The following analysis discusses the changes in financial condition and results
of operation of Cambridge Bancorp (together with its bank subsidiary, unless the
context otherwise requires, the "Company") and should be read in conjunction
with Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2019, (the "2019 Form 10-K"), filed with the Securities and Exchange Commission
(the "SEC") on March 17, 2020

Forward-Looking Statements



This report contains forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements about
the Company and its industry involve substantial risks and uncertainties.
Statements other than statements of current or historical fact, including
statements regarding the Company's future financial condition, results of
operations, business plans, liquidity, cash flows, projected costs, and the
impact of any laws or regulations applicable to the Company, are forward-looking
statements. Words such as "anticipates," "believes," "estimates," "expects,"
"forecasts," "intends," "plans," "projects," "may," "will," "should," and other
similar expressions are intended to identify these forward-looking statements.
Such statements are subject to factors that could cause actual results to differ
materially from anticipated results. Such factors include, but are not limited
to, the following:

• national, regional and local economic conditions may be less favorable than

expected, resulting in, among other things, increased charge-offs of loans,

higher provisions for credit losses and/or reduced demand for the Company's

services;

• disruptions to the credit and financial markets, either nationally or

globally;

• the duration and scope of the coronavirus disease 2019 ("COVID-19") pandemic

and its impact on levels of consumer confidence;

• actions governments, businesses and individuals take in response to the

COVID-19 pandemic;

• the impact of the COVID-19 pandemic and actions taken in response to the


      pandemic on global and regional economies and economic activity;


  • the pace of recovery when the COVID-19 pandemic subsides;

• weakness in the real estate market, including the secondary residential


      mortgage market, which can affect, among other things, the value of
      collateral securing mortgage loans, mortgage loan originations and
      delinquencies, and profits on sales of mortgage loans;

• legislative, regulatory or accounting changes, including changes resulting

from the adoption and implementation of the Dodd-Frank Act, which may

adversely affect our business and/or competitive position, impose additional

costs on the Company or cause us to change our business practices;

• the Dodd-Frank Act's consumer protection regulations which could adversely

affect the Company's business, financial condition or results of operations;

• disruptions in the Company's ability to access capital markets which may

adversely affect its capital resources and liquidity;

• the Company's heavy reliance on communications and information systems to

conduct its business and reliance on third parties and affiliates to provide

key components of its business infrastructure, any disruptions of which

could interrupt the Company's operations or increase the costs of doing

business;

• that the Company's financial reporting controls and procedures may not

prevent or detect all errors or fraud;

• the Company's dependence on the accuracy and completeness of information

about clients and counterparties;

• the fiscal and monetary policies of the federal government and its agencies;

• the failure to satisfy capital adequacy and liquidity guidelines applicable


      to the Company;


  • downgrades in the Company's credit rating;

• changes in interest rates which could affect interest rate spreads and net

interest income;

• costs and effects of litigation, regulatory investigations or similar

matters;

• the inability to realize expected cost savings or implement integration

plans and other adverse consequences associated with the merger with Optima

Bank & Trust Company ("Optima");

• the inability to realize expected cost savings or to implement integration


      plans and other adverse consequences associated with the merger with
      Wellesley Bancorp, Inc. ("Wellesley");


                                       39

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• a failure by the Company to effectively manage the risks the Company faces,

including credit, operational and cyber security risks;

• increased pressures from competitors (both banks and non-banks) and/or an

inability of the Company to remain competitive in the financial services


      industry, particularly in the markets which the Company serves, and keep
      pace with technological changes;

• unpredictable natural or other disasters, which could adversely impact the

Company's customers or operations;

• a loss of customer deposits, which could increase the Company's funding

costs;

• the disparate impact that can result from having loans concentrated by loan


      type, industry segment, borrower type or location of the borrower or
      collateral;


  • changes in the creditworthiness of customers;

• increased credit losses or impairment of goodwill and other intangibles;

• negative public opinion which could damage the Company's reputation and


      adversely impact business and revenues;


   •  the Company depends on the expertise of key personnel, and if these

individuals leave or change their roles without effective replacements,


      operations may suffer;


   •  the Company may not be able to hire or retain additional qualified

personnel, including those acquired in previous acquisitions, and recruiting

and compensation costs may increase as a result of turnover, both of which


      may increase costs and reduce profitability and may adversely impact the
      Company's ability to implement the Company's business strategies; and

• changes in the Company's accounting policies or in accounting standards

which could materially affect how the Company reports financial results and

condition.

Except as required by law, the Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. You are cautioned not to place undue reliance on these forward-looking statements.

OVERVIEW

Cambridge Bancorp (together with its bank subsidiary, unless the context
otherwise requires, the "Company") is a Massachusetts state-chartered, federally
registered bank holding company headquartered in Cambridge, Massachusetts. The
Company is a Massachusetts corporation formed in 1983 and has one bank
subsidiary: Cambridge Trust Company (the "Bank"), formed in 1890. As of June 30,
2020, the Company had total assets of approximately $4.0 billion. The Bank
operates 22 full-service banking offices in 14 cities and towns in Eastern
Massachusetts and Southeastern New Hampshire. As a private bank, we focus on
four core services that center around client needs. Our core services include
Wealth Management, Commercial Banking, Residential Lending, and Personal
Banking. The Bank's customers consist primarily of consumers and small- and
medium-sized businesses in these communities and surrounding areas throughout
Massachusetts and New Hampshire. The Company's Wealth Management Group has six
offices, one in Wellesley, two in Boston, Massachusetts and three in New
Hampshire in Concord, Manchester, and Portsmouth. As of June 30, 2020, the
Company had Assets under Management and Administration of approximately $3.7
billion. The Wealth Management Group offers comprehensive investment management,
as well as trust administration, estate settlement, and financial planning
services. Our wealth management clients value personal service and depend on the
commitment and expertise of our experienced banking, investment, and fiduciary
professionals.

The Wealth Management Group customizes its investment portfolios to help its
clients meet their long-term financial goals while moderating short-term stock
market volatility. Through careful monitoring of asset allocation and
disciplined security selection, the Bank's in-house investment team provides
clients with long-term capital growth while minimizing risk. Our internally
developed, research-driven process is managed by our team of portfolio managers
and analysts. We build discretionary portfolios consisting of our best
investment ideas, focusing on individual global equities, fixed income
securities, exchange-traded funds, and mutual funds. Our team-oriented approach
fosters spirited discussion and rigorous evaluation of investments.

The Company offers a wide range of services to commercial enterprises,
non-profit organizations, and individuals. The Company emphasizes service to
consumers and small- and medium-sized businesses in its market area. The Company
makes commercial loans, commercial real estate loans, construction loans,
consumer loans, and real estate loans (including one-to-four family and home
equity lines of credit), and accepts savings, money market, time, and demand
deposits. In addition, the Company offers a wide range of commercial and
personal banking services which include cash management, online banking, mobile
banking, and global payments.

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The Company's results of operations are largely dependent on net interest
income, which is the difference between the interest earned on loans and
securities and interest paid on deposits and borrowings, and non-interest income
largely from its wealth management services. The results of operations are
affected by the level of income and fees from loans, deposits, as well as
operating expenses, the provision for credit losses, the impact of federal and
state income taxes, the relative levels of interest rates, and local and
national economic activity.

Through the Bank, the Company focuses on wealth management, the commercial
banking business, and private banking for clients, including residential lending
and personal banking. Within the commercial loan portfolio, the Company has
traditionally been a commercial real estate lender and in recent years has
diversified commercial operations within the areas of commercial and industrial
lending to include Innovation Banking, which specializes in working with New
England-based entrepreneurs, and asset-based lending that helps companies
throughout New England and New York grow by borrowing against existing assets.
The Innovation Banking group has a narrow client focus for lending and provides
a local banking option for technology and entrepreneurial companies within our
market area that are primarily serviced by out-of-market institutions. Personal
banking focuses on providing exceptional service to clients and in deepening
relationships.

Merger with Wellesley



On June 1, 2020, the Company completed its merger with Wellesley, adding 6
banking offices in Massachusetts. The Company paid total consideration of $88.8
million, which consisted of 1,502,814 shares of Cambridge Bancorp common stock
issued to Wellesley shareholders. The transaction included the acquisition of
$870.0 million loans and the assumption of $760.9 million in deposits, each at
fair value.

Critical Accounting Policies



Accounting policies involving significant judgments and assumptions by
management, which have, or could have, a material impact on the carrying value
of certain assets and impact income, are considered critical accounting
policies. The Company considers allowance for credit losses and income taxes to
be its critical accounting policies.



Allowance for Credit Losses. The Company adopted ASU-2016-13 - Financial
Instruments - Credit Losses ("Topic 326"): Measurement of Credit Losses on
Financial Instruments ("ASU 2016-13") during the first quarter of 2020. ASU
2016-13, which has been codified under Topic 326, replaced the previous GAAP
method of calculating loan losses. Previously, GAAP required the use of the
incurred loss methodology versus ASU 2016-13 which utilizes expected loss
methodology. The use of an expected loss methodology, referred to as the current
expected credit loss ("CECL") methodology, requires institutions to account for
potential losses that previously would not have been part of the calculation.
The CECL methodology incorporates forecasting in addition to historical and
current measures utilized in the prior incurred loss methodology. The
measurement of expected credit losses under the CECL methodology is applicable
to financial assets measured at amortized cost, including loan receivables, held
to maturity and available for sale debt securities.



Under the CECL methodology, the allowance for credit losses ("ACL") consists of
quantitative and qualitative components. The quantitative component of
the ACL is model based and utilizes a forward-looking macroeconomic forecast,
complemented by a qualitative component in estimating expected credit losses.
The qualitative component of the ACL considers (i) the uncertainty of
forward-looking scenarios; (ii) certain portfolio characteristics, such as
portfolio concentrations, real estate values, changes in the number and amount
of nonaccrual and past due loans; and (iii) model limitations; among other
factors.



ASU 2016-13 also applies to off-balance sheet credit exposure not accounted for
as insurance (loan commitments, standby letters of credit, financial guarantees
and other similar investment) and net investments in leases recognized by a
lessor in accordance with ASU 2016-02-Leases (Topic 842).



Losses on loan receivables are estimated and recognized upon origination of the
loan, based on expected credit losses for the life of the loan balance as of the
period end date. The Company uses a discounted cash flow method incorporating
probability of default and loss given default forecasted based on statistically
derived economic variable loss drivers combined with qualitative factors to
estimate expected credit losses. This process includes estimates which involve
modeling loss projections attributable to existing loan balances, considering
historical experience, current conditions and future expectations for
homogeneous pools of loans over the reasonable and supportable forecast period.



                                       41

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We also perform a qualitative assessment beyond model estimates, and apply
qualitative adjustments as management deems necessary. The reasonable and
supportable forecast period is determined based upon the accuracy level of
historical loss forecast estimates, the specific loan level models and
methodology utilized, and considers material changes in growth and credit
strategy, and business changes which may not be applicable within the current
environment. For periods beyond a reasonable and supportable forecast interval,
we revert to historical information over a period for which comparable data is
available. The historical information either experienced by the Company or by a
selection of peer banks when appropriate, is derived from a combination of
recessionary and non-recessionary performance periods for which data is
available. Similar to the reasonable and supportable forecast period, we
reassess the reversion period at the segment level, considering any required
adjustments for differences in underwriting standards, portfolio mix, and other
relevant data shifts over time.



We evaluate the loan allowance for credit losses quarterly. We regularly review
our collection experience (including delinquencies and net charge-offs) in
determining our allowance for credit losses. We also consider our historical
loss experience to date based on actual defaulted loans and overall portfolio
indicators including delinquent and non-accrual loans, trends in loan volume and
lending terms, credit policies and other observable environmental factors such
as unemployment and interest rate changes.



The underlying assumptions, estimates and assessments we use to estimate the
allowance for credit losses reflect management's best estimate of model
assumptions and forecasted conditions at that time. Changes in such estimates
can significantly affect the allowance and provision for credit losses. It is
possible and likely that we will experience credit losses that are different
from our current estimates. Charge-offs are deducted from the allowance for
credit losses when we judge the principal to be uncollectible, and subsequent
recoveries are added to the allowance, generally at the time cash is received on
a charged-off account.



The expected credit losses for unfunded commitments are measured over the
contractual period of the Company's exposure to credit risk.  The estimate of
credit loss incorporates assumptions for both the likelihood and amount of
funding over the estimated life of the commitments, for the risk of loss, and
current conditions and expectations. Management periodically reviews and updates
its assumptions for estimated funding rates based on historical rates, and
factors such as portfolio growth, changes to organizational structure, economic
conditions, borrowing habits, or any other factor which could impact the
likelihood that funding will occur. The Company does not reserve for unfunded
commitments which are unconditionally cancellable.

See "Management's Discussion and Analysis-Critical Accounting Policies" in our 2019 Form 10-K, for a detailed discussion of the Company's other critical accounting estimates and policies.

There have been no other significant changes to the Company's critical accounting policies and estimates from those disclosed in the 2019 Form 10-K.

Recent Accounting Developments



See Note 5 to the Unaudited Consolidated Financial Statements for details of
recently issued and adopted accounting pronouncements and their expected impact
on the Company's financial statements.



COVID-19



During the first and second quarters of 2020, the Company announced a range of
initiatives to help clients, communities, and employees navigate the many
financial challenges caused by the COVID-19 pandemic. As a result of the
COVID-19 crisis, the Company has taken the following steps to provide support to
any client experiencing a hardship during this uncertain time.



For Banking Clients:

• Enhanced safety measures in all banking office lobbies and while all offices

are now open, services are only available by appointment if requested

• Increased telephone banking support through the Client Resource Calling


      Center


  • Waived penalties for early certificate of deposit withdrawals


  • Increased ATM withdrawal limits and debit card spending


  • Convenient and secure digital platforms for remote banking




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For Consumer Loan Clients:



  • Postponement of residential loan foreclosures


  • Payment deferrals on mortgages and home equity loans


  • Forgiving late charges for consumer loan payments



For Business and Commercial Banking Clients:

• Participating in the Small Business Administration ("SBA") Paycheck

Protection Program ("PPP") lending program. The Company has processed and

obtained SBA approval for 892 loan applications totaling $189.3 million as


      of June 30, 2020.


  • Increased remote deposit limits

• Implemented payment relief options for commercial loans, based on need

• Providing assistance with access to government support and lending programs

Treasury management services to support business continuity


  • Secure online and mobile banking platforms



For Wealth Management Clients:



The Company's wealth management team is closely monitoring the economy and
financial markets and continues to actively manage clients' portfolios through
the current volatility. We have urged clients to reach out to their Relationship
Manager directly with any questions or concerns.



For Communities:

In addition to the 270 plus organizations the Company supports through its annual charitable giving, the Company donated an additional $250,000 to organizations that are providing relief to those impacted by COVID-19 and committed to donate $100,000 to organizations committed to eradicating racism and inequities in our black communities.

For Employees:

The Company is taking precautions to protect the health and safety of its staff, while continuing to provide uninterrupted service to clients. Efforts include:

• Enhanced safety measures for all banking office lobbies in connection with


      state guidelines


  • Increased cleaning of all office locations

• 90%+ of staff working remotely with the exception of essential banking


      office employees


  • Teleconferencing for meetings




Forbearance/Modifications. The Company has instituted payment deferral programs
to aid existing borrowers with payment forbearance. For commercial and consumer
borrowers, we have endeavored to provide payment relief for borrowers who have
been impacted by COVID-19 and have requested payment assistance. We expect to
continue to accrue interest on these loans during the payment deferral period.
Detailed information on client deferrals is included within the financial
section of this report.



On April 20, 2020, the governor of Massachusetts signed into law Chapter 65 of
the Acts of 2020, An Act Providing for a Moratorium on Evictions and
Foreclosures During the COVID-19 Emergency ("Chapter 65"). Chapter 65, which
will remain in effect until the earlier of August 18, 2020 or forty-five (45)
days after the Massachusetts' governor's COVID-19 emergency declaration has been
lifted, provides for, among other things, the right of residential mortgage
borrowers that have experienced a financial impact from COVID-19 to obtain a
forbearance on their mortgage payments for up to 180 days if requested by the
borrower. The moratorium has been extended through at least October 17, 2020
amid the COVID-19 pandemic. Subsequent guidance provided by the Massachusetts
Division of Banks on May 1, 2020 provided information regarding the length of
the forbearance period. The Company is currently evaluating the impact of
Chapter 65 but expects to grant 180 day forbearances to eligible borrowers who
request a forbearance and to extend the forbearance period to 180 total days for
any eligible borrowers previously granted forbearances who request it.



                                       43

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For a further discussion of the risks and uncertainties relating to COVID-19 for our results of operations and business condition, see Item 1A. Risk Factors.

Results of Operations

Results of Operations for the three months ended June 30, 2020 and June 30, 2019





General. Net income decreased $6.0 million, or 140.2%, to a loss of $1.7 million
for the quarter ended June 30, 2020, as compared to net income of $4.3 million
for the quarter ended June 30, 2019. The diluted loss per share was $0.29 for
the second quarter of 2020, representing a 132.2% decrease over diluted earnings
per share of $0.90 for the second quarter of 2019.



The results for the second quarter include the merger with Wellesley and the
corresponding impact to the provision for credit losses, merger expenses, and
other non-operating items. Excluding these items, operating net income was $7.8
million for the quarter ended June 30, 2020, an increase of $833,000, or 12.0%,
compared to operating net income of $7.0 million for the quarter ended June 30,
2019. Operating diluted earnings per share were $1.32 for the second quarter of
2020, representing a 10.2% decrease over operating diluted earnings per share of
$1.47 for the same quarter last year.



Net Interest and Dividend Income. Net interest and dividend income before the
provision for credit losses increased by $9.0 million, or 45.6%, to $28.8
million, as compared to $19.8 million for the quarter ended June 30, 2019,
primarily due to loan growth (both organic and as a result of the Wellesley and
Optima mergers), lower costs of funds, higher levels of interest earning assets
and loan accretion associated with merger accounting.



• Interest on loans increased by $6.9 million, or 31.9%, which was primarily a

result of net loan growth, both organic and due to the merger with Optima

and Wellesley in 2019 and 2020, respectively.

• Interest on deposits decreased by $3.0 million, or 68.1%, as a result of

lower cost of funds.




Total average interest earning assets increased by $615.5 million, or 24.9%, to
$3.1 billion for the three months ended June 30, 2020, from $2.5 billion for the
same period ended June 30, 2019, primarily due to the mergers with Optima and
Wellesley and organic loan growth. Average interest-bearing liabilities
increased by $312.7 million or 17.5%, to $2.1 billion for the three months ended
June 30, 2020, from $1.8 billion for the same period ended June 30, 2019. The
Company's net interest margin, on a fully taxable equivalent basis, increased 54
basis points to 3.77% for the quarter ended June 30, 2020, as compared to 3.23%
for the quarter ended June 30, 2019.

Interest and Dividend Income. Total interest and dividend income increased $6.1
million, or 24.8%, to $30.5 million for the quarter ended June 30, 2020, as
compared to $24.5 million for the quarter ended June 30, 2019, primarily due to
a $6.9 million increase in interest income from loans, partially offset by a
$569,000 decrease in interest on investment securities.

Interest Expense. Interest expense decreased $3.0 million, or 62.9%, to $1.7
million for the quarter ended June 30, 2020, as compared to $4.7 million for the
quarter ended June 30, 2019, primarily due to lower cost of funds.

Average interest-bearing liabilities increased $312.7 million to $2.1 billion at
June 30, 2020 from $1.8 billion as of June 30, 2019, primarily due to higher
savings balances of $89.1 million, a $114.8 million increase in average checking
accounts balances, an increase in average money market accounts of $69.8
million, and an increase in average other borrowed funds of $87.6 million,
partially offset by a decrease in average certificates of deposit balances of
$51.8 million. The aforementioned increases were primarily due to the mergers
with Optima and Wellesley and organic core deposit growth.



Provision for Credit Losses. The Company recorded $14.4 million in provision for
credit losses for the quarter ended June 30, 2020, as compared to $596,000 for
the quarter ended June 30, 2019. The provision for credit losses during the
quarter ended June 30, 2020 includes the impact of the Wellesley merger on the
Company's allowance for credit losses under the CECL accounting standard. CECL
requires the removal of Wellesley's prior allowance for loan loss through the
balance sheet as goodwill and re-establishment of a new allowance for credit
loss through the income statement within the provision for credit loss. Total
provision expense for the second quarter of 2020 included the impact of the CECL
merger accounting on June 1, 2020 of $8.6 million, inclusive of unfunded
commitments, and is considered by the Company to be a non-operating expense.
During the second quarter of 2020, the Company increased its reserve for credit
loss levels by recording $5.7 million in additional provision for credit losses
due to anticipated losses associated with the COVID-19 pandemic, as well as
changes in loan balances.



                                       44

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The Company recorded net charge-offs of $135,000 for the quarter ended June 30,
2020, as compared to net charge-offs of $148,000 for the quarter ended June 30,
2019. The allowance for credit losses was $34.0 million, or 1.08% of total loans
(excluding the SBA's PPP loans), at June 30, 2020, as compared to $18.2 million,
or 0.82% of total loans, at December 31, 2019.



Noninterest Income. Inclusive of the Wellesley merger, total noninterest income
increased by $827,000, or 10.2%, to $9.0 million for the quarter ended June 30,
2020, as compared to $8.1 million for the quarter ended June 30, 2019, primarily
as a result of increases in Wealth Management revenue, loan related derivative
income, and higher gains on loans sold. Noninterest income was 23.8% of total
revenue for the quarter ended June 30, 2020.



• Wealth Management revenue increased by $616,000, or 9.6%, to $7.0 million

for the second quarter of 2020, as compared to $6.4 million for the second

quarter of 2019. Wealth Management Assets under Management and

Administration were $3.7 billion as of June 30, 2020, an increase of $278.4


      million, or 8.1%, from December 31, 2019, primarily as a result of the
      Wellesley merger.

• Loan related derivative income increased by $329,000 to $334,000 for the


      second quarter of 2020, as compared to $5,000 for the second quarter of
      2019, due to increased loan volume and the associated derivative
      transactions executed during the second quarter 2020.

• Gain on loans sold increased by $178,000, to $193,000 for the three months

ended June 30, 2020, as compared to $15,000 for the three months ended June

30, 2019, due to increased sales of residential mortgages.




The categories of Wealth Management revenues are shown in the following table:



                                                      For the Three Months Ended June 30,
                                                        2020                       2019
                                                            (dollars in thousands)
Wealth Management revenues:
Trust and investment advisory fees               $            6,786         $            6,302
Asset-based revenues                                          6,786                      6,302
Financial planning fees and other service fees                  249                        117
Total wealth management revenues                 $            7,035         $            6,419




The following table presents the changes in Wealth Management Assets under
Management:



                                                   For the Three Months Ended June 30,
                                                      2020                     2019
                                                         (dollars in thousands)
Wealth Management Assets under Management
Balance at the beginning of the period         $        2,932,393       $   

2,990,375


Acquired wealth management assets                         338,676                        -
Gross client asset inflows                                 55,817                   89,126
Gross client asset outflows                               (94,433 )                (96,634 )
Net market impact                                         339,833                   96,903
Balance at the end of the period               $        3,572,286       $   

3,079,770


Weighted average management fee                              0.84 %                   0.84 %



There were no significant changes to the average fee rates and fee structure during the three months ended June 30, 2020 and 2019.





Noninterest Expense. Total noninterest expense increased by $4.1 million, or
18.9%, to $25.6 million for the quarter ended June 30, 2020, as compared to
$21.5 million for the quarter ended June 30, 2019, primarily driven by merger
related expenses, increases in salaries and employee benefits expense, occupancy
and equipment expense, and data processing expense.



  • Merger expenses were $4.4 million during the second quarter of 2020.

• Salaries and employee benefits expense increased $2.1 million, or 18.2%,

driven by increased staffing related to the mergers with Optima in 2019 and

Wellesley in the second quarter of 2020, additions to support business


      initiatives, and higher employee benefit costs.


                                       45

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• Occupancy and equipment expense increased $247,000, or 9.2%, primarily due

to additional branches and office space as a result of the Wellesley merger

that was not reflected within the second quarter of 2019.

• Data processing expense increased $298,000, or 19.4%, primarily as a result


      of the merger with Wellesley and investments made in technology.




During the second quarter of 2020, the Company reduced the value of its other
real estate loan ("REO") holdings through other expense by $486,000 primarily as
a result of revaluation due to the COVID-19 pandemic.



Income Tax Expense. The Company recorded an income tax benefit of $540,000 for
the quarter ended June 30, 2020, as compared to income tax expense of $1.5
million for the same quarter in 2019. The Company's effective tax rate was a
credit of 23.9% for the quarter ended June 30, 2020, as compared to 26.5% for
the quarter ended June 30, 2019.

Results of Operations for the six months ended June 30, 2020 and June 30, 2019





General. Net income decreased $5.0 million, or 47.3%, to $5.5 million for the
six months ended June 30, 2020, as compared to net income of $10.5 million for
the six months ended June 30, 2019. Diluted earnings per share were $0.97 for
the first six months of 2020, representing a 58.7% decrease from diluted
earnings per share of $2.35 for the same first six months of 2019.



The results for the six months ended June 30, 2020 also include the merger
accounting impact of the CECL accounting standard within the provision for
credit losses, merger expenses, and other non-operating items. Excluding these
items, operating net income was $15.2 million for the six months ended June 30,
2020, an increase of $1.9 million, or 14.5%, compared to operating net income of
$13.3 million  for the six months ended June 30, 2019. Operating diluted
earnings per share were $2.68 for the first six months of 2020, representing a
10.4% decrease from operating diluted earnings per share of $2.99 for the first
six months of 2019.



Net Interest and Dividend Income. Inclusive of the Wellesley merger, net
interest and dividend income before provision for loan losses, increased by
$15.2 million, or 42.0%, to $51.2 million, as compared to $36.0 million for the
six months ended June 30, 2019, primarily due to loan growth (both organic and
as a result of the Optima and Wellesley mergers), lower cost of funds, higher
levels of interest-earning assets, and loan accretion associated with merger
accounting.


• Interest on loans increased by $14.0 million, or 37.1%, due to organic and

merger related loan growth.

• Interest on deposits decreased by $2.4 million, or 34.2%, due to continued


      efforts in lowering the cost of deposits.




Average interest earning assets increased by $626.7 million, or 27.8%, to $2.9
billion during the six months ended June 30, 2020, from $2.3 billion during the
six months ended June 30, 2019. Average interest-bearing liabilities increased
by $373.1 million, or 23.3%, to $2.0 billion during the six months ended
June 30, 2020 from $1.6 billion for the same period ended June 30, 2019. The
Company's net interest margin, on a fully taxable equivalent basis, increased 35
basis points to 3.59% for the six months ended June 30, 2020, as compared to
3.24% for the six months ended June 30, 2019.

Interest and Dividend Income. Total interest and dividend income increased $13.0
million, or 29.9%, to $56.6 million for the six months ended June 30, 2020, as
compared to $43.6 million for the six months ended June 30, 2019, primarily due
to loan growth, both organic and as a result of the Optima and Wellesley merger.

Interest Expense. Interest expense decreased $2.1 million, or 28.0%, to $5.4
million for the six months ended June 30, 2020, as compared to $7.6 million for
the six months ended June 30, 2019, primarily driven by a decrease in cost of
deposits.

Average interest-bearing liabilities increased by $373.1 million, or 23.3%,
primarily driven by an increase in average checking account balances of $89.9
million, an increase in average savings account balances of $144.2 million, and
an increase in average money market account balances of $66.1 million primarily
due to the merger with Wellesley and organic core deposit growth.

Provision for Credit Losses. The Company recorded a provision for credit losses
of $16.4 million for the six months ended June 30, 2020, as compared to $503,000
for the six months ended June 30, 2019, primarily due to the impact of the
Wellesley merger on the Company's allowance for credit losses under the CECL
accounting standard, and additional provision for credit losses due to
anticipated losses associated with the COVID-19 pandemic, as well as changes in
loan balances.

The Company recorded net charge-offs of $400,000 for the six months
ended June 30, 2020, as compared to net charge-offs of $172,000 for the six
months ended June 30, 2019. The allowance for credit losses was $34.0 million,
or 1.08%, of total loans, excluding PPP loans, at June 30, 2020, as compared to
$17.1 million, or 0.82%, of total loans at June 30, 2019.

                                       46

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Noninterest Income. Inclusive of the Wellesley merger, total noninterest income
increased by $1.7 million, or 10.5%, to $17.8 million for the six months ended
June 30, 2020, as compared to $16.1 million for the six months ended June 30,
2019, primarily as a result of increases in wealth management revenue, loan
related derivative income, and higher gains on loans sold. Noninterest income
was 25.8% of total revenue for the six months ended June 30, 2020.



• Wealth management revenue increased by $1.1 million, or 8.9%, to $13.7

million for the six months ended June 30, 2020, as compared to $12.5 million

for the six months ended June 30, 2019.

• Loan related derivative income increased by $403,000, or 91.4%, to $844,000

for the six months ended June 30, 2020, as compared to $441,000 for the six

months ended June 30, 2019, due to increased loan volume and the associated

derivative transactions executed during the first six months of 2020.

• Gain on loans sold increased by $281,000, to $312,000 for the six months


      ended June 30, 2020, as compared to $31,000 for the six months ended
      June 30, 2019, due to increased sales of residential mortgages.




The categories of Wealth Management revenues are shown in the following table:



                                                       For the Six Months Ended June 30,
                                                        2020                       2019
                                                            (dollars in thousands)
Wealth Management revenues:
Trust and investment advisory fees               $           13,216         $           12,307
Asset-based revenues                                         13,216                     12,307
Financial planning fees and other service fees                  446                        236
Total wealth management revenues                 $           13,662         $           12,543






The following table presents the changes in Wealth Management Assets under
Management:



                                                For the Six Months Ended June 30,
                                                  2020                    2019
                                                     (dollars in thousands)
Wealth Management Assets under Management
Balance at the beginning of the period      $       3,287,371       $       2,759,547
Acquired wealth management assets                     338,676                       -
Gross client asset inflows                            155,064                 149,439
Gross client asset outflows                          (167,488 )              (169,452 )
Net market impact                                     (41,338 )               340,236
Balance at the end of the period            $       3,572,285       $       

3,079,770


Weighted average management fee                          0.83 %                  0.84 %



There were no significant changes to the average fee rates and fee structure for the six months ended June 30, 2020 and 2019.





Noninterest Expense. Inclusive of the Wellesley merger, total noninterest
expense increased by $7.6 million, or 20.1%, to $45.5 million for the six months
ended June 30, 2020, as compared to $37.9 million for the six months ended
June 30, 2019, primarily driven by merger related expenses, increases in
salaries and employee benefits expense, occupancy and equipment expense, and
data processing expense as a result of our mergers with Optima in 2019 and
Wellesley in 2020.



  • Merger expenses were $4.6 million.

• Salaries and employee benefits expense increased $4.3 million, or 19.2%,

primarily as a result of increased staffing related to the mergers with

Optima and Wellesley in 2019 and 2020, respectively, additions to support

business initiatives, normal merit increases and higher employee benefit

costs.

• Occupancy and equipment expense increased $724,000, or 14.4%, primarily as a

result of additional branches and office space as a result of the mergers

with Optima and Wellesley.

• Data processing expense increased $637,000, or 22.1%, primarily as a result

of the mergers with Optima and Wellesley combined with investments made in


      technology.


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Income Tax Expense. The Company recorded a provision for income taxes of $1.5
million for the six months ended June 30, 2020, as compared to $3.3 million for
the six months ended June 30, 2019. The effective tax rate was 21.6% for the six
months ended June 30, 2020, as compared to 23.9% for the same period in 2019.

Changes in Financial Condition





Total Assets. Total assets increased $1.2 billion, or 40.9%, from December 31,
2019, inclusive of the Wellesley merger, and were $4.0 billion as of June 30,
2020.

Investment Securities. The Company's total investment securities portfolio
decreased by $19.7 million, or 4.9%, from $398.5 million at December 31, 2019 to
$378.8 million at June 30, 2020 as the Company used investment cash flow to pay
down wholesale funding.

Loans. Total loans increased by $1.1 billion, or 49.7%, from December 31, 2019,
inclusive of the Wellesley merger, and were at $3.3 billion as of June 30, 2020.
The increase in total loans was due to a combination of the merger with
Wellesley and organic growth during 2020. See the Organic Loan and Deposit
Growth table below for detail.



Inclusive of Wellesley:

• Residential real estate loans increased by $433.7 million from $917.6

million at December 31, 2019 to $1.4 billion at June 30, 2020.

• Commercial real estate loans increased by $352.9 million, from $1.1 billion

at December 31, 2019 to $1.4 billion at June 30, 2020.

• Commercial & industrial loans increased by $281.0 million from $133.2

million at December 31, 2019 to $414.2 million at June 30, 2020.

• Loans under the SBA's PPP amounted to $189.3 million at June 30, 2020. PPP


      loans are included in commercial and industrial loans.



Excluding Wellesley and PPP loans, total loans grew by $79.1 million, or 3.6%, from December 31, 2019.

Goodwill. The Company recorded goodwill of $20.7 million during the second quarter of 2020, due to the merger with Wellesley. Total goodwill as of June 30, 2020 was $51.9 million.



Bank-Owned Life Insurance. The Company invests in bank-owned life insurance to
help offset the costs of employee benefit plan obligations. Bank-owned life
insurance also generally provides noninterest income that is nontaxable. At
June 30, 2020, our investment in bank-owned life insurance was $45.7 million,
representing an increase of $8.4 million, or 22.6% from $37.3 million at
December 31, 2019, primarily due to new policies acquired as a result of the
Wellesley merger.

Other assets. Other assets increased $51.5 million, or 121.8%, to $93.8 million,
from $42.3 million at December 31, 2019, primarily due to valuation adjustments
associated with loan level interest rate derivatives of ($39.8) million due to
changes in interest rates and additional loan level derivatives acquired in
connection with the Wellesley merger.



Deposits. Inclusive of the Wellesley merger, total deposits grew by $917.0 million, or 38.9%, to $3.3 billion at June 30, 2020, primarily driven by a combination of the impact of the Wellesley merger, organic deposit growth and funds from the PPP program.

• Core deposits, which the Company defines as all deposits other than


      certificates of deposit, increased by $740.6 million, or 34.0%, to $2.9
      billion at June 30, 2020, inclusive of the Wellesley merger.

• Excluding the impact of the Wellesley merger, organic growth in core

deposits was $191.9 million, or 8.8%.

• Inclusive of the Wellesley merger, the cost of total deposits for the

quarter ended June 30, 2020 was 0.21%, as compared to 0.68% for the quarter

ended December 31, 2019, a reduction of 47 basis points driven by reduced

interest rates during 2020. The cost of total deposits for the six months

ended June 30, 2020 was 0.36%, as compared to 0.67% for the six months ended

June 30, 2019, a reduction of 31 basis points driven by reduced interest

rates during 2020. At June 30, 2020, the spot cost of deposits was 0.27%.






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Certificates of deposit totaled $358.6 million at June 30, 2020, an increase of
$176.3 million from $182.3 million at December 31, 2019, primarily due to an
increase in short-term brokered certificates of deposit. Total brokered
certificates of deposit, which are included within certificates of deposit, were
$87.4 million and $7.1 million at June 30, 2020 and December 31, 2019,
respectively.

Borrowings. At June 30, 2020, borrowings consisted of advances from the Federal
Home Loan Bank ("FHLB") of Boston and the Federal Reserve Bank of Boston ("FRB
Boston"). Borrowings were $237.9 million as of June 30, 2020, representing a
$102.2 million, or 75.3%, increase from $135.7 million at December 31, 2019,
primarily due to the Wellesley merger.

Shareholders' Equity. Total shareholders' equity increased $96.5 million, or
33.7%, to $383.1 million at June 30, 2020, from $286.6 million at December 31,
2019, primarily due to $87.2 million of equity issued as a result of the
Wellesley merger, net income of $5.5 million, increases in the value of the
Company's interest rate derivative positions of $4.5 million, and increases in
unrealized gains on the available for sale investment portfolio of $3.3 million,
partially offset by regular dividend payments of $5.7 million.

The Company's total shareholders' equity to total assets ratio decrease 52 basis
points to 9.52% as of June 30, 2020, as compared to 10.04% as of December 31,
2019. Book value per share grew by $2.23, or 4.2%, to $55.29 as of June 30,
2020, as compared to $53.06 as of December 31, 2019.

The Company's ratio of tangible common equity to tangible assets decreased 7.4%,
to 8.27%, at June 30, 2020, from 8.93% at December 31, 2019, primarily due to
the impact of goodwill recorded as a result of the Wellesley merger. Tangible
book value per share grew by $0.68, or 1.5%, to $47.34 as of June 30, 2020, as
compared to 46.66% as of December 31, 2019.



Organic Loan and Deposit Growth (dollars in thousands)






                                                                                                                        June 2020 vs December 2019
                                                                                                                     Organic                   Organic
                                                                                                 Balance        Growth/(Decline)          Growth/(Decline)
                                June 30, 2020       March 31, 2020       December 31, 2019       Acquired               $                         %
Loans
Residential mortgage           $     1,351,308              917,103     $           917,566     $  403,855     $            29,887              3.3%
Commercial mortgage                  1,413,427            1,089,796               1,060,574        290,909                  61,944              5.8%
Home equity                            116,067               83,066                  80,675         36,213                    (821 )           (1.0%)
Commercial & Industrial                414,243              127,648                 133,236        138,953                 142,054             106.6%
Consumer                                37,839               38,189                  34,677            103                   3,059              8.8%
Total loans                    $     3,332,884     $      2,255,802     $         2,226,728     $  870,033     $           236,123              10.6%
PPP Loans                             (157,017 )                  -                       -              -                (157,017 )                  -

Total Loans excluding PPP* $ 3,175,867 $ 2,255,802 $

       2,226,728     $  870,033     $            79,106              3.6%

Deposits


Demand                         $       929,846     $        608,240     $           630,593        175,912     $           123,341              19.6%
Interest bearing checking              606,999              506,654                 450,098         49,944                 106,957              23.8%
Money market                           419,537              175,158                 181,406        250,226                 (12,095 )           (6.7%)
Savings                                960,847              880,944                 914,499         72,700                 (26,352 )           (2.9%)
Core deposits                        2,917,229            2,170,996               2,176,596        548,782                 191,851              8.8%
Certificates of deposit                358,614              219,363                 182,282        212,096                 (35,764 )           (19.6%)
Total deposits                 $     3,275,843     $      2,390,359     $         2,358,878     $  760,878     $           156,087              6.6%



*PPP loans are included within Commercial and Industrial and does not include PPP loans acquired due to the merger with Wellesley.


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GAAP to Non-GAAP Reconciliations (dollars in thousands except per share data)





Statement on Non-GAAP Measures: The Company believes the presentation of the
following non-GAAP financial measures provides useful supplemental information
that is essential to an investor's proper understanding of the results of
operations and financial condition of the Company. Management uses non-GAAP
financial measures in its analysis of the Company's performance. These non-GAAP
measures should not be viewed as substitutes for the financial measures
determined in accordance with GAAP, nor are they necessarily comparable to
non-GAAP performance measures that may be presented by other companies.



                                               Three Months Ended               Six Months Ended
                                            June 30,        June 30,        June 30,        June 30,
Operating Net Income / Operating Diluted
Earnings Per Share                            2020            2019            2020            2019
                                                        (in thousands, except share data)

Net (Loss) Income (a GAAP measure) $ (1,716 ) $ 4,272 $ 5,516 $ 10,470


  Add: Merger and Capital issuance
expenses (Pretax)                                4,366           3,450           4,619           3,541
  Add: (Gain) Loss on disposition of
investment securities                              (69 )            (6 )           (69 )            81
Provision established for acquired
Wellesley loans                                  8,638               -           8,638               -
Tax effect of non-operating
adjustments(1)                                  (3,431 )          (761 )        (3,494 )          (805 )
  Operating Net Income (a non-GAAP
measure)                                   $     7,788     $     6,955     $    15,210     $    13,287
Less: Dividends and Undistributed
Earnings Allocated to Participating
Securities (GAAP)                                   (4 )           (35 )           (26 )           (94 )
  Operating Income Applicable to Common
Shareholders (a non-GAAP measure)          $     7,784     $     6,920     $    15,184     $    13,193
Weighted Average Diluted Shares              5,912,889       4,715,724      

5,670,438 4,412,239


  Operating Diluted Earnings Per Share
(a non-GAAP measure)                       $      1.32     $      1.47     $      2.68     $      2.99

(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.




                                                June 30, 2020       December 31, 2019       June 30, 2019
                                                            (in thousands, except share data)
Tangible Common Equity:
Shareholders' equity (GAAP)                    $       383,060     $           286,561     $       237,094
Less: Goodwill and acquisition related                 (55,070 )               (34,544 )           (34,725 )
intangibles (GAAP)
Tangible Common Equity (a non-GAAP measure)            327,990                 252,017             202,369
Total assets (GAAP)                                  4,022,750               2,855,563           2,741,308
Less: Goodwill and acquisition related                 (55,070 )               (34,544 )           (34,725 )
intangibles (GAAP)
Tangible assets (a non-GAAP measure)           $     3,967,680     $         2,821,019     $     2,706,583
Tangible Common Equity Ratio (a non-GAAP                  8.27 %                  8.93 %              7.48 %

measure)


Tangible Book Value Per Share:
Tangible Common Equity (a non-GAAP measure)    $       327,990     $           252,017     $       202,369
Common shares outstanding                            6,927,699               5,400,868           4,850,230

Tangible Book Value Per Share (a non-GAAP $ 47.34 $


     46.66     $         41.72
measure)




Investment Securities

The Company's securities portfolio consists of securities available for sale and
securities held to maturity. The largest component of the securities portfolio
is mortgage-backed securities, all of which are issued by U.S. government
agencies or U.S. government-sponsored enterprises.

Securities available for sale consist of certain U.S. GSE, U.S. GSE mortgage-backed securities, and corporate debt securities. These securities are carried at fair value, with unrealized gains and losses, net of applicable income taxes, recognized as a separate component of shareholders' equity.



The fair value of securities available for sale totaled $134.2 million and
included gross unrealized gains of $3.5 million and gross unrealized losses of
$11,000 at June 30, 2020. At December 31, 2019, the fair value of securities
available for sale totaled $140.3 million and included gross unrealized gains of
$231,000 and gross unrealized losses of $1.0 million.

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Securities classified as held to maturity consist of certain U.S. GSE and U.S.
GSE mortgage-backed securities, corporate debt securities, and state, county,
and municipal securities. Securities held to maturity as of June 30, 2020 are
carried at their amortized cost of $244.6 million. At December 31, 2019,
securities held to maturity totaled $258.2 million.

The following table sets forth the fair value of available for sale investment
securities, the amortized costs of held to maturity investment securities, and
the percentage distribution at the dates indicated:



                                             June 30,                  December 31,
                                               2020                        2019
                                       Amount        Percent       Amount        Percent
                                                    (dollars in thousands)
Available for sale securities
U.S. GSE obligations                  $  13,734            10 %   $  37,848            27 %
Mortgage-backed securities              117,739            88 %     102,482            73 %
Corporate debt securities                 2,754             2 %           -             0 %
Total securities available for sale   $ 134,227           100 %   $ 140,330           100 %
Held to maturity securities
U.S. GSE obligations                  $       -             0 %   $   5,000             2 %
Mortgage-backed securities              146,398            60 %     161,759            63 %
Corporate debt securities                 6,984             3 %       6,980             3 %
Municipal securities                     91,169            37 %      84,433            32 %
Total securities held to maturity     $ 244,551           100 %   $ 258,172           100 %
Total                                 $ 378,778           100 %   $ 398,502           100 %




The following tables set forth the composition and maturities of debt investment
securities. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.



                                                                                     After One, But                       After Five, But
                                               Within One Year                      Within Five Years                     Within Ten Years                     After Ten Years                        Total
                                                             Weighted                              Weighted                             Weighted                             Weighted                       Weighted
                                                              Average                               Average                              Average                              Average       Amortized        Average
                                        Amortized Cost       Yield (1)       Amortized Cost        Yield (1)       Amortized Cost       Yield (1)       Amortized Cost       Yield (1)         Cost         Yield (1)
At June 30, 2020                                                                                                   (dollars in thousands)
Available for sale securities
U.S. GSE obligations                   $              -             0.0 %   $              -              0.0 %   $          5,000             2.3 %   $          8,000             2.6 %   $   13,000             2.5 %
Mortgage-backed
  securities                                          -               -                  975              1.4 %             35,702             1.9 %             78,343             1.4 %      115,020             1.6 %
Corporate debt securities                         1,001             2.5 %              1,740              2.4 %                  -             0.0 %                  -             0.0 %        2,741             2.4 %
Total available for
  sale securities                      $          1,001             2.5 %   $          2,715              2.0 %   $         40,702             1.9 %   $         86,343             1.5 %   $  130,761             1.7 %

Held to maturity securities
U.S. GSE obligations                   $              -             0.0 %   $              -                -     $              -               -     $              -               -     $        -             0.0 %
Mortgage-backed
  securities                                          -               -                    2              5.6 %             49,686             2.7 %             96,710             2.3 %      146,398             2.4 %
Corporate debt securities                             -               -                6,984              2.6 %                  -               -                    -               -          6,984             2.6 %
Municipal securities                              1,878             4.1 %             15,379              3.6 %             47,944             3.5 %             25,968             3.2 %       91,169             3.4 %
Total held to maturity
  securities                           $          1,878             4.1 %   $         22,365              3.3 %   $         97,630             3.1 %   $        122,678             2.4 %   $  244,551             2.8 %
Total                                  $          2,879             3.5 %   $         25,080              3.1 %   $        138,332             2.8 %   $        209,021             2.1 %   $  375,312             2.4 %


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                                                                                     After One, But                       After Five, But
                                               Within One Year                      Within Five Years                     Within Ten Years                     After Ten Years                        Total
                                                             Weighted                              Weighted                             Weighted                             Weighted                       Weighted
                                                              Average                               Average                              Average                              Average       Amortized        Average
                                        Amortized Cost       Yield (1)     

Amortized Cost Yield (1) Amortized Cost Yield (1) Amortized Cost Yield (1) Cost Yield (1) At December 31, 2019

                                                                                               (dollars in thousands)
Available for sale securities
U.S. GSE obligations                   $          5,000             1.4 %   $         20,000              1.5 %   $          5,000             2.3 %   $          8,000             2.6 %   $   38,000             1.8 %
Mortgage-backed
  securities                                          -               -                   37              5.4 %             36,393             1.9 %             66,679             2.1 %      103,109             2.0 %
Total available for
  sale securities                      $          5,000             1.4 %   $         20,037              1.5 %   $         41,393             1.9 %   $         74,679             2.1 %   $  141,109             2.0 %

Held to maturity securities
U.S. GSE obligations                   $          5,000             1.6 %   $              -                -     $              -               -     $              -               -     $    5,000             1.6 %
Mortgage-backed
  securities                                          -               -                    2              5.6 %             48,088             2.7 %            113,669             2.6 %      161,759             2.6 %
Corporate debt securities                             -               -                6,980              2.6 %                  -               -                    -               -          6,980             2.6 %
Municipal securities                              3,270             4.6 %             10,606              4.2 %             45,201             3.7 %             25,356             3.4 %       84,433             3.7 %
Total held to maturity
  securities                           $          8,270             2.8 %   $         17,588              3.6 %   $         93,289             3.2 %   $        139,025             2.8 %   $  258,172             3.0 %
Total                                  $         13,270             2.3 %   $         37,625              2.4 %   $        134,682             2.8 %   $        213,704             2.5 %   $  399,281             2.6 %



(1) Weighted Average Yield is shown on a fully taxable equivalent basis using a

federal tax rate of 21% at June 30, 2020 and December 31, 2019.




Management evaluates securities for credit loss on at least a quarterly basis
and more frequently when economic or market conditions warrant such evaluation.
Consideration is given to: (1) whether the fair value is less than cost; (2) the
financial condition and near-term prospects of the issuer; and (3) the intent
and ability of the Company to retain its investment in the issuer for a period
of time sufficient to allow for any anticipated recovery in fair value.

Loans



The Company's lending activities are conducted principally in Eastern
Massachusetts and Southern New Hampshire. The Company grants single- and
multi-family residential loans, commercial & industrial ("C&I"), commercial real
estate ("CRE"), construction loans, and a variety of consumer loans. Most of the
loans granted by the Company are secured by real estate collateral. Repayment of
the Company's residential loans are generally dependent on the health of the
employment market in the borrowers' geographic areas and that of the general
economy with liquidation of the underlying real estate collateral being
typically viewed as the primary source of repayment in the event of borrower
default. The repayment of C&I loans depends primarily on the cash flow and
credit worthiness of the borrower and secondarily on the underlying collateral
provided by the borrower. As borrower cash flow may be difficult to predict,
liquidation of the underlying collateral securing these loans is typically
viewed as the primary source of repayment in the event of borrower default.
However, collateral typically consists of equipment, inventory, accounts
receivable, or other business assets that may fluctuate in value, so the
liquidation of collateral in the event of default is often an insufficient
source of repayment. The Company's CRE loans are primarily made based on the
cash flow from the collateral property and secondarily on the underlying
collateral provided by the borrower, with liquidation of the underlying real
estate collateral typically being viewed as the primary source of repayment in
the event of borrower default. The Company's construction loans are primarily
made based on the borrower's expected ability to execute and the future
completed value of the collateral property, with sale of the underlying real
estate collateral typically being viewed as the primary source of repayment.

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The following table shows the composition of the loan portfolio at the dates
indicated:



                                          June 30, 2020             December 31, 2019
                                                       % of                        % of
                                        Amount        Total         Amount        Total
                                                    (dollars in thousands)
Residential mortgage
Mortgages - fixed rate                $   535,633         16 %   $    430,877         19 %
Mortgages - adjustable rate               775,475         24 %        467,139         21 %
Construction                               37,366          1 %         17,374          1 %
Deferred costs net of unearned fees         2,834          0 %          2,176          0 %
Total residential mortgages             1,351,308         41 %        917,566         41 %
Commercial mortgage
Mortgages - non-owner occupied          1,073,856         31 %        870,047         40 %
Mortgages - owner occupied                150,040          5 %        114,095          5 %
Construction                              188,433          6 %         76,288          3 %
Deferred costs net of unearned fees         1,098          0 %            144          0 %
Total commercial mortgages              1,413,427         42 %      1,060,574         48 %
Home equity
Home equity - lines of credit             110,014          3 %         73,880          3 %
Home equity - term loans                    5,806          0 %          6,555          1 %
Deferred costs net of unearned fees           247          0 %            240          0 %
Total home equity                         116,067          3 %         80,675          4 %
Commercial & industrial
Commercial & industrial                   418,455         13 %        133,337          6 %
Deferred costs net of unearned fees        (4,212 )        0 %           (101 )        0 %
Total commercial & industrial             414,243         13 %        133,236          6 %
Consumer
Secured                                    36,941          1 %         33,453          1 %
Unsecured                                     877          0 %          1,199          0 %
Unearned fees net of deferred costs            21          0 %             25          0 %
Total consumer                             37,839          1 %         34,677          1 %
Total loans                           $ 3,332,884        100 %   $  2,226,728        100 %




Residential Mortgage. Residential real estate loans held in portfolio amounted
to $1.4 billion at June 30, 2020, representing an increase of $433.7 million, or
47.3%, from $917.6 million at December 31, 2019, and consisted of one-to-four
family residential mortgage loans. The residential mortgage portfolio
represented 41% of total loans at June 30, 2020 and December 31, 2019.

The average loan balance outstanding in the residential portfolio was $488,000 and the largest individual residential mortgage loan outstanding was $7.0 million as of June 30, 2020. At June 30, 2020, this loan was performing in accordance with its original terms.



The Bank offers fixed and adjustable rate residential mortgage loans with
maturities up to 30 years. One-to-four family residential mortgage loans are
generally underwritten according to Fannie Mae and Freddie Mac guidelines, and
we refer to loans that conform to such guidelines as "conforming loans." The
Bank generally originates both fixed and adjustable rate mortgage loans in
amounts up to the maximum conforming loan limits as established by the Federal
Housing Finance Agency, which increased to $510,400 in 2020 from $484,350, for
one-unit properties. In addition, the Bank also offers loans above conforming
lending limits typically referred to as "jumbo" loans. These loans are typically
underwritten to jumbo conforming guidelines, however, the Bank may choose to
hold a jumbo loan within its portfolio with underwriting criteria that does not
exactly match conforming guidelines. The Bank may also, from time to time,
purchase residential loans that are either jumbo, conforming, or meet our
Community Reinvestment Act ("CRA") requirements. Purchases have historically
been made to satisfy CRA requirements for lending to low- and moderate-income
borrowers within the Bank's CRA Assessment Area.

Generally, our residential construction loans are based on complete value per
plans and specifications, with loan proceeds used to construct the house for
single family primary and secondary residences. Loans are provided for terms up
to 12 months during the construction phase, with loan-to-values that generally
do not exceed 80% on as complete basis.  The loans then convert to permanent
financing at terms up to 360 months.

                                       53

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The Company does not offer reverse mortgages, nor do we offer loans that provide
for negative amortization of principal, such as "Option ARM" loans, where the
borrower can pay less than the interest owed on the loan, resulting in an
increased principal balance during the life of the loan. We do not offer
"subprime loans" (loans that are made with low down payments to borrowers with
weakened credit histories typically characterized by payment delinquencies,
previous charge-offs, judgments, bankruptcies, or borrowers with questionable
repayment capacity as evidenced by low credit scores or high debt-burden ratios)
or Alt-A loans (defined as loans having less than full documentation).

Residential real estate loans are originated both for sale to the secondary
market, as well as for retention in the Bank's loan portfolio. The decision to
sell a loan to the secondary market or retain within the portfolio is determined
based on a variety of factors including but not limited to the Bank's
asset/liability position, the current interest rate environment, and customer
preference.

The Company is servicing mortgage loans sold to others without recourse of approximately $157.5 million at June 30, 2020 and $159.6 million at December 31, 2019.



The table below presents residential real estate loan origination activity for
the periods indicated:



                                                           For the Six Months Ended June 30,
                                                              2020                   2019
                                                                (dollars in thousands)
Originations for retention in portfolio                 $         264,887       $        78,448
Originations for sale to the secondary market                      21,592                 3,822
Total                                                   $         286,479       $        82,270

Loans are sold with servicing retained or released. The table below presents residential real estate loan sale activity for the periods indicated:





                                              For the Six Months Ended June 30,
                                                 2020                     2019
                                                    (dollars in thousands)
Loans sold with servicing rights retained $            9,482         $      

867


Loans sold with servicing rights released             11,627                   2,570
Total                                     $           21,109         $         3,437




Loans sold with the retention of servicing typically result in the
capitalization of servicing rights. Loan servicing rights are included in other
assets and are subsequently amortized as an offset to other income over the
estimated period of servicing. The net balance of capitalized servicing rights
amounted to $1.1 million and $1.3 million as of June 30, 2020 and December 31,
2019, respectively.

Commercial Mortgage. Commercial real estate loans were $1.4 billion as of
June 30, 2020, an increase of $352.9 million, or 33.3%, from $1.1 billion at
December 31, 2019. The commercial real estate loans portfolio represented 42%
and 48% of total loans at June 30, 2020 and December 31, 2019, respectively. The
average loan balance outstanding in this portfolio was $1.5 million, and the
largest individual commercial real estate loan outstanding was $26.1 million as
of June 30, 2020. At June 30, 2020, this commercial mortgage was performing in
accordance with its original terms.

Commercial real estate loans are secured by a variety of property types, with
approximately 89.3% of the total at June 30, 2020 composed of multi-family
dwellings, retail facilities, office buildings, commercial mixed use, lodging,
and industrial and warehouse properties.

Generally, our commercial real estate loans are for terms of up to ten years,
with loan-to-values that generally do not exceed 75%. Amortization schedules are
long-term, and thus, a balloon payment is generally due at maturity. Under most
circumstances, the Bank will offer to rewrite or otherwise extend the loan at
prevailing interest rates.

Generally, our commercial construction loans are speculative in nature, with
loan proceeds used to acquire and develop real estate property for sale or
rental. Loans are provided for terms up to 36 months during the construction
phase, with loan-to-values that generally do not exceed 75% on both an "as is"
and 'as complete and stabilized' basis. Construction projects are primarily for
the development of residential property types, inclusive of one-to-four family
and multifamily properties.

                                       54

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Home Equity. The home equity portfolio totaled $116.1 million and $80.7 million
at June 30, 2020 and December 31, 2019, respectively. The home equity portfolio
represented 3% and 4% of total loans at June 30, 2020 and December 31, 2019,
respectively. At June 30, 2020, the largest home equity line of credit was
$3.5 million and had an outstanding balance of $2.6 million. At June 30, 2020,
this line of credit was performing in accordance with its original terms.

Home equity lines of credit are extended as both first and second mortgages on
owner-occupied residential and one-to-four family investment properties in the
Bank's market area. Home equity lines of credit are generally underwritten with
the same criteria that we use to underwrite one-to-four family residential
mortgage loans.

Our home equity lines of credit are revolving lines of credit, which generally
have a term between 15 and 20 years, with draws available for the first 10
years. Our 15-year lines of credit are interest only during the first 10 years
and amortize on a five-year basis thereafter. Our 20-year lines of credit are
interest only during the first 10 years and amortize on a 10-year basis
thereafter. We generally originate home equity lines of credit with
loan-to-value ratios of up to 80% when combined with the principal balance of
the existing first mortgage loan, although loan-to-value ratios may occasionally
exceed 80% on a case-by-case basis. Maximum combined loan-to-values are
determined based on an applicant's loan/line amount and the estimated property
value. Lines of credit above $1.0 million generally will not exceed combined
loan-to-value of 75%. Rates are adjusted monthly based on changes in a
designated market index. We also offer home equity term loans, which are
extended as second mortgages on owner-occupied residential properties in our
market area. Our home equity term loans are fixed-rate second mortgage loans,
which generally have a term between five and 20 years.

Commercial & Industrial (C&I). The commercial and industrial portfolio totaled
$414.2 million and $133.2 million at June 30, 2020 and December 31, 2019,
respectively. The C&I portfolio represented 13% and 6% of total loans at
June 30, 2020 and December 31, 2019, respectively. The average loan balance
outstanding in this portfolio was $277,000 and the largest individual commercial
and industrial loan outstanding was $10.0 million as of June 30, 2020. At
June 30, 2020, this loan was performing in accordance with its original terms.

Loans under the SBA's PPP program totaled $189.3 million at June 30, 2020 and are included in the C&I portfolio.

The Company's Innovation Banking and asset-based loans are reported within the C&I portfolio.

• At June 30, 2020, Innovation Banking loans totaled $33.5 million and the


      average loan balance outstanding in this portfolio was $1.3 million. The
      largest individual loan outstanding was $10.0 million, and this loan was
      performing in accordance with its original terms.

• At June 30, 2020, asset-based loans totaled $21.9 million and the average

loan balance outstanding in this portfolio was $1.8 million. The largest

individual loan outstanding was $9.6 million, and this loan was performing

in accordance with its original terms.




   •  At June 30, 2020, commercial solar loans totaled $63.9 million and the
      average loan balance outstanding in this portfolio was $2.7 million. The
      largest individual loan outstanding was $9.0 million, and this loan was
      performing in accordance with its original terms.




The Company's C&I loan customers represent various small- and middle-market
established businesses involved in professional services, accommodation and food
services, health care, wholesale trade, manufacturing, distribution, retailing,
and non-profits. Most clients are privately owned with markets that range from
local to national in scope. Many of the loans to this segment are secured by
liens on corporate assets and the personal guarantees of the principals. The
Company also makes loans to entrepreneurial and technology businesses, as well
as commercial solar projects. The regional economic strength or weakness impacts
the relative risks in this loan category. There is little concentration in any
one business sector, and loan risks are generally diversified among many
borrowers.

Consumer Loans. The consumer loan portfolio totaled $37.8 million at June 30,
2020, an increase of $3.1 million, or 8.9%, from $34.7 million at December 31,
2019.  Consumer loans represented 1% of the total loan portfolio at June 30,
2020 and December 31, 2019. Consumer loans include secured and unsecured loans,
lines of credit, and personal installment loans. Unsecured consumer loans
generally have greater risk compared to longer-term loans secured by improved,
owner-occupied real estate, particularly consumer loans that are secured by
rapidly depreciable assets.  The secured consumer loans and lines portfolio are
generally fully secured by pledged assets such as bank accounts or investments.

                                       55

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Loan Portfolio Maturities. The following table summarizes the dollar amount of
loans maturing in the portfolio based on their loan type and contractual terms
to maturity at June 30, 2020. The table does not include any estimate of
prepayments, which can significantly shorten the average life of all loans and
may cause our actual repayment experience to differ from that shown below.
Demand loans, loans having no stated repayment schedule or maturity, and
overdraft loans are reported as being due in one year or less.



                                                June 30, 2020
                          One Year         One to         Over Five
                           or Less       Five Years         Years           Total
                                            (dollars in thousands)
Residential mortgage      $  15,135     $     12,855     $ 1,323,318     $ 1,351,308
Commercial mortgage         172,682          302,234         938,511       1,413,427
Home equity                   1,287            6,317         108,463         116,067
Commercial & Industrial      50,702          273,773          89,768         414,243
Consumer                     37,600               89             150          37,839
Total                     $ 277,406     $    595,268     $ 2,460,210     $ 3,332,884




Loan Portfolio by Interest Rate Type. The following table summarizes the dollar
amount of loans in our portfolio based on whether the loan has a fixed,
adjustable, or floating rate of interest at June 30, 2020. Floating rate loans
are tied to a market index while adjustable rate loans are adjusted based on the
contractual terms of the loan.



                                                June 30, 2020
                             Fixed        Adjustable      Floating         Total
                                           (dollars in thousands)
Residential mortgage      $   551,232     $   793,355     $   6,721     $ 1,351,308
Commercial mortgage           454,431         412,181       546,815       1,413,427
Home equity                     9,889           4,366       101,812         116,067
Commercial & Industrial       245,778          57,002       111,463         414,243
Consumer                          474             504        36,861          37,839
Total                     $ 1,261,804     $ 1,267,408     $ 803,672     $ 3,332,884

Nonperforming Loans and TROUBLED DEBT RESTRUCTURINGS (TDRs)

The composition of nonperforming assets is as follows:





                                                      June 30,      December 31,
                                                        2020            2019
                                                        (dollars in thousands)
Nonaccruals                                           $   8,100     $       4,160
Loans past due > 90 days, but still accruing              1,889             

1,264


Troubled debt restructurings                                262             

227


Total nonperforming loans                             $  10,251     $       

5,651


Accruing troubled debt restructured loans             $       -     $       

-

Nonperforming loans as a percentage of total loans 0.31 %

  0.25 %
Nonperforming loans as a percentage of total assets        0.25 %            0.20 %




Nonaccrual Loans. Loans are typically placed on nonaccrual status when any
payment of principal and/or interest is 90 days or more past due, unless the
collateral is sufficient to cover both principal and interest and the loan is in
the process of collection. The Company monitors closely the performance of its
loan portfolio. In addition to the monitoring and review of loan performance
internally, the Company has contracted with an independent organization to
review the Company's commercial and commercial real estate loan portfolios. This
independent review was performed in each of the past five years. The status of
delinquent loans, as well as situations identified as potential problems, is
reviewed on a regular basis by senior management.

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Troubled Debt Restructurings. Loans are considered restructured in a troubled
debt restructuring when the Company has granted concessions to a borrower due to
the borrower's financial condition that it otherwise would not have considered.
These concessions may include modifications of the terms of the debt such as
deferral of payments, extension of maturity, reduction of principal balance,
reduction of the stated interest rate other than normal market rate adjustments,
or a combination of these concessions. Debt may be bifurcated with separate
terms for each tranche of the restructured debt. Restructuring a loan in lieu of
aggressively enforcing the collection of the loan may benefit the Company by
increasing the ultimate probability of collection.

Restructured loans are classified as accruing or non-accruing based on
management's assessment of the collectability of the loan. Loans which are
already on nonaccrual status at the time of the restructuring generally remain
on nonaccrual status for approximately six months or longer before management
considers such loans for return to accruing status. Accruing restructured loans
are placed into nonaccrual status if and when the borrower fails to comply with
the restructured terms and management deems it unlikely that the borrower will
return to a status of compliance in the near term.

Troubled debt restructurings are individually evaluated for credit losses.



Total nonperforming loans increased $4.6 million during the six months ended
June 30, 2020 as compared to December 31, 2019, primarily due to the merger with
Wellesley.

The Company continues to closely monitor the portfolio of nonperforming loans
for which management has concerns regarding the ability of the borrowers to
perform. The majority of the loans are secured by real estate and are considered
to have adequate collateral value to cover the loan balances at June 30, 2020
and December 31, 2019, although such values may fluctuate with changes in the
economy and the real estate market.

Allowance for Credit Losses



We evaluate the loan portfolio on a quarterly basis and the allowance is
adjusted accordingly. While we use the best information available to make
evaluations, future adjustments to the allowance may be necessary if conditions
differ substantially from the information used in making the evaluations. In
addition, various regulatory agencies, as an integral part of their examination
process, will periodically review the allowance for credit losses. Such agencies
may require us to recognize additions to the allowance based on their analysis
of information available to them at the time of their examination.

Actual loan losses may be significantly more than the allowance for credit losses we have established, which could have a material negative effect on our financial results.



Losses on loan receivables are estimated and recognized upon origination of the
loan, based on expected credit losses for the life of the loan balance as of the
period end date. The Company uses a discounted cash flow method incorporating
probability of default and loss given default forecasted based on statistically
derived economic variable loss drivers combined with qualitative factors to
estimate expected credit losses. This process includes estimates which involve
modeling loss projections attributable to existing loan balances, considering
historical experience, current conditions and future expectations for
homogeneous pools of loans over the reasonable and supportable forecast period.



We also perform a qualitative assessment beyond model estimates, and apply
qualitative adjustments as management deems necessary. The reasonable and
supportable forecast period is determined based upon the accuracy level of
historical loss forecast estimates, the specific loan level models and
methodology utilized, and considers material changes in growth and credit
strategy, and business changes which may not be applicable within the current
environment. For periods beyond a reasonable and supportable forecast interval,
we revert to historical information over a period for which comparable data is
available. The historical information either experienced by the Company or by a
selection of peer banks when appropriate, is derived from a combination of
recessionary and non-recessionary performance periods for which data is
available. Similar to the reasonable and supportable forecast period, we
reassess the reversion period at the segment level, considering any required
adjustments for differences in underwriting standards, portfolio mix, and other
relevant data shifts over time.

See additional discussion regarding the allowance for loan losses, in Item 7
under the caption "Critical Accounting Policies" of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 2019 and in Note 7 to the
Unaudited Consolidated Financial Statements.

                                       57

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The following table summarizes the changes in the Company's allowance for credit losses on loans for the periods indicated:

June 30,         December 31,
                                                              2020               2019
                                                               (dollars in thousands)

Period-end loans outstanding (net of unearned discount and deferred loan fees)

$  3,332,884

$ 2,226,728 Average loans outstanding (net of unearned discount and deferred loan fees)

$  2,454,977      $    1,969,696
Balance of allowance for credit losses at the beginning
of year - loans                                           $     18,180      $       16,768
Loans charged-off:
Commercial and industrial                                         (154 )              (338 )
Commercial mortgage                                               (264 )            (1,270 )
Residential mortgage                                                 -                   -
Home Equity                                                          -                   -
Consumer                                                           (30 )               (48 )
Total loans charged-off                                   $       (448 )    $       (1,656 )
Recovery of loans previously charged-off:
Commercial and industrial                                           34                  53
Commercial mortgage                                                  -                   -
Residential mortgage                                                 -                   -
Home Equity                                                          -                   -
Consumer                                                            14                  11
Total recoveries of loans previously charged-off:                   48                  64
Net loan (charge-offs) recoveries                         $       (400 )    $       (1,592 )
Adoption of accounting standard - loans                            205                   -
Provision for acquired loans                                     8,282                   -
Initial allowance for PCD                                          437                   -
Provision                                                        7,310               3,004
Balance at end of period                                  $     34,014

$ 18,180 Ratio of net (charge-offs) recoveries to average loans outstanding

                                                      (0.02 )%            (0.08 )%
Ratio of allowance for credit losses to loans
outstanding                                                       1.02 %              0.82 %



The allowance for credit losses to loans outstanding excluding PPP loans was 1.08% at June 30, 2020.





The level of charge-offs depends on many factors, including the national and
regional economy. Cyclical lagging factors may result in charge-offs being
higher than historical levels. Although the allowance is allocated between
categories, the entire allowance is available to absorb losses attributable to
all loan categories. Management believes that the allowance for credit losses is
adequate.

Sources of Funds

General. Deposits traditionally have been our primary source of funds for our
investment and lending activities. The Company also borrows from the FHLB of
Boston and the FRB Boston to supplement cash flow needs, to lengthen the
maturities of liabilities for interest rate risk management purposes, and to
manage our cost of funds. Our additional sources of funds are scheduled payments
and prepayments of principal and interest on loans and investment securities and
fee income and proceeds from the sales of loans and securities.

Deposits. The Company accepts deposits primarily from customers in the
communities in which our branches and offices are located, as well as from
small- and medium-sized businesses and other customers throughout our lending
area. We rely on our competitive pricing and products, convenient locations, and
client service to attract and retain deposits. We offer a variety of deposit
accounts with a range of interest rates and terms. Our deposit accounts consist
of relationship checking for consumers and businesses, statement savings
accounts, certificates of deposit, money market accounts, interest on lawyer
trust accounts, commercial and regular checking accounts, and individual
retirement accounts. Deposit rates and terms are based primarily on current
business strategies, market interest rates, liquidity requirements, and our
deposit growth goals. The Bank may also access the brokered deposit market for
funding.

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The following table set forth the balances of the Bank's deposits for the
periods indicated:



                                                 June 30,                  December 31,
                                                   2020                        2019
                                        Amount         Percent         Amount         Percent
                                                       (dollars in thousands)
Demand deposits (non-interest
bearing)                              $   929,846           28.4 %   $   630,593          26.7 %
Interest bearing checking                 606,999           18.5 %       450,098          19.1 %
Money Market                              419,537           12.8 %       181,406           7.7 %
Savings                                   960,847           29.3 %       914,499          38.8 %
Retail certificates of deposit
under $100,000                            182,928            5.6 %        56,401           2.4 %
Retail certificates of deposit of
$100,000 or greater                        88,309            2.7 %       118,596           5.0 %
Wholesale certificates of deposit          87,377            2.7 %         7,285           0.3 %
Total                                 $ 3,275,843            100 %   $ 2,358,878        100.00 %




At June 30, 2020, the Company had a total of $271.2 million in certificates of
deposit, excluding brokered deposits, of which $218.6 million had remaining
maturities of one year or less. Based on historical experience and our current
pricing strategy, we believe we will retain a large portion of these accounts
upon maturity. As of June 30, 2020, we had a total of $87.4 million of brokered
deposits and $7.1 million of brokered deposits at December 31, 2019.



Borrowings. Total borrowings were $237.9 million and $135.7 million at June 30,
2020 and December 31, 2019, respectively. The Company's borrowings consisted of
advances from the FHLB of Boston and from the FRB Boston's Discount Window and
Paycheck Protection Program Liquidity Facility ("PPPLF"). FHLB of Boston
advances are collateralized by a blanket pledge agreement on the Company's FHLB
of Boston stock and residential mortgages held in the Bank's portfolios. FRB
Boston advances are collateralized by pledged commercial loans, pledged PPP
loans, and pledged investment securities. The Company is required to pay down
PPPLF borrowings when PPP loans pledged for these borrowings are paid down
either by the borrower or the SBA.

• The Company's borrowings with the FHLB of Boston totaled $113.5 million at

June 30, 2020 and $135.7 million at December 31, 2019. The Company's

remaining borrowing capacity at the FHLB of Boston at June 30, 2020 was

approximately $567.9 million. In addition, the Company has a $10.0 million

line of credit with the FHLB of Boston.

• The Company's borrowings with FRB Boston totaled $124.4 million at June 30,

2020. The Company did not have any outstanding borrowings at FRB Boston at

December 31, 2019. The Company's remaining borrowing capacity at the FRB
      Boston at June 30, 2020 was approximately $554.9 million.

Net Interest Margin



Net interest income represents the difference between interest earned, primarily
on loans and investments, and interest paid on funding sources, primarily
deposits and borrowings. Interest rate spread is the difference between the
average rate earned on total interest-earning assets and the average rate paid
on total interest-bearing liabilities. Net interest margin is the amount of net
interest income, on a fully taxable-equivalent basis, expressed as a percentage
of average interest-earning assets. The average rate earned on earning assets is
the amount of annualized taxable equivalent interest income expressed as a
percentage of average earning assets. The average rate paid on interest-bearing
liabilities is equal to annualized interest expense as a percentage of average
interest-bearing liabilities.

                                       59

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The following table sets forth the distribution of the Company's average assets, liabilities and shareholders' equity, and average rates earned or paid on a fully taxable equivalent basis for each of the periods indicated:





                                                                                                          Three Months Ended
                                                           June 30, 2020                                    March 31, 2020                                     June 30, 2019
                                             Average          Interest           Rate          Average          Interest           Rate          Average          Interest           Rate
                                             Balance          Income/          Earned/         Balance          Income/          Earned/         Balance          Income/          Earned/
                                                            Expenses (1)       Paid (1)                       Expenses (1)       Paid (1)                       Expenses (1)       Paid (1)
                                                                                                        (dollars in thousands)
ASSETS
Interest-earning assets
Loans (2)
Taxable                                    $ 2,660,482     $       28,130           4.25 %   $ 2,204,862     $       23,338           4.26 %   $ 1,951,133     $       21,355           4.39 %
Tax-exempt                                      21,004                267           5.11          23,605                250           4.26          14,567                157           4.32
Securities available for sale (3)
Taxable                                        115,875                557           1.93         133,402                660           1.99         155,762                748           1.93
Securities held to maturity
Taxable                                        158,431                964           2.45         169,433              1,063           2.52         218,672              1,368           2.51
Tax-exempt                                      84,885                760           3.60          83,193                754           3.65          75,423                728           3.87
Cash and cash equivalents                       45,437                 16           0.14          59,845                140           0.94          55,015                219           1.60
Total interest-earning assets (4)            3,086,114             30,694           4.00 %     2,674,340             26,205           3.94 %     2,470,572             24,575           3.99 %
Non interest-earning assets                    233,240                                           192,184                                           

161,855


Allowance for credit losses                    (23,272 )                                         (18,423 )                                         (16,908 )
Total assets                               $ 3,296,082                                       $ 2,848,101                                       $ 

2,615,519


LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits
Checking accounts                          $   541,482     $          209           0.16 %   $   457,189     $          159           0.14 %   $   426,725     $          120           0.11 %
Savings accounts                               915,835                462           0.20         888,973              1,772           0.80         826,726              2,212           1.07
Money market accounts                          270,951                140           0.21         193,048                449           0.94         201,164                679           1.35
Certificates of deposit                        230,798                585           1.02         187,318                749           1.61         282,579              1,368           1.94
Total interest-bearing deposits              1,959,066              1,396           0.29       1,726,528              3,129           0.73       1,737,194              4,379           1.01
Subordinated debt                                3,266                 64           7.88               -                  -              -               -                  -              -
Other borrowed funds                           138,052                282           0.82         127,389                566           1.79          50,447                315           2.50
Total interest-bearing liabilities           2,100,384              1,742           0.33 %     1,853,917              3,695           0.80 %     1,787,641              4,694           1.05 %
Non-interest-bearing liabilities
Demand deposits                                770,202                                           622,892                                           541,380
Other liabilities                               97,431                                            80,089                                            64,182
Total liabilities                            2,968,017                                         2,556,898                                         2,393,203
Shareholders' equity                           328,065                                           291,203                                           222,316
Total liabilities & shareholders' equity   $ 3,296,082                                       $ 2,848,101                                       $ 

2,615,519


Net interest income on a fully taxable
equivalent basis                                                   28,952                                            22,510                                            19,881
Less taxable equivalent adjustment                                   (215 )                                            (211 )                                            (186 )
Net interest income                                        $       28,737                                    $       22,299                                    $       19,695
Net interest spread (5)                                                             3.67 %                                            3.14 %                                            2.94 %
Net interest margin (6)                                                             3.77 %                                            3.39 %                                            3.23 %



(1) Annualized on a fully taxable equivalent basis calculated using a federal tax

rate of 21%.

(2) Non-accrual loans are included in average amounts outstanding.

(3) Average balances of securities available for sale calculated utilizing

amortized cost.

(4) Federal Home Loan Bank stock balance and dividend income is excluded from

interest-earning assets.

(5) Net interest spread represents the difference between the weighted average

yield on interest-earning assets, inclusive of PPP loans originated during

2020, and the weighted average cost of interest-bearing liabilities.

(6) Net interest margin represents net interest income on a fully tax equivalent

basis as a percentage of average interest-earning assets, inclusive of PPP


    loans originated during 2020.


                                       60

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                                                                              Six Months Ended
                                                       June 30, 2020                                     June 30, 2019
                                         Average          Interest           Rate          Average          Interest           Rate
                                         Balance          Income/          Earned/         Balance          Income/          Earned/
                                                        Expenses (1)       Paid (1)                       Expenses (1)       Paid (1)
                                                                           (dollars in thousands)
ASSETS
Interest-earning assets
Loans (2)
Taxable                                $ 2,432,672     $       51,468           4.25 %   $ 1,748,485     $       37,639           4.34 %
Tax-exempt                                  22,305                518           4.67          12,168                269           4.46
Securities available for sale (3)
Taxable                                    124,651              1,218           1.96         160,160              1,460           1.84
Securities held to maturity
Taxable                                    163,932              2,026           2.49         214,035              2,636           2.48
Tax-exempt                                  84,039              1,514           3.62          74,641              1,451           3.92
Cash and cash equivalents                   52,627                156           0.60          44,081                337           1.54
Total interest-earning assets (4)        2,880,226             56,900           3.97 %     2,253,570             43,792           3.92 %
Non interest-earning assets                212,712                                           138,310
Allowance for loan losses                  (20,848 )                                         (16,799 )
Total assets                           $ 3,072,090                                       $ 2,375,081
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits
Checking accounts                      $   499,335     $          368           0.15 %   $   409,390     $          202           0.10 %
Savings accounts                           902,404              2,232           0.50         758,219              3,697           0.98
Money market accounts                      231,999                589           0.51         165,891              1,060           1.29
Certificates of deposit                    209,058              1,336           1.29         218,275              1,921           1.77
Total interest-bearing deposits          1,842,796              4,525           0.49 %     1,551,775              6,880           0.89 %
Subordinated debt                            1,633                 64           7.88               -                  -              -
Other borrowed funds                       132,720                848           1.28          52,275                671           2.59
Total interest-bearing liabilities       1,977,149              5,437           0.55 %     1,604,050              7,551           0.95 %
Non-interest-bearing liabilities
Demand deposits                            696,547                                           512,882
Other liabilities                           88,760                                            62,505
Total liabilities                        2,762,456                                         2,179,437
Shareholders' equity                       309,634                                           195,644
Total liabilities & shareholders'
equity                                 $ 3,072,090                                       $ 2,375,081
Net interest income on a fully
taxable equivalent basis                                       51,463                                            36,241
Less taxable equivalent adjustment                               (427 )                                            (361 )
Net interest income                                    $       51,036                                    $       35,880
Net interest spread (5)                                                         3.42 %                                            2.97 %
Net interest margin (6)                                                         3.59 %                                            3.24 %



(1) Annualized on a fully taxable equivalent basis calculated using a federal tax

rate of 21%.

(2) Non-accrual loans are included in average amounts outstanding.

(3) Average balances of securities available for sale calculated utilizing

amortized cost.

(4) Federal Home Loan Bank stock balance and dividend income is excluded from

interest-earning assets.

(5) Net interest spread represents the difference between the weighted average

yield on interest-earning assets, inclusive of PPP loans originated during

2020, and the weighted average cost of interest-bearing liabilities.

(6) Net interest margin represents net interest income on a fully tax equivalent

basis as a percentage of average interest-earning assets, inclusive of PPP


    loans originated during 2020.


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Rate/Volume Analysis



The following table describes the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volumes (changes in average
balance multiplied by prior year average rate) and (ii) changes attributable to
changes in rate (change in average interest rate multiplied by prior year
average balance), while (iii) changes attributable to the combined impact of
volumes and rates have been allocated proportionately to separate volume and
rate categories.



                                Three Months Ended June 30, 2020              Six Months Ended June 30, 2020
                                          Compared with                                Compared with
                                Three Months Ended June 30, 2019              Six Months Ended June 30, 2019
                                       Increase/(Decrease)                          Increase/(Decrease)
                                        Due to Change in                             Due to Change in
                              Volume            Rate          Total         Volume            Rate        Total
                                                           (dollars in thousands)
Interest income
Loans
Taxable                     $    7,466       $      (691 )   $  6,775     $    14,589       $   (760 )   $ 13,829
Tax-exempt                          78                32          110             236             13          249
Securities available for
sale
Taxable                           (194 )               3         (191 )          (339 )           97         (242 )
Securities held to
maturity
Taxable                           (371 )             (33 )       (404 )          (612 )            2         (610 )
Tax-exempt                          86               (54 )         32             177           (114 )         63
Cash and cash equivalents          (33 )            (170 )       (203 )            56           (237 )       (181 )

Total interest income $ 7,032 $ (913 ) $ 6,119 $


   14,107       $   (999 )   $ 13,108
Interest expense
Deposits
Checking accounts                   37                52           89              51            115          166
Savings accounts                   214            (1,964 )     (1,750 )           611         (2,076 )     (1,465 )
Money market accounts              177              (716 )       (539 )           323           (794 )       (471 )
Certificates of deposit           (218 )            (565 )       (783 )           (78 )         (507 )       (585 )
Total interest-bearing
deposits                           210            (3,193 )     (2,983 )           907         (3,262 )     (2,355 )
Subordinated debt                   64                 -           64              64              -           64
Other borrowed funds               281              (314 )        (33 )           644           (467 )        177

Total interest expense $ 555 $ (3,507 ) $ (2,952 ) $

     1,615       $ (3,729 )   $ (2,114 )
Change in net interest
income                      $    6,477       $     2,594     $  9,071     $ 

12,492 $ 2,730 $ 15,222

Market Risk and Asset Liability Management



Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit-taking activities. To that end, management actively
monitors and manages its interest rate risk exposure.

The Company's profitability is affected by fluctuations in interest rates. A
sudden and substantial change in interest rates may adversely impact the
Company's earnings to the extent that the interest rates borne by assets and
liabilities do not change at the same speed, to the same extent, or on the same
basis. The Company monitors the impact of changes in interest rates on its net
interest income using several tools.

The Company's primary objective in managing interest rate risk is to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while structuring the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest rate risk.



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Interest Rate Sensitivity. The Company actively manages its interest rate
sensitivity position. The objectives of interest rate risk management are to
control exposure of net interest income to risks associated with interest rate
movements and to achieve sustainable growth in net interest income. The
Company's Asset Liability Committee ("ALCO"), using policies and procedures
approved by the Company's Board of Directors, is responsible for the management
of the Company's interest rate sensitivity position. The Company manages
interest rate sensitivity by changing the mix, pricing, and re-pricing
characteristics of its assets and liabilities, through the management of its
investment portfolio, its offerings of loan and selected deposit terms, and
through wholesale funding. Wholesale funding consists of, but is not limited to,
multiple sources including borrowings with the FHLB of Boston, the FRB Boston's
discount window and the PPPLF, and certificates of deposit from institutional
brokers.

The Company uses several tools to manage its interest rate risk including
interest rate sensitivity analysis, or gap analysis, market value of portfolio
equity analysis, interest rate simulations under various rate scenarios, and net
interest margin reports. The results of these reports are compared to limits
established by the Company's ALCO policies and appropriate adjustments may be
made if the results are outside the established limits.

The following table demonstrates the annualized result of an interest rate
simulation and the estimated effect that a parallel interest rate shift, or
"shock," in the yield curve and subjective adjustments in deposit pricing might
have on the Company's projected net interest income over the next 12 months.

As of June 30, 2020:



                               Year 1
                          Percentage Change
  Change in Interest       in Net Interest
Rates (in Basis Points)        Income
Parallel rate shocks
         +400                    2.4
         +300                    1.4
         +200                    0.3
         +100                    0.2
         -100                   (1.2)



The following table demonstrates the annualized result of an interest rate simulation and the estimated effect that a gradual interest rate shift in the yield curve and subjective adjustments in deposit pricing might have on the Company's projected net interest income over the next 12 months.



As of June 30, 2020:



                               Year 1
                          Percentage Change
  Change in Interest       in Net Interest

Rates (in Basis Points)        Income
Gradual rate shifts
         +200                   (0.8)
         -100                    0.6



These simulations assume that there is no growth in interest-earning assets or interest-bearing liabilities over the next 12 months. The changes to net interest income shown above are in compliance with the Company's policy guidelines.





Economic Value of Equity Analysis. The Company also analyzes the sensitivity of
the Bank's financial condition to changes in interest rates through our economic
value of equity model. This analysis measures the difference between estimated
changes in the present value of the Bank's assets and estimated changes in the
present value of the Bank's liabilities assuming various changes in current
interest rates.



The Bank's economic value of equity analysis as of June 30, 2020 estimated that,
in the event of an instantaneous 200 basis point increase in interest rates, the
Bank would experience a 9.7% decrease in the economic value of equity for the
next 12 months, and a 8.8% increase in the economic value of equity for the next
24 months.



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Also as of June 30, 2020, our analysis estimated that, in the event of an
instantaneous 100 basis point decrease in interest rates, the Bank would
experience a 7.4% increase in the economic value of equity over the next 12
months, and a 9.9% increase in the economic value of equity for the next 24
months. The estimates within the economic value of equity calculation are
significantly impacted by management's assumption that the value of non-maturity
deposits do not fall below their stated balance as of June 30, 2020. This
assumption has the impact of increasing the Bank's economic value of equity in
the falling rate scenario as lower market rates increase the value of the loan
and investment portfolios while the value of the non-maturity deposit base
remains static. The Company believes retaining customer relationships is the
most desirable strategy over the long term.



The estimates of changes in the economic value of our equity require us to make
certain assumptions including loan- and mortgage-related investment prepayment
speeds, reinvestment rates, and deposit maturities and decay rates. These
assumptions are inherently uncertain and, as a result, we cannot precisely
predict the impact of changes in interest rates on the economic value of our
equity. Although our economic value of equity analysis provides an indication of
our interest rate risk exposure at a particular point in time, such estimates
are not intended to, and do not, provide a precise forecast of the effect of
changes in market interest rates on the economic value of our equity and will
differ from actual results.

LIQUIDITY AND CAPITAL RESOURCES



Impact of Inflation and Changing Prices. Our Unaudited Consolidated Financial
Statements and related notes have been prepared in accordance with GAAP. GAAP
generally requires the measurement of financial position and operating results
in terms of historical dollars without consideration of changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of our operations. Unlike industrial companies,
our assets and liabilities are primarily monetary in nature. As a result,
changes in market interest rates have a greater impact on performance than the
effects of inflation.

Liquidity. Liquidity is defined as the Company's ability to generate adequate
cash to meet its needs for day-to-day operations and material long- and
short-term commitments. Liquidity risk is the risk of potential loss if the
Company were unable to meet its funding requirements at a reasonable cost. The
Company manages its liquidity based on demand and specific events and
uncertainties to meet current and future financial obligations of a short-term
nature. The Company's objective in managing liquidity is to respond to the needs
of depositors and borrowers, as well as increase to earnings enhancement
opportunities in a changing marketplace.

The Company's liquidity position is managed on a daily basis as part of the
daily settlement function and continuously as part of the formal asset liability
management process. The Bank's liquidity is maintained by managing its core
deposits as the primary source, selling investment securities, selling loans in
the secondary market, borrowing from the FHLB of Boston and FRB Boston, and
purchasing wholesale certificates of deposit as its secondary sources. At
June 30, 2020, the Company had access to funds totaling $1.8 billion.

The sources of funds for dividends paid by the Company are dividends received
from the Bank and liquid funds held by the Company. The Company and the Bank are
regulated enterprises and their abilities to pay dividends are subject to
regulatory review and restriction. Certain regulatory and statutory restrictions
exist regarding dividends, loans, and advances from the Bank to the Company.
Generally, the Bank has the ability to pay dividends to the Company subject to
minimum regulatory capital requirements.

Quarterly, the ALCO reviews the Company's liquidity needs and reports any findings (if required) to the Company's Board of Directors.



Capital Adequacy. Total shareholders' equity was $383.1 million at June 30,
2020, as compared to $286.6 million at December 31, 2019, primarily due to the
Wellesley merger, increase in earnings, increases in the value of the Company's
interest rate derivative positions, and increases in unrealized gains of the
available for sale investment portfolio. The ratio of total equity to total
assets amounted to 9.52% at June 30, 2020 and 10.04% at December 31, 2019. Book
value per share at June 30, 2020 and December 31, 2019 amounted to $55.29 and
$53.06, respectively.



The Company and the Bank are subject to various regulatory capital requirements.
As of June 30, 2020, the Company and the Bank exceeded the regulatory minimum
levels to be considered "well-capitalized." See Note 15 to the Unaudited
Consolidated Financial Statements for additional discussion of regulatory
capital requirements.



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Financial Instruments with Off-Balance-Sheet Risk



The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments primarily include commitments to originate and sell loans,
standby letters of credit, unused lines of credit, and unadvanced portions of
construction loans. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in these
particular classes of financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, standby letters of credit and unadvanced portions of construction loans is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Off-Balance-Sheet Arrangements. Our significant off-balance-sheet arrangements consist of the following:



  • commitments to originate and sell loans,


  • standby and commercial letters of credit,


  • unused lines of credit,


  • unadvanced portions of construction loans,


  • unadvanced portions of other loans,


  • loan related derivatives, and


  • risk participation agreements.

Off-balance-sheet arrangements are more fully discussed within Note 13 - Financial Instruments with Off-Balance-Sheet Risk.

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