UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________________

FORM 10-Q



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

For the quarterly period ended June 30, 2020



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

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



Commission File Number:	1-9047

Independent Bank Corp.

(Exact name of registrant as specified in its charter)

___________________________________________________



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



Office Address:	2036 Washington Street,	Hanover,	~~Massachusetts~~MA	02339
Mailing Address:	288 Union Street,	Rockland,	~~Massachusetts~~MA	02370
(Address of principal executive offices, including zip code)

(781) 878-6100

(Registrant’s telephone number, including area code)



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

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

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

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



Large Accelerated Filer	x	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐

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



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

As of ~~November 4, 2019,~~August 5, 2020, there were ~~34,373,762~~32,950,911 shares of the issuer’s common stock outstanding, par value $0.01 per share.

Table of Contents

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019	5
Consolidated Statements of Income - Three and ~~Nine~~Six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	7
Consolidated Statements of Comprehensive Income -Three and ~~Nine~~Six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	8
Consolidated Statements of Stockholders’ Equity - Three and ~~Nine~~Six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	9
Consolidated Statements of Cash Flows - ~~Nine~~Six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019	11

Condensed Notes to Consolidated Financial Statements - ~~September~~June 30, ~~2019~~2020
Note 1 - Basis of Presentation	13
Note 2 - Recent Accounting Standards Updates	13
Note 3 - ~~Acquisitions~~Securities	14
Note 4 - ~~Securities~~Loans, Allowance for Credit Losses, and Credit Quality	1619
Note 5 - Loans and Allowance for Loan Losses ~~and Credit Quality~~	2130
Note 6 - ~~Borrowings~~Goodwill and Other Intangible Assets	33
Note 7 - Earnings Per Share	33
Note 8 - Stock Based Compensation	34
Note 9 - Derivative and Hedging Activities	3435
Note 10 - ~~Balance Sheet Offsetting~~Income Taxes	3941
Note 11 - Fair Value Measurements	4041
Note 12 - Revenue Recognition	4950
Note 13 - Comprehensive Income (Loss)	5253
Note 14 - ~~Leases~~Commitments and Contingencies	54
Note 15 ~~- Commitments and Contingencies~~	55
~~Note 16~~ - Low Income Housing Project Investments	56
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	56
Table 1 - Closed Residential Real Estate Loans	6870
Table 2 - Residential Mortgage Loan Sales	6870
Table 3 - Mortgage Servicing Asset	6971
Table 4 - ~~Components of Loan Growth/(Decline)~~	70
~~Table 5 -~~ Nonperforming Assets	75
~~Table 6 - Activity in Nonperforming Assets~~	75
~~Table 7 - Troubled Debt Restructurings~~	76
Table 85 - Activity in Nonperforming Assets	76
Table 6 - Troubled Debt Restructurings	77
Table 7 - Activity in Troubled Debt Restructurings	7677
Table 8 - Deferral by Modification Type	77
Table 9 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings	7678
Table 10 - ~~Summary of Changes in the Allowance for Loan Losses~~Potentially Impacted COVID-19 Industries	78
Table 11 - Summary of ~~Allocation of~~Changes in the Allowance for ~~Loan~~Credit Losses	7982
Table 12 - ~~Components~~Summary of ~~Deposit Growth/(Decline)~~Allocation of the Allowance for Credit Losses	8083
Table 13 - ~~Components of~~ Borrowings	8185
Table 14 - Company and Bank’s Capital Amounts and Ratios	8286

~~Table of Contents~~

Table 15 - Summary of Results of Operations	8488
Table 16 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date	8589
Table 17 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date	8791
Table 18 - Volume Rate Analysis	8993

Table of Contents

Table 19 - Noninterest Income - Three and ~~Nine~~Six Months Ended	9295
Table 20 - Noninterest Expense - Three and ~~Nine~~Six Months Ended	9397
Table 21 - Tax Provision and Applicable Tax Rates	9498
Table 22 - Interest Rate Sensitivity	96100
Table 23 - Sources of Liquidity	98102



Item 3. Quantitative and Qualitative Disclosures About Market Risk	98102
Item 4. Controls and Procedures	99103

PART II. OTHER INFORMATION	99103
Item 1. Legal Proceedings	99103
Item 1A. Risk Factors	99103
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	99106
Item 3. Defaults Upon Senior Securities	99106
Item 4. Mine Safety Disclosures	99106
Item 5. Other Information	99106
Item 6. Exhibits	~~100~~107
Signatures	~~101~~108

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

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEPENDENT BANK CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited—Dollars in thousands)


	September 30 2019			December 31 2018			June 30 2020			December 31 2019
Assets
Cash and due from banks	$	153,000		$	127,503		$	131,615		$	114,686
Interest-earning deposits with banks	66,272			122,952			974,105			36,288
Securities
Trading	1,963			1,504			2,541			2,179
Equity	21,021			19,477			20,810			21,261
Available for sale	391,975			442,752
Held to maturity (fair value $792,163 and $603,640)	777,270			611,490
Available for sale (amortized cost $400,341 and $420,703)							420,517			426,424
Held to maturity (fair value $764,054 and $753,263)							731,026			740,806
Total securities	1,192,229			1,075,223			1,174,894			1,190,670
Loans held for sale (at fair value)	55,937			6,431			45,395			33,307
Loans
Commercial and industrial	1,411,516			1,093,629			2,004,645			1,395,036
Commercial real estate	4,000,487			3,251,248			4,071,047			4,002,359
Commercial construction	520,585			365,165			537,788			547,293
Small business	172,038			164,676			170,288			174,497
Residential real estate	1,644,758			923,294			1,431,129			1,590,569
Home equity - first position	644,675			654,083			650,922			649,255
Home equity - subordinate positions	492,434			438,001			469,601			484,543
Other consumer	27,008			16,098			24,228			30,087
Total loans	8,913,501			6,906,194			9,359,648			8,873,639
Less: allowance for loan losses	(66,942		)	(64,293		)
Less: allowance for credit losses							(112,176		)	(67,740		)
Net loans	8,846,559			6,841,901			9,247,472			8,805,899
Federal Home Loan Bank stock	14,976			15,683			15,090			14,424
Bank premises and equipment, net	125,026			97,581			122,172			123,674
Goodwill	504,562			256,105			506,206			506,206
Other intangible assets	31,307			15,250			25,996			29,286
Cash surrender value of life insurance policies	195,883			160,456			198,124			197,372
Other assets	352,888			132,507			581,431			343,353
Total assets	$	11,538,639		$	8,851,592		$	13,022,500		$	11,395,165
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand deposits	$	2,752,150		$	2,450,907		$	3,694,559		$	2,662,591
Savings and interest checking accounts	3,199,182			2,865,349			3,896,024			3,232,909
Money market	1,904,643			1,399,761			2,034,021			1,856,552
Time certificates of deposit of $100,000 and over	705,578			351,629			585,104			663,645
Other time certificates of deposits	764,538			359,474			507,113			731,670
Total deposits	9,326,091			7,427,120			10,716,821			9,147,367
Borrowings
Federal Home Loan Bank borrowings	70,708			147,806			145,770			115,748


Long-term borrowings (less unamortized debt issuance costs of $106)	74,894			—
Junior subordinated debentures (less unamortized debt issuance costs of $40 and $118)	62,848			76,173
Subordinated debentures (less unamortized debt issuance costs of $659 and $272)	84,341			34,728
Long-term borrowings (less unamortized debt issuance costs of $67 and $94)							37,433			74,906
Junior subordinated debentures (less unamortized debt issuance costs of $38 and $40)							62,850			62,848
Subordinated debentures (less unamortized debt issuance costs of $352 and $399)							49,648			49,601
Total borrowings	292,791			258,707			295,701			303,103
Other liabilities	237,433			92,275			338,286			236,552
Total liabilities	9,856,315			7,778,102			11,350,808			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: 34,366,781 shares at September 30, 2019 and 28,080,408 shares at December 31, 2018 (includes 148,596 and 153,459 shares of unvested participating restricted stock awards, respectively)	342			279
Value of shares held in rabbi trust at cost: 144,967 shares at September 30, 2019 and 153,226 shares at December 31, 2018	(4,713		)	(4,718		)
Preferred stock, $0.01 par value, authorized: 1,000,000 shares, outstanding: none							—			—
Common stock, $0.01 par value, authorized: 75,000,000 shares, issued and outstanding: 32,942,110 shares at June 30, 2020 and 34,377,388 shares at December 31, 2019 (includes 137,617 and 147,184 shares of unvested participating restricted stock awards, respectively)							328			342
Value of shares held in rabbi trust at cost: 134,097 shares at June 30, 2020 and 143,820 shares at December 31, 2019							(4,649		)	(4,735		)
Deferred compensation and other retirement benefit obligations	4,713			4,718			4,649			4,735
Additional paid in capital	1,033,949			527,648			942,685			1,035,450
Retained earnings	621,831			546,736			676,834			654,182
Accumulated other comprehensive income (loss), net of tax	26,202			(1,173		)
Accumulated other comprehensive income, net of tax							51,845			18,169
Total stockholders’ equity	1,682,324			1,073,490			1,671,692			1,708,143
Total liabilities and stockholders' equity	$	11,538,639		$	8,851,592		$	13,022,500		$	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				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30				September 30				June 30				June 30
	2019		2018		2019		2018		2020		2019		2020		2019
Interest income
Interest and fees on loans	$	110,205	$	75,220	$	306,736	$	214,486	$	91,634	$	112,923	$	190,656	$	196,531
Taxable interest and dividends on securities	8,269		6,664		24,255		19,381		7,831		8,521		15,788		15,986
Nontaxable interest and dividends on securities	14		14		40		46		9		13		18		26
Interest on loans held for sale	456		61		527		110		359		40		591		71
Interest on federal funds sold and short-term investments	680		916		1,753		1,768		132		647		292		1,073
Total interest and dividend income	119,624		82,875		333,311		235,791		99,965		122,144		207,345		213,687
Interest expense
Interest on deposits	11,846		5,251		30,052		13,773		7,027		11,178		17,919		18,206
Interest on borrowings	3,180		1,390		10,117		4,145		1,840		4,947		4,024		6,937
Total interest expense	15,026		6,641		40,169		17,918		8,867		16,125		21,943		25,143
Net interest income	104,598		76,234		293,142		217,873		91,098		106,019		185,402		188,544
Provision for loan losses	—		1,075		2,000		3,575
Net interest income after provision for loan losses	104,598		75,159		291,142		214,298
Provision for credit losses									20,000		1,000		45,000		2,000
Net interest income after provision for credit losses									71,098		105,019		140,402		186,544
Noninterest income
Deposit account fees	5,299		4,658		14,785		13,640		2,829		5,080		7,799		9,486
Interchange and ATM fees	6,137		4,947		16,447		13,889		5,214		5,794		10,110		10,310
Investment management	7,188		6,564		21,089		19,528		7,296		7,153		14,125		13,901
Mortgage banking income	3,968		1,222		8,184		3,130		5,005		3,410		5,866		4,216
Increase in cash surrender value of life insurance policies									1,312		1,296		2,588		2,268
Gain on life insurance benefits	434		1,463		434		1,463		335		—		692		—
Increase in cash surrender value of life insurance policies	1,304		984		3,572		2,929
Loan level derivative income	2,739		392		4,312		1,547		2,864		932		6,461		1,573
Unrealized gain on equity securities									1,386		441		1,386		1,345
Other noninterest income	4,747		3,034		13,174		8,888		1,949		4,542		5,598		7,082
Total noninterest income	31,816		23,264		81,997		65,014		28,190		28,648		54,625		50,181
Noninterest expenses
Salaries and employee benefits	39,432		31,095		111,401		92,483		37,269		38,852		74,618		71,969
Occupancy and equipment expenses	8,555		6,310		24,109		20,215		9,273		8,424		18,590		15,554
Data processing and facilities management	1,515		1,287		4,883		3,837		1,459		2,042		3,117		3,368
FDIC assessment	—		725		1,394		2,214		503		778		503		1,394
Advertising expense	1,417		1,395		3,912		3,684		787		1,282		1,892		2,495
Consulting expense	1,338		1,128		3,486		2,973		1,603		1,384		2,939		2,148
Core deposit amortization	1,567		507		3,996		1,670		1,433		1,572		2,964		2,429
Loss on sale of securities	—		—		1,462		—		—		1,462		—		1,462
Merger and acquisition expense	705		2,688		26,433		3,122		—		24,696		—		25,728
Software maintenance	1,385		1,079		3,913		3,048		1,780		1,363		3,465		2,528
Other noninterest expenses	11,619		9,225		31,887		28,332		12,500		11,177		25,359		20,268
Total noninterest expenses	67,533		55,439		216,876		161,578		66,607		93,032		133,447		149,343
Income before income taxes	68,881		42,984		156,263		117,734		32,681		40,635		61,580		87,382
Provision for income taxes	17,036		9,969		38,565		26,046		7,779		10,007		9,927		21,529
Net income	$	51,845	$	33,015	$	117,698	$	91,688	$	24,902	$	30,628	$	51,653	$	65,853
Basic earnings per share	$	1.51	$	1.20	$	3.65	$	3.33	$	0.76	$	0.89	$	1.54	$	2.11
Diluted earnings per share	$	1.51	$	1.20	$	3.64	$	3.32	$	0.76	$	0.89	$	1.54	$	2.11
Weighted average common shares (basic)	34,361,176		27,537,841		32,283,196		27,517,210		32,944,761		34,313,492		33,564,596		31,226,985
Common share equivalents	39,390		63,499		45,416		62,596		28,098		41,878		31,991		48,381
Weighted average common shares (diluted)	34,400,566		27,601,340		32,328,612		27,579,806		32,972,859		34,355,370		33,596,587		31,275,366
Cash dividends declared per common share	$	0.44	$	0.38	$	1.32	$	1.14	$	0.46	$	0.44	$	0.92	$	0.88

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited—Dollars in thousands)


	Three Months Ended					Nine Months Ended					Three Months Ended				Six Months Ended
	September 30					September 30					June 30				June 30
	2019		2018			2019		2018			2020		2019		2020			2019
Net income	$	51,845	$	33,015		$	117,698	$	91,688		$	24,902	$	30,628	$	51,653		$	65,853
Other comprehensive income (loss), net of tax
Other comprehensive income, net of tax
Net change in fair value of securities available for sale	2,175		(2,262		)	12,349		(9,654		)	1,695		5,445		11,042			10,174
Net change in fair value of cash flow hedges	3,030		(405		)	14,905		(302		)	197		8,590		23,181			11,875
Net change in other comprehensive income for defined benefit postretirement plans	41		117			121		351			225		40		(547		)	80
Total other comprehensive income (loss)	5,246		(2,550		)	27,375		(9,605		)
Total other comprehensive income											2,117		14,075		33,676			22,129
Total comprehensive income	$	57,091	$	30,465		$	145,073	$	82,083		$	27,019	$	44,703	$	85,329		$	87,982

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 ~~September~~June 30, ~~2019~~2020 and ~~2018~~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 June 30, 2019 34,321,061
$ 342
$ (4,648 ) $ 4,648
$ 1,029,594
$ 585,111
$ 20,956
$ 1,636,003
Net income —
—
—
—
—
51,845
—
51,845
Other comprehensive income —
—
—
—
—
—
5,246
5,246
Common dividend declared ($0.44 per share) —
—
—
—
—
(15,125 ) —
(15,125 )
Stock based compensation —
—
—
—
981
—
—
981
Restricted stock awards issued, net of awards surrendered (43 ) (1 ) —
—
(3 ) —
—
(4 )
Shares issued under direct stock purchase plan 45,763
1
—
—
3,377
—
—
3,378
Deferred compensation and other retirement benefit obligations —
—
(65 ) 65
—
—
—
—
Balance September 30, 2019 34,366,781
$ 342
$ (4,713 ) $ 4,713

$ 1,033,949
$ 621,831
$ 26,202
$ 1,682,324

Balance June 30, 2018 27,532,524
$ 274
$ (4,653 ) $ 4,653
$ 481,979
$ 504,926
$ (10,114 ) $ 977,065
Net income —
—
—
—
—
33,015
—
33,015
Other comprehensive loss —
—
—
—
—
—
(2,550 ) (2,550 )
Common dividend declared ($0.38 per share) —
—
—
—
—
(10,468 ) —
(10,468 )
Stock based compensation —
—
—
—
769
—
—
769
Restricted stock awards issued, net of awards surrendered (43 ) —
—
—
(6 ) —
—
(6 )
Shares issued under direct stock purchase plan 5,923
—
—
—
480
—
—
480
Deferred compensation and other retirement benefit obligations —
—
(131 ) 131
—
—
—
—
Balance September 30, 2018 27,540,843
$ 274
$ (4,784 ) $ 4,784
$ 483,222
$ 527,473
$ (12,664 ) $ 998,305



	Common Stock Outstanding		Common Stock			Value of Shares Held in Rabbi Trust at Cost			Deferred Compensation Obligation		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income		Total
Balance March 31, 2020	33,260,005		$	331		$	(4,604	)	$	4,604	$	962,513		$	667,084		$	49,728	$	1,679,656
Net income	—		—			—			—		—			24,902			—		24,902
Other comprehensive income	—		—			—			—		—			—			2,117		2,117
Common dividend declared ($0.46 per share)	—		—			—			—		—			(15,152		)	—		(15,152		)
Proceeds from exercise of stock options, net of cash paid	873		—			—			—		(26		)	—			—		(26		)
Stock based compensation	—		—			—			—		1,579			—			—		1,579
Restricted stock awards issued, net of awards surrendered	6,761		—			—			—		(51		)	—			—		(51		)
Shares issued under direct stock purchase plan	7,548		—			—			—		532			—			—		532
Shares repurchased under share repurchase program	(333,077	)	(3		)	—			—		(21,862		)	—			—		(21,865		)
Deferred compensation and other retirement benefit obligations	—		—			(45		)	45		—			—			—		—
Balance June 30, 2020	32,942,110		$	328		$	(4,649	)	$	4,649	$	942,685		$	676,834		$	51,845	$	1,671,692

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 loss	—		—			—			—		—			—			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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~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 Obligation			Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total
Balance December 31, 2019																						34,377,388		$	342		$	(4,735	)	$	4,735		$	1,035,450		$	654,182		$	18,169		$	1,708,143
Cumulative effect accounting adjustment (1)																						—		—			—			—			—			1,553			—			1,553
Net income																						—		—			—			—			—			51,653			—			51,653
Other comprehensive income																						—		—			—			—			—			—			33,676			33,676
Common dividend declared ($0.92 per share)																						—		—			—			—			—			(30,554		)	—			(30,554		)
Proceeds from exercise of stock options, net of cash paid																						873		—			—			—			(26		)	—			—			(26		)
Stock based compensation																						—		—			—			—			2,429			—			—			2,429
Restricted stock awards issued, net of awards surrendered																						49,292		1			—			—			(1,184		)	—			—			(1,183		)
Shares issued under direct stock purchase plan																						14,557		—			—			—			1,092			—			—			1,092
Shares repurchased under share repurchase program																						(1,500,000	)	(15		)	—			—			(95,076		)	—			—			(95,091		)
Deferred compensation and other retirement benefit obligations																						—		—			86			(86		)	—			—			—			—
Balance June 30, 2020																						32,942,110		$	328		$	(4,649	)	$	4,649		$	942,685		$	676,834		$	51,845		$	1,671,692
	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		28,080,408		$	279		$	(4,718	)	$	4,718		$	527,648		$	546,736		$	(1,173	)	$	1,073,490
Net income	—	—		—			—			—			117,698			—			117,698			—		—			—			—			—			65,853			—			65,853
Other comprehensive income	—	—		—			—			—			—			27,375			27,375			—		—			—			—			—			—			22,129			22,129
Common dividend declared ($1.32 per share)	—	—		—			—			—			(42,603		)	—			(42,603		)
Common dividend declared ($0.88 per share)																						—		—			—			—			—			(27,478		)	—			(27,478		)
Common stock issued for acquisition	6,166,010	61		—			—			499,632			—			—			499,693			6,166,010		61			—			—			499,632			—			—			499,693
Proceeds from exercise of stock options, net of cash paid	11,000	—		—			—			281			—			—			281			11,000		—			—			—			281			—			—			281
Stock based compensation	—	—		—			—			3,413			—			—			3,413			—		—			—			—			2,432			—			—			2,432
Restricted stock awards issued, net of awards surrendered	50,431	1		—			—			(1,436		)	—			—			(1,435		)	50,474		2			—			—			(1,433		)	—			—			(1,431		)
Shares issued under direct stock purchase plan	58,932	1		—			—			4,411			—			—			4,412			13,169		—			—			—			1,034			—			—			1,034
Deferred compensation and other retirement benefit obligations	—	—		5			(5		)	—			—			—			—			—		—			70			(70		)	—			—			—			—
Balance September 30, 2019	34,366,781	$	342	$	(4,713	)	$	4,713		$	1,033,949		$	621,831		$	26,202		$	1,682,324

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		)	—
Net income	—	—		—			—			—			91,688			—			91,688
Other comprehensive loss	—	—		—			—			—			—			(9,605		)	(9,605		)
Common dividend declared ($1.14 per share)	—	—		—			—			—			(31,380		)	—			(31,380		)
Proceeds from exercise of stock options, net of cash paid	23,195	—		—			—			184			—			—			184
Stock based compensation	—	—		—			—			3,161			—			—			3,161
Restricted stock awards issued, net of awards surrendered	43,174	1		—			—			(1,345		)	—			—			(1,344		)
Shares issued under direct stock purchase plan	24,284	—		—			—			1,792			—			—			1,792
Deferred compensation and other retirement benefit obligations	—	—		(194		)	194			—			—			—			—
Balance September 30, 2018	27,540,843	$	274	$	(4,784	)	$	4,784		$	483,222		$	527,473		$	(12,664	)	$	998,305
Balance June 30, 2019																						34,321,061		$	342		$	(4,648	)	$	4,648		$	1,029,594		$	585,111		$	20,956		$	1,636,003

(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)



	Six Months Ended
	June 30
	2020			2019
Cash flow from operating activities
Net income	$	51,653		$	65,853
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization	14,112			9,045
Change in unamortized net loan costs and premiums	(4,064		)	(4,023		)
Provision for credit losses	45,000			2,000
Deferred income tax expense	3,045			399
Net (gain) loss on equity securities	415			(1,351		)
Net loss on sale of securities	—			1,462
Net loss on bank premises and equipment	368			39
Realized gain on sale leaseback transaction	(289		)	(289		)
Stock based compensation	2,429			2,432
Increase in cash surrender value of life insurance policies	(2,588		)	(2,268		)
Gain on life insurance benefits	(692		)	—
Operating lease payments	(5,887		)	(4,970		)
Change in fair value on loans held for sale	(839		)	(920		)
Net change in:
Trading assets	(362		)	(435		)
Loans held for sale	(11,249		)	(30,220		)
Other assets	(191,261		)	(27,048		)
Other liabilities	86,847			(24,566		)
Total adjustments	(65,015		)	(80,713		)
Net cash used in operating activities	(13,362		)	(14,860		)
Cash flows used in investing activities
Proceeds from sales of equity securities	—			1,461
Purchases of equity securities	(212		)	(233		)
Proceeds from sales of securities available for sale	—			45,863
Proceeds from maturities and principal repayments of securities available for sale	50,262			24,594
Purchases of securities available for sale	(30,095		)	(9,058		)
Proceeds from maturities and principal repayments of securities held to maturity	105,272			52,414
Purchases of securities held to maturity	(95,017		)	(42,341		)
Net redemption (purchases) of Federal Home Loan Bank stock	(666		)	7,235
Investments in low income housing projects	(14,008		)	(683		)
Purchases of life insurance policies	(101		)	(100		)
Proceeds from life insurance policies	2,629			—
Net increase in loans	(481,372		)	(53,175		)
Net cash paid in business combinations	—			(105,264		)
Purchases of bank premises and equipment	(5,186		)	(6,957		)
Proceeds from the sale of bank premises and equipment	23			13
Net cash used in investing activities	(468,471		)	(86,231		)

Nine Months Ended
September 30
2019 2018
Cash flow from operating activities
Net income $ 117,698
$ 91,688
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 13,919
11,696
Change in unamortized net loan costs and premiums (7,262 ) 392
Provision for loan losses 2,000
3,575
Deferred income tax expense 171
176
Net (gain) loss on equity securities (1,562 ) 107
Net loss on sale of securities 1,462
—
Net loss on bank premises and equipment 180
8
Net loss on other real estate owned and foreclosed assets 389
1
Realized gain on sale leaseback transaction (433 ) (585 )
Stock based compensation 3,413
3,161
Increase in cash surrender value of life insurance policies (3,572 ) (2,929 )
Gain on life insurance benefits (434 ) (1,463 )
Operating lease payments (7,798 ) —
Change in fair value on loans held for sale (1,192 ) (147 )
Net change in:
Trading assets (459 ) (257 )
Loans held for sale 37,672
(5,516 )
Other assets (57,624 ) (12,179 )
Other liabilities 40,668
16,066
Total adjustments 19,538
12,106
Net cash provided by operating activities 137,236
103,794
Cash flows used in investing activities
Proceeds from sales of equity securities 1,461
30
Purchases of equity securities (356 ) (305 )
Proceeds from sales of securities available for sale 45,863
—
Proceeds from maturities and principal repayments of securities available for sale 35,770
41,964
Purchases of securities available for sale (16,230 ) (63,844 )
Proceeds from maturities and principal repayments of securities held to maturity 87,313
62,650
Purchases of securities held to maturity (56,937 ) (118,256 )
Net redemption (purchases) of Federal Home Loan Bank stock 18,344
(1,510 )
Investments in low income housing projects (3,549 ) (2,598 )
Purchases of life insurance policies (115 ) (116 )
Proceeds from life insurance policies 3,162
2,850
Net increase in loans (11,668 ) (173,224 )
Net cash paid in business combinations (105,264 ) —
Purchases of bank premises and equipment (11,753 ) (8,123 )
Proceeds from the sale of bank premises and equipment 17
96



Cash flows provided by financing activities
Net increase (decrease) in time deposits	(302,738		)	1,632
Net increase (decrease) in other deposits	1,872,552			(49,833		)
Net advances of short-term Federal Home Loan Bank borrowings	55,000			24,954
Repayments of long-term Federal Home Loan Bank borrowings	(25,000		)	(20,000		)
Proceeds from line of credit, net of issuance costs	—			49,980
Repayment of line of credit, net of issuance costs	—			(49,980		)
Proceeds from (repayments of) long-term debt, net of issuance costs	(37,500		)	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 (payments for) exercise of stock options	(26		)	281
Restricted stock awards issued, net of awards surrendered	(1,183		)	(1,431		)
Proceeds from shares issued under direct stock purchase plan	1,092			1,034
Payments for shares repurchased under share repurchase program	(95,091		)	—
Common dividends paid	(30,527		)	(23,051		)
Net cash provided by financing activities	1,436,579			44,650
Net increase (decrease) in cash and cash equivalents	954,746			(56,441		)
Cash and cash equivalents at beginning of year	150,974			250,455
Cash and cash equivalents at end of period	$	1,105,720		$	194,014
Supplemental schedule of noncash activities
Net increase in capital commitments relating to low income housing project investments	$	27,937		$	18
Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1)	$	—		$	32,777
Right-of-use assets obtained in exchange for new lease obligations	$	5,356		$	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

Proceeds from the sale of other real estate owned and foreclosed assets —
308
Net cash used in investing activities (13,942 ) (260,078 )
Cash flows provided by (used in) financing activities
Net increase in time deposits 28,113
19,226
Net increase (decrease) in other deposits (56,714 ) 227,836
Net repayments of short-term Federal Home Loan Bank borrowings (177,046 ) —
Repayments of long-term Federal Home Loan Bank borrowings (25,000 ) (2,475 )
Net decrease in customer repurchase agreements —
(21,503 )
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 (1,435 ) (1,344 )
Proceeds from shares issued under direct stock purchase plan 4,412
1,792
Common dividends paid (38,152 ) (29,701 )
Net cash provided by (used in) financing activities (154,477 ) 194,015
Net increase (decrease) in cash and cash equivalents (31,183 ) 37,731
Cash and cash equivalents at beginning of year 250,455
213,116
Cash and cash equivalents at end of period $ 219,272
$ 250,847
Supplemental schedule of noncash activities
Net increase in capital commitments relating to low income housing project investments $ 15,740
$ 65
Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1) $ 32,777
$ —
Initial recognition of operating lease at commencement $ 7,593
$ —
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~~three and six months ended ~~September~~June 30, ~~2019~~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 has identified significant key assumptions needed to translate the data into a life of loan estimate. During the fourth quarter of 2019, the Company expects to perform a full parallel run of the current expected credit loss ("CECL") model in tandem with the current incurred loss model, using September 30, 2019 balances, the results of which will allow the Company to finalize and document itsnew guidance under CECL, ~~model and processes. In addition, the Company has also begun developing accounting policies,~~ 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, 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 $26.0 million during the nine months ended September 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 Nine Months Ended
September 30 September 30
2019 2018 2019 2018
(Dollars in thousands)
Net interest income after provision for loan losses $ 104,598
$ 94,804
$ 312,925
$ 271,644
Net income $ 51,845
$ 38,804
$ 81,907
$ 110,517

Included in the pro forma net income results for the three and nine months ended September 30, 2019 are merger-related costs of $505,000 and $57.3 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 ~~$2.0~~$2.5 million and ~~$1.5~~$2.2 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s nonqualified 401(k) Restoration Plan and Nonqualified Deferred Compensation Plan.

Equity Securities

The Company had equity securities of ~~$21.0~~$20.8 million and ~~$19.5~~$21.3 million as of ~~September~~June 30, ~~2019~~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				Nine Months Ended			Three Months Ended				Six Months Ended
	September 30				September 30			June 30				June 30
	2019		2018		2019	2018		2020		2019		2020		2019
Net gains (losses) recognized during the period on equity securities	$	211	$	324	1,562	(107	)	$	1,386	$	444	(415	)	1,351
Less: net gains recognized during the period on equity securities sold during the period	—		4		6	8		—		3		6		6
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	211	$	320	1,556	(115	)	$	1,386	$	441	(421	)	1,345

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:



	June 30, 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	$	22,475	$	1,870	$	—		$	—	$	24,345	$	32,473	$	642	$	—		$	33,115
Agency mortgage-backed securities	237,219		11,588		(2		)	—		248,805		243,548		3,456		(4		)	247,000
Agency collateralized mortgage obligations	77,036		3,776		—			—		80,812		87,305		1,225		(19		)	88,511
State, county, and municipal securities	1,126		21		—			—		1,147		1,377		19		—			1,396
Single issuer trust preferred securities issued by banks	489		—		(44		)	—		445		488		5		—			493
Pooled trust preferred securities issued by banks and insurers	1,438		—		(452		)	—		986		1,488		—		(374		)	1,114
Small business administration pooled securities	60,558		3,419		—			—		63,977		54,024		771		—			54,795
Total available for sale securities	$	400,341	$	20,674	$	(498	)	$	—	$	420,517	$	420,703	$	6,118	$	(397	)	$	426,424

The Company did not record an allowance for estimated credit losses on any available for sale securities during the three and six months ended June 30, 2020. Excluded from the table above is accrued interest on available for sale securities of $1.3 million as of June 30, 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 and six months ended June 30, 2020. No securities held ~~to maturity for~~by the ~~periods indicated:~~Company were delinquent on contractual payments as of June 30, 2020, nor were any securities placed on non-accrual status during the three or six months then ended.

September 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 $ 32,475
$ 827
$ —
$ 33,302
$ 32,477
$ —
$ (439 ) $ 32,038
Agency mortgage-backed securities 196,278
4,330
(5 ) 200,603
222,491
1,020
(3,406 ) 220,105
Agency collateralized mortgage obligations 92,574
1,964
—
94,538
138,149
197
(3,435 ) 134,911
State, county, and municipal securities 1,713
23
—
1,736
1,719
16
—
1,735
Single issuer trust preferred securities issued by banks 717
3
—
720
717
—
(10 ) 707
Pooled trust preferred securities issued by banks and insurers 1,493
—
(387 ) 1,106
1,678
—
(349 ) 1,329
Small business administration pooled securities 58,360
1,610
—
59,970
53,317
—
(1,390 ) 51,927
Total available for sale securities $ 383,610
$ 8,757
$ (392 ) $ 391,975
$ 450,548
$ 1,233
$ (9,029 ) $ 442,752
Held to maturity securities
U.S. government agency securities $ 12,853
$ 146
$ —
$ 12,999
$ —
$ —
$ —
$ —
U.S. Treasury securities 1,003
19
—
1,022
1,004
11
—
1,015
Agency mortgage-backed securities 418,350
8,900
(39 ) 427,211
252,484
1,548
(3,104 ) 250,928
Agency collateralized mortgage obligations 310,352
5,857
(687 ) 315,522
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 33,212
707
—
33,919
23,727
105
(349 ) 23,483
Total held to maturity securities $ 777,270
$ 15,629
$ (736 ) $ 792,163
$ 611,490
$ 2,533
$ (10,383 ) $ 603,640
Total $ 1,160,880
$ 24,386
$ (1,128 ) $ 1,184,138
$ 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 Company had no sales of securities available for sale during the three or six months ended June 30, 2020, and therefore no gains or losses were realized during the periods presented. The Company realized losses of $1.5 million on sales of securities available for sale during the three and six months ended June 30, 2019.

The actual maturities of certain securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of securities available for sale and securities held to maturity as of September 30, 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 $ 10,002
$ 10,003
$ 10,003
$ 10,154
$ 12,470
$ 13,145
$ —
$ —
$ 32,475
$ 33,302
Agency mortgage-backed securities —
—
71,277
72,138
56,084
58,039
68,917
70,426
196,278
200,603
Agency collateralized mortgage obligations —
—
—
—
—
—
92,574
94,538
92,574
94,538
State, county, and municipal securities —
—
1,021
1,024
692
712
—
—
1,713
1,736
Single issuer trust preferred securities issued by banks —
—
—
—
—
—
717
720
717
720
Pooled trust preferred securities issued by banks and insurers —
—
—
—
—
—
1,493
1,106
1,493
1,106
Small business administration pooled securities —
—
—
—
—
—
58,360
59,970
58,360
59,970
Total available for sale securities $ 10,002
$ 10,003
$ 82,301
$ 83,316
$ 69,246
$ 71,896
$ 222,061
$ 226,760
$ 383,610
$ 391,975
Held to maturity securities
U.S. government agency securities $ —
$ —
$ 12,853
$ 12,999
$ —
$ —
$ —
$ —
$ 12,853
$ 12,999
U.S. Treasury securities —
—
1,003
1,022
—
—
—
—
1,003
1,022
Agency mortgage-backed securities —
—
11,128
11,153
37,012
37,523
370,210
378,535
418,350
427,211
Agency collateralized mortgage obligations —
—
154
154
—
—
310,198
315,368
310,352
315,522
Single issuer trust preferred securities issued by banks —
—
—
—
1,500
1,490
—
—
1,500
1,490
Small business administration pooled securities —
—
—
—
—
—
33,212
33,919
33,212
33,919
Total held to maturity securities $ —
$ —
$ 25,138
$ 25,328
$ 38,512
$ 39,013
$ 713,620
$ 727,822
$ 777,270
$ 792,163
Total $ 10,002
$ 10,003
$ 107,439
$ 108,644
$ 107,758
$ 110,909
$ 935,681
$ 954,582
$ 1,160,880
$ 1,184,138

~~Inclusive in the~~following table ~~above is $17.9 million of callable securities at September 30, 2019.~~

The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $340.6 million and $361.1 million at September 30, 2019 and December 31, 2018, respectively.

~~At September 30, 2019 and December 31, 2018, the Company had 0 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~~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 June 30, 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:

September 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)
Agency mortgage-backed securities 6
10,155
(39 ) 1,054
(5 ) 11,209
(44 )
Agency collateralized mortgage obligations 17
35,178
(99 ) 39,827
(588 ) 75,005
(687 )
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
—
—
1,106
(387 ) 1,106
(387 )
Total temporarily impaired securities 25
$ 45,333
$ (138 ) $ 43,477
$ (990 ) $ 88,810
$ (1,128 )

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 )



	June 30, 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	386		(2		)	—		—			386		(2		)
Single issuer trust preferred securities issued by banks and insurers	1	445		(44		)	—		—			445		(44		)
Pooled trust preferred securities issued by banks and insurers	1	—		—			986		(452		)	986		(452		)
Total impaired available for sale securities	3	$	831	$	(46	)	$	986	$	(452	)	$	1,817	$	(498	)

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 0 OTTI recorded for~~during the three ~~and nine~~or six months ended ~~September~~June 30, ~~2019 and 2018. There was 0 cumulative credit related component of OTTI as of September 30, 2019 or December 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 ~~September~~June 30, ~~2019:~~2020:

•

Agency Mortgage-Backed ~~Securities and Agency Collateralized Mortgage Obligations:~~Securities: These portfolios have contractual terms that generally do not permit the issuer to settle the securities at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. Government or one of its agencies.


•	Single Issuer Trust Preferred Securities: This portfolio consists of one security, which is investment grade. The unrealized loss on this security is attributable to the illiquid nature of the trust preferred market in the current economic environment. Management evaluates various financial metrics for the issuers, including regulatory capital ratios of the issuers.

•

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

~~NOTE 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:



	June 30, 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	4,025		94		—			—		4,119		4,032		21		—			4,053
Agency mortgage-backed securities	431,901		21,135		—			—		453,036		397,414		8,445		(57		)	405,802
Agency collateralized mortgage obligations	264,675		10,360		—			—		275,035		293,662		4,501		(849		)	297,314
Single issuer trust preferred securities issued by banks	1,500		—		(2		)	—		1,498		1,500		—		(10		)	1,490
Small business administration pooled securities	28,925		1,441		—			—		30,366		31,324		338		(55		)	31,607
Total held to maturity securities	$	731,026	$	33,030	$	(2	)	$	—	$	764,054	$	740,806	$	13,428	$	(971	)	$	753,263

The Company did not record an allowance for estimated credit losses on any held to maturity securities during the three and six months ended June 30, 2020. Excluded from the table above is accrued interest on held to maturity securities of $1.8 million as of June 30, 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 and six months ended June 30, 2020. No securities held by the Company were delinquent on contractual payments as of June 30, 2020, nor were any securities placed on non-accrual status during the three and six 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 and six months ended June 30, 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 June 30, 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 June 30, 2020 is presented below:

September 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 $ 1,385,379
$ 3,979,670
$ 520,585
$ 171,723
$ 1,625,923
$ 1,130,777
$ 26,545
$ 8,840,602

Individually evaluated for impairment 26,137
13,984
—
315
11,039
5,325
140
56,940

Purchased credit impaired loans —
6,833
—
—
7,796
1,007
323
15,959

Total loans by group $ 1,411,516
$ 4,000,487
$ 520,585
$ 172,038
$ 1,644,758
$ 1,137,109
$ 27,008
$ 8,913,501
(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	$	10,333	$	12,473	$	14,012	$	—	$	—	$	22,475	$	24,345
Agency mortgage-backed securities	—		—		71,734		74,553		40,590		43,562		124,895		130,690		237,219		248,805
Agency collateralized mortgage obligations	—		—		—		—		—		—		77,036		80,812		77,036		80,812
State, county, and municipal securities	250		250		686		690		190		207		—		—		1,126		1,147
Single issuer trust preferred securities issued by banks	—		—		—		—		—		—		489		445		489		445
Pooled trust preferred securities issued by banks and insurers	—		—		—		—		—		—		1,438		986		1,438		986
Small business administration pooled securities	—		—		—		—		—		—		60,558		63,977		60,558		63,977
Total available for sale securities	$	250	$	250	$	82,422	$	85,576	$	53,253	$	57,781	$	264,416	$	276,910	$	400,341	$	420,517
Held to maturity securities
U.S. Treasury securities	$	1,001	$	1,026	$	3,024	$	3,093	$	—	$	—	$	—	$	—	$	4,025	$	4,119
Agency mortgage-backed securities	8,565		8,635		1,678		1,729		47,890		50,340		373,768		392,332		431,901		453,036
Agency collateralized mortgage obligations	—		—		—		—		—		—		264,675		275,035		264,675		275,035
Single issuer trust preferred securities issued by banks	—		—		—		—		1,500		1,498		—		—		1,500		1,498
Small business administration pooled securities	—		—		—		—		—		—		28,925		30,366		28,925		30,366
Total held to maturity securities	$	9,566	$	9,661	$	4,702	$	4,822	$	49,390	$	51,838	$	667,368	$	697,733	$	731,026	$	764,054
Total	$	9,816	$	9,911	$	87,124	$	90,398	$	102,643	$	109,619	$	931,784	$	974,643	$	1,131,367	$	1,184,571

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 $7.2 million and $7.1 million at September 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 $24.7 million and $15.2 million at September 30, 2019 and December 31, 2018, respectively.

Included in the table above are $4.1 million of callable securities at June 30, 2020.

The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $431.8 million and $375.5 million at June 30, 2020 and December 31, 2019, respectively.

At June 30, 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 0 OTTI recorded and 0 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 September 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 $ 16,857
$ 32,660
$ 5,593
$ 1,768
$ 3,296
$ 5,547
$ 239
$ 65,960
Charge-offs —
(82 ) —
(125 ) —
(28 ) (472 ) (707 )
Recoveries 1,003
106
—
61
140
194
185
1,689
Provision (benefit) (528 ) (33 ) 240
48
(88 ) 36
325
—
Ending balance $ 17,332
$ 32,651
$ 5,833
$ 1,752
$ 3,348
$ 5,749
$ 277
$ 66,942

Three Months Ended September 30, 2018
(Dollars in thousands)
Commercial and
Industrial Commercial
Real Estate Commercial
Construction Small
Business Residential
Real Estate
Home Equity Other Consumer Total
Allowance for loan losses
Beginning balance $ 14,788
$ 32,095
$ 5,216
$ 1,709
$ 2,909
$ 5,468
$ 372
$ 62,557
Charge-offs (218 ) (82 ) —
(111 ) —
(87 ) (349 ) (847 )
Recoveries 108
29
—
10
9
71
223
450
Provision (benefit) 430
226
(189 ) 160
153
102
193
1,075
Ending balance $ 15,108
$ 32,268
$ 5,027
$ 1,768
$ 3,071
$ 5,554
$ 439
$ 63,235
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 are 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.

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

Nine Months Ended September 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 —
(82 ) —
(319 ) —
(212 ) (1,125 ) (1,738 )
Recoveries 1,127
152
—
108
141
278
581
2,387
Provision (benefit) 445
211
675
207
(12 ) 75
399
2,000
Ending balance $ 17,332
$ 32,651
$ 5,833
$ 1,752
$ 3,348
$ 5,749
$ 277
$ 66,942
Ending balance: collectively evaluated for impairment $ 17,326
$ 32,610
$ 5,833
$ 1,741
$ 2,729
$ 5,594
$ 272
$ 66,105
Ending balance: individually evaluated for impairment $ 6
$ 41
$ —
$ 11
$ 619
$ 155
$ 5
$ 837
Nine Months Ended September 30, 2018
(Dollars in thousands)

Commercial and
Industrial

Commercial
Real Estate

Commercial
Construction

Small
Business

Residential
Real Estate

Home Equity
Other Consumer Total
Allowance for loan losses
Beginning balance $ 13,256
$ 31,453
$ 5,698
$ 1,577
$ 2,822
$ 5,390
$ 447
$ 60,643
Charge-offs (355 ) (82 ) —
(237 ) (148 ) (261 ) (926 ) (2,009 )
Recoveries 179
67
—
29
12
128
611
1,026
Provision (benefit) 2,028
830
(671 ) 399
385
297
307
3,575
Ending balance $ 15,108
$ 32,268
$ 5,027
$ 1,768
$ 3,071
$ 5,554
$ 439
$ 63,235
Ending balance: collectively evaluated for impairment $ 15,101
$ 32,234
$ 5,027
$ 1,767
$ 2,197
$ 5,386
$ 426
$ 62,138
Ending balance: individually evaluated for impairment $ 7
$ 34
$ —
$ 1
$ 874
$ 168
$ 13
$ 1,097

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

	Six Months Ended June 30, 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 (2)	(1,984		)	(13,048		)	(3,652		)	495			9,828		7,012			212			(1,137		)
Cumulative effect accounting adjustment (3)	49			337			—			—			423		319			29			1,157
Charge-offs	—			—			—			(145		)	—		(142		)	(1,157		)	(1,444		)
Recoveries	46			—			—			6			1		153			654			860
Provision for credit loss expense	9,957			16,732			2,100			2,459			1,354		11,942			456			45,000
Ending balance (1)	$	25,662		$	36,956		$	4,501		$	4,561		$	15,046	$	24,860		$	590		$	112,176


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


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


(3)	Represents adjustment needed to reflect the day one 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.

The balance of allowance for credit losses of $112.2 million as of June 30, 2020 represents an increase of $44.4 million, or 65.5%, in comparison to the implementation balances at January 1, 2020, and an increase of $19.8 million, or 21.4% compared to March 31, 2020. This increase in the allowance during the second quarter and in comparison to December 31, 2019 was primarily driven by anticipated 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 both March 31, 2020 and June 30, 2020, as compared to the baseline forecast that was used to calculate opening balances on January 1, 2020 as a result of the uncertainty in the outlook due to the ongoing pandemic. In addition, the impacts of the pandemic have become more apparent during the second quarter of 2020, 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 future losses across a broad range of loan segments. As such, the provision for credit loss recognized in 2020 reflects increased reserve allocations to loan segments that are considered to have elevated loss exposure associated with the COVID-19 pandemic. These loan segments primarily include commercial relationships within industries that are subject to mandated closures and capacity limits that will potentially impede the borrowers’ ability to make loan payments, including loans in the following industry sections: Accommodations, Food Services, Retail Trade, Health Care and Social Assistance, Recreation

and Entertainment, Transportation and Warehousing, Educational Services, and Other Services (excluding Public Administration). In addition to these industry exposures, additional risk of loss was attributable to non-owner occupied real estate borrowers with significant retail tenant exposure, as well as home equity loans within a junior lien position. Leveraging actual historical loss given default (LGD) rates combined with stressing of assumptions over probability of default rates over these higher risk segments, qualitative adjustments were made to the initially model-driven calculated loss reserves.

For the purpose of estimating the allowance for ~~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. 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, continuous strategy for evaluating and monitoring commercial credit quality. Initially, credit quality is determined at loan origination and is re-evaluated when subsequent actions, such as renewals, modifications or reviews, occur. Actively managed commercial borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by an experienced credit ~~analysis group,~~professionals, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. Any changes in credit quality are reflected in risk-rating changes. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis. Loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the Coronavirus Aid, Relief and Economic Recovery Act ("CARES Act") have not been assessed for downgrades of risk ratings.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. As a result, for this portfolio the Company utilizes a pass/default risk-rating system, based on an age analysis (i.e., days past due) associated with each consumer loan. Under this structure, consumer loans less than 90 days past due are assigned a "pass" rating, while any consumer loans greater than 90 days past due are assigned a "default" rating. Loan modifications granted by the Company allowing payment deferrals for qualifying borrowers in accordance with the CARES Act have not been reflected as delinquent loans.

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

September 30, 2019
Category
Risk
Rating

Commercial and
Industrial

Commercial
Real Estate

Commercial
Construction
Small Business Total
(Dollars in thousands)
Pass 1 - 6 $ 1,299,386
$ 3,857,847
$ 514,521
$ 169,023
$ 5,840,777
Potential weakness 7 47,727
89,772
4,235
1,434
143,168
Definite weakness-loss unlikely 8 64,403
52,868
1,829
1,581
120,681
Partial loss probable 9 —
—
—
—
—
Definite loss 10 —
—
—
—
—
Total $ 1,411,516
$ 4,000,487
$ 520,585
$ 172,038
$ 6,104,626


		December 31, 2018										June 30, 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	$	911,414	(1)	$	193,832	$	129,199	$	44,664	$	27,640	$	25,095	$	565,953	$	2,668	$	1,900,465
Potential weakness	7	16,860		56,840		298		888		74,886		1,896			1,818		1,426		4,787		1,609		544		12,515		50		24,645
Definite weakness-loss unlikely	8	58,909		37,419		2,983		1,937		101,248
Definite weakness - loss unlikely												2,124			1,779		23,609		5,552		2,555		1,430		42,437		—		79,486
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												$	915,434		$	197,429	$	154,234	$	55,003	$	31,804	$	27,118	$	620,905	$	2,718	$	2,004,645

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

Commercial construction
Pass												$	91,981		$	241,910	$	95,253	$	66,282	$	—	$	6,810	$	32,012	$	1,095	$	535,343
Potential weakness												—			367		382		—		—		—		177		—		926
Definite weakness - loss unlikely												—			—		1,519		—		—		—		—		—		1,519
Partial loss probable												—			—		—		—		—		—		—		—		—
Definite loss												—			—		—		—		—		—		—		—		—
Total commercial construction												$	91,981		$	242,277	$	97,154	$	66,282	$	—	$	6,810	$	32,189	$	1,095	$	537,788

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

Residential real estate
Pass												$	78,072		$	185,896	$	213,340	$	187,713	$	263,749	$	495,816	$	—	$	—	$	1,424,586
Default												—			—		427		939		369		4,808		—		—		6,543
Total residential real estate												$	78,072		$	185,896	$	213,767	$	188,652	$	264,118	$	500,624	$	—	$	—	$	1,431,129

Home equity
Pass												$	43,516		$	70,369	$	64,874	$	64,569	$	49,347	$	130,900	$	691,110	$	2,635	$	1,117,320
Default												—			—		—		15		—		419		2,466		303		3,203
Total home equity												$	43,516		$	70,369	$	64,874	$	64,584	$	49,347	$	131,319	$	693,576	$	2,938	$	1,120,523



Other consumer
Pass	$	451	$	566	$	266	$	916	$	836	$	9,193	$	11,965	$	—	$	24,193
Default	—		—		—		—		—		35		—		—		35
Total other consumer	$	451	$	566	$	266	$	916	$	836	$	9,228	$	11,965	$	—	$	24,228

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


(1)	Loans originated as part of the Payroll Protection Program ("PPP") program established by the CARES Act are included within commercial and industrial under the 2020 vintage year and "pass" category as these loans are 100% guaranteed by the U.S. government.

For the Company’s consumer portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. However, the Company does supplement performance data with current Fair Isaac Corporation (“FICO”) scores and Loan to Value (“LTV”) estimates. Current FICO data is purchased and appended to all consumer loans on a regular basis. In addition, automated valuation services and broker opinions of value are used to supplement original value data for the residential and home equity portfolios, periodically. The following table shows the weighted average FICO scores and the weighted average combined LTV ratios as of the periods indicated below:


	September 30 2019		December 31 2018		June 30 2020		December 31 2019
Residential portfolio
FICO score (re-scored)(1)	749		749		750		749
LTV (re-valued)(2)	60.0	%	58.6	%	57.4	%	59.0	%
Home equity portfolio
FICO score (re-scored)(1)	767		767		770		767
LTV (re-valued)(2)(3)	47.1	%	49.3	%	47.0	%	46.6	%

(1)

The average FICO scores at ~~September~~June 30, ~~2019~~2020 are based upon rescores available from ~~June 2019 or~~May 2020 and origination score data for loans booked ~~through September 2019.~~in June 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 ~~September~~June 30, ~~2019~~2020 are based upon updated automated valuations as of ~~August 2019,~~May 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.~~available as of such date. The updated automated valuations provide new information on loans that may be available since the previous valuation was obtained. If no new information is available, the valuation will default to the previously obtained data or most recent appraisal.


(3)	For home equity loans and lines in a subordinate lien, the LTV data represents a combined LTV, taking into account the senior lien data for loans and lines.

Unfunded Commitments

Management evaluates the need for a reserve on unfunded lending commitments in a manner consistent with loans held for investment. At June 30, 2020, the Company's estimated reserve for unfunded commitments amounted to $790,000.

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.

In response to the COVID-19 pandemic, the Company has granted loan modifications to allow deferral of payments for borrowers negatively impacted by the pandemic. The amount of loans with active deferrals as of June 30, 2020 was $1.2 billion. In accordance with regulatory guidance, these modifications are not considered to be troubled debt restructures if they were performing prior to December 31, 2019. Additionally, these loans are not reflected as being past due and therefore are not impacting nonaccrual or delinquency totals as of June 30, 2020. The Company does, however, consider these deferrals when estimating loss reserves.

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

September 30, 2019 December 31, 2018
(Dollars in thousands)
Commercial and industrial $ 23,507
$ 26,310
Commercial real estate 1,666
3,015
Commercial construction —
311
Small business 112
235
Residential real estate 11,281
8,251
Home equity 6,720
7,278
Other consumer 74
13
Total nonaccrual loans (1) $ 43,360
$ 45,413



	Nonaccrual Balances
	June 30, 2020							December 31, 2019
	With Allowance for Credit Losses		Without Allowance for Credit Losses		Total			Total
	(Dollars in thousands)
Commercial and industrial	$	1,045	$	19,691	$	20,736		$	22,574
Commercial real estate	2,169		4,144		6,313			3,016
Commercial construction	—		—		—			—
Small business	619		—		619			311
Residential real estate	12,331		2,230		14,561			13,360
Home equity	6,329		108		6,437			6,570
Other consumer	90		—		90			61
Total nonaccrual loans	$	22,583	$	26,173	$	48,756	(1)	$	45,892	(1)

(1)Included in these amounts were ~~$26.2~~$24.1 million and ~~$29.3~~$24.8 million of nonaccruing TDRs at ~~September~~June 30, ~~2019~~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, and as such the Company did not record any interest income on nonaccrual loans during the three and six months ended June 30, 2020.

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


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
Foreclosed residential real estate property held by the creditor	$	2,500	$	—	$	—	$	—
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure	$	4,141	$	3,174	$	2,642	$	3,294

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


	September 30, 2019																			June 30, 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	$	278	2	$	100	3	$	39	6	$	417	$	1,411,099	$	1,411,516	$	—		2		$	32		—		$	—		6		$	1,045		8		$	1,077		$	2,003,568	$	2,004,645	$	—
Commercial real estate	6	1,641		2	238		4	1,021		12	2,900		3,997,587		4,000,487		—			5		3,550			1		68			5		935			11		4,553			4,066,494		4,071,047		—
Commercial construction	—	—		—	—		—	—		—	—		520,585		520,585		—			—		—			1		510			—		—			1		510			537,278		537,788		—
Small business	10	315		5	260		7	99		22	674		171,364		172,038		—			13		917			17		453			11		123			41		1,493			168,795		170,288		—
Residential real estate	24	3,267		6	1,257		40	8,317		70	12,841		1,631,917		1,644,758		1,807		(1)	15		2,819			8		1,247			38		6,333			61		10,399			1,420,730		1,431,129		—
Home equity	23	1,974		8	982		36	3,314		67	6,270		1,130,839		1,137,109		511		(1)	8		554			8		671			40		3,203			56		4,428			1,116,095		1,120,523		—
Other consumer ~~(2)~~(1)	307	233		8	44		16	62		331	339		26,669		27,008		24			163		189			13		27			13		94			189		310			23,918		24,228		58
Total	371	$	7,708	31	$	2,881	106	$	12,852	508	$	23,441	$	8,890,060	$	8,913,501	$	2,342		206		$	8,061		48		$	2,976		113		$	11,733		367		$	22,770		$	9,336,878	$	9,359,648	$	58

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:


	September 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
TDRs on accrual status	$	20,182	$	23,849		$	17,741	$	19,599
TDRs on nonaccrual	26,232		29,348			24,098		24,766
Total TDRs	$	46,414	$	53,197		$	41,839	$	44,365
Amount of specific reserves included in the allowance for loan losses associated with TDRs	$	837	$	1,079
Amount of specific reserves associated with TDRs						n/a		$	855
Additional commitments to lend to a borrower who has been a party to a TDR	$	61	$	982		$	139	$	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~~troubled debt restructurings which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring:

Three Months Ended Nine Months Ended
September 30, 2019 September 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
$ 87
$ 87
2
$ 184
$ 184
Commercial real estate 1
133
133
2
283
283
Small business 1
19
19
2
33
33
Residential real estate 1
163
168
1
163
168
Home equity 1
46
46
2
121
121
Total 5
$ 448
$ 453
9
$ 784
$ 789



	Three Months Ended					Six Months Ended
	June 30, 2020					June 30, 2020
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled debt restructurings
Commercial and industrial	1	$	40	$	40	3	$	308	$	308
Commercial real estate	4	1,170		1,170		5	1,774		1,774
Small business	1	63		63		2	112		88
Residential real estate	1	382		433		2	559		642
Home equity	—	—		—		—	—		—
Other consumer	—	—		—		—	—		—
Total	7	$	1,655	$	1,706	12	$	2,753	$	2,812



	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 Nine Months Ended
September 30, 2018 September 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 and industrial 2
$ 126
$ 126
2
$ 126
$ 126
Commercial real estate 1
205
205
2
650
650
Residential real estate 3
503
523
4
652
672
Home equity 2
74
74
8
546
546
Total 8
$ 908
$ 928
16
$ 1,974
$ 1,994

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				Nine Months Ended				Three Months Ended		Six Months Ended
	September 30				September 30				June 30		June 30
	2019		2018		2019		2018		2020	2019	2020		2019
	(Dollars in thousands)				(Dollars in thousands)				(Dollars in thousands)
Adjusted interest rate	$	—	$	—	$	150	$	—	—	—	$	604	$	150
Combination rate and maturity	—		237		—		237
Court ordered concession	—		74		75		695		—	—	25		75
Extended maturity	453		617		606		1,062		1,706	153	2,183		153
Total	$	453	$	928	$	831	$	1,994	1,706	153	$	2,812	$	378

The Company considers a loan to have defaulted when it reaches 90 days past due. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, there were 0 loans modified during the ~~proceeding~~prior twelve months that subsequently defaulted. ~~At September~~During the three and six months ended June 30, ~~2018,~~2019 there ~~were 0 loans~~was 1 residential loan modified during the ~~past~~preceding twelve months ~~that~~with a recorded investment of $120,000, which 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 ~~nine months ended September 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~~periods indicated:



	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

	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

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:

September 30, 2019

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance
(Dollars in thousands)
With no related allowance recorded
Commercial and industrial $ 25,788
$ 36,356
$ —
Commercial real estate 12,588
12,797
—
Small business 225
235
—
Residential real estate 5,009
5,161
—
Home equity 4,373
4,633
—
Other consumer 37
38
—
Subtotal 48,020
59,220
—
With an allowance recorded
Commercial and industrial $ 349
$ 350
$ 6
Commercial real estate 1,396
1,396
41
Small business 90
127
11
Residential real estate 6,030
6,934
619
Home equity 952
1,114
155
Other consumer 103
114
5
Subtotal 8,920
10,035
837
Total $ 56,940
$ 69,255
$ 837


	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 indicated:

Three Months Ended Nine Months Ended
September 30, 2019 September 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 $ 25,694
$ 35
$ 27,937
$ 108
Commercial real estate 12,987
149
13,261
478
Small business 235
3
266
10
Residential real estate 5,031
57
5,061
175
Home equity 4,417
50
4,479
151
Other consumer 39
1
43
2
Subtotal 48,403
295
51,047
924
With an allowance recorded
Commercial and industrial $ 353
$ 4
$ 360
$ 13
Commercial real estate 1,402
20
1,415
60
Small business 92
—
95
2
Residential real estate 6,047
61
6,115
179
Home equity 959
11
972
33
Other consumer 107
1
116
3
Subtotal 8,960
97
9,073
290
Total $ 57,363
$ 392
$ 60,120
$ 1,214


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30, 2018				September 30, 2018				June 30, 2019				June 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	31,376	$	28	$	32,424	$	89	$	27,406	$	34	$	28,971	$	70
Commercial real estate	12,040		135		12,423		428		7,496		92		7,582		186
Small business	432		4		478		13		309		2		319		6
Residential real estate	4,798		56		4,826		173		4,713		58		4,727		113
Home equity	5,078		58		5,185		168		4,751		53		4,783		107
Other consumer	62		1		66		3		42		1		45		1
Subtotal	53,786		282		55,402		874		44,717		240		46,427		483
With an allowance recorded
Commercial and industrial	$	324	$	4	$	330	$	11	$	268	$	3	$	270	$	6
Commercial real estate	1,701		24		1,715		71		1,662		24		1,672		49
Small business	148		3		154		8		190		2		192		5
Residential real estate	8,057		69		8,194		207		6,707		59		6,775		116
Home equity	1,453		14		1,467		39		972		11		978		22
Other consumer	187		1		194		4		132		2		135		2
Subtotal	11,870		115		12,054		340		9,931		101		10,022		200
Total	$	65,656	$	397	$	67,456	$	1,214	$	54,648	$	341	$	56,449	$	683

Purchased Credit Impaired Loans

~~Certain~~Under previous accounting guidance, certain loans acquired by the Company 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~~were predicated upon future cash flows expected to be collected. The following table displays certain information pertaining to PCI loans at the ~~dates~~date indicated:


	September 30, 2019		December 31, 2018		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
Outstanding balance	$	19,822	$	9,749	$	18,358
Carrying amount	$	15,959	$	8,795	$	14,856

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


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30			Six Months Ended June 30
	2019			2018			2019			2018			2019			2019
	(Dollars in thousands)												(Dollars in thousands)
Beginning balance	$	2,238		$	1,604		$	1,191		$	1,791		$	1,164		$	1,191
Acquisition	—			—			1,464			—			1,464			1,464
Accretion	(412		)	(518		)	(1,215		)	(931		)	(662		)	(803		)
Other change in expected cash flows (1)	237			104			623			308			272			386
Reclassification from nonaccretable difference for loans which have paid off (2)	227			203			227			225
Ending balance	$	2,290		$	1,393		$	2,290		$	1,393		$	2,238		$	2,238

(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.dates indicated below:



	June 30, 2020		December 31, 2019
	(Dollars in thousands)
Balances not subject to amortization
Goodwill	$	506,206	$	506,206
Balances subject to amortization
Core deposit intangibles	25,052		28,016
Other intangible assets	944		1,270
Total other intangible assets	25,996		29,286
Total goodwill and other intangible assets	$	532,202	$	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 London Inter-Bank Offered Rate ("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 of these borrowings for funding needs related to the second quarter closing of BHB. During the second~~third quarter of ~~2019,~~the year, unless certain indicators suggest earlier testing to be warranted. The COVID-19 global pandemic commencing during the first quarter of 2020 has resulted in significant levels of volatility in the capital markets and presents heightened uncertainty surrounding the future impact to operations of the Company ~~repaid~~and its customers. Given these conditions, the Company identified this impact from the pandemic as a triggering event warranting an interim test for impairment at both March 31, 2020 and June 30, 2020. Accordingly, the Company performed impairment tests and determined that there was no impairment of its goodwill, as the fair value of the Company's single reporting unit remained 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 June 30, 2020.

NOTE 7 -EARNINGS PER SHARE

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


	Three Months Ended				Nine Months Ended						Three Months Ended				Six Months Ended
	September 30				September 30						June 30				June 30
	2019		2018		2019			2018			2020		2019		2020		2019
	(Dollars in thousands, except per share data)										(Dollars in thousands, except per share data)
Net income	$	51,845	$	33,015	$	117,698		$	91,688		$	24,902	$	30,628	$	51,653	$	65,853

Weighted Average Shares
Basic shares	34,361,176		27,537,841		32,283,196			27,517,210			32,944,761		34,313,492		33,564,596		31,226,985
Effect of dilutive securities	39,390		63,499		45,416			62,596			28,098		41,878		31,991		48,381
Diluted shares	34,400,566		27,601,340		32,328,612			27,579,806			32,972,859		34,355,370		33,596,587		31,275,366

Net income per share
Basic EPS	$	1.51	$	1.20	$	3.65		$	3.33		$	0.76	$	0.89	$	1.54	$	2.11
Effect of dilutive securities	—		—		(0.01		)	(0.01		)	—		—		—		—
Diluted EPS	$	1.51	$	1.20	$	3.64		$	3.32		$	0.76	$	0.89	$	1.54	$	2.11

~~During~~

The diluted earnings per share computations do not assume the ~~three months ended September 30, 2019 there were 5,000 options to purchase~~conversion, exercise, or contingent issuance 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 ~~stock and 0~~ shares ~~of performance-based restricted stock that were~~ excluded from the calculation of diluted earnings per share because they were anti-dilutive. There were 0 such options or shares of performance-based restricted stock that were anti-dilutive during the three months ended September 30, 2018 or during the nine months ended September 30, 2019 and 2018.are as follows:



	Three Months Ended		Six Months Ended
	June 30		June 30
	2020	2019	2020	2019
Stock options	10,000	—	10,000	—
Performance-based restricted stock	—	—	9,763	11,419

NOTE 8 - STOCK BASED COMPENSATION

Time Vested Restricted Stock Awards

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~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
4/15/2020	880	2005 Employee Stock Plan	$	68.14	Ratably over 5 years from grant date
5/27/2020	9,438	2018 Non-Employee Director Stock Plan	$	72.86	Shares vested immediately

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 ~~nine~~six months ended ~~September~~June 30, ~~2019.~~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~~as of the ~~periods~~dates indicated below for interest rate derivatives which qualify as cash flow hedges for accounting purposes:


September 30, 2019
June 30, 2020										June 30, 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	2.43	2.12	%	1.53	%	$	5		$	175,000	1.95	0.32	%	0.94	%	$	(2,283	)

				Current Rate Paid		Receive Fixed Swap Rate								Current Rate Paid		Receive Fixed Swap Rate
Interest rate swaps on loans	400,000		3.76	2.03	%	2.47	%	16,389			450,000		3.16	0.18	%	2.37	%	32,484

				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		3.74	2.03	%	2.87% - 2.32%		12,913			400,000		3.17	0.18	%	2.73% - 2.20%		26,322

Total	$	825,000						$	29,307		$	1,025,000						$	56,523


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 ~~4.6~~4.4 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 ~~$5.8~~$18.4 million (pre-tax) to be reclassified to interest income and ~~$201,000~~$1.2 million (pre-tax) to be reclassified ~~as an offset~~ to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of ~~September~~June 30, ~~2019.~~

The Company recognized $61,000 and $183,000 of net amortization income that was an offset to interest expense related to previously terminated swaps for the three and nine month periods ended September 30, 2018, respectively. The Company did not recognize any amortization income related to previously terminated swaps for the three and nine month periods ended September 30, 2019.

2020.

The Company had 0 fair value hedges as of ~~September~~June 30, ~~2019~~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 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)
	September 30, 2019																June 30, 2020
	(Dollars in thousands)																(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	305	$	74,074	$	225,274	$	43,837	$	200,589	$	1,064,509	$	1,608,283	$	71,302		324	$	140,331	$	71,765	$	123,243	$	139,981	$	1,231,251	$	1,706,571	$	153,344
Pay fixed, receive variable	296	$	74,074	$	225,274	$	43,837	$	200,589	$	1,064,509	$	1,608,283	$	(71,292	)	316	$	143,646	$	71,765	$	123,243	$	139,981	$	1,231,251	$	1,709,886	$	(153,348	)
Foreign exchange contracts																	Foreign exchange contracts
Buys foreign currency, sells U.S. currency	41	$	82,118	$	—	$	—	$	—	$	—	$	82,118	$	(3,305	)	37	$	108,120	$	—	$	—	$	—	$	—	$	108,120	$	1,007
Buys U.S. currency, sells foreign currency	41	$	82,118	$	—	$	—	$	—	$	—	$	82,118	$	3,345		37	$	108,120	$	—	$	—	$	—	$	—	$	108,120	$	(963	)
	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 fair value of loans held for sale increased by ~~$272,000~~$583,000 and ~~$103,000~~$919,000 for the three month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The fair value ~~associated~~

~~with~~of loans held for sale increased by ~~$1.2 million~~$839,000 and ~~$147,000~~$920,000 for the ~~nine months~~six month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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 ~~$5.5~~$6.1 million and ~~$1.1~~$3.3 million for the three month periods ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$9.5~~$10.6 million and ~~$2.6~~$4.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Balance Sheet Offsetting

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

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

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	September 30 2019		December 31 2018		Balance Sheet Location	September 30 2019		December 31 2018		June 30 2020			December 31 2019			June 30 2020			December 31 2019
	(Dollars in thousands)										(Dollars in thousands)
Derivatives designated as hedges
Interest rate derivatives	Other assets	$	29,551	$	8,955	Other liabilities	$	244	$	391	$	58,806	(3)	$	23,140	(3)	$	2,283	(4)	$	197	(4)
Derivatives not designated as hedges
Customer Related Positions
Loan level derivatives	Other assets	$	71,554	$	15,580	Other liabilities	$	71,544	$	15,584	153,347		(3)	52,374		(3)	153,351		(4)	52,369		(4)
Foreign exchange contracts	Other assets	3,345		1,578		Other liabilities	3,305		1,548		1,542			1,191			1,498			1,149
Mortgage Derivatives
Interest rate lock commitments	Other assets	2,133		91		Other liabilities	—		—		5,435			1,680			—			—
Forward sale loan commitments	Other assets	—		106		Other liabilities	41		—		—			—			572			12
Forward sale hedge commitments	Other assets	18		—		Other liabilities	—		—		—			—			765			196
Total derivatives not designated as hedges											160,324			55,245			156,186			53,726
Total											219,130			78,385			158,469			53,923
		$	77,050	$	17,355		$	74,890	$	17,132
Total		$	106,601	$	26,310		$	75,134	$	17,523
Netting Adjustments (5)											290			—			19,043			—
Net Derivatives on the Balance Sheet											219,420			78,385			139,426			53,923

Financial instruments (6)											58,807			24,882			58,807			24,882
Cash collateral pledged (received)											—			—			76,733			25,493
Net Derivative Amounts											$	160,613		$	53,503		$	3,886		$	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 $1.1 million and $1.9 million of accrued interest receivable is included in the fair value of the interest rate and loan level asset derivatives, respectively, as of June 30, 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 $177,000 of accrued interest receivable is included in the fair value of interest rate derivative liabilities as of June 30, 2020. Approximately $2.0 million of accrued interest payable is included in the fair value of the loan level derivative liabilities as of June 30, 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. As displayed in the table above, derivatives that cleared through the CME were either in a net asset position or a net liability position as of June 30, 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						Nine Months Ended						Three Months Ended					Six Months Ended
	September 30						September 30						June 30					June 30
	2019			2018			2019			2018			2020		2019			2020			2019
	(Dollars in thousands)												(Dollars in thousands)
Derivatives designated as hedges
Gain (loss) in OCI on derivatives (effective portion), net of tax	$	3,030		$	(405	)	$	14,905		$	(302	)
Gain in OCI on derivatives (effective portion), net of tax													$	197	$	8,590		$	23,181		$	11,875
Gain reclassified from OCI into interest income or interest expense (effective portion)	$	352		$	268		$	1,170		$	525		$	3,976	$	394		$	5,562		$	818
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	$	10		$	3		$	37		$	27		$	3	$	14		$	25		$	27
Other expense	(2		)	(10		)	(13		)	(28		)	—		(10		)	(24		)	(11		)
Changes in fair value of mortgage derivatives
Mortgage banking income	366			(139		)	1,913			14			3,347		1,488			2,626			1,547
Total	$	374		$	(146	)	$	1,937		$	13		$	3,350	$	1,492		$	2,627		$	1,563

The Company's derivative agreements with institutional counterparties contain various credit-risk related contingent provisions, such as requiring the Company to maintain a well-capitalized capital position. If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was ~~$42.2~~$96.8 million and ~~$176,000~~$26.0 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Although none of the contingency provisions have applied as of ~~September~~June 30, ~~2019~~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 ~~$30.0~~$58.8 million and ~~$18.4~~$25.4 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company’s exposure relating to customer counterparties was approximately ~~$71.7~~$153.3 million and ~~$6.4~~$51.0 million at ~~September~~June 30, ~~2019~~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 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
September 30, 2019
(Dollars in thousands)
Derivative Assets
Interest rate swaps $ 29,551
$ —
$ 29,551
$ 29,551
$ —
$ —
Loan level derivatives 71,554
—
71,554
126
—
71,428
Customer foreign exchange contracts 3,345
—
3,345
—
—
3,345
$ 104,450
$ —
$ 104,450
$ 29,677
$ —
$ 74,773

Derivative Liabilities
Interest rate swaps $ 244
$ —
$ 244
$ —
$ 244
$ —
Loan level derivatives 71,544
—
71,544
29,677
41,192
675
Customer foreign exchange contracts 3,305
—
3,305
—
—
3,305
$ 75,093
$ —
$ 75,093
$ 29,677
$ 41,436
$ 3,980



	Three Months Ended						Six Months Ended
	June 30						June 30
	2020			2019			2020			2019
	(Dollars in thousands)
Combined federal and state income tax provision	$	7,779		$	10,007		$	9,927		$	21,529
Effective income tax rate	23.80		%	24.63		%	16.12		%	24.64		%


~~(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 $7.8 million and $10.0 million for the three months ended June 30, 2020 and 2019, respectively, and $9.9 million and $21.5 million for the six months ended June 30, 2020 and 2019, respectively. The lower tax provision for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was due to a $4.7 million discrete tax benefit recognized in the first quarter of 2020. 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.

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 ~~September~~June 30, ~~2019~~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)
	September 30, 2019								June 30, 2020
	(Dollars in thousands)								(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	1,963	$	1,963	$	—	$	—	$	2,541	$	2,541	$	—	$	—
Equity securities	21,021		21,021		—		—		20,810		20,810		—		—
Securities available for sale
U.S. Government agency securities	33,302		—		33,302		—
U.S. government agency securities									24,345		—		24,345		—
Agency mortgage-backed securities	200,603		—		200,603		—		248,805		—		248,805		—
Agency collateralized mortgage obligations	94,538		—		94,538		—		80,812		—		80,812		—
State, county, and municipal securities	1,736		—		1,736		—		1,147		—		1,147		—
Single issuer trust preferred securities issued by banks and insurers	720		—		720		—		445		—		445		—
Pooled trust preferred securities issued by banks and insurers	1,106		—		—		1,106		986		—		—		986
Small business administration pooled securities	59,970		—		59,970		—		63,977		—		63,977		—
Loans held for sale	55,937		—		55,937		—		45,395		—		45,395		—
Derivative instruments	106,601		—		106,601		—		219,130		—		219,130		—
Liabilities
Derivative instruments	75,134		—		75,134		—		158,469		—		158,469		—
Total recurring fair value measurements	$	502,363	$	22,984	$	478,273	$	1,106	$	549,924	$	23,351	$	525,587	$	986

Nonrecurring fair value measurements
Assets
Collateral dependent impaired loans	$	32,645	$	—	$	—	$	32,645
Other real estate owned and other foreclosed assets	2,500		—		—		2,500
Individually assessed collateral dependent loans									$	37,419	$	—	$	—	$	37,419
Total nonrecurring fair value measurements	$	35,145	$	—	$	—	$	35,145	$	37,419	$	—	$	—	$	37,419


			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~~for the ~~dates~~periods indicated:


	Three Months Ended						Three Months Ended
	September 30						June 30
	2019			2018			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Pooled Trust Preferred Securities
Beginning balance	$	1,281		$	1,751		$	1,009		$	1,314
Gains and (losses) (realized/unrealized)
Gain and (losses) (realized/unrealized)
Included in other comprehensive income	(14		)	55			(19		)	(27		)
Settlements	(161		)	(6		)	(4		)	(6		)
Ending balance	$	1,106		$	1,800		$	986		$	1,281

	Nine Months Ended						Six Months Ended
	September 30						June 30
	2019			2018			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Pooled Trust Preferred Securities
Beginning balance	$	1,329		$	1,640		$	1,114		$	1,329
Gains and (losses) (realized/unrealized)
Gain and (losses) (realized/unrealized)
Included in other comprehensive income	(38		)	180			(79		)	(24		)
Settlements	(185		)	(20		)	(49		)	(24		)
Ending balance	$	1,106		$	1,800		$	986		$	1,281

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


		September 30 2019		December 31 2018			September 30 2019	December 31 2018	September 30 2019	December 31 2018		June 30 2020		December 31 2019			June 30 2020	December 31 2019	June 30 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		$	1,106	$	1,329	Cumulative prepayment	0% - 58%	0% - 59%	2.7%	2.1%		$	986	$	1,114	Cumulative prepayment	0% - 56%	0% - 57%	2.6%	2.6%
						Cumulative default	2% - 100%	5% - 100%	13.6%	16.2%						Cumulative default	2.0% - 100%	2% - 100%	13.3%	13.5%
						Loss given default	85% - 100%	85% - 100%	92.6%	94.8%						Loss given default	85% - 100%	85% - 100%	93.7%	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												$	37,419	n/a
Collateral dependent impaired loans		$	32,645	$	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~~dates indicated:


					Fair Value Measurements at Reporting Date Using										Fair Value Measurements at Reporting Date Using
	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	September 30, 2019										June 30, 2020
	(Dollars in thousands)										(Dollars in thousands)
Financial assets
Securities held to maturity(a)
U.S. government agency securities	$	12,853	$	12,999	$	—	$	12,999	$	—
U.S. Treasury securities	1,003		1,022		—		1,022		—		$	4,025	$	4,119	$	—	$	4,119	$	—
Agency mortgage-backed securities	418,350		427,211		—		427,211		—		431,901		453,036		—		453,036		—
Agency collateralized mortgage obligations	310,352		315,522		—		315,522		—		264,675		275,035		—		275,035		—
Single issuer trust preferred securities issued by banks	1,500		1,490		—		1,490		—		1,500		1,498		—		1,498		—
Small business administration pooled securities	33,212		33,919		—		33,919		—		28,925		30,366		—		30,366		—
Loans, net of allowance for loan losses(b)	8,813,914		8,638,200		—		—		8,638,200
Loans, net of allowance for credit losses(b)											9,210,053		9,135,814		—		—		9,135,814
Federal Home Loan Bank stock(c)	14,976		14,976		—		14,976		—		15,090		15,090		—		15,090		—
Cash surrender value of life insurance policies(d)	195,883		195,883		—		195,883		—		198,124		198,124		—		198,124		—
Financial liabilities
Deposit liabilities, other than time deposits(e)	$	7,855,975	$	7,855,975	$	—	$	7,855,975	$	—	$	9,624,604	$	9,624,604	$	—	$	9,624,604	$	—
Time certificates of deposits(f)	1,470,116		1,470,062		—		1,470,062		—		1,092,217		1,101,553		—		1,101,553		—
Federal Home Loan Bank borrowings(f)	70,708		70,850		—		70,850		—		145,770		146,068		—		146,068		—
Long-term borrowings(f)	74,894		72,497		—		72,497		—		37,433		36,317		—		36,317		—
Junior subordinated debentures(g)	62,848		65,835		—		65,835		—		62,850		66,591		—		66,591		—
Subordinated debentures(f)	84,341		87,884		—		—		87,884		49,648		47,765		—		—		47,765


					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				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30 2019		September 30 2018		September 30 2019		September 30 2018		June 30 2020		June 30 2019		June 30 2020		June 30 2019
	(Dollars in thousands)								(Dollars in thousands)
Deposit account fees (inclusive of cash management fees)	$	5,299	$	4,658	$	14,785	$	13,640	$	2,829	$	5,080	$	7,799	$	9,486
Interchange fees	4,913		3,943		13,473		11,267		4,536		4,825		8,640		8,560
ATM fees	939		825		2,461		2,215		525		856		1,164		1,522
Investment management - wealth management and advisory services	6,635		5,912		19,127		17,577		6,827		6,423		13,116		12,492
Investment management - retail investments and insurance revenue	553		652		1,962		1,951		469		730		1,009		1,409
Merchant processing income	230		227		834		1,006		277		324		670		604
Credit card income									151		—		334		—
Other noninterest income	1,487		1,152		4,068		3,186		534		1,642		1,746		2,581
Total noninterest income in-scope of ASC 606	20,056		17,369		56,710		50,842		16,148		19,880		34,478		36,654
Total noninterest income out-of-scope of ASC 606	11,760		5,895		25,287		14,172		12,042		8,768		20,147		13,527
Total noninterest income	$	31,816	$	23,264	$	81,997	$	65,014	$	28,190	$	28,648	$	54,625	$	50,181

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~~dates indicated:

September 30, 2019 December 31, 2018
(Dollars in thousands)
Receivables, included in other assets $ 2,124
$ 1,893



	June 30, 2020		December 31, 2019
	(Dollars in thousands)
Receivables, included in other assets	$	4,347	$	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~~periods indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):


	Three Months Ended September 30, 2019									Nine Months Ended September 30, 2019									Three Months Ended June 30, 2020									Six Months Ended June 30, 2020
	Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			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	$	2,858		$	(683	)	$	2,175		$	14,699		$	(3,401	)	$	11,298		$	2,332		$	(637	)	$	1,695		$	14,455		$	(3,413	)	$	11,042
Less: net security losses reclassified into other noninterest expense	—			—			—			(1,462		)	411			(1,051		)	—			—			—			—			—			—
Net change in fair value of securities available for sale	2,858			(683		)	2,175			16,161			(3,812		)	12,349			2,332			(637		)	1,695			14,455			(3,413		)	11,042

Change in fair value of cash flow hedges	4,568			(1,285		)	3,283			21,913			(6,167		)	15,746			4,250			(1,195		)	3,055			37,817			(10,638		)	27,179
Less: net cash flow hedge gains reclassified into interest income or interest expense	352			(99		)	253			1,170			(329		)	841			3,976			(1,118		)	2,858			5,562			(1,564		)	3,998
Net change in fair value of cash flow hedges	4,216			(1,186		)	3,030			20,743			(5,838		)	14,905			274			(77		)	197			32,255			(9,074		)	23,181

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period	(11		)	3			(8		)	(33		)	9			(24		)	(1		)	—			(1		)	(1,390		)	391			(999		)
Amortization of net actuarial gains	(2		)	1			(1		)	(6		)	2			(4		)
Amortization of net actuarial losses																			246			(69		)	177			491			(138		)	353
Amortization of net prior service costs	69			(19		)	50			207			(58		)	149			69			(20		)	49			138			(39		)	99
Net change in other comprehensive income for defined benefit postretirement plans (1)	56			(15		)	41			168			(47		)	121			314			(89		)	225			(761		)	214			(547		)
Total other comprehensive income	$	7,130		$	(1,884	)	$	5,246		$	37,072		$	(9,697	)	$	27,375		$	2,920		$	(803	)	$	2,117		$	45,949		$	(12,273	)	$	33,676



	Three Months Ended June 30, 2019									Six Months Ended June 30, 2019
	Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount
	(Dollars in thousands)
Change in fair value of securities available for sale	$	5,663		$	(1,269	)	$	4,394		$	11,841		$	(2,718	)	$	9,123
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

Change in fair value of cash flow hedges	12,349			(3,476		)	8,873			17,345			(4,882		)	12,463
Less: net cash flow hedge gains reclassified into interest income or interest expense	394			(111		)	283			818			(230		)	588
Net change in fair value of cash flow hedges	11,955			(3,365		)	8,590			16,527			(4,652		)	11,875

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

Three Months Ended
September 30, 2018 Nine Months Ended
September 30, 2018
Pre Tax
Amount Tax (Expense)
Benefit After Tax
Amount Pre Tax
Amount Tax (Expense)
Benefit After Tax
Amount
(Dollars in thousands)
Change in fair value of securities available for sale $ (2,988 ) $ 726
$ (2,262 ) $ (12,761 ) $ 3,107
$ (9,654 )
Less: net security gains reclassified into other noninterest income (expense) —
—
—
—
—
—
Net change in fair value of securities available for sale (2,988 ) 726
(2,262 ) (12,761 ) 3,107
(9,654 )

Change in fair value of cash flow hedges (296 ) 83
(213 ) 100
(25 ) 75
Less: net cash flow hedge gains reclassified into interest income or interest expense 268
(76 ) 192
525
(148 ) 377
Net change in fair value of cash flow hedges (564 ) 159
(405 ) (425 ) 123
(302 )

Amortization of net actuarial losses 94
(26 ) 68
281
(79 ) 202
Amortization of net prior service costs 69
(20 ) 49
207
(58 ) 149
Net change in other comprehensive income for defined benefit postretirement plans (1) 163
(46 ) 117
488
(137 ) 351
Total other comprehensive loss $ (3,389 ) $ 839
$ (2,550 ) $ (12,698 ) $ 3,093
$ (9,605 )

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

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.


(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, 2019, filed with the Securities and Exchange Commission.

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) 12,349
14,905
—
121
27,375
Ending balance: September 30, 2019 $ 6,402
$ 21,053
$ —
$ (1,253 ) $ 26,202
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) (9,654 ) (170 ) (132 ) 351
(9,605 )
Ending balance: September 30, 2018 $ (11,100 ) $ 983
$ 34
$ (2,581 ) $ (12,664 )



	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)	11,042			23,181		(547		)	33,676
Ending balance: June 30, 2020	$	15,440		$	39,660	$	(3,255	)	$	51,845
	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

~~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 September 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 September 30, 2019, the Company had 1 ATM location lease with a non-employee related party. The future lease payments under this lease do not have a material effect on the Company's financial position or result of operations. The Company does not have any material sub-lease agreements.

~~The Company's right-of-use asset related to operating leases was $51.8 million at September 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 Nine Months Ended
September 30, 2019
(Dollars in thousands)
Operating lease cost $2,881 $7,817
Short-term lease cost 39
82
Variable lease cost —
—
Total lease cost $2,920 $7,899

As of September 30, 2019, the weighted average remaining lease term for operating leases was 6.88 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.91%.

The following table sets forth the undiscounted cash flows of base rent related to operating leases outstanding at September 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 $ 2,845
2020 10,879
2021 9,986
2022 8,904
2023 6,889
Thereafter 19,860
Total minimum lease payments 59,363
Less: amount representing interest 5,922
Present value of future minimum lease payments $ 53,441

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:


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
	(Dollars in thousands)				(Dollars in thousands)
Commitments to extend credit	$	3,113,931	$	2,639,689	$	3,348,063	$	3,337,930
Standby letters of credit	22,943		16,708		19,507		21,565
Deferred standby letter of credit fees	197		122		129		158
Loans sold with recourse					391,567		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 ~~September~~June 30, ~~2019,~~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~~Historically, the Bank iswas required to maintain certain reserve requirements of vault cash and/or deposits with the Federal Reserve Bank of ~~Boston. The~~Boston, however the reserve requirement was ~~$48.7 million~~reduced to zero by the Federal Reserve during the first quarter of 2020 in response to the COVID-19 pandemic, and ~~$53.5 million~~as such there was 0 reserve requirement at ~~September~~June 30, ~~2019 and~~2020. There was also no reserve requirement balance necessary at December 31, ~~2018, respectively.~~2019 due to cash balances held at the Federal Reserve that were in excess of reserve requirements.

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:


	September 30 2019			December 31 2018		June 30 2020			December 31 2019
	(Dollars in thousands)					(Dollars in thousands)
Original investment value	$	75,471		$	50,232	$	124,212		$	96,275
Current recorded investment	53,618			33,681		95,958			72,510
Unfunded liability obligation	20,667			3,935		48,896			34,967
Tax credits and benefits	6,700		(1)	5,407		11,033		(1)	7,342
Amortization of investments	5,071		(2)	4,377		9,076		(2)	5,645
Net income tax benefit	1,628		(3)	1,030		1,957		(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.

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 Coronavirus ("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 ~~the London Inter-Bank Offered Rate ("LIBOR");~~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 recent 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
	September 30 2019			June 30 2019			March 31 2019			December 31 2018			September 30 2018			June 30 2020			March 31 2020			December 31 2019			September 30 2019			June 30 2019
	(Dollars in thousands, except per share data)															(Dollars in thousands, except per share data)
Financial condition data
Securities	$	1,192,229		$	1,213,253		$	1,083,126		$	1,075,223		$	1,011,577		$	1,174,894		$	1,236,780		$	1,190,670		$	1,192,229		$	1,213,253
Loans	8,913,501			8,950,787			6,976,872			6,906,194			6,527,402			9,359,648			8,916,430			8,873,639			8,913,501			8,950,787
Allowance for loan losses	(66,942		)	(65,960		)	(65,140		)	(64,293		)	(63,235		)
Allowance for credit losses																(112,176		)	(92,376		)	(67,740		)	(66,942		)	(65,960		)
Goodwill and other intangible assets	535,869			537,896			270,444			271,355			239,185			532,202			533,672			535,492			535,869			537,896
Total assets	11,538,639			11,603,199			8,997,457			8,851,592			8,375,497			13,022,500			11,980,240			11,395,165			11,538,639			11,603,199
Total deposits	9,326,091			9,307,915			7,463,602			7,427,120			6,976,239			10,716,821			9,416,198			9,147,367			9,326,091			9,307,915
Total borrowings	292,791			499,702			308,040			258,707			299,738			295,701			545,985			303,103			292,791			499,702
Stockholders’ equity	1,682,324			1,636,003			1,104,538			1,073,490			998,305			1,671,692			1,679,656			1,708,143			1,682,324			1,636,003
Nonperforming loans	45,702			45,294			43,331			45,418			45,394			48,814			48,040			48,049			45,702			45,294
Nonperforming assets	48,202			48,183			43,331			45,418			45,584			48,814			48,040			48,049			48,202			48,183
Income statement
Interest income	$	119,624		$	122,144		$	91,543		$	87,910		$	82,875		$	99,965		$	107,380		$	113,703		$	119,624		$	122,144
Interest expense																8,867			13,076			13,710			15,026			16,125
Net interest income																91,098			94,304			99,993			104,598			106,019
Provision for loan losses																20,000			25,000			4,000			—			1,000
Noninterest income																28,190			26,435			33,297			31,816			28,648
Noninterest expenses																66,607			66,840			67,445			67,533			93,032
Net income																24,902			26,751			47,477			51,845			30,628
Per share data
Net income—basic																$	0.76		$	0.78		$	1.38		$	1.51		$	0.89
Net income—diluted																0.76			0.78			1.38			1.51			0.89
Cash dividends declared																0.46			0.46			0.44			0.44			0.44
Book value per share																50.75			50.50			49.69			48.95			47.67
Tangible book value per share (1)																34.59			34.46			34.11			33.36			32.00
Performance ratios
Return on average assets																0.79		%	0.94		%	1.64		%	1.78		%	1.06		%
Return on average common equity																5.97		%	6.22		%	11.06		%	12.33		%	7.59		%
Net interest margin (on a fully tax equivalent basis)																3.25		%	3.74		%	3.90		%	4.03		%	4.09		%
Equity to assets																12.84		%	14.02		%	14.99		%	14.58		%	14.10		%
Dividend payout ratio																61.85		%	56.54		%	31.85		%	29.13		%	40.42		%
Asset Quality Ratios
Nonperforming loans as a percent of gross loans																0.52		%	0.54		%	0.54		%	0.51		%	0.51		%
Nonperforming assets as a percent of total assets																0.37		%	0.40		%	0.42		%	0.42		%	0.42		%
Allowance for credit losses as a percent of total loans																1.20		%	1.04		%	0.76		%	0.75		%	0.74		%

Interest expense 15,026
16,125
9,018
7,618
6,641
Net interest income 104,598
106,019
82,525
80,292
76,234
Provision for loan losses —
1,000
1,000
1,200
1,075
Noninterest income 31,816
28,648
21,533
23,491
23,264
Noninterest expenses 67,533
93,032
56,311
64,391
55,439
Net income 51,845
30,628
35,225
29,934
33,015
Per share data
Net income—basic $ 1.51
$ 0.89
$ 1.25
$ 1.08
$ 1.20
Net income—diluted 1.51
0.89
1.25
1.07
1.20
Cash dividends declared 0.44
0.44
0.44
0.38
0.38
Book value per share 48.95
47.67
39.26
38.23
36.25
Tangible book value per share (1) 33.36
32.00
29.64
28.57
27.56
Performance ratios
Return on average assets 1.78 % 1.06 % 1.62 % 1.38 % 1.57 %
Return on average common equity 12.33 % 7.59 % 13.10 % 11.49 % 13.19 %
Net interest margin (on a fully tax equivalent basis) 4.03 % 4.09 % 4.14 % 4.05 % 3.94 %
Equity to assets 14.58 % 14.10 % 12.28 % 12.13 % 11.92 %
Dividend payout ratio 29.13 % 40.42 % 30.29 % 34.96 % 31.69 %
Asset Quality Ratios
Nonperforming loans as a percent of gross loans 0.51 % 0.51 % 0.62 % 0.66 % 0.70 %
Nonperforming assets as a percent of total assets 0.42 % 0.42 % 0.48 % 0.51 % 0.54 %
Allowance for loan losses as a percent of total loans 0.75 % 0.74 % 0.93 % 0.93 % 0.97 %
Allowance for loan losses as a percent of nonperforming loans 146.47 % 145.63 % 150.33 % 141.56 % 139.30 %
Capital ratios
Tier 1 leverage capital ratio 10.83 % 10.45 % 10.64 % 10.69 % 10.49 %
Common equity tier 1 capital ratio 12.52 % 12.08 % 12.09 % 11.92 % 11.98 %
Tier 1 risk-based capital ratio 13.19 % 12.75 % 13.11 % 12.99 % 13.07 %
Total risk-based capital ratio 14.88 % 14.42 % 15.28 % 14.45 % 14.58 %



Allowance for credit losses as a percent of nonperforming loans	229.80	%	192.29	%	140.98	%	146.47	%	145.63	%
Capital ratios
Tier 1 leverage capital ratio	9.57	%	10.74	%	11.28	%	10.83	%	10.45	%
Common equity tier 1 capital ratio	12.26	%	11.95	%	12.86	%	12.52	%	12.08	%
Tier 1 risk-based capital ratio	12.94	%	12.60	%	13.53	%	13.19	%	12.75	%
Total risk-based capital ratio	14.73	%	14.13	%	14.83	%	14.88	%	14.42	%


(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 two quarters of 2020 were significantly impacted by $45.0 million of loan provision expense. Assumptions regarding the potential impact of the novel coronavirus ("COVID-19") pandemic were the primary driver over the elevated provision levels. 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 has varied, and restrictions may be tightened or re-instituted in the event of a resurgence of COVID-19 in a particular area, and 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~~a 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 is abiding by a state issued mandate requiring a temporary moratorium on foreclosures and has offered a variety of relief measures to its customers consistent with prudent banking principles and regulatory guidance. These relief measures may include: temporary deferrals of loan payments, waiving certain fees and permitting customers easier access to their deposits. The Company’s charitable foundations have engaged and will ~~also consider acquisition opportunities that can provide a satisfactory financial return, including the recent acquisition of MNB Bancorp ("MNB")~~continue to engage in outreach to local communities during this difficult time and have committed funds to be made available to key nonprofits with urgent needs, such as local food banks. The Company has been an active participant in the ~~fourth quarter~~government-sponsored Paycheck Protection Program ("PPP") loan program designed to help deploy stimulus funds to businesses within the community; funding over 5,600 loans for a total of ~~2018 and Blue Hills Bancorp ("BHB") in~~$793.0 million through the second quarter of ~~2019.~~2020. The Company will receive fee revenue of $26.2 million for the origination of these PPP loans.

From a capital standpoint, the Company completed a 1.5 million share repurchase buyback during the second quarter of 2020, and will closely monitor assumptions over various stress levels to guide capital management throughout the pandemic.

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 the trend of the Company's interest-earning assets over the past five quarters. For the ~~third~~second quarter of ~~2019,~~2020, the ~~decrease~~increase in interest-earning assets was ~~due~~driven primarily by an increase in commercial loan balances, reflecting the Company's PPP loan funding activity; as well as growth in cash balances attributable to ~~increased payoff activity within the loan portfolio.~~elevated deposits resulting from PPP fundings and government stimulus payments.

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. During the second quarter of 2020, the Company realized significant growth in deposits, which increased $1.3 billion, or 13.8%, to $10.7 billion, attributable to a combination of PPP loan fundings, government stimulus programs and an overall customer focus on retaining liquidity. Though some level of decline is expected as PPP funds are utilized and stimulus money is disbursed, the inflow of deposits resulted in an enhanced liquidity position for the Company, which it used to pay down various short-term and long-term borrowings during the quarter. 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 and third quarters of 2019 reflecting the increased percentage of time deposits as a result of the BHB acquisition:~~quarters:

~~As of September 30, 2019, core deposits comprised 82.49% of total deposits.~~ The cost of deposits for the ~~third~~second quarter was ~~0.50%~~at 0.28%, ~~reflecting an increase of 1~~a 20 basis point decrease when compared to the ~~second~~first quarter of ~~2019.~~2020 due primarily to deposit rate reductions. The Company's net interest margin was ~~4.03%~~3.25% for the quarter ended ~~September~~June 30, ~~2019,~~2020, reflecting a ~~six~~49 basis point decrease from the ~~second~~first quarter of ~~2019,~~2020. The table below illustrates the factors that contributed to this decline in the net interest margin for the second quarter:

~~which was driven primarily by lower asset yields linked to the July and September Federal Reserve Rate cuts.~~



Net Interest margin as of March 31, 2020	3.74	%
Decreased loan yields	(0.43	)%
Excess liquidity (cash) levels	(0.19	)%
PPP loan activity at 1% interest rate	(0.12	)%
PPP loan fee amortization	0.08	%
Loan purchase accounting (fair value mark amortization/accretion)	0.03	%
Decreased cost of funds	0.16	%
Other	(0.02	)%
Net interest margin as of June 30, 2020	3.25	%

The following table shows the net interest margin and cost of deposits trends for the trailing five quarters, noting the sharp declines in the second quarter as noted above.

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 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 third quarter of 2019, the Company’s effective tax rate was 24.73%, compared to 24.63% at June 30, 2019.

Capital

The Company's approach with respect to revenue ~~expense,~~ and ~~tax effectiveness~~expense is designed to promote long-term earnings ~~growth. Strong earnings retention has contributed~~growth, which in turn contributes to capital ~~growth, both on~~growth. During the second quarter of 2020, the Company completed the stock repurchases under its previously announced stock repurchase program. In total over the first half of 2020, the Company repurchased 1.5 million shares under the program at a total cost of $95.1 million and an ~~absolute level and~~average cost per share ~~basis.~~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 each of the first ~~three~~two quarters 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.

~~Third~~Second Quarter ~~2019~~2020 Results

Net income for the ~~third~~second quarter of ~~2019~~2020 was ~~$51.8~~$24.9 million, or ~~$1.51~~$0.76 on a diluted earnings per share basis, and ~~increased 57.0%~~decreased 18.7% and ~~25.8%~~14.6%, respectively, as compared to ~~$33.0~~$30.6 million, or ~~$1.20~~$0.89 on a diluted earnings per share basis, for the prior year ~~third~~second quarter. Results of the second quarter of 2020 were negatively impacted by continued elevated levels of provision for credit losses which is reflective of our assumptions and expectations regarding the potential future impact of the ongoing COVID-19 pandemic, as well as a lower net interest margin as a result of the lower interest rate environment. The ~~third~~second quarter of 2019 included ~~gain on the sale of loans and~~ merger and acquisition costs which the Company deems to be noncore. Excluding ~~the gain on the sale of loans and~~ merger and acquisition expenses, ~~third~~second quarter 2019 operating net income was ~~$51.7 million compared to~~$48.8 million. There were no such operating ~~net income from~~items for the ~~third~~first quarter of ~~2018 of $34.9 million, an increase of 47.9%.~~2020. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures.

~~2019~~2020 Outlook

During the Company’s ~~third~~second quarter ~~2019~~2020 earnings call, the Company's Chief Financial Officer ~~stated that he~~provided some near-term insights into a few key areas as follows:

Continued uncertainty over business activity is likely to challenge loan growth over the second half of 2020, despite strong pipelines at June 30, 2020;

Excluding any impact from changes in cash liquidity and PPP fee amortization, asset reinvestment into this low rate environment will likely continue to negatively impact asset yields, offset by some level of continued relief on interest expense, resulting in modest net interest margin compressing slightly over the latter half of 2020;

Some level of fee acceleration from closed PPP loans is anticipated over the second half of 2020, but the amounts and timing will be driven primarily by the ability of customers to utilize loan proceeds in accordance with program requirements to maximize forgiveness. Management anticipates ~~the following for~~some level of accelerated amortization in the fourth quarter of ~~2019:~~2020;

~~Assuming minimal changes~~The Company expects to see some declines in the ~~competitive~~elevated deposit balances observed during the second quarter over the second half of the year as PPP and ~~economic landscape, net loan growth~~other stimulus funds are utilized and disbursed;

With a modest pipeline of origination activity at June 30, 2020, mortgage banking income is expected to remain strong through at least the third quarter;

Impacts from the Durbin amendment will come into effect during the third quarter of 2020 and are expected to result in a decrease in interchange revenue of $4.5 - $5.0 million over the second half of the year;

Overall expenses are expected to remain relatively ~~flat~~consistent for remainder of the year, with a focus on identifying opportunities for operational efficiency while maintaining investment in initiatives to promote long term sustainability;

Tax rate is expected to normalize back to approximately 24.0% - 25.0% for the remainder of the ~~year;~~year, and;

~~Deposits are expected~~Loan provision levels for the second quarter continued to ~~grow modestly~~reflect assumptions surrounding the impact of the COVID-19 pandemic. The provision for credit losses in the ~~fourth quarter;~~

~~Assuming no Federal Reserve rate changes~~coming quarters will be highly correlated with any further deterioration of economic factors in excess of those used in the ~~fourth quarter and a normalized level of loan accretion, the net interest margin is expected to be~~June 2020 assumptions as well as any increase in perceived loss exposure inherent in the ~~low 3.90%'s 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 Company's 2019 year-end earnings release and in its 2019 Annual Report on Form 10-K for the fourth quarter. In addition, based upon current assessments, management anticipates that any future 25 basis point Federal Reserve rate cut may further reduce the net interest margin prospectively by approximately 6 basis points;

Excluding the third quarter gain on sale of loans, noninterest income in the fourth quarter is expected to decrease when compared to the third quarter, the degree to which is contingent upon market demand for mortgage bankingyear ended December 31, 2019 have been withdrawn and ~~loan level derivatives;~~

~~Excluding merger related expenses incurred in the third quarter, noninterest expense is expected to~~should not be ~~flat with third quarter levels;~~

~~Provision for loan loss levels should continue to reflect general allocations needed for organic loan growth, with no immediate significant credit concerns noted;~~

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

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

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

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


	Three Months Ended September 30												Three Months Ended June 30
	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)	$	51,845		$	33,015		$	1.51		$	1.20		$	24,902	$	30,628		$	0.76	$	0.89
Non-GAAP adjustments
Noninterest income components
Gain on sale of loans	951			—			0.03			—
Noninterest expense components
Merger and acquisition expenses	705			2,688			0.02			0.10			—		24,696			—		0.72
Total impact of noncore items	(246		)	2,688			(0.01		)	0.10
Net tax expense (benefit) associated with noncore items (1)	72			(756		)	—			(0.03		)
Noncore items, net of tax	$	(174	)	$	1,932		$	(0.01	)	$	0.07
Noncore increases to income before taxes													—		24,696			—		0.72
Net tax benefit associated with noncore items (1)													—		(6,560		)	—		(0.19		)
Total tax impact													$	—	$	(6,560	)	$	—	$	(0.19	)
Noncore increases to net income													$	—	$	18,136		$	—	$	0.53
Operating net income (Non-GAAP)	$	51,671		$	34,947		$	1.50		$	1.27		$	24,902	$	48,764		$	0.76	$	1.42

	Nine Months Ended September 30												Six Months Ended June 30
	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)	$	117,698		$	91,688		$	3.64		$	3.32		$	51,653	$	65,853		$	1.54	$	2.11
Non-GAAP adjustments
Noninterest income components
Gain on sale of loans	951			—			0.03			—
Noninterest expense components
Merger and acquisition expenses	26,433			3,122			0.82			0.12			—		25,728			—		0.82
Total impact of noncore items	25,482			3,122			0.79			0.12
Net tax expense (benefit) associated with noncore items (1)	(6,686		)	(878		)	(0.21		)	(0.03		)
Noncore increases to income before taxes													—		25,728			—		0.82
Net tax benefit associated with noncore items (1)													—		(6,758		)			(0.22		)
Add - adjustment for tax effect of previously incurred merger and acquisition expenses	650			—			0.02			—			—		650			—		0.02
Noncore items, net of tax	$	19,446		$	2,244		$	0.60		$	0.09
Noncore increases to net income													$	—	$	19,620		$	—	$	0.62
Operating net income (Non-GAAP)	$	137,144		$	93,932		$	4.24		$	3.41		$	51,653	$	85,473		$	1.54	$	2.73


(1)	The net tax benefit associated with noncore items is determined by assessing whether each noncore item is included or excluded from net taxable income and applying the Company's combined marginal tax rate to only those items included in net taxable income.


	Three Months Ended																Three Months Ended
	September 30 2019			June 30 2019			March 31 2019			December 31 2018			September 30 2018				June 30 2020			March 31 2020			December 31 2019			September 30 2019			June 30 2019
	(Dollars in thousands)																(Dollars in thousands)
Net interest income (GAAP)	$	104,598		$	106,019		$	82,525		$	80,292		$	76,234		(a)	$	91,098		$	94,304		$	99,993		$	104,598		$	106,019		(a)

Noninterest income (GAAP)	$	31,816		$	28,648		$	21,533		$	23,491		$	23,264		(b)	$	28,190		$	26,435		$	33,297		$	31,816		$	28,648		(b)
Less:
Gain on sale of loans	951			—			—			—			—				—			—			—			951			—
Noninterest income on an operating basis (Non-GAAP)	$	30,865		$	28,648		$	21,533		$	23,491		$	23,264		(c)	$	28,190		$	26,435		$	33,297		$	30,865		$	28,648		(c)

Noninterest expense (GAAP)	$	67,533		$	93,032		$	56,311		$	64,391		$	55,439		(d)	$	66,607		$	66,840		$	67,445		$	67,533		$	93,032		(d)
Less:
Merger and acquisition expense	705			24,696			1,032			8,046			2,688				—			—			—			705			24,696
Noninterest expense on an operating basis (Non-GAAP)	$	66,828		$	68,336		$	55,279		$	56,345		$	52,751		(e)	$	66,607		$	66,840		$	67,445		$	66,828		$	68,336		(e)

Total revenue (GAAP)	$	136,414		$	134,667		$	104,058		$	103,783		$	99,498		(a+b)	$	119,288		$	120,739		$	133,290		$	136,414		$	134,667		(a+b)
Total operating revenue (Non-GAAP)*	$	135,463		$	134,667		$	104,058		$	103,783		$	99,498		(a+c)	$	119,288		$	120,739		$	133,290		$	135,463		$	134,667		(a+c)

Ratios
Noninterest income as a % of revenue (GAAP based)	23.32		%	21.27		%	20.69		%	22.63		%	23.38		%	(b/(a+b))	23.63		%	21.89		%	24.98		%	23.32		%	21.27		%	(b/(a+b))
Noninterest income as a % of revenue on an operating basis (Non-GAAP)*	22.78		%	21.27		%	20.69		%	22.63		%	23.38		%	(c/(a+c))	23.63		%	21.89		%	24.98		%	22.78		%	21.27		%	(c/(a+c))
Efficiency ratio (GAAP based)	49.51		%	69.08		%	54.12		%	62.04		%	55.72		%	(d/(a+b))	55.84		%	55.36		%	50.60		%	49.51		%	69.08		%	(d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP)	49.33		%	50.74		%	53.12		%	54.29		%	53.02		%	(e/(a+c))	55.84		%	55.36		%	50.60		%	49.33		%	50.74		%	(e/(a+c))

The following table summarizes the calculation of the Company's tangible common equity ratio and tangible book value per share ~~for~~as of the ~~periods~~dates indicated:


	September 30 2019			June 30 2019			March 31 2019			December 31 2018			September 30 2018				June 30 2020			March 31 2020			December 31 2019			September 30 2019			June 30 2019
	(Dollars in thousands, except per share data)																(Dollars in thousands, except per share data)
Tangible common equity
Stockholders' equity (GAAP)	$	1,682,324		$	1,636,003		$	1,104,538		$	1,073,490		$	998,305		(a)	$	1,671,692		$	1,679,656		$	1,708,143		$	1,682,324		$	1,636,003		(a)
Less: Goodwill and other intangibles	535,869			537,896			270,444			271,355			239,185				532,202			533,672			535,492			535,869			537,896
Tangible common equity (Non-GAAP)	1,146,455			1,098,107			834,094			802,135			759,120			(b)	1,139,490			1,145,984			1,172,651			1,146,455			1,098,107			(b)
Tangible assets
Assets (GAAP)	11,538,639			11,603,199			8,997,457			8,851,592			8,375,498			(c)	13,022,500			11,980,240			11,395,165			11,538,639			11,603,199			(c)
Less: Goodwill and other intangibles	535,869			537,896			270,444			271,355			239,185				532,202			533,672			535,492			535,869			537,896
Tangible assets (Non-GAAP)	$	11,002,770		$	11,065,303		$	8,727,013		$	8,580,237		$	8,136,313		(d)	$	12,490,298		$	11,446,568		$	10,859,673		$	11,002,770		$	11,065,303		(d)
Common shares	34,366,781			34,321,061			28,137,504			28,080,408			27,540,843			(e)	32,942,110			33,260,005			34,377,388			34,366,781			34,321,061			(e)

Common equity to assets ratio (GAAP)	14.58		%	14.10		%	12.28		%	12.13		%	11.92		%	(a/c)	12.84		%	14.02		%	14.99		%	14.58		%	14.10		%	(a/c)
Tangible common equity to tangible assets ratio (Non-GAAP)	10.42		%	9.92		%	9.56		%	9.35		%	9.33		%	(b/d)	9.12		%	10.01		%	10.80		%	10.42		%	9.92		%	(b/d)
Book value per share (GAAP)	$	48.95		$	47.67		$	39.26		$	38.23		$	36.25		(a/e)	$	50.75		$	50.50		$	49.69		$	48.95		$	47.67		(a/e)
Tangible book value per share (Non-GAAP)	$	33.36		$	32.00		$	29.64		$	28.57		$	27.56		(b/e)	$	34.59		$	34.46		$	34.11		$	33.36		$	32.00		(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 ~~nine~~six 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 are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans

deemed to be collateral dependent or when foreclosure is probable. The allowance 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~~decreased by ~~$117.0~~$15.8 million, or ~~10.9%~~1.3%, at ~~September~~June 30, ~~2019~~2020 as compared to December 31, ~~2018, reflecting the $196.9~~2019, reflecting $123.8 million ~~in securities included in the BHB acquisition as well as additional~~of purchases ~~of $73.5 million made during the nine month period. These increases were~~ 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 ~~10.33%~~9.02% and ~~12.15%~~10.45% at ~~September~~June 30, ~~2019~~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 nine months ended September 30, 2019 and 2018, the~~The Company ~~originated~~originates residential loans with the intention of selling them in the secondary market or to hold in the Company's residential portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached. The Company incurred no losses related to mortgage repurchases for the three months ended June 30, 2020 and minimal losses during the six months ended June 30, 2020. There were no such losses during the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2019~~2019. Additionally, the Company sold residential loans with recourse totaling $10.1 million and ~~September~~$45.4 million during the three and six months ended June 30, ~~2018 related to mortgage repurchases.~~2020, respectively, and sold no such loans during the three and six month periods ended June 30, 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 September 30				Nine Months Ended September 30				Three Months Ended June 30				Six Months Ended June 30
	2019		2018		2019		2018		2020		2019		2020		2019
	(Dollars in thousands)								(Dollars in thousands)
Held in portfolio	$	43,098	$	52,125	$	133,111	$	132,711	$	33,229	$	58,323	$	70,566	$	89,523
Sold or held for sale in the secondary market	232,129		58,320		450,203		142,262		223,196		179,705		392,449		218,563
Total closed loans	$	275,227	$	110,445	$	583,314	$	274,973	$	256,425	$	238,028	$	463,015	$	308,086

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 September 30				Nine Months Ended September 30				Three Months Ended June 30				Six Months Ended June 30
	2019		2018		2019		2018		2020		2019		2020		2019
	(Dollars in thousands)								(Dollars in thousands)
Sold with servicing rights released	$	169,532	$	61,910	$	334,426	$	141,048	$	206,515	$	125,186	$	328,299	$	164,894
Sold with servicing rights retained	45,829		—		69,465		—		10,063		23,636		45,394		23,636
Total loans sold	$	215,361	$	61,910	$	403,891	$	141,048	$	216,578	$	148,822	$	373,693	$	188,530

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 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 ~~$649.4~~$563.0 million, ~~$240.2~~$656.4 million and ~~$244.9~~$567.2 million at ~~September~~June 30, 2020, December 31, 2019, and June 30, 2019, ~~December 31, 2018, and September 30, 2018,~~ respectively.

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

Table 3 - Mortgage Servicing Asset


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018			2020			2019			2020			2019
	(Dollars in thousands)												(Dollars in thousands)
Balance at beginning of period	$	4,587		$	1,559		$	1,445		$	1,697		$	4,504		$	1,374		$	5,116		$	1,445
Additions	419			—			632			—			91			213			424			213
Acquired portfolio	—			—			3,198			—			—			3,198			—			3,198
Amortization	(215		)	(71		)	(483		)	(230		)	(327		)	(197		)	(611		)	(268		)
Change in valuation allowance	(34		)	(10		)	(35		)	11			(947		)	(1		)	(1,608		)	(1		)
Balance at end of period	$	4,757		$	1,478		$	4,757		$	1,478		$	3,321		$	4,587		$	3,321		$	4,587

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~~$486.0 million during the first ~~nine~~six months of ~~2019.~~2020. The overall increase ~~was~~is primarily attributable to the ~~result of the BHB loans acquired. Exclusive of the acquired loans, strong organic growth~~Company's participation in the ~~commercial construction portfolio~~PPP program, which resulted in program specific loan fundings of ~~21.0% and~~$793.0 million during the second quarter of 2020. When excluding PPP activity, loans declined by $307.0 million or 3.46% when compared to December 31, 2019. The majority of this decline occurred in the commercial and industrial ~~portfolio~~and residential portfolios, as commercial and industrial balances reflect significantly reduced line utilization across multiple products, while residential declines continue to reflect the lower rate environment driving the majority of ~~5.3% was offset by decreases in all other commercial loan categories, as payoffs outpaced new originations during~~production to be sold into the ~~first nine months of 2019.~~secondary market.

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

Table 4 - Components of Loan Growth/(Decline)
September 30
2019 December 31
2018 Blue Hills Acquisition Loans Sold (1) Organic Growth/(Decline) Organic Growth/ (Decline) %
(Dollars in thousands)
Commercial and industrial $ 1,411,516
$ 1,093,629
$ 259,592
$ —
$ 58,295
5.33 %
Commercial real estate 4,000,487
3,251,248
838,018
—
(88,779 ) (2.73 )%
Commercial construction 520,585
365,165
78,609
—
76,811
21.03 %
Small business 172,038
164,676
13,851
—
(6,489 ) (3.94 )%
Total commercial 6,104,626
4,874,718
1,190,070
—
39,838
0.82 %
Residential real estate 1,644,758
923,294
807,154
67,170
(18,520 ) (2.01 )%
Home equity 1,137,109
1,092,084
64,299
—
(19,274 ) (1.76 )%
Total consumer real estate 2,781,867
2,015,378
871,453
67,170
(37,794 ) (1.88 )%
Total other consumer 27,008
16,098
12,191
—
(1,281 ) (7.96 )%
Total loans $ 8,913,501
$ 6,906,194
$ 2,073,714
$ 67,170
$ 763
0.01 %


~~(1)~~	During the third quarter of 2019, the Company sold $67.2 million of residential mortgage loans, primarily comprised of acquired BHB loans. The table above adjusts for the amounts sold to arrive at the organic growth/(decline) for the period.

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. As previously stated, the Company's participation in the PPP program resulted in $793.0 million in loan fundings within the commercial and industrial category during the second quarter of 2020 and comprised 39.0% of the total portfolio as of June 30, 2020. Accordingly, the composition of the portfolio by sector is skewed as compared to prior quarter amounts as the PPP loans are reflected within the various sectors below. The following pie chart shows the diversification of the commercial and industrial portfolio as of ~~September~~June 30, ~~2019:~~2020:


	(Dollars in thousands)			(Dollars in thousands)
Average loan size	$	323
Average loan size (excluding floor plan tranches)				$	206
Largest individual commercial and industrial loan outstanding	$	26,615		$	23,291
Commercial and industrial nonperforming loans/commercial and industrial loans	1.67		%	1.03		%

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


	(Dollars in thousands)			(Dollars in thousands)
Average loan size	$	1,028		$	1,084
Largest individual commercial real estate mortgage outstanding	$	32,000		$	32,000
Commercial real estate nonperforming loans/commercial real estate loans	0.04		%	0.14		%
Owner occupied commercial real estate loans/commercial real estate loans	14.6		%	14.5		%

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~~$2.6 billion at ~~September~~June 30, ~~2019,~~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~~In the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR"). In addition, the Company has been offering needs based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to the COVID-19 pandemic. These modifications will not be accounted for as TDRs or reflected as delinquent or non-accrual loans if the borrower was in compliance with the terms of their loans as of December 31, 2019.

Delinquency The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period.

Nonaccrual Loans As a general rule, loans 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


	September 30 2019			December 31 2018			September 30 2018			June 30 2020			December 31 2019			June 30 2019
	(Dollars in thousands)									(Dollars in thousands)
Loans accounted for on a nonaccrual basis
Commercial and industrial	$	23,507		$	26,310		$	28,742		$	20,736		$	22,574		$	24,895
Commercial real estate	1,666			3,326			1,960			6,313			3,016			833
Small business	112			235			191			619			311			168
Residential real estate	11,281			8,251			8,076			14,561			13,360			9,986
Home equity	6,720			7,278			6,367			6,437			6,570			6,973
Other consumer	74			13			49			90			61			111
Total (1)	$	43,360		$	45,413		$	45,385		$	48,756		$	45,892		$	42,966
Loans past due 90 days or more but still accruing
Commercial real estate (2)										—			218			—
Residential real estate (2)	1,807			—			—			—			1,652			1,776
Home equity (2)	511			—			—			—			265			541
Other consumer	24			5			9			58			22			11
Total	$	2,342		$	5		$	9		$	58		$	2,157		$	2,328
Total nonperforming loans	$	45,702		$	45,418		$	45,394		$	48,814		$	48,049		$	45,294
Other real estate owned	2,500			—			190			—			—			2,889
Total nonperforming assets	$	48,202		$	45,418		$	45,584		$	48,814		$	48,049		$	48,183
Nonperforming loans as a percent of gross loans	0.51		%	0.66		%	0.70		%	0.52		%	0.54		%	0.51		%
Nonperforming assets as a percent of total assets	0.42		%	0.51		%	0.54		%	0.37		%	0.42		%	0.42		%


(1)	Inclusive of TDRs on nonaccrual status of ~~$26.2~~$24.1 million, ~~$29.3~~$24.8 million, and ~~$3.4~~$27.8 million at ~~September~~June 30, ~~2019,~~2020, December 31, ~~2018,~~2019, and ~~September~~June 30, ~~2018,~~2019, respectively.


(2)	Represents purchased credit impaired ("PCI") loans that ~~are~~were accruing interest due to expectation of future cash collections. Under CECL guidance, the concept of PCI loans was eliminated and therefore not applicable for periods subsequent to the Company's adoption on January 1, 2020.

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

Table 65 - Activity in Nonperforming Assets


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30 2019			September 30 2018			September 30 2019			September 30 2018			June 30 2020			June 30 2019			June 30 2020			June 30 2019
	(Dollars in thousands)												(Dollars in thousands)
Nonperforming assets beginning balance	$	48,183		$	47,357		$	45,418		$	50,250		$	48,040		$	43,331		$	48,049		$	45,418
New to nonperforming	4,946			4,984			11,604			10,627			8,215			4,801			14,730			6,658
Acquired nonperforming loans	—			—			2,317			—			—			2,317			—			2,317
Loans charged-off	(707		)	(847		)	(1,738		)	(2,009		)	(710		)	(472		)	(1,444		)	(1,031		)
Loans paid-off	(3,041		)	(4,932		)	(9,501		)	(9,833		)	(2,210		)	(3,289		)	(7,289		)	(6,460		)
Loans restored to performing status	(714		)	(921		)	(2,212		)	(3,101		)	(4,529		)	(1,266		)	(5,090		)	(1,498		)
Acquired other real estate owned	—			—			2,818			—			—			2,818			—			2,818
Valuation write down	(389		)	—			(389		)	—
Sale of other real estate owned	—			—			—			(254		)
Other	(76		)	(57		)	(115		)	(96		)	8			(57		)	(142		)	(39		)
Nonperforming assets ending balance	$	48,202		$	45,584		$	48,202		$	45,584		$	48,814		$	48,183		$	48,814		$	48,183

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

Table 76 - Troubled Debt Restructurings

September 30
2019 December 31
2018 September 30
2018
(Dollars in thousands)
Performing troubled debt restructurings $ 20,182
$ 23,849
$ 24,554
Nonaccrual troubled debt restructurings (1) 26,232
29,348
3,370
Total $ 46,414
$ 53,197
$ 27,924
Performing troubled debt restructurings as a % of total loans 0.23 % 0.35 % 0.38 %
Nonaccrual troubled debt restructurings as a % of total loans 0.29 % 0.42 % 0.05 %
Total troubled debt restructurings as a % of total loans 0.52 % 0.77 % 0.43 %

(1) During the fourth quarter of 2018 nonaccrual loans associated with a large commercial loan customer that had previously declared bankruptcy were modified when a court confirmed the customer's bankruptcy reorganization plan. That revision to loan terms required the Company to deem loans associated with the customer as troubled debt restructured loans.



	June 30 2020			December 31 2019			June 30 2019
	(Dollars in thousands)
Performing troubled debt restructurings	$	17,741		$	19,599		$	22,423
Nonaccrual troubled debt restructurings	24,098			24,766			27,841
Total	$	41,839		$	44,365		$	50,264
Performing troubled debt restructurings as a % of total loans	0.19		%	0.22		%	0.25		%
Nonaccrual troubled debt restructurings as a % of total loans	0.26		%	0.28		%	0.31		%
Total troubled debt restructurings as a % of total loans	0.45		%	0.50		%	0.56		%

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

Table 87 - Activity in Troubled Debt Restructurings


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30 2019			September 30 2018			September 30 2019			September 30 2018			June 30 2020			June 30 2019			June 30 2020			June 30 2019
	(Dollars in thousands)												(Dollars in thousands)
TDRs beginning balance	$	50,264		$	29,623		$	53,197		$	31,919		$	41,971		$	51,961		$	44,365		$	53,197
New to TDR status	290			432			622			1,045			1,064			107			1,249			332
Paydowns	(4,131		)	(1,952		)	(7,396		)	(4,612		)	(1,196		)	(1,804		)	(3,797		)	(3,265		)
Charge-offs	(9		)	(179		)	(9		)	(428		)	—			—			22			—
TDRs ending balance	$	46,414		$	27,924		$	46,414		$	27,924		$	41,839		$	50,264		$	41,839		$	50,264

As previously noted, the Company has been offering needs based payment relief options for its customers in response to the COVID-19 pandemic. These modifications will not be accounted for as TDRs if the borrower was in compliance with their loan terms as of December 31, 2019. The following table summarizes active deferrals by modification type as of June 30, 2020:

Table 8 - Deferrals by Modification Type



	Principal and Interest		Principal Only		Interest Only		Other		Total Deferrals		Total Portfolio		% Deferral
					(Dollars in thousands)
Commercial and industrial	$	55,936	$	33,502	$	11,089	$	24,127	$	124,654	$	2,004,645	6.2	%
Commercial real estate (1)	564,942		231,722		43,862		43,263		883,789		4,608,835		19.2	%
Business Banking	13,153		4,572		889		203		18,817		170,288		11.1	%
Residential real estate	112,330		2,514		2,837		—		117,681		1,431,129		8.2	%
Home equity	15,213		—		13,417		—		28,630		1,120,523		2.6	%
Consumer	350		—		—		—		350		24,228		1.4	%
Total active deferrals as of June 30, 2020	$	761,924	$	272,310	$	72,094	$	67,593	$	1,173,921	$	9,359,648	12.5	%

(1) Balances include commercial construction deferrals.

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~~for the ~~dates~~periods indicated:

Table 9 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings

Three Months Ended Nine Months Ended
September 30
2019 September 30
2018 September 30
2019 September 30
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 $ 705
$ 650
$ 1,997
$ 1,918
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income $ 1,047
$ 519
$ 3,155
$ 1,301

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impaired loans include all commercial and industrial loans, commercial real estate loans, commercial construction and small business loans that are on nonaccrual status, TDRs, and other loans that have been categorized as impaired. Impairment is measured on a loan by loan basis by comparing the loan’s value to either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. For impaired loans deemed collateral dependent, where impairment is measured using the fair value of the collateral, the Bank will either order a new appraisal or use another available source of collateral assessment such as a broker’s opinion of value to determine a reasonable estimate of the fair value of the collateral.

Total impaired loans at September 30, 2019 and December 31, 2018 were $56.9 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.~~



	Three Months Ended				Six Months Ended
	June 30 2020		June 30 2019		June 30 2020		June 30 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	$	547	$	727	$	1,255	$	1,292
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income	$	710	$	808	$	1,411	$	1,630

Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms. At ~~September~~June 30, ~~2019,~~2020, there were 70103 relationships, with an aggregate balance of ~~$82.2~~$186.6 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 that could be potentially highly impacted. 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 $1.6 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 allowance for credit loss recognition under the CECL model.

The table below provides total outstanding balances of commercial loans as of the dates indicated within industries that could potentially be highly impacted by the COVID-19 pandemic:

Table 10 - Highly Impacted COVID-19 Industries - Details



	June 30, 2020			March 31, 2020
	(Dollars in thousands)
Accommodations
Balance	$	414,723		$	411,384
Average borrower loan size	$	4,083		$	4,100
% secured by real estate	99.5		%	98.0		%
Weighted average loan to value	53.5		%	54.8		%
Other information:
– The accommodation portfolio consists of 71 properties representing a combination of flagged (61%) and non-flagged (39%) hotels, motels and inns.
– Approximately 90% of the balances outstanding are secured by properties located within New England states with the largest concentration in Massachusetts (60%).



Food Services
Balance	$	164,467		$	155,415
Average borrower loan size	$	430		$	388
% secured by real estate	59.8		%	61.3		%
Weighted average loan to value	49.9		%	46.7		%
Other information:
– The food services portfolio includes full-service restaurants (66%), limited service restaurants and fast food (32%), and other types of food service (caterers, bars, mobile food service 2%).

Retail Trade
Balance	$	490,137		$	526,711
Average borrower loan size	$	473		$	466
% secured by real estate	44.9		%	43.1		%
Weighted average loan to value	54.1		%	54.0		%
Other information:
– The retail trade portfolio consists broadly of food and beverage stores (40%), motor vehicle and parts dealers (26%), gasoline stations (14%), and all other retailers account for (20%).
– Collateral for these loans varies and may consist of real estate, motor vehicles inventories, other types of inventories and general business assets.

Health Care and Social Assistance
Balance	$	185,295		$	206,484
Average borrower loan size	$	641		$	652
% secured by real estate	73.8		%	69.7		%
Weighted average loan to value	46.3		%	46.9		%
Other information:
– The healthcare portfolio consists of nursing and residential care facilities (38%), ambulatory care (29%), social assistance (20%) and hospitals (13%).

Other Services (except Public Administration)
Balance	$	153,009		$	160,159
Average borrower loan size	$	261		$	272
% secured by real estate	49.1		%	49.1		%
Weighted average loan to value	47.4		%	46.5		%
Other information:
– The other services portfolio consists of various for-profit and not-for-profit services diversified across religious, civic and social service organizations (44%), repair and maintenance business (30%) and personal services, including car washes, beauty salons, laundry services, funeral homes, pet care and other types of services (26%).



Arts, Entertainment, and Recreation
Balance	$	96,640		$	88,202
Average borrower loan size	$	764		$	737
% secured by real estate	83.7		%	82.8		%
Weighted average loan to value	47.5		%	44.0		%
Other information:
– Amusement, gambling and recreational industries make up a majority of this category (95%) and include amusement/theme parks, bowling centers, fitness centers, golf courses, marinas, and other recreational industries. Other industries including museums, performing arts, and spectator sports account for the remaining outstanding balances (5%).

Transportation and Warehousing
Balance	$	77,354		$	84,805
Average borrower loan size	$	557		$	611
% secured by real estate	61.9		%	56.0		%
Weighted average loan to value	53.0		%	52.2		%
Other information:
– The transportation and warehousing portfolio consists of warehousing and storage (55%), transit, ground passenger transportation and truck transportation (36%) and other transportation related activities (9%).

Educational Services
Balance	$	45,720		$	44,922
Average borrower loan size	$	623		$	598
% secured by real estate	86.7		%	89.5		%
Weighted average loan to value	33.3		%	31.8		%
Other information:
– The educational services portfolio consists of elementary and secondary schools (46%), colleges and universities (38%) and other types of for profit and not-for-profit educational and training schools (16%).

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 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 to the various loan categories. Allowance amounts are determined based on an estimate of the historical average annual percentage rate of loan loss for each loan category, an estimate of the incurred loss emergence and confirmation period for each loan category, and certain qualitative risk factors considered in the computation of the allowance for loan losses. Additionally, the Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point commercial risk-rating system, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral and other considerations.

~~As of September 30, 2019, the allowance for loan losses totaled $66.9 million, or 0.75% of total loans,~~ as compared to ~~$64.3~~the previous incurred loss methodology.

The balance of allowance for credit losses of $112.2 million as of June 30, 2020, represents an increase of $44.4 million, or ~~0.93% of total loans, at December 31, 2018. The decrease~~65.5%, in ~~this percentage is attributable~~comparison to the ~~treatment~~implementation balances at January 1, 2020, an increase of ~~loans acquired~~$19.8 million, or 21.4% compared to March 31, 2020. This increase in ~~connection with~~ the ~~BHB acquisition. These acquired loans are recorded at fair value,~~allowance during the first half of the year was primarily driven by anticipated credit

deterioration due to the ongoing COVID-19 pandemic, which ~~includes consideration~~resulted in the Company recording a $20.0 million and $45.0 million provision for ~~estimated~~ credit losses for the three and ~~without carryover~~six months ending June 30, 2020.

The Company utilizes forecasted data to run its quantitative model and continued to use a more severe outlook at June 30, 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 June 30, 2020, the economic outlook included certain assumptions related to the COVID-19 pandemic as it has had a meaningful impact to the economy. The underlying assumptions related to the Company's economic forecast included items such as, unemployment rates peaking late 2021, federal funds rates hold steady near 0% until 2022 and an expectation that no sustained economic recovery will occur until 2022.

In addition, the provision was qualitatively adjusted upward to ensure coverage for these potentially highly impacted relationships as management performed detailed analysis consisting of a review of maximum levels of historic loss given default ("LGD") and stressed probability of default ("PD") scenarios for loans that were deemed to be more at risk within the industries that are potentially highly impacted by the COVID-19 pandemic. As a result of this review and analysis, the qualitative overlay was adjusted upwards to ensure that the estimated losses as of June 30, 2020 are reflective of the ~~respective portfolio's historical allowance~~current COVID-19 environment. Refer to Note 4, "Loans, Allowance for ~~loan losses.~~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 1011 - Summary of Changes in the Allowance for ~~Loan~~Credit Losses


	Three Months Ended															Three Months Ended
	September 30 2019			June 30 2019			March 31 2019			December 31 2018			September 30 2018			June 30 2020			March 31 2020			December 31 2019			September 30 2019			June 30 2019
	(Dollars in thousands)															(Dollars in thousands)
Average total loans	$	8,897,794		$	9,046,591		$	6,935,927		$	6,688,141		$	6,500,907		$	9,311,877		$	8,871,346		$	8,877,072		$	8,897,794		$	9,046,591
Allowance for loan losses, beginning of period	$	65,960		$	65,140		$	64,293		$	63,235		$	62,557
Allowance for credit losses, beginning of period																$	92,376		$	67,740		$	66,942		$	65,960		$	65,140
Cumulative effect accounting adjustment (1)																—			(1,137		)	—			—			—
Cumulative effect accounting adjustment (2)																—			1,157			—			—			—
Charged-off loans
Commercial and industrial	—			—			—			—			218			—			—			244			—			—
Commercial real estate	82			—			—			—			82			—			—			2,532			82			—
Small business	125			49			145			135			111			36			109			190			125			49
Residential real estate	—			—			—			—			—
Home equity	28			71			113			32			87			4			138			28			28			71
Other consumer	472			352			301			421			349			670			487			473			472			352
Total charged-off loans	707			472			559			588			847			710			734			3,467			707			472
Recoveries on loans previously charged-off
Commercial and industrial	1,003			—			124			3			108			4			42			4			1,003			—
Commercial real estate	106			13			33			121			29			—			—			—			106			13
Small business	61			20			27			17			10			3			3			14			61			20
Residential real estate	140			—			1			—			9			—			1			1			140			—
Home equity	194			18			66			28			71			95			58			40			194			18
Other consumer	185			241			155			277			223			408			246			206			185			241
Total recoveries	1,689			292			406			446			450			510			350			265			1,689			292
Net loans charged-off (recovered)
Commercial and industrial	(1,003		)	—			(124		)	(3		)	110			(4		)	(42		)	240			(1,003		)	—
Commercial real estate	(24		)	(13		)	(33		)	(121		)	53			—			—			2,532			(24		)	(13		)
Small business	64			29			118			118			101			33			106			176			64			29
Residential real estate	(140		)	—			(1		)	—			(9		)	—			(1		)	(1		)	(140		)	—
Home equity	(166		)	53			47			4			16			(91		)	80			(12		)	(166		)	53
Other consumer	287			111			146			144			126			262			241			267			287			111
Total net loans (recovered) charged-off	(982		)	180			153			142			397
Provision for loan losses	—			1,000			1,000			1,200			1,075
Total allowance for loan losses, end of period	$	66,942		$	65,960		$	65,140		$	64,293		$	63,235
Net loans (recovered)/charged-off as a percent of average total loans (annualized)	(0.04		)%	0.01		%	0.01		%	0.01		%	0.02		%
Allowance for loan losses as a percent of total loans	0.75		%	0.74		%	0.93		%	0.93		%	0.97		%
Allowance for loan losses as a percent of nonperforming loans	146.47		%	145.63		%	150.33		%	141.56		%	139.30		%
Total net loans charged-off (recovered)																200			384			3,202			(982		)	180
Provision for credit losses																20,000			25,000			4,000			—			1,000
Total allowance for credit losses, end of period																$	112,176		$	92,376		$	67,740		$	66,942		$	65,960
Net loans charged-off/(recovered) as a percent of average total loans (annualized)																0.01		%	0.02		%	0.14		%	(0.04		)%	0.01		%
Allowance for credit losses as a percent of total loans																1.20		%	1.04		%	0.76		%	0.75		%	0.74		%
Allowance for credit losses as a percent of nonperforming loans																229.80		%	192.29		%	140.98		%	146.47		%	145.63		%


(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 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 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 1112 - Summary of Allocation of Allowance for ~~Loan~~Credit Losses


	September 30 2019				December 31 2018				June 30 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	$	17,332	15.8	%	$	15,760	15.8	%	$	25,662	21.4	%	$	15,659	15.7	%	$	17,594	15.7	%
Commercial real estate	32,651		44.9	%	32,370		47.1	%	36,956		43.5	%	20,224		45.1	%	32,935		45.1	%
Commercial construction	5,833		5.8	%	5,158		5.3	%	4,501		5.7	%	2,401		6.2	%	6,053		6.2	%
Small business	1,752		1.9	%	1,756		2.4	%	4,561		1.8	%	2,241		2.0	%	1,746		2.0	%
Residential real estate	3,348		18.5	%	3,219		13.4	%	15,046		15.3	%	13,691		17.9	%	3,440		17.9	%
Home equity	5,749		12.8	%	5,608		15.8	%	24,860		12.0	%	12,907		12.8	%	5,576		12.8	%
Other consumer	277		0.3	%	422		0.2	%	590		0.3	%	637		0.3	%	396		0.3	%
Total allowance for loan losses	$	66,942	100.0	%	$	64,293	100.0	%
Total allowance for credit losses									$	112,176	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 June 30, 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 ~~$15.0~~$15.1 million and ~~$15.7~~$14.4 million at ~~September~~June 30, ~~2019~~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 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.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were ~~$535.9~~$532.2 million and ~~$271.4~~$535.5 million as of ~~September~~June 30, ~~2019~~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 COVID-19 global pandemic commencing during the first quarter of 2020 has resulted in significant levels of volatility in the capital markets and presents heightened uncertainty surrounding the future impact to operations of the Company and its customers. Given these conditions, the Company identified this impact from the pandemic as a triggering event warranting an interim test for impairment at both March 31, 2020 and June 30, 2020. Accordingly, the Company performed ~~its annual goodwill~~ impairment ~~testing during the third quarter~~tests as of ~~2019~~such dates 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 June 30, 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 ~~$195.9~~$198.1 million and ~~$160.5~~$197.4 million at ~~September~~June 30, ~~2019~~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 $984,000~~ for both the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$3.6~~$2.6 million and ~~$2.9~~$2.3 million for the ~~nine~~six month periods ended ~~September~~June 30, 2020 and 2019, ~~and 2018,~~ respectively. ~~In addition,~~Also during the ~~third quarter of 2019~~three and six months ended June 30, 2020 the Company recorded gains on life insurance benefits of ~~$434,000.~~$335,000 and $692,000, respectively, and there were no such gains during the three and six months ended June 30, 2019.

Deposits As of ~~September~~June 30, ~~2019,~~2020, total deposits were ~~$9.3~~$10.7 billion, representing a ~~$1.9~~$1.6 billion, or ~~25.6%~~17.2%, increase from December 31, ~~2018. The increase is primarily attributable~~2019, as a combination of PPP loan fundings, government stimulus programs and a customer focus on retaining liquidity led to strong growth during the ~~BHB acquisition.~~six months ended June 30, 2020. The total cost of deposits was ~~0.50%~~0.28% and ~~0.30%~~0.49% for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively and ~~0.46%~~0.37% and ~~0.27%,~~0.44% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Core deposits represented ~~82.49%~~87.32% of total deposits as of ~~September~~June 30, ~~2019.~~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 ~~$211.0~~$250.0 million and ~~$180.5~~$211.2 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the Promontory Interfinancial Network, which amounted to ~~$303.4~~$72.0 million and ~~$6.0~~$281.6 million at ~~September~~June 30, ~~2019~~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.

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)~~

September 30
2019 December 31
2018 Blue Hills Bancorp Acquisition Organic Growth/(Decline) Organic Growth/ (Decline)%
(Dollars in thousands)
Noninterest-bearing demand deposits $ 2,752,150
$ 2,450,907
$ 301,276
$ (33 ) — %
Savings and interest checking 3,199,182
2,865,349
351,554
(17,721 ) (0.6 )%
Money market 1,904,643
1,399,761
543,842
(38,960 ) (2.8 )%
Time certificates of deposits 1,470,116
711,103
733,764
25,249
3.6 %
Total $ 9,326,091
$ 7,427,120
$ 1,930,436
$ (31,465 ) (0.4 )%

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~~decreased by ~~$34.1~~$7.4 million, or ~~13.2%~~2.4%, at ~~September~~June 30, ~~2019,~~2020, as compared to December 31, ~~2018.~~ 2019. During the first quarter, the Company entered into $300.0 million in short-term advances from the Federal Home Loan Bank ("FHLB"). Subsequently, during the second quarter the Company madea $200.0 million prepayment on these FHLB borrowings, resulting in a prepayment penalty of $389,000. Additionally, during the second quarter, the Company paid down $37.5 million of its long-term line of credit.

The following table presents ~~activity for~~ the ~~nine months ended September 30, 2019 within each~~components of borrowings as of the ~~Company's major borrowing categories:~~dates indicated:

Table 13 - Borrowings


Table 13 - Components of Borrowings
	December 31 2018		BHB Deal Financing		Borrowings Acquired from BHB		Other Issuances/(Payments)			September 30 2019		June 30 2020		December 31 2019
	(Dollars in thousands)
Federal Home Loan Bank borrowings	$	147,806	$	—	$	124,817	$	(201,915	)	$	70,708	$	145,770	$	115,748
Line of credit	—		50,000		—		(50,000		)	—
Long-term borrowings	—		75,000		—		(106		)	74,894		37,433		74,906
Junior subordinated debentures	76,173		—		—		(13,325		)	62,848		62,850		62,848
Subordinated debentures	34,728		—		—		49,613			84,341		49,648		49,601
Total borrowings	$	258,707	$	125,000	$	124,817	$	(215,733	)	$	292,791	$	295,701	$	303,103

Additionally, the Bank had $4.2 billion and ~~$2.8~~$4.0 billion of assets pledged as collateral against borrowings at ~~September~~June 30, ~~2019~~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 ~~September 19, 2019,~~June 18, 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 ~~September 30, 2019.~~June 29, 2020. This dividend was paid on ~~October 11, 2019.~~July 10, 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 ~~September~~June 30, ~~2019~~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~~as of each ~~period~~date indicated:

Table 14 - Company and Bank's Capital Amounts and Ratios


	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions					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
	September 30, 2019														June 30, 2020
	(Dollars in thousands)														(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)	$	1,349,454	14.88	%	$	725,646	≥	8.0	%	N/A			N/A		$	13,287,442	14.73	%	$	721,576	≥	8.0	%	N/A			N/A
Common equity tier 1 capital (to risk weighted assets)	1,135,617		12.52	%	408,176		≥	4.5	%	N/A			N/A		1,105,834		12.26	%	405,887		≥	4.5	%	N/A			N/A
Tier 1 capital (to risk weighted assets)	1,196,617		13.19	%	544,235		≥	6.0	%	N/A			N/A		1,166,834		12.94	%	541,182		≥	6.0	%	N/A			N/A
Tier 1 capital (to average assets)	1,196,617		10.83	%	462,887		≥	4.0	%	N/A			N/A		1,166,834		9.57	%	487,919		≥	4.0	%	N/A			N/A
Bank
Total capital (to risk weighted assets)	$	1,312,911	14.47	%	$	725,665	≥	8.0	%	$	907,081	≥	10.00	%	$	1,255,961	13.94	%	$	720,949	≥	8.0	%	$	901,186	≥	10.0	%
Common equity tier 1 capital (to risk weighted assets)	1,244,308		13.72	%	408,187		≥	4.5	%	589,603		≥	6.50	%	1,143,935		12.69	%	405,534		≥	4.5	%	585,771		≥	6.5	%
Tier 1 capital (to risk weighted assets)	1,244,308		13.72	%	544,249		≥	6.0	%	725,665		≥	8.00	%	1,143,935		12.69	%	540,711		≥	6.0	%	720,949		≥	8.0	%
Tier 1 capital (to average assets)	1,244,308		11.29	%	444,347		≥	4.0	%	555,433		≥	5.00	%	1,143,935		9.38	%	487,813		≥	4.0	%	609,767		≥	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 ~~September~~June 30, ~~2019,~~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 ~~$32.6~~$95.2 million and ~~$15.5~~$27.8 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and totaled ~~$90.3~~$123.6 million and ~~$44.5~~$57.7 million for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~and 2018,~~ respectively. ~~The nine 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 ~~September~~both June 30, ~~2019~~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. ~~Repurchases may~~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. ~~The size and timing~~During the first half of ~~these repurchases will depend on pricing, market and economic condition, legal and contractual requirements and other factors. The repurchase program will expire on October 31,~~ 2020, ~~and may be modified, suspended~~the full 1.5 million shares were repurchased at a total cost of $95.1 million, or ~~discontinued at any time. Management will plan to utilize the repurchase program as another tool to effectively manage capital and liquidity needs.~~ an average cost per share of $63.39.

Investment Management As of ~~September~~June 30, ~~2019,~~2020, the Rockland Trust Investment Management Group had assets under administration of ~~$4.5~~$4.4 billion, representing ~~6,024~~6,118 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. The decline in value reflects the overall market decline driven primarily by investor response to the COVID-19 pandemic during the year, including a sharp decline in the U.S. stock market during the first quarter, followed by a period of market recovery during the second quarter, along with an outflow of custody accounts which also contributed to the decrease in value. Included in these amounts as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are assets under administration of ~~$327.2~~$330.2 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 ~~$6.6~~$6.8 million and ~~$5.9~~$6.4 million for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$19.1~~$13.1 million and ~~$17.6~~$12.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Retail investments and insurance revenue ~~was $554,000~~were $469,000 and ~~$652,000~~$729,000 for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$2.0~~$1.0 million and $1.4 million for ~~both~~ the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Retail investments and insurance revenue ~~includes~~include commission revenue from LPL Financial (“LPL”) and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., which offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance. Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base. These same agents are also approved and appointed with various other broker general agents for the purpose of processing insurance solutions for clients.

RESULTS OF OPERATIONS

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

Table 15 - Summary of Results of Operations


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018			2020			2019			2020			2019
	(Dollars in thousands, except per share data)												(Dollars in thousands, except per share data)
Net income	$	51,845		$	33,015		$	117,698		$	91,688		$	24,902		$	30,628		$	51,653		$	65,853
Diluted earnings per share	$	1.51		$	1.20		$	3.64		$	3.32		$	0.76		$	0.89		$	1.54		$	2.11
Return on average assets	1.78		%	1.57		%	1.47		%	1.49		%	0.79		%	1.06		%	0.86		%	1.30		%
Return on average equity	12.33		%	13.19		%	10.77		%	12.60		%	5.97		%	7.59		%	6.10		%	9.80		%
Net interest margin	4.03		%	3.94		%	4.08		%	3.87		%	3.25		%	4.09		%	3.48		%	4.12		%

The Company's results of operations were impacted by a compressed net interest margin, along with elevated provision for credit losses recognized during the first half of 2020. The provision of $45.0 million recorded during the six months ended June 30, 2020 was driven by assumptions regarding future losses that contemplate the impact of 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 ~~third~~second quarter of ~~2019~~2020 was ~~$104.9~~$91.3 million, representing ~~an increase~~a decrease of ~~$28.4~~$14.9 million, or ~~37.2%~~14.1%, when compared to the ~~third~~second quarter of ~~2018. The increase in~~2019, primarily due to the negative impact of a lower interest rate environment and mix of interest earnings assets. For the six months ended June 30, 2020 the net interest income ~~from the year ago period is~~FTE was $185.9 million, representing a decrease of $3.1 million, or 1.6%, primarily due to ~~increased~~the negative impact of a lower interest rate environment and mix of interest earning assets, ~~including those obtained~~partially offset by the year-to-date impact of the Blue Hills Bancorp, Inc. ("BHB") acquisition, which closed in the ~~BHB and MNB acquisitions.~~second quarter of 2019.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and ~~nine~~six months ending ~~September~~June 30, ~~2019~~2020 and ~~2018, respectively.~~2019. 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 16 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date


	Three Months Ended September 30												Three Months Ended June 30
	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	$	115,255	$	680	2.34	%	$	180,802	$	916	2.01	%	$	724,634	$	132	0.07	%	$	104,157	$	647	2.49	%
Securities
Securities - trading	1,947		—		—	%	1,608		—		—	%	2,393		—		—	%	1,894		—		—	%
Securities - taxable investments	1,204,314		8,269		2.72	%	1,005,787		6,664		2.63	%	1,206,631		7,831		2.61	%	1,240,509		8,521		2.76	%
Securities - nontaxable investments (1)	1,739		18		4.11	%	1,992		18		3.58	%	1,145		11		3.86	%	1,739		17		3.92	%
Total securities	$	1,208,000	$	8,287	2.72	%	$	1,009,387	$	6,682	2.63	%	$	1,210,169	$	7,842	2.61	%	$	1,244,142	$	8,538	2.75	%
Loans held for sale	102,065		456		1.77	%	8,340		61		2.90	%	50,613		359		2.85	%	15,710		40		1.02	%
Loans (2)
Commercial and industrial (1)	1,380,007		20,274		5.83	%	975,980		11,936		4.85	%	1,914,830		17,363		3.65	%	1,405,693		20,960		5.98	%
Commercial real estate (1)	4,017,670		49,139		4.85	%	3,144,613		37,048		4.67	%	4,051,342		42,371		4.21	%	4,091,335		50,860		4.99	%
Commercial construction	510,277		7,155		5.56	%	356,091		4,572		5.09	%	538,767		5,314		3.97	%	460,921		7,265		6.32	%
Small business	172,942		2,626		6.02	%	147,518		2,183		5.87	%	174,438		2,388		5.51	%	166,440		2,610		6.29	%
Total commercial	6,080,896		79,194		5.17	%	4,624,202		55,739		4.78	%	6,679,377		67,436		4.06	%	6,124,389		81,695		5.35	%
Residential real estate	1,644,467		17,329		4.18	%	792,154		7,959		3.99	%	1,474,495		13,801		3.76	%	1,746,723		17,475		4.01	%
Home equity	1,142,137		13,309		4.62	%	1,071,511		11,457		4.24	%	1,133,034		10,132		3.60	%	1,146,066		13,313		4.66	%
Total consumer real estate	2,786,604		30,638		4.36	%	1,863,665		19,416		4.13	%	2,607,529		23,933		3.69	%	2,892,789		30,788		4.27	%
Other consumer	30,294		627		8.21	%	13,040		244		7.42	%	24,971		500		8.05	%	29,413		683		9.31	%
Total loans	$	8,897,794	$	110,459	4.93	%	$	6,500,907	$	75,399	4.60	%	$	9,311,877	$	91,869	3.97	%	$	9,046,591	$	113,166	5.02	%
Total interest-earning assets	$	10,323,114	$	119,882	4.61	%	$	7,699,436	$	83,058	4.28	%	$	11,297,293	$	100,202	3.57	%	$	10,410,600	$	122,391	4.72	%
Cash and due from banks	121,515						106,273						119,692						125,507
Federal Home Loan Bank stock	15,781						13,107						23,175						22,161
Other assets	1,119,388						547,296						1,287,620						1,041,346
Total assets	$	11,579,798					$	8,366,112					$	12,727,780					$	11,599,614
Interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	3,157,870	$	2,120	0.27	%	$	2,654,157	$	1,433	0.21	%	$	3,679,729	$	1,101	0.12	%	$	3,205,512	$	2,175	0.27	%
Money market	1,942,932		4,220		0.86	%	1,373,594		2,056		0.59	%	1,972,986		1,377		0.28	%	1,975,900		4,440		0.90	%
Time deposits	1,471,749		5,506		1.48	%	652,638		1,762		1.07	%	1,186,189		4,549		1.54	%	1,375,726		4,563		1.33	%
Total interest-bearing deposits	$	6,572,551	$	11,846	0.72	%	$	4,680,389	$	5,251	0.45	%	$	6,838,904	$	7,027	0.41	%	$	6,557,138	$	11,178	0.68	%
Borrowings
Federal Home Loan Bank borrowings	$	156,054	$	945	2.40	%	$	50,770	$	248	1.94	%	$	339,393	$	433	0.51	%	$	372,260	$	2,373	2.56	%
Customer repurchase agreements	—		—		—	%	148,575		75		0.20	%
Line of credit													—		—		—	%	8,636		83		3.85	%
Long-term borrowings	74,885		684		3.62	%	—		—		—	%	71,629		343		1.93	%	74,932		745		3.99	%
Junior subordinated debentures	62,848		506		3.19	%	73,077		640		3.47	%	62,849		446		2.85	%	71,508		701		3.93	%
Subordinated debentures	84,319		1,045		4.92	%	34,711		427		4.88	%	49,635		618		5.01	%	84,294		1,045		4.97	%


Total borrowings	$	378,106	$	3,180	3.34	%	$	307,133	$	1,390	1.80	%	$	523,506	$	1,840	1.41	%	$	611,630	$	4,947	3.24	%
Total interest-bearing liabilities	$	6,950,657	$	15,026	0.86	%	$	4,987,522	$	6,641	0.53	%	$	7,362,410	$	8,867	0.48	%	$	7,168,768	$	16,125	0.90	%
Noninterest bearing demand deposits	2,753,596						2,300,943						3,371,262						2,641,470
Other liabilities	207,924						84,442						315,979						171,703
Total liabilities	$	9,912,177					$	7,372,907					$	11,049,651					$	9,981,941
Stockholders' equity	1,667,621						993,205						1,678,129						1,617,673
Total liabilities and stockholders' equity	$	11,579,798					$	8,366,112					$	12,727,780					$	11,599,614
Net interest income (1)			$	104,856					$	76,417					$	91,335					$	106,266
Interest rate spread (3)					3.75	%					3.75	%					3.09	%					3.82	%
Net interest margin (4)					4.03	%					3.94	%					3.25	%					4.09	%
Supplemental information
Total deposits, including demand deposits	$	9,326,147	$	11,846			$	6,981,332	$	5,251			$	10,210,166	$	7,027			$	9,198,608	$	11,178
Cost of total deposits					0.50	%					0.30	%					0.28	%					0.49	%
Total funding liabilities, including demand deposits	$	9,704,253	$	15,026			$	7,288,465	$	6,641			$	10,733,672	$	8,867			$	9,810,238	$	16,125
Cost of total funding liabilities					0.61	%					0.36	%					0.33	%					0.66	%

(1)

The total amount of adjustment to present interest income and yield on a FTE basis is ~~$258,000~~$237,000 and ~~$183,000~~$247,000 for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The FTE adjustment relates to tax exempt income relating to securities with average balances of ~~$1.7~~$1.1 million and ~~$2.0~~$1.7 million and tax exempt income relating to loans with average balances of ~~$84.5~~$82.0 million and ~~$57.4~~$85.4 million, for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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 17 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date


	Nine Months Ended September 30												Six Months Ended June 30
	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	$	96,305	$	1,753	2.43	%	$	128,646	$	1,768	1.84	%	$	398,593	$	292	0.15	%	$	86,673	$	1,073	2.50	%
Securities
Securities - trading	1,820		—		—	%	1,547		—		—	%	2,328		—		—	%	1,756		—		—	%
Securities - taxable investments	1,176,961		24,255		2.76	%	988,885		19,381		2.62	%	1,198,298		15,788		2.65	%	1,163,058		15,986		2.77	%
Securities - nontaxable investments (1)	1,739		52		4.00	%	2,152		58		3.60	%	1,191		23		3.88	%	1,738		34		3.94	%
Total securities	$	1,180,520	$	24,307	2.75	%	$	992,584	$	19,439	2.62	%	$	1,201,817	$	15,811	2.65	%	$	1,166,552	$	16,020	2.77	%
Loans held for sale	40,768		527		1.73	%	5,291		110		2.78	%	39,329		591		3.02	%	9,611		71		1.49	%
Loans (2)
Commercial and industrial (1)	1,300,815		55,674		5.72	%	933,163		32,667		4.68	%	1,659,014		34,303		4.16	%	1,260,562		35,400		5.66	%
Commercial real estate (1)	3,785,964		139,229		4.92	%	3,115,076		105,511		4.53	%	4,031,734		88,222		4.40	%	3,668,191		90,090		4.95	%
Commercial construction	453,097		20,037		5.91	%	390,061		14,499		4.97	%	547,254		12,215		4.49	%	424,034		12,882		6.13	%
Small business	168,280		7,720		6.13	%	139,523		6,053		5.80	%	174,553		4,950		5.70	%	165,910		5,094		6.19	%
Total commercial	5,708,156		222,660		5.22	%	4,577,823		158,730		4.64	%	6,412,555		139,690		4.38	%	5,518,697		143,466		5.24	%
Residential real estate	1,442,007		44,351		4.11	%	772,663		23,121		4.00	%	1,517,667		28,420		3.77	%	1,339,099		27,022		4.07	%
Home equity	1,125,144		38,797		4.61	%	1,061,280		32,492		4.09	%	1,134,983		21,959		3.89	%	1,116,507		25,488		4.60	%
Total consumer real estate	2,567,151		83,148		4.33	%	1,833,943		55,613		4.05	%	2,652,650		50,379		3.82	%	2,455,606		52,510		4.31	%
Other consumer	25,317		1,623		8.57	%	11,340		669		7.89	%	26,406		1,072		8.16	%	22,787		996		8.81	%
Total loans	$	8,300,624	$	307,431	4.95	%	$	6,423,106	$	215,012	4.48	%	$	9,091,611	$	191,141	4.23	%	$	7,997,090	$	196,972	4.97	%
Total interest-earning assets	$	9,618,217	$	334,018	4.64	%	$	7,549,627	$	236,329	4.19	%	$	10,731,350	$	207,835	3.89	%	$	9,259,926	$	214,136	4.66	%
Cash and due from banks	117,465						101,642						121,199						115,407
Federal Home Loan Bank stock	16,561						13,174						18,937						16,958
Other assets	927,837						546,276						1,227,199						830,474
Total assets	$	10,680,080					$	8,210,719					$	12,098,685					$	10,222,765
Interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	3,085,974	$	6,249	0.27	%	$	2,632,311	$	3,819	0.19	%	$	3,475,223	$	3,035	0.18	%	$	3,049,430	$	4,129	0.27	%
Money market	1,796,081		11,379		0.85	%	1,357,488		5,087		0.50	%	1,922,495		4,550		0.48	%	1,721,439		7,159		0.84	%
Time deposits	1,190,950		12,424		1.39	%	646,055		4,867		1.01	%	1,266,540		10,334		1.64	%	1,048,223		6,918		1.33	%
Total interest-bearing deposits	$	6,073,005	$	30,052	0.66	%	$	4,635,854	$	13,773	0.40	%	$	6,664,258	$	17,919	0.54	%	$	5,819,092	$	18,206	0.63	%
Borrowings
Federal Home Loan Bank borrowings	$	213,896	$	4,028	2.52	%	$	62,055	$	803	1.73	%	$	235,309	$	961	0.82	%	$	243,296	$	3,083	2.56	%
Customer repurchase agreements	—		—		—	%	149,174		205		0.18	%
Line of credit	3,595		104		3.87	%	—		—		—	%	—		—		—	%	5,446		104		3.85	%
Long-term borrowings	51,327		1,461		3.81	%	—		—		—	%	73,271		904		2.48	%	39,329		777		3.98	%
Junior subordinated debentures	69,176		1,891		3.65	%	73,076		1,855		3.39	%	62,849		924		2.96	%	72,393		1,385		3.86	%
Subordinated debentures	71,242		2,633		4.94	%	34,699		1,282		4.94	%	49,623		1,235		5.00	%	64,595		1,588		4.96	%
Total borrowings	$	409,236	$	10,117	3.31	%	$	319,004	$	4,145	1.74	%	$	421,052	$	4,024	1.92	%	$	425,059	$	6,937	3.29	%
Total interest-bearing liabilities	$	6,482,241	$	40,169	0.83	%	$	4,954,858	$	17,918	0.48	%	$	7,085,310	$	21,943	0.62	%	$	6,244,151	$	25,143	0.81	%
Noninterest bearing demand deposits													3,025,990						2,480,235


Noninterest bearing demand deposits	2,572,357						2,202,305
Other liabilities	164,783						80,964						283,724						142,856
Total liabilities	$	9,219,381					$	7,238,127					$	10,395,024					$	8,867,242
Stockholders' equity	1,460,699						972,592						1,703,661						1,355,523
Total liabilities and stockholders' equity	$	10,680,080					$	8,210,719					$	12,098,685					$	10,222,765
Net interest income (1)			$	293,849					$	218,411					$	185,892					$	188,993
Interest rate spread (3)					3.81	%					3.71	%					3.27	%					3.85	%
Net interest margin (4)					4.08	%					3.87	%					3.48	%					4.12	%
Supplemental information
Total deposit, including demand deposits	$	8,645,362	$	30,052			$	6,838,159	$	13,773			$	9,690,248	$	17,919			$	8,299,327	$	18,206
Cost of total deposits					0.46	%					0.27	%					0.37	%					0.44	%
Total funding liabilities, including demand deposits	$	9,054,598	$	40,169			$	7,157,163	$	17,918			$	10,111,300	$	21,943			$	8,724,386	$	25,143
Cost of total funding liabilities					0.59	%					0.33	%					0.44	%					0.58	%

(1)

The total amount of adjustment to present interest income and yield on a FTE basis is ~~$707,000~~$490,000 and ~~$538,000~~$449,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The FTE adjustment relates to nontaxable investment 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 ~~$78.4~~$83.8 million and ~~$54.8~~$75.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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 18 - Volume Rate Analysis


	Three Months Ended September 30									Nine Months Ended September 30									Three Months Ended June 30									Six Months Ended June 30
	2019 Compared To 2018									2019 Compared To 2018									2020 Compared To 2019									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			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	$	96		$	(332	)	$	(236	)	$	429		$	(444	)	$	(15	)	$	(4,369	)	$	3,854		$	(515	)	$	(4,643	)	$	3,862		$	(781	)
Securities
Securities - taxable investments	290			1,315			1,605			1,188			3,686			4,874			(457		)	(233		)	(690		)	(682		)	484			(198		)
Securities - nontaxable investments (1)	2			(2		)	—			5			(11		)	(6		)	—			(6		)	(6		)	—			(11		)	(11		)
Total securities							1,605									4,868									(696		)							(209		)
Loans held for sale	(291		)	686			395			(321		)	738			417			230			89			319			300			220			520
Loans
Commercial and industrial (1)	3,397			4,941			8,338			10,137			12,870			23,007			(11,189		)	7,592			(3,597		)	(12,287		)	11,190			(1,097		)
Commercial real estate (1)	1,805			10,286			12,091			10,994			22,724			33,718			(7,992		)	(497		)	(8,489		)	(10,797		)	8,929			(1,868		)
Commercial construction	603			1,980			2,583			3,195			2,343			5,538			(3,178		)	1,227			(1,951		)	(4,410		)	3,743			(667		)
Small business	67			376			443			419			1,248			1,667			(347		)	125			(222		)	(409		)	265			(144		)
Total commercial							23,455									63,930									(14,259		)							(3,776		)
Residential real estate	807			8,563			9,370			1,201			20,029			21,230			(951		)	(2,723		)	(3,674		)	(2,205		)	3,603			1,398
Home equity	1,097			755			1,852			4,350			1,955			6,305			(3,030		)	(151		)	(3,181		)	(3,951		)	422			(3,529		)
Total consumer real estate							11,222									27,535									(6,855		)							(2,131		)
Other consumer	60			323			383			129			825			954			(80		)	(103		)	(183		)	(82		)	158			76
Total loans (1)(2)							35,060									92,419									(21,297		)							(5,831		)
Total income of interest-earning assets							$	36,824								$	97,689								$	(22,189	)							$	(6,301	)
Expense of interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	415		$	272		$	687		$	1,772		$	658		$	2,430		$	(1,396	)	$	322		$	(1,074	)	$	(1,671	)	$	577		$	(1,094	)
Money market	1,312			852			2,164			4,648			1,644			6,292			(3,056		)	(7		)	(3,063		)	(3,445		)	836			(2,609		)
Time certificates of deposits	1,533			2,211			3,744			3,452			4,105			7,557			615			(629		)	(14		)	1,975			1,441			3,416
Total interest bearing deposits							6,595									16,279									(4,151		)							(287		)
Borrowings
Federal Home Loan Bank borrowings	183			514			697			1,260			1,965			3,225			(1,730		)	(210		)	(1,940		)	(2,021		)	(101		)	(2,122		)
Customer repurchase agreements and other short-term borrowings	—			(75		)	(75		)	—			(205		)	(205		)
Line of Credit	—			—			—			104			—			104			—			(83		)	(83		)	—			(104		)	(104		)
Long-term borrowings	684			—			684			1,461			—			1,461			(369		)	(33		)	(402		)	(544		)	671			127
Junior subordinated debentures	(44		)	(90		)	(134		)	135			(99		)	36			(170		)	(85		)	(255		)	(278		)	(183		)	(461		)
Subordinated debentures	8			610			618			1			1,350			1,351			3			(430		)	(427		)	15			(368		)	(353		)
Total borrowings							1,790									5,972									(3,107		)							(2,913		)
Total expense of interest-bearing liabilities							8,385									22,251									(7,258		)							(3,200		)
Change in net interest income							$	28,439								$	75,438								$	(14,931	)							$	(3,101	)


(1)	The table above reflects income determined on a FTE basis. See footnote (1) to tables 16 and 17 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. ~~There was no~~The provision for ~~loan~~credit losses was $20.0 million and $45.0 million during the three ~~months ended~~

~~September 30, 2019~~ and ~~$2.0 million for the nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, as compared to ~~$1.1~~$1.0 million and ~~$3.6~~$2.0 million for the comparable year-ago periods. The elevated provision for credit losses during the three and six months ended June 30, 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 ~~0.75%~~1.20% at ~~September~~June 30, ~~2019, 0.93%~~2020, 0.76% at December 31, ~~2018,~~2019, and ~~0.97%~~0.74% at ~~September~~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.2019. The Company recorded net ~~recoveries~~charge-offs of ~~$982,000~~$200,000 and ~~$649,000~~$584,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, as compared to net charge-offs of ~~$397,000~~$180,000 and ~~$983,000~~$333,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, respectively.

~~Management’s periodic evaluation~~ 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.periods.

Additionally, the national and local economies remained generally strong and expansion continued despite lingering uncertainty regarding trade policy and tariffs. The labor market in the New England region remains very tight which has led to difficulty for some employers seeking to fill vacancies. Wage growth remains somewhat restrained, however increases have begun to emerge in a number of industries. Retail sales versus the prior year are up modestly with many retailers noting that they have not experienced significant pricing pressure despite the ongoing tariff negotiations with China. The spring and summer tourism market for the Boston area appears to have been strong versus the prior year with hotels reporting strong occupancy and room rate growth. Residential real estate activity appears to be moderating somewhat versus the prior year even as prices continue to rise as inventory falls. Commercial construction activity in the Boston market continues to be strong as projects related to office space have increased relative to apartment projects. 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 19 - Noninterest Income


	Three Months Ended									Three Months Ended
	September 30				Change					June 30				Change
	2019		2018		Amount			%		2020		2019		Amount			%
	(Dollars in thousands)									(Dollars in thousands)
Deposit account fees	$	5,299	$	4,658	$	641		13.76	%	$	2,829	$	5,080	$	(2,251	)	(44.31	)%
Interchange and ATM fees	6,137		4,947		1,190			24.05	%	5,214		5,794		(580		)	(10.01	)%
Investment management	7,188		6,564		624			9.51	%	7,296		7,153		143			2.00	%
Mortgage banking income	3,968		1,222		2,746			224.71	%	5,005		3,410		1,595			46.77	%
Gain on life insurance benefits	434		1,463		(1,029		)	(70.33	)%	335		—		335			100.00%
Increase in cash surrender value of life insurance policies	1,304		984		320			32.52	%	1,312		1,296		16			1.23	%
Unrealized gain on sale of equity securities										1,386		441		945			214.29	%
Loan level derivative income	2,739		392		2,347			598.72	%	2,864		932		1,932			207.30	%
Other noninterest income	4,747		3,034		1,713			56.46	%	1,949		4,542		(2,593		)	(57.09	)%
Total	$	31,816	$	23,264	$	8,552		36.76	%	$	28,190	$	28,648	$	(458	)	(1.60	)%

	Nine Months Ended									Six Months Ended
	September 30				Change					June 30				Change
	2019		2018		Amount			%		2020		2019		Amount			%
	(Dollars in thousands)									(Dollars in thousands)
Deposit account fees	$	14,785	$	13,640	$	1,145		8.39	%	$	7,799	$	9,486	$	(1,687	)	(17.78	)%
Interchange and ATM fees	16,447		13,889		2,558			18.42	%	10,110		10,310		(200		)	(1.94	)%
Investment management	21,089		19,528		1,561			7.99	%	14,125		13,901		224			1.61	%
Mortgage banking income	8,184		3,130		5,054			161.47	%	5,866		4,216		1,650			39.14	%
Gain on life insurance benefits	434		1,463		(1,029		)	(70.33	)%	692		—		692			100.00%
Increase in cash surrender value of life insurance policies	3,572		2,929		643			21.95	%	2,588		2,268		320			14.11	%
Unrealized gain on sale of equity securities										1,386		1,345		41			3.05	%
Loan level derivative income	4,312		1,547		2,765			178.73	%	6,461		1,573		4,888			310.74	%
Other noninterest income	13,174		8,888		4,286			48.22	%	5,598		7,082		(1,484		)	(20.95	)%
Total	$	81,997	$	65,014	$	16,983		26.12	%	$	54,625	$	50,181	$	4,444		8.86	%

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~~decreased, driven by reductions in overdraft fees, particularly during the ~~impact of recent acquisitions~~second quarter as ~~well as increased debit card usage.~~customers benefited from government stimulus payments.

Interchange and ATM fees have ~~increased, driven mainly by increased account activity and a larger customer base from~~decreased reflecting overall decreases in consumer spending when compared to prior year as customers focus on retaining liquidity amid the ~~BHB and MNB acquisitions as well as debit card branding incentives.~~COVID-19 pandemic.

Investment management income ~~growth was driven primarily by growth in overall assets~~increased compared to the quarter and year ago period. Assets under administration ~~which~~ were ~~$4.5~~approximately $4.4 billion and $4.2 billion as of ~~September~~June 30, 2020 and 2019, ~~an increase of $879.1 million, or 24.1%, compared~~respectively, with the current year asset values being subject to ~~September 30, 2018.~~significant general stock market volatility associated with the COVID-19 pandemic.

Mortgage banking income ~~grew~~increased due to increased volume when compared to the ~~significantly increased production channel following the BHB acquisition, capitalizing on a strong refinance demand environment, combined with robust purchase volumes.~~same periods in 2019.

The Company received proceeds on life insurance policies during the ~~third quarters~~first half of ~~both 2019 and 2018,~~2020 resulting in gains of ~~$434,000~~$335,000 and ~~$1.5 million,~~$692,000 for the three and six months ended June 30, 2020, respectively. There were no such gains during the first half of 2019.

The increase in cash surrender value of life insurance policies ~~increased~~for the year to date periods is primarily due to policies obtained from the BHB ~~acquisition.~~acquisition, which closed in the second quarter of 2019.

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

Other noninterest income ~~increased~~decreased during the three months ended June 30, 2020, mainly due to ~~higher unrealized~~decreases in investment income, business credit card interchange, a decrease in the gain on sale of loans and reductions in FHLB dividend income. The six month decline in noninterest income is due to decreases in investment income, a decrease in gains ~~on equity securities and increased Federal Home Loan Bank dividends, and increased interest on cash collateral. Additionally, the Company~~ recognized ~~a gain~~ on the sale of ~~residential~~ loans, a reductions in ~~the third quarter of 2019 of $951,000, as well as a gain on the sale of a small~~FHLB dividend income and business credit card ~~portfolio of $431,000 in the second quarter of 2019.~~fees, partially offset by income on called securities,1031 exchange income, and unused line fees.

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

Table 20 - Noninterest Expense


	Three Months Ended									Three Months Ended
	September 30				Change					June 30				Change
	2019		2018		Amount			%		2020		2019		Amount			%
	(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	$	39,432	$	31,095	$	8,337		26.81	%	$	37,269	$	38,852	$	(1,583	)	(4.07	)%
Occupancy and equipment expenses	8,555		6,310		2,245			35.58	%	9,273		8,424		849			10.08	%
Data processing & facilities management	1,515		1,287		228			17.72	%	1,459		2,042		(583		)	(28.55	)%
FDIC assessment	—		725		(725		)	(100.00	)%	503		778		(275		)	(35.35	)%
Advertising expense	1,417		1,395		22			1.58	%	787		1,282		(495		)	(38.61	)%
Consulting expense	1,338		1,128		210			18.62	%	1,603		1,384		219			15.82	%
Core deposit amortization	1,567		507		1,060			209.07	%	1,433		1,572		(139		)	(8.84	)%
Loss on sale of securities										—		1,462		(1,462		)	(100.00	)%
Merger and acquisition expenses	705		2,688		(1,983		)	(73.77	)%	—		24,696		(24,696		)	(100.00	)%
Software maintenance	1,385		1,079		306			28.36	%	1,780		1,363		417			30.59	%
Other noninterest expenses	11,619		9,225		2,394			25.95	%	12,500		11,177		1,323			11.84	%
Total	$	67,533	$	55,439	$	12,094		21.81	%	$	66,607	$	93,032	$	(26,425	)	(28.40	)%

	Nine Months Ended									Six Months Ended
	September 30				Change					June 30				Change
	2019		2018		Amount			%		2020		2019		Amount			%
	(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	$	111,401	$	92,483	$	18,918		20.46	%	$	74,618	$	71,969	$	2,649		3.68	%
Occupancy and equipment expenses	24,109		20,215		3,894			19.26	%	18,590		15,554		3,036			19.52	%
Data processing & facilities management	4,883		3,837		1,046			27.26	%	3,117		3,368		(251		)	(7.45	)%
FDIC assessment	1,394		2,214		(820		)	(37.04	)%	503		1,394		(891		)	(63.92	)%
Advertising expense	3,912		3,684		228			6.19	%	1,892		2,495		(603		)	(24.17	)%
Consulting expense	3,486		2,973		513			17.26	%	2,939		2,148		791			36.82	%
Core deposit amortization	3,996		1,670		2,326			139.28	%	2,964		2,429		535			22.03	%
Loss on sale of securities	1,462		—		1,462			100.00%		—		1,462		(1,462		)	(100.00	)%
Merger and acquisition expenses	26,433		3,122		23,311			746.67	%	—		25,728		(25,728		)	(100.00	)%
Software maintenance	3,913		3,048		865			28.38	%	3,465		2,528		937			37.06	%
Other noninterest expenses	31,887		28,332		3,555			12.55	%	25,359		20,268		5,091			25.12	%
Total	$	216,876	$	161,578	$	55,298		34.22	%	$	133,447	$	149,343	$	(15,896	)	(10.64	)%

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

The ~~increase~~decrease in salaries and employee benefits for the three months ended June 30, 2020 is due to lower incentive compensation costs and decreased commissions, partially offset by increases in general salary costs, retirement costs, and payroll taxes. The increase for the six months ended June 30, 2020 reflects overall increases in the employee base, ~~including~~due to the BHB ~~and MNB acquisitions,~~acquisition which occurred on April 1, 2019, along with increases in ~~expenses associated with incentives, payroll taxes, medical insurance, commissions and~~ retirement benefit ~~costs.~~costs, offset somewhat by decreases in incentive compensation.

Occupancy and equipment expenses increased ~~mainly~~for the three and six months ended June 30, 2020 due to the full six month impact of the acquired BHB branch ~~network.~~network and costs attributable to the Company's infrastructure expenses in response to the COVID-19 pandemic.

Data processing ~~increases reflect overall increased levels~~and facilities management decreased due to timing of ~~transactional activity in conjunction with the Company's growth.~~certain initiatives and system upgrades.

~~The~~ FDIC assessment ~~expense decrease~~decreased for both the three and six months ended June 30, 2020, in ~~2019 was due~~comparison to the same periods in 2019. During the first half of 2020, the Company ~~benefiting~~benefited from ~~the~~ small bank assessment credits allocated in conjunction with the Deposit Insurance Fund's attainment of a 1.38 percent reserve ~~ratio, which resulted~~ratio. No such credits were recognized during the comparable periods in no2019.

Consulting expense ~~for~~increased in conjunction with the ~~third quarter~~Company's overall growth and implementation of ~~2019.~~strategic initiatives and COVID-19 related projects.

The core deposit amortization ~~increase is~~increased year-to-date due to additional core deposit intangibles associated with the BHB ~~acquisition, which resulted in a $19.9 million core deposit intangible.~~acquisition.

The ~~increase in~~ merger and acquisition ~~expenses~~expense in 2019 is primarily attributable to the BHB ~~acquisition, with a small remainder associated with the MNB~~ acquisition. The majority of these costs include ~~severance, contract termination~~legal, professional fees, and integration costs. ~~The majority of the~~There were 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 half of 2020.

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

The increase in other noninterest expenses for the three months ended June 30, 2020 is primarily due to increases in retail branch traffic control, prepayment fees on borrowings, COVID-19 related supplies, investment management systems and other miscellaneous expenses, partially offset by decreases in the reserve for unfunded commitments. During the six months ended June 30, 2020, other noninterest expenses increased mainly due to retail branch traffic control, recruitment expenses, prepayment on borrowings, investment management systems, loss on the sale of ~~securities, marketing costs,~~fixed assets, subscriptions expense, COVID-19 related supplies, appraisals, debit card expense ~~card issuance costs~~ and ~~internet banking expenses.~~other miscellaneous expenses, partially offset by decreases in the provision for unfunded commitments and mortgage operations expense.

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

Table 21 - Tax Provision and Applicable Tax Rates


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30						September 30						June 30						June 30
	2019			2018			2019			2018			2020			2019			2020			2019
	(Dollars in thousands)												(Dollars in thousands)
Combined federal and state income tax provision	$	17,036		$	9,969		$	38,565		$	26,046		$	7,779		$	10,007		$	9,927		$	21,529
Effective income tax rate	24.73		%	23.19		%	24.68		%	22.12		%	23.80		%	24.63		%	16.12		%	24.64		%
Blended statutory tax rate	28.24		%	28.22		%	28.24		%	28.22		%	27.88		%	28.23		%	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~~current year-to-date discrete tax ~~rate for~~amounts include a benefit of $4.7 million associated with the ~~current quarter reflects fewer~~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 ~~credits associated with~~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 ~~$75.5~~$124.2 million, of which ~~$54.8~~$75.3 million has been funded as of ~~September~~June 30, ~~2019.~~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 ~~$32.6~~$16.0 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 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.~~assumption.

Based upon the net interest income simulation models, the Company currently forecasts that the Bank’s assets re-price faster than the liabilities. As a result, the net interest income of the Bank will benefit as market rates increase, and contract if market rates decrease. The Company runs several scenarios to quantify and effectively assist in managing this position. These scenarios include instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary, given the interest rate environment.

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

Table 22 - Interest Rate Sensitivity


	September 30								June 30
	2019				2018				2020					2019
	Year 1		Year 2		Year 1		Year 2		Year 1		(1)	Year 2		Year 1		Year 2
Parallel rate shocks (basis points)
-100	(3.2	)%	(7.3	)%	(6.5	)%	(7.0	)%	(1.1	)%		(7.6	)%	(3.3	)%	(5.9	)%
+100	3.2	%	4.1	%	4.3	%	9.4	%	5.5	%		3.2	%	2.8	%	4.5	%
+200	5.9	%	8.8	%	8.0	%	15.0	%	11.5	%		11.9	%	5.2	%	8.4	%
+300	8.4	%	13.3	%	11.8	%	21.0	%	18.0	%		20.7	%	7.5	%	12.2	%
+400	10.9	%	17.6	%	15.6	%	26.7	%	24.1	%		29.1	%	9.7	%	16.0	%

Gradual rate shifts (basis points)
-100 over 12 months	(1.2	)%	(6.3	)%	(2.7	)%	(5.7	)%	0.1	%		(7.0	)%	(1.5	)%	(5.0	)%
+200 over 12 months	2.7	%	7.3	%	3.9	%	13.7	%	5.2	%		9.6	%	2.4	%	7.1	%
+400 over 24 months	2.7	%	9.5	%	3.9	%	17.3	%	5.2	%		16.0	%	2.4	%	9.0	%

Alternative scenarios
Yield Curve Twist	1.0	%	4.7	%	n/a		n/a		1.5	%		4.4	%	0.8	%	5.0	%
Flat up 200 basis points scenario	n/a		n/a		3.9	%	12.9	%


(1)	Baseline scenarios assume approximately 50% of PPP loans will be completely amortized or paid off during year 1.

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 ~~nine~~six months ended ~~September~~June 30, ~~2019~~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 ~~September~~June 30, ~~2019.~~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 23 - Sources of Liquidity


	September 30, 2019				December 31, 2018				June 30, 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)	$	70,708	$	1,688,708	$	147,806	$	953,539	$	145,770	$	1,382,260	$	115,748	$	1,557,559
Federal Reserve Bank of Boston (2)	—		963,280		—		705,242		—		1,282,611		—		954,748
Unpledged Securities	—		826,889		—		691,383		—		718,569		—		790,304
Line of Credit	—		50,000		—		—		—		50,000		—		50,000
Long-term borrowing (3)	74,894		—		—		—		37,433		—		74,906		—
Junior subordinated debentures (3)	62,848		—		76,173		—		62,850		—		62,848		—
Subordinated debt (3)	84,341		—		34,728		—		49,648		—		49,601		—
Reciprocal deposits (3)	211,003		—		180,514		—		250,034		—		211,213		—
Brokered deposits (3)	303,427		—		6,000		—		72,020		—		281,773		—
	$	807,221	$	3,528,877	$	445,221	$	2,350,164	$	617,755	$	3,433,440	$	796,089	$	3,352,611


(1)	Loans with a carrying value of ~~$2.6~~$2.3 billion and ~~$1.6~~$2.5 billion at ~~September~~June 30, ~~2019~~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 ~~$1.6~~$1.8 billion and ~~$1.2~~$1.5 billion at ~~September~~June 30, ~~2019~~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. 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 ~~September~~June 30, ~~2019.~~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 ~~September~~June 30, ~~2019. See~~ ~~Note~~ 6 ~~"Borrowings"~~ ~~within Condensed Notes to Consolidated Financial Statements included in Item 1.~~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 ~~third~~second 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 ~~September~~June 30, ~~2019,~~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 and any resurgences. 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 half 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 $45.0 million during the first half of 2020, compared to $2.0 million for the first half of 2019. With the continued spread of COVID-19 in the United States, 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 25 basis points, 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. On April 16, 2020, the SBA notified lenders that the original $349.0 billion of funding under the PPP was exhausted, and on April 24, 2020, Congress allocated an additional $310.0 billion to the program. The Company participated as a lender in both rounds of the PPP. Through the second

quarter of 2020, the Company has made over 5,600 PPP loans for a total of $793.0 million. In part because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there was and continues to be 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. 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 ~~September~~June 30, ~~2019:~~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
July 1 to July 31, 2019 —
$ —
—
—
August 1 to August 31, 2019 —
$ —
—
—
September 1 to September 30, 2019 43
$ 75.04
—
—
Total 43
—
—



	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
April 1 to April 30, 2020	333,681	$	65.65	333,077	—
May 1 to May 31, 2020	82	$	56.36	—	—
June 1 to June 30, 2020	814	$	71.75	—	—
Total	334,577	$	65.67	333,077


(1)	~~Shares repurchased relate~~Other than the 333,077 shares purchased under its share repurchase program, 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 604 shares in April 2020, 82 shares in May 2020, and 814 shares in June 2020.

(2)

~~As of September 30, 2019, the Company did not have a stock repurchase program or plan in place.~~ On October 17, 2019, the Company announced that its Board of Directors authorized a share repurchase program of up to 1.5 million shares of the Company's common stock. 333,077 shares were repurchased under the program in April 2020 which represented the balance of the 1.5 million shares. 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



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



*	Filed herewith



+	Furnished herewith

#	~~Management contract or compensatory plan or arrangement~~

SIGNATURES

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

INDEPENDENT BANK CORP.

(registrant)



~~November 5, 2019~~August 6, 2020		/s/ Christopher Oddleifson
		Christopher Oddleifson President and Chief Executive Officer (Principal Executive Officer)



~~November 5, 2019~~August 6, 2020		/s/ Mark J. Ruggiero
		Mark J. Ruggiero Chief Financial Officer (Principal Financial Officer)

~~101~~108



Proceeds from the sale of other real estate owned and foreclosed assets	—			308
Net cash used in investing activities	(13,942		)	(260,078		)
Cash flows provided by (used in) financing activities
Net increase in time deposits	28,113			19,226
Net increase (decrease) in other deposits	(56,714		)	227,836
Net repayments of short-term Federal Home Loan Bank borrowings	(177,046		)	—
Repayments of long-term Federal Home Loan Bank borrowings	(25,000		)	(2,475		)
Net decrease in customer repurchase agreements	—			(21,503		)
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	(1,435		)	(1,344		)
Proceeds from shares issued under direct stock purchase plan	4,412			1,792
Common dividends paid	(38,152		)	(29,701		)
Net cash provided by (used in) financing activities	(154,477		)	194,015
Net increase (decrease) in cash and cash equivalents	(31,183		)	37,731
Cash and cash equivalents at beginning of year	250,455			213,116
Cash and cash equivalents at end of period	$	219,272		$	250,847
Supplemental schedule of noncash activities
Net increase in capital commitments relating to low income housing project investments	$	15,740		$	65
Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1)	$	32,777		$	—
Initial recognition of operating lease at commencement	$	7,593		$	—
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 September 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	$	16,857		$	32,660		$	5,593		$	1,768		$	3,296		$	5,547		$	239		$	65,960
Charge-offs	—			(82		)	—			(125		)	—			(28		)	(472		)	(707		)
Recoveries	1,003			106			—			61			140			194			185			1,689
Provision (benefit)	(528		)	(33		)	240			48			(88		)	36			325			—
Ending balance	$	17,332		$	32,651		$	5,833		$	1,752		$	3,348		$	5,749		$	277		$	66,942

	Three Months Ended September 30, 2018
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction			Small Business			Residential Real Estate			Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	14,788		$	32,095		$	5,216		$	1,709		$	2,909		$	5,468		$	372		$	62,557
Charge-offs	(218		)	(82		)	—			(111		)	—			(87		)	(349		)	(847		)
Recoveries	108			29			—			10			9			71			223			450
Provision (benefit)	430			226			(189		)	160			153			102			193			1,075
Ending balance	$	15,108		$	32,268		$	5,027		$	1,768		$	3,071		$	5,554		$	439		$	63,235



	Nine Months Ended September 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	—			(82		)	—			(319		)	—			(212		)	(1,125		)	(1,738		)
Recoveries	1,127			152			—			108			141			278			581			2,387
Provision (benefit)	445			211			675			207			(12		)	75			399			2,000
Ending balance	$	17,332		$	32,651		$	5,833		$	1,752		$	3,348		$	5,749		$	277		$	66,942
Ending balance: collectively evaluated for impairment	$	17,326		$	32,610		$	5,833		$	1,741		$	2,729		$	5,594		$	272		$	66,105
Ending balance: individually evaluated for impairment	$	6		$	41		$	—		$	11		$	619		$	155		$	5		$	837
	Nine Months Ended September 30, 2018
	(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction			Small Business			Residential Real Estate			Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	13,256		$	31,453		$	5,698		$	1,577		$	2,822		$	5,390		$	447		$	60,643
Charge-offs	(355		)	(82		)	—			(237		)	(148		)	(261		)	(926		)	(2,009		)
Recoveries	179			67			—			29			12			128			611			1,026
Provision (benefit)	2,028			830			(671		)	399			385			297			307			3,575
Ending balance	$	15,108		$	32,268		$	5,027		$	1,768		$	3,071		$	5,554		$	439		$	63,235
Ending balance: collectively evaluated for impairment	$	15,101		$	32,234		$	5,027		$	1,767		$	2,197		$	5,386		$	426		$	62,138
Ending balance: individually evaluated for impairment	$	7		$	34		$	—		$	1		$	874		$	168		$	13		$	1,097



							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
	September 30, 2019
	(Dollars in thousands)
Derivative Assets
Interest rate swaps	$	29,551	$	—	$	29,551	$	29,551	$	—	$	—
Loan level derivatives	71,554		—		71,554		126		—		71,428
Customer foreign exchange contracts	3,345		—		3,345		—		—		3,345
	$	104,450	$	—	$	104,450	$	29,677	$	—	$	74,773

Derivative Liabilities
Interest rate swaps	$	244	$	—	$	244	$	—	$	244	$	—
Loan level derivatives	71,544		—		71,544		29,677		41,192		675
Customer foreign exchange contracts	3,305		—		3,305		—		—		3,305
	$	75,093	$	—	$	75,093	$	29,677	$	41,436	$	3,980



	Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
	Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount
	(Dollars in thousands)
Change in fair value of securities available for sale	$	(2,988	)	$	726		$	(2,262	)	$	(12,761	)	$	3,107		$	(9,654	)
Less: net security gains reclassified into other noninterest income (expense)	—			—			—			—			—			—
Net change in fair value of securities available for sale	(2,988		)	726			(2,262		)	(12,761		)	3,107			(9,654		)

Change in fair value of cash flow hedges	(296		)	83			(213		)	100			(25		)	75
Less: net cash flow hedge gains reclassified into interest income or interest expense	268			(76		)	192			525			(148		)	377
Net change in fair value of cash flow hedges	(564		)	159			(405		)	(425		)	123			(302		)

Amortization of net actuarial losses	94			(26		)	68			281			(79		)	202
Amortization of net prior service costs	69			(20		)	49			207			(58		)	149
Net change in other comprehensive income for defined benefit postretirement plans (1)	163			(46		)	117			488			(137		)	351
Total other comprehensive loss	$	(3,389	)	$	839		$	(2,550	)	$	(12,698	)	$	3,093		$	(9,605	)



	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)	12,349			14,905			—			121			27,375
Ending balance: September 30, 2019	$	6,402		$	21,053		$	—		$	(1,253	)	$	26,202
	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)	(9,654		)	(170		)	(132		)	351			(9,605		)
Ending balance: September 30, 2018	$	(11,100	)	$	983		$	34		$	(2,581	)	$	(12,664	)



	(Dollars in thousands)
Remainder of 2019	$	2,845
2020	10,879
2021	9,986
2022	8,904
2023	6,889
Thereafter	19,860
Total minimum lease payments	59,363
Less: amount representing interest	5,922
Present value of future minimum lease payments	$	53,441



	September 30 2019		December 31 2018		Blue Hills Bancorp Acquisition		Organic Growth/(Decline)			Organic Growth/ (Decline)%
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	2,752,150	$	2,450,907	$	301,276	$	(33	)	—	%
Savings and interest checking	3,199,182		2,865,349		351,554		(17,721		)	(0.6	)%
Money market	1,904,643		1,399,761		543,842		(38,960		)	(2.8	)%
Time certificates of deposits	1,470,116		711,103		733,764		25,249			3.6	%
Total	$	9,326,091	$	7,427,120	$	1,930,436	$	(31,465	)	(0.4	)%