rate derivatives which qualify as cash flow hedges for accounting purposes:
September 30, 2018
Notional Amount Trade Date Effective Date Maturity Date Receive (Variable) Index Current Rate Received 
Pay Fixed
Swap Rate
 Fair Value
(Dollars in thousands)
$25,000
 12/9/2008 12/10/2008 12/10/2018 3 Month LIBOR 2.33% 2.94% $(29)
25,000
 4/1/2016 1/17/2017 12/15/2021 3 Month LIBOR 2.33% 1.36% 1,260
25,000
 4/1/2016 1/17/2017 12/15/2021 3 Month LIBOR 2.33% 1.36% 1,251
25,000
 7/18/2017 8/15/2017 8/15/2022 3 Month LIBOR 2.31% 1.88% 1,041
               
Notional Amount Trade Date Effective Date Maturity Date Pay (Variable) Index Current Rate Paid 
Receive Fixed
Swap Rate
 Fair Value
50,000
 1/9/2018 1/16/2018 1/15/2023 1 Month LIBOR 2.16% 2.24% $(1,347)
50,000
 7/31/2018 8/15/2018 8/15/2023 1 Month LIBOR 2.16% 2.82% (189)
               
Notional Amount Trade Date Effective Date Maturity Date Pay (Variable) Index Current Rate Paid 
Receive Fixed Swap Rate
Cap - Floor
 Fair Value
50,000
 1/9/2018 1/16/2018 1/15/2022 1 Month LIBOR 2.16% 2.75% - 1.80%
 $(516)
50,000
 7/31/2018 8/15/2018 8/15/2022 1 Month LIBOR 2.16% 3.08% - 2.50%
 (128)
50,000
 9/24/2018 10/15/2018 4/15/2023(1)1 Month LIBOR N/A
 3.09% - 2.75%
 32
               


             $1,375
               
December 31, 2017
Notional Amount Trade Date Effective Date Maturity Date Receive (Variable) Index Current Rate Received Pay Fixed
Swap Rate		 Fair Value
(Dollars in thousands)
$25,000
 12/9/2008 12/10/2008 12/10/2018 3 Month LIBOR 1.54% 2.94% $(264)
25,000
 4/1/2016 1/17/2017 12/15/2021 3 Month LIBOR 1.59% 1.36% 772
25,000
 4/1/2016 1/17/2017 12/15/2021 3 Month LIBOR 1.59% 1.36% 763
25,000
 7/18/2017 8/15/2017 8/15/2022 3 Month LIBOR 1.42% 1.88% 345
              $1,616
March 31, 2019
      Weighted Average Rate  
  Notional Amount Average Maturity Current
Rate
Received		 Pay Fixed
Swap Rate		 Fair Value
  (in thousands) (in years)     (in thousands)
Interest rate swaps on borrowings $75,000
 2.93 2.63% 1.53% $1,528
           
      Current Rate Paid 
Receive Fixed
Swap Rate
  
Interest rate swaps on loans 350,000
 4.23 2.50% 2.57% 6,458
           
      Current Rate Paid 
Receive Fixed Swap Rate
Cap - Floor
  
Interest rate collars on loans 250,000
 3.92 2.49% 3.02% - 2.51%
 5,150
           
Total $675,000
       $13,136
           
           
December 31, 2018
      Weighted Average Rate  
  Notional Amount Average Maturity Current
Rate
Received		 Pay Fixed
Swap Rate		 Fair Value
  (in thousands) (in years)     (in thousands)
Interest rate swaps on borrowings $75,000
 3.18 2.74% 1.53% $2,282
           
  
   Current Rate Paid 
Receive Fixed
Swap Rate
 
Interest rate swaps on loans 250,000
 4.52 2.57% 2.67% 2,938
           
      Current Rate Paid 
Receive Fixed Swap Rate
Cap - Floor
  
Interest rate collars on loans 250,000
 4.17 2.47% 3.02% - 2.51%
 3,344
           
Total $575,000
       $8,564

(1)In September 2018, the Company entered into a forward-starting interest rate collar with a notional amount of $50.0 million, with the intention of hedging against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest income on the Company's variable-rate loans.     
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 five4.8 years.
For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  The Company expects approximately $17,000$1.3 million (pre-tax) to be reclassified to interest income and $912,000$725,000 (pre-tax) to be reclassified as an offset to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months.  This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of September 30, 2018.March 31, 2019.
The Company recognized $61,000 and $183,000 of net amortization income that was an offset to interest expense related to previously terminated swaps for each of the three and nine month periodsperiod ended September 30, 2018 and 2017, respectively.March 31, 2018. The Company did not recognize any amortization income related to previously terminated swaps for the three month period ended March 31, 2019.
The Company had no fair value hedges as of September 30, 2018March 31, 2019 or December 31, 2017.


2018.

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. The commercial customer derivative program allows the Company to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. The amounts relating to the notional principal amount are not actually exchanged.
Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes. The Company acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions.
The following tables reflect the Company’s customer related derivative positions for the periods indicated below for those derivatives not designated as hedging:
  Notional Amount Maturing    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 ValueNumber 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, 2018March 31, 2019
(Dollars in thousands)(Dollars in thousands)
Loan level swaps                              
Receive fixed, pay variable246
 $47,115
 $65,256
 $168,249
 $57,508
 $619,232
 $957,360
 $(22,233)235
 $70,141
 $151,524
 $54,375
 $56,044
 $618,648
 $950,732
 $9,724
Pay fixed, receive variable231
 $47,115
 $65,256
 $168,249
 $57,508
 $619,232
 $957,360
 $22,219
222
 $70,141
 $151,524
 $54,375
 $56,044
 $618,648
 $950,732
 $(9,724)
Foreign exchange contracts                              
Buys foreign currency, sells U.S. currency24
 $43,013
 $2,796
 $—
 $—
 $—
 $45,809
 $(1,021)33
 $70,994
 $—
 $—
 $—
 $—
 $70,994
 $(2,102)
Buys U.S. currency, sells foreign currency24
 $43,013
 $2,796
 $—
 $—
 $—
 $45,809
 $1,043
33
 $70,994
 $—
 $—
 $—
 $—
 $70,994
 $2,140
December 31, 2017December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Loan level swaps                              
Receive fixed, pay variable246
 $36,023
 $61,500
 $152,287
 $111,147
 $591,385
 $952,342
 $3,875
235
 $50,702
 $124,222
 $97,904
 $47,308
 $631,471
 $951,607
 $(2,907)
Pay fixed, receive variable231
 $36,023
 $61,500
 $152,287
 $111,147
 $591,385
 $952,342
 $(3,880)220
 $50,702
 $124,222
 $97,904
 $47,308
 $631,471
 $951,607
 $2,903
Foreign exchange contracts                              
Buys foreign currency, sells U.S. currency15
 $26,382
 $3,780
 $—
 $—
 $—
 $30,162
 $1,202
27
 $60,297
 $3,505
 $—
 $—
 $—
 $63,802
 $(1,404)
Buys U.S. currency, sells foreign currency15
 $26,382
 $3,780
 $—
 $—
 $—
 $30,162
 $(1,188)27
 $60,297
 $3,505
 $—
 $—
 $—
 $63,802
 $1,434
 

(1)The Company may enter into one dealer swap agreement which offsets multiple commercial borrower swap agreements.

Mortgage Derivatives

Prior to closing and funding certain 1- 4 family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors. These forward commitments carry a market price that has a strong inverse relationship to that of mortgage prices. 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.


The change in fair value on the interest rate lock commitments and forward delivery sale commitments are recorded in current period earnings as a component of 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 change in fair value associated with loans held for sale was an increase of $103,000$1,000 and a decrease of $108,000$26,000 for the three month periods ended September 30, 2018 and 2017, respectively, and an increase of $147,000 and a decrease of $102,000 for the nine months ended September 30,March 31, 2019 and 2018, and 2017, respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives. Additionally, the aggregate amount of net realized gains or losses on sales of such loans included within mortgage banking income was $1.1 million$705,000 and $1.4 million$782,000 for the three month periods ended September 30, 2018 and 2017, respectively and $2.6 million and $3.4 million for the nine months ended September 30,March 31, 2019 and 2018, and 2017, respectively.


The table below presents the fair value of the Company’s derivative financial instruments, as well as their classification on the balance sheet at the periods indicated:
Asset Derivatives Liability DerivativesAsset Derivatives Liability Derivatives
 Fair Value at Fair Value at Fair Value at Fair Value at Fair Value at Fair Value at Fair Value at Fair Value at
Balance Sheet
Location		 September 30
2018		 December 31
2017		 Balance Sheet
Location		 September 30
2018		 December 31
2017		Balance Sheet
Location		 March 31
2019		 December 31
2018		 Balance Sheet
Location		 March 31
2019		 December 31
2018
(Dollars in thousands)(Dollars in thousands)
Derivatives designated as hedges                
Interest rate derivativesOther assets $3,584
 $1,880
 Other liabilities $2,209
 $264
Other assets $13,136
 $8,955
 Other liabilities $—
 $391
Derivatives not designated as hedges                
Customer Related Positions                
Loan level derivativesOther assets $25,041
 $14,236
 Other liabilities $25,055
 $14,241
Other assets $17,660
 $15,580
 Other liabilities $17,660
 $15,584
Foreign exchange contractsOther assets 1,143
 1,202
 Other liabilities 1,121
 1,188
Other assets 2,140
 1,578
 Other liabilities 2,102
 1,548
Mortgage Derivatives                
Interest rate lock commitmentsOther assets 233
 149
 Other liabilities —
 —
Other assets 128
 91
 Other liabilities —
 —
Forward sales agreementsOther assets —
 9
 Other liabilities 61
 —
Other assets 128
 106
 Other liabilities —
 —
 $26,417
 $15,596
 $26,237
 $15,429
 $20,056
 $17,355
 $19,762
 $17,132
Total $30,001
 $17,476
 $28,446
 $15,693
 $33,192
 $26,310
 $19,762
 $17,523



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 Three Months Ended
September 30 September 30 March 31
2018 2017 2018 2017 2019 2018
(Dollars in thousands)(Dollars in thousands)
Derivatives designated as hedges           
Gain (loss) in OCI on derivatives (effective portion), net of tax$(405) $109
 $(302) $8
Gain (loss) reclassified from OCI into interest income or interest expense (effective portion)$268
 $(91) $525
 $(264)
Gain in OCI on derivatives (effective portion), net of tax $3,285
 $215
Gain reclassified from OCI into interest income or interest expense (effective portion) $424
 $90
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)           
Interest expense$—
 $—
 $—
 $—
 $—
 $—
Other expense—
 —
 —
 —
 —
 —
Total$—
 $—
 $—
 $—
 $—
 $—
Derivatives not designated as hedges           
Changes in fair value of customer related positions           
Other income$3
 $7
 $27
 $7
 $13
 $9
Other expense(10) (7) (28) (17) (1) (13)
Changes in fair value of mortgage derivatives           
Mortgage banking income(139) (33) 14
 71
 59
 12
Total$(146) $(33) $13
 $61
 $71
 $8


The Company's derivative agreements with institutional counterparties contain various credit-risk related contingent provisions, such as requiring the Company to maintain a well-capitalized capital position. If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $34,000$490,000 and $4.2 million$176,000 at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. Although none of the contingency provisions have applied as of

September 30, 2018 March 31, 2019 and December 31, 2017,2018, the Company has posted collateral to offset the net liability exposures with institutional counterparties.

By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company's credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. Institutional counterparties must have an investment grade credit rating and be approved by the Company's Board of Directors. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. The Company's exposure relating to institutional counterparties was $27.3$17.4 million and $7.1$18.4 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The Company’s exposure relating to customer counterparties was approximately $1.5$13.8 million and $9.5$6.4 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. Credit exposure may be reduced by the value of collateral pledged by the counterparty.


NOTE 9 - BALANCE SHEET OFFSETTING
The Company does not offset fair value amounts recognized for derivative instruments or repurchase agreements.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.
The following tables present the Company's asset and liability derivative positions and the potential effect of netting arrangements on its financial position, as of the periods indicated:
 Gross Amounts Not Offset in the Statement of Financial Position  Gross Amounts Not Offset in the Statement of Financial Position 
Gross Amounts Recognized in the Statement of Financial PositionGross Amounts Offset in the Statement of Financial PositionNet Amounts Presented in the Statement of Financial Position
Financial Instruments
(1)
Collateral Pledged (Received)Net AmountGross Amounts Recognized in the Statement of Financial PositionGross Amounts Offset in the Statement of Financial PositionNet Amounts Presented in the Statement of Financial Position
Financial Instruments
(1)
Collateral Pledged (Received)Net Amount
September 30, 2018March 31, 2019
(Dollars in thousands)(Dollars in thousands)
Derivative Assets  
Interest rate swaps$3,584
$—
$3,584
$2,189
$(1,133)$262
$13,136
$—
$13,136
$9,988
$(928)$2,220
Loan level derivatives25,041
—
25,041
1,409
(12,605)11,027
17,660
—
17,660
3,198
(262)14,200
Customer foreign exchange contracts1,143
—
1,143
—
—
1,143
2,140
—
2,140
—
—
2,140
$29,768
$—
$29,768
$3,598
$(13,738)$12,432
$32,936
$—
$32,936
$13,186
$(1,190)$18,560
  
Derivative Liabilities  
Interest rate swaps$2,209
$—
$2,209
$2,189
$20
$—
$—
$—
$—
$—
$—
$—
Loan level derivatives25,055
—
25,055
1,409
2
23,644
17,660
—
17,660
13,186
505
3,969
Customer foreign exchange contracts1,121
—
1,121
—
—
1,121
2,102
—
2,102
—
—
2,102
$28,385
$—
$28,385
$3,598
$22
$24,765
$19,762
$—
$19,762
$13,186
$505
$6,071
 
Customer repurchase agreements141,176
—
141,176
—
141,176
—
(1)Reflects offsetting derivative positions with the same counterparty.


 Gross Amounts Not Offset in the Statement of Financial Position  Gross Amounts Not Offset in the Statement of Financial Position 
Gross Amounts Recognized in the Statement of Financial PositionGross Amounts Offset in the Statement of Financial PositionNet Amounts Presented in the Statement of Financial PositionFinancial Instruments (1)Collateral Pledged (Received)Net AmountGross Amounts Recognized in the Statement of Financial PositionGross Amounts Offset in the Statement of Financial PositionNet Amounts Presented in the Statement of Financial PositionFinancial Instruments (1)Collateral Pledged (Received)Net Amount
December 31, 2017December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Derivative Assets  
Interest rate swaps$1,880
$—
$1,880
$805
$—
$1,075
$8,955
$—
$8,955
$391
$(5,527)$3,037
Loan level derivatives14,236
—
14,236
4,578
—
9,658
15,580
—
15,580
6,165
(3,001)6,414
Customer foreign exchange contracts1,202
—
1,202
—
—
1,202
1,578
—
1,578
—
—
1,578
$17,318
$—
$17,318
$5,383
$—
$11,935
$26,113
$—
$26,113
$6,556
$(8,528)$11,029
  
Derivative Liabilities  
Interest rate swaps$264
$—
$264
$—
$264
$—
$391
$—
$391
$391
$—
$—
Loan level derivatives14,241
—
14,241
5,383
3,675
5,183
15,584
—
15,584
6,165
173
9,246
Customer foreign exchange contracts1,188
—
1,188
—
—
1,188
1,548
—
1,548
—
—
1,548
$15,693
$—
$15,693
$5,383
$3,939
$6,371
$17,523
$—
$17,523
$6,556
$173
$10,794
 
Customer repurchase agreements162,679
—
162,679
—
162,679
—

(1)Reflects offsetting derivative positions with the same counterparty.

NOTE 10 - FAIR VALUE MEASUREMENTS
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the assumptions applied by the Company when determining fair value reflect those that the Company determines market participants would use to price the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received if the asset were to be sold or that would be or paid if the liability were to be transferred in an orderly market transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When determining fair value, the Company considers pricing information and other inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and other inputs may be reduced for certain instruments, or not available at all. The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another.
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining

fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Valuation Techniques
There have been no changes in the valuation techniques used during the current period.
Securities
Trading and Equity Securities
These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
U.S. Government Agency Securities
Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.
Agency Mortgage-Backed Securities
Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.
Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities
The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
State, County, and Municipal Securities
The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transactions, and yield relationships. These securities are categorized as Level 2.
Single and Pooled Issuer Trust Preferred Securities
The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Loans Held for Sale
The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2.
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 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, 2018March 31, 2019 and December 31, 2017,2018, 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.
Impaired Loans
Collateral dependent loans that are deemed to be impaired are valued based upon the lower of cost or fair value of the underlying collateral less costs to sell.  The inputs used in the appraisals of the collateral are not always observable, and in such cases the loans may be classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Other Real Estate Owned and Other Foreclosed Assets
Other Real Estate Owned ("OREO") and Other Foreclosed Assets are valued at the lower of cost or fair value of the property, less estimated costs to sell. The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore OREO and Other Foreclosed Assets may be classified as Level 3 within the fair value hierarchy.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and a discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated:
  Fair Value Measurements at Reporting Date Using  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)
Balance 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
September 30, 2018March 31, 2019
(Dollars in thousands)(Dollars in thousands)
Recurring fair value measurements              
Assets              
Trading securities$1,581
 $1,581
 $—
 $—
$1,837
 $1,837
 $—
 $—
Equity securities20,430
 20,430
 —
 —
20,357
 20,357
 —
 —
Securities available for sale              
U.S. Government agency securities31,572
 —
 31,572
 —
32,455
 —
 32,455
 —
Agency mortgage-backed securities207,523
 —
 207,523
 —
217,795
 —
 217,795
 —
Agency collateralized mortgage obligations137,645
 —
 137,645
 —
131,531
 —
 131,531
 —
State, county, and municipal securities1,981
 —
 1,981
 —
1,739
 —
 1,739
 —
Single issuer trust preferred securities issued by banks and insurers1,004
 —
 1,004
 —
721
 —
 721
 —
Pooled trust preferred securities issued by banks and insurers1,800
 —
 —
 1,800
1,314
 —
 —
 1,314
Small business administration pooled securities54,336
 —
 54,336
 —
52,134
 —
 52,134
 —
Loans held for sale10,431
 —
 10,431
 —
5,586
 —
 5,586
 —
Derivative instruments30,001
 —
 30,001
 —
33,192
 —
 33,192
 —
Liabilities              
Derivative instruments28,446
 —
 28,446
 —
19,762
 —
 19,762
 —
Total recurring fair value measurements$469,858
 $22,011
 $446,047
 $1,800
$478,899
 $22,194
 $455,391
 $1,314
              
Nonrecurring fair value measurements              
Assets              
Collateral dependent impaired loans$32,009
 $—
 $—
 $32,009
$28,261
 $—
 $—
 $28,261
Other real estate owned and other foreclosed assets190
 —
 —
 190
Total nonrecurring fair value measurements$32,199
 $—
 $—
 $32,199
$28,261
 $—
 $—
 $28,261


  Fair Value Measurements at Reporting Date Using  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)
Balance 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
December 31, 2017December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Recurring fair value measurements              
Assets              
Trading securities$1,324
 $1,324
 $—
 $—
$1,504
 $1,504
 $—
 $—
Equity securities20,584
 20,584
 —
 —
19,477
 19,477
 —
 —
Securities available for sale              
U.S. Government agency securities35,430
 —
 35,430
 —
32,038
 —
 32,038
 —
Agency mortgage-backed securities215,764
 —
 215,764
 —
220,105
 —
 220,105
 —
Agency collateralized mortgage obligations122,012
 —
 122,012
 —
134,911
 —
 134,911
 —
State, county, and municipal securities2,274
 —
 2,274
 —
1,735
 —
 1,735
 —
Single issuer trust preferred securities issued by banks and insurers2,016
 —
 2,016
 —
707
 —
 707
 —
Pooled trust preferred securities issued by banks and insurers1,640
 —
 —
 1,640
1,329
 —
 —
 1,329
Small business administration pooled securities47,778
 —
 47,778
 —
51,927
 —
 51,927
 —
Loans held for sale4,768
 —
 4,768
 —
6,431
 —
 6,431
 —
Derivative instruments17,476
 —
 17,476
 —
26,310
 —
 26,310
 —
Liabilities              
Derivative instruments15,693
 —
 15,693
 —
17,523
 —
 17,523
 —
Total recurring fair value measurements$455,373
 $21,908
 $431,825
 $1,640
$478,951
 $20,981
 $456,641
 $1,329
              
Nonrecurring fair value measurements:              
Assets              
Collateral dependent impaired loans$33,567
 $—
 $—
 $33,567
$29,109
 $—
 $—
 $29,109
Other real estate owned and other foreclosed assets612
 —
 —
 612
Total nonrecurring fair value measurements$34,179
 $—
 $—
 $34,179
$29,109
 $—
 $—
 $29,109


The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), which were valued using pricing models and discounted cash flow methodologies, as of the dates indicated:
Three Months EndedThree Months Ended
September 30March 31
2018 20172019 2018
(Dollars in thousands)(Dollars in thousands)
Pooled Trust Preferred Securities      
Beginning balance$1,751
 $1,593
$1,329
 $1,640
Gains and (losses) (realized/unrealized)      
Included in other comprehensive income55
 51
3
 21
Settlements(6) (20)(18) (6)
Ending balance$1,800
 $1,624
$1,314
 $1,655
      
Nine Months Ended
September 30
2018 2017
(Dollars in thousands)
Pooled Trust Preferred Securities   
Beginning balance$1,640
 $1,584
Gains and (losses) (realized/unrealized)   
Included in other comprehensive income180
 58
Settlements(20) (18)
Ending balance$1,800
 $1,624
   

It is the Company’s policy to recognize the transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers between the levels of the fair value hierarchy for any assets or liabilities measured at fair value on a recurring basis during the nine month periods ended September 30, 2018 or 2017.

The following table sets forth certain unobservable inputs regarding the Company’s investment in securitiesfinancial instruments that are classified as Level 3 for the periods indicated:
 September 30
2018		 December 31
2017		 September 30
2018		 December 31
2017		 September 30
2018		 December 31
2017		 March 31
2019		 December 31
2018		 March 31
2019		 December 31
2018		 March 31
2019		 December 31
2018
Valuation Technique Fair Value Unobservable Inputs Range Weighted Average Fair Value Unobservable Inputs Range Weighted Average
 (Dollars in thousands)  (Dollars in thousands) 
Discounted cash flow methodologyDiscounted cash flow methodology Discounted cash flow methodology 
Pooled trust preferred securities $1,800
 $1,640
 Cumulative prepayment 0% - 59% 0% - 61% 2.4% 2.5% $1,314
 $1,329
 Cumulative prepayment 0% - 58% 0% - 59% 2.5% 2.1%
     Cumulative default 5% - 100% 5% - 100% 13.5% 12.4%     Cumulative default 5% - 100% 5% - 100% 16.1% 16.2%
     Loss given default 85% - 100% 85% - 100% 94.4% 94.3%     Loss given default 85% - 100% 85% - 100% 92.1% 94.8%
     Cure given default 0% - 75% 0% - 75% 60.9% 60.9%     Cure given default 0% - 75% 0% - 75% 60.9% 60.9%
Appraisals of collateral(1)Appraisals of collateral(1) Appraisals of collateral(1) 
Collateral dependent impaired loans $32,009
 $33,567
  $28,261
 $29,109
 
Other real estate owned and foreclosed assets $190
 $612
 
 
(1)Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary.
For the fair value measurements in the table above, which are classified as Level 3 within the fair value hierarchy, the Company’s Treasury and Finance groups determine the valuation policies and procedures. For the pricing of the securities, the Company uses third-party pricing information, without adjustment. Depending on the type of the security, management employs various techniques to analyze the pricing it receives from third parties, such as analyzing changes in market yields and in certain instances reviewing the underlying collateral of the security. Management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with their expectation of the market. For the securities whose market is deemed to be inactive and which are categorized as Level 3, the fair value models are calibrated and significant inputs are back tested on a quarterly basis, to the extent possible. This testing is done by the third party service provider, who performs this testing by comparing anticipated inputs to actual results. Significant changes in fair value from period to period are closely scrutinized to ensure fair value models are not flawed. The driver(s) of the respective change in fair value and the method for forecasting the driver(s) are closely considered by management.
The significant unobservable inputs used in the fair value measurement of the Company’s pooled trust preferred securities are cumulative prepayment rates, cumulative default rates, loss given default rates and cure given default rates. Significant increases (decreases) in deferrals or defaults, in isolation, would result in a significantly lower (higher) fair value measurement. Alternatively, significant increases (decreases) in cure rates, in isolation, would result in a significantly higher (lower) fair value measurement.
Additionally, the Company has certain assets which are marked to fair value on a nonrecurring basis which are categorized within Level 3. These assets include collateral dependent impaired loans and OREO. The determination of the fair value amount is derived from the use of independent third party appraisals and evaluations. Real estate appraisals are prepared by firms from a predetermined list of qualified and approved appraisers or evaluators. Upon receipt of a real estate appraisal or evaluation, the Company's Commercial Real Estate Appraisal Department will review the report for compliance with regulatory and Company standards, as well as reasonableness and acceptance of the value conclusions. Any issues or concerns regarding compliance or value conclusions will be addressed with the engaged firm and the report may be adjusted or revised. If a disagreement cannot be resolved, the Company will either address the key issues and modify the report for acceptance or reject the report and re-order a new report. Ultimately, the Company will confirm the collateral value as part of its review process.

The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the periods indicated:
    Fair Value Measurements at Reporting Date Using    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)
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, 2018March 31, 2019
(Dollars in thousands)(Dollars in thousands)
Financial assets      
Securities held to maturity(a)                  
U.S. Treasury securities$1,004
 $1,006
 $—
 $1,006
 $—
$1,004
 $1,017
 $—
 $1,017
 $—
Agency mortgage-backed securities189,479
 184,088
 —
 184,088
 —
259,599
 261,882
 —
 261,882
 —
Agency collateralized mortgage obligations336,346
 323,516
 —
 323,516
 —
337,804
 335,705
 —
 335,705
 —
Single issuer trust preferred securities issued by banks1,500
 1,490
 —
 1,490
 —
1,500
 1,490
 —
 1,490
 —
Small business administration pooled securities25,376
 24,522
 —
 24,522
 —
23,336
 23,062
 —
 23,062
 —
Loans, net of allowance for loan losses(b)6,432,158
 6,229,090
 —
 —
 6,229,090
6,883,471
 6,763,125
 —
 —
 6,763,125
Federal Home Loan Bank stock(c)13,107
 13,107
 —
 13,107
 —
7,667
 7,667
 —
 7,667
 —
Cash surrender value of life insurance policies(d)153,186
 153,186
 —
 153,186
 —
161,521
 161,521
 —
 161,521
 —
Financial liabilities                  
Deposit liabilities, other than time deposits(e)$6,312,788
 $6,312,788
 $—
 $6,312,788
 $—
$6,740,051
 $6,740,051
 $—
 $6,740,051
 $—
Time certificates of deposits(f)663,451
 654,685
 —
 654,685
 —
723,551
 718,532
 —
 718,532
 —
Federal Home Loan Bank borrowings(f)50,767
 49,974
 —
 49,974
 —
25,752
 25,699
 —
 25,699
 —
Customer repurchase agreements and other short-term borrowings(f)141,176
 141,176
 —
 —
 141,176
Line of credit(f)49,993
 49,061
 —
 49,061
 —
Long-term borrowings(f)74,914
 71,694
 —
 71,694
 —
Junior subordinated debentures(g)73,078
 70,720
 —
 70,720
 —
73,082
 73,025
 —
 73,025
 —
Subordinated debentures(f)34,717
 31,360
 —
 —
 31,360
84,299
 87,425
 —
 —
 87,425
 

    Fair Value Measurements at Reporting Date Using    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)
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, 2017December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Financial assets  
Securities held to maturity(a)                  
U.S. Treasury securities$1,006
 $1,035
 $—
 $1,035
 $—
$1,004
 $1,015
 $—
 $1,015
 $—
Agency mortgage-backed securities204,768
 205,823
 —
 205,823
 —
252,484
 250,928
 —
 250,928
 —
Agency collateralized mortgage obligations262,998
 258,408
 —
 258,408
 —
332,775
 326,724
 —
 326,724
 —
Single issuer trust preferred securities issued by banks1,500
 1,529
 —
 1,529
 —
1,500
 1,490
 —
 1,490
 —
Small business administration pooled securities27,416
 27,399
 —
 27,399
 —
23,727
 23,483
 —
 23,483
 —
Loans, net of allowance for loan losses(b)6,261,343
 6,116,051
 —
 —
 6,116,051
6,812,792
 6,635,209
 —
 —
 6,635,209
Federal Home Loan Bank stock(c)11,597
 11,597
 —
 11,597
 —
15,683
 15,683
 —
 15,683
 —
Cash surrender value of life insurance policies(d)151,528
 151,528
 —
 151,528
 —
160,456
 160,456
 —
 160,456
 —
Financial liabilities                  
Deposit liabilities, other than time deposits(e)$6,084,952
 $6,084,952
 $—
 $6,084,952
 $—
$6,716,017
 $6,716,017
 $—
 $6,716,017
 $—
Time certificates of deposits(f)644,301
 639,060
 —
 639,060
 —
711,103
 703,728
 —
 703,728
 —
Federal Home Loan Bank borrowings(f)53,264
 52,111
 —
 52,111
 —
147,806
 147,603
 —
 147,603
 —
Customer repurchase agreements and other short-term borrowings(f)162,679
 162,679
 —
 —
 162,679
Junior subordinated debentures(g)73,073
 74,680
 —
 74,680
 —
76,173
 73,827
 —
 73,827
 —
Subordinated debentures(f)34,682
 32,707
 —
 —
 32,707
34,728
 32,509
 —
 —
 32,509

(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)In accordance with recent accounting guidance, the fairFair value of loans as of September 30, 2018 wasis 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. Previously the fair value of loans as of December 31, 2017 was estimated solely 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. Additionally, this amount excludes collateral dependent impaired 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 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.


NOTE 11 - REVENUE RECOGNITION

The Company adopted the new revenue recognition standard under Accounting Standards Codification Topic 606 ("ASC 606") as of January 1, 2018 and is using the modified retrospective transition method upon adoption. The Company determined that there were no material changes to be made to revenue recognition upon adoption and that there were no practical expedients to apply to its contracts.

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

1.Identify the contract(s) with customers
2.Identify the performance obligations
3.Determine the transaction price
4.Allocate the transaction price to the performance obligations
5.Recognize revenue when (or as) the entity satisfies a performance obligation
    
The Company has disaggregated its revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following table presents the revenue streams that the Company has disaggregated as of the periods indicated:
Three Months Ended Nine Months EndedThree Months Ended
September 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017March 31, 2019 March 31, 2018
(Dollars in thousands)(Dollars in thousands)
Deposit account fees (inclusive of cash management fees)$4,658
 $4,401
 $13,640
 $13,337
$4,406
 $4,431
Interchange fees3,943
 3,597
 11,267
 10,279
3,735
 3,405
ATM fees825
 815
 2,215
 2,261
666
 654
Investment management - wealth management and advisory services5,912
 5,402
 17,577
 16,027
6,069
 5,582
Investment management - retail investments and insurance revenue652
 565
 1,951
 1,549
679
 560
Merchant processing income227
 337
 1,006
 904
280
 431
Other noninterest income1,152
 1,188
 3,186
 3,269
939
 974
Total noninterest income in-scope of ASC 60617,369
 16,305
 50,842
 47,626
16,774
 16,037
Total noninterest income out-of-scope of ASC 6065,895
 4,465
 14,172
 13,454
4,759
 3,826
Total noninterest income23,264
 20,770
 65,014
 61,080
21,533
 19,863

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 thea 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.


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

Interchange Fees

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

ATM Fees

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

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

Investment Management - Wealth Management and Advisory Services

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

The asset management and/or custody fees are based upon a percentage of the monthly valuation of the principal assets in the customer's account, whereas fees for additional or special services are fixed in nature and are charged as services are rendered. As the fees are dependent on assets under management, which are susceptible to market factors outside of the Company's control, this variable consideration is constrained and therefore no revenue is estimated at contract initiation. As such, all revenue is recognized in correlation to the monthly management fee determinations or as transactional services are provided. Due to the fact that payments are primarily made subsequent to the valuation period, the Company records a receivable for revenue earned but not received. The following table provides the amount of investment management revenue earned but not received as of the periods indicated:
 September 30, 2018 December 31, 2017
 (Dollars in thousands)
Receivables, included in other assets$1,892
 $1,934
 March 31, 2019 December 31, 2018
 (Dollars in thousands)
Receivables, included in other assets$2,089
 $1,893


Investment Management - Retail Investments and Insurance Revenue

The Company offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance products through registered representatives who are both employed by the Company and licensed and contracted with various Broker General Agents to offer these products to the Company’s customer base. As such, the Company performs these services as an agent and earns a fixed commission on the sales of these products and services. To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds.


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.
    
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.


NOTE 12 - COMPREHENSIVE INCOME (LOSS)
The following tables present a reconciliation of the changes in the components of other comprehensive income (loss) for the dates indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):
Three Months Ended
September 30, 2018		 Nine Months Ended
September 30, 2018		Three Months Ended
March 31, 2019
Pre Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount		 Pre Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount		Pre Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount
(Dollars in thousands)(Dollars in thousands)
Change in fair value of securities available for sale$(2,988) $726
 $(2,262) $(12,761) $3,107
 $(9,654)$6,178
 $(1,449) $4,729
Less: net security gains reclassified into other noninterest income (expense)—
 —
 —
 —
 —
 —
—
 —
 —
Net change in fair value of securities available for sale(2,988) 726
 (2,262) (12,761) 3,107
 (9,654)6,178
 (1,449) 4,729
                
Change in fair value of cash flow hedges(296) 83
 (213) 100
 (25) 75
4,996
 (1,406) 3,590
Less: net cash flow hedge gains reclassified into interest income or interest expense (1)268
 (76) 192
 525
 (148) 377
424
 (119) 305
Net change in fair value of cash flow hedges(564) 159
 (405) (425) 123
 (302)4,572
 (1,287) 3,285
                
Amortization of net actuarial losses94
 (26) 68
 281
 (79) 202
Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period(11) 3
 (8)
Amortization of net actuarial gains(2) 1
 (1)
Amortization of net prior service costs69
 (20) 49
 207
 (58) 149
69
 (20) 49
Net change in other comprehensive income for defined benefit postretirement plans (2)163
 (46) 117
 488
 (137) 351
Total other comprehensive loss$(3,389) $839
 $(2,550) $(12,698) $3,093
 $(9,605)
Net change in other comprehensive income for defined benefit postretirement plans (1)56
 (16) 40
Total other comprehensive income$10,806
 $(2,752) $8,054
Three Months Ended
September 30, 2017		 Nine Months Ended
September 30, 2017		Three Months Ended
March 31, 2018
Pre Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount		 Pre Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount		Pre Tax
Amount		 Tax (Expense)
Benefit		 After Tax
Amount
(Dollars in thousands)(Dollars in thousands)
Change in fair value of securities available for sale$347
 $(152) $195
 $2,520
 $(1,001) $1,519
$(7,240) $1,772
 $(5,468)
Less: net security gains reclassified into other noninterest income (expense)11
 (4) 7
 13
 (5) 8
—
 —
 —
Net change in fair value of securities available for sale336
 (148) 188
 2,507
 (996) 1,511
(7,240) 1,772
 (5,468)
                
Change in fair value of cash flow hedges91
 (36) 55
 (250) 102
 (148)386
 (106) 280
Less: net cash flow hedge losses reclassified into interest income or interest expense (1)(91) 37
 (54) (264) 108
 (156)90
 (25) 65
Net change in fair value of cash flow hedges182
 (73) 109
 14
 (6) 8
296
 (81) 215
                
Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period(6) 2
 (4) (20) 8
 (12)—
 —
 —
Amortization of net actuarial losses69
 (28) 41
 208
 (85) 123
94
 (26) 68
Amortization of net prior service costs70
 (29) 41
 208
 (85) 123
69
 (20) 49
Net change in other comprehensive income for defined benefit postretirement plans (2)(1)133
 (55) 78
 396
 (162) 234
163
 (46) 117
Total other comprehensive income$651
 $(276) $375
 $2,917
 $(1,164) $1,753
Total other comprehensive loss$(6,781) $1,645
 $(5,136)

(1) The amortization of prior service costs is included in the computation of net periodic pension cost as disclosed in the Employee Benefit Plans footnote in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission.

(1)Includes the amortization of the remaining balance of a realized but unrecognized gain, net of tax, from the termination of interest rate swaps in 2009. The original gain of $1.4 million, net of tax, is being recognized in earnings through December 2018, the original maturity date of the swap. The balance of this gain has amortized to $34,000 and $137,000 at September 30, 2018 and December 31, 2017, respectively.

(2)The amortization of prior service costs is included in the computation of net periodic pension cost as disclosed in the Employee Benefit Plans footnote in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission.

Effective January 1, 2018, the Company elected to reclassify certain tax effects from accumulated other comprehensive income to retained earnings, related to items that were stranded in other comprehensive income as a result of the Tax Act. A description of the other income tax effects that were reclassified as a result of the Tax Act are listed in the table below.

Information on the Company’s accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the periods indicated:
Unrealized Gain on Securities Unrealized Gain (Loss) on Cash Flow Hedge Deferred Gain on Hedge Transactions Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss)Unrealized Gain on Securities Unrealized Gain (Loss) on Cash Flow Hedge Deferred Gain on Hedge Transactions Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss)
(Dollars in thousands)(Dollars in thousands)
20182019
Beginning balance: January 1, 2019$(5,947) $6,148
 $—
 $(1,374) $(1,173)
Net change in other comprehensive income (loss)4,729
 3,285
 —
 40
 8,054
Ending balance: March 31, 2019$(1,218) $9,433
 $—
 $(1,334) $6,881
2018
Beginning balance: January 1, 2018$(504) $948
 $137
 $(2,412) $(1,831)$(504) $948
 $137
 $(2,412) $(1,831)
Opening balance reclassification(111) 205
 29
 (520) (397)(111) 205
 29
 (520) (397)
Cumulative effect accounting adjustment(831) —
 —
 —
 (831)(831) —
 —
 —
 (831)
Net change in other comprehensive income (loss)(9,654) (170) (132) 351
 (9,605)(5,468) 259
 (44) 117
 (5,136)
Ending balance: September 30, 2018$(11,100) $983
 $34
 $(2,581) $(12,664)
2017
Beginning balance: January 1, 2017$173
 $361
 $281
 $(2,152) $(1,337)
Net change in other comprehensive income (loss)1,511
 116
 (108) 234
 1,753
Ending balance: September 30, 2017$1,684
 $477
 $173
 $(1,918) $416
Ending balance: March 31, 2018$(6,914) $1,412
 $122
 $(2,815) $(8,195)




NOTE 13 - LEASES

The Company adopted the new lease accounting standard ("the lease standard") under Accounting Standards Codification Topic 842 ("ASC 842") using the modified retrospective transition method with an effective date as of January 1, 2019. Therefore, periods prior to to that date were not restated, and are not presented below. The Company elected the package of practical expedients, which permits the Company not to reassess prior conclusions about lease identifications, lease classification and initial direct costs. The Company has elected the short-term lease recognition exemption for all leases that qualify. The Company did not elect to apply the hindsight practical expedient pertaining to using hindsight knowledge as of the effective date when determining lease terms and impairment.

The Company leases office space, space for ATM locations and certain branch locations under noncancelable operating leases. As of March 31, 2019, the Company has entered into 73 noncancelable operating lease agreements. Several of the Company's leases for office space, space for ATM locations and certain branch locations contain renewal options to extend lease terms for a period of 2 to 10 years. The Company makes the decision on whether or not to renew an option to extend a lease by considering various factors. The Company will recognize an adjustment to its ROU asset and lease liability when lease agreements are amended and executed. The discount rate used in determining the present value of lease payments is based on the Company's incremental borrowing rate for borrowings with terms similar to each lease at commencement date. The Company has no financing leases outstanding and no leases with residual value guarantees.

As of March 31, 2019, the Company had one lease on a branch location where the location is subleased from a non-related party, and one ATM location lease with a non-employee related party. The future lease payments under these leases do not have a material effect on the Company's financial position or result of operations.
The Company's right-of-use asset related to operating leases was $33.7 million at March 31, 2019.

The following table provides information related to the Company's lease cost.
Three Months Ended
March 31, 2019
(Dollars in thousands)
Operating lease cost$2,111
Short-term lease cost39
Variable lease cost—
Total lease cost$2,150


For the three months ended March 31, 2019, the weighted average remaining lease term for operating leases was 6.60 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.07%.


The following table sets forth the undiscounted cash flows of base rent related to operating leases outstanding at March 31, 2019 with payments scheduled over the next five years and thereafter, including a reconciliation to the operating lease liability recognized in the Company's Consolidated Balance Sheet.
 (Dollars in thousands)
  
2019$6,301
20207,725
20216,751
20225,598
20233,563
Thereafter9,246
Total minimum lease payments$39,184
Less: amount representing interest4,090
Present value of future minimum lease payments$35,094
  



NOTE 1314 - 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, 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.
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, 2018 December 31, 2017March 31, 2019 December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Commitments to extend credit$2,551,217
 $2,443,478
$2,648,940
 $2,639,689
Standby letters of credit16,704
 15,534
17,580
 16,708
Deferred standby letter of credit fees128
 102
128
 122

Lease Commitments
The Company leases office space, space for ATM locations, and certain branch locations under noncancelable operating leases. Several of these leases have renewal options that typically range from 5 to 10 years.
Rent expense incurred under operating leases was approximately $2.3 million and $2.1 million for the three months ended September 30, 2018 and 2017, respectively, and $7.1 million and $6.3 million for the nine months ended September 30, 2018 and 2017, respectively.
There has been no significant change in the future minimum lease payments payable by the Company since December 31, 2017. See the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for information regarding leases and other commitments.
Other Contingencies
At September 30, 2018,March 31, 2019, Rockland Trust 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.
The Bank is required to maintain certain reserve requirements of vault cash and/or deposits with the Federal Reserve Bank of Boston. The reserve requirement was $34.9$5.3 million and $35.8$53.5 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.



NOTE 1415 - LOW INCOME HOUSING PROJECT INVESTMENTS
The Company has invested in low income housing projects that generate Low Income Housing Tax Credits (“LIHTC”) which provide the Company with tax credits and operating loss tax benefits over a period of approximately 15 years. None of the original investment is expected to be repaid.

The following table presents certain information related to the Company's investments in low income housing projects as of the dates indicated:
September 30
2018		 December 31
2017		 March 31
2019		 December 31
2018
(Dollars in thousands) (Dollars in thousands)
Original investment value$47,464
 $47,399
 $50,232
 $50,232
Current recorded investment32,032
 35,225
 32,604
 33,681
Unfunded liability obligation2,003
 4,536
 3,643
 3,935
Tax credits and benefits5,458
(1)5,654
 5,611
(1)5,407
Amortization of investments4,334
(2)4,402
(4)4,405
(2)4,377
Net income tax benefit1,124
(3)1,253
 1,205
(3)1,030
(1) This amount reflects anticipated tax credits and tax benefits for the full year ended December 31, 2018.2019.
(2) The amortization amount reduces the tax credits and benefits anticipated for the full year ended December 31, 2018.2019.
(3) This amount represents the net tax benefit expected to be realized for the full year ended December 31, 20182019 in determining the Company's effective tax rate.
(4)

NOTE 16 - SUBSEQUENT EVENT
Effective April 1, 2019, the Company completed the acquisition of Blue Hills Bancorp, Inc., parent of The 2017 amount isBlue Hills Bank (collectively "BHB"). The acquisition resulted in the addition of eleven branch locations in Suffolk and Norfolk counties of Massachusetts, as well as Nantucket. The transaction included the acquisition of approximately $2.1 billion in loans, $196.9 million in securities, the assumption of $1.9 billion in deposits, and $124.8 million of borrowings, each at fair value. Total consideration of $667.1 million consisted of 6,166,010 shares of the Company's common stock issued, as well as $167.4 million in cash, inclusive of $466,000 related to the revaluationcash in lieu of LIHTC investments as a result of the Tax Act.

fractional shares.

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, 2017,2018, filed with the Securities and Exchange Commission.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, in the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by forward-looking terminology such as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the “Risk Factors” section of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017,2018, include, but are not limited to:
a 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;
adverse changes or volatility in the local real estate market;
adverse changes in asset quality including an 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;
inability to raise capital on terms that are favorable;
additional regulatory oversight and additional costs associated with the Company's anticipatedrecent increase in assets to over $10 billion;
changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
higher than expected tax expense, resulting from failure to comply with general tax laws, changes in tax laws, or failure to comply with requirements of the federal New Markets Tax Credit program;
unexpected changes in market interest rates for interest earning assets and/or interest bearing liabilities;
unexpected increased competition in the Company’s market area;
unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather or other external events;
a deterioration in the conditions of the securities markets;
a deterioration of the credit rating for U.S. long-term sovereign debt;
our inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
adverse changes in consumer spending and savings habits;
failure to consummate or a delay in consummating the acquisitions of MNB Bancorp and Blue Hills Bancorp, which are subject to certain standard conditions, including regulatory approvals and shareholder approval for the Blue Hills Bancorp transaction;
the inability to realize expected synergies from merger transactions in the amounts or in the timeframetimeframes anticipated;
inability to retain customers and employees, including those acquiredretained in the MNB Bancorp and Blue Hills BancorpBHB acquisitions;
the effect of laws and regulations regarding the financial services industry including, but not limited to, the Dodd-Frank Wall Street Reform and the Consumer Protection Act and regulatory uncertainty surrounding these laws and regulations;

changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;
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 Quarterly Report on Form 10-Q which modify or impact any of the forward-looking statements contained

in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

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 Quarterly Report on Form 10-Q.
  Three Months Ended    Three Months Ended  
September 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017		March 31,
2019		 December 31,
2018		 September 30,
2018		 June 30,
2018		 March 31,
2018
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Financial condition data                  
Securities$1,011,578
 $1,002,921
 $996,287
 $946,510
 $909,221
$1,083,126
 $1,075,223
 $1,011,577
 $1,002,921
 $996,287
Loans6,527,402
 6,479,271
 6,362,056
 6,355,553
 6,289,902
6,976,872
 6,906,194
 6,527,402
 6,479,271
 6,362,056
Allowance for loan losses(63,235) (62,557) (60,862) (60,643) (59,710)(65,140) (64,293) (63,235) (62,557) (60,862)
Goodwill and other intangible assets239,185
 239,724
 240,268
 241,147
 242,105
270,444
 271,355
 239,185
 239,724
 240,268
Total assets8,375,497
 8,381,002
 8,090,410
 8,082,029
 8,052,919
8,997,457
 8,851,592
 8,375,497
 8,381,002
 8,090,410
Total deposits6,976,239
 7,013,490
 6,751,511
 6,729,253
 6,682,942
7,463,602
 7,427,120
 6,976,239
 7,013,490
 6,751,511
Total borrowings299,739
 300,792
 298,939
 323,698
 340,683
308,040
 258,707
 299,738
 300,792
 298,939
Stockholders’ equity998,305
 977,065
 956,059
 943,809
 931,224
1,104,538
 1,073,490
 998,305
 977,065
 956,059
Nonperforming loans45,394
 47,112
 47,713
 49,638
 50,277
43,331
 45,418
 45,394
 47,112
 47,713
Nonperforming assets45,584
 47,357
 48,071
 50,250
 53,175
43,331
 45,418
 45,584
 47,357
 48,071
Income statement                  
Interest income$82,875
 $79,167
 $73,749
 $72,876
 $71,778
$91,543
 $87,910
 $82,875
 $79,167
 $73,749
Interest expense6,641
 5,999
 5,278
 5,044
 4,705
9,018
 7,618
 6,641
 5,999
 5,278
Net interest income76,234
 73,168
 68,471
 67,832
 67,073
82,525
 80,292
 76,234
 73,168
 68,471
Provision for loan losses1,075
 2,000
 500
 1,300
 —
1,000
 1,200
 1,075
 2,000
 500
Noninterest income23,264
 21,887
 19,863
 21,914
 20,770
21,533
 23,491
 23,264
 21,887
 19,863
Noninterest expenses55,439
 52,688
 53,451
 51,467
 51,310
56,311
 64,391
 55,439
 52,688
 53,451
Net income33,015
 31,118
 27,555
 22,064
 23,852
35,225
 29,934
 33,015
 31,118
 27,555
Per share data                  
Net income—basic$1.20
 $1.13
 $1.00
 $0.80
 $0.87
$1.25
 $1.08
 $1.20
 $1.13
 $1.00
Net income—diluted1.20
 1.13
 1.00
 0.80
 0.87
1.25
 1.07
 1.20
 1.13
 1.00
Cash dividends declared0.38
 0.38
 0.38
 0.32
 0.32
0.44
 0.38
 0.38
 0.38
 0.38
Book value per share36.25
 35.49
 34.75
 34.38
 33.94
39.26
 38.23
 36.25
 35.49
 34.75
Tangible book value per share (1)27.56
 26.78
 26.02
 25.60
 25.12
29.64
 28.57
 27.56
 26.78
 26.02
Performance ratios                  
Return on average assets1.57% 1.52% 1.39% 1.08% 1.18%1.62% 1.38% 1.57% 1.52% 1.39%
Return on average common equity13.19% 12.85% 11.73% 9.28% 10.18%13.10% 11.49% 13.19% 12.85% 11.73%
Net interest margin (on a fully tax equivalent basis)4.14% 4.05% 3.94% 3.89% 3.77%
Equity to assets12.28% 12.13% 11.92% 11.66% 11.82%
Dividend payout ratio30.29% 34.96% 31.69% 33.60% 31.88%
Asset Quality Ratios         
Nonperforming loans as a percent of gross loans0.62% 0.66% 0.70% 0.73% 0.75%
Nonperforming assets as a percent of total assets0.48% 0.51% 0.54% 0.57% 0.59%

Net interest margin (on a fully tax equivalent basis)3.94% 3.89% 3.77% 3.64% 3.65%
Equity to assets11.92% 11.66% 11.82% 11.68% 11.56%
Dividend payout ratio31.69% 33.60% 31.88% 39.79% 36.80%
Asset Quality Ratios         
Nonperforming loans as a percent of gross loans0.70% 0.73% 0.75% 0.78% 0.80%
Nonperforming assets as a percent of total assets0.54% 0.57% 0.59% 0.62% 0.66%
Allowance for loan losses as a percent of total loans0.97% 0.97% 0.96% 0.95% 0.95%0.93% 0.93% 0.97% 0.97% 0.96%
Allowance for loan losses as a percent of nonperforming loans139.30% 132.78% 127.56% 122.17% 118.76%150.33% 141.56% 139.30% 132.78% 127.56%
Capital ratios                  
Tier 1 leverage capital ratio10.49% 10.39% 10.32% 10.04% 10.03%10.64% 10.69% 10.49% 10.39% 10.32%
Common equity tier 1 capital ratio11.98% 11.64% 11.47% 11.20% 11.13%12.09% 11.92% 11.98% 11.64% 11.47%
Tier 1 risk-based capital ratio13.07% 12.73% 12.57% 12.31% 12.24%13.11% 12.99% 13.07% 12.73% 12.57%
Total risk-based capital ratio14.58% 14.24% 14.08% 13.82% 13.75%15.28% 14.45% 14.58% 14.24% 14.08%

(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.



Executive Level Overview

Management evaluates the Company's operating results and financial condition using measures that include net income, earnings per share, return on assets and equity, return on tangible common equity, net interest margin, tangible book value per share, asset quality indicators, and many others. These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results. The Company is focused on organic growth, but will also consider acquisition opportunities that can provide a satisfactory financial return. Duringreturn, including the second quarterrecent acquisition of 2018, the Company announced the signing of a definitive merger agreement with MNB Bancorp ("MNB"), which is expected to close in the fourth quarter of 2018. During the third quarter of 2018 the Company announced the signing of a definitive merger agreement with Blue Hills Bancorp ("BHB"), which is expected to closeand BHB in the first halfquarter of 2019.

Interest-Earning Assets

Management’s balance sheet strategy emphasizes commercial and home equity lending. The results depicted in the following table reflect an overall increase in total loans over the past five quarters due to the results of that strategy, as well as the impact from acquisitions. For the thirdfirst quarter of 2018,2019, the Company experiencedCompany's loan growth across all major categories.was driven primarily by the commercial and industrial portfolio.
chart-efb31574317f5742bdb.jpgchart-69b6c177d42b5e1c8a0.jpg

Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. The Company has gradually and intentionally shifted its balance sheet composition so that its interest-rate risk position is fundamentally asset-sensitive. Management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and loan losses.

 

Funding and Net Interest Margin

The Company's overall sources of funding reflect strong business and retail deposit growth, supportingdemonstrating management's emphasis on core deposit growth to fund loans, as depicted by the following chart:

chart-5a136dcfe06c5517aaf.jpg

chart-6b515179833054e5898.jpg

As of September 30, 2018,March 31, 2019, core deposits comprised 90.25%88.48% of total deposits. The continued emphasis on core deposits has resulted in a cost of deposits of 0.30% for the 2018 third2019 first quarter which increased by threewas 0.39%, an increase of five basis points when compared to the secondfourth quarter of 2018.

The Company's net interest margin was 3.94%4.14% for the quarter ended September 30, 2018,March 31, 2019, a fivenine basis point increase from the secondfourth quarter of 2018, reflecting the Company's asset sensitive position, as shown by the following chart:

chart-6d0f2366ffcd5319b1e.jpgchart-cb180c1c36295032876.jpg


Noninterest Income

Management continues to focus on noninterest income, growth, which is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income. The following chart shows the components of noninterest income over the past five quarters:
chart-13229c7c0eda57a09e0.jpg

chart-663c3584c6bc58738f6.jpg

Expense Control

Management seeks to take a balanced approach to noninterest expense control by monitoring the management of ongoing operating expenses while making needed capital expenditures and prudently investing in growth initiatives. The Company’s primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment. The following chart depicts the Company's efficiency ratio on a GAAP basis (calculated by dividing noninterest expense by the sum of noninterest income and net interest income), as well as the Company's efficiency ratio on a non-GAAP operating basis, if applicable (calculated by dividing noninterest expense, excluding certain noncore items, by the sum of noninterest income, excluding certain noncore items, and net interest income), over the past five quarters:

chart-86d70639af99515f8b9.jpgchart-08e6116fb334505b8cc.jpg
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.


Tax Effectiveness

The Company participates in federal and state tax credit programs designed to promote economic development, affordable housing, and job creation. The Company continues to participate in the federal New Markets Tax Credit program and has also made low-income housing tax credit investments. The Company has also established security corporation subsidiaries and, through its subsidiaries, purchased tax-exempt bonds. Federal and state tax credit program participation and other tax strategies help the Company operate in a more tax effective manner and sometimes also create a competitive advantage for Rockland Trust and its community development subsidiaries. During the thirdfirst quarter of 2018,2019, the Company’s effective tax rate was 23.19%24.65%.

Capital

The Company's approach with respect to revenue, expense, and tax effectiveness is designed to promote long-term earnings growth. Strong earnings retention has contributed to capital growth. Book value per share increased 2.1%2.7% in the thirdfirst quarter of 20182019 and 6.8%13.0% over the past four quarters. In addition, tangible book value per share rose 2.9%3.7% in the thirdfirst quarter of 20182019 and was higher by 9.7%13.9% over the past four quarters (see "Non-GAAP Measures" below for a reconciliation of non-GAAP measures). Stockholders' equity as a percentage of total assets was 11.92%12.28% for the thirdfirst quarter of 2018,2019, compared to 11.66%12.13% in the secondfourth quarter of 2018. The Company's tangible common equity ratio (or tangible common equity as a percentage of tangible assets) rose to 9.33%9.56% for the thirdfirst quarter of 2018,2019, as compared to 9.06%9.35% in the secondfourth quarter of 2018. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures. The following chart shows the Company's book value and tangible book value per share over the past five quarters:

chart-60e2c5c8d07f554395c.jpgchart-878e47daf58f5b1e832.jpg
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

The Company's growth in capital enables the payment of cash dividends. The Company declared quarterly cash dividends of $0.38$0.44 per share for the first three quartersquarter of 2018,2019, representing an increase of 18.8%15.8% from the 20172018 quarterly dividend rate of $0.32$0.38 per share.

ThirdFirst Quarter 20182019 Results

Net income for the thirdfirst quarter of 20182019 was $33.0$35.2 million, or $1.20$1.25 on a diluted earnings per share basis, an increase of 38.4%27.8% and 37.9%25.0%, respectively, as compared to $23.9$27.6 million, or $0.87$1.00 on a diluted earnings per share basis, for the prior year thirdfirst quarter. The thirdfirst quarter of 20182019 included merger and acquisition costs which the Company deems to be noncore. Excluding these merger and acquisition expenses, thirdfirst quarter 20182019 operating net income was $34.9$36.7 million compared to operating net income from the thirdfirst quarter of 20172018 of $23.9$27.6 million, an increase of 46.5%33.2%. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures.


20182019 Outlook

During the Company’s thirdfirst quarter 20182019 earnings call, the CompanyCompany's Chief Financial Officer stated that ithe anticipates the following for the full year ending December 31, 2018:2019:

•
Growth of the Company’s legacy loan portfolio and legacy depositsat a mid-single digit pace, on an annualized basis;
LoanModest near-term runoff in the acquired Blue Hills commercial and deposit growth for theindustrial and residential loan portfolios, as well as runoff in acquired time deposits;
Assuming no Federal Reserve rate changes, full year 20182019 net interest margin was expected to be 10 to 15 basis points higher than 2018, exclusive of the Blue Hills acquisition.  The impact of the Blue Hills acquisition is anticipated to result in a proforma net interest margin in the mid to high 3.9% range, inclusive of an anticipated balance sheet reduction strategy;
Excluding the impact of Blue Hills, increases in non-interest income and non-interest expense in the low to mid-single digit range excluding the MNB acquisition;
Assuming no further federal funds rate increases, the full year 2018 net interest margin is expected to expand by 30 to 32 basis points versus the full year 2017;
Net interest margin will increase 4 to 6 basis points in the fourth quarter;
Most noninterest income categories (with the exception of gain on life insurance benefits) are expected to be higher during the fourth quarter as compared to the third quarter;prior year;
Noninterest expense is expected to up slightly in the fourth quarter, even when including the MNB acquisition with the operating efficiency ratio improving for the remainderNo near term credit concerns, however, eventual deterioration of the year; andloan portfolio is likely;
TheFull year effective tax rate of approximately 25%; and
As for the remainderBlue Hills Bancorp acquisition, the Company expects 2019 earnings accretion of the year (excluding discrete items) is expectedapproximately 4%, as well as modest accretion to be approximately 23.0%.tangible book value per share.


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 loan 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 and other items, such as one-time adjustments as a result of changes in laws and regulations.items. Management, therefore, computes certain non-GAAP measures including net operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis, which exclude items management considers to be noncore. Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items.
    
Management also supplements its evaluation of financial performance with an analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or tangible common equity, by common shares outstanding) and with the Company's tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets) which are non-GAAP measures. The Company has included information on these tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends.  The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities.  Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. The Company’s non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies.
    

The following tables summarize adjustments for noncore items for the time periods indicated below and reconcile non-GAAP measures:
Three Months Ended September 30Three Months Ended March 31
Net Income 
Diluted
Earnings Per Share
Net Income 
Diluted
Earnings Per Share
2018 2017 2018 20172019 2018 2019 2018
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)$33,015
 $23,852
 $1.20
 $0.87
$35,225
 $27,555
 $1.25
 $1.00
Non-GAAP adjustments              
Noninterest expense components              
Merger and acquisition expenses2,688
 —
 0.10
 —
1,032
 —
 0.04
 —
Total impact of noncore items2,688
 —
 0.10
 —
1,032
 —
 0.04
 —
Net tax benefit associated with noncore items (1)(756) —
 (0.03) —
Less -net tax benefit associated with noncore items (1)(198) —
 (0.01) —
Add - adjustment for tax effect of previously incurred merger and acquisition expenses$650
 $—
 $0.02
 $—
Total tax impact$452
 $—
 $0.01
 $—
Noncore items, net of tax$1,932
 $—
 $0.07
 $—
$1,484
 $—
 $0.05
 $—
Operating net income (Non-GAAP)$34,947
 $23,852
 $1.27
 $0.87
$36,709
 $27,555
 $1.30
 $1.00
       
Nine Months Ended September 30
Net Income 
Diluted
Earnings Per Share
2018 2017 2018 2017
(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)$91,688
 $65,140
 $3.32
 $2.38
Non-GAAP adjustments       
Noninterest expense components      

Merger and acquisition expenses3,122
 3,393
 0.12
 0.12
Total impact of noncore items3,122
 3,393
 0.12
 0.12
Net tax benefit associated with noncore items (1)(878) (1,241) (0.03) (0.04)
Operating net income (Non-GAAP)$93,932
 $67,292
 $3.41
 $2.46
       
(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.

Three Months Ended Three Months Ended 
September 30
2018		 June 30
2018		 March 31
2018		 December 31
2017		 September 30
2017		  March 31
2019		 December 31
2018		 September 30
2018		 June 30
2018		 March 31
2018		  
(Dollars in thousands) (Dollars in thousands) 
Net interest income (GAAP)$76,234
 $73,168
 $68,471
 $67,832
 $67,073
 (a)$82,525
 $80,292
 $76,234
 $73,168
 $68,471
 (a)
                    
Noninterest income (GAAP)$23,264
 $21,887
 $19,863
 $21,914
 $20,770
 (b)$21,533
 $23,491
 $23,264
 $21,887
 $19,863
 (b)
Noninterest income on an operating basis (Non-GAAP)*$23,264
 $21,887
 $19,863
 $21,914
 $20,770
 (c)$21,533
 $23,491
 $23,264
 $21,887
 $19,863
 (c)
                    
Noninterest expense (GAAP)$55,439
 $52,688
 $53,451
 $51,467
 $51,310
 (d)$56,311
 $64,391
 $55,439
 $52,688
 $53,451
 (d)
Less:                    
Merger and acquisition expense2,688
 434
 —
 —
 —
 1,032
 8,046
 2,688
 434
 —
 
Noninterest expense on an operating basis (Non-GAAP)$52,751
 $52,254
 $53,451
 $51,467
 $51,310
 (e)$55,279
 $56,345
 $52,751
 $52,254
 $53,451
 (e)
                    
Total revenue (GAAP)$99,498
 $95,055
 $88,334
 $89,746
 $87,843
 (a+b)$104,058
 $103,783
 $99,498
 $95,055
 $88,334
 (a+b)
Total operating revenue (Non-GAAP)*$99,498
 $95,055
 $88,334
 $89,746
 $87,843
 (a+c)$104,058
 $103,783
 $99,498
 $95,055
 $88,334
 (a+c)
                    
Ratios                    
Noninterest income as a % of revenue (GAAP based)23.38% 23.03% 22.49% 24.42% 23.64% (b/(a+b))20.69% 22.63% 23.38% 23.03% 22.49% (b/(a+b))
Noninterest income as a % of revenue on an operating basis (Non-GAAP)*23.38% 23.03% 22.49% 24.42% 23.64% (c/(a+c))20.69% 22.63% 23.38% 23.03% 22.49% (c/(a+c))
Efficiency ratio (GAAP based)55.72% 55.43% 60.51% 57.35% 58.41% (d/(a+b))54.12% 62.04% 55.72% 55.43% 60.51% (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP)53.02% 54.97% 60.51% 57.35% 58.41% (e/(a+c))53.12% 54.29% 53.02% 54.97% 60.51% (e/(a+c))
* There were no adjustments for the periods presented.


The following table summarizes the calculation of the Company's tangible common equity ratio and tangible book value per share for the periods indicated:
September 30,
2018		 June 30
2018		 March 31
2018		 December 31
2017		 September 30,
2017		 March 31,
2019		 December 31
2018		 September 30
2018		 June 30
2018		 March 31,
2018		 
(Dollars in thousands, except per share data) (Dollars in thousands, except per share data) 
Tangible common equity                    
Stockholders' equity (GAAP)$998,305
 $977,065
 $956,059
 $943,809
 $931,224
(a)$1,104,538
 $1,073,490
 $998,305
 $977,065
 $956,059
(a)
Less: Goodwill and other intangibles239,185
 239,724
 240,268
 241,147
 242,105
 270,444
 271,355
 239,185
 239,724
 240,268
 
Tangible common equity (Non-GAAP)759,120
 737,341
 715,791
 702,662
 689,119
(b)834,094
 802,135
 759,120
 737,341
 715,791
(b)
Tangible assets        
         
 
Assets (GAAP)8,375,498
 8,381,002
 8,090,410
 8,082,029
 8,052,919
(c)8,997,457
 8,851,592
 8,375,498
 8,381,002
 8,090,410
(c)
Less: Goodwill and other intangibles239,185
 239,724
 240,268
 241,147
 242,105
 270,444
 271,355
 239,185
 239,724
 240,268
 
Tangible assets (Non-GAAP)$8,136,313
 $8,141,278
 $7,850,142
 $7,840,882
 $7,810,814
(d)$8,727,013
 $8,580,237
 $8,136,313
 $8,141,278
 $7,850,142
(d)
Common shares27,540,843

27,532,524

27,512,328
 27,450,190
 27,437,791
(e)28,137,504

28,080,408

27,540,843
 27,532,524
 27,512,328
(e)
                    
Common equity to assets ratio (GAAP)11.92% 11.66% 11.82% 11.68% 11.56%(a/c)12.28% 12.13% 11.92% 11.66% 11.82%(a/c)
Tangible common equity to tangible assets ratio (Non-GAAP)9.33% 9.06% 9.12% 8.96% 8.82%(b/d)9.56% 9.35% 9.33% 9.06% 9.12%(b/d)
Book value per share (GAAP)$36.25
 $35.49
 $34.75
 $34.38
 $33.94
(a/e)$39.26
 $38.23
 $36.25
 $35.49
 $34.75
(a/e)
Tangible book value per share (Non-GAAP)$27.56
 $26.78
 $26.02
 $25.60
 $25.12
(b/e)$29.64
 $28.57
 $27.56
 $26.78
 $26.02
(b/e)

Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.
There have been no material changes in critical accounting policies during the first ninethree months of 2018.2019. Please refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 for a complete listing of critical accounting policies.


FINANCIAL POSITION
Securities Portfolio The Company’s securities portfolio consists of trading securities, equity securities, securities available for sale, and securities which management intends to hold until maturity. Securities increased by $65.1$7.9 million, or 6.9%0.7%, at September 30, 2018March 31, 2019 as compared to December 31, 2017,2018, reflecting new purchases of $182.4$30.6 million made during the ninethree month period, partially offset by paydowns on existing securities. The ratio of securities to total assets was 12.08%12.04% and 11.71%12.15% at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
The Company monitors investment securities for the presence of other-than-temporary impairment (“OTTI”). For debt securities, the primary consideration in determining whether impairment is OTTI is whether or not the Bank expects to collect all contractual cash flows. Further details regarding the Company's analysis of potential OTTI can be found in Note 3 “Securities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.

Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans. During the ninethree months ended September 30,March 31, 2019 and 2018, and 2017, the Bank originated residential loans with the intention of selling them in the secondary market or to hold in the Company's residential portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached. The Company incurred no losses during the three and nine month periods ended September 30,March 31, 2019 and March 31, 2018 and September 30, 2017 related to these activities.

The following table shows the total residential loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market during the periods indicated:
Table 1 - Closed Residential Real Estate Loans
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2018 2017 2018 20172019 2018
(Dollars in thousands)(Dollars in thousands)
Held in portfolio$52,125
 $31,766
 $132,711
 $116,537
$31,200
 $38,816
Sold or held for sale in the secondary market58,320
 64,924
 142,262
 164,458
38,858
 38,091
Total closed loans$110,445
 $96,690
 $274,973
 $280,995
$70,058
 $76,907

The Company sold $61.9$39.7 million and $68.3$38.9 million in residential loans during the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively, and $141.0 million and $166.1 million during the nine months ended September 30, 2018 and 2017, respectively. All loans sold during these periods were sold with servicing rights released.


Currently, the Bank sells the servicing of sold loans for a servicing release premium, simultaneous with the sale of the loan. In the past, the Bank may have opted to sell loans 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 $244.9$234.1 million, $277.8$240.2 million and $292.2$269.5 million at September 30, 2018,March 31, 2019, December 31, 2017,2018, and September 30, 2017,March 31, 2018, respectively.



The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated:

Table 2 - Mortgage Servicing Asset
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2018 2017 2018 20172019 2018
(Dollars in thousands)(Dollars in thousands)
Balance at beginning of period$1,559
 $1,876
 $1,697
 $2,048
$1,445
 $1,697
Acquired portfolio—
 —
 —
 28
Amortization(71) (100) (230) (309)(71) (83)
Change in valuation allowance(10) 9
 11
 18
—
 18
Balance at end of period$1,478
 $1,785
 $1,478
 $1,785
$1,374
 $1,632
Forward sale contracts of mortgage loans, considered derivative instruments for accounting purposes, may be utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain one-to-four family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans, resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to investors which economically hedges this market risk. See Note 8, “Derivative and Hedging Activities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for more information on mortgage activity and mortgage related derivatives.
Loan Portfolio The Company’s loan portfolio increased by $171.8$70.7 million during the first ninethree months of 2018,2019, primarily driven by increases in the commercial and industrial portfolio which increased by $115.3 million and by the residential real estate portfolio which increased by $47.5 million.portfolio.

    
The Company's commercial loan portfolio is comprised primarily of commercial and industrial loans as well as commercial real estate loans. Management considers the Company’s commercial and industrial portfolio to be well-diversified with loans to various types of industries. The following pie chart shows the diversification of the commercial and industrial portfolio as of September 30, 2018:March 31, 2019:
chart-ea64a099535b50bcb1f.jpgchart-753f14e4f2e95a2caf6.jpg
(Dollars in thousands)(Dollars in thousands)
Average loan size$253
$292
Largest individual commercial and industrial loan outstanding$25,448
$24,697
Commercial and industrial nonperforming loans/commercial and industrial loans2.86%2.25%
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, industrial development bonds, 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, 2018:March 31, 2019:

chart-985a9f841bd65553ac0.jpgchart-329055f89a4950cb827.jpg
 
(Dollars in thousands)(Dollars in thousands)
Average loan size$876
$867
Largest individual commercial real estate mortgage outstanding$27,522
$32,000
Commercial real estate nonperforming loans/commercial real estate loans0.06%0.04%
Owner occupied commercial real estate loans/commercial real estate loans16.0%16.1%

In addition to the commercial portfolios, the Company also originates both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area. The Company also provides home equity loans and lines that may be made as a fixed rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home. Additionally, the Company makes loans for a wide variety of other personal needs. Consumer loans primarily consist of installment loans and overdraft protections. The residential, home equity and other consumer portfolios totaled $1.9$2.0 billion at September 30, 2018.March 31, 2019.

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, impaired, 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. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR").
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 more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are more than 90 days past due may be kept on an accruing status if the loans are well secured and/or in the process of collection. The Company may also put a junior lien mortgage on nonaccrual status as a

result of delinquency with respect to the first position, which is held by another financial institution, while the junior lien is currently performing. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for loan losses.
Troubled Debt Restructurings     In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default. Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.
It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers itstheir return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or greater than 90 days delinquent. Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it may be determined that the borrower is performing under modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring.
Purchased Credit Impaired Loans    Purchased Credit Impaired (“PCI”) loans are acquired loans which had evidence of deterioration in credit quality at the purchase date and for which it is probable that all contractually required payments will not be collected. PCI loans are recorded at fair value without any carryover of the allowance for loan losses. The excess cash flows expected to be collected over the carrying amount of the loans, referred to as the "accretable yield," is accreted into interest income over the life of the loans using the effective yield method. Accordingly, PCI loans are not subject to classification as nonaccrual in the same manner as originated loans, rather they are generally considered to be accruing loans because their interest income recognized relates to the accretable yield and not to contractual interest payments. See Note 4, "Loans, Allowance for Loan Losses, and Credit Quality" within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for more information.
Nonperforming Assets     Nonperforming assets are typically comprised of nonaccrualnonperforming loans loans past due 90 days or more but still accruing interest, and other real estate owned ("OREO"(“OREO”). Nonperforming loans consist of nonaccrual loans and loans that are more than 90 days 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 loan 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.

The following table sets forth information regarding nonperforming assets held by the Company at the dates indicated:
Table 3 - Nonperforming Assets

September 30,
2018		 December 31,
2017		 September 30,
2017		March 31,
2019		 December 31,
2018		 March 31,
2018
(Dollars in thousands)(Dollars in thousands)
Loans accounted for on a nonaccrual basis          
Commercial and industrial$28,742
 $32,055
 $32,556
$25,879
 $26,310
 $30,751
Commercial real estate1,960
 3,123
 3,052
1,539
 3,326
 2,997
Small business191
 230
 403
180
 235
 412
Residential real estate8,076
 8,129
 8,297
8,517
 8,251
 7,646
Home equity6,367
 6,022
 5,903
7,202
 7,278
 5,858
Other consumer49
 71
 59
9
 13
 40
Total (1)$45,385
 $49,630
 $50,270
$43,326
 $45,413
 $47,704
Loans past due 90 days or more but still accruing          
Other consumer9
 8
 7
5
 5
 9
Total$9
 $8
 $7
$5
 $5
 $9
Total nonperforming loans$45,394
 $49,638
 $50,277
$43,331
 $45,418
 $47,713
Other real estate owned190
 612
 2,898
—
 —
 358
Total nonperforming assets$45,584
 $50,250
 $53,175
$43,331
 $45,418
 $48,071
Nonperforming loans as a percent of gross loans0.70% 0.78% 0.80%0.62% 0.66% 0.75%
Nonperforming assets as a percent of total assets0.54% 0.62% 0.66%0.48% 0.51% 0.59%
 

(1)Inclusive of TDRs on nonaccrual status of $3.4$28.9 million, $6.1$29.3 million, and $5.8$5.6 million at September 30, 2018,March 31, 2019, December 31, 2017,2018, and September 30, 2017,March 31, 2018, respectively.
The following table summarizes the changes in nonperforming assets for the periods indicated:
Table 4 - Activity in Nonperforming Assets
Three Months Ended Nine Months EndedThree Months Ended
September 30,
2018		 September 30,
2017		 September 30, 2018 September 30, 2017March 31,
2019		 March 31,
2018
(Dollars in thousands)(Dollars in thousands)
Nonperforming assets beginning balance$47,357
 $54,812
 $50,250
 $61,580
$45,418
 $50,250
New to nonperforming4,984
 3,573
 10,627
 11,140
1,857
 2,001
Loans charged-off(847) (817) (2,009) (5,523)(559) (594)
Loans paid-off(4,932) (3,679) (9,833) (9,548)(3,171) (2,692)
Loans transferred to other real estate owned and foreclosed assets—
 (107) —
 (564)
Loans restored to performing status(921) (557) (3,101) (2,828)(232) (690)
New to other real estate owned—
 107
 —
 564
Valuation write down—
 (238) —
 (333)
Sale of other real estate owned—
 —
 (254) (1,505)—
 (254)
Other(57) 81
 (96) 192
18
 50
Nonperforming assets ending balance$45,584
 $53,175
 $45,584
 $53,175
$43,331
 $48,071


The following table sets forth information regarding troubled debt restructured loans as of the dates indicated:
Table 5 - Troubled Debt Restructurings

September 30,
2018		 December 31,
2017		 September 30,
2017		March 31,
2019		 December 31,
2018		 March 31,
2018
(Dollars in thousands)(Dollars in thousands)
Performing troubled debt restructurings$24,554
 $25,852
 $26,731
$23,053
 $23,849
 $25,617
Nonaccrual troubled debt restructurings(1)3,370
 6,067
 5,776
28,908
 29,348
 5,637
Total$27,924
 $31,919
 $32,507
$51,961
 $53,197
 $31,254
Performing troubled debt restructurings as a % of total loans0.38% 0.41% 0.42%0.33% 0.35% 0.40%
Nonaccrual troubled debt restructurings as a % of total loans0.05% 0.10% 0.09%0.41% 0.42% 0.09%
Total troubled debt restructurings as a % of total loans0.43% 0.50% 0.51%0.74% 0.77% 0.49%
(1) During the fourth quarter of 2018 nonaccrual loans associated with a large commercial loan customer that had previously declared bankruptcy were modified when a court confirmed the customer's bankruptcy reorganization plan. That revision to loan terms required the Company to deem loans associated with the customer as troubled debt restructured loans.

The following table summarizes changes in TDRs for the periods indicated:
Table 6 - Activity in Troubled Debt Restructurings

Three Months Ended Nine Months EndedThree Months Ended
September 30
2018		 September 30
2017		 September 30
2018		 September 30
2017		March 31
2019		 March 31
2018
(Dollars in thousands)(Dollars in thousands)
TDRs beginning balance$29,623
 $32,636
 $31,919
 $32,292
$53,197
 $31,919
New to TDR status432
 799
 1,045
 4,006
225
 235
Transfer to OREO—
 (107) —
 (322)
Paydowns(1,952) (821) (4,612) (3,450)(1,461) (845)
Charge-offs(179) —
 (428) (19)—
 (55)
TDRs ending balance$27,924
 $32,507
 $27,924
 $32,507
$51,961
 $31,254
    
Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. The table below shows interest income that was recognized or collected on all nonaccrual loans and TDRs as of the dates indicated:
Table 7 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings
 
Three Months Ended Nine Months EndedThree Months Ended
2018 2017 2018 20172019 2018
(Dollars in thousands)(Dollars in thousands)
The amount of incremental gross interest income that would have been recorded if nonaccrual loans had been current in accordance with their original terms$650
 $639
 $1,918
 $1,670
$565
 $636
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income$519
 $434
 $1,301
 $1,148
$482
 $500
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment

shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impaired loans include all commercial and industrial loans, commercial real estate loans, commercial construction and small business loans that are on nonaccrual status, TDRs, and other loans that have been categorized as impaired. Impairment is measured on a loan by loan basis by comparing the loan’s value to either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. For impaired loans deemed collateral dependent, where impairment is measured using the fair value of the collateral, the Bank will either order a new appraisal or use another available source of collateral assessment such as a broker’s opinion of value to determine a reasonable estimate of the fair value of the collateral.
Total impaired loans at September 30, 2018March 31, 2019 and December 31, 20172018 were $64.0$57.5 million and $72.8$59.1 million, respectively. For additional information regarding the Company’s asset quality, including delinquent loans, nonaccruals, TDRs, and impaired loans, see Note 4, “Loans, Allowance for Loan Losses, and Credit Quality” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.

Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms. At September 30, 2018,March 31, 2019, there were 4958 relationships, with an aggregate balance of $44.7$47.5 million, deemed to be potential problem loans. These potential problem loans continued to perform with respect to payments. Management actively monitors these loans and strives to minimize any possible adverse impact to the Company.
Allowance for Loan Losses The allowance for loan losses is maintained at a level that management considers appropriate to provide for probable loan losses based upon evaluation of known and inherent risks in the loan portfolio. The allowance is increased by providing for loan losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on increases in nonperforming loans, changes in economic conditions, or for other reasons. Additionally, various regulatory agencies, as an integral part of the Bank's examination process, periodically assess the adequacy of the allowance for loan losses to accessassess whether the allowance was determined in accordance with GAAP and applicable guidance.
The allowance for loan losses is allocated to loan types using both a formula-based approach applied to groups of loans and an analysis of certain individual loans for impairment. The formula-based approach emphasizes loss factors derived from actual historical portfolio loss rates, which are combined with an assessment of certain qualitative factors to determine the allowance amounts allocated to the various loan categories. Allowance amounts are determined based on an estimate of the historical average annual percentage rate of loan loss for each loan category, an estimate of the incurred loss emergence and confirmation period for each loan category, and certain qualitative risk factors considered in the computation of the allowance for loan losses. Additionally, 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 commercial risk-rating system, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial 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.
As of September 30, 2018,March 31, 2019, the allowance for loan losses totaled $63.2$65.1 million, or 0.97%0.93% of total loans, as compared to $60.6$64.3 million, or 0.95%0.93% of total loans, at December 31, 2017.2018.

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

Table 8 - Summary of Changes in the Allowance for Loan Losses

Three Months EndedThree Months Ended
September 30,
2018		 June 30,
2018		 March 31,
2018		 December 31,
2017		 September 30,
2017		March 31,
2019		 December 31,
2018		 September 30,
2018		 June 30,
2018		 March 31,
2018
(Dollars in thousands)(Dollars in thousands)
Average total loans$6,500,907
 $6,432,287
 $6,334,295
 $6,308,374
 $6,275,200
$6,935,927
 $6,688,141
 $6,500,907
 $6,432,287
 $6,334,295
Allowance for loan losses, beginning of period$62,557
 $60,862
 $60,643
 $59,710
 $59,479
$64,293
 $63,235
 $62,557
 $60,862
 $60,643
Charged-off loans                  
Commercial and industrial218
 4
 133
 176
 124
—
 —
 218
 4
 133
Commercial real estate82
 —
 —
 39
 —
—
 —
 82
 —
 —
Small business111
 102
 24
 44
 164
145
 135
 111
 102
 24
Residential real estate—
 109
 39
 25
 43
—
 —
 —
 109
 39
Home equity87
 95
 79
 59
 81
113
 32
 87
 95
 79
Other consumer349
 259
 318
 343
 405
301
 421
 349
 259
 318
Total charged-off loans847
 569
 593
 686
 817
559
 588
 847
 569
 593
Recoveries on loans previously charged-off                  
Commercial and industrial108
 59
 12
 11
 404
124
 3
 108
 59
 12
Commercial real estate29
 18
 20
 42
 286
33
 121
 29
 18
 20
Small business10
 10
 9
 18
 17
27
 17
 10
 10
 9
Residential real estate9
 1
 2
 2
 15
1
 —
 9
 1
 2
Home equity71
 23
 34
 31
 65
66
 28
 71
 23
 34
Other consumer223
 153
 235
 215
 261
155
 277
 223
 153
 235
Total recoveries450
 264
 312
 319
 1,048
406
 446
 450
 264
 312
Net loans charged-off (recovered)                  
Commercial and industrial110
 (55) 121
 165
 (280)(124) (3) 110
 (55) 121
Commercial real estate53
 (18) (20) (3) (286)(33) (121) 53
 (18) (20)
Small business101
 92
 15
 26
 147
118
 118
 101
 92
 15
Residential real estate(9) 108
 37
 23
 28
(1) —
 (9) 108
 37
Home equity16
 72
 45
 28
 16
47
 4
 16
 72
 45
Other consumer126
 106
 83
 128
 144
146
 144
 126
 106
 83
Total net loans charged-off (recovered)397
 305
 281
 367
 (231)
Total net loans charged-off153
 142
 397
 305
 281
Provision for loan losses1,075
 2,000
 500
 1,300
 —
1,000
 1,200
 1,075
 2,000
 500
Total allowance for loan losses, end of period$63,235
 $62,557
 $60,862
 $60,643
 $59,710
$65,140
 $64,293
 $63,235
 $62,557
 $60,862
Net loans charged-off (recovered) as a percent of average total loans (annualized)0.02% 0.02% 0.02% 0.02% (0.01)%
Net loans charged-off as a percent of average total loans (annualized)0.01% 0.01% 0.02% 0.02% 0.02%
Allowance for loan losses as a percent of total loans0.97% 0.97% 0.96% 0.95% 0.95 %0.93% 0.93% 0.97% 0.97% 0.96%
Allowance for loan losses as a percent of nonperforming loans139.30% 132.78% 127.56% 122.17% 118.76 %150.33% 141.56% 139.30% 132.78% 127.56%

For purposes of the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for loan losses is made to each loan category using the analytical techniques and estimation methods described herein. While these amounts represent management’s best estimate of the distribution of probable 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 loan losses by loan category at the dates indicated:
Table 9 - Summary of Allocation of Allowance for Loan Losses
 
September 30,
2018		 December 31,
2017		March 31,
2019		 December 31,
2018
Allowance
Amount
 
Percent of
Loans
In  Category
To Total Loans
 
Allowance
Amount
 
Percent of
Loans
In  Category
To Total Loans
Allowance
Amount
 
Percent of
Loans
In  Category
To Total Loans
 
Allowance
Amount
 
Percent of
Loans
In  Category
To Total Loans
(Dollars in thousands)(Dollars in thousands)
Commercial and industrial$15,108
 15.4% $13,256
 14.0%$16,872
 16.5% $15,760
 15.8%
Commercial real estate32,268
 47.9% 31,453
 48.9%32,049
 46.6% 32,370
 47.1%
Commercial construction5,027
 5.4% 5,698
 6.3%5,355
 5.4% 5,158
 5.3%
Small business1,768
 2.3% 1,577
 2.1%1,784
 2.4% 1,756
 2.4%
Residential real estate3,071
 12.3% 2,822
 11.9%3,234
 13.4% 3,219
 13.4%
Home equity5,554
 16.5% 5,390
 16.6%5,507
 15.5% 5,608
 15.8%
Other consumer439
 0.2% 447
 0.2%339
 0.2% 422
 0.2%
Total allowance for loan losses$63,235
 100.0% $60,643
 100.0%$65,140
 100.0% $64,293
 100.0%
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 loan 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 loan losses, see Note 4, “Loans, Allowance for Loan Losses, and Credit Quality” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.

Federal Home Loan Bank Stock The Bank held an investment in Federal Home Loan Bank (“FHLB”) of Boston of $13.1$7.7 million and $11.6$15.7 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding, particularly term funding as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company purchases and/or is subject to redemption of FHLB stock proportional to the volume of funding received and views the holdings as a necessary long-term investment for the purposespurpose of balance sheet liquidity and not for investment return.
Goodwill and Other Intangible Assets Goodwill and other intangible assets were $239.2$270.4 million and $241.1$271.4 million as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The decrease in 2018 was due to amortization of definite-lived intangibles.
The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted. Accordingly, the Company performed its annual goodwill impairment testing during the third quarter of 2018 and determined that the Company's goodwill was not impaired. 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. There were no events or changes that indicated impairment of other intangible assets.

Cash Surrender Value of Life Insurance Policies The Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans. The cash surrender value of life insurance policies was $153.2$161.5 million and $151.5$160.5 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. The Company recorded tax exempt income from life insurance policies of $984,000$972,000 and $1.0 million$947,000 for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively, and $2.9 million and $3.0 million for the nine month periods ended September 30, 2018 and 2017, respectively.In addition, the Company received proceeds on life insurance policies in the amount of $2.9 million during the third quarter of 2018, resulting in a gain of $1.5 million.
Deposits As of September 30, 2018,March 31, 2019, total deposits were $7.0$7.5 billion, representing a $247.0$36.5 million, or 3.7%0.5%, increase from December 31, 2017. The Company experienced2018. Strong growth in all categories with a continued emphasis on coremoney market deposits which represent 90.25%was offset by declines in demand deposit balances. Core deposits represented 88.48% of total deposits as of September 30, 2018.March 31, 2019. The total cost of deposits was 0.30% and 0.20%0.39% for the three months ended September 30, 2018 and 2017, respectively, and 0.27% and 0.19%, forMarch 31, 2019, representing an increase of 15 basis points from the ninethree months ended September 30, 2018 and 2017, respectively.March 31, 2018.
The Company also participates in the Promontory Interfinancial Network, allowing the Bank to provide easy access to multi-million dollar Federal Deposit Insurance Corporation ("FDIC") deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities. This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market and amounted to $51.7$177.1 million and $48.5$180.5 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. During the second quarter of 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was promulgated and determined that reciprocal deposits, such as those acquired through the Promontory Interfinancial Network, were no longer to be treated as brokered deposits. Accordingly, these amounts are no longer included in the total brokered amounts reported by the Company.
    In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the Promontory Interfinancial Network, which amounted to $6.0 million at both September 30, 2018March 31, 2019 and December 31, 2017.2018.


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 increased by $49.3 million, or 19.1% at March 31, 2019 as compared to December 31, 2018. The Company’s borrowings, net increase reflects a new credit facility of applicable debt$125.0 million, which included a $75.0 million unsecured revolving loan and a $50.0 million unsecured term loan credit facility, as well as a $50.0 million issuance costs, consisted of subordinated debentures, partially offset by a $122.0 decrease in Federal Home Loan Bank overnight borrowings. Additionally, the following as of the periods indicated:
Table 10 - Borrowings
 September 30,
2018		 December 31,
2017
 (Dollars in thousands)
Federal Home Loan Bank borrowings$50,767
 $53,264
Short-term borrowings - one year and under (1)   
Customer repurchase agreements141,176
 162,679
Long-term borrowings - over one year (1)   
Junior subordinated debentures:   
Capital Trust V51,504
 51,503
Slades Ferry Trust I10,233
 10,229
Central Trust I5,258
 5,258
Central Trust II6,083
 6,083
Subordinated debentures34,717
 34,682
Total long-term borrowings$107,795
 $107,755
Total borrowings$299,738
 $323,698
(1) Classification is based upon duration at origination and not predicated upon remaining time to maturity.
The Bank had $2.9 billion and $2.8 billion of assets pledged as collateral against borrowings at both September 30, 2018March 31, 2019 and December 31, 2017.2018. These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston. Assets are also pledged as collateral for customer repurchase agreements.

Capital Resources On September 20, 2018,March 13, 2019, the Company’s Board of Directors declared a cash dividend of $0.38$0.44 per share to stockholders of record as of the close of business on October 1, 2018.March 25, 2019. This dividend was paid on OctoberApril 5, 2018.2019.
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 classification 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, 2018March 31, 2019 and December 31, 2017,2018, 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 for each period indicated:

Table 1110 - Company and Bank's Capital Amounts and Ratios 
Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt
Corrective Action Provisions		Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt
Corrective Action Provisions
Amount Ratio Amount   Ratio Amount   RatioAmount Ratio Amount   Ratio Amount   Ratio
September 30, 2018March 31, 2019
(Dollars in thousands)(Dollars in thousands)
Company (consolidated)                      
Total capital (to risk weighted assets)$954,622
 14.58% $523,794
 ≥ 8.0% N/A N/A$1,063,469
 15.28% $556,966
 ≥ 8.0% N/A N/A
Common equity tier 1 capital
(to risk weighted assets)
784,427
 11.98% 294,634
 ≥ 4.5% N/A N/A841,837
 12.09% 313,293
 ≥ 4.5% N/A N/A
Tier 1 capital (to risk weighted assets)855,427
 13.07% 392,845
 ≥ 6.0% N/A N/A912,837
 13.11% 417,725
 ≥ 6.0% N/A N/A
Tier 1 capital (to average assets)855,427
 10.49% 335,151
 ≥ 4.0% N/A N/A912,837
 10.64% 343,280
 ≥ 4.0% N/A N/A
Bank                      
Total capital (to risk weighted assets)$902,696
 13.79% $523,579
 ≥ 8.0% $654,474
 ≥ 10.00%$946,325
 13.60% $556,704
 ≥ 8.0% $695,880
 ≥ 10.00%
Common equity tier 1 capital
(to risk weighted assets)
838,218
 12.81% 294,513
 ≥ 4.5% 425,408
 ≥ 6.50%879,900
 12.64% 313,146
 ≥ 4.5% 452,322
 ≥ 6.50%
Tier 1 capital (to risk weighted assets)838,218
 12.81% 392,684
 ≥ 6.0% 523,579
 ≥ 8.00%879,900
 12.64%��417,528
 ≥ 6.0% 556,704
 ≥ 8.00%
Tier 1 capital (to average assets)838,218
 10.28% 326,079
 ≥ 4.0% 407,598
 ≥ 5.00%879,900
 10.26% 343,148
 ≥ 4.0% 428,935
 ≥ 5.00%
December 31, 2017December 31, 2018
(Dollars in thousands)(Dollars in thousands)
Company (consolidated)                      
Total capital (to risk weighted assets)$886,807
 13.82% $513,398
 ≥ 8.0% N/A N/A$992,454
 14.45% $549,297
 ≥ 8.0% N/A N/A
Common equity tier 1 capital
(to risk weighted assets)
718,995
 11.20% 288,787
 ≥ 4.5% N/A N/A818,176
 11.92% 308,980
 ≥ 4.5% N/A N/A
Tier 1 capital (to risk weighted assets)789,992
 12.31% 385,049
 ≥ 6.0% N/A N/A892,176
 12.99% 411,973
 ≥ 6.0% N/A N/A
Tier 1 capital (to average assets)789,992
 10.04% 314,756
 ≥ 4.0% N/A N/A892,176
 10.69% 333,754
 ≥ 4.0% N/A N/A
Bank                      
Total capital (to risk weighted assets)$846,147
 13.19% $513,175
 ≥ 8.0% $641,469
 ≥ 10.00%$937,574
 13.66% $549,036
 ≥ 8.0% $686,295
 ≥ 10.00%
Common equity tier 1 capital
(to risk weighted assets)
784,014
 12.22% 288,661
 ≥ 4.5% 416,955
 ≥ 6.50%872,024
 12.71% 308,833
 ≥ 4.5% 446,092
 ≥ 6.50%
Tier 1 capital (to risk weighted assets)784,014
 12.22% 384,881
 ≥ 6.0% 513,175
 ≥ 8.00%872,024
 12.71% 411,777
 ≥ 6.0% 549,036
 ≥ 8.00%
Tier 1 capital (to average assets)784,014
 9.97% 314,630
 ≥ 4.0% 393,288
 ≥ 5.00%872,024
 10.46% 333,595
 ≥ 4.0% 416,994
 ≥ 5.00%

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 being phased-in, beginning at 0.625% on January 1, 2016 and ultimately increasing to 2.5% on January 1, 2019.. At September 30, 2018March 31, 2019 the Company's capital levels exceeded the fully-phased in buffer of 2.5%.buffer.
Dividend Restrictions In the ordinary course of business, the Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend restrictions and while maintaining its "well capitalized" status, dividends paid by the Bank to the Company totaled $15.5$30.0 million and $11.8$13.5 million for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively, and totaled $44.5respectively. First quarter 2019 dividends included $16.5 million and $35.2 millionto be used for funding the nine months ended September 30, 2018 and 2017, respectively.April 1, 2019 BHB acquisition.
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 both September 30,March 31, 2019 and December 31, 2018 and 2017,there was $71.0 million and $74.0 million, respectively, in trust preferred securities which have been included in the Tier 1 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

Community Reinvestment Act In September 2017, the FDIC and the Massachusetts Division of Banks assigned the Bank a CRA rating of Satisfactory.

Investment Management As of September 30, 2018,March 31, 2019, the Rockland Trust Investment Management Group had assets under administration of $3.6$4.0 billion, representing 5,7105,924 trust, fiduciary, and agency accounts. At December 31, 2017,2018, assets under administration were $3.5$3.6 billion, representing approximately 5,6165,936 trust, fiduciary, and agency accounts. Included in these amounts as of September 30, 2018March 31, 2019 and December 31, 20172018 are assets under administration of $307.2$301.4 million and $303.7$268.0 million, respectively, relating to the Company’s registered investment advisor, Bright Rock Capital Management, LLC, which provides institutional quality investment management services to institutional and high net worth clients. Revenue from the Investment Management Group was $5.9$6.1 million and $5.4$5.6 million for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively, and $17.6 million and $16.0 million for the nine months ended September 30, 2018 and 2017, respectively.
Retail investments and insurance revenue was $652,000$679,000 and $565,000$560,000 for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively, and $2.0 million and $1.5 million for the nine months ended September 30, 2018 and 2017, respectively. Retail investments and insurance revenue includes commission revenue from LPL Financial (“LPL”) and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., which offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance. Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base. These same agents are also approved and appointed with various other Broker General Agents for the purposes of processing insurance solutions for clients.

RESULTS OF OPERATIONS
The following table provides a summary of results of operations for the three and nine months ended September 30, 2018March 31, 2019 and 2017:2018:
Table 1211 - Summary of Results of Operations
 
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2018 2017 2018 20172019 2018
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Net Income$33,015
 $23,852
 $91,688
 $65,140
$35,225
 $27,555
Diluted earnings per share$1.20
 $0.87
 $3.32
 $2.38
$1.25
 $1.00
Return on average assets1.57% 1.18% 1.49% 1.11%1.62% 1.39%
Return on average equity13.19% 10.18% 12.60% 9.65%13.10% 11.73%
Net interest margin3.94% 3.65% 3.87% 3.59%4.14% 3.77%
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 thirdfirst quarter of 20182019 was $76.4$82.7 million, representing an increase of $9.0$14.1 million, or 13.3%20.5%, when compared to the thirdfirst quarter of 2017.2018. Net interest income benefitedcontinued to benefit from the Company's sustained asset sensitive position.position as rising yields on earnings assets continued to out pace higher funding costs.

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 ending September 30,March 31, 2019 and 2018, and 2017, respectively. 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 taxes that would have been paid if the income had been fully taxable.
Table 1312 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date
Three Months Ended September 30Three Months Ended March 31
2018 20172019 2018
Average
Balance
 
Interest
Earned/
Paid
 Yield/Rate 
Average
Balance
 
Interest
Earned/
Paid
 Yield/Rate
Average
Balance
 
Interest
Earned/
Paid
 Yield/Rate 
Average
Balance
 
Interest
Earned/
Paid
 Yield/Rate
(Dollars in thousands)(Dollars in thousands)
Interest-earning assets                      
Interest-earning deposits with banks, federal funds sold, and short term investments$180,802
 $916
 2.01% $132,327
 $417
 1.25%$68,994
 $426
 2.50% $81,934
 $311
 1.54%
Securities                      
Securities - trading1,608
 —
 —% 1,299
 —
 —%1,616
 —
 —% 1,433
 —
 —%
Securities - taxable investments1,005,787
 6,664
 2.63% 908,560
 5,642
 2.46%1,084,747
 7,465
 2.79% 967,221
 6,219
 2.61%
Securities - nontaxable investments (1)1,992
 18
 3.58% 2,817
 29
 4.08%1,738
 17
 3.97% 2,262
 20
 3.59%
Total securities$1,009,387
 $6,682
 2.63% $912,676
 $5,671
 2.47%$1,088,101
 $7,482
 2.79% $970,916
 $6,239
 2.61%
Loans held for sale8,340
 61
 2.90% 5,766
 33
 2.27%3,445
 31
 3.65% 2,753
 19
 2.80%
Loans (2)                      
Commercial and industrial(1)975,980
 11,936
 4.85% 868,358
 9,173
 4.19%1,113,819
 14,440
 5.26% 879,336
 9,615
 4.43%
Commercial real estate (1)3,144,613
 37,048
 4.67% 3,104,098
 32,875
 4.20%3,240,346
 39,230
 4.91% 3,107,437
 33,289
 4.34%
Commercial construction356,091
 4,572
 5.09% 365,143
 4,177
 4.54%386,736
 5,617
 5.89% 397,720
 4,671
 4.76%
Small business147,518
 2,183
 5.87% 130,275
 1,828
 5.57%165,374
 2,484
 6.09% 132,125
 1,862
 5.72%
Total commercial4,624,202
 55,739
 4.78% 4,467,874
 48,053
 4.27%4,906,275
 61,771
 5.11% 4,516,618
 49,437
 4.44%
Residential real estate792,154
 7,959
 3.99% 749,813
 7,656
 4.05%926,945
 9,547
 4.18% 755,996
 7,501
 4.02%
Home equity1,071,511
 11,457
 4.24% 1,046,894
 10,081
 3.82%1,086,620
 12,175
 4.54% 1,051,022
 10,205
 3.94%
Total consumer real estate1,863,665
 19,416
 4.13% 1,796,707
 17,737
 3.92%2,013,565
 21,722
 4.38% 1,807,018
 17,706
 3.97%
Other consumer13,040
 244
 7.42% 10,619
 241
 9.00%16,087
 313
 7.89% 10,659
 214
 8.14%
Total loans$6,500,907
 $75,399
 4.60% $6,275,200
 $66,031
 4.17%$6,935,927
 $83,806
 4.90% $6,334,295
 $67,357
 4.31%
Total interest-earning assets$7,699,436
 $83,058
 4.28% $7,325,969
 $72,152
 3.91%$8,096,467
 $91,745
 4.60% $7,389,898
 $73,926
 4.06%
Cash and due from banks106,273
     100,228
    105,194
     97,605
    
Federal Home Loan Bank stock13,107
     12,734
    11,697
     13,016
    
Other assets547,296
     567,297
    617,259
     545,516
    
Total assets$8,366,112
     $8,006,228
    $8,830,617
     $8,046,035
    
Interest-bearing liabilities                      
Deposits                      
Savings and interest checking accounts$2,654,157
 $1,433
 0.21% $2,562,557
 $992
 0.15%$2,891,613
 $1,954
 0.27% $2,563,186
 $1,093
 0.17%
Money market1,373,594
 2,056
 0.59% 1,309,457
 1,171
 0.35%1,464,151
 2,719
 0.75% 1,338,265
 1,364
 0.41%
Time deposits652,638
 1,762
 1.07% 611,080
 1,168
 0.76%717,081
 2,355
 1.33% 646,529
 1,478
 0.93%
Total interest-bearing deposits$4,680,389
 $5,251
 0.45% $4,483,094
 $3,331
 0.29%$5,072,845
 $7,028
 0.56% $4,547,980
 $3,935
 0.35%
Borrowings                      
Federal Home Loan Bank borrowings$50,770
 $248
 1.94% $53,926
 $302
 2.22%$112,898
 $710
 2.55% $73,040
 $260
 1.44%
Customer repurchase agreements148,575
 75
 0.20% 172,387
 67
 0.15%—
 —
 —% 155,768
 66
 0.17%
Line of Credit2,221
 21
 3.83% —
 —
 —%
Long-term borrowings3,331
 32
 3.90% —
 —
 —%
Junior subordinated debentures73,077
 640
 3.47% 73,070
 578
 3.14%73,287
 684
 3.79% 73,074
 590
 3.27%
Subordinated debentures34,711
 427
 4.88% 34,664
 427
 4.89%
Total borrowings$307,133
 $1,390
 1.80% $334,047
 $1,374
 1.63%

Subordinated debentures44,678
 543
 4.93% 34,687
 427
 4.99%
Total borrowings$236,415
 $1,990
 3.41% $336,569
 $1,343
 1.62%
Total interest-bearing liabilities$4,987,522
 $6,641
 0.53% $4,817,141
 $4,705
 0.39%$5,309,260
 $9,018
 0.69% $4,884,549
 $5,278
 0.44%
Demand deposits2,300,943
     2,174,600
    2,317,209
     2,129,517
    
Other liabilities84,442
     84,782
    113,688
     79,125
    
Total liabilities$7,372,907
     $7,076,523
    $7,740,157
     $7,093,191
    
Stockholders' equity993,205
     929,705
    1,090,460
     952,844
    
Total liabilities and stockholders' equity$8,366,112
     $8,006,228
    $8,830,617
     $8,046,035
    
Net interest income (1)  $76,417
     $67,447
    $82,727
     $68,648
  
Interest rate spread (3)    3.75%     3.52%    3.91%     3.62%
Net interest margin (4)    3.94%     3.65%    4.14%     3.77%
Supplemental information                      
Total deposits, including demand deposits$6,981,332
 $5,251
   $6,657,694
 $3,331
  $7,390,054
 $7,028
   $6,677,497
 $3,935
  
Cost of total deposits    0.30%     0.20%    0.39%     0.24%
Total funding liabilities, including demand deposits$7,288,465
 $6,641
   $6,991,741
 $4,705
  $7,626,469
 $9,018
   $7,014,066
 $5,278
  
Cost of total funding liabilities    0.36%     0.27%    0.48%     0.31%
 

(1)The total amount of adjustment to present interest income and yield on a FTE basis is $183,000$202,000 and $374,000$177,000 for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively. The FTE adjustment relates to nontaxable investmenttax exempt income relating to securities with average balances of $2.0$1.7 million and $2.8$2.3 million and nontaxable industrial development bonds recorded within commercial real estatetax exempt income relating to loans with average balances of $57.4$65.0 million and $69.3$51.9 million, for the three months ended September 30,March 31, 2019 and 2018, and 2017, respectively.
(2)Average nonaccruing loans are included in 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.


Table 14 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date

 Nine Months Ended September 30
 2018 2017
 
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$128,646
 $1,768
 1.84% $103,437
 $814
 1.05%
Securities           
Securities - trading1,547
 —
 —% 1,198
 —
 —%
Securities - equity           
Securities - taxable investments988,885
 19,381
 2.62% 894,809
 16,618
 2.48%
Securities - nontaxable investments (1)2,152
 58
 3.60% 3,462
 109
 4.21%
Total securities$992,584
 $19,439
 2.62% $899,469
 $16,727
 2.49%
Loans held for sale5,291
 110
 2.78% 4,086
 68
 2.23%
Loans (2)           
Commercial and industrial933,163
 32,667
 4.68% 881,387
 26,913
 4.08%
Commercial real estate (1)3,115,076
 105,511
 4.53% 3,054,336
 94,057
 4.12%
Commercial construction390,061
 14,499
 4.97% 353,134
 11,859
 4.49%
Small business139,523
 6,053
 5.80% 127,938
 5,284
 5.52%
Total commercial4,577,823
 158,730
 4.64% 4,416,795
 138,113
 4.18%
Residential real estate772,663
 23,121
 4.00% 699,793
 20,779
 3.97%
Home equity1,061,280
 32,492
 4.09% 1,024,164
 28,233
 3.69%
Total consumer real estate1,833,943
 55,613
 4.05% 1,723,957
 49,012
 3.80%
Other consumer11,340
 669
 7.89% 10,828
 722
 8.91%
Total loans$6,423,106
 $215,012
 4.48% $6,151,580
 $187,847
 4.08%
Total interest-earning assets$7,549,627
 $236,329
 4.19% $7,158,572
 $205,456
 3.84%
Cash and due from banks101,642
     97,457
    
Federal Home Loan Bank stock13,174
     13,180
    
Other assets546,276
     553,129
    
Total assets$8,210,719
     $7,822,338
    
Interest-bearing liabilities           
Deposits           
Savings and interest checking accounts$2,632,311
 $3,819
 0.19% $2,536,954
 $2,604
 0.14%
Money market1,357,488
 5,087
 0.50% 1,285,492
 2,963
 0.31%
Time deposits646,055
 4,867
 1.01% 618,518
 3,443
 0.74%
Total interest-bearing deposits$4,635,854
 $13,773
 0.40% $4,440,964
 $9,010
 0.27%
Borrowings           
Federal Home Loan Bank borrowings$62,055
 803
 1.73% $61,206
 $1,123
 2.45%
Customer repurchase agreements149,174
 205
 0.18% 161,850
 178
 0.15%
Junior subordinated debentures73,076
 1,855
 3.39% 73,074
 1,697
 3.10%
Subordinated debentures34,699
 1,282
 4.94% 34,652
 1,282
 4.95%
Total borrowings$319,004
 $4,145
 1.74% $330,782
 $4,280
 1.73%
Total interest-bearing liabilities$4,954,858
 $17,918
 0.48% $4,771,746
 $13,290
 0.37%
Demand deposits2,202,305
     2,063,668
    

Other liabilities80,964
     84,063
    
Total liabilities$7,238,127
     $6,919,477
    
Stockholders' equity972,592
     902,861
    
Total liabilities and stockholders' equity$8,210,719
     $7,822,338
    
Net interest income (1)  $218,411
     $192,166
  
Interest rate spread (3)    3.71%     3.47%
Net interest margin (4)    3.87%     3.59%
Supplemental information           
Total deposit, including demand deposits$6,838,159
 $13,773
   $6,504,632
 $9,010
  
Cost of total deposits    0.27%     0.19%
Total funding liabilities, including demand deposits$7,157,163
 $17,918
   $6,835,414
 $13,290
  
Cost of total funding liabilities    0.33%     0.26%
(1)The total amount of adjustment to present interest income and yield on a FTE basis is $538,000 and $1.1 million for the nine months ended September 30, 2018 and 2017, respectively. The FTE adjustment relates to nontaxable investment securities with average balances of $2.2 million and $3.5 million and nontaxable industrial development bonds recorded within commercial real estate with average balances of $54.8 million and $71.1 million for the nine months ended September 30, 2018 and 2017, respectively.
(2)Average nonaccruing loans are included in 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.


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 1513 - Volume Rate Analysis
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended March 31
2018 Compared To 2017 2018 Compared To 20172019 Compared To 2018
Change
Due to
Rate		 
Change
Due to
Volume
 Total Change 
Change
Due to
Rate
 
Change
Due to
Volume
 Total ChangeChange
Due to
Rate		 
Change
Due to
Volume
 Total Change
(Dollars in thousands)(Dollars in thousands)
Income on interest-earning assets                
Interest earning deposits, federal funds sold and short term investments$346
 $153
 $499
 $756
 $198
 $954
$164
 $(49) $115
Securities                
Securities - taxable investments418
 604
 1,022
 1,016
 1,747
 2,763
490
 756
 1,246
Securities - nontaxable investments (1)(3) (8) (11) (10) (41) (51)2
 (5) (3)
Total securities    1,011
     2,712
    1,243
Loans held for sale13
 15
 28
 22
 20
 42
7
 5
 12
Loans                
Commercial and industrial(1)1,626
 1,137
 2,763
 4,173
 1,581
 5,754
2,261
 2,564
 4,825
Commercial real estate (1)3,744
 429
 4,173
 9,584
 1,870
 11,454
4,517
 1,424
 5,941
Commercial construction499
 (104) 395
 1,400
 1,240
 2,640
1,075
 (129) 946
Small business113
 242
 355
 291
 478
 769
153
 469
 622
Total commercial    7,686
     20,617
    12,334
Residential real estate(129) 432
 303
 178
 2,164
 2,342
350
 1,696
 2,046
Home equity1,139
 237
 1,376
 3,236
 1,023
 4,259
1,624
 346
 1,970
Total consumer real estate    1,679
     6,601
    4,016
Other consumer(52) 55
 3
 (87) 34
 (53)(10) 109
 99
Total loans (1)(2)    9,368
     27,165
    16,449
Total income of interest-earning assets    $10,906
     $30,873
    $17,819
Expense of interest-bearing liabilities                
Deposits                
Savings and interest checking accounts$406
 $35
 $441
 $1,117
 $98
 $1,215
$721
 $140
 $861
Money market828
 57
 885
 1,958
 166
 2,124
1,227
 128
 1,355
Time certificates of deposits515
 79
 594
 1,271
 153
 1,424
716
 161
 877
Total interest bearing deposits    1,920
     4,763
    3,093
Borrowings                
Federal Home Loan Bank borrowings(36) (18) (54) (336) 16
 (320)308
 142
 450
Customer repurchase agreements and other short-term borrowings17
 (9) 8
 41
 (14) 27
—
 (66) (66)
Line of Credit21
 —
 21
Long-term borrowings32
 —
 32
Junior subordinated debentures62
 —
 62
 158
 —
 158
92
 2
 94
Subordinated debentures(1) 1
 —
 (2) 2
 —
(7) 123
 116
Total borrowings    16
     (135)    647
Total expense of interest-bearing liabilities    1,936
     4,628
    3,740
Change in net interest income    $8,970
     $26,245
    $14,079
 

(1)The table above reflects income determined on a FTE basis. See footnote (1) to table 13 and 14 above12 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.


Provision For Loan Losses The provision for loan losses represents the charge to expense that is required to maintain an appropriate level of allowance for loan losses. The provision for loan losses was $1.1 million and $3.6$1.0 million for the three and nine months ended September 30, 2018, respectively,March 31, 2019, as compared to zero and $1.7 million$500,000 for the comparable year-ago periods.period. The Company’s allowance for loan losses, as a

percentage of total loans, was 0.97%0.93% at September 30,March 31, 2019, 0.93% at December 31, 2018, and 0.95%0.96% at both DecemberMarch 31, 2017 and September 30, 2017.2018. The Company recorded net charge-offs of $397,000$153,000 and $983,000$281,000 for the three and nine months ended September 30,March 31, 2019 and March 31, 2018, as compared to net recoveries of $231,000 and net charge-offs of $3.5 million for the three and nine months ended September 30, 2017, respectively.
Management’s periodic evaluation of the appropriate allowance for loan losses considers past loan loss experience, known and inherent risks within the loan portfolio, adverse situations which may affect the borrowers’ ability to repay, the estimated value of the underlying collateral, if any, and current economic conditions.

Regarding the estimated value of the underlying collateral, substantial portions of the Bank’s loans are secured by real estate in Massachusetts and Rhode Island.  Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio is susceptible to changes in property values within those states.
               
In general, the national and local economies expanded at a moderate pace through muchcontinued their general expansion into the early months of the third quarter of 2018. A tight2019.  The labor market persists in the New England marketcontinues to be tight with higher-skilled workersvery low unemployment levels.  Wage pressures have remained moderate in short supply; wage increases appear mixedmost cases with only certain skilled positions requiring upward adjustments in the region.order to fill vacancies.  Retailers reported generally favorable sales trends year-over-year however some trepidation over looming tariffs and their effects on prices and sales remainscapital spending plans in 2019 are expected to be higher than those in 2018.  Consumer sentiment in the marketplace.New England area appears strong as demand for most retail products is expected to grow moderately in 2019.  Median sales prices on residential real estate have continued to increase throughremain strong and sales volume remained relatively robust throughout the busy spring and summer seasons, owing to strong demand and a tight supply of housing.typically slower winter months. Commercial real estate marketsfundamentals within the Bank’s footprint continue to be strong.  Office leasing activity remained relativelyvery robust even as asking rents increased.  Commercial construction activity in the Boston market continues to be strong although risingeven as construction costs due to labor shortages and material price increases have begun to place some pressurerise on certain projects. Leasing activity for office space remained strong inaverage.  Management believes that the New England region with rents remaining stable or increasing slightly. The overall economic outlook for the near term remains generally positive for the New England region.


Noninterest Income The following table sets forth information regarding noninterest income for the periods shown:
Table 1614 - Noninterest Income
Three Months EndedThree Months Ended
September 30 ChangeMarch 31 Change
2018 2017 Amount %2019 2018 Amount %
(Dollars in thousands)  (Dollars in thousands)  
Deposit account fees$4,658
 $4,401
 $257
 5.84 %$4,406
 $4,431
 $(25) (0.56)%
Interchange and ATM fees4,947
 4,525
 422
 9.33 %4,516
 4,173
 343
 8.22 %
Investment management6,564
 5,967
 597
 10.01 %6,748
 6,142
 606
 9.87 %
Mortgage banking income1,222
 1,338
 (116) (8.67)%806
 870
 (64) (7.36)%
Gain on life insurance benefits1,463
 —
 1,463
 100.00%
Gain on sale of equity securities4
 12
 (8) (66.67)%
Increase in cash surrender value of life insurance policies984
 1,019
 (35) (3.43)%972
 947
 25
 2.64 %
Loan level derivative income392
 784
 (392) (50.00)%641
 447
 194
 43.40 %
Other noninterest income3,030
 2,724
 306
 11.23 %3,444
 2,853
 591
 20.72 %
Total$23,264
 $20,770
 $2,494
 12.01 %$21,533
 $19,863
 $1,670
 8.41 %
       
Nine Months Ended
September 30 Change
2018 2017 Amount %
(Dollars in thousands)  
Deposit account fees$13,640
 $13,337
 $303
 2.27 %
Interchange and ATM fees13,889
 12,881
 1,008
 7.83 %
Investment management19,528
 17,576
 1,952
 11.11 %
Mortgage banking income3,130
 3,609
 (479) (13.27)%
Gain on life insurance benefits1,463
 —
 1,463
 100.00%
Increase in cash surrender value of life insurance policies2,929
 3,000
 (71) (2.37)%
Gain on sale of equity securities6
 19
 (13) (68.42)%
Loan level derivative income1,547
 2,727
 (1,180) (43.27)%
Other noninterest income8,882
 7,931
 951
 11.99 %
Total$65,014
 $61,080
 $3,934
 6.44 %

The primary reasons for the variances in the noninterest income categorycategories shown in the preceding tablestable include:
•Deposit account fees increased due to overall increased household accounts.
Interchange and ATM fees have increased, driven mainly by increased account activity and a larger customer base.
Investment management income growth was driven primarily fromby growth in overall assets under administration, which were $3.6$4.0 billion as of September 30, 2018,March 31, 2019, an increase of $373.4$533.9 million, or 11.4%15.4%, compared to September 30, 2017.
Mortgage banking income decreased in the current year periods due to lower volume, driven in part by a greater percentage of originations being retained within the Company's loan portfolio.
The Company received proceeds on life insurance policies during the third quarter, resulting in a gain of $1.5 million.March 31, 2018.
Loan level derivative income decreasedincreased as a result of lowerhigher customer demand.
Other noninterest income increased mainly due to higher rental income related to equipment leasing,gains on equity securities, offset in part by a decrease in merchant processing income, asset based lending fees, and an increase in equity securities unrealized gains.commercial loan late charge fees.


Noninterest Expense The following table sets forth information regarding non-interest expense for the periods shown:
Table 1715 - Noninterest Expense
Three Months EndedThree Months Ended
September 30 ChangeMarch 31 Change
2018 2017 Amount %2019 2018 Amount %
(Dollars in thousands)  (Dollars in thousands)  
Salaries and employee benefits$31,095
 $29,289
 $1,806
 6.17 %$33,117
 $31,100
 $2,017
 6.49 %
Occupancy and equipment expenses6,310
 6,085
 225
 3.70 %7,130
 7,408
 (278) (3.75)%
Data processing & facilities management1,287
 1,272
 15
 1.18 %1,326
 1,286
 40
 3.11 %
FDIC assessment725
 673
 52
 7.73 %616
 798
 (182) (22.81)%
Advertising expense1,395
 1,359
 36
 2.65 %1,213
 1,123
 90
 8.01 %
Consulting expense1,128
 937
 191
 20.38 %
Debit card expense755
 992
 (237) (23.89)%
Legal fees752
 1,423
 (671) (47.15)%
Loss on sale of equity securities—
 1
 (1) (100.00)%
Merger and acquisition expenses2,688
 —
 2,688
 100.00%
1,032
 —
 1,032
 100.00%
Software maintenance1,079
 888
 191
 21.51 %1,165
 972
 193
 19.86 %
Other noninterest expenses8,225
 8,391
 (166) (1.98)%10,712
 10,764
 (52) (0.48)%
Total$55,439
 $51,310
 $4,129
 8.05 %$56,311
 $53,451
 $2,860
 5.35 %
       
Nine Months Ended
September 30 Change
2018 2017 Amount %
(Dollars in thousands)  
Salaries and employee benefits$92,483
 $86,267
 $6,216
 7.21 %
Occupancy and equipment expenses20,215
 18,302
 1,913
 10.45 %
Data processing & facilities management3,837
 3,732
 105
 2.81 %
FDIC assessment2,214
 2,234
 (20) (0.90)%
Advertising expense3,684
 4,018
 (334) (8.31)%
Consulting expense2,973
 2,753
 220
 7.99 %
Debit card expense2,405
 2,616
 (211) (8.07)%
Legal fees2,084
 2,074
 10
 0.48 %
Loss on sale of equity securities—
 6
 (6) (100.00)%
Merger and acquisition expenses3,122
 3,393
 (271) (7.99)%
Software maintenance3,048
 2,714
 334
 12.31 %
Other noninterest expenses25,513
 24,783
 730
 2.95 %
Total$161,578
 $152,892
 $8,686
 5.68 %

The primary reasons for the variances in the noninterest expense categorycategories shown in the preceding tablestable include:
The increase in salaries and employee benefits reflects overall increases in the employee base along with increases in expenses associated with merit and incentive programs, payroll taxes, incentives, and medical insurance andpartially offset by reduced post-retirement benefit costs.

Occupancy and equipment expense increases weredecrease was primarily attributable to rental expense depreciation on equipment associated with the Company's equipment leasing initiative, as well as increasesdecreases in snow removal for the nine month periods.

• Advertising expenses fluctuate due to timing of various campaigns and strategic initiatives.
• Debit card expense decreased due to reduced network processing costs.
Legal fees decreased for the three month period due to loan work out costs associated with the bankruptcy of a large commercial customer in September of 2017.removal.
Merger and acquisition expense in 2018 consists primarilycosts were $1.0 million for the first quarter of investment banker, legal,2019, which included $719,000 attributable to the BHB acquisition and professional feesthe remainder associated with the pending acquisitionsMNB Bancorp acquisition. The majority of MNB, whichthese costs include legal, professional fees, and integrations costs. There were no merger and acquisition costs during the first quarter of 2018.
Software maintenance increased $193,000 during the first quarter of 2019 due to the Company's continued investment in its technology infrastructure.
The decrease in other noninterest expenses is anticipateddue to closedecreases in the fourth quarter of 2018,provision for unfunded commitments, loan workout costs and BHB, which is anticipated to closemortgage operation expenses, offset in the first half of 2019. Mergerpart by increases in core deposit and acquisition expense in 2017 is primarily related to compensationother intangibles amortization and severance agreements, as well as contract termination costs related to the Island Bancorp acquisition, which closed in the second quarter of 2017.card issuance costs.

Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes. The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated:


Table 1816 - Tax Provision and Applicable Tax Rates
Three Months Ended Nine Months EndedThree Months Ended
September 30 September 30March 31
2018 2017 2018 20172019 2018
(Dollars in thousands)(Dollars in thousands)
Combined federal and state income tax provision$9,969
 $12,681
 $26,046
 $32,426
$11,522
 $6,828
Effective income tax rate23.19% 34.71% 22.12% 33.23%24.65% 19.86%
Blended statutory tax rate28.22% 40.86% 28.22% 40.86%28.23% 28.20%

The Company's blended statutory and effective tax rates in 20182019 are lowerhigher as compared to the year ago period due primarily to the impact of discrete items, which are subject to fluctuation year over year.  The current quarter discrete tax amount includes nondeductible merger related expenses associated with the Tax Cuts and Jobs Act ("Tax Act"), which decreasedBHB acquisition incurred in the maximum Federal corporateprior year as well as less benefit from excess tax benefits associated with stock compensation in the current quarter as compared to the year ago period.  Additionally, the effective tax rate from 35%for the current quarter reflects lower tax credits associated with the New Market Tax Credit program as compared to 21%. Additionally, the year ago period.  The effective tax rates in the table above are lower than the blended statutory tax rates due to certain tax preference assets such as life insurance policies and tax exempt bonds, as well as federal tax credits recognized primarily in connection with the New Markets Tax Credit program and investments in low income housing project investments. Lastly, the effective tax rate includes the impact of excess tax benefits associated with stock compensation transactions and other discrete items which can fluctuate year over year.


The Company's subsidiaries have received several awards of tax credit allocation authority under the federal New Markets Tax Credit program which enable the Company to recognize federal tax credits over a seven year period totaling 39.0% of the total award. The Company recognizes federal tax credits as capital investments that are made into its subsidiaries to fund below market interest rate loans to qualifying businesses in low income communities. The following table detailsCompany's 2013 award is the only remaining award with a tax credit. The Company will recognize this remaining tax credit recognition by year associated with this program:
Table 19 - New Markets Tax Credit Recognition Schedule
Year and Amount of Investment 2018 2019 
Total Remaining
Credits
    
2012$21,400
 $1,285
 $—
 $1,285
201344,600
 2,675
 2,675
 5,350
Total$66,000
 $3,960
 $2,675
 $6,635
of $2.6 million in 2019.
    
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 2032, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships is $47.5

$50.2 million, of which $45.5$46.6 million has been funded as of September 30, 2018.March 31, 2019. It is expected that the limited partnership investments will generate a net tax benefit of approximately $1.1$1.2 million for the full calendar year of 20182019 and a total of $6.7$6.2 million over the remaining life of the investments from the combination of the tax credits and operating losses.
Risk Management

The Company’s Board of Directors and Executive Management have identified significant risk categoriesdomains which affect the Company. TheCompany, including: credit risk, categories include: creditinterest rate risk, liquidity risk, price risk, operations risk, cybersecurity risk, consumer compliance risk, strategic and reputation risk, market risk and liquiditystrategic risk. The Board of Directors has approved an Enterprise Risk Management Policy and Management has adopted

a Risk Appetite Statement that addresses each category of risk. The Senior Portfolio Risk Officer, Chief Financial Officer, Chief Information Officer, Director of Residential Lending, Compliance Officer, Executive Vice President of Commercial Lending and other members of management providerisk category.  Management provides regular reports to the Board of Directors identifyingthat identifies key risk issuesrisks and plans to mitigate key risks.their mitigation. The Board of Directors seeks to ensure the level of risk isthat risks levels are maintained within limits established by bothBoard policies and the Risk Management Policy and other previously approved policies.Appetite Statement.
Credit Risk   Credit risk represents the possibility that the Company's borrowing customers or other counterparties may not repay loans or other contractual obligations according to their terms due to changes in the financial capacity, ability andand/or willingness of such borrowing customers or counterparties to meet their obligations. In some cases, the collateral securing the payment of the loans may be sufficient to assure repayment, but in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results. The Company makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of the real estate and other assets serving as collateral for the repayment of loans. For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 4, “Loans, Allowance for Loan Losses, and Credit Quality” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.
Operations Risk    Operations risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, natural disasters and security risks. The potential for operational risk exposure exists throughout the organization. Integral to the Company's performance is the continued effectiveness of the Company's colleagues, technical systems, operational infrastructure and relationships with key third parties and the associates and key executives in day-to-day and ongoing operations.party service providers. Failure by any or all of these resources subjects the Company to risks that may vary in size, scale and scope. These risks include, but are not limited to, operational or technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or failure on the part of the key individuals to perform properly. The Bank hasmaintains an Operations Risk Management Committee that meets monthlycomprised of members of management whose purpose is to assess and reports tomitigate levels of operations risk.  The Committee apprises the Board quarterly or more frequently if warranted.  The Committee is chaired by the Director of Risk Management and membersits assessment of the Committee include representatives from Audit, Finance, Technology, Operations, Information Security, Compliance and periodic attendance from business units throughout the organization.  Anstate of operations risk management report is updated quarterly and reviewed with the Board.relative to stated risk appetite guidelines.
Compliance Risk    Compliance risk represents the risk of regulatory sanctions or financial loss resulting from the Company’s failure to comply with rules and regulations issued by the various banking agencies, the U.S. Securities and Exchange Commission, the NASDAQ Stock Market, and standards of good banking practice. Activities which may expose the Company to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, adherence to all applicable laws and regulations, community reinvestment initiatives and employment and tax matters. Compliance risk is mitigated through the use of written policies and procedures, training of staff, and monitoring of activities for adherence to those procedures. The Bank has a Compliance Committee that meets quarterly and updates the Board and management quarterly or more frequently if warranted.  The Committee is chaired by the Director of Compliance, and members of the Committee include representatives from each of the principal business lines as well as Enterprise Risk Management, Audit, Finance, Technology and Information Security.
Strategic and Reputation Risk  Strategic and reputation risk represents the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess current and new opportunities and threats in business, markets, and products. Management seeks to mitigate strategic and reputational risk through annual strategic planning, frequent executive strategic reviews, ongoing competitive and technological observation, assessment processes of new product, new branch, and new business initiatives, adherence to ethical standards, a philosophy of customer advocacy, a structured process of customer complaint resolution, and ongoing reputational monitoring, crisis management planning, and management tools.
Market Risk     Market risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices. Interest rate sensitivity is the most significant market risk to which the Company is exposed.
Interest rate risk is the sensitivity of income to changes in interest rates. Changes in interest rates, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest

rate risk arises directly from the Company’s core banking activities. In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, as well as other effects.
The primary goal of interest rate risk management is to control this risk within limits approved by the Board of Directors. These limits reflect the Company’s tolerance for interest rate risk over both short-term and long-term horizons. The Company attempts to manage interest rate risk by identifying, quantifying, and where appropriate, hedging its exposure. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary, within limits management determines to be prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors and caps.

The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and Economic Value of Equity analysis. Key assumptions in these simulation analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of nonmaturity deposits (e.g. DDA, NOW, savings and money market). In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans. The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined exactly and actual behavior may differ from assumptions.
Based upon the net interest income simulation models, the company currently forecasts that the Bank’s assets re-price faster than the liabilities. As a result, the net interest income of the Bank will benefit as market rates increase. Conversely, if rates were to fall, the net interest margin of the Bank is expected to contract. The Company runs several scenarios to quantify and effectively assist in managing this position. These scenarios include instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates.rates, and may also include other alternative scenarios as management deems necessary, given the interest rate environment.



The results of all scenarios and the impact to net interest income are outlined in the table below:
Table 2017 - Interest Rate Sensitivity
September 30March 31
2018 20172019 2018
Year 1 Year 2 Year 1 Year 2Year 1 Year 2 Year 1 Year 2
Parallel rate shocks (basis points)              
-200(10.9)% (17.8)% n/a
 n/a
-100(6.5)% (7.0)% (9.5)% (12.4)%(4.5)% (7.4)% (7.6)% (8.5)%
+1004.3 % 9.4 % 5.7 % 9.1 %3.5 % 6.4 % 4.9 % 10.0 %
+2008.0 % 15.0 % 11.1 % 16.9 %6.4 % 11.4 % 9.2 % 16.4 %
+30011.8 % 21.0 % 16.4 % 24.7 %9.3 % 16.4 % 13.6 % 23.0 %
+40015.6 % 26.7 % 21.8 % 32.3 %12.2 % 21.3 % 18.1 % 29.5 %
              
Gradual rate shifts (basis points)              
-200 over 12 months(4.7)% (15.2)% n/a
 n/a
-100 over 12 months(2.7)% (5.7)% (4.9)% (11.2)%(2.0)% (6.1)% (3.1)% (7.0)%
+200 over 12 months3.9 % 13.7 % 5.3 % 14.9 %3.0 % 9.8 % 4.5 % 14.8 %
+400 over 24 months3.9 % 17.3 % 5.3 % 20.0 %3.0 % 12.7 % 4.5 % 19.0 %
              
Alternative scenarios              
Yield Curve Twist0.9 % 6.8 % n/a
 n/a
Flat up 200 basis points scenario3.9 % 12.9 % 5.6 % 14.9 %n/a
 n/a
 4.2 % 13.1 %
    
As previously noted, the results in the table above are dependent on material assumptions. For instance, asymmetrical rate behavior can have a material impact on the simulation results. If competition for deposits prompts the Company to raise rates on those liabilities more quickly than is assumed in the simulation analysis without a corresponding increase in asset yields, net interest income would be negatively impacted. Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted.

The most significant factors affecting market risk exposure of the Company’s net interest income during the ninethree months ended September 30, 2018March 31, 2019 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime interest rate and LIBOR rates, and the interest rates being offered on long-term fixed rate loans.
The Company manages the interest rate risk inherent in both its loan and borrowing portfolios by utilizing interest rate swap agreements and interest rate caps and floors. An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from a second party. Interest rate caps and floors are agreements whereby one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized. The amounts relating to the notional principal amount are not actually exchanged. Additionally, the Company may manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts. Prior to closing and funding certain 1- 4 family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors. See Note 8, “Derivative and Hedging Activities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for additional information regarding the Company’s Derivative Financial Instruments.
The Company’s earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines. See Note 3, “Securities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.
    

Liquidity Risk    Liquidity risk is the risk that the Company will not have the ability to generate adequate amounts of cash in the most economical way for the institution to meet its ongoing obligations to pay deposit withdrawals, service borrowings, and to fund loan commitments. The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment and maturities of loans and securities. The Bank utilizes its extensive branch network to access retail customers who

provide a base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors.
The Company actively manages its liquidity position under the direction of the Asset-Liability Committee of the Bank ("ALCO"). The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which is an analysis of the relationship between liquid assets plus available funding at the FHLB less short-term liabilities relative to total assets, was within policy limits at September 30, 2018.March 31, 2019. The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans and borrowings. An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure. Other factors affecting the Total Basic Surplus/Deficit measure include collateral requirements at the FHLB, changes in the securities portfolio, and the mix of deposits.
The Bank seeks to increase deposits without adversely impacting the weighted average cost of those funds. As part of a prudent liquidity risk management practice, the Company maintains various liquidity sources, some of which are only accessed on a contingency basis. Accordingly, management has implemented funding strategies that include FHLB advances, Federal Reserve Bank borrowing capacity and repurchase agreement lines. These nondeposit funds are also viewed as a contingent source of liquidity and, when profitable lending and investment opportunities exist, access to such funds provides a means to grow the balance sheet.
Borrowing capacity at the FHLB and the Federal Reserve is impacted by the amount and type of assets available to be pledged. For example, a prime, one-to-four family, residential loan, may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas, a commercial loan may provide a lower amount. As a result, the Company’s strategic lending decisions can also affect its liquidity position.
The Company can raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into additional repurchase agreements or acquire brokered deposits at its discretion. The availability and cost of equity or debt on an unsecured basis is dependent on many factors. Some factors that will impact this source of liquidity are the Company’s financial position, the market environment, and the Company’s credit rating. As such, the Company is careful to monitor the various factors that could impact its ability to raise liquidity through these channels.

The table below shows current and unused liquidity capacity from various sources as of the dates indicated:
Table 2118 - Sources of Liquidity
September 30, 2018  December 31, 2017 March 31, 2019 December 31, 2018
Outstanding 
Additional
Borrowing
Capacity
  Outstanding 
Additional
Borrowing  Capacity
 Outstanding 
Additional
Borrowing
Capacity
 Outstanding 
Additional
Borrowing  Capacity
(Dollars in thousands) (Dollars in thousands)
Federal Home Loan Bank of Boston(1)$50,767
 $985,424
(1) $53,264
 $954,789
(1)$25,752
 $1,045,010
 $147,806
 $953,539
Federal Reserve Bank of Boston(2)—
 701,211
(2) —
 720,005
(2)—
 781,883
 —
 705,242
Unpledged Securities—
 463,980
   —
 375,155
  —
 670,466
 —
 691,383
Customer repurchase agreements141,176
 —
(3) 162,679
 —
(3)
Junior subordinated debentures73,078
 —
(3) 73,073
 —
(3)
Subordinated debt34,717
 —
(3) 34,682
 —
(3)
Line of Credit (3)49,993
 —
 —
 —
Long-term borrowing (3)74,914
 —
 —
 —
Junior subordinated debentures (3)73,082
 —
 76,173
 —
Subordinated debt (3)84,299
 —
 34,728
 —
Reciprocal deposits51,738
 —
(3) —
 —
 177,138
 —
 180,514
 —
Brokered deposits6,000
 —
(3) 54,541
(4)—
(3)
Brokered deposits (1) (3)6,000
 —
 6,000
 —
$357,476
 $2,150,615
   $378,239
 $2,049,949
  $491,178
 $2,497,359
 $445,221
 $2,350,164
 

(1)Loans with a carrying value of $1.5$1.6 billion at both September 30, 2018March 31, 2019 and December 31, 20172018 have been pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.
(2)Loans with a carrying value of $1.3 billion and $1.2 billion at both September 30, 2018March 31, 2019 and December 31, 20172018, respectively, have been pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.
(3)The additional borrowing capacity has not been assessed for these categories.
(4)Inclusive of $48.5 million of reciprocal deposits acquired through participation in the Promontory Interfinancial Network as of and December 31, 2017. The Economic Growth, Regulatory Relief, and Consumer Protection Act, which was promulgated during the second quarter of 2018, states that most reciprocal deposits are no longer treated as brokered deposits. As such, the Company is prospectively reporting deposits from the Promontory Interfinancial Network as nonbrokered.

In addition to policies used for managing operational liquidity, the Board of Directors and the ALCO recognize the need to establish reasonable guidelines for managing through an environment of heightened liquidity risk. Catalysts for elevated liquidity risk can be Bank-specific issues and/or systemic industry-wide events. It is therefore the responsibility of the Board and the ALCO to institute systems and controls to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute prompt responses that may alleviate/circumvent a potential liquidity crisis. As such, the Board of Directors and the ALCO have put a Liquidity Contingency Plan in place. The overall goal of this plan is to provide a framework for the Bank to help detect liquidity problems promptly and appropriately address potential liquidity problems in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force. The Liquidity Crisis Task Force is responsible for monitoring the potential for a liquidity crisis and for establishing and executing an appropriate response.
Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended September 30, 2018, with the exception of the merger agreement entered into on September 20, 2018 for the BHB acquisition.March 31, 2019.
See Note 8, "Derivative and Hedging Activities" and Note 13,14, "Commitments and Contingencies" within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof 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, 2018. March 31, 2019 with the exception of a $125.0 million credit facility entered into on March 29, 2019. See Note 5 "Borrowings" within the Condensed Notes to Consolidated Financial Statements included in item 1 hereof.
Please refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 for a complete table of contractual obligations, commitments and contingencies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this Item 3 is included in the "Risk Management" section of Item 2 of Part I of this Form 10-Q, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


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 are effective as of the end of the period covered by this quarterly report.
Changes in Internal Controls over Financial Reporting. There were no changes in the Company's internal controls over financial reporting that occurred during the thirdfirst quarter of 20182019 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item  1. Legal Proceedings
At September 30, 2018,March 31, 2019, 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 Company intends to incur debt to fund cash payments required in connection with the BHB merger.
The Company will be required to pay cash consideration in connection with the closingAs of the merger. Although the merger agreement does not include a financing contingency, the Company does not currently believe that it willdate of this report, there have sufficient cash at closing at the holding company level to pay the cash portion of the merger consideration and other transaction costs and expenses required to complete the merger. Accordingly, the Company intends to issue debt in order to raise cash to complete the merger. If the Company is unable to issue debt on terms that are acceptable or at all, the Bank may have to pay a special dividendbeen no material changes with regard to the Company to supplyRisk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the Company with the cash needed to complete the merger. However, any special dividend is subject to regulatory approval and the cash reserves and regulatory capital of the Bank may be materially adversely affectedfiscal year ended December 31, 2018, which are incorporated herein by the special cash dividend. The Company has not entered into any definitive agreement for debt financing, and its ability to obtain debt financing is subject to various factors, including market conditions, the Company’s operating performance and financial condition and third party credit ratings. The Company cannot assure you that we will be able to secure debt financing in a sufficient amount, on acceptable terms, in a timely manner or at all, and we further cannot assure you that in the event we is unable to secure debt financing, the Bank will receive regulatory approval to pay a special dividend to the Company.
The Company and the Bank will have over $10 billion in total consolidated assets as a result of the BHB merger, which will lead to increased regulation.
Upon consummation of the merger, and as of September 30, 2018 on a pro forma basis giving effect to the merger, the Company and the Bank will each have over $11 billion in total consolidated assets. Accordingly, the Company and the Bank will become subject to certain regulations that apply only to depository institution holding companies or depository institutions with total consolidated assets of $10 billion or more.
Debit card interchange fee restrictions set forth in Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is known as the Durbin Amendment, as implemented by regulations of the Federal Reserve Board, cap the maximum debit interchange fee that a debit card issuer may receive per transaction at the sum of $0.21 plus five basis points. A debit card issuer that adopts certain fraud prevention procedures may charge an additional $0.01 per transaction. Debit card issuers with total consolidated assets of less than $10 billion, which currently includes the Bank and Blue Hills Bank, are exempt from these interchange fee restrictions. The exemption for small issuers ceases to apply as of July 1st of the year following the calendar year in which the debit card issuer has total consolidated assets of $10 billion or more at calendar year-end. As a result, if the bank merger is consummated in 2019, the Bank will become subject to the interchange restrictions of the Durbin Amendment beginning July 1, 2020. the Company and the Bank are currently evaluating the financial impact of the Bank becoming subject to the Durbin Amendment.

In addition, an insured depository institution with total assets of $10 billion or more is subject to supervision, examination, and enforcement with respect to consumer protection laws by the Consumer Financial Protection Bureau, which we refer to as the CFPB. Under its current policies, the CFPB will assert jurisdiction in the first quarter after the call reports of merging insured depository institutions, on a combined basis, show total consolidated assets of $10 billion or more for four consecutive quarters, including quarters ended prior to the merger. As a result, the Company expects the Bank to become subject to CFPB supervision, examination and enforcement at the beginning of the quarter following consummation of the bank merger.
There are other regulatory requirements that apply to insured depository institution holding companies and insured depository institutions with total consolidated assets of $10 billion or more. These include, but are not limited to, (i) the establishment by publicly traded depository institution holding companies with $10 billion or more in assets of a risk committee responsible for oversight of enterprise-wide risk management practices that are commensurate with the entity’s structure, risk profile, complexity, activities and size and (ii) an institution with total consolidated assets of $10 billion or more no longer being entitled to benefit from the FDIC’s offset of the effect of the increase in the statutory minimum Deposit Insurance Fund reserve ratio to 1.35% from the former statutory minimum of 1.15% that is required for institutions with assets of less than $10 billion by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In addition, Congress and/or regulatory agencies may impose new requirements or surcharges on these institutions in the future. The Economic Growth, Regulatory Reform, and Consumer Protection Act, which was enacted on May 24, 2018, includes provisions that, as they are implemented, relieve banking organizations with total consolidated assets of less than $10 billion (and that satisfy certain other conditions) from risk-based capital requirements, restrictions on proprietary trading and investment and sponsorship in hedge funds and private equity funds known as the Volcker Rule, and certain other regulatory requirements. Once the Company and the Bank have total consolidated assets of $10 billion or more, the Company and the Bank will no longer qualify for any of the foregoing relief.

There can be no assurance that the benefits of the merger will outweigh the regulatory costs resulting from the Company and the Bank having total consolidated assets of $10 billion or more.reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended September 30, 2018:March 31, 2019:
 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 (2)
 Maximum Number of Shares That May Yet Be Purchased Under the Plan or Program
Period       
July 1 to July 31, 2018—
 $—
 —
 —
August 1 to August 31, 2018—
 $—
 —
 —
September 1 to September 30, 20182,604
 $87.09
 —
 —
Total2,604
   —
 —
 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 (2)
 Maximum Number of Shares That May Yet Be Purchased Under the Plan or Program
Period       
January 1 to January 31, 2019—
 $—
 —
 —
February 1 to February 28, 201914,467
 $82.09
 —
 —
March 1 to March 31, 20192,923
 $81.14
 —
 —
Total17,390
   —
 —
 

(1)Shares repurchased relate to the surrendering of shares in connection with the exercise and/or vesting of equity compensation grants to satisfy related tax withholding obligations.
(2)The Company does not currently have a stock repurchase program or plan in place.

Item  3. Defaults Upon Senior Securities—None

Item 4. Mine Safety Disclosures - Not Applicable

Item 5. Other Information—None


Item 6. Exhibits

Exhibit Index
 
No.Exhibit
2.14.1
Issuing and Paying Agency Agreement, and Plan of Merger dated September 20, 2018March 14, 2019, by and amongbetween Independent Bank Corp., Rockland Trust Company, Blue Hills Bancorp, Inc., and Blue HillsU.S. Bank isNational Association, as the issuing and paying agent, incorporated herein by reference to Exhibit 2.14.1 to formForm 8-K filed on September 24, 2018.March 18, 2019.
4.2
Form of Fixed-to-Floating Rate Subordinated Notes Due 2024, incorporated herein by reference to Exhibit 4.2 to Form 8-K filed on March 18, 2019.
10.1
Credit Agreement, dated March 28, 2019 by and between Independent Bank Corp. and U.S. Bank National Association, incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on March 28, 2019.
10.2
Revolving Credit Note, dated March 28, 2019 by and between Independent Bank Corp. and U.S. Bank National Association, incorporated herein by reference to Exhibit 10.2 to Form 8-K filed on March 28, 2019.
10.3
Term Note, dated March 28, 2019 by and between Independent Bank Corp. and U.S. Bank National Association, incorporated herein by reference to Exhibit 10.3 to Form 8-K filed on March 28, 2019.
10.4
Employment Agreement between Mark J. Ruggiero and the Company and/or Rockland Trust, incorporated herein by reference to Exhibit 10.1 to Form 8-K filed on April 1, 2019. #
31.1
Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.*
31.2
Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached heretohereto..*
32.1
Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
32.2
Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
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*Filed herewith
+Furnished herewith
#Management contract or compensatory plan or arrangement


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 1, 2018May 7, 2019 /s/ Christopher Oddleifson
  
Christopher Oddleifson
President and
Chief Executive Officer
(Principal Executive Officer)
 
November 1, 2018May 7, 2019 /s/ Robert D. CozzoneMark J. Ruggiero
  
Robert D. CozzoneMark J. Ruggiero
Chief Financial Officer
(Principal Financial Officer)


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