~~0000776901 us-gaap:CommitmentsToExtendCreditMember 2019-06-30~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________________

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~quarterly~~transition period ~~ended~~ ~~June 30, 2019~~from to



Commission File Number:	1-9047

Independent Bank Corp.

(Exact name of registrant as specified in its charter)

___________________________________________________



Massachusetts	04-2870273
(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 Class	Trading Symbol	Name of each exchange on which registered
Common Stock, ~~$01~~$0.01 par value per share	INDB	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	x	Accelerated Filer	o☐

Non-accelerated Filer	o☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes~~ ☐ No x



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)	Yes	☐	No	☒

As of ~~August 5, 2019,~~May 6, 2020, there were ~~34,366,573~~32,934,656 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 - ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	5
Consolidated Statements of Income - Three ~~and Six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	7
Consolidated Statements of Comprehensive Income -Three ~~and Six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	8
Consolidated Statements of Stockholders’ Equity - Three ~~and Six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	9
Consolidated Statements of Cash Flows - ~~Six~~Three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	1110

Condensed Notes to Consolidated Financial Statements - ~~June 30,~~March 31, 2019
Note 1 - Basis of Presentation	1312
Note 2 - Recent Accounting Standards Updates	1312
Note 3 - ~~Acquisitions~~Securities	13
Note 4 - ~~Securities~~Loans, Allowance for Credit Losses, and Credit Quality	1618
Note 5 - Loans and Allowance for Loan Losses ~~and Credit Quality~~	2128
Note 6 - ~~Borrowings~~Goodwill and Other Intangible Assets	3331
Note 7 - Earnings Per Share	3332
Note 8 - Stock Based Compensation	3432
Note 9 - Derivative and Hedging Activities	3533
Note 10 - ~~Balance Sheet Offsetting~~Income Taxes	4039
Note 11 - Fair Value Measurements	4139
Note 12 - Revenue Recognition	5047
Note 13 - Comprehensive Income (Loss)	5350
Note 14 - ~~Leases~~Commitments and Contingencies	5551
Note 15 ~~- Commitments and Contingencies~~	56
~~Note 16~~ - Low Income Housing Project Investments	5653
Note 16 - Subsequent Events	53
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	5654
Table 1 - Closed Residential Real Estate Loans	6766
Table 2 - Residential Mortgage Loan Sales	67
Table 3 - Mortgage Servicing Asset	6867
Table 4 - ~~Components of Loan Growth/(Decline)~~Nonperforming Assets	6972
Table 5 - Activity in Nonperforming Assets	7372
Table 6 - ~~Activity in Nonperforming Assets~~Troubled Debt Restructurings	73
Table 7 - ~~Troubled Debt Restructurings~~	74
~~Table 8 -~~ Activity in Troubled Debt Restructurings	7473
Table 98 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings	73
Table 9 - Potentially Impacted COVID-19 Industries	74
Table 10 - Summary of Changes in the Allowance for ~~Loan~~Credit Losses	7677
Table 11 - Summary of Allocation of the Allowance for ~~Loan~~Credit Losses	7778
Table 12 - ~~Components of Deposit Growth/(Decline)~~Borrowings	7879
Table 13 - Company and Bank’s Capital Amounts and Ratios	80
Table 14 - Summary of Results of Operations	82
Table 15 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date	83
Table 16 - ~~Average Balance, Interest Earned/Paid & Average Yields Year-to-Date~~Volume Rate Analysis	85
Table 17 - Noninterest Income - Three Months Ended	87

Table of Contents

Table ~~17 - Volume Rate Analysis~~	87
~~Table~~ 18 ~~- Noninterest Income - Three and Six Months Ended~~	90
~~Table 19~~ - Noninterest Expense - Three ~~and Six~~ Months Ended	9188
Table 2019 - Tax Provision and Applicable Tax Rates	9289
Table 20 - Interest Rate Sensitivity	91
Table 21 - ~~Interest Rate Sensitivity~~	95
~~Table 22 -~~ Sources of Liquidity	9792



Item 3. Quantitative and Qualitative Disclosures About Market Risk	9793
Item 4. Controls and Procedures	9893

PART II. OTHER INFORMATION	9893
Item 1. Legal Proceedings	9893
Item 1A. Risk Factors	9893
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	9896
Item 3. Defaults Upon Senior Securities	9896
Item 4. Mine Safety Disclosures	9896
Item 5. Other Information	9896
Item 6. Exhibits	9997
Signatures	~~100~~98

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)


	June 30, 2019			December 31 2018			March 31 2020			December 31 2019
Assets
Cash and due from banks	$	121,001		$	127,503		$	125,638		$	114,686
Interest-earning deposits with banks	73,013			122,952			345,739			36,288
Securities
Trading	1,939			1,504			2,247			2,179
Equities	20,807			19,477
Available for sale	393,148			442,752
Held to maturity (fair value $808,656 and $603,640)	797,359			611,490
Equity							19,439			21,261
Available for sale (amortized cost $419,452 and $420,703)							437,296			426,424
Held to maturity (fair value $809,355 and $753,263)							777,798			740,806
Total securities	1,213,253			1,075,223			1,236,780			1,190,670
Loans held for sale (inclusive of loans at fair value of $37,571 and $6,431)	123,557			6,431
Loans held for sale (at fair value)							43,756			33,307
Loans
Commercial and industrial	1,400,924			1,093,629			1,448,224			1,395,036
Commercial real estate	4,058,066			3,251,248			4,061,347			4,002,359
Commercial construction	491,598			365,165			527,138			547,293
Small business	173,927			164,676			177,820			174,497
Residential real estate	1,655,182			923,294			1,528,416			1,590,569
Home equity - first position	656,515			654,083			656,994			649,255
Home equity - subordinate positions	487,984			438,001			489,276			484,543
Other consumer	26,591			16,098			27,215			30,087
Total loans	8,950,787			6,906,194			8,916,430			8,873,639
Less: allowance for loan losses	(65,960		)	(64,293		)
Less: allowance for credit losses							(92,376		)	(67,740		)
Net loans	8,884,827			6,841,901			8,824,054			8,805,899
Federal Home Loan Bank stock	26,085			15,683			23,274			14,424
Bank premises and equipment, net	123,374			97,581			121,873			123,674
Goodwill	504,562			256,105			506,206			506,206
Other intangible assets	33,334			15,250			27,466			29,286
Cash surrender value of life insurance policies	197,292			160,456			197,772			197,372
Other real estate owned and other foreclosed assets	2,889			—
Other assets	300,012			132,507			527,682			343,353
Total assets	$	11,603,199		$	8,851,592		$	11,980,240		$	11,395,165
Liabilities and Stockholders' Equity
Deposits
Demand deposits	$	2,738,420		$	2,450,907
Noninterest-bearing demand deposits							$	2,820,312		$	2,662,591
Savings and interest checking accounts	3,196,639			2,865,349			3,428,546			3,232,909
Money market	1,927,797			1,399,761			1,897,632			1,856,552
Time certificates of deposit of $100,000 and over	720,213			351,629			629,528			663,645
Other time certificates of deposits	724,846			359,474			640,180			731,670
Total deposits	9,307,915			7,427,120			9,416,198			9,147,367
Borrowings
Federal Home Loan Bank borrowings							358,591			115,748


Federal Home Loan Bank borrowings	277,671			147,806
Long-term borrowings (less unamortized debt issuance costs of $121)	74,879			—
Junior subordinated debentures (less unamortized debt issuance costs of $41 and $118)	62,847			76,173
Subordinated debentures (less unamortized debt issuance costs of $695 and $272)	84,305			34,728
Long-term borrowings (less unamortized debt issuance costs of $80 and $94)							74,920			74,906
Junior subordinated debentures (less unamortized debt issuance costs of $39 and $40)							62,849			62,848
Subordinated debentures (less unamortized debt issuance costs of $375 and $399)							49,625			49,601
Total borrowings	499,702			258,707			545,985			303,103
Other liabilities	159,579			92,275			338,401			236,552
Total liabilities	9,967,196			7,778,102			10,300,584			9,687,022
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: 34,321,061 shares at June 30, 2019 and 28,080,408 shares at December 31, 2018 (includes 148,756 and 153,459 shares of unvested participating restricted stock awards, respectively)	342			279
Value of shares held in rabbi trust at cost: 144,086 shares at June 30, 2019 and 153,226 shares at December 31, 2018	(4,648		)	(4,718		)
Common stock, $.01 par value, authorized: 75,000,000 shares, issued and outstanding: 33,260,005 shares at March 31, 2020 and 34,377,388 shares at December 31, 2019 (includes 147,892 and 147,184 shares of unvested participating restricted stock awards, respectively)							331			342
Value of shares held in rabbi trust at cost: 133,857 shares at March 31, 2020 and 143,820 shares at December 31, 2019							(4,604		)	(4,735		)
Deferred compensation and other retirement benefit obligations	4,648			4,718			4,604			4,735
Additional paid in capital	1,029,594			527,648			962,513			1,035,450
Retained earnings	585,111			546,736			667,084			654,182
Accumulated other comprehensive income (loss), net of tax	20,956			(1,173		)
Accumulated other comprehensive income, net of tax							49,728			18,169
Total stockholders’ equity	1,636,003			1,073,490			1,679,656			1,708,143
Total liabilities and stockholders' equity	$	11,603,199		$	8,851,592		$	11,980,240		$	11,395,165

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				Six Months Ended				Three Months Ended
	June 30				June 30				March 31
	2019		2018		2019		2018		2020		2019
Interest income
Interest and fees on loans	$	112,923	$	72,082	$	196,531	$	139,266	$	99,022	$	83,608
Taxable interest and dividends on securities	8,521		6,498		15,986		12,717		7,957		7,465
Nontaxable interest and dividends on securities	13		16		26		32		9		13
Interest on loans held for sale	40		30		71		49		232		31
Interest on federal funds sold and short-term investments	647		541		1,073		852		160		426
Total interest and dividend income	122,144		79,167		213,687		152,916		107,380		91,543
Interest expense
Interest on deposits	11,178		4,587		18,206		8,522		10,892		7,028
Interest on borrowings	4,947		1,412		6,937		2,755		2,184		1,990
Total interest expense	16,125		5,999		25,143		11,277		13,076		9,018
Net interest income	106,019		73,168		188,544		141,639		94,304		82,525
Provision for loan losses	1,000		2,000		2,000		2,500
Net interest income after provision for loan losses	105,019		71,168		186,544		139,139
Provision for credit losses									25,000		1,000
Net interest income after provision for credit losses									69,304		81,525
Noninterest income
Deposit account fees	5,080		4,551		9,486		8,982		4,970		4,406
Interchange and ATM fees	5,794		4,769		10,310		8,942		4,896		4,516
Investment management	7,153		6,822		13,901		12,964		6,829		6,748
Mortgage banking income	3,410		1,038		4,216		1,908		861		806
Gain on life insurance benefits									357		—
Increase in cash surrender value of life insurance policies	1,296		998		2,268		1,945		1,276		972
Loan level derivative income	932		708		1,573		1,155		3,597		641
Other noninterest income	4,983		3,001		8,427		5,854		3,649		3,444
Total noninterest income	28,648		21,887		50,181		41,750		26,435		21,533
Noninterest expenses
Salaries and employee benefits	38,852		30,288		71,969		61,388		37,349		33,117
Occupancy and equipment expenses	8,424		6,497		15,554		13,905		9,317		7,130
Data processing and facilities management	2,042		1,264		3,368		2,550		1,658		1,326
FDIC assessment	778		691		1,394		1,489		—		616
Advertising expense	1,282		1,166		2,495		2,289		1,105		1,213
Consulting expense	1,384		1,089		2,148		1,845		1,336		764
Core deposit amortization	1,572		512		2,429		1,162		1,531		857
Loss on sale of securities	1,462		—		1,462		—
Merger and acquisition expense	24,696		434		25,728		434		—		1,032
Software maintenance	1,363		997		2,528		1,969		1,685		1,165
Unrealized loss on equity securities									1,799		—
Other noninterest expenses	11,177		9,750		20,268		19,108		11,060		9,091
Total noninterest expenses	93,032		52,688		149,343		106,139		66,840		56,311
Income before income taxes	40,635		40,367		87,382		74,750		28,899		46,747
Provision for income taxes	10,007		9,249		21,529		16,077		2,148		11,522
Net income	$	30,628	$	31,118	$	65,853	$	58,673	$	26,751	$	35,225
Basic earnings per share	$	0.89	$	1.13	$	2.11	$	2.13	$	0.78	$	1.25
Diluted earnings per share	$	0.89	$	1.13	$	2.11	$	2.13	$	0.78	$	1.25
Weighted average common shares (basic)	34,313,492		27,526,653		31,226,985		27,506,724		34,184,431		28,106,184
Common share equivalents	41,878		54,525		48,381		61,480		36,827		54,466
Weighted average common shares (diluted)	34,355,370		27,581,178		31,275,366		27,568,204		34,221,258		28,160,650
Cash dividends declared per common share	$	0.44	$	0.38	$	0.88	$	0.76	$	0.46	$	0.44

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					Six Months Ended					Three Months Ended
	June 30					June 30					March 31
	2019		2018			2019		2018			2020			2019
Net income	$	30,628	$	31,118		$	65,853	$	58,673		$	26,751		$	35,225
Other comprehensive income (loss), net of tax
Other comprehensive income, net of tax
Net change in fair value of securities available for sale	5,445		(1,924		)	10,174		(7,392		)	9,347			4,729
Net change in fair value of cash flow hedges	8,590		(112		)	11,875		103			22,984			3,285
Net change in other comprehensive income for defined benefit postretirement plans	40		117			80		234			(772		)	40
Total other comprehensive income (loss)	14,075		(1,919		)	22,129		(7,055		)
Total other comprehensive income											31,559			8,054
Total comprehensive income	$	44,703	$	29,199		$	87,982	$	51,618		$	58,310		$	43,279

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2020 and 2019

(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, 2018 28,080,408
$ 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 )
Common stock issued for acquisition —
—
—
—
—
—
—
—
Proceeds from exercise of stock options, net of cash paid 6,000
—
—
—
165
—
—
165
Stock based compensation —
—
—
—
915
—
—
915
Restricted stock awards issued, net of awards surrendered 44,407
1
—
—
(1,420 ) —
—
(1,419 )
Shares issued under direct stock purchase plan 6,689
—
—
—
487
—
—
487
Deferred compensation and other retirement benefit obligations —
—
119
(119 ) —
—
—
—
Balance March 31, 2019 28,137,504
$ 280
$ (4,599 ) $ 4,599

$ 527,795
$ 569,582
$ 6,881
$ 1,104,538

Net income —
—
—
—
—
30,628
—
30,628
Other comprehensive income —
—
—
—
—
—
14,075
14,075
Common dividend declared ($0.44 per share) —
—
—
—
—
(15,099 ) —
(15,099 )
Common stock issued for acquisition 6,166,010
61
—
—
499,632
—
—
499,693
Proceeds from exercise of stock options, net of cash paid 5,000
—
—
—
116
—
—
116
Stock based compensation —
—
—
—
1,517
—
—
1,517
Restricted stock awards issued, net of awards surrendered 6,067
1
—
—
(13 ) —
—
(12 )
Shares issued under direct stock purchase plan 6,480
—
—
—
547
—
—
547
Deferred compensation and other retirement benefit obligations —
—
(49 ) 49
—
—
—
—
Balance June 30, 2019 34,321,061
$ 342
$ (4,648 ) $ 4,648
$ 1,029,594
$ 585,111
$ 20,956
$ 1,636,003


	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			Common Stock Outstanding		Common Stock			Value of Shares Held in Rabbi Trust at Cost			Deferred Compensation Obligation			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total
Balance December 31, 2017	27,450,190	$	273	$	(4,590	)	$	4,590	$	479,430		$	465,937		$	(1,831	)	$	943,809
Opening balance reclassification (1)	—	—		—			—		—			397			(397		)	—
Cumulative effect accounting adjustment (2)	—	—		—			—		—			831			(831		)	—
Balance December 31, 2019																					34,377,388		$	342		$	(4,735	)	$	4,735		$	1,035,450		$	654,182		$	18,169		$	1,708,143
Cumulative effect accounting adjustment (1)																					—		—			—			—			—			1,553			—			1,553
Net income																					—		—			—			—			—			26,751			—			26,751
Other comprehensive income																					—		—			—			—			—			—			31,559			31,559
Common dividend declared ($0.46 per share)																					—		—			—			—			—			(15,402		)	—			(15,402		)
Stock based compensation																					—		—			—			—			850			—			—			850
Restricted stock awards issued, net of awards surrendered																					42,531		1			—			—			(1,133		)	—			—			(1,132		)
Shares issued under direct stock purchase plan																					7,009		—			—			—			560			—			—			560
Shares repurchased under share repurchase program																					(1,166,923	)	(12		)	—			—			(73,214		)	—			—			(73,226		)
Deferred compensation and other retirement benefit obligations																					—		—			131			(131		)	—			—			—			—
Balance March 31, 2020																					33,260,005		$	331		$	(4,604	)	$	4,604		$	962,513		$	667,084		$	49,728		$	1,679,656

Balance December 31, 2018																					28,080,408		$	279		$	(4,718	)	$	4,718		$	527,648		$	546,736		$	(1,173	)	$	1,073,490
Net income	—	—		—			—		—			27,555						27,555			—		—			—			—			—			35,225			—			35,225
Other comprehensive loss	—	—		—			—		—			—			(5,136		)	(5,136		)	—		—			—			—			—			—			8,054			8,054
Common dividend declared ($0.38 per share)	—	—		—			—		—			(10,454		)	—			(10,454		)
Common dividend declared ($0.44 per share)																					—		—			—			—			—			(12,379		)	—			(12,379		)
Proceeds from exercise of stock options, net of cash paid	19,256	—		—			—		143			—			—			143			6,000		—			—			—			165			—			—			165
Stock based compensation	—	—		—			—		1,041			—			—			1,041			—		—			—			—			915			—			—			915
Restricted stock awards issued, net of awards surrendered	36,961	—		—			—		(1,318		)	��			—			(1,318		)	44,407		1			—			—			(1,420		)	—			—			(1,419		)
Shares issued under direct stock purchase plan	5,921	—		—			—		419			—			—			419			6,689		—			—			—			487			—			—			487
Deferred compensation and other retirement benefit obligations	—	—		(1		)	1		—			—			—			—			—		—			119			(119		)	—			—			—			—
Balance March 31, 2018	27,512,328	$	273	$	(4,591	)	$	4,591	$	479,715		$	484,266		$	(8,195	)	$	956,059

Net income	—	—		—			—		—			31,118						31,118
Other comprehensive loss	—	—		—			—		—			—			(1,919		)	(1,919		)
Common dividend declared ($0.38 per share)	—	—		—			—		—			(10,458		)	—			(10,458		)
Proceeds from exercise of stock options, net of cash paid	1,500	—		—			—		41			—			—			41
Stock based compensation	—	—		—			—		1,351			—			—			1,351
Restricted stock awards issued, net of awards surrendered	6,256	1		—			—		(21		)	—			—			(20		)
Shares issued under direct stock purchase plan	12,440	—		—			—		893			—			—			893
Deferred compensation and other retirement benefit obligations	—	—		(62		)	62		—			—			—			—
Balance June 30, 2018	27,532,524	$	274	$	(4,653	)	$	4,653	$	481,979		$	504,926		$	(10,114	)	$	977,065
Balance March 31, 2019																					28,137,504		$	280		$	(4,599	)	$	4,599		$	527,795		$	569,582		$	6,881		$	1,104,538

(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~~pursuant to the Company's adoption of Accounting Standards Update ~~2018-02,~~2016-13. The adjustment presented includes $1.1 million ($817,000, net of tax) attributable to the ~~Company has elected~~change in accounting methodology for estimating the allowance for credit losses and $1.0 million ($736,000, net of tax) related to ~~reclassify amounts stranded in other comprehensive income to retained earnings.~~

~~(2)~~

~~Represents adjustment needed to reflect~~ the ~~cumulative impact on retained earnings~~reserve for ~~the classification and measurement of investments in equity securities. Pursuant to~~unfunded commitments resulting from the Company's adoption of ~~Accounting Standards Update 2016-01,~~ the ~~Company's investments~~standard. Amount shown in ~~equity securities will no longer be classified as available for sale, therefore~~ the ~~Company was required to reclassify the~~table above is presented net ~~unrealized gain recognized on the change in fair value~~ of ~~these equity securities from other comprehensive income to retained earnings.~~tax.

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)



	Three Months Ended
	March 31
	2020			2019
Cash flow from operating activities
Net income	$	26,751		$	35,225
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization	6,992			4,101
Change in unamortized net loan costs and premiums	(735		)	(453		)
Provision for loan losses	25,000			1,000
Deferred income tax expense	3,108			539
Net (gain) loss on equity securities	1,801			(907		)
Net loss on bank premises and equipment	420			25
Realized gain on sale leaseback transaction	(145		)	(145		)
Stock based compensation	850			915
Increase in cash surrender value of life insurance policies	(1,276		)	(972		)
Gain on life insurance benefits	(357		)	—
Operating lease payments	(2,926		)	(2,165		)
Change in fair value on loans held for sale	914			(1		)
Net change in:
Trading assets	(68		)	(333		)
Loans held for sale	(11,363		)	846
Other assets	(151,830		)	1,721
Other liabilities	92,461			(5,228		)
Total adjustments	(37,154		)	(1,057		)
Net cash provided by (used in) operating activities	(10,403		)	34,168
Cash flows provided by (used in) investing activities
Purchases of equity securities	(108		)	(105		)
Proceeds from maturities and principal repayments of securities available for sale	31,280			11,318
Purchases of securities available for sale	(30,095		)	—
Proceeds from maturities and principal repayments of securities held to maturity	48,183			19,003
Purchases of securities held to maturity	(84,824		)	(30,502		)
Net redemption (purchases) of Federal Home Loan Bank stock	(8,850		)	8,016
Investments in low income housing projects	(5,934		)	(292		)
Purchases of life insurance policies	(93		)	(93		)
Proceeds from life insurance policies	1,326			—
Net increase in loans	(41,283		)	(70,378		)
Purchases of bank premises and equipment	(1,749		)	(3,713		)
Proceeds from the sale of bank premises and equipment	9			13
Net cash used in investing activities	(92,138		)	(66,733		)
Cash flows provided by (used in) financing activities
Net increase (decrease) in time deposits	(125,396		)	12,464
Net increase in other deposits	394,438			24,034
Net advances (repayments) of short-term Federal Home Loan Bank borrowings	257,826			(122,046		)

Six Months Ended
June 30
2019 2018
Cash flow from operating activities
Net income $ 65,853
$ 58,673
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 5,022
8,021
Provision for loan losses 2,000
2,500
Deferred income tax expense 399
283
Net (gain) loss on equity securities (1,351 ) 431
Net (gain) loss on sale of securities 1,462
—
Net (gain) loss on bank premises and equipment 39
(4 )
Net loss on other real estate owned and foreclosed assets —
1
Realized gain on sale leaseback transaction (289 ) (441 )
Stock based compensation 2,432
2,392
Increase in cash surrender value of life insurance policies (2,268 ) (1,945 )
Operating lease payments (4,970 ) —
Change in fair value on loans held for sale (920 ) (44 )
Net change in:
Trading assets (435 ) (274 )
Loans held for sale (30,220 ) (4,802 )
Other assets (27,048 ) (1,591 )
Other liabilities (24,566 ) 4,444
Total adjustments (80,713 ) 8,971
Net cash provided by (used in) operating activities (14,860 ) 67,644
Cash flows used in investing activities
Proceeds from sales of equity securities 1,461
10
Purchases of equity securities (233 ) (202 )
Proceeds from sales of securities available for sale 45,863
—
Proceeds from maturities and principal repayments of securities available for sale 24,594
27,625
Purchases of securities available for sale (9,058 ) (53,559 )
Proceeds from maturities and principal repayments of securities held to maturity 52,414
42,716
Purchases of securities held to maturity (42,341 ) (83,047 )
Net redemption (purchases) of Federal Home Loan Bank stock 7,235
(1,510 )
Investments in low income housing projects (683 ) (2,132 )
Purchases of life insurance policies (100 ) (101 )
Net increase in loans (53,175 ) (124,355 )
Net cash paid in business combinations (105,264 ) —
Purchases of bank premises and equipment (6,957 ) (5,707 )
Proceeds from the sale of bank premises and equipment 13
63
Proceeds from the sale of other real estate owned and foreclosed assets —
253
Net cash used in investing activities (86,231 ) (199,946 )
Cash flows provided by financing activities



Repayments of long-term Federal Home Loan Bank borrowings	(15,000		)	—
Proceeds from line of credit, net of issuance costs	—			49,993
Proceeds from long-term debt, net of issuance costs	—			74,914
Repayments of junior subordinated debentures, net of issuance costs	—			(3,093		)
Proceeds from subordinated debentures, net of issuance costs	—			49,556
Net proceeds from exercise of stock options	—			165
Restricted stock awards issued, net of awards surrendered	(1,132		)	(1,419		)
Proceeds from shares issued under direct stock purchase plan	560			487
Payments for shares repurchased under share repurchase program	(73,226		)	—
Common dividends paid	(15,126		)	(10,671		)
Net cash provided by financing activities	422,944			74,384
Net increase in cash and cash equivalents	320,403			41,819
Cash and cash equivalents at beginning of year	150,974			250,455
Cash and cash equivalents at end of period	$	471,377		$	292,274
Supplemental schedule of noncash activities
Net increase in capital commitments relating to low income housing project investments	$	14,394		$	—
Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1)	$	—		$	32,777
Recognition of operating lease at commencement	$	2,223		$	2,926

Net increase in time deposits 1,632
15,522
Net increase (decrease) in other deposits (49,833 ) 268,770
Net proceeds from short-term Federal Home Loan Bank borrowings 24,954
—
Repayments of long-term Federal Home Loan Bank borrowings (20,000 ) (2,475 )
Net decrease in customer repurchase agreements —
(20,444 )
Proceeds from line of credit, net of issuance costs 49,980
—
Repayment of line of credit, net of issuance costs (49,980 ) —
Proceeds from long-term debt, net of issuance costs 74,867
—
Repayments of junior subordinated debentures, net of issuance costs (13,329 ) —
Proceeds from subordinated debentures, net of issuance costs 49,526
—
Net proceeds from exercise of stock options 281
184
Restricted stock awards issued, net of awards surrendered (1,431 ) (1,338 )
Proceeds from shares issued under direct stock purchase plan 1,034
1,312
Common dividends paid (23,051 ) (19,239 )
Net cash provided by financing activities 44,650
242,292
Net increase (decrease) in cash and cash equivalents (56,441 ) 109,990
Cash and cash equivalents at beginning of year 250,455
213,116
Cash and cash equivalents at end of period $ 194,014
$ 323,106
Supplemental schedule of noncash activities
Net increase in capital commitments relating to low income housing project investments $ 18
$ 4
Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1) $ 32,777
$ —
Initial recognition of operating lease at commencement $ 4,824
$ —
In conjunction with the Company's acquisitions, assets were acquired and liabilities were assumed as follows
Common stock issued for acquisition $ 499,693
$ —
Fair value of assets acquired, net of cash acquired $ 2,711,067
$ —
Fair value of liabilities assumed $ 2,106,110
$ —

(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.

(1)

Represents adjustment needed to reflect the opening balance of the Company's Right of Use ("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 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 ~~June 30, 2019~~March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019~~2020 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, ~~2018,~~2019, 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~~The standard was issued in June 2016 and has been amended three times by the FASB (collectively, the "updates"). The purpose of the updates is 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~~these updates replace the incurred loss impairment methodology in current GAAP with a methodology, referred to as the current expected credit losses ("CECL") 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~~updates 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~~adopted the ~~update on~~CECL standard effective January 1, 2020.

The Company adopted the standard using the modified retrospective method for all financial assets measured at amortized cost, net investment in leases and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2020 ~~and is currently assessing~~are presented under the CECL standard, while prior period results are presented under standards previously applicable under GAAP. The cumulative effect of the Company's adoption resulted in an immaterial increase to retained earnings as of the January 1, 2020 adoption date. This transition adjustment was a result of the change in allowance methodology, including the impact to the reserve on unfunded commitments resulting from the application 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. In particular, the Company has completed the development and validation of historical loss and recovery data, and is working on identification and layering of various assumptions needed to translate the data into a life of loan loss estimate. In addition, the Company has also begun developing accounting policies,new guidance under CECL, as well as ~~considering~~ the ~~need~~day one gross-up of purchased credit deteriorated ("PCD") assets. The standard was adopted using the prospective transition approach for ~~new internal controls relevant to~~PCD assets that were previously classified as purchased credit impaired ("PCI") assets. As prescribed by the ~~updated methodologies and models. Since~~standard, management did not reassess whether PCI assets met the ~~Update No. 2016-13,~~criteria of PCD assets at the ~~FASB has issued amendments intended on improving~~date of adoption. On January 1, 2020, the ~~clarification~~amortized cost basis of the ~~amendment,~~PCD assets were adjusted to reflect estimated credit losses, with the remaining non-credit related discount, calculated based on the adjusted amortized cost, and will be accreted into interest income on a straight line basis over the remaining contractual term of the asset. See Note 3 Securities and Note 4 Loans, Allowance for Credit Losses and Credit Quality for further details surrounding the Company's adoption of CECL, related accounting policy updates and full disclosures required under the standard.

FASB ASC Topic ~~326 "Financial Instruments - Credit Losses"~~848 "Reference Rate Reform" Update No. ~~2018-19 and Update No 2019-04.~~2020-04. ~~The amendment in~~ Update No. ~~2018-19~~2020-04 was issued in ~~November 2018~~March 2020 to provide optional expedients and ~~was intended~~exceptions for applying generally accepted accounting principles (GAAP) to ~~clarify that receivables arising from operating leases~~certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are ~~not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases.~~ ~~The amendment in Update No. 2019-04 was issued in April 2019 and was intended to clarify stakeholders' specific issues about certain aspects of the amendments in Update No. 2016-13.~~ ~~Update No. 2019-05~~ on ~~FASB ASC Topic 326 "Financial Instruments - Credit Losses"~~ was also issued in May 2019. This update provides entities the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized costs basis. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement - Overall.met. The amendments in this update ~~should~~apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be ~~applied on a modified-retrospective basis~~discontinued because of reference rate reform. The expedients and exceptions provided by ~~means of a cumulative-effect adjustment~~the amendments do not apply to ~~the opening balance of retained earnings balance in the statement of financial position~~contract modifications made and hedging relationships existing as of ~~the date~~December 31, 2022, that an entity ~~early~~has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022 and do not apply to contract modifications made after December 31, 2022. The Company has not yet adopted the amendments in this update ~~2016-13.~~and is

currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact of the transition away from LIBOR.

NOTE 3 - ~~ACQUISITIONS~~SECURITIES

~~Blue Hills Bancorp, Inc.~~Investment securities are classified at the time of purchase as available for sale, held to maturity, trading, or equity. Classification is constantly re-evaluated for consistency with corporate goals and objectives. Trading and equity securities are recorded at fair value with subsequent changes in fair value recorded in earnings. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity or trading are classified as available for sale and recorded at fair value, with changes in fair value excluded from earnings and reported in other comprehensive income, net of related tax. Purchase premiums and discounts are recognized in interest income, using the interest method, to arrive at periodic interest income at a constant effective yield, thereby reflecting the securities market yield. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

~~On April 1, 2019,~~Accrued interest receivable balances are excluded from the amortized cost of held to maturity securities and the fair value of available for sale securities and are included within Other Assets on the consolidated balance sheet. Management has elected not to measure an allowance for credit losses on these balances as the Company ~~completed the acquisition of Blue Hills Bancorp, Inc., parent of Blue Hills Bank (collectively "BHB"). The transaction qualified as~~employs a ~~tax-free reorganization for federal income tax purposes and to provide a tax-free exchange for Blue Hills Bancorp stockholders for~~timely write-off policy. It is the Company's ~~common stock portion of consideration received.~~policy that a security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent, and interest earned but not collected for a security placed on non-accrual is reversed against interest income.

Allowance for Credit Losses - Available for Sale Securities

The Company's available for sale securities are carried at fair value. For ~~each share of BHB common stock, stockholders had the right~~available for sale securities in an unrealized loss position, management will first evaluate whether there is intent to ~~receive 0.2308 shares of the Company's stock and $5.25 in cash per~~

share, with cash paid in lieu of fractional shares. Total consideration of $661.3 million consisted of 6,166,010 shares of the Company's common stock issued, as well as $161.6 million in cash, inclusive of cash in lieu of fractional shares. In addition to increasing its loan and deposit base,sell, or if it is more likely than not that the Company will be ~~able~~required to ~~provide~~sell a ~~deeper product set~~security prior to ~~BHB's customers, as well as benefit from increased operating synergies, improving~~anticipated recovery of its amortized cost basis. If either of these criteria are met, the ~~long-term operating and financial results~~Company will record a write-down of the ~~Company.~~security's amortized cost basis to fair value through income. For those available for sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, Management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S. Federal Government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the uncollectibility of a security is confirmed, or when either of the aforementioned criteria surrounding intent or requirement to sell have been met.

Allowance for Credit Losses - Held to Maturity Securities

The Company ~~accounted for~~measures expected credit losses on held to maturity securities on a collective basis by major security type. Management classifies the ~~BHB acquisition using~~held-to maturity portfolio into the ~~acquisition method pursuant~~following major security types: U.S. Government Agency, U.S. Treasury, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations, Small Business Administration Pooled Securities, and Single Issuer Trust Preferred Securities. Securities in the Company's held to maturity portfolio are primarily guaranteed by either the ~~Business Combinations Topic~~U.S. Federal Government or other government sponsored agencies with a long history of ~~the FASB ASC. Accordingly, the Company recorded merger~~no credit losses. As a result, Management has determined these securities to have a zero loss expectation and acquisition expenses of $25.3 million during the six months ended June 30, 2019 related to the BHB acquisition. Additionally, the acquisition method requires the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:

Net Assets Acquired at Fair Value
(Dollars in thousands)
Assets
Cash $ 56,331
Investments 196,937
Loans 2,073,714
Premises and equipment 24,253
Goodwill 248,457
Core deposit and other intangibles 19,870
Other assets 147,836
Total assets acquired 2,767,398
Liabilities
Deposits 1,930,436
Borrowings 124,817
Other liabilities 50,857
Total liabilities assumed 2,106,110
Purchase price $ 661,288

~~Fair value adjustments to assets acquired and liabilities assumed are generally amortized using either~~therefore does not estimate an ~~effective yield or straight-line basis over periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities.~~

~~Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:~~

~~Cash and Cash Equivalents~~

~~The fair values of cash and cash equivalents approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities.~~

~~Investments~~

The fair values of securities were based on quoted market prices for identical securities received from an independent, nationally-recognized, third party pricing service. Prices provided by the independent pricing service were based on recent trading activity and other observable information including, but not limited to, market interest rate curves, referenced credit spreads and estimated prepayment rates where applicable.

~~Loans~~

~~The loans acquired were recorded at fair value without a carryover of the~~ allowance for loan losses. Fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses ~~and prepayments, and then applying a market-based discount rate to those cash flows. The $23.2 million discount~~ on the loans acquired in this transaction was due to anticipated credit loss, as well as considerations for liquidity and market interest rates. In addition, the acquired loans were reviewed to determine if any loans would be deemed purchased credit impaired ("PCI"), as determined by identifying evidence of deterioration of credit quality at the purchase date combined with an assumption that all contractually required payments will not be collected. The following is a summary of these ~~PCI loans associated with the acquisition as of the date acquired:~~



	~~As of April 1, 2019~~
	~~(Dollars in thousands)~~
~~Contractually required principal and interest at acquisition~~	~~14,849~~
~~Contractual cash flows not expected to be collected~~	~~(5,717~~	)
~~Expected cash flows at acquisition~~	~~9,132~~
~~Interest component of expected cash flows~~	~~(1,464~~	)
~~Basis in PCI loans at acquisition - estimated fair value~~	~~7,668~~

~~Premises and Equipment~~

The fair value of the premises, including land, buildings and improvements, was determined based upon appraisals by licensed real estate appraisers. The appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised.

~~Core Deposit Intangible~~

The fair value of the core deposit intangible is derived by comparing the interest rate and servicing costs that the financial institution pays on the core deposit liability versus the current market rate for alternative sources of financing, while factoring in estimates over the remaining life and attrition rate of the deposit accounts. The intangible asset represents the stable and relatively low cost source of funds that the deposits and accompanying relationships provide the Company, when compared to alternative funding sources.

~~Deposits~~

The fair value of acquired savings and transaction deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was determined based on the present value of the contractual cash flows over the remaining period to maturity using a market interest rate.

~~Borrowings~~

~~The fair values of borrowings were derived based upon the present value of the principal and interest payments using a current market discount rate.~~

~~Selected Pro Forma Results~~

The following summarizes the unaudited pro forma results of operations as if the Company acquired BHB on January 1, 2019 (2018 amounts represent combined results for the Company and BHB). The selected pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the period presented, nor does it indicate future results for any other interim or full-year period.

Three Months Ended Six Months Ended
June 30 June 30
2019 2018 2019 2018
(Dollars in thousands)
Net interest income after provision for loan losses $ 105,019
$ 90,050
$ 208,327
$ 176,840
Net income 30,628
37,575
30,062
71,713

Included in the pro forma net income results for the three and six months ended June 30, 2019 are merger-related costs of $18.1 million and $56.8 million, net of tax, recognized by both the Company and BHB in the aggregate, respectively. These costs were primarily made up of severance, contract terminations due to the change in control, Employee stock ownership plan termination expenses, stock compensation and integration costs.

~~NOTE 4 - SECURITIES~~securities.

Trading Securities

The Company had trading securities of ~~$1.9 million and $1.5~~$2.2 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively.~~2019. 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 ~~$20.8~~$19.4 million and ~~$19.5~~$21.3 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. These securities consist primarily of mutual funds held in a rabbi trust and will be used for future payments associated with the Company’s supplemental executive retirement plans.

The following table represents a summary of the gains and losses that relate to equity securities for the periods indicated:


	Three Months Ended				Six Months Ended			Three Months Ended
	June 30				June 30			March 31
	2019		2018		2019	2018		2020			2019
Net gains (losses) recognized during the period on equity securities	$	444	$	54	1,351	(431	)	$	(1,801	)	$	907
Less: net gains recognized during the period on equity securities sold during the period	3		2		6	4		6			3
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	441	$	52	1,345	(435	)	$	(1,807	)	$	904

Available for Sale ~~and Held to Maturity~~ Securities

The following table ~~presents a summary of~~summarizes the amortized cost, allowance for credit losses, and fair value of available for sale securities and the corresponding amounts of gross unrealized gains and losses ~~and fair value~~recognized in accumulated other comprehensive income(loss) as of ~~securities~~the dates indicated:



	March 31, 2020											December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for credit losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
U.S. government agency securities	$	22,474	$	1,818	$	—		$	—	$	24,292	$	32,473	$	642	$	—		$	33,115
Agency mortgage-backed securities	247,675		11,110		(1		)	—		258,784		243,548		3,456		(4		)	247,000
Agency collateralized mortgage obligations	83,183		4,027		—			—		87,210		87,305		1,225		(19		)	88,511
State, county, and municipal securities	1,126		18		—			—		1,144		1,377		19		—			1,396
Single issuer trust preferred securities issued by banks	489		—		(53		)	—		436		488		5		—			493
Pooled trust preferred securities issued by banks and insurers	1,443		—		(434		)	—		1,009		1,488		—		(374		)	1,114
Small business administration pooled securities	63,062		1,359		—			—		64,421		54,024		771		—			54,795
Total available for sale securities	$	419,452	$	18,332	$	(488	)	$	—	$	437,296	$	420,703	$	6,118	$	(397	)	$	426,424

As noted in the table above, the Company did not record an allowance for estimated credit losses on any available for sale ~~and~~securities during the three months ended March 31, 2020. Excluded from the table above is accrued interest on available for sale securities of $1.6 million as of March 31, 2020, which is included within Other Assets on the consolidated balance sheet. Additionally, the Company did not record any write-offs of accrued interest income on available for sale securities during the three months ended March 31, 2020. No securities held ~~to maturity for~~by the ~~periods indicated:~~Company were delinquent on contractual payments as of March 31, 2020, nor were any securities placed on non-accrual status during the three months then ended.

June 30, 2019 December 31, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross Unrealized
Losses

Fair
Value

Amortized
Cost

Gross
Unrealized
Gains

Gross Unrealized
Losses

Fair
Value
(Dollars in thousands)
Available for sale securities
U.S. government agency securities $ 32,476
$ 453
$ (6 ) $ 32,923
$ 32,477
$ —
$ (439 ) $ 32,038
Agency mortgage-backed securities 194,682
3,024
(41 ) 197,665
222,491
1,020
(3,406 ) 220,105
Agency collateralized mortgage obligations 97,299
1,420
(76 ) 98,643
138,149
197
(3,435 ) 134,911
State, county, and municipal securities 1,715
23
—
1,738
1,719
16
—
1,735
Single issuer trust preferred securities issued by banks 717
—
—
717
717
—
(10 ) 707
Pooled trust preferred securities issued by banks and insurers 1,653
—
(372 ) 1,281
1,678
—
(349 ) 1,329
Small business administration pooled securities 59,099
1,082
—
60,181
53,317
—
(1,390 ) 51,927
Total available for sale securities $ 387,641
$ 6,002
$ (495 ) $ 393,148
$ 450,548
$ 1,233
$ (9,029 ) $ 442,752
Held to maturity securities
U.S. government agency securities $ 12,833
$ 130
$ —
$ 12,963
$ —
$ —
$ —
$ —
U.S. Treasury securities 1,003
21
—
1,024
1,004
11
—
1,015
Agency mortgage-backed securities 423,825
7,488
(46 ) 431,267
252,484
1,548
(3,104 ) 250,928
Agency collateralized mortgage obligations 324,441
4,627
(1,350 ) 327,718
332,775
869
(6,920 ) 326,724
Single issuer trust preferred securities issued by banks 1,500
—
(10 ) 1,490
1,500
—
(10 ) 1,490
Small business administration pooled securities 33,757
467
(30 ) 34,194
23,727
105
(349 ) 23,483
Total held to maturity securities $ 797,359
$ 12,733
$ (1,436 ) $ 808,656
$ 611,490
$ 2,533
$ (10,383 ) $ 603,640
Total $ 1,185,000
$ 18,735
$ (1,931 ) $ 1,201,804
$ 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 maturitiesCompany had no sales of securities available for sale ~~and securities held to maturity as of June 30, 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 Total

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value
(Dollars in thousands)
Available for sale securities
U.S. government agency securities $ 10,004
$ 9,998
$ 10,003
$ 10,148
$ 12,469
$ 12,777
$ —
$ —
$ 32,476
$ 32,923
Agency mortgage-backed securities —
—
57,520
57,850
64,505
65,938
72,657
73,877
194,682
197,665
Agency collateralized mortgage obligations —
—
—
—
—
—
97,299
98,643
97,299
98,643
State, county, and municipal securities —
—
1,022
1,026
693
712
—
—
1,715
1,738
Single issuer trust preferred securities issued by banks —
—
—
—
—
—
717
717
717
717
Pooled trust preferred securities issued by banks and insurers —
—
—
—
—
—
1,653
1,281
1,653
1,281
Small business administration pooled securities —
—
—
—
—
—
59,099
60,181
59,099
60,181
Total available for sale securities $ 10,004
$ 9,998
$ 68,545
$ 69,024
$ 77,667
$ 79,427
$ 231,425
$ 234,699
$ 387,641
$ 393,148
Held to maturity securities
U.S. government agency securities $ —
$ —
$ 12,833
$ 12,963
$ —
$ —
$ —
$ —
$ 12,833
$ 12,963
U.S. Treasury securities —
—
1,003
1,024
—
—
—
—
1,003
1,024
Agency mortgage-backed securities —
—
11,456
11,479
37,434
37,887
374,935
381,901
423,825
431,267
Agency collateralized mortgage obligations —
—
—
—
335
334
324,106
327,384
324,441
327,718
Single issuer trust preferred securities issued by banks —
—
—
—
1,500
1,490
—
—
1,500
1,490
Small business administration pooled securities —
—
—
—
—
—
33,757
34,194
33,757
34,194
Total held to maturity securities $ —
$ —
$ 25,292
$ 25,466
$ 39,269
$ 39,711
$ 732,798
$ 743,479
$ 797,359
$ 808,656
Total $ 10,004
$ 9,998
$ 93,837
$ 94,490
$ 116,936
$ 119,138
$ 964,223
$ 978,178
$ 1,185,000
$ 1,201,804

~~Inclusive in~~during the ~~table above is $18.1 million of callable securities at June 30, 2019.~~

~~The carrying value of securities pledged to secure public funds, trust deposits,~~three months ended March 31, 2020 and ~~for other purposes, as required or permitted by law, was $355.0 million and $361.1 million at June 30,~~ 2019, and ~~December 31, 2018, respectively.~~therefore no gains or losses were realized during the periods presented.

~~At June 30, 2019 and December 31, 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~~table shows the gross unrealized losses and fair value of the Company’s ~~investments~~available for sale securities which are in an unrealized loss position, and for which the Company has not ~~deemed to be OTTI,~~recorded an allowance for credit losses as of March 31, 2020. These available for sale securities are aggregated by ~~investment category~~major security type and length of time that individual securities have been in a continuous unrealized loss position:

June 30, 2019
Less than 12 months 12 months or longer Total

# of
holdings

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
(Dollars in thousands)
U.S. government agency securities 1
$ 9,998
$ (6 ) $ —
$ —
$ 9,998
$ (6 )
Agency mortgage-backed securities 11
—
—
16,365
(87 ) 16,365
(87 )
Agency collateralized mortgage obligations 19
25,527
(85 ) 82,547
(1,341 ) 108,074
(1,426 )
Single issuer trust preferred securities issued by banks and insurers 2
2,207
(10 ) —
—
2,207
(10 )
Pooled trust preferred securities issued by banks and insurers 1
—
—
1,281
(372 ) 1,281
(372 )
Small business administration pooled securities 1
—
—
7,973
(30 ) 7,973
(30 )
Total temporarily impaired securities 35
$ 37,732
$ (101 ) $ 108,166
$ (1,830 ) $ 145,898
$ (1,931 )

December 31, 2018
Less than 12 months 12 months or longer Total

# of
holdings

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
(Dollars in thousands)
U.S.government agency securities 3
$ 9,960
$ (43 ) $ 22,078
$ (396 ) $ 32,038
$ (439 )
Agency mortgage-backed securities 144
104,616
(1,363 ) 222,850
(5,147 ) 327,466
(6,510 )
Agency collateralized mortgage obligations 48
57,871
(398 ) 279,229
(9,957 ) 337,100
(10,355 )
Single issuer trust preferred securities issued by banks and insurers 2
2,197
(20 ) —
—
2,197
(20 )
Pooled trust preferred securities issued by banks and insurers 1
—
—
1,329
(349 ) 1,329
(349 )
Small business administration pooled securities 7
28,257
(662 ) 40,621
(1,077 ) 68,878
(1,739 )
Total temporarily impaired securities 205
$ 202,901
$ (2,486 ) $ 566,107
$ (16,926 ) $ 769,008
$ (19,412 )



	March 31, 2020
		Less than 12 months					12 months or longer					Total
	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Agency mortgage-backed securities	1	86		(1		)	—		—			86		(1		)
Single issuer trust preferred securities issued by banks and insurers	1	436		(53		)	—		—			436		(53		)
Pooled trust preferred securities issued by banks and insurers	1	—		—			1,009		(434		)	1,009		(434		)
Total temporarily impaired available for sale securities	3	$	522	$	(54	)	$	1,009	$	(434	)	$	1,531	$	(488	)

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~~did not ~~consider~~recognize an allowance for credit losses on these investments ~~to be OTTI and accordingly, there was no OTTI recorded for~~during the ~~six~~three months ended ~~June 30, 2019 and 2018. There was no cumulative credit related component of OTTI as of June 30, 2019 or December~~March 31, ~~2018.~~2020. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.

As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category are as follows at ~~June 30, 2019:~~March 31, 2020:

•

~~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 ~~two securities,~~one security, which ~~are~~is investment grade. The unrealized loss on ~~these securities~~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 5 - LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY~~Held to Maturity Securities

The following ~~tables bifurcate~~table summarizes the ~~amount~~amortized cost, fair value and allowance for credit losses of ~~loans~~held to maturity securities and the ~~allowance allocated to each loan category based on the type~~corresponding amounts of ~~impairment analysis~~gross unrealized gains and losses recognized in accumulated other comprehensive income(loss) as of the dates indicated:



	March 31, 2020											December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for credit losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
U.S. government agency securities	$	—	$	—	$	—		$	—	$	—	$	12,874	$	123	$	—		$	12,997
U.S. Treasury securities	4,029		110		—			—		4,139		4,032		21		—			4,053
Agency mortgage-backed securities	463,632		18,864		(133		)	—		482,363		397,414		8,445		(57		)	405,802
Agency collateralized mortgage obligations	277,921		11,981		—			—		289,902		293,662		4,501		(849		)	297,314
Single issuer trust preferred securities issued by banks	1,500		—		(10		)	—		1,490		1,500		—		(10		)	1,490
Small business administration pooled securities	30,716		745		—			—		31,461		31,324		338		(55		)	31,607
Total held to maturity securities	$	777,798	$	31,700	$	(143	)	$	—	$	809,355	$	740,806	$	13,428	$	(971	)	$	753,263

As noted in the table above, the Company did not record an allowance for estimated credit losses on any held to maturity securities during the three months ended March 31, 2020. Excluded from the table above is accrued interest on held to maturity securities of $2.0 million as of March 31, 2020, which is included within Other Assets on the consolidated balance sheet. Additionally, the Company did not record any write-offs of accrued interest income on held to maturity securities during the three months ended March 31, 2020. No securities held by the Company were delinquent on contractual payments as of March 31, 2020, nor were any securities placed on non-accrual status during the three months then ended.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. The Company had no sales of held to maturity securities during the three months ended March 31, 2020 and 2019, and therefore no gains or losses were realized during the periods ~~indicated:~~presented.

The Company monitors the credit quality of held to maturity securities through the use of credit ratings. Credit ratings are monitored by the Company on at least a quarterly basis. As of March 31, 2020, all held to maturity securities held by the Company were rated investment grade or higher.

The actual maturities of certain available for sale or held to maturity securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of available for sale and held to maturity securities as of March 31, 2020 is presented below:

June 30, 2019
(Dollars in thousands)

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 $ 1,373,573
$ 4,042,092
$ 491,598
$ 173,397
$ 1,636,033
$ 1,137,736
$ 26,083
$ 8,880,512

Individually evaluated for impairment $ 27,351
$ 9,069
$ —
$ 530
$ 11,351
$ 5,689
$ 173
$ 54,163

Purchased credit impaired loans $ —
$ 6,905
$ —
$ —
$ 7,798
$ 1,074
$ 335
$ 16,112

Total loans by group $ 1,400,924
$ 4,058,066
$ 491,598
$ 173,927
$ 1,655,182
$ 1,144,499
$ 26,591
$ 8,950,787
(1 )



	Due in one year or less				Due after one year to five years				Due after five to ten years				Due after ten years				Total
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Available for sale securities
U.S. government agency securities	$	—	$	—	$	10,002	$	10,351	$	12,472	$	13,941	$	—	$	—	$	22,474	$	24,292
Agency mortgage-backed securities	—		—		72,092		75,268		41,885		44,607		133,698		138,909		247,675		258,784
Agency collateralized mortgage obligations	—		—		—		—		—		—		83,183		87,210		83,183		87,210
State, county, and municipal securities	250		250		687		691		189		203		—		—		1,126		1,144
Single issuer trust preferred securities issued by banks	—		—		—		—		—		—		489		436		489		436
Pooled trust preferred securities issued by banks and insurers	—		—		—		—		—		—		1,443		1,009		1,443		1,009
Small business administration pooled securities	—		—		—		—		—		—		63,062		64,421		63,062		64,421
Total available for sale securities	$	250	$	250	$	82,781	$	86,310	$	54,546	$	58,751	$	281,875	$	291,985	$	419,452	$	437,296
Held to maturity securities
U.S. Treasury securities	$	—	$	—	$	4,029	$	4,139	$	—	$	—	$	—	$	—	$	4,029	$	4,139
Agency mortgage-backed securities	8,619		8,715		1,902		1,951		48,123		50,345		404,988		421,352		463,632		482,363
Agency collateralized mortgage obligations	—		—		—		—		—		—		277,921		289,902		277,921		289,902
Single issuer trust preferred securities issued by banks	—		—		—		—		1,500		1,490		—		—		1,500		1,490
Small business administration pooled securities	—		—		—		—		—		—		30,716		31,461		30,716		31,461
Total held to maturity securities	$	8,619	$	8,715	$	5,931	$	6,090	$	49,623	$	51,835	$	713,625	$	742,715	$	777,798	$	809,355
Total	$	8,869	$	8,965	$	88,712	$	92,400	$	104,169	$	110,586	$	995,500	$	1,034,700	$	1,197,250	$	1,246,651

December 31, 2018
(Dollars in thousands)

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 $ 1,064,800
$ 3,235,418
$ 365,165
$ 164,135
$ 906,959
$ 1,085,961
$ 15,901
$ 6,838,339

Individually evaluated for impairment $ 28,829
$ 10,839
$ —
$ 541
$ 12,706
$ 5,948
$ 197
$ 59,060

Purchased credit impaired loans $ —
$ 4,991
$ —
$ —
$ 3,629
$ 175
$ —
$ 8,795

Total loans by group $ 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 $7.9 million and $7.1 million at June 30, 2019 and December 31, 2018, respectively. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $29.8 million and $15.2 million at June 30, 2019 and December 31, 2018, respectively.

Included in the table above are $4.1 million of callable securities at March 31, 2020.

The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $459.5 million and $375.5 million at March 31, 2020 and December 31, 2019, respectively.

At March 31, 2020 and December 31, 2019, the Company had 0 investments in obligations of individual states, counties, or municipalities which exceeded 10% of stockholders’ equity.

Under previous accounting guidance, the Company reviewed both available for sale and held to maturity securities for other-than-temporary-impairment ("OTTI"). However, in accordance with the newly adopted CECL standard, the Company now utilizes separate impairment models for held to maturity and available for sale securities for purposes of estimating credit losses. The following ~~tables summarize~~table shows the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company had not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2019:



	December 31, 2019
		Less than 12 months					12 months or longer					Total
	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Agency mortgage-backed securities	12	34,009		(59		)	243		(2		)	34,252		(61		)
Agency collateralized mortgage obligations	17	48,476		(215		)	37,382		(653		)	85,858		(868		)
Single issuer trust preferred securities issued by banks and insurers	1	—		—			1,490		(10		)	1,490		(10		)
Pooled trust preferred securities issued by banks and insurers	1	—		—			1,114		(374		)	1,114		(374		)
Small business administration pooled securities	1	7,349		(55		)	—		—			7,349		(55		)
Total temporarily impaired securities	32	$	89,834	$	(329	)	$	40,229	$	(1,039	)	$	130,063	$	(1,368	)

The Company did not intend to sell these investments and therefore determined, based upon available evidence, that it was more likely than not that the Company would not be required to sell each security before the recovery of its amortized cost basis. As a result, the Company did not consider these investments to be OTTI and accordingly, there was no OTTI recorded and no cumulative credit related component of OTTI for the year ended December 31, 2019.

NOTE 4 - LOANS, ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY

Loans Held for Sale

The Bank primarily classifies new residential real estate mortgage loans as held for sale based on intent, which is determined when loans are underwritten. Residential real estate mortgage loans not designated as held for sale are retained based upon available liquidity, for interest rate risk management and other business purposes.

The Company has elected the fair value option to account for originated closed loans intended for sale. Accordingly, changes in fair value relating to loans intended for sale are recorded in earnings and are offset by changes in fair value relating to interest rate lock commitments and forward sales commitments. Gains and losses on residential loan sales (sales proceeds minus carrying amount) are recorded in mortgage banking income. Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred and are not deferred.

Loans

Loans that the Company has the intent and ability to hold until maturity or payoff are carried at amortized cost (net of the allowance for credit losses). Amortized cost is the principal amount outstanding, adjusted by partial charge-offs and net of deferred loan costs or fees. For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the expected term of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on nonaccrual status.

As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans, or sooner if management considers such action to be prudent. However, loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection. The Company may also put a junior lien mortgage on nonaccrual status as a result of delinquency with respect to the first position, which is held by the Bank or by another financial institution, while the junior lien is currently performing. Income accruals are suspended on all nonaccrual loans in a timely manner and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses. When doubt exists as to the collectability of a loan, any payments received are applied to reduce the amortized cost of the loan to the

extent necessary to eliminate such doubt. For all loan portfolios, a charge-off occurs when the Company determines that a specific loan, or portion thereof, is uncollectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including assessing the viability of the customer’s business or project as a going concern, the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform.

Allowance for Credit Losses - Loans Held for Investment

The allowance for credit losses byis established based upon the Company's current estimate of expected lifetime credit losses on loans measured at amortized cost. Loan losses are charged against the allowance when Management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. Subsequent recoveries, if any, are credited to the allowance.

Under the CECL methodology, the Company estimates credit losses for financial assets on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The quantitative model utilizes a factor based approach to estimate expected credit losses using Probability of Default ("PD"), Loss Given Default ("LGD") and Exposure at Default ("EAD"), which are derived from internal historical default and loss experience. The model estimates expected credit losses using loan ~~category~~level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the Company's historical long-run average. Management has determined a reasonable and supportable period of 12 months, and a straight line reversion period of 6 months, to be appropriate for purposes of estimating expected credit losses. The qualitative risk factors impacting the ~~periods indicated:~~expected risk of loss within the portfolio include the following:

Lending policies and procedures

Three Months Ended June 30, 2019
(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 $ 16,872
$ 32,049
$ 5,355
$ 1,784
$ 3,234
$ 5,507
$ 339
$ 65,140
Charge-offs —
—
—
(49 ) —
(71 ) (352 ) (472 )
Recoveries —
13
—
20
—
18
241
292
Provision (benefit) (15 ) 598
238
13
62
93
11
1,000
Ending balance $ 16,857
$ 32,660
$ 5,593
$ 1,768
$ 3,296
$ 5,547
$ 239
$ 65,960

Three Months Ended June 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 $ 13,533
$ 31,459
$ 5,679
$ 1,593
$ 2,837
$ 5,359
$ 402
$ 60,862
Charge-offs (4 ) —
—
(102 ) (109 ) (95 ) (259 ) (569 )
Recoveries 59
18
—
10
1
23
153
264
Provision (benefit) 1,200
618
(463 ) 208
180
181
76
2,000
Ending balance $ 14,788
$ 32,095
$ 5,216
$ 1,709
$ 2,909
$ 5,468
$ 372
$ 62,557
Economic and business conditions

Nature and volume of loans

Changes in management

Changes in credit quality

Changes in loan review system

Changes to underlying collateral values

Concentrations of credit risk

Other external factors

Loans that do not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company will use either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach will be used for loans deemed to be collateral dependent or when foreclosure is probable.

Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within other assets on the consolidated balance sheet. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy. Consistent with the Company's policy for nonaccrual loans, accrued interest receivable is typically written off when loans reach 90 days past due and are placed on nonaccrual status.

In the ordinary course of business, the Company enters into commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses. The reserve for unfunded lending commitments is included in other liabilities on the consolidated balance sheet.

Acquired Loans

Six Months Ended June 30, 2019
(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 $ 15,760
$ 32,370
$ 5,158
$ 1,756
$ 3,219
$ 5,608
$ 422
$ 64,293
Charge-offs —
—
—
(194 ) —
(184 ) (653 ) (1,031 )
Recoveries 124
46
—
47
1
84
396
698
Provision (benefit) 973
244
435
159
76
39
74
2,000
Ending balance $ 16,857
$ 32,660
$ 5,593
$ 1,768
$ 3,296
$ 5,547
$ 239
$ 65,960
Ending balance: collectively evaluated for impairment $ 16,850
$ 32,586
$ 5,593
$ 1,730
$ 2,507
$ 5,388
$ 233
$ 64,887
Ending balance: individually evaluated for impairment $ 7
$ 74
$ —
$ 38
$ 789
$ 159
$ 6
$ 1,073
Six Months Ended June 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 $ 13,256
$ 31,453
$ 5,698
$ 1,577
$ 2,822
$ 5,390
$ 447
$ 60,643
Charge-offs (137 ) —
—
(126 ) (148 ) (174 ) (577 ) (1,162 )
Recoveries 71
38
—
19
3
57
388
576
Provision (benefit) 1,598
604
(482 ) 239
232
195
114
2,500
Ending balance $ 14,788
$ 32,095
$ 5,216
$ 1,709
$ 2,909
$ 5,468
$ 372
$ 62,557
Ending balance: collectively evaluated for impairment $ 14,780
$ 32,021
$ 5,216
$ 1,708
$ 2,050
$ 5,237
$ 358
$ 61,370
Ending balance: individually evaluated for impairment $ 8
$ 74
$ —
$ 1
$ 859
$ 231
$ 14
$ 1,187

Prior to its adoption of CECL, and under legacy GAAP, the Company maintained a portfolio of acquired loans, which, at acquisition, were recorded at fair value with no carryover of the allowance for loan losses. Acquired loans were also reviewed to determine if the loan had evidence of deterioration in credit quality and also if it was probable, at acquisition, that all contractually required payments would not be collected. Loans meeting such criteria were deemed to be purchased credit impaired ("PCI") loans. Under the accounting model for PCI loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the "accretable yield", was accreted into interest income over the life of the loans using the effective yield method. Accordingly, PCI loans were not subject to classification as nonaccrual in the same manner as originated loans. Rather, acquired PCI loans were generally considered to be accruing loans because their interest income related to the accretable yield recognized and not to contractual interest payments at the loan level. The difference between contractually required principal and interest payments and the cash flows expected to be collected, referred to as the "nonaccretable difference", included estimates of both the impact of prepayments and future credit losses expected to be incurred over the life of the loans.

Under the CECL standard, the concept of PCI assets was effectively replaced with purchased credit deteriorated ("PCD") assets, the balances of which should be treated in a manner consistent with loans held for investment for purposes of estimating an allowance for credit losses. As a result, upon the Company's adoption of CECL on January 1, 2020, loan balances previously classified as PCI assets were re-classified as PCD assets and will be prospectively accounted for in accordance with the standard. See Note 2 -Recent Accounting Standards Updates for further discussion surrounding the day one impact associated with adoption of CECL as it relates to PCI assets.

Loans Held for Investment and Allowance for Credit Losses

The following table summarizes the change in allowance for creditlosses by loan category, and bifurcates the amount of loans allocated to each loan category for the period indicated:



	Three Months Ended March 31, 2020
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction			Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
Allowance for credit losses
Beginning balance, pre adoption of Topic 326	$	17,594		$	32,935		$	6,053		$	1,746	$	3,440	$	5,576	$	396	$	67,740
Cumulative effect accounting adjustment (1)	(1,984		)	(13,048		)	(3,652		)	495		9,828		7,012		212		(1,137		)
Cumulative effect accounting adjustment (2)	49			337			—			—		423		319		29		1,157
Charge-offs	—			—			—			109		—		138		487		734
Recoveries	42			—			—			3		1		58		246		350
Provision for credit loss expense	5,948			9,274			1,346			1,694		1,155		5,083		500		25,000
Ending balance (3)	$	21,649		$	29,498		$	3,747		$	3,829	$	14,847	$	17,910	$	896	$	92,376


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


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


(3)	Balances of accrued interest receivable excluded from amortized cost and the calculation of allowance for credit losses amounted to $25.9 million as of March 31, 2020.

The balance of allowance for credit losses of $92.4 million as of March, 31, 2020, represents an increase of $24.6 million, or 36.3%, in comparison to the implementation balances at January 1, 2020. This increase in the allowance during the first quarter was primarily driven by forecasted credit deterioration due to the ongoing COVID-19 pandemic. The model applies a reasonable and supportable forecast period of one year, with a reversion period of six months. This forecast was adjusted to use a more severe outlook at March 31, 2020 as compared to the baseline forecast that was used to calculate opening balances on January 1, 2020.

In addition, social distancing restrictions have led to a decline in consumer spending and a steep rise in unemployment, especially within certain industries. While management is unable to know with certainty the direct, indirect, and future impacts of the COVID-19 pandemic, it is expected it will have a material adverse impact on many of the Company's loan customers. As such, the provision amounts were also qualitatively adjusted to factor in the anticipated impact of the COVID-19 pandemic. Management reviewed relationships which may be deemed "at risk" within industries expected to be impacted such as Education & Other Services, Hospital & Health Care, Hospitality & Food Service, Motor Vehicles & Parts Dealers, Recreation & Entertainment, Retail- Good (excluding food) and Transportation sectors. The provision was qualitatively adjusted upward to ensure coverage for these "at risk" relationships as a result of this review.

For the purpose of estimating the allowance for ~~loan~~credit losses, management ~~segregates~~segregated the loan portfolio into the portfolio segments detailed in the above tables. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. Some of the 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 land development, 1-4 family, condominium, and multi-family ~~homes,~~home construction, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets.

•

Small Business: Loans in this category consist of revolving, term loan and mortgage obligations extended to sole proprietors and small businesses for purposes of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate if applicable. Repayment sources consist primarily of operating cash flows and, secondarily, liquidation of assets.

For the commercial portfolio it is the Company’s policy to obtain personal guarantees for payment from individuals holding material ownership interests in the borrowing entities.

Consumer Portfolio

•

Residential Real Estate: Residential mortgage loans held in the Company’s portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors such as current and expected income, employment status, current assets, other financial resources, credit history and the value of the collateral. Collateral consists of mortgage liens on 1-4 family residential properties. Residential mortgage loans also include loans to construct owner-occupied 1-4 family residential properties.

•

Home Equity: Home equity loans and credit lines are made to qualified individuals and are primarily secured by senior or junior mortgage liens on owner-occupied 1-4 family homes, condominiums or vacation homes. Each home equity loan has a fixed rate and is billed in equal payments comprised of principal and interest. The majority of home equity lines of credit have a variable rate and are billed in interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued interest over a predetermined repayment period, as set forth in the note. Additionally, the Company has the option of renewing each line of credit for additional draw periods. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines.

•

Other Consumer: Other consumer loan products include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, debt consolidation, personal expenses or overdraft protection. Borrower ~~qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. These loans may be secured or unsecured.~~

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 for the commercial portfolio 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~~Loans may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.


•	~~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.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. As a result, for this portfolio the Company utilizes a pass/default risk-rating system, based on an age analysis (i.e., days past due) associated with each consumer loan. Under this structure, consumer loans less than 90 days past due are assigned a "pass" rating, while any consumer loans greater than 90 days past due are assigned a "default" rating.

The following ~~tables detail~~table details the ~~amount of outstanding principal~~amortized cost balances ~~relative to each~~ of the ~~risk-rating categories for the Company’s commercial portfolio:~~Company's loan portfolios, presented by credit quality indicator and origination year as of March 31, 2020:

June 30, 2019
Category
Risk
Rating

Commercial and
Industrial

Commercial
Real Estate

Commercial
Construction
Small Business Total
(Dollars in thousands)
Pass 1 - 6 $ 1,279,778
$ 3,917,266
$ 486,775
$ 170,247
$ 5,854,066
Potential weakness 7 61,051
103,537
2,883
1,533
169,004
Definite weakness-loss unlikely 8 60,095
37,263
1,940
2,147
101,445
Partial loss probable 9 —
—
—
—
—
Definite loss 10 —
—
—
—
—
Total $ 1,400,924
$ 4,058,066
$ 491,598
$ 173,927
$ 6,124,515


		December 31, 2018										March 31, 2020
Category	Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)										2020		2019		2018		2017		2016		Prior		Revolving Loans		Revolving converted to Term		Total
												(Dollars in thousands)
Commercial and industrial
Pass	1 - 6	$	1,014,370	$	3,156,989	$	361,884	$	161,851	$	4,695,094	$	119,886	$	213,925	$	138,376	$	50,323	$	36,685	$	33,576	$	736,304	$	327	$	1,329,402
Potential weakness	7	16,860		56,840		298		888		74,886		362		5,432		1,489		4,909		725		697		21,780		50		35,444
Definite weakness-loss unlikely	8	58,909		37,419		2,983		1,937		101,248
Definite weakness - loss unlikely												495		2,128		26,006		5,589		2,604		1,575		44,932		—		83,329
Partial loss probable	9	3,490		—		—		—		3,490		—		—		—		—		—		49		—		—		49
Definite loss	10	—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total		$	1,093,629	$	3,251,248	$	365,165	$	164,676	$	4,874,718
Total commercial and industrial												$	120,743	$	221,485	$	165,871	$	60,821	$	40,014	$	35,897	$	803,016	$	377	$	1,448,224

Commercial real estate
Pass												$	260,217	$	943,205	$	586,125	$	651,335	$	468,824	$	945,248	$	48,056	$	2,987	$	3,905,997
Potential weakness												1,809		8,303		33,755		8,506		9,851		42,382		—		—		104,606
Definite weakness - loss unlikely												—		3,612		7,432		20,395		6,993		12,312		—		—		50,744
Partial loss probable												—		—		—		—		—		—		—		—		—
Definite loss												—		—		—		—		—		—		—		—		—
Total commercial real estate												$	262,026	$	955,120	$	627,312	$	680,236	$	485,668	$	999,942	$	48,056	$	2,987	$	4,061,347

Commercial construction
Pass												$	43,369	$	221,773	$	114,561	$	73,493	$	—	$	6,867	$	44,225	$	325	$	504,613
Potential weakness												—		554		347		19,044		—		—		347		—		20,292
Definite weakness - loss unlikely												—		—		1,887		—		—		—		346		—		2,233
Partial loss probable												—		—		—		—		—		—		—		—		—
Definite loss												—		—		—		—		—		—		—		—		—
Total commercial construction												$	43,369	$	222,327	$	116,795	$	92,537	$	—	$	6,867	$	44,918	$	325	$	527,138

Small business
Pass												$	8,414	$	31,651	$	25,184	$	17,848	$	17,594	$	26,734	$	47,109	$	—	$	174,534
Potential weakness												—		12		18		13		753		259		597		—		1,652
Definite weakness - loss unlikely												—		47		133		51		169		598		636		—		1,634
Partial loss probable												—		—		—		—		—		—		—		—		—
Definite loss												—		—		—		—		—		—		—		—		—
Total small business												$	8,414	$	31,710	$	25,335	$	17,912	$	18,516	$	27,591	$	48,342	$	—	$	177,820

Residential real estate
Pass												$	39,122	$	204,524	$	260,899	$	210,662	$	283,255	$	523,742	$	—	$	—	$	1,522,204
Default												—		—		427		435		—		5,350		—		—		6,212
Total residential real estate												$	39,122	$	204,524	$	261,326	$	211,097	$	283,255	$	529,092	$	—	$	—	$	1,528,416

Home equity
Pass												$	23,397	$	75,161	$	70,081	$	67,740	$	51,106	$	138,733	$	715,169	$	1,853	$	1,143,240
Default												—		—		—		18		—		579		2,372		61		3,030
Total home equity												$	23,397	$	75,161	$	70,081	$	67,758	$	51,106	$	139,312	$	717,541	$	1,914	$	1,146,270




Other consumer
Pass	$	414	$	705	$	356	$	1,049	$	1,000	$	10,850	$	12,767	$	—	$	27,141
Default	—		—		—		19		—		39		16		—		74
Total other consumer	$	414	$	705	$	356	$	1,068	$	1,000	$	10,889	$	12,783	$	—	$	27,215

Total	$	497,485	$	1,711,032	$	1,267,076	$	1,131,429	$	879,559	$	1,749,590	$	1,674,656	$	5,603	$	8,916,430

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:


	June 30, 2019		December 31, 2018		March 31 2020		December 31 2019
Residential portfolio
FICO score (re-scored)(1)	749		749		749		749
LTV (re-valued)(2)	62.1	%	58.6	%	58.1	%	59.0	%
Home equity portfolio
FICO score (re-scored)(1)	767		767		768		767
LTV (re-valued)(2)(3)	47.9	%	49.3	%	46.9	%	46.6	%

(1)

The average FICO scores at ~~June 30, 2019~~March 31, 2020 are based upon rescores available from ~~June 2019 or~~February 2020 and origination score data for loans booked ~~from April through June 2019.~~in March 2020. The average FICO scores at December 31, ~~2018 are~~2019 were based upon rescores available from November ~~2018~~2019 and origination score data for loans booked in December ~~2018.~~2019.

(2)

The combined LTV ratios for ~~June 30, 2019~~March 31, 2020 are based upon updated automated valuations as of ~~April 2019,~~March 2020, when available, and/or the most current valuation data available. The combined LTV ratios for December 31, ~~2018 are~~2019 were based upon updated automated valuations as of November ~~2018,~~2019, 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.

Unfunded Commitments

Management evaluates the need for a reserve on unfunded lending commitments in a manner consistent with loans held for investment. As of January 1, 2020, the Company's reserve for unfunded commitments was $1.1 million, as adjusted for adoption of CECL. At March 31, 2020, the Company's estimated reserve for unfunded commitments amounted to $650,000.

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 atas of the dates indicated:

June 30, 2019 December 31, 2018
(Dollars in thousands)
Commercial and industrial $ 24,895
$ 26,310
Commercial real estate 833
3,015
Commercial construction —
311
Small business 168
235
Residential real estate 9,986
8,251
Home equity 6,973
7,278
Other consumer 111
13
Total nonaccrual loans (1) $ 42,966
$ 45,413



	Nonaccrual Balances
	March 31, 2020							December 31, 2019
	With Allowance for Credit Losses		Without Allowance for Credit Losses		Total			Total
	(Dollars in thousands)
Commercial and industrial	$	1,078	$	20,357	$	21,435		$	22,574
Commercial real estate	1,305		3,644		4,949			3,016
Commercial construction	—		—		—			—
Small business	450		—		450			311
Residential real estate	11,001		3,501		14,502			13,360
Home equity	6,463		108		6,571			6,570
Other consumer	108		—		108			61
Total nonaccrual loans	$	20,405	$	27,610	$	48,015	(1)	$	45,892	(1)

(1)Included in these amounts were ~~$27.8~~$23.8 million and ~~$29.3~~$24.8 million of nonaccruing TDRs at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

It is the Company's policy to reverse any accrued interest when a loan is put on nonaccrual status, as such the Company did not record any interest income on nonaccrual loans during the three months ended March 31, 2020.

The following table shows information regarding foreclosed residential real estate property at the dates indicated:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
Foreclosed residential real estate property held by the creditor	$	2,889	$	—	$	—	$	—
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure	$	3,102	$	3,174	$	4,580	$	3,294

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


	June 30, 2019																			March 31, 2020
	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		Amortized Cost >90 Days and Accruing
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current				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			Total Financing Receivables		Amortized Cost >90 Days and Accruing
	(Dollars in thousands)																			(Dollars in thousands)
Loan Portfolio															Total Financing Receivables
Commercial and industrial	1	$	296	—	$	—	4	$	109	5	$	405	$	1,400,519	$	1,400,924	$	—		13		$	1,930		—		$	—		6		$	1,078		19		$	3,008		$	1,445,216	$	1,448,224	$	—
Commercial real estate	5	637		2	352		1	81		8	1,070		4,056,996		4,058,066		—			18		6,989			2		383			7		1,499			27		8,871			4,052,476		4,061,347		—
Commercial construction	2	706		—	—		—	—		2	706		490,892		491,598		—			1		331			—		—			—		—			1		331			526,807		527,138		—
Small business	2	51		5	95		9	139		16	285		173,642		173,927		—			12		1,030			8		185			5		176			25		1,391			176,429		177,820		—
Residential real estate	18	3,306		12	2,168		40	8,470		70	13,944		1,641,238		1,655,182		1,776		(1)	19		2,614			5		994			39		6,258			63		9,866			1,518,550		1,528,416		—
Home equity	25	1,185		10	618		34	3,439		69	5,242		1,139,257		1,144,499		541		(1)	22		1,507			7		801			36		3,030			65		5,338			1,140,932		1,146,270		—
Other consumer(1)	336	254		20	39		19	102		375	395		26,196		26,591		11		(2)	335		386			11		67			16		99			362		552			26,663		27,215		25
Total	389	$	6,435	49	$	3,272	107	$	12,340	545	$	22,047	$	8,928,740	$	8,950,787	$	2,328		420		$	14,787		33		$	2,430		109		$	12,140		562		$	29,357		$	8,887,073	$	8,916,430	$	25

December 31, 2018
30-59 days 60-89 days 90 days or more Total Past Due
Total
Financing
Receivables

Recorded
Investment
>90 Days
and Accruing

Number
of Loans

Principal
Balance

Number
of Loans

Principal
Balance

Number
of Loans

Principal
Balance

Number
of Loans

Principal
Balance
Current
(Dollars in thousands)
Loan Portfolio ��
Commercial and industrial —
$ —
4
$ 382
11
$ 26,311
15
$ 26,693
$ 1,066,936
$ 1,093,629
$ —
Commercial real estate 9
1,627
—
—
8
2,250
17
3,877
3,247,371
3,251,248
—
Commercial construction 1
1,271
—
—
1
311
2
1,582
363,583
365,165
—
Small business 15
506
19
87
24
162
58
755
163,921
164,676
—
Residential real estate 23
3,486
6
521
25
4,382
54
8,389
914,905
923,294
—
Home equity 22
1,331
12
855
29
2,663
63
4,849
1,087,235
1,092,084
—
Other consumer (2) 330
181
15
9
12
13
357
203
15,895
16,098
5
Total 400
$ 8,402
56
$ 1,854
110
$ 36,092
566
$ 46,348
$ 6,859,846
$ 6,906,194
$ 5



	December 31, 2019
	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		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	(Dollars in thousands)
Loan Portfolio
Commercial and industrial	1	$	253	2	$	323	5	$	760	8	$	1,336	$	1,393,700	$	1,395,036	$	—
Commercial real estate	7	1,690		1	194		8	2,038		16	3,922		3,998,437		4,002,359		218		(2	)
Commercial construction	1	560		—	—		—	—		1	560		546,733		547,293		—
Small business	11	837		3	15		6	115		20	967		173,530		174,497		—
Residential real estate	17	2,237		17	3,055		38	7,020		72	12,312		1,578,257		1,590,569		1,652		(2	)
Home equity	23	1,689		8	524		40	3,854		71	6,067		1,127,731		1,133,798		265		(2	)
Other consumer (1)	387	245		12	44		16	32		415	321		29,766		30,087		22
Total	447	$	7,511	43	$	4,155	113	$	13,819	603	$	25,485	$	8,848,154	$	8,873,639	$	2,157


(1)	~~Represents purchased credit impaired loans that are accruing interest due to expectations of future cash collections.~~


~~(2)~~	Other consumer portfolio is inclusive of deposit account overdrafts recorded as loan balances.


(2)	Represents purchased credit impaired loans that were accruing interest due to expectations of future cash collections.

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:


	June 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
TDRs on accrual status	$	22,423	$	23,849		$	18,129	$	19,599
TDRs on nonaccrual	27,841		29,348			23,842		24,766
Total TDRs	$	50,264	$	53,197		$	41,971	$	44,365
Amount of specific reserves included in the allowance for loan losses associated with TDRs	$	1,073	$	1,079
Amount of specific reserves included in the allowance for loan loss associated with TDRs						n/a		$	855
Additional commitments to lend to a borrower who has been a party to a TDR	$	377	$	982		$	163	$	63

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~~table shows the modifications which occurred during the ~~periods~~period indicated and the change in the recorded investment subsequent to the modifications occurring:

Three Months Ended Six Months Ended
June 30, 2019 June 30, 2019

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment
(Dollars in thousands)
Troubled debt restructurings
Commercial and industrial 1
$ 97
$ 97
1
$ 97
$ 97
Commercial real estate —
—
—
1
150
150
Small business 2
56
56
2
56
56
Home equity —
—
—
1
75
75
Total 3
$ 153
$ 153
5
$ 378
$ 378



	Three Months Ended
	March 31, 2020
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled debt restructurings
Commercial and industrial	2	$	268	$	268
Commercial real estate	1	604		604
Small business	1	49		25
Residential real estate	1	177		209
Total	5	$	1,098	$	1,106



	Three Months Ended
	March 31, 2019
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled debt restructurings
Commercial real estate	1	150		150
Home equity	1	75		75
Total	2	$	225	$	225

Three Months Ended Six Months Ended
June 30, 2018 June 30, 2018

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

Number of
Contracts

Pre-Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment
(Dollars in thousands)
Troubled debt restructurings
Commercial real estate —
—
—
1
445
445
Residential real estate 1
149
149
1
149
149
Home equity 4
230
230
6
472
472
Total 5
$ 379
$ 379
8
$ 1,066
$ 1,066

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


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30				June 30				March 31
	2019		2018		2019		2018		2020		2019
	(Dollars in thousands)				(Dollars in thousands)				(Dollars in thousands)
Adjusted interest rate	$	—	$	—	$	150	$	—	$	604	$	150
Court ordered concession	—		379		75		621		25		75
Extended maturity	153		—		153		445		477		—
Total	$	153	$	379	$	378	$	1,066	$	1,106	$	225

The Company considers a loan to have defaulted when it reaches 90 days past due. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and March 31, 2019, there ~~was one residential loan modified during the proceeding twelve months with a recorded investment of $120,000, which subsequently defaulted. At June 30, 2018, there~~ were no0 loans modified during the past twelve months that subsequently ~~defaulted during~~defaulted.

NOTE 5 - LOANS AND ALLOWANCE FOR LOAN LOSSES

As disclosed in Note 4 - Loans, Allowance for Credit Losses and Credit Quality, the ~~three~~Company adopted the CECL standard, effective January 1, 2020. As required by disclosure guidance, the Company has included relevant disclosures from the prior year and ~~six months ended June 30, 2018.~~

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~~adoption of ~~impairment, if any, is recorded~~CECL within this footnote, as ~~a specific loss allocation~~it relates to ~~each individual loan in the~~loans and 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~~following table bifurcates the amount of ~~any confirmed~~loans and the allowance allocated to each loan ~~loss~~category based on the type of impairment analysis as of December 31, 2019:



	December 31, 2019
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total
	(Dollars in thousands)
Financing receivables ending balance:
Collectively evaluated for impairment	$	1,370,580	$	3,987,848	$	547,293	$	173,960	$	1,571,848	$	1,127,963	$	29,663	$	8,809,155
Individually evaluated for impairment	24,456		8,337		—		537		11,228		4,948		122		49,628
Purchased credit impaired loans	—		6,174		—		—		7,493		887		302		14,856
Total loans by group	$	1,395,036	$	4,002,359	$	547,293	$	174,497	$	1,590,569	$	1,133,798	$	30,087	$	8,873,639	(1)


(1)	The amount of net deferred costs on originated loans included in the ending balance was $7.1 million at December 31, 2019. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $21.6 million at December 31, 2019.

At December 31, 2019, the reserve for unfunded loan commitments was $2.1 million.

The following table summarizes changes in allowance for loan losses by loan category for the period ~~when~~indicated:



	Three Months Ended March 31, 2019
	(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	$	15,760	$	32,370		$	5,158	$	1,756		$	3,219	$	5,608		$	422		$	64,293
Charge-offs	—		—			—		(145		)	—		(113		)	(301		)	(559		)
Recoveries	124		33			—		27			1		66			155			406
Provision (benefit)	988		(354		)	197		146			14		(54		)	63			1,000
Ending balance	$	16,872	$	32,049		$	5,355	$	1,784		$	3,234	$	5,507		$	339		$	65,140
Ending balance: collectively evaluated for impairment	$	16,814	$	31,974		$	5,355	$	1,783		$	2,432	$	5,346		$	332		$	64,036
Ending balance: individually evaluated for impairment	$	58	$	75		$	—	$	1		$	802	$	161		$	7		$	1,104

The Company's historical approach to loan portfolio segmentation by risk characteristics and monitoring of credit quality for commercial loans under previous accounting guidance was consistent with that applied under the ~~loans, or portion~~newly adopted CECL standard. See Note 4 - Loans, Allowance for Credit Losses and Credit Quality further discussion surrounding the Company's policies for loan segmentation and credit quality monitoring.

The following tables detail the amount of ~~loans, are deemed uncollectible. Smaller balance consumer TDR loans are reviewed~~outstanding principal balances relative to each of the risk-rating categories for ~~performance to determine when a charge-off is appropriate.~~the Company’s loan portfolio as of December 31, 2019:



		December 31, 2019
Category	Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)
Pass	1 - 6	$	1,274,155	$	3,860,555	$	542,608	$	171,213	$	5,848,531
Potential weakness	7	63,485		97,268		2,247		1,416		164,416
Definite weakness-loss unlikely	8	57,396		44,536		2,438		1,868		106,238
Partial loss probable	9	—		—		—		—		—
Definite loss	10	—		—		—		—		—
Total		$	1,395,036	$	4,002,359	$	547,293	$	174,497	$	6,119,185

Impaired Loans

AUnder previous accounting guidance, a loan iswas considered impaired when, based on current information and events, it iswas probable that the Company ~~will~~would 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~~included payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that ~~experience~~experienced insignificant payment delays and payment shortfalls generally ~~are~~were not classified as impaired. Management ~~determines~~determined 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~~table below ~~set~~sets forth information regarding the Company’s impaired loans by loan portfolio at the ~~dates~~date indicated:

June 30, 2019

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance
(Dollars in thousands)
With no related allowance recorded
Commercial and industrial $ 27,085
$ 37,169
$ —
Commercial real estate 7,414
7,634
—
Small business 342
389
—
Residential real estate 4,694
4,831
—
Home equity 4,723
4,976
—
Other consumer 42
43
—
Subtotal 44,300
55,042
—
With an allowance recorded
Commercial and industrial $ 266
$ 266
$ 7
Commercial real estate 1,655
1,655
74
Small business 188
229
38
Residential real estate 6,657
7,765
789
Home equity 966
1,127
159
Other consumer 131
133
6
Subtotal 9,863
11,175
1,073
Total $ 54,163
$ 66,217
$ 1,073


	December 31, 2018						December 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	$	28,459	$	35,913	$	—	$	23,786	$	34,970	$	—
Commercial real estate	9,552		9,832		—		6,213		12,101		—
Small business	358		439		—		469		484		—
Residential real estate	4,518		4,686		—		4,976		5,123		—
Home equity	4,957		5,199		—		3,764		3,893		—
Other consumer	56		56		—		34		34		—
Subtotal	47,900		56,125		—		39,242		56,605		—
With an allowance recorded
Commercial and industrial	$	370	$	370	$	7	$	670	$	670	$	126
Commercial real estate	1,287		1,287		37		2,124		2,124		48
Small business	183		223		1		68		105		8
Residential real estate	8,188		9,217		862		6,252		7,163		637
Home equity	991		1,149		164		1,184		1,382		156
Other consumer	141		143		8		88		91		5
Subtotal	11,160		12,389		1,079		10,386		11,535		980
Total	$	59,060	$	68,514	$	1,079	$	49,628	$	68,140	$	980

The following ~~tables set~~table sets forth information regarding interest income recognized on impaired loans, by portfolio, for the ~~periods~~period indicated:

Three Months Ended Six Months Ended
June 30, 2019 June 30, 2019

Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized
(Dollars in thousands)
With no related allowance recorded
Commercial and industrial $ 27,406
$ 34
$ 28,971
$ 70
Commercial real estate 7,496
92
7,582
186
Small business 309
2
319
6
Residential real estate 4,713
58
4,727
113
Home equity 4,751
53
4,783
107
Other consumer 42
1
45
1
Subtotal 44,717
240
46,427
483
With an allowance recorded
Commercial and industrial $ 268
$ 3
$ 270
$ 6
Commercial real estate 1,662
24
1,672
49
Small business 190
2
192
5
Residential real estate 6,707
59
6,775
116
Home equity 972
11
978
22
Other consumer 132
2
135
2
Subtotal 9,931
101
10,022
200
Total $ 54,648
$ 341
$ 56,449
$ 683


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30, 2018				June 30, 2018				March 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	$	32,557	$	34	$	33,198	$	68	$	30,198	$	35
Commercial real estate	13,018		148		13,131		295		8,873		104
Commercial construction									311		—
Small business	672		3		703		8		323		2
Residential real estate	4,825		60		4,842		119		4,421		54
Home equity	5,100		54		5,160		106		4,952		55
Other consumer	66		1		68		2		53		1
Subtotal	56,238		300		57,102		598		49,131		251
With an allowance recorded
Commercial and industrial	$	225	$	2	$	226	$	5	$	498	$	3
Commercial real estate	2,165		24		2,172		48		1,682		24
Small business	163		3		169		6		181		2
Residential real estate	8,003		68		8,045		136		7,665		64
Home equity	1,732		15		1,744		27		985		12
Other consumer	194		1		198		3		138		1
Subtotal	12,482		113		12,554		225		11,149		106
Total	$	68,720	$	413	$	69,656	$	823	$	60,280	$	357

Purchased Credit Impaired Loans

~~Certain~~Under previous accounting guidance, certain loans acquired by the Company which may have shown evidence of deterioration of credit quality since origination at purchase date 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~~date indicated:


	June 30, 2019		December 31, 2018		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
Outstanding balance	$	20,221	$	9,749	$	18,358
Carrying amount	$	16,112	$	8,795	$	14,856

The following table summarizes activity in the accretable yield for the PCI loan ~~portfolio:~~portfolio for the period indicated:


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended March 31
	2019			2018			2019			2018			2019
	(Dollars in thousands)												(Dollars in thousands)
Beginning balance	$	1,164		$	1,642		$	1,191		$	1,791		$	1,191
Acquisition	1,464			—			1,464			—
Accretion	(662		)	(198		)	(803		)	(413		)	(141		)
Other change in expected cash flows (1)	272			160			386			204			114
Reclassification from nonaccretable difference for loans which have paid off (2)	—			—			—			22
Reclassification from nonaccretable difference for loans which have paid off													—
Ending balance	$	2,238		$	1,604		$	2,238		$	1,604		$	1,164

(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 6 - ~~BORROWINGS~~GOODWILL AND OTHER INTANGIBLE ASSETS

~~On March 14, 2019,~~The following table sets forth the ~~Company issued $50.0 million~~carrying value 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,goodwill and other intangible assets, net of accumulated amortization, at 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.periods indicated below:



	March 31, 2020		December 31, 2019
	(Dollars in thousands)
Balances not subject to amortization
Goodwill	$	506,206	$	506,206
Balances subject to amortization
Core deposit intangibles	26,485		28,016
Other intangible assets	981		1,270
Total other intangible assets	27,466		29,286
Total goodwill and other intangible assets	$	533,672	$	535,492

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 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~~typically performs its goodwill impairment test during the ~~proceeds~~third quarter of ~~these borrowings for funding needs related~~the year, unless certain indicators suggest earlier testing to be warranted. The Company determined that an interim impairment test was warranted due to the ~~second quarter closing of BHB. During~~operational disruption and uncertainty associated with the ~~second~~COVID-19 pandemic which commenced during the first quarter of ~~2019,~~2020. Accordingly, the Company ~~repaid~~performed an impairment test as of March 31, 2020 and determined that there was no impairment of its goodwill, as the fair value of the Company's single reporting unit was in ~~full~~excess of its carrying value. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the ~~entire $50.0 million~~carrying amount of the ~~senior unsecured revolving loan.~~assets may not be recoverable. The Company also considered the impact of COVID-19 as it pertains to these intangible assets, and determined that there was no indication of impairment related to other intangible assets as of March 31, 2020.

NOTE 7 -EARNINGS PER SHARE

Earnings per share consisted of the following components for the periods indicated:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30				June 30				March 31
	2019		2018		2019		2018		2020		2019
	(Dollars in thousands, except per share data)								(Dollars in thousands, except per share data)
Net income	$	30,628	$	31,118	$	65,853	$	58,673	$	26,751	$	35,225

Weighted Average Shares
Basic shares	34,313,492		27,526,653		31,226,985		27,506,724		34,184,431		28,106,184
Effect of dilutive securities	41,878		54,525		48,381		61,480		36,827		54,466
Diluted shares	34,355,370		27,581,178		31,275,366		27,568,204		34,221,258		28,160,650

Net income per share
Basic EPS	$	0.89	$	1.13	$	2.11	$	2.13	$	0.78	$	1.25
Effect of dilutive securities	—		—		—		—		—		—
Diluted EPS	$	0.89	$	1.13	$	2.11	$	2.13	$	0.78	$	1.25

~~The diluted earnings per share computations do not assume~~During the ~~conversion, exercise, or contingent issuance~~three months ended March 31, 2020 and 2019 there were 0 options to purchase common stock and 5,431 and 6,890 shares of ~~the following shares for the following periods because the result would have been anti-dilutive for the periods indicated. As a result of the anti-dilution, the potential common shares~~performance-based restricted stock, respectively, that were excluded from the calculation of diluted earnings ~~are as follows:~~per share because they were anti-dilutive.

Three Months Ended Six Months Ended
June 30 June 30
2019 2018 2019 2018
Stock options —
4,890
—
2,458
Performance-based restricted stock —
—
11,419
—

NOTE 8 - STOCK BASED COMPENSATION

Time Vested Restricted Stock Awards

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the Company made the following awards of time vested restricted stock:

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
4/1/2019 1,090
2005 Employee Stock Plan $ 82.62
Ratably over 3 years from grant date
5/21/2019 6,500
2018 Non-Employee Director Stock Plan $ 77.08
Shares vested immediately



Date	Shares Granted	Plan	Grant Date Fair Value Per Share		Vesting Period
2/27/2020	46,550	2005 Employee Stock Plan	$	70.24	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 ~~21, 2019,~~27, 2020, the Company granted ~~15,900~~17,100 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 ~~$83.87,~~$70.24, determined by the average of the high and low price at which the Company's common stock traded on the date of grant. The number of shares to be vested is contingent upon the Company's attainment of certain performance measures outlined in the award agreement and will be measured as of the end of the three year performance period, January 1, ~~2019~~2020 through December 31, ~~2021.~~2022. 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, ~~2022.~~2023. 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 26, 2019,~~March 3, 2020, the performance-based restricted stock awards that were awarded on February ~~11, 2016~~16, 2017 vested at 100% of the maximum target shares awarded, or ~~17,947~~14,400 shares.

Stock Options

The Company did not grant any awards of options to purchase shares of common stock during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

NOTE 9 - DERIVATIVE AND HEDGING ACTIVITIES

The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, the Company enters into interest rate derivatives 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~~Company's financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship.

The Company does not enter into proprietary trading positions for any derivatives.

The Company is subject to over-the-counter derivative clearing requirements which require certain derivatives to be cleared through central clearing houses. Accordingly, the Company clears certain derivative transactions through the Chicago Mercantile Exchange Clearing House ("CME"). This clearing house requires the Company to post initial and variation margin to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts.

Interest Rate Positions

The Company may utilize various interest rate derivatives as hedging instruments against interest rate risk associated with the Company’s borrowings and loan portfolios. An interest rate derivative is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged.

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:


June 30, 2019
March 31, 2020										March 31, 2020
				Weighted Average Rate										Weighted Average Rate
	Notional Amount		Average Maturity	Current Rate Received		Pay Fixed Swap Rate		Fair Value			Notional Amount		Average Maturity	Current Rate Received		Pay Fixed Swap Rate		Fair Value (1)
	(in thousands)		(in years)					(in thousands)			(in thousands)		(in years)					(in thousands)
Interest rate swaps on borrowings	$	75,000	2.68	2.45	%	1.53	%	$	337		$	175,000	2.20	1.28	%	0.94	%	$	(1,790	)

				Current Rate Paid		Receive Fixed Swap Rate								Current Rate Paid		Receive Fixed Swap Rate
Interest rate swaps on loans	400,000		4.01	2.37	%	2.47	%	13,743			450,000		3.41	0.86	%	2.37	%	31,701

				Current Rate Paid		Receive Fixed Swap Rate Cap - Floor								Current Rate Paid		Receive Fixed Swap Rate Cap - Floor
Interest rate collars on loans	350,000		3.99	2.36	%	2.87% - 2.32%		11,011			400,000		3.41	0.81	%	2.73% - 2.20%		25,573

Total	$	825,000						$	25,091		$	1,025,000						$	55,484


December 31, 2018
December 31, 2019										December 31, 2019
				Weighted Average Rate										Weighted Average Rate
	Notional Amount		Average Maturity	Current Rate Received		Pay Fixed Swap Rate		Fair Value			Notional Amount		Average Maturity	Current Rate Received		Pay Fixed Swap Rate		Fair Value (1)
	(in thousands)		(in years)					(in thousands)			(in thousands)		(in years)					(in thousands)
Interest rate swaps on borrowings	$	75,000	3.18	2.74	%	1.53	%	$	2,282		$	75,000	2.18	1.90	%	1.53	%	$	140

				Current Rate Paid		Receive Fixed Swap Rate								Current Rate Paid		Receive Fixed Swap Rate
Interest rate swaps on loans	250,000		4.52	2.57	%	2.67	%	2,938			450,000		3.66	1.76	%	2.37	%	12,907

				Current Rate Paid		Receive Fixed Swap Rate Cap - Floor								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			400,000		3.66	1.76	%	2.73% - 2.20%		9,896

Total	$	575,000						$	8,564		$	925,000						$	22,943


(1)	Beginning in 2020, the Company made an election to include accrued interest within fair value balances.

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 ~~4.8~~4.6 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 ~~$4.3~~$16.8 million (pre-tax) to be reclassified to interest income and ~~$343,000~~$587,000 (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 ~~June 30, 2019.~~

The Company recognized $61,000 and $122,000 of net amortization income that was an offset to interest expense related to previously terminated swaps for the three and six month periods ended June 30, 2018, respectively. The Company did not recognize any amortization income related to previously terminated swaps for the three and six month periods ended June 30, 2019.

March 31, 2020.

The Company had no0 fair value hedges as of ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

Customer Related Positions

Loan level derivatives, primarily interest rate swaps, offered to commercial borrowers through the Company’s loan level derivative program do not qualify as hedges for accounting purposes. The Company believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an offsetting dealer transaction. Derivatives with dealer counterparties are then either cleared through a clearinghouse or settled directly with a single counterparty. The commercial customer derivative program allows the Company to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. The amounts relating to the notional principal amount are not actually exchanged.

Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes. The Company acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions. The amounts relating to the notional principal amount are exchanged.

The following ~~tables reflect~~table reflects the ~~Company’s~~Company��s customer related derivative positions ~~for~~as of the ~~periods~~dates 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 Value			Number of Positions (1)	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value (2)
	June 30, 2019																March 31, 2020
	(Dollars in thousands)																(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	302	$	112,642	$	209,727	$	77,125	$	159,751	$	978,497	$	1,537,742	$	49,459		313	$	155,318	$	76,735	$	126,910	$	139,600	$	1,178,142	$	1,676,705	$	143,707
Pay fixed, receive variable	293	$	112,642	$	209,727	$	77,125	$	159,751	$	978,497	$	1,537,742	$	(49,453	)	305	$	158,692	$	76,735	$	126,910	$	139,600	$	1,178,142	$	1,680,079	$	(143,726	)
Foreign exchange contracts																	Foreign exchange contracts
Buys foreign currency, sells U.S. currency	36	$	74,431	$	—	$	—	$	—	$	—	$	74,431	$	(1,160	)	47	$	118,711	$	—	$	—	$	—	$	—	$	118,711	$	(1,439	)
Buys U.S. currency, sells foreign currency	36	$	74,431	$	—	$	—	$	—	$	—	$	74,431	$	1,196		47	$	118,711	$	—	$	—	$	—	$	—	$	118,711	$	1,499
	December 31, 2018																	Notional Amount Maturing
	(Dollars in thousands)																Number of Positions (1)	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value (2)
																	December 31, 2019
																	(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	235	$	50,702	$	124,222	$	97,904	$	47,308	$	631,471	$	951,607	$	(2,907	)	299	$	156,690	$	125,203	$	85,603	$	165,599	$	1,044,315	$	1,577,410	$	48,596
Pay fixed, receive variable	220	$	50,702	$	124,222	$	97,904	$	47,308	$	631,471	$	951,607	$	2,903		290	$	156,690	$	125,203	$	85,603	$	165,599	$	1,044,315	$	1,577,410	$	(48,591	)
Foreign exchange contracts																	Foreign exchange contracts
Buys foreign currency, sells U.S. currency	27	$	60,297	$	3,505	$	—	$	—	$	—	$	63,802	$	(1,404	)	40	$	91,434	$	—	$	—	$	—	$	—	$	91,434	$	(81	)
Buys U.S. currency, sells foreign currency	27	$	60,297	$	3,505	$	—	$	—	$	—	$	63,802	$	1,434		40	$	91,434	$	—	$	—	$	—	$	—	$	91,434	$	123


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


(2)	Beginning in 2020, the Company made an election to include accrued interest within fair value balances.

Mortgage Derivatives

The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that loans will likely be sold subsequently in the secondary market. Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. These commitments are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with changes in their fair values recorded within mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The ~~change in~~ fair value of loans held for sale ~~was an increase of $919,000~~decreased by $914,000 and ~~$70,000~~increased by $1,000 for the three month periods ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively. The change in~~

~~fair value associated with loans held for sale was an increase of $920,000 and $44,000 for the six months ended June 30, 2019 and 2018,~~ respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives.

Outstanding loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might change from inception of the rate lock to funding of the loan due to changes in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases. To protect against the price risk inherent in derivative loan commitments, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Mandatory delivery contracts are accounted for as derivative instruments. Included in the mandatory delivery forward commitments are To Be Announced securities ~~(“TBAs”~~("TBAs"). Certain assumptions, including pull through rates and rate lock periods, are used in managing the existing and future hedges. The accuracy of underlying assumptions will impact the ultimate effectiveness of any hedging strategies.

With mandatory delivery contracts, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a ~~“pair-off”~~"pair-off" fee, based on then-current market prices, to the investor/counterparty to compensate the investor for the shortfall. Generally the Company makes this type of commitment once mortgage loans have been funded and are held for sale, in order to minimize the risk of failure to deliver the requisite volume of loans to the investor and paying pair-off fees as a result. The Company also sells TBA securities to offset potential changes in the fair value of derivative loan commitments. Generally the Company sells TBA securities ~~upon~~by entering into derivative loan commitments for settlement in 30 to 90 days. The Company expects that mandatory delivery contracts, including TBA securities, will experience changes in fair value opposite to the changes in the fair value of derivative loan commitments.

With best effort contracts, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally best efforts cash contracts have no pair off risk regardless of market movement. The price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these best efforts forward loan sale commitments will experience a net neutral shift in fair value with related derivative loan commitments.

The aggregate amount of net realized gains or losses on sales of such loans included within mortgage banking income was ~~$3.3~~$4.5 million and ~~$755,000~~$705,000 for the three month periods ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $4.0 million and $1.5 million~~respectively.

Balance Sheet Offsetting

The Company does not offset fair value amounts recognized for derivative instruments. The Company does net the amount recognized for the ~~six months ended June 30, 2019~~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 ~~2018, respectively.~~adjusted as necessary.

A daily settlement occurs through the CME for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through the daily clearing agent. As a result, the total fair values of loan level derivative assets and liabilities recognized on the Company's financial statements are not equal and offsetting.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet and the potential effect of netting arrangements on its financial position, at the ~~periods~~dates indicated:


	Asset Derivatives					Liability Derivatives					Asset Derivatives (1)						Liability Derivatives (2)
		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	June 30 2019		December 31 2018		Balance Sheet Location	June 30 2019		December 31 2018		March 31 2020			December 31 2019			March 31 2020			December 31 2019
	(Dollars in thousands)										(Dollars in thousands)
Derivatives designated as hedges
Interest rate derivatives	Other assets	$	25,216	$	8,955	Other liabilities	$	125	$	391	$	57,274	(3)	$	23,140	(3)	$	1,790	(4)	$	197	(4)
Derivatives not designated as hedges
Customer Related Positions
Loan level derivatives	Other assets	$	51,417	$	15,580	Other liabilities	$	51,411	$	15,584	143,763		(3)	52,374		(3)	143,782		(4)	52,369		(4)
Foreign exchange contracts	Other assets	1,543		1,578		Other liabilities	1,507		1,548		2,047			1,191			1,987			1,149
Mortgage Derivatives
Interest rate lock commitments	Other assets	2,377		91		Other liabilities	—		—		2,332			1,680			—			—
Forward sale loan commitments	Other assets	3		106		Other liabilities	66		—		399			—			—			12
Forward sale hedge commitments	Other assets	—		—		Other liabilities	570		—		—			—			1,980			196
Total derivatives not designated as hedges											148,541			55,245			147,749			53,726
Total											205,815			78,385			149,539			53,923
		$	55,340	$	17,355		$	53,554	$	17,132
Total		$	80,556	$	26,310		$	53,679	$	17,523
Netting Adjustments (5)											—			—			13,024			—
Net Derivatives on the Balance Sheet											205,815			78,385			136,515			53,923

Financial instruments (6)											57,276			24,882			57,276			24,882
Cash collateral pledged (received)											—			—			73,771			25,493
Net Derivative Amounts											$	148,539		$	53,503		$	5,468		$	3,548


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


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


(3)	Approximately $574,000and$1.1 million of accrued interest receivable is included in the fair value of the interest rate and loan level asset derivatives, respectively, as of March 31, 2020. Accrued interest receivable of approximately and $350,000 and$569,000 was excluded from the fair value of the interest rate and loan level asset derivatives, respectively, as of December 31, 2019.


(4)	Approximately $14,000 and $1.1 million of accrued interest payable is included in the fair value of the interest rate and loan level derivative liabilities, respectively, as of March 31, 2020. Accrued interest payable of approximately $4,000 and $569,000 was excluded from the fair value of the interest rate and loan level derivative liabilities, respectively, as of December 31, 2019.


(5)	Netting adjustments represent the amounts recorded to convert derivative assets and liabilities cleared through CME from a gross basis to a net basis, inclusive of the variation margin payments, in accordance with applicable accounting guidance. All derivatives that cleared through the CME were in a net liability position as of March 31, 2020.


(6)	Reflects offsetting derivative positions with the same counterparty that are not netted on the balance sheet.

The table below presents the effect of the Company’s derivative financial instruments included in OCI and current earnings for the periods indicated:


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30						June 30						March 31
	2019			2018			2019			2018			2020			2019
	(Dollars in thousands)												(Dollars in thousands)
Derivatives designated as hedges
Gain in OCI on derivatives (effective portion), net of tax	$	8,590		$	(112	)	$	11,875		$	103		$	22,984		$	3,285
Gain reclassified from OCI into interest income or interest expense (effective portion)	$	394		$	167		$	818		$	257		$	1,586		$	424
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
Loss reclassified from OCI into noninterest expense (loss on termination)													$	—		$	—
Interest expense	$	—		$	—		$	—		$	—		$	—		$	—
Other expense	—			—			—			—			—			—
Total	$	—		$	—		$	—		$	—		$	—		$	—
Derivatives not designated as hedges
Changes in fair value of customer related positions
Other income	$	14		$	15		$	27		$	24		$	22		$	13
Other expense	(10		)	(5		)	(11		)	(18		)	(24		)	(1		)
Changes in fair value of mortgage derivatives
Mortgage banking income	1,488			141			1,547			153
Mortgage banking income (expense)													(721		)	59
Total	$	1,492		$	151		$	1,563		$	159		$	(723	)	$	71

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 ~~$24.7~~$88.3 million and ~~$176,000~~$26.0 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Although none of the contingency provisions have applied as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company has posted collateral to offset the net liability ~~exposures~~exposure with institutional counterparties.

By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company's credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. Institutional counterparties must have an investment grade credit rating and be approved by the Company's Board of Directors. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. The Company's exposure relating to institutional counterparties was ~~$26.5~~$57.3 million and ~~$18.4~~$25.4 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The Company’s exposure relating to customer counterparties was approximately ~~$50.6~~$143.7 million and ~~$6.4~~$51.0 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Credit exposure may be reduced by the value of collateral pledged by the counterparty.

NOTE 10 - ~~BALANCE SHEET OFFSETTING~~INCOME TAXES

The Company does not offset fair value amounts recognized for derivative instruments. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be maintained at dealer banks by the Company is monitored and adjusted as necessary.

The following ~~tables present~~table sets forth information regarding the ~~Company's asset~~Company’s tax provision and ~~liability derivative positions and the potential effect of netting arrangements on its financial position, as of~~applicable tax rates for the periods indicated:

Gross Amounts Not Offset in the Statement of Financial Position
Gross Amounts Recognized in the Statement of Financial Position Gross Amounts Offset in the Statement of Financial Position Net Amounts Presented in the Statement of Financial Position
Financial Instruments
(1)
Collateral Pledged (Received) Net Amount
June 30, 2019
(Dollars in thousands)
Derivative Assets
Interest rate swaps $ 25,216
$ —
$ 25,216
$ 25,216
$ —
$ —
Loan level derivatives 51,417
—
51,417
979
—
50,438
Customer foreign exchange contracts 1,543
—
1,543
—
—
1,543
$ 78,176
$ —
$ 78,176
$ 26,195
$ —
$ 51,981

Derivative Liabilities
Interest rate swaps $ 125
$ —
$ 125
$ —
$ 125
$ —
Loan level derivatives 51,411
—
51,411
26,195
23,709
1,507
Customer foreign exchange contracts 1,507
—
1,507
—
—
1,507
$ 53,043
$ —
$ 53,043
$ 26,195
$ 23,834
$ 3,014



	Three Months Ended
	March 31
	2020			2019
	(Dollars in thousands)
Combined federal and state income tax provision	$	2,148		$	11,522
Effective income tax rate	7.43		%	24.65		%


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

Gross Amounts Not Offset in the Statement of Financial Position
Gross Amounts Recognized in the Statement of Financial Position Gross Amounts Offset in the Statement of Financial Position Net Amounts Presented in the Statement of Financial Position Financial Instruments (1) Collateral Pledged (Received) Net Amount
December 31, 2018
(Dollars in thousands)
Derivative Assets
Interest rate swaps $ 8,955
$ —
$ 8,955
$ 391
$ (5,527 ) $ 3,037
Loan level derivatives 15,580
—
15,580
6,165
(3,001 ) 6,414
Customer foreign exchange contracts 1,578
—
1,578
—
—
1,578
$ 26,113
$ —
$ 26,113
$ 6,556
$ (8,528 ) $ 11,029

Derivative Liabilities
Interest rate swaps $ 391
$ —
$ 391
$ 391
$ —
$ —
Loan level derivatives 15,584
—
15,584
6,165
173
9,246
Customer foreign exchange contracts 1,548
—
1,548
—
—
1,548
$ 17,523
$ —
$ 17,523
$ 6,556
$ 173
$ 10,794


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

The Company's provision for income taxes was $2.1 million and $11.5 million for the three months ended March 31, 2020 and 2019, respectively. The lower tax provision in 2020 was due to a lower effective tax rate, which included a $4.7 million discrete tax benefit recognized in the quarter. This discrete benefit was associated with revised net operating loss (NOL) carryback provisions included in the federal Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"), signed into law on March 27, 2020. The effect of any change in enacted tax rates on deferred assets and liabilities is recognized in income in the period that includes the enactment date, and accordingly, the discrete benefit was fully recognized during the first quarter of 2020.

NOTE 11 - 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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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~~

Individually Assessed Collateral Dependent Loans

~~Collateral dependent~~In accordance with the CECL standard, expected credit losses on individually assessed loans ~~that are~~ deemed to be ~~impaired~~collateral dependent are valued based upon the lower of amortized cost or fair value of the underlying collateral less costs to sell. The inputs used in the appraisals of the collateral are not always observable, and in such cases the loans may be classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.

Other Real Estate Owned and Other Foreclosed Assets

Other Real Estate Owned ("OREO") and Other Foreclosed Assets are valued at the lower of cost or fair value of the property, less estimated costs to sell. The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore OREO and Other Foreclosed Assets may be classified as Level 3 within the fair value hierarchy.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and a discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

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)
	June 30, 2019								March 31, 2020
	(Dollars in thousands)								(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	1,939	$	1,939	$	—	$	—	$	2,247	$	2,247	$	—	$	—
Equity securities	20,807		20,807		—		—		19,439		19,439		—		—
Securities available for sale
U.S. Government agency securities	32,923		—		32,923		—
U.S. government agency securities									24,292		—		24,292		—
Agency mortgage-backed securities	197,665		—		197,665		—		258,784		—		258,784		—
Agency collateralized mortgage obligations	98,643		—		98,643		—		87,210		—		87,210		—
State, county, and municipal securities	1,738		—		1,738		—		1,144		—		1,144		—
Single issuer trust preferred securities issued by banks and insurers	717		—		717		—		436		—		436		—
Pooled trust preferred securities issued by banks and insurers	1,281		—		—		1,281		1,009		—		—		1,009
Small business administration pooled securities	60,181		—		60,181		—		64,421		—		64,421		—
Loans held for sale	123,557		—		123,557		—		43,756		—		43,756		—
Derivative instruments	80,556		—		80,556		—		205,815		—		205,815		—
Liabilities
Derivative instruments	53,679		—		53,679		—		149,539		—		149,539		—
Total recurring fair value measurements	$	566,328	$	22,746	$	542,301	$	1,281	$	559,014	$	21,686	$	536,319	$	1,009

Nonrecurring fair value measurements
Assets
Collateral dependent impaired loans	$	26,471	$	—	$	—	$	26,471
Other real estate owned and other foreclosed assets	2,889		—		—		2,889
Individually assessed collateral dependent loans									$	39,444	$	—	$	—	$	39,444
Total nonrecurring fair value measurements	$	29,360	$	—	$	—	$	29,360	$	39,444	$	—	$	—	$	39,444


			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, 2018								December 31, 2019
	(Dollars in thousands)								(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	1,504	$	1,504	$	—	$	—	$	2,179	$	2,179	$	—	$	—
Equity securities	19,477		19,477		—		—		21,261		21,261		—		—
Securities available for sale
U.S. Government agency securities	32,038		—		32,038		—
U.S. government agency securities									33,115		—		33,115		—
Agency mortgage-backed securities	220,105		—		220,105		—		247,000		—		247,000		—
Agency collateralized mortgage obligations	134,911		—		134,911		—		88,511		—		88,511		—
State, county, and municipal securities	1,735		—		1,735		—		1,396		—		1,396		—
Single issuer trust preferred securities issued by banks and insurers	707		—		707		—		493		—		493		—
Pooled trust preferred securities issued by banks and insurers	1,329		—		—		1,329		1,114		—		—		1,114
Small business administration pooled securities	51,927		—		51,927		—		54,795		—		54,795		—
Loans held for sale	6,431		—		6,431		—		33,307		—		33,307		—
Derivative instruments	26,310		—		26,310		—		78,385		—		78,385		—
Liabilities
Derivative instruments	17,523		—		17,523		—		53,923		—		53,923		—
Total recurring fair value measurements	$	478,951	$	20,981	$	456,641	$	1,329	$	507,633	$	23,440	$	483,079	$	1,114

Nonrecurring fair value measurements:
Assets
Collateral dependent impaired loans	$	29,109	$	—	$	—	$	29,109	$	25,515	$	—	$	—	$	25,515
Total nonrecurring fair value measurements	$	29,109	$	—	$	—	$	29,109	$	25,515	$	—	$	—	$	25,515

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 Ended						Three Months Ended
	June 30						March 31
	2019			2018			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Pooled Trust Preferred Securities
Beginning balance	$	1,314		$	1,655		$	1,114		$	1,329
Gains and (losses) (realized/unrealized)
Included in earnings							—			—
Included in other comprehensive income	(27		)	104			(60		)	3
Settlements	(6		)	(8		)	(45		)	(18		)
Ending balance	$	1,281		$	1,751		$	1,009		$	1,314

	Six Months Ended
	June 30
	2019			2018
	(Dollars in thousands)
Pooled Trust Preferred Securities
Beginning balance	$	1,329		$	1,640
Gains and (losses) (realized/unrealized)
Included in other comprehensive income	(24		)	125
Settlements	(24		)	(14		)
Ending balance	$	1,281		$	1,751

The following table sets forth certain unobservable inputs regarding the Company’s financial instruments that are classified as Level 3 for the periods indicated:


		June 30 2019		December 31 2018			June 30 2019	December 31 2018	June 30 2019	December 31 2018		March 31 2020		December 31 2019			March 31 2020	December 31 2019	March 31 2020	December 31 2019
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 methodology	Discounted cash flow methodology										Discounted cash flow methodology
Pooled trust preferred securities		$	1,281	$	1,329	Cumulative prepayment	0% - 58%	0% - 59%	2.6%	2.1%		$	1,009	$	1,114	Cumulative prepayment	0% - 57%	0% - 57%	2.4%	2.6%
						Cumulative default	5% - 100%	5% - 100%	13.6%	16.2%						Cumulative default	4% - 100%	2% - 100%	13.5%	13.5%
						Loss given default	85% - 100%	85% - 100%	92.1%	94.8%						Loss given default	85% - 100%	85% - 100%	93.6%	93.6%
						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)
Individually assessed collateral dependent loans												$	39,444	n/a
Collateral dependent impaired loans		$	26,471	$	29,109							n/a		$	25,515


(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.

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.

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)
	June 30, 2019										March 31, 2020
	(Dollars in thousands)										(Dollars in thousands)
Financial assets
Securities held to maturity(a)
U.S. government agency securities	$	12,833	$	12,963	$	—	$	12,963	$	—
U.S. Treasury securities	1,003		1,024		—		1,024		—		$	4,029	$	4,139	$	—	$	4,139	$	—
Agency mortgage-backed securities	423,825		431,267		—		431,267		—		463,632		482,363		—		482,363		—
Agency collateralized mortgage obligations	324,441		327,718		—		327,718		—		277,921		289,902		—		289,902		—
Single issuer trust preferred securities issued by banks	1,500		1,490		—		1,490		—		1,500		1,490		—		1,490		—
Small business administration pooled securities	33,757		34,194		—		34,194		—		30,716		31,461		—		31,461		—
Loans, net of allowance for loan losses(b)	8,858,356		8,719,439		—		—		8,719,439
Loans, net of allowance for credit losses(b)											8,784,610		8,626,697		—		—		8,626,697
Federal Home Loan Bank stock(c)	26,085		26,085		—		26,085		—		23,274		23,274		—		23,274		—
Cash surrender value of life insurance policies(d)	197,292		197,292		—		197,292		—		197,772		197,772		—		197,772		—
Financial liabilities
Deposit liabilities, other than time deposits(e)	$	7,862,856	$	7,862,856	$	—	$	7,862,856	$	—	$	8,146,490	$	8,146,490	$	—	$	8,146,490	$	—
Time certificates of deposits(f)	1,445,059		1,441,990		—		1,441,990		—		1,269,708		1,279,983		—		1,279,983		—
Federal Home Loan Bank borrowings(f)	277,671		277,554		—		277,554		—		358,591		359,249		—		359,249		—
Long-term borrowings(f)	74,879		72,426		—		72,426		—		74,920		73,572		—		73,572		—
Junior subordinated debentures(g)	62,847		64,586		—		64,586		—		62,849		61,528		—		61,528		—
Subordinated debentures(f)	84,305		87,963		—		—		87,963		49,625		51,896		—		—		51,896


					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, 2018										December 31, 2019
	(Dollars in thousands)										(Dollars in thousands)
Financial assets
Securities held to maturity(a)
U.S. government agency securities											$	12,874	$	12,997	$	—	$	12,997	$	—
U.S. Treasury securities	$	1,004	$	1,015	$	—	$	1,015	$	—	4,032		4,053		$	—	4,053		$	—
Agency mortgage-backed securities	252,484		250,928		—		250,928		—		397,414		405,802		—		405,802		—
Agency collateralized mortgage obligations	332,775		326,724		—		326,724		—		293,662		297,314		—		297,314		—
Single issuer trust preferred securities issued by banks	1,500		1,490		—		1,490		—		1,500		1,490		—		1,490		—
Small business administration pooled securities	23,727		23,483		—		23,483		—		31,324		31,607		—		31,607		—
Loans, net of allowance for loan losses(b)	6,812,792		6,635,209		—		—		6,635,209
Loans, net of allowance for credit losses(b)											8,780,384		8,613,635		—		—		8,613,635
Federal Home Loan Bank stock(c)	15,683		15,683		—		15,683		—		14,424		14,424		—		14,424		—
Cash surrender value of life insurance policies(d)	160,456		160,456		—		160,456		—		197,372		197,372		—		197,372		—
Financial liabilities
Deposit liabilities, other than time deposits(e)	$	6,716,017	$	6,716,017	$	—	$	6,716,017	$	—	$	7,752,052	$	7,752,052	$	—	$	7,752,052	$	—
Time certificates of deposits(f)	711,103		703,728		—		703,728		—		1,395,315		1,396,760		—		1,396,760		—
Federal Home Loan Bank borrowings(f)	147,806		147,603		—		147,603		—		115,748		115,881		—		115,881		—
Long-term borrowings (f)											74,906		72,219		—		72,219		—
Junior subordinated debentures(g)	76,173		73,827		—		73,827		—		62,848		65,603		—		65,603		—
Subordinated debentures(f)	34,728		32,509		—		—		32,509		49,601		52,870		—		—		52,870


(a)	The fair values presented are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments and/or discounted cash flow analysis.

(b)

Fair value of loans is measured using the exit price valuation method, determined primarily by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows, while incorporating liquidity and credit assumptions. Additionally, this amount excludes 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 12 - REVENUE RECOGNITION

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


1.	Identify the contract(s) with customers


2.	Identify the performance obligations


3.	Determine the transaction price


4.	Allocate the transaction price to the performance obligations


5.	Recognize revenue when (or as) the entity satisfies a performance obligation

The Company has disaggregated its revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The following table presents the revenue streams that the Company has disaggregated as of the periods indicated:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		March 31 2020		March 31 2019
	(Dollars in thousands)								(Dollars in thousands)
Deposit account fees (inclusive of cash management fees)	$	5,080	$	4,551	$	9,486	$	8,982	$	4,970	$	4,406
Interchange fees	4,825		3,919		8,560		7,324		4,104		3,735
ATM fees	856		736		1,522		1,390		639		666
Investment management - wealth management and advisory services	6,423		6,083		12,492		11,665		6,289		6,069
Investment management - retail investments and insurance revenue	730		739		1,409		1,299		540		679
Merchant processing income	324		348		604		779		393		280
Credit card income									183		—
Other noninterest income	1,642		1,060		2,581		2,034		1,212		939
Total noninterest income in-scope of ASC 606	19,880		17,436		36,654		33,473		18,330		16,774
Total noninterest income out-of-scope of ASC 606	8,768		4,451		13,527		8,277		8,105		4,759
Total noninterest income	28,648		21,887		50,181		41,750		$	26,435	$	21,533

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

Deposit Account Fees

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

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

Cash Management

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

Interchange Fees

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

ATM Fees

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

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

Investment Management - Wealth Management and Advisory Services

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

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

June 30, 2019 December 31, 2018
(Dollars in thousands)
Receivables, included in other assets $ 1,964
$ 1,893



	March 31, 2020		December 31, 2019
	(Dollars in thousands)
Receivables, included in other assets	$	1,912	$	2,341

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.

Credit Card Income

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

Other Noninterest Income

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

Safe Deposit Rent

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

1031 Exchange Fee Revenue

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

Foreign Currency

The Company earns fee income associated with various transactions related to foreign currency product offerings, including foreign currency bank notes and drafts and foreign currency wires. The majority of this income is derived from commissions earned related to customers executing the above mentioned foreign currency transactions through arrangements with third party correspondents.

NOTE 13 - OTHER 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 June 30, 2019									Six Months Ended June 30, 2019									Three Months Ended March 31, 2020
	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	$	5,663		$	(1,269	)	$	4,394		$	11,841		$	(2,718	)	$	9,123		$	12,123		$	(2,776	)	$	9,347
Less: net security losses reclassified into other noninterest expense	(1,462		)	411			(1,051		)	(1,462		)	411			(1,051		)	—			—			—
Net change in fair value of securities available for sale	7,125			(1,680		)	5,445			13,303			(3,129		)	10,174			12,123			(2,776		)	9,347

Change in fair value of cash flow hedges	12,349			(3,476		)	8,873			17,345			(4,882		)	12,463			33,567			(9,443		)	24,124
Less: net cash flow hedge gains reclassified into interest income or interest expense	394			(111		)	283			818			(230		)	588			1,586			(446		)	1,140
Net change in fair value of cash flow hedges	11,955			(3,365		)	8,590			16,527			(4,652		)	11,875			31,981			(8,997		)	22,984

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period	(11		)	3			(8		)	(22		)	6			(16		)	(1,389		)	391			(998		)
Amortization of net actuarial gains	(2		)	—			(2		)	(4		)	1			(3		)
Amortization of net actuarial losses																			245			(69		)	176
Amortization of net prior service costs	69			(19		)	50			138			(39		)	99			69			(19		)	50
Net change in other comprehensive income for defined benefit postretirement plans (1)	56			(16		)	40			112			(32		)	80			(1,075		)	303			(772		)
Total other comprehensive income	$	19,136		$	(5,061	)	$	14,075		$	29,942		$	(7,813	)	$	22,129		$	43,029		$	(11,470	)	$	31,559


	Three Months Ended June 30, 2018									Six Months Ended June 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	$	(2,533	)	$	609		$	(1,924	)	$	(9,773	)	$	2,381		$	(7,392	)	$	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	(2,533		)	609			(1,924		)	(9,773		)	2,381			(7,392		)	6,178			(1,449		)	4,729

Change in fair value of cash flow hedges	10			(2		)	8			396			(108		)	288			4,996			(1,406		)	3,590
Less: net cash flow hedge gains reclassified into interest income or interest expense	167			(47		)	120			257			(72		)	185			424			(119		)	305
Net change in fair value of cash flow hedges	(157		)	45			(112		)	139			(36		)	103			4,572			(1,287		)	3,285

Amortization of net actuarial losses	93			(27		)	66			187			(53		)	134
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 costs	69			(18		)	51			138			(38		)	100			69			(20		)	49
Net change in other comprehensive income for defined benefit postretirement plans (1)	162			(45		)	117			325			(91		)	234			56			(16		)	40
Total other comprehensive loss	$	(2,528	)	$	609		$	(1,919	)	$	(9,309	)	$	2,254		$	(7,055	)
Total other comprehensive income																			$	10,806		$	(2,752	)	$	8,054

(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,~~2019, 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)
(Dollars in thousands)
2019
Beginning balance: January 1, 2019 $ (5,947 ) $ 6,148
$ —
$ (1,374 ) $ (1,173 )
Net change in other comprehensive income (loss) 10,174
11,875
—
80
22,129
Ending balance: June 30, 2019 $ 4,227
$ 18,023
$ —
$ (1,294 ) $ 20,956
2018
Beginning balance: January 1, 2018 $ (504 ) $ 948
$ 137
$ (2,412 ) $ (1,831 )
Opening balance reclassification (111 ) 205
29
(520 ) (397 )
Cumulative effect accounting adjustment (831 ) —
—
—
(831 )
Net change in other comprehensive income (loss) (7,392 ) 191
(88 ) 234
(7,055 )
Ending balance: June 30, 2018 $ (8,838 ) $ 1,344
$ 78
$ (2,698 ) $ (10,114 )



	Unrealized Gain (Loss) on Securities			Unrealized Gain on Cash Flow Hedge		Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income (Loss)
	(Dollars in thousands)
	2020
Beginning balance: January 1, 2020	$	4,398		$	16,479	$	(2,708	)	$	18,169
Net change in other comprehensive income (loss)	9,347			22,984		(772		)	31,559
Ending balance: March 31, 2020	$	13,745		$	39,463	$	(3,480	)	$	49,728
	2019
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

~~NOTE 14 - 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 June 30, 2019, the Company has entered into 92 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 1 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. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated.

As of June 30, 2019, the Company had two leases on branch locations 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 $51.5 million at June 30, 2019 and is recognized in the Company's Consolidated Balance Sheet in other assets.~~

~~The following table provides information related to the Company's lease cost.~~

Three Months Ended Six Months Ended
June 30, 2019
(Dollars in thousands)

Operating lease cost $2,825 $4,936
Short-term lease cost 4
43
Variable lease cost —
—
Total lease cost $2,829 $4,979

As of June 30, 2019, the weighted average remaining lease term for operating leases was 6.99 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.99%.

The following table sets forth the undiscounted cash flows of base rent related to operating leases outstanding at June 30, 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 in other liabilities.

(Dollars in thousands)

Remainder of 2019 $ 5,616
2020 10,569
2021 9,487
2022 8,402
2023 6,396
Thereafter 18,799
Total minimum lease payments $ 59,269
Less: amount representing interest 6,162
Present value of future minimum lease payments $ 53,107

NOTE 1514 - COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Company enters into various transactions to meet the financing needs of its customers, which, in accordance with GAAP, are not included in its consolidated balance sheets. These transactions include commitments to extend credit and standby letters of credit, and loans sold with recourse, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.

The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of these commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding.

Standby letters of credit are written conditional commitments issued to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.

The fees collected in connection with the issuance of standby letters of credit are representative of the fair value of the Company's obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees, fees collected in connection with the issuance of standby letters of credit are deferred. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement. The deferred standby letter of credit fees represent the fair value of the Company's potential obligations under the standby letter of credit guarantees.

The following table summarizes the above financial instruments at the dates indicated:


	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
Commitments to extend credit	$	3,156,061	$	2,639,689	$	3,296,926	$	3,337,930
Standby letters of credit	23,091		16,708		20,100		21,565
Deferred standby letter of credit fees	180		122		166		158
Loans sold with recourse					426,342		404,532

Lease Commitments

The Company leases office space, space for ATM locations, and certain branch locations under noncancelable operating leases. Several of these leases contain renewal options to extend lease terms for a period of 1 to 10 years.

There has been no significant change in the future minimum lease payments payable by the Company since December 31, 2019. See the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for information regarding leases and other commitments.

Other Contingencies

At ~~June 30, 2019,~~March 31, 2020, 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~~There was 0 reserve requirement ~~was $124.4 million and $53.5 million~~ at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

NOTE 1615 - LOW INCOME HOUSING PROJECT INVESTMENTS

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

The following table presents certain information related to the Company's investments in low income housing projects as of the dates indicated:


	June 30 2019			December 31 2018		March 31 2020			December 31 2019
	(Dollars in thousands)					(Dollars in thousands)
Original investment value	$	59,750		$	50,232	$	110,669		$	96,275
Current recorded investment	39,240			33,681		84,679			72,510
Unfunded liability obligation	7,811			3,935		43,427			34,967
Tax credits and benefits	6,727		(1)	5,407		11,194		(1)	7,342
Amortization of investments	5,079		(2)	4,377		9,211		(2)	5,645
Net income tax benefit	1,648		(3)	1,030		1,983		(3)	1,696

(1) This amount reflects anticipated tax credits and tax benefits for the full year ended December 31, ~~2019.~~2020.

(2) The amortization amount reduces the tax credits and benefits anticipated for the full year ended December 31, ~~2019.~~2020.

(3) This amount represents the net tax benefit expected to be realized for the full year ended December 31, ~~2019~~2020 in determining the Company's effective tax rate.

NOTE 16 - SUBSEQUENT EVENTS

Subsequent to March 31, 2020 the Company participated in the government-sponsored Payroll Protection Program ("PPP"), helping to deploy stimulus funds to small businesses within the community. As of the filing date, the Company has processed loans, with an aggregate dollar value of $818.9 million. The average and median loan sizes of the PPP loans for which the Company has obtained an SBA guarantee are approximately $160,000 and $41,000, respectively. Additionally, the Company anticipates receiving $25.9 million in process fee income for the loans that have been issued under the PPP, which will be deferred through net interest income over the life of the loans.

Additionally, the Company has been offering needs based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit and monitors loan modification requests daily. These modifications will not be accounted as TDRs if the borrower was in compliance with the terms of their loans as of December 31, 2019. The following table summarizes the loan modification requests through the date of this filing which are anticipated to be approved:



Loan Modification Requests by Loan Category:
	# of Loans	% of Total Loans (#)		Balance as of March 31, 2020		% of Total Loans ($)
				(Dollars in thousands)
Commercial and industrial	308	0.69	%	$	163,889	1.84	%
Commercial real estate	557	1.27	%	967,643		10.86	%
Construction	19	0.04	%	37,811		0.42	%
Small Business	289	0.65	%	21,781		0.24	%
Residential real estate	438	0.99	%	185,530		2.08	%
Home equity	308	0.69	%	44,695		0.50	%
Other consumer	22	0.05	%	559		0.01	%
Total	1,941	4.38	%	$	1,421,908	15.95	%

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, ~~2018,~~2019, 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, ~~2018,~~2019, include, but are not limited to:

afurther 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;~~area, including future weakening caused by the COVID-19 pandemic;

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

unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;

adverse changes or volatility in the local real estate market;

adverse changes in asset quality 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 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;

changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR;

increased competition in the Company’s market area;

~~unanticipated loan delinquencies, loss~~adverse weather, changes in climate, natural disasters, the emergence of ~~collateral, decreased service revenues,~~widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, other ~~potential negative effects~~public health crises or man-made events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business ~~caused by severe weather~~ or ~~other external events;~~results of operations;

a deterioration in the conditions of the securities markets;

a deterioration of the credit rating for U.S. long-term sovereign debt;

inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;

electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;

adverse changes in consumer spending and savings habits;

the ~~inability to realize expected synergies from merger transactions in the amounts or in the timeframes anticipated;~~

~~inability to retain customers and employees, including those acquired in the MNB and BHB 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;~~industry;

changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;

the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;

changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard ~~setters;~~setters including, but not limited to , changes to how the Company accounts for credit losses;

cyber security attacks or intrusions that could adversely impact our businesses; and

other unexpected material adverse changes in ~~our~~ operations or earnings.

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
	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31 2020			December 31 2019			September 30 2019			June 30 2019			March 31 2019
	(Dollars in thousands, except per share data)															(Dollars in thousands, except per share data)
Financial condition data
Securities	$	1,213,253		$	1,083,126		$	1,075,223		$	1,011,577		$	1,002,921		$	1,236,780		$	1,190,670		$	1,192,229		$	1,213,253		$	1,083,126
Loans	8,950,787			6,976,872			6,906,194			6,527,402			6,479,271			8,916,430			8,873,639			8,913,501			8,950,787			6,976,872
Allowance for loan losses	(65,960		)	(65,140		)	(64,293		)	(63,235		)	(62,557		)
Allowance for credit losses																(92,376		)	(67,740		)	(66,942		)	(65,960		)	(65,140		)
Goodwill and other intangible assets	537,896			270,444			271,355			239,185			239,724			533,672			535,492			535,869			537,896			270,444
Total assets	11,603,199			8,997,457			8,851,592			8,375,497			8,381,002			11,980,240			11,395,165			11,538,639			11,603,199			8,997,457
Total deposits	9,307,915			7,463,602			7,427,120			6,976,239			7,013,490			9,416,198			9,147,367			9,326,091			9,307,915			7,463,602
Total borrowings	499,702			308,040			258,707			299,738			300,792			545,985			303,103			292,791			499,702			308,040
Stockholders’ equity	1,636,003			1,104,538			1,073,490			998,305			977,065			1,679,656			1,708,143			1,682,324			1,636,003			1,104,538
Nonperforming loans	45,294			43,331			45,418			45,394			47,112			48,040			48,049			45,702			45,294			43,331
Nonperforming assets	48,183			43,331			45,418			45,584			47,357			48,040			48,049			48,202			48,183			43,331
Income statement
Interest income																$	107,380		$	113,703		$	119,624		$	122,144		$	91,543
Interest expense																13,076			13,710			15,026			16,125			9,018
Net interest income																94,304			99,993			104,598			106,019			82,525
Provision for loan losses																25,000			4,000			—			1,000			1,000
Noninterest income																26,435			33,297			31,816			28,648			21,533
Noninterest expenses																66,840			67,445			67,533			93,032			56,311
Net income																26,751			47,477			51,845			30,628			35,225
Per share data
Net income—basic																$	0.78		$	1.38		$	1.51		$	0.89		$	1.25
Net income—diluted																0.78			1.38			1.51			0.89			1.25
Cash dividends declared																0.46			0.44			0.44			0.44			0.44
Book value per share																50.50			49.69			48.95			47.67			39.26
Tangible book value per share (1)																34.46			34.11			33.36			32.00			29.64
Performance ratios
Return on average assets																0.94		%	1.64		%	1.78		%	1.06		%	1.62		%
Return on average common equity																6.22		%	11.06		%	12.33		%	7.59		%	13.10		%
Net interest margin (on a fully tax equivalent basis)																3.74		%	3.90		%	4.03		%	4.09		%	4.14		%
Equity to assets																14.02		%	14.99		%	14.58		%	14.10		%	12.28		%
Dividend payout ratio																56.54		%	31.85		%	29.13		%	40.42		%	30.29		%
Asset Quality Ratios

Income statement
Interest income $ 122,144
$ 91,543
$ 87,910
$ 82,875
$ 79,167
Interest expense 16,125
9,018
7,618
6,641
5,999
Net interest income 106,019
82,525
80,292
76,234
73,168
Provision for loan losses 1,000
1,000
1,200
1,075
2,000
Noninterest income 28,648
21,533
23,491
23,264
21,887
Noninterest expenses 93,032
56,311
64,391
55,439
52,688
Net income 30,628
35,225
29,934
33,015
31,118
Per share data
Net income—basic $ 0.89
$ 1.25
$ 1.08
$ 1.20
$ 1.13
Net income—diluted 0.89
1.25
1.07
1.20
1.13
Cash dividends declared 0.44
0.44
0.38
0.38
0.38
Book value per share 47.67
39.26
38.23
36.25
35.49
Tangible book value per share (1) 32.00
29.64
28.57
27.56
26.78
Performance ratios
Return on average assets 1.06 % 1.62 % 1.38 % 1.57 % 1.52 %
Return on average common equity 7.59 % 13.10 % 11.49 % 13.19 % 12.85 %
Net interest margin (on a fully tax equivalent basis) 4.09 % 4.14 % 4.05 % 3.94 % 3.89 %
Equity to assets 14.10 % 12.28 % 12.13 % 11.92 % 11.66 %
Dividend payout ratio 40.42 % 30.29 % 34.96 % 31.69 % 33.60 %
Asset Quality Ratios
Nonperforming loans as a percent of gross loans 0.51 % 0.62 % 0.66 % 0.70 % 0.73 %
Nonperforming assets as a percent of total assets 0.42 % 0.48 % 0.51 % 0.54 % 0.57 %
Allowance for loan losses as a percent of total loans 0.74 % 0.93 % 0.93 % 0.97 % 0.97 %
Allowance for loan losses as a percent of nonperforming loans 145.63 % 150.33 % 141.56 % 139.30 % 132.78 %
Capital ratios
Tier 1 leverage capital ratio 10.45 % 10.64 % 10.69 % 10.49 % 10.39 %
Common equity tier 1 capital ratio 12.08 % 12.09 % 11.92 % 11.98 % 11.64 %
Tier 1 risk-based capital ratio 12.75 % 13.11 % 12.99 % 13.07 % 12.73 %
Total risk-based capital ratio 14.42 % 15.28 % 14.45 % 14.58 % 14.24 %



Nonperforming loans as a percent of gross loans	0.54	%	0.54	%	0.51	%	0.51	%	0.62	%
Nonperforming assets as a percent of total assets	0.40	%	0.42	%	0.42	%	0.42	%	0.48	%
Allowance for credit losses as a percent of total loans	1.04	%	0.76	%	0.75	%	0.74	%	0.93	%
Allowance for credit losses as a percent of nonperforming loans	192.29	%	140.98	%	146.47	%	145.63	%	150.33	%
Capital ratios
Tier 1 leverage capital ratio	10.74	%	11.28	%	10.83	%	10.45	%	10.64	%
Common equity tier 1 capital ratio	11.95	%	12.86	%	12.52	%	12.08	%	12.09	%
Tier 1 risk-based capital ratio	12.60	%	13.53	%	13.19	%	12.75	%	13.11	%
Total risk-based capital ratio	14.13	%	14.83	%	14.88	%	14.42	%	15.28	%


(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 results for the first quarter of 2020 were significantly impacted by $25.0 million of loan provision expense. Assumptions regarding the impact of the novel coronavirus ("COVID-19") pandemic were the primary driver of the size of the credit loss allowance. The full macroeconomic impacts of the pandemic remain unknown and are continuing to unfold, however the social distancing restrictions that have been put in place for public safety have led to a decline in consumer spending, and historically high levels of unemployment, as workplaces have been forced to shut down or severely limit operations. The duration of these restrictions is unknown, therefore the Company is ~~focused~~not able to provide any assurances that the Company’s earnings, asset quality, regulatory capital ratios and economic condition will not be materially adversely impacted on ~~organic growth, but will also consider acquisition opportunities that can provide~~ a ~~satisfactory financial return, including~~short term or long term basis.

The Company has been and continues to remain committed to supporting and working with its customers as they navigate these unprecedented times. The Company has instituted a moratorium on foreclosures and has offered a variety of relief measures to its customers consistent with prudent banking principles and regulatory guidance. These relief measures may include: temporary deferrals of loan payments, waiving certain fees and permitting customers easier access to their deposits. Additionally, the ~~recent acquisition of MNB Bancorp ("MNB")~~Company is participating in the ~~fourth quarter~~government-sponsored Paycheck Protection Program ("PPP") loan program designed to help deploy stimulus funds to businesses within the community. The Company’s charitable foundations have engaged and will continue to engage in outreach to local communities during this difficult time and have committed funds to be made available to key nonprofits with urgent needs, such as local food banks.

From a capital standpoint, the Company has deployed stress-testing scenarios incorporating adverse assumptions specific to the current environment. Management will continue to use the results of ~~2018~~these scenarios to guide the ongoing management of capital. Additionally, while the aforementioned modifications and ~~Blue Hills Bancorp ("BHB") in~~PPP loans will put a temporary strain on the ~~second quarter~~Company's liquidity, management believes that there is sufficient sources of ~~2019.~~available liquidity through various existing channels primarily through the Federal Home Loan Bank and the Federal Reserve. While management is unable to know with certainty the direct, indirect, and future impacts of the COVID-19 pandemic or the extent of those impacts, management will continue to monitor the impacts of COVID-19 diligently.

Interest-Earning Assets

Management’s asset strategy typically emphasizes loan growth, primarily in the commercial and home equity portfolios. The results depicted in the following table reflect ~~an overall increase in total loans~~the trend of the Company's interest-earning assets over the past five ~~quarters due to the results of that strategy, as well as the impact from acquisitions.~~quarters. For the ~~second~~first quarter of ~~2019,~~2020, the ~~Company's loan growth~~increase in interest-earning assets was driven primarily by an increase in cash balances, reflecting the ~~BHB acquisition.~~Company's proactive approach to increasing on-balance sheet liquidity.

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

Funding and Net Interest Margin

The Company's overall sources of funding reflect strong business and retail deposit growth with a management emphasis over core deposit growth to fund loans. However, during the first quarter of 2020, the Company increased its borrowings as part of its overall liquidity management within this uncertain environment. The following chart shows the sources of funding and the percentage of core deposits to total deposits for the trailing five ~~quarters, with the second quarter 2019 results reflecting the increased percentage of time deposits as a result of the BHB acquisition:~~quarters:

As of ~~June 30, 2019,~~March 31, 2020, core deposits comprised ~~82.93%~~82.62% of total ~~deposits.~~deposits, which is lower than the year ago period due to the acquisition of the time deposit base of Blue Hills Bancorp, Inc., parent of Blue Hills Bank (collectively "BHB"). The cost of deposits for the ~~2019 second~~first quarter ~~was 0.49%~~remained at 0.48%, ~~an increase of 10 basis points~~ when compared to the ~~first~~fourth quarter of ~~2019, and the~~2019. The Company's net interest margin was ~~4.09%~~3.74% for the quarter ended ~~June 30, 2019,~~March 31, 2020, a ~~five~~sixteen basis point decrease from the ~~first~~fourth quarter of 2019, ~~both reflective of the higher cost funding base assumed in the BHB acquisition.~~which was driven primarily by reduced purchase accounting loan accretion and lower asset yields linked to Federal Reserve Rate cuts.

Noninterest Income

Management continues to focus on noninterest income, 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:

Expense Control

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

*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~~make 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 ~~second~~first quarter of ~~2019,~~2020, the Company’s effective tax rate was ~~24.63%~~7.43%, compared to ~~24.65%~~23.23% at ~~March~~December 31, 2019. The tax rate for the quarter includes a $4.7 million discrete tax benefit recognized in the quarter associated with revised net operating loss (NOL) carryback provisions included in the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act").

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~~growth, which in turn contributes to capital ~~growth, both~~growth. During the first quarter of 2020, the Company executed on its previously announced stock repurchase plan for 1.5 million shares, repurchasing 1.2 million shares of common stock, at a $73.2 million cost. The Company repurchased the remaining 300,000 shares in early April, completing the repurchase of all 1.5 million shares under the plan at an ~~absolute level and per~~average share ~~basis.~~ price of $63.39.The following chart shows the Company's book value and tangible book value per share over the past five quarters (see "Non-GAAP Measures" below for a reconciliation of non-GAAP measures):

*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 ~~$0.44~~$0.46 per share for the first ~~two quarters~~quarter of ~~2019,~~2020, representing an increase of ~~15.8%~~4.5% from the ~~2018~~2019 quarterly dividend rate of ~~$0.38~~$0.44 per share.

~~Second~~First Quarter ~~2019~~2020 Results

Net income for the ~~second~~first quarter of ~~2019~~2020 was ~~$30.6~~$26.8 million, or ~~$0.89~~$0.78 on a diluted earnings per share basis, and decreased ~~1.6%~~24.1% and ~~21.2%~~37.6%, respectively, as compared to ~~$31.1~~$35.2 million, or ~~$1.13~~$1.25 on a diluted earnings per share basis, for the prior year ~~second~~first quarter. The ~~second~~first quarter of 2019 included gain on the sale of loans and merger and acquisition costs which the Company deems to be noncore. Excluding ~~these~~the gain on the sale of loans and merger and acquisition expenses, ~~second~~first quarter 2019 operating net income ~~was $48.8 million compared to~~$36.7 million. There were no such operating ~~net income from~~items for the ~~second~~first quarter of ~~2018 of $31.4 million, an increase of 55.2%.~~2020. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures.

~~2019~~2020 Outlook

During the Company’s ~~second~~first quarter ~~2019~~2020 earnings call, the Company's Chief Financial Officer stated that ~~he anticipates~~given the ~~following for~~profound uncertainty as to the ~~remainder of 2019:~~economic outlook and customer impacts, the Company can not confidently provide comprehensive forward looking guidance, however some near-term insights into a few key areas are as follows:

~~With a continued focus on~~The Company ~~liquidity, along with pricing competition and additional expected runoff on~~estimates the ~~acquired portfolios, overall loan growth is anticipated to be in the flat to low single digit range for the rest of the year;~~

~~Deposits are expected to grow in the low single digit range for the rest of the year;~~

~~Assuming no Federal Reserve rate changes,~~near term core net interest margin ~~is anticipated~~to compress further, assuming the following:

Full impact of the March 2020 Federal Reserve interest rate cuts to be inpartially offset by deposit rate adjustments, consistent with previous guidance;

No further adjustment to the ~~high 3.9% range, assuming normalized loan~~Federal Reserve target interest rate range;

Further compression of the one-month London Interbank Offered Rate ("LIBOR") index throughout the quarter;

Loan accretion ~~levels. However,~~income to be fairly consistent with Q1 level but below last quarter guidance of $2.0 - $2.5 million per quarter;

The Company's balance sheet cash position consistent with first quarter levels, and;

Omission of the impact from the Paycheck Protection Program ("PPP") loan program given the uncertainty over how much volume will qualify for debt forgiveness and trigger acceleration of ~~loan payoff activity can provide for upside potential in any given quarter;~~the processing fee income versus how much will be retained on the balance sheet to be repaid over the two year term.

~~Non-interest income in the third quarter is expected~~Overall expenses to remain relatively consistent with ~~second~~first quarter ~~results as demand over mortgage banking is anticipated~~results.

Tax rate to ~~remain strong into early fall, combined with decreases from non-recurring items realized~~normalize back to approximately 25%.

Loan provision levels for the first quarter addressed the harsh impact of the COVID-19 pandemic. The provision for loan losses in the ~~second quarter being offset by an anticipated gain on the pending deleverage residential sale. With no anticipated non-recurring gains and mortgage demand expected to wane~~coming quarters will be highly correlated with any further deterioration of economic factors in excess of those used in the ~~fourth quarter of 2019, non-interest income is anticipated to decrease~~March 2020 assumptions as well as any increase in perceived loss exposure inherent in the ~~mid-single digit range~~Company's portfolio.

Due to the impacts of the COVID-19 pandemic, the Company's prior outlook and expectations for 2020 included in the ~~fourth quarter when compared to third quarter estimates;~~

~~With no further transitionary costs~~Company's 2019 year-end earnings release and ~~full BHB cost save expectations to~~in its 2019 Annual Report on Form 10-K for the year ended December 31, 2019 has been withdrawn and should not be ~~realized in the third quarter, quarterly non-interest expense is expected to decrease in the low to mid-single digit range compared to operating second quarter results;~~

~~No near term credit concerns, however, eventual deterioration of the loan portfolio is likely;~~

~~Effective tax rate of approximately 25%.~~relied upon.

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 tables that follow. There are items that impact the Company's results that management believes are unrelated to its core banking business such as merger and acquisition expenses and other items. Management, therefore, computes certain non-GAAP measures including net operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis, which exclude items management considers to be noncore. Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items.

Management also supplements its evaluation of financial performance with analyses of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or "tangible common equity", by common shares outstanding) and the tangible common equity ratio (which is computed by dividing tangible common equity by "tangible assets", defined as total assets less goodwill and other intangibles). The Company has included information on tangible book value per share and the tangible common equity ratio because management believes that investors may find it useful to have access to the same analytical tools used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, provides a framework to compare the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating earnings, operating EPS, operating return on average assets, operating return on average equity, tangible book value per share and the tangible common equity ratio, are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.

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


	Three Months Ended June 30											Three Months Ended March 31
	Net Income						Diluted Earnings Per Share					Net Income					Diluted Earnings Per Share
	2019			2018			2019			2018		2020		2019			2020		2019
	(Dollars in thousands, except per share data)											(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)	$	30,628		$	31,118		$	0.89		$	1.13	$	26,751	$	35,225		$	0.78	$	1.25
Non-GAAP adjustments
Noninterest expense components
Merger and acquisition expenses	24,696			434			0.72			0.01		—		1,032			—		0.04
Total impact of noncore items	24,696			434			0.72			0.01
Less -net tax benefit associated with noncore items (1)	(6,560		)	(122		)	(0.19		)	—
Noncore items, net of tax	$	18,136		$	312		$	0.53		$	0.01
Noncore increases to income before taxes												—		1,032			—		0.04
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 increases to net income												$	—	$	1,484		$	—	$	0.05
Operating net income (Non-GAAP)	$	48,764		$	31,430		$	1.42		$	1.14	$	26,751	$	36,709		$	0.78	$	1.30

	Six Months Ended June 30
	Net Income						Diluted Earnings Per Share
	2019			2018			2019			2018
	(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)	$	65,853		$	58,673		$	2.11		$	2.13
Non-GAAP adjustments
Noninterest expense components
Merger and acquisition expenses	25,728			434			0.82			0.01
Total impact of noncore items	25,728			434			0.82			0.01
Less -net tax benefit associated with noncore items (1)	(6,758		)	(122		)	(0.22		)	—
Add - adjustment for tax effect of previously incurred merger and acquisition expenses	650			—			0.02			—
Noncore items, net of tax	$	19,620		$	312		$	0.62		$	0.01
Operating net income (Non-GAAP)	$	85,473		$	58,985		$	2.73		$	2.14


(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
	June 30 2019			March 31 2019			December 31 2018			September 30 2018			June 30 2018				March 31 2020			December 31 2019			September 30 2019			June 30 2019			March 31 2019
	(Dollars in thousands)																(Dollars in thousands)
Net interest income (GAAP)	$	106,019		$	82,525		$	80,292		$	76,234		$	73,168		(a)	$	94,304		$	99,993		$	104,598		$	106,019		$	82,525		(a)

Noninterest income (GAAP)	$	28,648		$	21,533		$	23,491		$	23,264		$	21,887		(b)	$	26,435		$	33,297		$	31,816		$	28,648		$	21,533		(b)
Noninterest income on an operating basis (Non-GAAP)*	$	28,648		$	21,533		$	23,491		$	23,264		$	21,887		(c)
Less:
Gain on sale of loans																	—			—			951			—			—
Noninterest income on an operating basis (Non-GAAP)																	$	26,435		$	33,297		$	30,865		$	28,648		$	21,533		(c)

Noninterest expense (GAAP)	$	93,032		$	56,311		$	64,391		$	55,439		$	52,688		(d)	$	66,840		$	67,445		$	67,533		$	93,032		$	56,311		(d)
Less:
Merger and acquisition expense	24,696			1,032			8,046			2,688			434				—			—			705			24,696			1,032
Noninterest expense on an operating basis (Non-GAAP)	$	68,336		$	55,279		$	56,345		$	52,751		$	52,254		(e)	$	66,840		$	67,445		$	66,828		$	68,336		$	55,279		(e)

Total revenue (GAAP)	$	134,667		$	104,058		$	103,783		$	99,498		$	95,055		(a+b)	$	120,739		$	133,290		$	136,414		$	134,667		$	104,058		(a+b)
Total operating revenue (Non-GAAP)*	$	134,667		$	104,058		$	103,783		$	99,498		$	95,055		(a+c)	$	120,739		$	133,290		$	135,463		$	134,667		$	104,058		(a+c)

Ratios
Noninterest income as a % of revenue (GAAP based)	21.27		%	20.69		%	22.63		%	23.38		%	23.03		%	(b/(a+b))	21.89		%	24.98		%	23.32		%	21.27		%	20.69		%	(b/(a+b))
Noninterest income as a % of revenue on an operating basis (Non-GAAP)*	21.27		%	20.69		%	22.63		%	23.38		%	23.03		%	(c/(a+c))	21.89		%	24.98		%	22.78		%	21.27		%	20.69		%	(c/(a+c))
Efficiency ratio (GAAP based)	69.08		%	54.12		%	62.04		%	55.72		%	55.43		%	(d/(a+b))	55.36		%	50.60		%	49.51		%	69.08		%	54.12		%	(d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP)	50.74		%	53.12		%	54.29		%	53.02		%	54.97		%	(e/(a+c))	55.36		%	50.60		%	49.33		%	50.74		%	53.12		%	(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:


	June 30, 2019			March 31 2019			December 31 2018			September 30 2018			June 30, 2018				March 31 2020			December 31 2019			September 30 2019			June 30 2019			March 31 2019
	(Dollars in thousands, except per share data)																(Dollars in thousands, except per share data)
Tangible common equity
Stockholders' equity (GAAP)	$	1,636,003		$	1,104,538		$	1,073,490		$	998,305		$	977,065		(a)	$	1,679,656		$	1,708,143		$	1,682,324		$	1,636,003		$	1,104,538		(a)
Less: Goodwill and other intangibles	537,896			270,444			271,355			239,185			239,724				533,672			535,492			535,869			537,896			270,444
Tangible common equity (Non-GAAP)	1,098,107			834,094			802,135			759,120			737,341			(b)	1,145,984			1,172,651			1,146,455			1,098,107			834,094			(b)
Tangible assets
Assets (GAAP)	11,603,199			8,997,457			8,851,592			8,375,498			8,381,002			(c)	11,980,240			11,395,165			11,538,639			11,603,199			8,997,457			(c)
Less: Goodwill and other intangibles	537,896			270,444			271,355			239,185			239,724				533,672			535,492			535,869			537,896			270,444
Tangible assets (Non-GAAP)	$	11,065,303		$	8,727,013		$	8,580,237		$	8,136,313		$	8,141,278		(d)	$	11,446,568		$	10,859,673		$	11,002,770		$	11,065,303		$	8,727,013		(d)
Common shares	34,321,061			28,137,504			28,080,408			27,540,843			27,532,524			(e)	33,260,005			34,377,388			34,366,781			34,321,061			28,137,504			(e)

Common equity to assets ratio (GAAP)	14.10		%	12.28		%	12.13		%	11.92		%	11.66		%	(a/c)	14.02		%	14.99		%	14.58		%	14.10		%	12.28		%	(a/c)
Tangible common equity to tangible assets ratio (Non-GAAP)	9.92		%	9.56		%	9.35		%	9.33		%	9.06		%	(b/d)	10.01		%	10.80		%	10.42		%	9.92		%	9.56		%	(b/d)
Book value per share (GAAP)	$	47.67		$	39.26		$	38.23		$	36.25		$	35.49		(a/e)	$	50.50		$	49.69		$	48.95		$	47.67		$	39.26		(a/e)
Tangible book value per share (Non-GAAP)	$	32.00		$	29.64		$	28.57		$	27.56		$	26.78		(b/e)	$	34.46		$	34.11		$	33.36		$	32.00		$	29.64		(b/e)

Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.

There have been no material changes in critical accounting policies during the first ~~six~~three months of ~~2019.~~ 2020 aside from the adoption of the CECL accounting standard effective January 1, 2020. The Company's critical accounting policy for the Allowance for Credit Losses is as follows:

Allowance for Credit Losses The Company’s allowance for credit losses provides for probable losses based upon current expected credit losses within the loan and securities portfolios. Arriving at an appropriate amount of allowance for credit losses involves a high degree of judgment.

For loans, the company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. The quantitative model utilizes a factor based approach to estimate expected credit losses using a Probability of Default ("PD"), Loss Given Default ("LGD") and Exposure at Default ("EAD"), which are derived from internal historical default and loss experience. Management’s judgment is based upon its assessment of PD, LGD, and EAD. Changes in these estimates could be due to a number of circumstances which may have a direct impact on the provision for credit losses and may result in changes to the amount of allowance. The allowance is determined based upon the application of the Company’s methodology for assessing the adequacy of the allowance for credit losses, which considers historical and expected loss factors, loan portfolio composition and other relevant indicators. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the Company's historical long-run average. This methodology involves management’s judgment regarding the application and use of such factors, including the effects of changes to the prevailing economic environment in its estimate of the required amounts of allowance. Additionally, the model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments, which is subject to management's judgment based on analysis to determine the appropriate level of assumed prepayments.

Loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company will use either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach will

be used for loans deemed to be collateral dependent or when foreclosure is probable. The allowance is increased by provisions for credit losses and by recoveries of loans previously charged-off and is reduced by loans charged-off. For additional discussion of the Company’s methodology of assessing the adequacy of the allowance for credit losses, see Note 4, "Loans, Allowance for Credit Losses and Credit Quality" within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.

For held-to-maturity securities, the Company measures expected credit losses on a collective basis by major security type. Management classifies the held-to maturity portfolio into the following major security types: U.S. Government Agency, U.S. Treasury, Agency Mortgage-Backed Securities, Agency Collateralized Mortgage Obligations, Small Business Administration Pooled Securities, and Single Issuer Trust Preferred Securities. Securities in the Company's held to maturity portfolio are guaranteed by either the U.S. Federal Government or other government sponsored agencies with a long history of no credit losses. As a result, management has determined these securities to have a zero loss expectation and therefore does not estimate an allowance for credit losses on these securities.

For available-for-sale securities, the Company reviews any holdings in an unrealized loss position, management will first evaluate whether there is intent to sell, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis. If either of these criteria are met, the Company will record a write-down of the security's amortized cost basis to fair value through income. For those available for sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, Management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S. Federal Government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings.

For additional discussion of the Company’s methodology of assessing the adequacy of the allowance for credit losses for its security portfolios, see Note 3, "Securities" within 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, ~~2018~~2019 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 ~~$138.0~~$46.1 million, or ~~12.8%~~3.9%, at ~~June 30, 2019~~March 31, 2020 as compared to December 31, ~~2018, reflecting the $196.9~~2019, reflecting $113.8 million ~~in securities included in the BHB acquisition and additional~~of purchases ~~of $51.6 million made during the six month period, partially~~ offset by paydowns, ~~on existing~~called securities, and ~~the sale of approximately $47.3 million of acquired BHB mortgage backed securities.~~maturities. The ratio of securities to total assets was ~~10.46%~~10.32% and ~~12.15%~~10.45% at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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~~expected credit losses on securities can be found in Note 43 “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 ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company 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 minimal losses during the three month periods ended March 31, 2020 and no losses during the three ~~and six~~ month ~~periods~~period ended ~~June 30,~~March 31, 2019 ~~and June 30, 2018~~ related to ~~these activities.~~mortgage repurchases. Additionally, the Company sold residential loans with recourse totaling $35.3 million during the period ended March 31, 2020 and sold no such loans during the period ended March 31, 2019.

The following table shows the total residential loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market during the periods indicated:

Table 1 - Closed Residential Real Estate Loans


	Three Months Ended June 30				Six Months Ended June 30				Three Months Ended March 31
	2019		2018		2019		2018		2020		2019
	(Dollars in thousands)								(Dollars in thousands)
Held in portfolio	$	58,323	$	41,770	$	89,523	$	80,586	$	37,337	$	31,200
Sold or held for sale in the secondary market	179,705		45,851		218,563		83,942		169,253		38,858
Total closed loans	$	238,028	$	87,621	$	308,086	$	164,528	$	206,590	$	70,058

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

Table 2 - Residential Mortgage Loan Sales


	Three Months Ended June 30				Six Months Ended June 30				Three Months Ended March 31
	2019		2018		2019		2018		2020		2019
	(Dollars in thousands)								(Dollars in thousands)
Sold with servicing rights released	$	125,186	$	40,242	$	164,894	$	79,138	$	121,784	$	39,708
Sold with servicing rights retained	23,636		—		23,636		—		35,331		—
Total loans sold	$	148,822	$	40,242	$	188,530	$	79,138	$	157,115	$	39,708

When a loan is sold, the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneous with the sale of the loan, or the Company may ~~have~~ opt to sell the loan and retain the servicing. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the consolidated balance sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment

no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was ~~$567.2~~$610.4 million, ~~$240.2~~$656.4 million and ~~$256.9~~$234.1 million at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018,~~2019, and ~~June 30, 2018,~~March 31, 2019, respectively.

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

Table 3 - Mortgage Servicing Asset


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended March 31
	2019			2018			2019			2018			2020			2019
	(Dollars in thousands)												(Dollars in thousands)
Balance at beginning of period	$	1,374		$	1,632		$	1,445		$	1,697		$	5,116		$	1,445
Additions	213			—			213			—			333			—
Acquired portfolio	3,198			—			3,198			—
Amortization	(197		)	(76		)	(268		)	(159		)	(284		)	(71		)
Change in valuation allowance	(1		)	3			(1		)	21			(661		)	—
Balance at end of period	$	4,587		$	1,559		$	4,587		$	1,559		$	4,504		$	1,374

Forward sale loan commitments 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 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, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments. See Note 9, “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 ~~$2.0 billion~~$42.8 million during the first ~~six~~three months of ~~2019.~~2020. The overall increase ~~and movement of~~was the ~~loan portfolio balances were the net~~ result of a variety of factors, including the addition of BHB loans acquired, a transfer of loans to held for sale, expected runoff in certain BHB loan segments, and growth in legacy portfolios. Strong organic growthstrong closings in the commercial ~~construction portfolio of 13.1%~~real estate and ~~the~~ commercial and industrial ~~portfolio of 4.4% was~~portfolios, partially offset by ~~decreases~~a decline in ~~all other commercial loan categories,~~the construction portfolio. The consumer portfolio decreased as ~~anticipated payoffs, primarily within~~compared to the ~~acquired portfolios, outpaced new originations during~~linked quarter, as the ~~first six months~~Company continues to sell a majority of ~~2019.~~its residential production into the secondary market, while home equity lending increased slightly.

~~The following table summarizes loan growth/decline during the periods indicated:~~

Table 4 - Components of Loan Growth/(Decline)
June 30
2019 December 31
2018 Blue Hills Acquisition Reclass to LHFS (1) Organic Growth/(Decline) Organic Growth/ (Decline) %
(Dollars in thousands)
Commercial and industrial $ 1,400,924
$ 1,093,629
$ 259,592
$ —
$ 47,703
4.36 %
Commercial real estate 4,058,066
3,251,248
838,018
—
(31,200 ) (0.96 )%
Commercial construction 491,598
365,165
78,609
—
47,824
13.10 %
Small business 173,927
164,676
13,851
—
(4,600 ) (2.79 )%
Total commercial 6,124,515
4,874,718
1,190,070
—
59,727
1.23 %
Residential real estate 1,655,182
923,294
807,154
85,986
10,720
1.16 %
Home equity 1,144,499
1,092,084
64,299
—
(11,884 ) (1.09 )%
Total consumer real estate 2,799,681
2,015,378
871,453
85,986
(1,164 ) (0.06 )%
Total other consumer 26,591
16,098
12,191
—
(1,698 ) (10.55 )%
Total loans $ 8,950,787
$ 6,906,194
$ 2,073,714
$ 85,986
$ 56,865
0.82 %


~~(1)~~	At June 30, 2019 the Company transferred $86.0 million of residential loans as held for sale, primarily comprised of acquired BHB loans. The table above adjusts for the amounts transferred to arrive at the organic growth/(decline) prior to the transfer.

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 ~~June 30, 2019:~~March 31, 2020:


	(Dollars in thousands)			(Dollars in thousands)
Average loan size	$	320
Average loan size (excluding floor plan tranches)				$	329
Largest individual commercial and industrial loan outstanding	$	29,021		$	24,829
Commercial and industrial nonperforming loans/commercial and industrial loans	1.78		%	1.48		%

The Company’s commercial real estate loan portfolio, inclusive of commercial construction, is the Company’s largest loan type concentration. The Company believes that this portfolio is also well-diversified with loans secured by a variety of property types, such as owner-occupied and nonowner-occupied commercial, retail, office, industrial, warehouse, and other special purpose properties, such as hotels, motels, nursing homes, restaurants, churches, recreational facilities, marinas, and golf courses. Commercial real estate also includes loans secured by certain residential-related property types including multi-family apartment buildings, residential development tracts and condominiums. The following pie chart shows the diversification of the commercial real estate loan portfolio as of ~~June 30, 2019:~~March 31, 2020:


	(Dollars in thousands)			(Dollars in thousands)
Average loan size	$	1,019		$	1,067
Largest individual commercial real estate mortgage outstanding	$	32,000		$	32,000
Commercial real estate nonperforming loans/commercial real estate loans	0.02		%	0.11		%
Owner occupied commercial real estate loans/commercial real estate loans	14.7		%	14.6		%

~~In addition to the commercial portfolios, the Company also originates~~

The Company's consumer portfolio consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area. The Company also provides home equity loans and lines that may be made as a fixed rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home. Additionally, the Company makes loans for a wide variety of other personal needs. ~~Consumer~~Other consumer loans primarily consist of installment loans and overdraft protections. The residential, home equity and other consumer portfolios totaled ~~$2.8~~$2.7 billion at ~~June 30, 2019.~~March 31, 2020, as noted below:

Asset Quality The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, ~~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~~credit losses.

Troubled Debt Restructurings In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default. Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.

It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or 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~~Deteriorated Loans Purchased Credit ~~Impaired (“PCI”~~Deteriorated ("PCD") loans are acquired loans which ~~had evidence of~~have shown a more-than-insignificant deterioration in credit quality ~~at the purchase date and for which it is probable that all contractually required payments will not be collected. PCI~~since origination. PCD loans are recorded at ~~fair value without any carryover of the~~amortized cost with an allowance for ~~loan losses. The excess cash flows expected to be collected over the carrying amount of the loans, referred to~~credit losses recorded upon purchase, as ~~the "accretable yield," is accreted into interest income over the life of the loans using the effective yield method. Accordingly, PCI~~appropriate. PCD loans are not subject to the same 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 5,"Loans, Allowance for Loan Losses, and Credit Quality"~~ ~~within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for more information.~~loans.

Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate ~~owned (“OREO”).~~owned. 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 54 - Nonperforming Assets


	June 30, 2019			December 31, 2018			June 30, 2018			March 31 2020			December 31 2019			March 31 2019
	(Dollars in thousands)									(Dollars in thousands)
Loans accounted for on a nonaccrual basis
Commercial and industrial	$	24,895		$	26,310		$	30,095		$	21,435		$	22,574		$	25,879
Commercial real estate	833			3,326			3,110			4,949			3,016			1,539
Small business	168			235			384			450			311			180
Residential real estate	9,986			8,251			7,612			14,502			13,360			8,517
Home equity	6,973			7,278			5,861			6,571			6,570			7,202
Other consumer	111			13			36			108			61			9
Total (1)	$	42,966		$	45,413		$	47,098		$	48,015		$	45,892		$	43,326
Loans past due 90 days or more but still accruing
Commercial real estate (2)										—			218			—
Residential real estate (2)	1,776			—			—			—			1,652			—
Home equity (2)	541			—			—			—			265			—
Other consumer	11			5			14			25			22			5
Total	$	2,328		$	5		$	14		$	25		$	2,157		$	5
Total nonperforming loans	$	45,294		$	45,418		$	47,112		$	48,040		$	48,049		$	43,331
Other real estate owned	2,889			—			245			—			—			—
Total nonperforming assets	$	48,183		$	45,418		$	47,357		$	48,040		$	48,049		$	43,331
Nonperforming loans as a percent of gross loans	0.51		%	0.66		%	0.73		%	0.54		%	0.54		%	0.62		%
Nonperforming assets as a percent of total assets	0.42		%	0.51		%	0.57		%	0.40		%	0.42		%	0.48		%


(1)	Inclusive of TDRs on nonaccrual status of ~~$27.8~~$23.8 million, ~~$29.3~~$24.8 million, and ~~$4.1~~$28.9 million at ~~June 30, 2019,~~March 31, 2020, December 31, ~~2018,~~2019, and ~~June 30, 2018,~~March 31, 2019, respectively.


(2)	Represents purchased credit impaired loans that ~~are~~were accruing interest due to expectation of future cash collections.

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

Table 65 - Activity in Nonperforming Assets


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			March 31 2020			March 31 2019
	(Dollars in thousands)												(Dollars in thousands)
Nonperforming assets beginning balance	$	43,331		$	48,071		$	45,418		$	50,250		$	48,049		$	45,418
New to nonperforming	4,801			3,642			6,658			5,643			6,515			1,857
Acquired nonperforming loans	2,317			—			2,317			—
Loans charged-off	(472		)	(568		)	(1,031		)	(1,162		)	(734		)	(559		)
Loans paid-off	(3,289		)	(2,209		)	(6,460		)	(4,901		)	(5,079		)	(3,171		)
Loans restored to performing status	(1,266		)	(1,490		)	(1,498		)	(2,180		)	(561		)	(232		)
Acquired other real estate owned	2,818			—			2,818			—
Sale of other real estate owned	—			—			—			(254		)
Other	(57		)	(89		)	(39		)	(39		)	(150		)	18
Nonperforming assets ending balance	$	48,183		$	47,357		$	48,183		$	47,357		$	48,040		$	43,331

The following table sets forth information regarding troubled debt restructured loans as of the dates indicated:

Table 76 - Troubled Debt Restructurings


	June 30, 2019			December 31, 2018			June 30, 2018			March 31 2020			December 31 2019			March 31 2019
	(Dollars in thousands)									(Dollars in thousands)
Performing troubled debt restructurings	$	22,423		$	23,849		$	25,528		$	18,129		$	19,599		$	23,053
Nonaccrual troubled debt restructurings ~~(1)~~	27,841			29,348			4,095			23,842			24,766			28,908
Total	$	50,264		$	53,197		$	29,623		$	41,971		$	44,365		$	51,961
Performing troubled debt restructurings as a % of total loans	0.25		%	0.35		%	0.39		%	0.20		%	0.22		%	0.33		%
Nonaccrual troubled debt restructurings as a % of total loans	0.31		%	0.42		%	0.06		%	0.27		%	0.28		%	0.41		%
Total troubled debt restructurings as a % of total loans	0.56		%	0.77		%	0.46		%	0.47		%	0.50		%	0.74		%

(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

In addition, the Company has been offering needs based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to ~~deem loans associated~~the COVID-19 pandemic. These modifications will not be accounted as TDRs if the borrower was in compliance with the ~~customer~~terms of their loans as ~~troubled debt restructured loans.~~

of December 31, 2020. For further information regarding these modifications see Note 16, "Subsequent Events" within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof .

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

Table 87 - Activity in Troubled Debt Restructurings


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30 2019			June 30 2018			June 30 2019			June 30 2018			March 31 2020			March 31 2019
	(Dollars in thousands)												(Dollars in thousands)
TDRs beginning balance	$	51,961		$	31,254		$	53,197		$	31,919		$	44,365		$	53,197
New to TDR status	107			378			332			613			185			225
Paydowns	(1,804		)	(1,815		)	(3,265		)	(2,660		)	(2,601		)	(1,461		)
Charge-offs	—			(194		)	—			(249		)	22			—
TDRs ending balance	$	50,264		$	29,623		$	50,264		$	29,623		$	41,971		$	51,961

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 98 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings

Three Months Ended Six Months Ended
2019 2018 2019 2018
(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 $ 727
$ 632
$ 1,292
$ 1,268
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income $ 808
$ 544
$ 1,630
$ 928

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.



	Three Months Ended
	March 31 2020		March 31 2019
	(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	$	709	$	565
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income	$	1,041	$	1,271

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 June 30, 2019 and December 31, 2018 were $54.2 million and $59.1 million, respectively. For additional information regarding the Company’s asset quality, including delinquent loans, nonaccruals, TDRs, and impaired loans, see ~~Note 5, “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 ~~June 30, 2019,~~March 31, 2020, there were 62110 relationships, with an aggregate balance of ~~$74.2~~$186.0 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.

In addition and as a result of the COVID-19 pandemic, management has also enhanced monitoring of loan portfolios in certain industries considered to be at an elevated "at risk". While management is unable to predict the full impact of all industries affected by the pandemic, there are assumptions as to which industries will be more impacted due to social distancing and other measures put in place, as well as the duration of these restrictions. Management has identified approximately $1.7 billion of loans within potentially highly impacted industries, such as Accommodations, Food Services, Retail Trade, Health Care & Social Assistance, Other Services (except Public Administration), Arts, Entertainments & Recreation, Transportation & Warehousing, as well as Educational Services. Loss exposure within these industries is mitigated by a number of factors such as collateral values, loan-to-value ratios, and other key indicators, however, some degree of credit loss is expected and has been incorporated into the first quarter allowance for loan loss recognition under the CECL model.

The table below provides total outstanding balances of commercial loans as of March 31, 2020 within industries that could potentially be more impacted by the COVID-19 pandemic:

Table 9 - Potentially Impacted COVID-19 Industries



	Balance		% of total Loans		% Secured by Real Estate		Additional commentary:
(Dollars in thousands)
Accommodation	$	411,384	4.6	%	98.0	%	The accommodation portfolio consists of 70 properties representing a combination of flagged (60%) and non-flagged hotels, motels and inns (40%). Approximately 90% of the balances outstanding are secured by properties located within New England states with the largest concentration in Massachusetts (61%). The average borrower loan size is $4.1 million and the portfolio balance weighted average loan-to-value is 54.8%.
Food Services	155,415		1.7	%	61.3	%	The food services portfolio includes full-service restaurants (67%), limited service restaurants including fast food (30%) and other types of food service (caterers, bars, mobile food service, 3%). The average borrower loan size is approximately $388 thousand and approximately 61% of the loan balances outstanding are secured by real estate assets with a portfolio balance weighted average loan-to-value of 46.7%.
Retail Trade	526,711		5.9	%	43.1	%	The Retail Trade portfolio consists broadly of food and beverage stores (39%), motor vehicle and parts dealers (29%), gasoline stations (13%), non-store retail fuel dealers (7%), furniture and home furnishing stores (6%) and other types of retailers (7%). Collateral for these loans varies and may consist of real estate, motor vehicles inventories, other types of inventories and general business assets. Approximately 43% of the Retail Trade portfolio is secured by real estate with a portfolio balance weighted average loan-to-value of 54.0%. The average borrower loan size is $466 thousand.



Health Care and Social Assistance	206,484		2.3	%	69.7	%	The healthcare portfolio consists of nursing and residential care facilities (38%), ambulatory care (29%), social assistance (19%) and Hospitals (14%). Approximately 70% of this portfolio is secured by real estate with a portfolio balance weighted average loan-to-value of 46.9%. The average borrower loan size in the healthcare portfolio is $652 thousand.
Other Services (except Public Administration)	160,159		1.8	%	49.1	%	The other services portfolio consists of various for-profit and not-for-profit services diversified across religious, civic and social service organizations (45%), repair and maintenance businesses (29%) and personal services, including car washes, beauty salons, laundry services, funeral homes, pet care and other types of services (26%). Approximately 49% of the ‘other services’ portfolio is secured by real estate with a portfolio balance weighted average loan-to-value ratio of 46.5%. The average borrower loan size is $272 thousand.
Arts, Entertainment, and Recreation	88,202		1.0	%	82.8	%	The Arts Entertainment and Recreation portfolio segment includes fitness and recreational sports centers (30%), amusement and theme parks (18%), Bowling centers (12%), Golf Courses (11%), marinas (9%) and other types of recreation (20%). Real estate secures approximately 83% of balances outstanding at a portfolio balance weighted average loan-to-value of 44.0%. The average borrower loan size is $737 thousand.
Transportation and Warehousing	84,805		1.0	%	56.0	%	The transportation and Warehousing portfolio consists of warehousing and storage (52%), transit, ground passenger transportation and truck transportation (35%) and other transportation related activities (13%). The average borrower loan size is $611 thousand. Approximately 56% of the portfolio is secured by real estate with a portfolio balance weighted average loan-to-value of 52.2%. The average borrower loan size is $611 thousand.
Educational Services	44,922		0.5	%	89.5	%	The Educational Services portfolio consists of elementary and secondary schools (48%), colleges and universities (35%) and other types of for profit and not-for-profit educational and training schools (17%). Real estate collateral secures 89% of the outstanding balances in this portfolio segment with a portfolio balance weighted average loan-to-value of 31.8%. The average borrower loan size is $598 thousand.
Total	$	1,678,082	18.8	%	66.1	%

Allowance for ~~Loan~~Credit Losses The allowance for ~~loan~~credit losses is maintained at a level that management considers appropriate to provide for ~~probable loan~~the Company's current estimate of expected lifetime credit losses ~~based upon evaluation of known and inherent risks in the loan portfolio.~~on loans measured at amortized cost. The allowance is increased by providing for ~~loan~~credit losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off.

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 assess whether the allowance was determined inIn accordance with ~~GAAP and applicable guidance.~~

~~The allowance~~the CECL methodology, adopted January 1, 2020, the Company estimates credit losses for ~~loan losses is allocated to loan types~~financial assets on a collective basis for loans sharing similar risk characteristics 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 arequantitative model combined with an assessment of certain qualitative factors designed to ~~determine~~address forecast risk and model risk inherent in the quantitative model output. The model estimates expected credit losses using loan level data over the contractual life of the exposure, considering the effect of prepayments. Economic forecasts are incorporated into the estimate over a reasonable and supportable forecast period of one year, beyond which is a reversion to the Company's historical long-run average for a period of 6 months. The Company's qualitative assessment is structured based upon nine environmental factors impacting the expected risk of loss within the loan portfolio. Loans that no do

not share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting. For the loans that will be individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. The Company's adoption of CECL had a minimal impact to the allowance ~~amounts allocated~~as compared 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~~previous incurred loss ~~emergence and confirmation period for each loan category, and certain qualitative risk factors considered in the computation~~methodology.

As of March 31, 2020, 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 June 30, 2019, the allowance for loan~~ losses totaled ~~$66.0~~$92.4 million, or ~~0.74%~~1.04% of total loans, as compared to ~~$64.3~~$67.7 million, or ~~0.93%~~0.76% of total loans, at December 31, ~~2018.~~2019. The balance of allowance for credit losses as of March, 31, 2020, represents an increase of $24.6 million, or 36.3%, in comparison to the implementation balances at January 1, 2020. This increase in the allowance during the first quarter was primarily driven by forecasted credit deterioration due to the ongoing COVID-19 pandemic, which resulted in the Company recording a $25.0 million provision for credit losses in order to reserve for current expected credit losses in the Company's loan portfolio. This forecast was adjusted to use a more severe outlook at March 31, 2020 as compared to the baseline forecast that was used to calculate opening balances on January 1, 2020. In determining the Company's allowance for credit losses as of March 31, 2020, the economic outlook included the following assumptions related to the COVID-19 pandemic:

Assumes the COVID-19 crisis will persist and continue to meaningfully impact the economy

Unemployment rate peaks at 16.9% in Q2 2020 and remains elevated throughout the remainder of the year

50% of industries will be on lock down throughout Q2 2020 creating additional downward pressure on spending

No sustained economic recovery expected until Q4 2021

Federal funds rates will remain at or near 0% for the foreseeable future.

In addition, the provision was qualitatively adjusted upward to ensure coverage for these "at risk" relationships as a result of this review of loans that are withing industries that are potentially impacted by the COVID-19 pandemic.

Refer to Note 4, "Loans, Allowance for Credit Losses and Credit Quality" within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof, for further details surrounding the Company's adoption of CECL, related accounting policy updates and full disclosures under the new standard.

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

Table 10 - Summary of Changes in the Allowance for ~~Loan~~Credit Losses


	Three Months Ended															Three Months Ended
	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018			March 31 2020			December 31 2019			September 30 2019			June 30 2019			March 31 2019
	(Dollars in thousands)															(Dollars in thousands)
Average total loans	$	9,046,591		$	6,935,927		$	6,688,141		$	6,500,907		$	6,432,287		$	8,871,346		$	8,877,072		$	8,897,794		$	9,046,591		$	6,935,927
Allowance for loan losses, beginning of period	$	65,140		$	64,293		$	63,235		$	62,557		$	60,862
Allowance for credit losses, beginning of period																$	67,740		$	66,942		$	65,960		$	65,140		$	64,293
Cumulative effect accounting adjustment (1)																(1,137		)	—			—			—			—
Cumulative effect accounting adjustment (2)																1,157			—			—			—			—
Charged-off loans
Commercial and industrial	—			—			—			218			4			—			244			—			—			—
Commercial real estate	—			—			—			82			—			—			2,532			82			—			—
Small business	49			145			135			111			102			109			190			125			49			145
Residential real estate	—			—			—			—			109
Home equity	71			113			32			87			95			138			28			28			71			113
Other consumer	352			301			421			349			259			487			473			472			352			301
Total charged-off loans	472			559			588			847			569			734			3,467			707			472			559
Recoveries on loans previously charged-off
Commercial and industrial	—			124			3			108			59			42			4			1,003			—			124
Commercial real estate	13			33			121			29			18			—			—			106			13			33
Small business	20			27			17			10			10			3			14			61			20			27
Residential real estate	—			1			—			9			1			1			1			140			—			1
Home equity	18			66			28			71			23			58			40			194			18			66
Other consumer	241			155			277			223			153			246			206			185			241			155
Total recoveries	292			406			446			450			264			350			265			1,689			292			406
Net loans charged-off (recovered)
Commercial and industrial	—			(124		)	(3		)	110			(55		)	(42		)	240			(1,003		)	—			(124		)
Commercial real estate	(13		)	(33		)	(121		)	53			(18		)	—			2,532			(24		)	(13		)	(33		)
Small business	29			118			118			101			92			106			176			64			29			118
Residential real estate	—			(1		)	—			(9		)	108			(1		)	(1		)	(140		)	—			(1		)
Home equity	53			47			4			16			72			80			(12		)	(166		)	53			47
Other consumer	111			146			144			126			106			241			267			287			111			146
Total net loans charged-off	180			153			142			397			305
Provision for loan losses	1,000			1,000			1,200			1,075			2,000
Total allowance for loan losses, end of period	$	65,960		$	65,140		$	64,293		$	63,235		$	62,557
Net loans charged-off as a percent of average total loans (annualized)	0.01		%	0.01		%	0.01		%	0.02		%	0.02		%
Allowance for loan losses as a percent of total loans	0.74		%	0.93		%	0.93		%	0.97		%	0.97		%
Allowance for loan losses as a percent of nonperforming loans	145.63		%	150.33		%	141.56		%	139.30		%	132.78		%
Total net loans (recovered) charged-off																384			3,202			(982		)	180			153
Provision for credit losses																25,000			4,000			—			1,000			1,000
Total allowance for credit losses, end of period																$	92,376		$	67,740		$	66,942		$	65,960		$	65,140
Net loans (recovered)/charged-off as a percent of average total loans (annualized)																0.02		%	0.14		%	(0.04		)%	0.01		%	0.01		%
Allowance for credit losses as a percent of total loans																1.04		%	0.76		%	0.75		%	0.74		%	0.93		%
Allowance for credit losses as a percent of nonperforming loans																192.29		%	140.98		%	146.47		%	145.63		%	150.33		%


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


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

For purposes of the allowance for ~~loan~~credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for ~~loan~~credit 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~~credit losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories ~~possess~~possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The Company began estimating its allowance for credit losses in accordance with the CECL methodology as of January 1, 2020, while prior period amounts were estimated using the incurred loss methodology prescribed by previously applicable accounting guidance. 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~~credit losses by loan category at the dates indicated:

Table 11 - Summary of Allocation of Allowance for ~~Loan~~Credit Losses


	June 30, 2019				December 31, 2018				March 31 2020				January 1 2020				December 31 2019
	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		Allowance Amount		Percent of Loans In Category To Total Loans
	(Dollars in thousands)								(Dollars in thousands)
Commercial and industrial	$	16,857	15.7	%	$	15,760	15.8	%	$	21,649	16.2	%	$	15,659	15.7	%	$	17,594	15.7	%
Commercial real estate	32,660		45.3	%	32,370		47.1	%	29,498		45.6	%	20,224		45.1	%	32,935		45.1	%
Commercial construction	5,593		5.5	%	5,158		5.3	%	3,747		5.9	%	2,401		6.2	%	6,053		6.2	%
Small business	1,768		1.9	%	1,756		2.4	%	3,829		2.0	%	2,241		2.0	%	1,746		2.0	%
Residential real estate	3,296		18.5	%	3,219		13.4	%	14,847		17.1	%	13,691		17.9	%	3,440		17.9	%
Home equity	5,547		12.8	%	5,608		15.8	%	17,910		12.9	%	12,907		12.8	%	5,576		12.8	%
Other consumer	239		0.3	%	422		0.2	%	896		0.3	%	637		0.3	%	396		0.3	%
Total allowance for loan losses	$	65,960	100.0	%	$	64,293	100.0	%
Total allowance for credit losses									$	92,376	100.0	%	$	67,760	100.0	%	$	67,740	100.0	%

As a result of the initial adoption of CECL on January 1, 2020, the total allowance amount did not change materially, although allocation of these amounts by category did change. These changes are due to the new model that incorporates estimates of loss for the life of the loan, and therefore requiring higher reserves for loans with longer anticipated lives. The increase from adoption to March 31, 2020 is largely driven by the downturn of the economy in response to the impact of the COVID-19 pandemic and the resulting changes to the model inputs, as well as additional qualitative adjustments required for relationships in industries that are highly impacted by social distancing business closures and other mandated government requirements in response to the COVID-19 pandemic.

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~~credit losses and any recoveries of such previously charged-off amounts are credited to the allowance.

Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral.

For additional information regarding the Company’s allowance for ~~loan~~credit losses, see Note 4 Loans, Allowance for Credit Losses and Credit Quality and Note 5, “Loans and Allowance for Loan ~~Losses, and Credit Quality”~~Losses” 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~~FHLB stock of ~~$26.1~~$23.3 million and ~~$15.7~~$14.4 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The FHLB is a cooperative that provides services to its member banking

institutions. The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding as a tool to manage liquidity and interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company either purchases ~~and/~~additional FHLB stock or is subject to redemption of FHLB stock proportional to the volume of funding ~~received and~~received. The Company views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. During the second quarter of 2019, the Company acquired $17.6 million of additional FHLB stock in connection with the BHB acquisition, and was subject to both redemptions of stock from the FHLB, as well as additional required purchases.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were ~~$537.9~~$533.7 million and ~~$271.4~~$535.5 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The ~~increase~~decrease was due to ~~the BHB acquisition, partially offset by~~ 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. The Company determined that an interim impairment test was warranted due to the operational disruption and uncertainty associated with the COVID-19 pandemic which commenced during the first quarter of 2020. Accordingly, the Company performed ~~its annual goodwill~~an impairment ~~testing during the third quarter~~test as of ~~2018~~March 31, 2020 and determined that ~~the Company's goodwill~~there was ~~not impaired.~~no impairment of its goodwill. 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~~The Company also considered the impact of COVID-19 as it pertains to these intangible assets, and determined that there was no ~~events or changes that indicated~~indication of impairment ofrelated to other intangible ~~assets.~~assets as of March 31, 2020.

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 ~~$197.3~~$197.8 million and ~~$160.5~~$197.4 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively, with $34.5 million of the increase attributable to policies obtained in the BHB acquisition.~~2019, respectively. The Company recorded tax exempt income from life insurance policies of $1.3 million and ~~$998,000~~$972,000 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $2.3 million and $1.9 million for~~respectively. Also during the ~~six month periods ended June 30, 2019 and 2018, respectively.~~first quarter of 2020 the Company recorded gains on life insurance benefits of $357,000.

Deposits As of ~~June 30, 2019,~~March 31, 2020, total deposits were ~~$9.3~~$9.4 billion, representing a ~~$1.9 billion,~~$268.8 million, or ~~25.3%~~2.9%, increase from December 31, ~~2018. The increase is~~2019, driven primarily ~~attributable to the BHB acquisition.~~by increases from existing customers across all core deposit categories. The total cost of deposits was ~~0.49%~~0.48% and ~~0.27%~~0.39% for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 0.44% and 0.25%, for the six months ended June 30, 2019 and 2018,~~ respectively. Core deposits represented ~~82.93%~~82.62% of total deposits as of ~~June 30, 2019.~~March 31, 2020.

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 ~~$199.0~~$219.0 million and ~~$180.5~~$211.2 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. During 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 ~~$260.2~~$197.4 million and ~~$6.0~~$281.6 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Excluding the effects of the BHB acquisition, the Company's deposits have declined modestly on an organic basis as compared to the prior year end. The table below summarizes these organic declines by category for the period indicated:

~~Table 12 - Components of Deposit Growth/(Decline)~~

June 30
2019 December 31
2018 Blue Hills Bancorp Acquisition Organic Growth/(Decline) Organic Growth/ (Decline)%
(Dollars in thousands)
Demand deposits $ 2,738,420
$ 2,450,907
$ 301,276
$ (13,763 ) (0.6 )%
Savings and interest checking 3,196,639
2,865,349
351,554
(20,264 ) (0.7 )%
Money market 1,927,797
1,399,761
543,842
(15,806 ) (1.1 )%
Time certificates of deposits 1,445,059
711,103
733,764
192
— %
Total $ 9,307,915
$ 7,427,120
$ 1,930,436
$ (49,641 ) (0.7 )%

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 ~~$241.0~~$242.9 million, or ~~93.2%~~80.1%, at ~~June 30, 2019~~March 31, 2020, as compared to December 31, ~~2018, reflecting $124.8~~2019, as the Company entered into an additional $300.0 million in borrowings assumed in the BHB acquisition as well as increases in the Federal Home Loan Bank overnight borrowings, partially offset by the paydown of the $50.0 million line of credit funding that was obtained toFHLB borrowing during the first quarter ~~to supplement~~of 2020. The following table presents the ~~financing~~components of borrowings as of the ~~BHB acquisition, as well as a $10.3 redemption of trust preferred securities during the second quarter of 2019.~~ periods indicated:

Table 12 - Borrowings



	March 31 2020		December 31 2019

Federal Home Loan Bank borrowings	$	358,591	$	115,748
Long-term borrowings	74,920		74,906
Junior subordinated debentures	62,849		62,848
Subordinated debentures	49,625		49,601
Total borrowings	$	545,985	$	303,103

Additionally, the Bank had ~~$3.7~~$3.5 billion and ~~$2.8~~$4.0 billion of assets pledged as collateral against borrowings at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston.

Capital Resources On ~~June 20, 2019,~~March 19, 2020, the Company’s Board of Directors declared a cash dividend of ~~$0.44~~$0.46 per share to stockholders of record as of the close of business on ~~July 1, 2019.~~March 30, 2020. This dividend was paid on ~~July 12, 2019.~~April 9, 2020.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 Capital and Common Equity Tier 1 Capital (as defined for regulatory purposes) to risk weighted assets (as defined for regulatory purposes) and Tier 1 Capital to average assets (as defined for regulatory purposes). At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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 13 - 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			Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio
	June 30, 2019														March 31, 2020
	(Dollars in thousands)														(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)	$	1,309,720	14.42	%	$	726,383	≥	8.0	%	N/A			N/A		$	1,318,370	14.13	%	$	745,793	≥	8.0	%	N/A			N/A
Common equity tier 1 capital (to risk weighted assets)	1,096,915		12.08	%	408,591		≥	4.5	%	N/A			N/A		1,114,799		11.95	%	419,509		≥	4.5	%	N/A			N/A
Tier 1 capital (to risk weighted assets)	1,157,915		12.75	%	544,787		≥	6.0	%	N/A			N/A		1,175,799		12.60	%	559,345		≥	6.0	%	N/A			N/A
Tier 1 capital (to average assets)	1,157,915		10.45	%	443,263		≥	4.0	%	N/A			N/A		1,175,799		10.74	%	458,249		≥	4.0	%	N/A			N/A
Bank
Total capital (to risk weighted assets)	$	1,292,707	14.26	%	$	725,328	≥	8.0	%	$	906,660	≥	10.00	%	$	1,303,125	13.96	%	$	746,962	≥	8.0	%	$	933,702	≥	10.0	%
Common equity tier 1 capital (to risk weighted assets)	1,225,086		13.51	%	407,997		≥	4.5	%	589,329		≥	6.50	%	1,210,099		12.96	%	420,166		≥	4.5	%	606,906		≥	6.5	%
Tier 1 capital (to risk weighted assets)	1,225,086		13.51	%	543,996		≥	6.0	%	725,328		≥	8.00	%	1,210,099		12.96	%	560,221		≥	6.0	%	746,962		≥	8.0	%
Tier 1 capital (to average assets)	1,225,086		11.10	%	441,642		≥	4.0	%	552,052		≥	5.00	%	1,210,099		11.06	%	458,246		≥	4.0	%	572,808		≥	5.0	%
	December 31, 2018														December 31, 2019
	(Dollars in thousands)														(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)	$	992,454	14.45	%	$	549,297	≥	8.0	%	N/A			N/A		$	1,352,341	14.83	%	$	729,291	≥	8.0	%	N/A			N/A
Common equity tier 1 capital (to risk weighted assets)	818,176		11.92	%	308,980		≥	4.5	%	N/A			N/A		1,171,963		12.86	%	410,226		≥	4.5	%	N/A			N/A
Tier 1 capital (to risk weighted assets)	892,176		12.99	%	411,973		≥	6.0	%	N/A			N/A		1,232,963		13.53	%	546,969		≥	6.0	%	N/A			N/A
Tier 1 capital (to average assets)	892,176		10.69	%	333,754		≥	4.0	%	N/A			N/A		1,232,963		11.28	%	437,271		≥	4.0	%	N/A			N/A
Bank
Total capital (to risk weighted assets)	$	937,574	13.66	%	$	549,036	≥	8.0	%	$	686,295	≥	10.00	%	$	1,275,611	14.00	%	$	728,868	≥	8.0	%	$	911,085	≥	10.0	%
Common equity tier 1 capital (to risk weighted assets)	872,024		12.71	%	308,833		≥	4.5	%	446,092		≥	6.50	%	1,205,740		13.23	%	409,988		≥	4.5	%	592,205		≥	6.5	%
Tier 1 capital (to risk weighted assets)	872,024		12.71	%	411,777		≥	6.0	%	549,036		≥	8.00	%	1,205,740		13.23	%	546,651		≥	6.0	%	728,868		≥	8.0	%
Tier 1 capital (to average assets)	872,024		10.46	%	333,595		≥	4.0	%	416,994		≥	5.00	%	1,205,740		11.06	%	435,886		≥	4.0	%	544,857		≥	5.0	%

In addition to the minimum risk-based capital requirements outlined in the table above, the Company is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the capital conservation buffer is 2.5%. At ~~June 30, 2019~~March 31, 2020, the Company's capital levels exceeded the 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 ~~$27.8~~$28.4 million and ~~$15.5~~$30.0 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively and totaled $57.7 million and $28.9 million for the six months ended June 30, 2019 and 2018, respectively. The six months 2019 dividends included $16.5 million that was used for funding the 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 ~~June 30, 2019~~both March 31, 2020 and December 31, ~~2018~~2019 there was $61.0 ~~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.

Common Stock Repurchase Program On October 17, 2019, the Company put into place a share repurchase program with the ability to repurchase up to 1.5 million shares of the Company's common stock. The program allowed for repurchases to be made from time to time on the open market and in privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. During the first quarter of 2020, the Company repurchased 1.2 million shares of common stock, at a cost of $73.2 million. Subsequently, in early April the Company repurchased the remaining shares available under the plan, thereby completing the repurchase of all 1.5 million shared authorized by the program at an average share price of $63.39.

Investment Management As of ~~June 30, 2019,~~March 31, 2020, the Rockland Trust Investment Management Group had assets under administration of ~~$4.2~~$4.0 billion, representing ~~5,968~~6,171 trust, fiduciary, and agency accounts. At December 31, ~~2018,~~2019, assets under administration were ~~$3.6~~$4.6 billion, representing approximately ~~5,936~~6,108 trust, fiduciary, and agency accounts. ~~Included~~The decline in value reflects the overall market decline driven primarily by investor response to the COVID-19 pandemic, including a sharp decline in the U.S. stock market. Also, included in these amounts as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are assets under administration of ~~$316.2~~$278.4 million and ~~$268.0~~$342.2 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 ~~$6.4~~$6.3 million and $6.1 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $12.5 million and $11.7 million for the six months ended June 30, 2019 and 2018,~~ respectively.

Retail investments and insurance revenue was ~~$729,000~~$540,000 and ~~$739,000~~$679,000 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $1.4 million and $1.3 million for the six months ended June 30, 2019 and 2018,~~ 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 purpose of processing insurance solutions for clients.

RESULTS OF OPERATIONS

The following table provides a summary of results of operations for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Table 14 - Summary of Results of Operations


	Three Months Ended June 30						Six Months Ended June 30						Three Months Ended March 31
	2019			2018			2019			2018			2020			2019
	(Dollars in thousands, except per share data)												(Dollars in thousands, except per share data)
Net income	$	30,628		$	31,118		$	65,853		$	58,673		$	26,751		$	35,225
Diluted earnings per share	$	0.89		$	1.13		$	2.11		$	2.13		$	0.78		$	1.25
Return on average assets	1.06		%	1.52		%	1.30		%	1.46		%	0.94		%	1.62		%
Return on average equity	7.59		%	12.85		%	9.80		%	12.30		%	6.22		%	13.10		%
Net interest margin	4.09		%	3.89		%	4.12		%	3.83		%	3.74		%	4.14		%

The Company's results of operations were impacted primarily by the additional provision for loan losses recognized during the first quarter of 2020. The provision amount of $25.0 million was driven by anticipated credit losses related to the COVID-19 pandemic.

Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities.

On a fully tax equivalent basis ("FTE"), net interest income for the ~~second~~first quarter of ~~2019~~2020 was ~~$106.3~~$94.6 million, representing an increase of ~~$32.9~~$11.8 million, or ~~44.9%~~14.3%, when compared to the ~~second~~first quarter of ~~2018.~~2019. The increase in net interest income from the year ago period is primarily due to increased interest earning assets, including those obtained in the BHB ~~and MNB acquisitions, as well as higher~~acquisition. Despite the increase in interest-earning assets, the yields on ~~interest earning~~ assets ~~partially offset by nominal increases~~have decreased significantly due to the Federal Reserve rate cuts that have occurred in the ~~costs~~second half of ~~deposits, which has increased but at a well contained pace.~~2019 and the first quarter 2020.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the ~~six~~three months ending ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 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 15 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date


	Three Months Ended June 30												Three Months Ended March 31
	2019						2018						2020						2019
	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	$	104,157	$	647	2.49	%	$	122,116	$	541	1.78	%	$	72,552	$	160	0.89	%	$	68,994	$	426	2.50	%
Securities
Securities - trading	1,894		—		—	%	1,599		—		—	%	2,263		—		—	%	1,616		—		—	%
Securities - taxable investments	1,240,509		8,521		2.76	%	993,222		6,498		2.62	%	1,189,965		7,957		2.69	%	1,084,747		7,465		2.79	%
Securities - nontaxable investments (1)	1,739		17		3.92	%	2,204		20		3.64	%	1,237		12		3.90	%	1,738		17		3.97	%
Total securities	$	1,244,142	$	8,538	2.75	%	$	997,025	$	6,518	2.62	%	$	1,193,465	$	7,969	2.69	%	$	1,088,101	$	7,482	2.79	%
Loans held for sale	15,710		40		1.02	%	4,719		30		2.55	%	28,045		232		3.33	%	3,445		31		3.65	%
Loans (2)
Commercial and industrial (1)	1,405,693		20,960		5.98	%	943,110		11,116		4.73	%	1,403,199		16,940		4.86	%	1,113,819		14,440		5.26	%
Commercial real estate (1)	4,091,335		50,860		4.99	%	3,092,771		35,175		4.56	%	4,012,125		45,851		4.60	%	3,240,346		39,230		4.91	%
Commercial construction	460,921		7,265		6.32	%	416,830		5,256		5.06	%	555,741		6,901		4.99	%	386,736		5,617		5.89	%
Small business	166,440		2,610		6.29	%	138,758		2,008		5.80	%	174,668		2,562		5.90	%	165,374		2,484		6.09	%
Total commercial	6,124,389		81,695		5.35	%	4,591,469		53,555		4.68	%	6,145,733		72,254		4.73	%	4,906,275		61,771		5.11	%
Residential real estate	1,746,723		17,475		4.01	%	769,441		7,661		3.99	%	1,560,839		14,619		3.77	%	926,945		9,547		4.18	%
Home equity	1,146,066		13,313		4.66	%	1,061,082		10,830		4.09	%	1,136,931		11,827		4.18	%	1,086,620		12,175		4.54	%
Total consumer real estate	2,892,789		30,788		4.27	%	1,830,523		18,491		4.05	%	2,697,770		26,446		3.94	%	2,013,565		21,722		4.38	%
Other consumer	29,413		683		9.31	%	10,295		211		8.22	%	27,843		572		8.26	%	16,087		313		7.89	%
Total loans	$	9,046,591	$	113,166	5.02	%	$	6,432,287	$	72,257	4.51	%	$	8,871,346	$	99,272	4.50	%	$	6,935,927	$	83,806	4.90	%
Total interest-earning assets	$	10,410,600	$	122,391	4.72	%	$	7,556,147	$	79,346	4.21	%	$	10,165,408	$	107,633	4.26	%	$	8,096,467	$	91,745	4.60	%
Cash and due from banks	125,507						100,952						122,707						105,194
Federal Home Loan Bank stock	22,161						13,399						14,699						11,697
Other assets	1,041,346						545,994						1,166,775						617,259
Total assets	$	11,599,614					$	8,216,492					$	11,469,589					$	8,830,617
Interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	3,205,512	$	2,175	0.27	%	$	2,664,148	$	1,293	0.19	%	$	3,270,719	$	1,934	0.24	%	$	2,891,613	$	1,954	0.27	%
Money market	1,975,900		4,440		0.90	%	1,360,216		1,667		0.49	%	1,872,003		3,173		0.68	%	1,464,151		2,719		0.75	%
Time deposits	1,375,726		4,563		1.33	%	653,373		1,627		1.00	%	1,346,890		5,785		1.73	%	717,081		2,355		1.33	%
Total interest-bearing deposits	$	6,557,138	$	11,178	0.68	%	$	4,677,737	$	4,587	0.39	%	$	6,489,612	$	10,892	0.68	%	$	5,072,845	$	7,028	0.56	%
Borrowings
Federal Home Loan Bank borrowings	$	372,260	$	2,373	2.56	%	$	62,600	$	295	1.89	%	$	131,225	$	528	1.62	%	$	112,898	$	710	2.55	%
Customer repurchase agreements	—		—		—	%	143,259		64		0.18	%
Line of credit	8,636		83		3.85	%	—		—		—	%	—		—		—	%	2,221		21		3.83	%
Long-term borrowings	74,932		745		3.99	%	—		—		—	%	74,912		561		3.01	%	3,331		32		3.90	%
Junior subordinated debentures	71,508		701		3.93	%	73,076		625		3.43	%	62,849		478		3.06	%	73,287		684		3.79	%
Subordinated debentures													49,612		617		5.00	%	44,678		543		4.93	%


Subordinated debentures	84,294		1,045		4.97	%	34,699		428		4.95	%
Total borrowings	$	611,630	$	4,947	3.24	%	$	313,634	$	1,412	1.81	%	$	318,598	$	2,184	2.76	%	$	236,415	$	1,990	3.41	%
Total interest-bearing liabilities	$	7,168,768	$	16,125	0.90	%	$	4,991,371	$	5,999	0.48	%	$	6,808,210	$	13,076	0.77	%	$	5,309,260	$	9,018	0.69	%
Demand deposits	2,641,470						2,174,571
Noninterest bearing demand deposits													2,680,718						2,317,209
Other liabilities	171,703						79,266						251,469						113,688
Total liabilities	$	9,981,941					$	7,245,208					$	9,740,397					$	7,740,157
Stockholders' equity	1,617,673						971,284						1,729,192						1,090,460
Total liabilities and stockholders' equity	$	11,599,614					$	8,216,492					$	11,469,589					$	8,830,617
Net interest income (1)			$	106,266					$	73,347					$	94,557					$	82,727
Interest rate spread (3)					3.82	%					3.73	%					3.49	%					3.91	%
Net interest margin (4)					4.09	%					3.89	%					3.74	%					4.14	%
Supplemental information
Total deposits, including demand deposits	$	9,198,608	$	11,178			$	6,852,308	$	4,587			$	9,170,330	$	10,892			$	7,390,054	$	7,028
Cost of total deposits					0.49	%					0.27	%					0.48	%					0.39	%
Total funding liabilities, including demand deposits	$	9,810,238	$	16,125			$	7,165,942	$	5,999			$	9,488,928	$	13,076			$	7,626,469	$	9,018
Cost of total funding liabilities					0.66	%					0.34	%					0.55	%					0.48	%

(1)

The total amount of adjustment to present interest income and yield on a FTE basis is ~~$247,000~~$253,000 and ~~$179,000~~$202,000 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The FTE adjustment relates to tax exempt income relating to securities with average balances of ~~$1.7~~$1.2 million and ~~$2.2~~$1.7 million and tax exempt income relating to loans with average balances of ~~$85.4~~$85.5 million and ~~$55.1~~$65.0 million, for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, 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 16 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date~~

Six Months Ended June 30
2019 2018

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 $ 86,673
$ 1,073
2.50 % $ 102,136
$ 852
1.68 %
Securities
Securities - trading 1,756
—
— % 1,517
—
— %
Securities - taxable investments 1,163,058
15,986
2.77 % 980,293
12,717
2.62 %
Securities - nontaxable investments (1) 1,738
34
3.94 % 2,233
40
3.61 %
Total securities $ 1,166,552
$ 16,020
2.77 % $ 984,043
$ 12,757
2.61 %
Loans held for sale 9,611
71
1.49 % 3,741
49
2.64 %
Loans (2)
Commercial and industrial (1) 1,260,562
35,400
5.66 % 911,399
20,731
4.59 %
Commercial real estate (1) 3,668,191
90,090
4.95 % 3,100,063
68,464
4.45 %
Commercial construction 424,034
12,882
6.13 % 407,328
9,927
4.91 %
Small business 165,910
5,094
6.19 % 135,460
3,870
5.76 %
Total commercial 5,518,697
143,466
5.24 % 4,554,250
102,992
4.56 %
Residential real estate 1,339,099
27,022
4.07 % 762,755
15,162
4.01 %
Home equity 1,116,507
25,488
4.60 % 1,056,080
21,035
4.02 %
Total consumer real estate 2,455,606
52,510
4.31 % 1,818,835
36,197
4.01 %
Other consumer 22,787
996
8.81 % 10,476
425
8.18 %
Total loans $ 7,997,090
$ 196,972
4.97 % $ 6,383,561
$ 139,614
4.41 %
Total interest-earning assets $ 9,259,926
$ 214,136
4.66 % $ 7,473,481
$ 153,272
4.14 %
Cash and due from banks 115,407
99,288

Federal Home Loan Bank stock 16,958
13,209

Other assets 830,474
545,756

Total assets $ 10,222,765
$ 8,131,734

Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 3,049,430
$ 4,129
0.27 % $ 2,613,945
$ 2,386
0.18 %
Money market 1,721,439
7,159
0.84 % 1,349,301
3,031
0.45 %
Time deposits 1,048,223
6,918
1.33 % 649,970
3,105
0.96 %
Total interest-bearing deposits $ 5,819,092
$ 18,206
0.63 % $ 4,613,216
$ 8,522
0.37 %
Borrowings
Federal Home Loan Bank borrowings $ 243,296
3,083
2.56 % $ 67,792
$ 555
1.65 %
Customer repurchase agreements —
—
— % 149,479
130
0.18 %
Line of credit 5,446
104
3.85 % —
—
— %
Long-term borrowings 39,329
777
3.98 % —
—
— %
Junior subordinated debentures 72,393
1,385
3.86 % 73,075
1,215
3.35 %
Subordinated debentures 64,595
1,588
4.96 % 34,693
855
4.97 %
Total borrowings $ 425,059
$ 6,937
3.29 % $ 325,039
$ 2,755
1.71 %
Total interest-bearing liabilities $ 6,244,151
$ 25,143
0.81 % $ 4,938,255
$ 11,277
0.46 %

Demand deposits 2,480,235
2,152,168

Other liabilities 142,856
79,196

Total liabilities $ 8,867,242
$ 7,169,619

Stockholders' equity 1,355,523
962,115

Total liabilities and stockholders' equity $ 10,222,765
$ 8,131,734

Net interest income (1) $ 188,993
$ 141,995

Interest rate spread (3) 3.85 % 3.68 %
Net interest margin (4) 4.12 % 3.83 %
Supplemental information
Total deposit, including demand deposits $ 8,299,327
$ 18,206
$ 6,765,384
$ 8,522

Cost of total deposits 0.44 % 0.25 %
Total funding liabilities, including demand deposits $ 8,724,386
$ 25,143
$ 7,090,423
$ 11,277

Cost of total funding liabilities 0.58 % 0.32 %

~~(1)~~

The total amount of adjustment to present interest income and yield on a FTE basis is $449,000 and $356,000 for the six months ended June 30, 2019 and 2018, respectively. The FTE adjustment relates to nontaxable investment securities with average balances of $1.7 million and $2.2 million and tax exempt income relating to loans with average balances of $75.3 million and $53.5 million for the six months ended June 30, 2019 and 2018, 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 1716 - Volume Rate Analysis


	Three Months Ended June 30									Six Months Ended June 30									Three Months Ended March 31
	2019 Compared To 2018									2019 Compared To 2018									2020 Compared To 2019
	Change Due to Rate			Change Due to Volume			Total Change			Change Due to Rate			Change Due to Volume			Total Change			Change 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	$	186		$	(80	)	$	106		$	350		$	(129	)	$	221		$	(288	)	$	22		$	(266	)
Securities
Securities - taxable investments	405			1,618			2,023			898			2,371			3,269			(232		)	724			492
Securities - nontaxable investments (1)	1			(4		)	(3		)	3			(9		)	(6		)	—			(5		)	(5		)
Total securities							2,020									3,263									487
Loans held for sale	(60		)	70			10			(55		)	77			22			(20		)	221			201
Loans
Commercial and industrial (1)	4,392			5,452			9,844			6,727			7,942			14,669			(1,252		)	3,752			2,500
Commercial real estate (1)	4,328			11,357			15,685			9,079			12,547			21,626			(2,723		)	9,344			6,621
Commercial construction	1,453			556			2,009			2,548			407			2,955			(1,171		)	2,455			1,284
Small business	201			401			602			354			870			1,224			(62		)	140			78
Total commercial							28,140									40,474									10,483
Residential real estate	84			9,730			9,814			403			11,457			11,860			(1,457		)	6,529			5,072
Home equity	1,616			867			2,483			3,249			1,204			4,453			(912		)	564			(348		)
Total consumer real estate							12,297									16,313									4,724
Other consumer	80			392			472			72			499			571			30			229			259
Total loans (1)(2)							40,909									57,358									15,466
Total income of interest-earning assets							$	43,045								$	60,864								$	15,888
Expense of interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	619		$	263		$	882		$	1,345		$	398		$	1,743		$	(276	)	$	256		$	(20	)
Money market	2,018			755			2,773			3,292			836			4,128			(303		)	757			454
Time certificates of deposits	1,137			1,799			2,936			1,910			1,903			3,813			1,362			2,068			3,430
Total interest bearing deposits							6,591									9,684									3,864
Borrowings
Federal Home Loan Bank borrowings	619			1,459			2,078			1,091			1,437			2,528			(297		)	115			(182		)
Customer repurchase agreements and other short-term borrowings	—			(64		)	(64		)	—			(130		)	(130		)	—			—			—
Line of Credit	83			—			83			104			—			104			—			(21		)	(21		)
Long-term borrowings	745			—			745			777			—			777			(159		)	688			529
Junior subordinated debentures	89			(13		)	76			181			(11		)	170			(109		)	(97		)	(206		)
Subordinated debentures	5			612			617			(4		)	737			733			14			60			74
Total borrowings							3,535									4,182									194
Total expense of interest-bearing liabilities							10,126									13,866									4,058
Change in net interest income							$	32,919								$	46,998								$	11,830


(1)	The table above reflects income determined on a FTE basis. See footnote (1) to tables 15 ~~and 16~~ for the related adjustments.


(2)	Loans include portfolio loans and nonaccrual loans; however, unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.

Provision For ~~Loan~~Credit Losses The provision for ~~loan~~credit losses represents the charge to expense that is required to maintain an appropriate level of allowance for ~~loan~~credit losses. ~~The~~Provision was $25.0 million provision for ~~loan~~credit losses ~~was $1.0 million and $2.0 million for~~during the three

~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020 as compared to ~~$2.0 million and $2.5~~$1.0 million for the comparable year-ago periods. The elevated provision for credit losses during the first quarter of 2020 was calculated under the newly adopted CECL methodology, which became effective January 1, 2020, and was driven primarily by anticipated loan losses related to the COVID-19 pandemic. The Company’s allowance for ~~loan~~credit losses, as a percentage of total loans, was ~~0.74%~~1.04% at ~~June 30, 2019, 0.93%~~March 31, 2020, 0.76% at December 31, ~~2018,~~2019, and ~~0.97%~~0.93% at June 30, 2018. The decrease in this percentage is attributable to the treatment of loans acquired in connection with the BHB acquisition. These acquired loans are recorded at fair value, which include consideration for estimated credit losses, and without carryover of the respective portfolio's historical allowance for loan losses.March 31, 2019. The Company recorded net charge-offs of ~~$180,000 and $333,000~~$384,000 for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, as compared to net charge-offs of ~~$305,000 and $586,000~~$153,000 for the three ~~and six~~ months ended ~~June 30, 2018, respectively.~~

~~Management’s periodic evaluation~~March 31, 2019. Please refer to Note 4 Loans, Allowance for Credit Losses and Credit Quality within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof, for further details surrounding the Company's accounting policies under the CECL standard and primary drivers of the ~~appropriate allowance~~provision for ~~loan~~credit losses ~~considers past loan loss experience, known and inherent risks within~~during 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.period.

The national and local economies have continued their general expansion through the first half of 2019. The labor market in the New England region remains very tight leading to continued difficulty for some employers seeking to fill vacancies. Wage growth, despite the tight labor conditions, has remained subdued, however more highly skilled workers have been experiencing increasingly noticeable rises in compensation. Retail sales versus the prior year are up modestly and many retailers are suggesting they may not see much impact from the ongoing tariff disputes and trade negotiations. The spring and summer tourism market for the Boston metropolitan area is expected to be strong due in part to favorable weather and lower fuel costs. Robust activity in the residential real estate sector continued into the second quarter as year-over-year sales volumes climbed in Massachusetts and Rhode Island. Commercial construction activity in the Boston market continues to be strong even as construction costs related to tariffs and labor rise on average. Management believes that 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 1817 - Noninterest Income


	Three Months Ended								Three Months Ended
	June 30				Change				March 31				Change
	2019		2018		Amount		%		2020		2019		Amount		%
	(Dollars in thousands)								(Dollars in thousands)
Deposit account fees	$	5,080	$	4,551	$	529	11.62	%	$	4,970	$	4,406	$	564	12.80	%
Interchange and ATM fees	5,794		4,769		1,025		21.49	%	4,896		4,516		380		8.41	%
Investment management	7,153		6,822		331		4.85	%	6,829		6,748		81		1.20	%
Mortgage banking income	3,410		1,038		2,372		228.52	%	861		806		55		6.82	%
Gain on life insurance benefits									357		—		357		100.00%
Increase in cash surrender value of life insurance policies	1,296		998		298		29.86	%	1,276		972		304		31.28	%
Loan level derivative income	932		708		224		31.64	%	3,597		641		2,956		461.15	%
Other noninterest income	4,983		3,001		1,982		66.04	%	3,649		3,444		205		5.95	%
Total	$	28,648	$	21,887	$	6,761	30.89	%	$	26,435	$	21,533	$	4,902	22.77	%

	Six Months Ended
	June 30				Change
	2019		2018		Amount		%
	(Dollars in thousands)
Deposit account fees	$	9,486	$	8,982	$	504	5.61	%
Interchange and ATM fees	10,310		8,942		1,368		15.30	%
Investment management	13,901		12,964		937		7.23	%
Mortgage banking income	4,216		1,908		2,308		120.96	%
Increase in cash surrender value of life insurance policies	2,268		1,945		323		16.61	%
Loan level derivative income	1,573		1,155		418		36.19	%
Other noninterest income	8,427		5,854		2,573		43.95	%
Total	$	50,181	$	41,750	$	8,431	20.19	%

The primary reasons for the variances in the noninterest income categories shown in the preceding table include:

Deposit account fees increased due to overall increased household accounts, including the impact of ~~recent acquisitions as well as seasonal increases in overdraft fees.~~the BHB acquisition.

Interchange and ATM fees have increased, driven mainly by increased account activity and a larger customer base from the BHB ~~and MNB acquisitions.~~acquisition.

Investment management income ~~growth~~ was ~~driven primarily by growth in overall assets~~consistent with the year ago period. Assets under administration ~~which~~ were ~~$4.2~~approximately $4.0 billion as of ~~June 30,~~March 31, 2020 and 2019, ~~an increase of $650.9 million, or 18.2%, compared to June 30, 2018, along~~respectively, with ~~seasonal tax preparation fees during~~ the ~~second quarter.~~current quarter asset values negatively impacted by general stock market declines associated with COVID-19 concerns.

Mortgage banking income ~~grew due~~increased modestly despite significantly stronger closing volumes in the first quarter of 2020 as compared to the ~~combination~~year ago period. Sharp reductions in rates during the first quarter of 2020 caused severe secondary market disruption and uncertainty over pipeline closing assumptions throughout the mortgage market, leading to significant declines in value over various hedging positions. In addition to the reduced hedge values, the Company also recorded a ~~significantly increased production channel following~~$661,000 loss related to the ~~BHB acquisition, a strong rate-driven increase~~valuation of mortgage servicing assets.

The Company received proceeds on life insurance policies during the first quarter of 2020 resulting in ~~refinance demand, and typical seasonal increases in volume.~~gains of $357,000. There were no such gains during the first quarter of 2019.

The increase in cash surrender value of life insurance policies increased primarily due to policies obtained from the BHB acquisition.

Loan level derivative income increased as a result of higher customer demand.

Other noninterest income increased ~~mainly~~ due to ~~a gain associated with the sale of small a business~~higher credit card ~~portfolio,~~fee income, income on called securities, merchant processing income and checkbook fees; partially offset by decreases in unrealized gains on equity securities ~~equity method investment income,~~ and ~~FHLB dividend income.~~reduced business credit card interchange fees.

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

Table 1918 - Noninterest Expense


	Three Months Ended									Three Months Ended
	June 30				Change					March 31				Change
	2019		2018		Amount			%		2020		2019		Amount			%
	(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	$	38,852	$	30,288	$	8,564		28.28	%	$	37,349	$	33,117	$	4,232		12.78	%
Occupancy and equipment expenses	8,424		6,497		1,927			29.66	%	9,317		7,130		2,187			30.67	%
Data processing & facilities management	2,042		1,264		778			61.55	%	1,658		1,326		332			25.04	%
FDIC assessment	778		691		87			12.59	%	—		616		(616		)	(100.00	)%
Advertising expense	1,282		1,166		116			9.95	%	1,105		1,213		(108		)	(8.90	)%
Consulting expense	1,384		1,089		295			27.09	%	1,336		764		572			74.87	%
Core deposit amortization	1,572		512		1,060			207.03	%	1,531		857		674			78.65	%
Loss on sale of securities	1,462		—		1,462			100.00%
Merger and acquisition expenses	24,696		434		24,262			5,590.32	%	—		1,032		(1,032		)	(100.00	)%
Software maintenance	1,363		997		366			36.71	%	1,685		1,165		520			44.64	%
Unrealized loss on equity securities										1,799		—		1,799			100.00%
Other noninterest expenses	11,177		9,750		1,427			14.64	%	11,060		9,091		1,969			21.66	%
Total	$	93,032	$	52,688	$	40,344		76.57	%	$	66,840	$	56,311	$	10,529		18.70	%

	Six Months Ended
	June 30				Change
	2019		2018		Amount			%
	(Dollars in thousands)
Salaries and employee benefits	$	71,969	$	61,388	$	10,581		17.24	%
Occupancy and equipment expenses	15,554		13,905		1,649			11.86	%
Data processing & facilities management	3,368		2,550		818			32.08	%
FDIC assessment	1,394		1,489		(95		)	(6.38	)%
Advertising expense	2,495		2,289		206			9.00	%
Consulting expense	2,148		1,845		303			16.42	%
Core deposit amortization	2,429		1,162		1,267			109.04	%
Loss on sale of securities	1,462		—		1,462			100.00%
Merger and acquisition expenses	25,728		434		25,294			5,828.11	%
Software maintenance	2,528		1,969		559			28.39	%
Other noninterest expenses	20,268		19,108		1,160			6.07	%
Total	$	149,343	$	106,139	$	43,204		40.71	%

The primary reasons for the variances in the noninterest expense categories shown in the preceding table include:

The increase in salaries and employee benefits reflects overall increases in the employee base, including the BHB ~~and MNB acquisitions,~~acquisition, along with increases in expenses associated with ~~incentives, payroll taxes,~~ medical insurance ~~commissions~~ and retirement benefit ~~costs.~~costs offset somewhat by a decrease in incentive compensation.

Occupancy and equipment expenses increased mainly due to the acquired BHB branch ~~network.~~network offset by a decrease in snow removal costs.

Data processing increases reflect overall increased levels of transactional activity in conjunction with the Company's growth.

The Company incurred no FDIC assessment expense during the first quarter of 2020, reflecting small bank assessment credits allocated in conjunction with the Deposit Insurance Fund's attainment of a 1.38 percent reserve ratio.

Consulting expense increased in conjunction with the Company's overall growth and implementation of strategic initiatives.

The core deposit amortization ~~increase is~~increased due to additional core deposit intangibles associated with the BHB ~~acquisition and the recognition of $19.9 million of core deposit intangible.~~acquisition.

~~Merger~~The merger and acquisition ~~costs were $25.7 million for the six months ended June 30,~~expenses in 2019 ~~which~~ is primarily attributable to the BHB acquisition, ~~and~~with a small remainder associated with the MNB Bancorp acquisition. The majority of these costs include ~~severance, contract termination~~legal, professional fees, and ~~integrations~~integration costs. ~~The majority of the~~There mere no merger and acquisition costs ~~for~~during the ~~comparable 2018 period were contract terminations, severance and legal fees primarily associated with the MNB acquisition.~~first quarter of 2020.

Software maintenance increased during ~~2019~~2020 due to the Company's continued investment in its technology infrastructure.

Unrealized loss on equity securities increased primarily due to the overall decline in general market conditions, driven primarily by COVID-19 pandemic uncertainty.

The increase in other noninterest expenses is primarily due to increases in ~~marketing costs, debit card~~losses on fixed asset disposals, recruitment expense, ~~card issuance costs, internet banking expenses,~~ amortization of other intangibles, ~~exam~~ and ~~audit~~appraisal fees, ~~and~~partially offset by decreases in the provision for unfunded commitments.

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 2019 - Tax Provision and Applicable Tax Rates


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30						June 30						March 31
	2019			2018			2019			2018			2020			2019
	(Dollars in thousands)												(Dollars in thousands)
Combined federal and state income tax provision	$	10,007		$	9,249		$	21,529		$	16,077		$	2,148		$	11,522
Effective income tax rate	24.63		%	22.91		%	24.64		%	21.51		%	7.43		%	24.65		%
Blended statutory tax rate	28.23		%	28.20		%	28.23		%	28.20		%	27.88		%	28.23		%

The ~~Company's blended statutory and~~Company’s effective tax ~~rates~~rate in ~~2019 are comparable~~2020 is lower as compared to the year ago ~~periods.~~period due to the impact of discrete items, which are subject to fluctuation year over year. The ~~effective tax rate for the~~ current quarter ~~reflects lower~~discrete tax ~~credits~~amounts include a significant benefit of $4.7 million associated with the net operating loss (NOL) carryback provision of the CARES Act. The NOL was generated in relation to the BHB acquisition. Additionally, the Company fully realized tax credit benefits from the New Market Tax Credit program as ~~compared to~~of December 31, 2019 and therefore, the current year ~~ago period as well as higher pre-tax income amounts.~~effective tax rate reflects no benefit from these particular credits. The effective tax rates in the table above are lower than the blended statutory tax rates due to the aforementioned discrete items as well as certain tax preference assets such as life insurance policies, ~~and~~ tax exempt bonds, ~~as well as~~and federal tax ~~credits recognized primarily in connection with~~credits. The Company’s blended statutory tax rate for the ~~New Markets Tax Credit program and investments in low income housing project investments.~~current quarter is comparable to the year ago period.

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 Company's 2013 award is the only remaining award with a tax credit. The Company will recognize this remaining tax credit of $2.6 million during 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 ~~2036,~~2037, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships is ~~$59.8~~$110.7 million, of which ~~$51.9~~$67.2 million has been funded as of ~~June 30, 2019.~~March 31, 2020. It is expected that the limited partnership investments will generate a net tax benefit of approximately ~~$1.6~~$2.0 million for the full calendar year of ~~2019~~2020 and a total of ~~$14.1~~$13.2 million over the remaining life of the investments from the combination of the tax credits and operating losses.

Risk Management

The Board of Directors and Management have identified significant risks which affect the Company, including credit risk, market risk, liquidity risk, price risk, operations risk, cybersecurity risk, consumer compliance risk, reputation risk, and strategic risk. The Board of Directors has approved an Enterprise Risk Management Policy and Management has adopted a Risk Appetite Statement that addresses each risk category. Management reviews key risks and their mitigation on an ongoing basis

and provides regular enterprise risk management reports to the Board of Directors. The Board of Directors, with the assistance of the Board’s Risk Committee, oversees Management’s enterprise risk assessment and management.

Credit Risk Credit risk is the possibility that customers or other counterparties may not repay loans or other contractual obligations according to their terms. While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results. The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans. For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, seeNote 5,4, “Loans, Allowance for ~~Loan~~Credit Losses and Credit Quality” within Condensed Notes to Consolidated Financial Statements included in Item 1.

Operations Risk Operations risk is the risk of loss from the Company’s operations 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. Potential operational risk exposure exists throughout the Company. The continued effectiveness of colleagues, technical systems, operational infrastructure, and relationships with key third party service providers are integral to mitigating

operations risk, and any shortcomings subject the Company to risks that vary in size, scale and scope. Operations risks include, but are not limited to, operational or technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or failure on the part of the key individuals to perform properly. Management maintains an Operations Risk Committee to assess and mitigate operations risk which contributes to periodic enterprise risk management reporting to the Board.

Compliance Risk Compliance risk is the risk of regulatory sanctions or financial loss resulting from the failure to comply with rules and regulations issued by the various banking agencies, the U.S. Securities and Exchange Commission, the NASDAQ Stock Market, and good banking practices. Activities which may expose the Company to compliance risk include money laundering, privacy and data protection, adherence to laws and regulations, community reinvestment initiatives, and employment and tax matters. Compliance risk is mitigated through the use of written policies and procedures, staff training, and continuous monitoring of activities for adherence to policies and procedures. Management maintains a Compliance Committee to assess and mitigate compliance risk that contributes to periodic enterprise risk management reporting to the Board.

Strategic and Reputation Risk Strategic and reputation risk is the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess current and new opportunities and threats in business, markets, and products. Management seeks to mitigate strategic and reputational risk through annual strategic planning, frequent executive review of strategic plan progress, ongoing competitive and technological observation, assessment processes of new product, new ~~branch,~~branches, and new business initiatives, adherence to ethical standards, a philosophy of customer advocacy, a structured process of customer complaint resolution, and ongoing reputational monitoring, crisis management planning, and management tools.

Market Risk Market risk is the sensitivity of income to changes in interest rates, equity prices, foreign exchange rates, commodity prices, and other market-driven rates or prices. The Company’s most significant market risk exposure is interest rate risk.

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

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

The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis. Key assumptions in these simulation analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g., demand deposit, negotiable order of withdrawal, savings, and money market accounts). In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans. The risk of

prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined exactly and actual behavior may differ from 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,~~increase, and contract if market rates ~~were to fall, the net interest margin of the Bank is expected to contract.~~decrease. The Company runs several scenarios to quantify and effectively assist in managing this position. These scenarios include instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary, given the interest rate environment.

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

Table 2120 - Interest Rate Sensitivity


	June 30								March 31
	2019				2018				2020				2019
	Year 1		Year 2		Year 1		Year 2		Year 1		Year 2		Year 1		Year 2
Parallel rate shocks (basis points)
-200	(8.3	)%	(13.6	)%	n/a		n/a
-100	(3.3	)%	(5.9	)%	(7.7	)%	(9.1	)%	(1.1	)%	(3.5	)%	(4.5	)%	(7.4	)%
+100	2.8	%	4.5	%	4.9	%	9.4	%	3.7	%	4.6	%	3.5	%	6.4	%
+200	5.2	%	8.4	%	9.3	%	15.9	%	8.1	%	11.2	%	6.4	%	11.4	%
+300	7.5	%	12.2	%	13.8	%	22.6	%	12.7	%	17.6	%	9.3	%	16.4	%
+400	9.7	%	16.0	%	18.3	%	29.1	%	17.0	%	23.8	%	12.2	%	21.3	%

Gradual rate shifts (basis points)
-200 over 12 months	(3.5	)%	(11.9	)%	n/a		n/a
-100 over 12 months	(1.5	)%	(5.0	)%	(3.2	)%	(7.7	)%	(0.1	)%	(3.0	)%	(2.0	)%	(6.1	)%
+200 over 12 months	2.4	%	7.1	%	4.5	%	14.3	%	3.5	%	9.2	%	3.0	%	9.8	%
+400 over 24 months	2.4	%	9.0	%	4.5	%	18.6	%	3.5	%	13.5	%	3.0	%	12.7	%

Alternative scenarios
Yield Curve Twist	0.8	%	5.0	%	n/a		n/a		1.1	%	5.6	%	0.9	%	6.8	%
Flat up 200 basis points scenario	n/a		n/a		4.5	%	13.6	%

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

The most significant factors affecting market risk exposure of the Company’s net interest income during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime interest rate and LIBOR rates, and the interest rates being offered on long-term fixed rate loans. Additionally, the full economic impact of the COVID-19 pandemic on these factors remains uncertain.

The Company manages the interest rate risk inherent in both its loan and borrowing portfolios by using interest rate swap agreements and interest rate caps and floors. An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from the other party. Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized. The amounts relating to the notional principal amount are not actually exchanged. Additionally, the Company may manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts. In an effort to mitigate that risk, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors. See Note 9, “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 4,3, “Securities” within Condensed Notes to Consolidated Financial Statements included in Item 1.

Liquidity Risk Liquidity risk is the risk that the Company will not have the ability to generate adequate amounts of cash in the most economical way to meet its ongoing obligations to pay deposit withdrawals, repay borrowings, and fund loans. The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and

securities. The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits.

These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors.

Management maintains an Asset Liability Committee to manage liquidity risk. The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which ~~analyzes~~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 ~~June 30, 2019.~~March 31, 2020. The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings. An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure. Other factors affecting the Total Basic Surplus/Deficit measure include collateral requirements at the FHLB, changes in the securities portfolio, and the mix of deposits.

The Bank seeks to increase deposits without adversely impacting the weighted average cost of those funds. As part of a prudent liquidity risk management practice, the Company maintains various liquidity sources, some of which are only accessed on a contingency basis. Accordingly, Management has implemented funding strategies that include FHLB advances, Federal Reserve Bank borrowing capacity, and repurchase agreement lines. These funding sources are a contingent source of liquidity and, when profitable lending and investment opportunities exist, access to them provides a means to grow the balance sheet.

Borrowing capacity at the FHLB and the Federal Reserve is impacted by the amount and type of assets available to be pledged. For example, a prime, one-to-four family, residential loan, may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas, a commercial loan may provide a lower amount. As a result, the Company’s lending decisions can also affect its liquidity position.

The Company can raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into ~~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. The Company monitors the 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 2221 - Sources of Liquidity


	June 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
	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)	$	277,671	$	1,242,574	$	147,806	$	953,539	$	358,591	$	1,179,248	$	115,748	$	1,557,559
Federal Reserve Bank of Boston (2)	—		778,064		—		705,242		—		692,179		—		954,748
Unpledged Securities	—		833,752		—		691,383		—		754,494		—		790,304
Line of Credit	—		50,000		—		—		—		50,000		—		50,000
Long-term borrowing (3)	74,879		—		—		—		74,920		—		74,906		—
Junior subordinated debentures (3)	62,847		—		76,173		—		62,849		—		62,848		—
Subordinated debt (3)	84,305		—		34,728		—		49,625		—		49,601		—
Reciprocal deposits (3)	198,982		—		180,514		—		218,971		—		211,213		—
Brokered deposits (3)	260,245		—		6,000		—		197,436		—		281,773		—
	$	958,929	$	2,904,390	$	445,221	$	2,350,164	$	962,392	$	2,675,921	$	796,089	$	3,352,611


(1)	Loans with a carrying value of ~~$2.4~~$2.3 billion and ~~$1.6~~$2.5 billion at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, 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~~$1.2 billion and ~~$1.2~~$1.5 billion at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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.

In addition to policies used for managing operational liquidity, the Board of Directors and Management recognize the need to establish reasonable guidelines for managing through an environment of heightened liquidity risk. Catalysts for elevated liquidity risk can be Bank-specific issues and/or systemic industry-wide ~~events.~~events, such as the COVID-19 pandemic. It is therefore the responsibility of Management to institute systems and controls to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute prompt responses that may alleviate/circumvent

a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework for the Bank to help detect liquidity problems promptly and appropriately address potential liquidity problems in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force. The Liquidity Crisis Task Force is responsible for monitoring the potential for a liquidity crisis and for establishing and executing an appropriate response.

Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended ~~June 30, 2019.~~March 31, 2020.

See Note 9, "Derivative and Hedging Activities" and Note ~~15,~~14, "Commitments and Contingencies" within Condensed Notes to Consolidated Financial Statements included in Item 1 for more information relating to the Company's other off-balance sheet financial instruments.

Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended ~~June 30, 2019. See~~ ~~Note~~ 6 ~~"Borrowings"~~ ~~within Condensed Notes to Consolidated Financial Statements included in Item 1.~~March 31, 2020.

Please refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 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 ~~second~~first quarter of ~~2019~~2020 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting. The Company has not experienced any material impact to the Company’s internal controls over financial reporting due to the fact that most of the Company’s employees responsible for financial reporting are working remotely during the COVID-19 pandemic. The Company is continually monitoring and assessing the impact of the COVID-19 pandemic on the Company’s internal controls to minimize the impact to their design and operating effectiveness.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

At ~~June 30, 2019,~~March 31, 2020, 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

AsThe section titled Risk Factors inPart I, Item 1A of the ~~date~~Company's 2019 Annual Report on Form 10-K includes a discussion of ~~this report,~~the many risks and uncertainties the Company faces, any one or more of which could have a material adverse effect on the Company's business, results of operations, financial condition (including capital and liquidity). The information presented below provides an update to, and should be read in conjunction with, the risk factors and other information contained in the Company's 2019 Annual Report on Form 10-K.

Except as presented below, there have been no material changes ~~with regard~~ to the ~~Risk Factors disclosed~~risk factors described in ~~Item 1A~~the Company's 2019 Annual Report on Form 10-K.

The COVID-19 pandemic is adversely affecting the Company and its customers, counterparties, employees, and third-party service providers, and the full extent of ~~our~~the adverse impacts on the Company's business, financial position, results of operations, and prospects could be significant.

The spread of COVID-19 has created a global public-health crisis that has resulted in widespread volatility and deteriorations in business, economic, and market conditions and household incomes, including in the Commonwealth of Massachusetts where the Company conducts nearly all of its business. The extent of the impact of the COVID-19 pandemic on the Company's capital and liquidity, and on its business, results of operations, financial position and prospects generally will depend on a number of evolving factors, including:

The duration, extent, and severity of the pandemic. COVID-19 has not yet been contained and could affect significantly more households and businesses. The duration and severity of the pandemic, including the potential for a seasonal or other resurgence after the initial containment, continue to be impossible to predict. Following any containment, there is also substantial uncertainty surrounding the pace of economic recovery and the return of business and consumer confidence.

The response of governmental and nongovernmental authorities. Many of their actions have been directed toward curtailing household and business activity to contain COVID-19 while simultaneously deploying fiscal- and monetary-policy measures to partially mitigate the adverse effects on individual households and businesses. These actions are not always coordinated or consistent across jurisdictions but, in general, have rapidly expanded in scope and intensity, contributing to substantial market volatility.

The effect on the Company's customers, counterparties, employees, and third-party service providers. COVID-19 and its associated consequences and uncertainties, including increased unemployment rates, are affecting individuals, households, and businesses differently and unevenly. Many, however, have already changed their behavior in response to governmental mandates and advisories to sharply restrain commercial and social interactions and discretionary spending. As a result, in the near term, the Company's credit, operational, and other risks have generally increased and, for the foreseeable future, are expected to remain elevated or increase further.

The effect on economies and markets. Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear. National, regional, and local economies (including the local economies in the markets areas which the Company serves) and markets could suffer disruptions that are lasting. Governmental actions are meaningfully influencing the interest-rate environment and financial-market activity, which could adversely affect the Company's results of operations and financial condition.

During the first quarter of 2020, the most notable impact to the Company's results of operations was a higher provision expense for credit losses. The Company's provision expense was $25 million for the first quarter of 2020, compared to $1 million for the first quarter of 2019, and $4 million for the fourth quarter of 2019. With the spread of COVID-19 in the United States having only begun to accelerate in March 2020,the Company's forecast of macroeconomic conditions and operating results including expected lifetime credit losses on the Company's loan portfolio is subject to meaningful uncertainty.

Governments have taken unprecedented steps to partially mitigate the adverse effects of their containment measures. For example, on March 27, 2020, the CARES Act was enacted to inject more than $2 trillion of financial assistance into the U.S. economy. The FRB has taken decisive and sweeping actions as well. Since March 15, 2020, these have included a reduction in the target range for the federal funds rate to 0 to 1/4 percent, a program to purchase an indeterminate amount of Treasury securities and agency mortgage-backed securities, and numerous facilities to support the flow of credit to households and businesses.

The degree to which the Company's actions and those of governments and others will directly or indirectly assist the Company's customers, counterparties, and third-party service providers and advance the Company's business and the economy generally is not yet clear. For example, while the Company's loan-deferral programs may better position customers to resume their regular payments to the Company in the future and enhance the Company's brand and customer loyalty, these programs may negatively impact the Company's revenue and other results of operations at least in the near term, may produce a higher degree of enrollment and other requests for extensions and rewrites than the Company anticipated, and the Company may not be as successful as expected in managing credit risk. In addition, while the FRB’s accommodative monetary policy may benefit the Company to some degree by supporting economic activity among its customers, this policy and sudden shifts in it may inhibit the Company's ability to grow or sustain net interest income and effectively manage interest-rate risk.

The Company is unable to estimate the near-term and ultimate impacts of COVID-19 on the Company's business and operations at this time. The pandemic could cause the Company to experience higher credit losses in its lending portfolio, additional increases in the allowance for credit losses, impairment of goodwill and other financial assets, diminished access to capital markets and other funding sources, further reduced demand for the Company's products and services, and other negative impacts on the Company's financial position, results of operations, and prospects. In addition, while the Company continues to anticipate that its

capital and liquidity positions will be sufficient, sustained adverse effects may impair these positions, prevent the Company from satisfying its minimum regulatory capital ratios and other supervisory requirements, and result in downgrades in its credit ratings.

The COVID-19 pandemic and related governmental mandates and advisories also have necessitated changes in the way the Company and its third party service providers continue operations, and the length of time that it may be required to operate under these circumstances, as well as the potential for conditions to worsen or for significant disruptions to occur, remains unpredictable. All of these risks and uncertainties can be expected to persist at least until the pandemic is demonstrably and sustainably contained, authorities cease curbing household and business activity, and consumer and business confidence recover. COVID-19 and the volatile economic conditions stemming from it or future resurgences could also precipitate or contribute to the other risk factors identified in the Company's 2019 Annual Report on Form 10-K, which in turn could materially adversely affect the Company's business, financial position, results of operations, prospects, and its stock price, and may also affect the Company's business in a manner that is not presently known to it or that the Company currently does not consider to present significant risks to its business, financial position, results of operations or prospects.

As a participating lender in the SBA Paycheck Protection Program (“PPP”), the Company is subject to additional risks of litigation from its customers or other parties regarding the processing of loans for the ~~fiscal year ended December 31, 2018,~~PPP and risks that the U.S. Small Business Administration (“SBA”) may not fund some or all PPP loan guaranties, which ~~are incorporated herein by reference.~~could have a significant adverse impact on the Company's business, financial position, results of operations, and prospects .

The CARES Act included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Company is participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress has approved additional funding for the PPP and President Trump signed the new legislation on April 24, 2020. Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company may be exposed to the risk of litigation, from both clients and non-clients that approached us regarding PPP loans, regarding its process and procedures used in processing applications for the PPP. If any such litigation is filed against the Company and is not resolved in a manner favorable to the Company, it may result in significant financial liability or adversely affect the Company's reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on the Company's business, financial position, results of operations and prospects.

The Company may have a credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Company, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company, which could adversely impact the Company's business, financial position, results of operations and prospects.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended ~~June 30, 2019:~~March 31, 2020:

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
April 1 to April 30, 2019 —
$ —
—
—
May 1 to May 31, 2019 82
$ 77.72
—
—
June 1 to June 30, 2019 51
$ 71.68
—
—
Total 133
—
—



	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 (2)
Period
January 1 to January 31, 2020	13,389	$	72.00	13,389	1,486,611
February 1 to February 29, 2020	133,107	$	71.06	122,800	1,363,811
March 1 to March 31, 2020	1,035,656	$	61.74	1,030,734	333,077
Total	1,182,152	$	62.90	1,166,923


(1)	~~Shares repurchased relate~~The number of shares purchased related to the surrendering of shares in connection with the exercise and/or vesting of equity compensation grants to satisfy related tax withholding ~~obligations.~~obligations was 10,307 shares in February 2020 and 4,922 shares in March 2020.


(2)	~~The~~On October 17, 2019, the Company ~~does not currently have~~announced that its Board of Directors authorized a ~~stock~~share repurchase program ~~or plan~~of up to 1.5 million shares of the Company's common stock. The remaining 333,077 shares as of March 31, 2020 were repurchased in ~~place.~~April 2020. Accordingly, the share repurchase program was terminated.

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



~~10.1~~	~~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 hereto.*
32.1	Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
32.2	Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
101	The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL ~~document~~document.
104	Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101).



*	Filed herewith



+	Furnished herewith

#	Management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INDEPENDENT BANK CORP.

(registrant)



~~August 6, 2019~~May 7, 2020		/s/ Christopher Oddleifson
		Christopher Oddleifson President and Chief Executive Officer (Principal Executive Officer)



~~August 6, 2019~~May 7, 2020		/s/ Mark J. Ruggiero
		Mark J. Ruggiero Chief Financial Officer (Principal Financial Officer)

~~100~~98



Net increase in time deposits	1,632			15,522
Net increase (decrease) in other deposits	(49,833		)	268,770
Net proceeds from short-term Federal Home Loan Bank borrowings	24,954			—
Repayments of long-term Federal Home Loan Bank borrowings	(20,000		)	(2,475		)
Net decrease in customer repurchase agreements	—			(20,444		)
Proceeds from line of credit, net of issuance costs	49,980			—
Repayment of line of credit, net of issuance costs	(49,980		)	—
Proceeds from long-term debt, net of issuance costs	74,867			—
Repayments of junior subordinated debentures, net of issuance costs	(13,329		)	—
Proceeds from subordinated debentures, net of issuance costs	49,526			—
Net proceeds from exercise of stock options	281			184
Restricted stock awards issued, net of awards surrendered	(1,431		)	(1,338		)
Proceeds from shares issued under direct stock purchase plan	1,034			1,312
Common dividends paid	(23,051		)	(19,239		)
Net cash provided by financing activities	44,650			242,292
Net increase (decrease) in cash and cash equivalents	(56,441		)	109,990
Cash and cash equivalents at beginning of year	250,455			213,116
Cash and cash equivalents at end of period	$	194,014		$	323,106
Supplemental schedule of noncash activities
Net increase in capital commitments relating to low income housing project investments	$	18		$	4
Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1)	$	32,777		$	—
Initial recognition of operating lease at commencement	$	4,824		$	—
In conjunction with the Company's acquisitions, assets were acquired and liabilities were assumed as follows
Common stock issued for acquisition	$	499,693		$	—
Fair value of assets acquired, net of cash acquired	$	2,711,067		$	—
Fair value of liabilities assumed	$	2,106,110		$	—



	Net Assets Acquired at Fair Value
	(Dollars in thousands)
Assets
Cash	$	56,331
Investments	196,937
Loans	2,073,714
Premises and equipment	24,253
Goodwill	248,457
Core deposit and other intangibles	19,870
Other assets	147,836
Total assets acquired	2,767,398
Liabilities
Deposits	1,930,436
Borrowings	124,817
Other liabilities	50,857
Total liabilities assumed	2,106,110
Purchase price	$	661,288



	Three Months Ended June 30, 2019
	(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	$	16,872		$	32,049	$	5,355		$	1,784		$	3,234		$	5,507		$	339		$	65,140
Charge-offs	—			—		—			(49		)	—			(71		)	(352		)	(472		)
Recoveries	—			13		—			20			—			18			241			292
Provision (benefit)	(15		)	598		238			13			62			93			11			1,000
Ending balance	$	16,857		$	32,660	$	5,593		$	1,768		$	3,296		$	5,547		$	239		$	65,960

	Three Months Ended June 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	$	13,533		$	31,459	$	5,679		$	1,593		$	2,837		$	5,359		$	402		$	60,862
Charge-offs	(4		)	—		—			(102		)	(109		)	(95		)	(259		)	(569		)
Recoveries	59			18		—			10			1			23			153			264
Provision (benefit)	1,200			618		(463		)	208			180			181			76			2,000
Ending balance	$	14,788		$	32,095	$	5,216		$	1,709		$	2,909		$	5,468		$	372		$	62,557



	Six Months Ended June 30, 2019
	(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	$	15,760		$	32,370	$	5,158		$	1,756		$	3,219		$	5,608		$	422		$	64,293
Charge-offs	—			—		—			(194		)	—			(184		)	(653		)	(1,031		)
Recoveries	124			46		—			47			1			84			396			698
Provision (benefit)	973			244		435			159			76			39			74			2,000
Ending balance	$	16,857		$	32,660	$	5,593		$	1,768		$	3,296		$	5,547		$	239		$	65,960
Ending balance: collectively evaluated for impairment	$	16,850		$	32,586	$	5,593		$	1,730		$	2,507		$	5,388		$	233		$	64,887
Ending balance: individually evaluated for impairment	$	7		$	74	$	—		$	38		$	789		$	159		$	6		$	1,073
	Six Months Ended June 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	$	13,256		$	31,453	$	5,698		$	1,577		$	2,822		$	5,390		$	447		$	60,643
Charge-offs	(137		)	—		—			(126		)	(148		)	(174		)	(577		)	(1,162		)
Recoveries	71			38		—			19			3			57			388			576
Provision (benefit)	1,598			604		(482		)	239			232			195			114			2,500
Ending balance	$	14,788		$	32,095	$	5,216		$	1,709		$	2,909		$	5,468		$	372		$	62,557
Ending balance: collectively evaluated for impairment	$	14,780		$	32,021	$	5,216		$	1,708		$	2,050		$	5,237		$	358		$	61,370
Ending balance: individually evaluated for impairment	$	8		$	74	$	—		$	1		$	859		$	231		$	14		$	1,187



							Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts Recognized in the Statement of Financial Position		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Financial Instruments (1)		Collateral Pledged (Received)		Net Amount
	June 30, 2019
	(Dollars in thousands)
Derivative Assets
Interest rate swaps	$	25,216	$	—	$	25,216	$	25,216	$	—	$	—
Loan level derivatives	51,417		—		51,417		979		—		50,438
Customer foreign exchange contracts	1,543		—		1,543		—		—		1,543
	$	78,176	$	—	$	78,176	$	26,195	$	—	$	51,981

Derivative Liabilities
Interest rate swaps	$	125	$	—	$	125	$	—	$	125	$	—
Loan level derivatives	51,411		—		51,411		26,195		23,709		1,507
Customer foreign exchange contracts	1,507		—		1,507		—		—		1,507
	$	53,043	$	—	$	53,043	$	26,195	$	23,834	$	3,014



	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)
	2019
Beginning balance: January 1, 2019	$	(5,947	)	$	6,148	$	—		$	(1,374	)	$	(1,173	)
Net change in other comprehensive income (loss)	10,174			11,875		—			80			22,129
Ending balance: June 30, 2019	$	4,227		$	18,023	$	—		$	(1,294	)	$	20,956
	2018
Beginning balance: January 1, 2018	$	(504	)	$	948	$	137		$	(2,412	)	$	(1,831	)
Opening balance reclassification	(111		)	205		29			(520		)	(397		)
Cumulative effect accounting adjustment	(831		)	—		—			—			(831		)
Net change in other comprehensive income (loss)	(7,392		)	191		(88		)	234			(7,055		)
Ending balance: June 30, 2018	$	(8,838	)	$	1,344	$	78		$	(2,698	)	$	(10,114	)



	(Dollars in thousands)

Remainder of 2019	$	5,616
2020	10,569
2021	9,487
2022	8,402
2023	6,396
Thereafter	18,799
Total minimum lease payments	$	59,269
Less: amount representing interest	6,162
Present value of future minimum lease payments	$	53,107



	June 30 2019		December 31 2018		Blue Hills Bancorp Acquisition		Organic Growth/(Decline)			Organic Growth/ (Decline)%
	(Dollars in thousands)
Demand deposits	$	2,738,420	$	2,450,907	$	301,276	$	(13,763	)	(0.6	)%
Savings and interest checking	3,196,639		2,865,349		351,554		(20,264		)	(0.7	)%
Money market	1,927,797		1,399,761		543,842		(15,806		)	(1.1	)%
Time certificates of deposits	1,445,059		711,103		733,764		192			—	%
Total	$	9,307,915	$	7,427,120	$	1,930,436	$	(49,641	)	(0.7	)%



Demand deposits	2,480,235						2,152,168
Other liabilities	142,856						79,196
Total liabilities	$	8,867,242					$	7,169,619
Stockholders' equity	1,355,523						962,115
Total liabilities and stockholders' equity	$	10,222,765					$	8,131,734
Net interest income (1)			$	188,993					$	141,995
Interest rate spread (3)					3.85	%					3.68	%
Net interest margin (4)					4.12	%					3.83	%
Supplemental information
Total deposit, including demand deposits	$	8,299,327	$	18,206			$	6,765,384	$	8,522
Cost of total deposits					0.44	%					0.25	%
Total funding liabilities, including demand deposits	$	8,724,386	$	25,143			$	7,090,423	$	11,277
Cost of total funding liabilities					0.58	%					0.32	%