INDEPENDENT BANK CORP. The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission (the "2021 Form 10-K").
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Report"), in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by forward-looking terminology such as "should," "could," "will," "may," "expect," "believe," "forecast," "view," "opportunity," "allow," "continues," "reflects," "typically," "usually," "anticipate," "estimate," "intend," or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the "Risk Factors" section of the 2021 Form 10-K, include but are not limited to: •further weakening inthe United States economy in general and the regional and local economies within theNew England region and the Company's market area, including any future weakening caused by the COVID-19 pandemic and any uncertainty regarding the length and extent of economic contraction as a result of the pandemic; •the potential effects of inflationary pressures, labor market shortages and supply chain issues; •the instability or volatility in financial markets and unfavorable general economic or business conditions, globally, nationally or regionally, caused by geopolitical concerns, including as a result of the conflict betweenRussia andUkraine ; •unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events; •adverse changes or volatility in the local real estate market; •adverse changes in asset quality and any unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships; •acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles; •additional regulatory oversight and related compliance costs; •changes in trade, monetary and fiscal policies and laws, including interest rate policies of theBoard of Governors of theFederal Reserve System ; 49 -------------------------------------------------------------------------------- Table of Contents •higher than expected tax expense, resulting from failure to comply with general tax laws and changes in tax laws; •changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR; •increased competition in the Company's market areas; •adverse weather, changes in climate, natural disasters, geopolitical concerns, including those arising from the conflict betweenRussia andUkraine ; •the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, other public health crises or man-made events, and their impact on the Company's local economies or the Company's operations; •a deterioration in the conditions of the securities markets; •a deterioration of the credit rating forU.S. long-term sovereign debt; •inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery; •electronic fraudulent activity within the financial services industry, especially in the commercial banking sector; •adverse changes in consumer spending and savings habits; •the effect of laws and regulations regarding the financial services industry; •changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company's business; •the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic; •changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as thePublic Company Accounting Oversight Board , theFinancial Accounting Standards Board , and other accounting standard setters including, but not limited to, changes to how the Company accounts for credit losses; •cyber security attacks or intrusions that could adversely impact our businesses; and •other unexpected material adverse changes in our operations or earnings. Further, the foregoing factors may be exacerbated by the ultimate impact of the COVID-19 pandemic, which remains unknown at this time due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond the Company's control, including the scope, duration and extent of the pandemic and any further resurgences, the efficacy, availability and public acceptance of vaccines, boosters or other treatments, actions taken by governmental authorities in response to the pandemic and the direct and indirect impact of these actions and the pandemic generally on the Company's employees, customers, business and third-parties with which the Company conducts business. Except as required by law, the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether in response to new information, future events or otherwise. Any public statements or disclosures by the Company following this Report which modify or impact any of the forward-looking statements contained in this Report will be deemed to modify or supersede such statements in this Report. 50
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Selected Quarterly Financial Data
The selected consolidated financial and other data of the Company set forth
below does not purport to be complete and should be read in conjunction with,
and is qualified in its entirety by, the more detailed information, including
the Consolidated Financial Statements and related notes, appearing elsewhere in
this Report.
Three Months Ended
June 30 March 31 December 31 September 30 June 30
2022 2022 2021 2021 2021
(Dollars in thousands, except per share data)
Financial condition data
Securities $ 2,934,956 $ 2,861,739 $ 2,664,859 $ 2,318,757 $ 1,682,751
Loans 13,675,764 13,580,027 13,587,286 8,808,013 8,938,988
Allowance for credit losses (144,319) (144,518) (146,922) (92,246) (102,357)
Goodwill and other intangible assets 1,013,917 1,015,831 1,017,844 525,261 526,576
Total assets 19,982,450 20,159,178 20,423,405 14,533,311 14,194,207
Total deposits 16,639,548 16,763,392 16,917,044 12,260,140 11,986,971
Total borrowings 138,344 138,328 152,374 157,045 171,713
Stockholders' equity 2,871,185 2,965,439 3,018,449 1,755,954 1,741,622
Nonperforming loans 55,915 56,618 27,820 45,810 47,818
Nonperforming assets 55,915 56,618 27,820 45,810 47,818
Income statement
Interest income $ 148,123 $ 140,619 $ 125,921 $ 93,016 $ 96,702
Interest expense 3,262 3,187 3,391 2,925 3,348
Net interest income 144,861 137,432 122,530 90,091 93,354
Provision for credit losses - (2,000) 35,705 (10,000) (5,000)
Noninterest income 27,898 26,272 29,180 26,457 24,967
Noninterest expenses 90,562 95,500 117,126 72,419 73,302
Net income 61,776 53,097 1,702 40,007 37,572
Per share data
Net income-basic $ 1.32 $ 1.12 $ 0.04 $ 1.21 $ 1.14
Net income-diluted 1.32 1.12 0.04 1.21 1.14
Cash dividends declared 0.51 0.51 0.48 0.48 0.48
Book value per share 62.32 62.59 63.75 53.14 52.72
Tangible book value per share (1) 40.31 41.15 42.25 37.24 36.78
Performance ratios
Return on average assets 1.24 % 1.06 % 0.04 % 1.11 % 1.08 %
Return on average common equity 8.49 % 7.16 % 0.28 % 9.04 % 8.70 %
Net interest margin (on a fully tax
equivalent basis) 3.27 % 3.09 % 3.05 % 2.78 % 2.99 %
Dividend payout ratio 39.11 % 42.80 % 931.90 % 39.64 % 42.19 %
Asset Quality Ratios
Nonperforming loans as a percent of
gross loans 0.41 % 0.42 % 0.20 % 0.52 % 0.53 %
Nonperforming assets as a percent of
total assets 0.28 % 0.28 % 0.14 % 0.32 % 0.34 %
Allowance for credit losses as a percent
of total loans 1.06 % 1.06 % 1.08 % 1.05 % 1.15 %
Allowance for credit losses as a percent
of nonperforming loans 258.10 % 255.25 % 528.12 % 201.37 % 214.06 %
Capital ratios
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Equity to assets 14.37 % 14.71 % 14.78 % 12.08 % 12.27 %
Tangible equity to tangible assets (1) 9.79 % 10.18 % 10.31 % 8.79 % 8.89 %
Tier 1 leverage capital ratio 10.42 % 10.62 % 12.03 % 9.36 % 9.41 %
Common equity tier 1 capital ratio 13.90 % 14.45 % 14.30 % 13.53 % 13.31 %
Tier 1 risk-based capital ratio 13.90 % 14.45 % 14.30 % 14.21 % 13.98 %
Total risk-based capital ratio 15.62 % 16.18 % 16.04 % 15.78 % 15.67 %
(1) Represents a non-GAAP measure. For reconciliation to GAAP book value per
share, see Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Executive Level Overview - Non-GAAP Measures" below.
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Table of Contents Executive Level Overview Management evaluates the Company's operating results and financial condition using measures that include net income, earnings per share, return on assets and equity, return on tangible common equity, net interest margin, tangible book value per share, asset quality indicators, and many others. These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results. The Company is focused on organic growth, but will also consider acquisition opportunities that are expected to provide a satisfactory financial return, including the recent acquisition ofMeridian Bancorp, Inc. ("Meridian") and its subsidiary,East Boston Savings Bank ("EBSB"), which closed in the fourth quarter of 2021.
Second Quarter 2022 Results
Net income for the three months endedJune 30, 2022 was$61.8 million , or$1.32 on a diluted earnings per share basis, as compared to$37.6 million , or$1.14 on a diluted earnings per share basis, for the three months endedJune 30, 2021 , representing an increase of 64.4% and 15.8%, respectively. Full year-to-date net income for the six months endedJune 30, 2022 was$114.9 million , or$2.44 on a diluted earnings per share basis, as compared to$79.3 million , or$2.40 on a diluted earnings per share basis, for the six months endedJune 30, 2021 , representing an increase of 44.9% and 1.7%, respectively. First half 2022 results reflect merger-related costs of$7.1 million , pre-tax, associated with the Meridian acquisition, as compared to$1.7 million during the same prior year period. Excluding these merger and acquisition costs, operating net income was$120.0 million , or$2.55 on a diluted per share basis, for the six months endedJune 30, 2022 , as compared to$80.5 million , or$2.44 on a diluted per share basis for the six months endedJune 30, 2021 . See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures.
Second quarter 2022 results reflected the following key drivers:
•4.9% annualized net loan growth, when excluding PPP runoff, driven primarily by strong consumer loan activity; •Modest cash deployment into the securities portfolio, which resulted in enhanced profitability; •Improved net interest margin when excluding purchase accounting and PPP related impact; •Strong core deposit account openings, with an overall reduction in deposit balances driven primarily by lower time deposit balances; •Zero provision for credit losses, driven primarily by continued strong asset quality metrics; •Solid fee income results; •Modest increase in operating expenses for the quarter, when excluding$7.1 million of merger and acquisition expenses incurred during the prior quarter, driven primarily by increased incentive compensation, salaries and benefits and consulting costs; •1.3 million shares were repurchased under the Company's share repurchase program. 53 -------------------------------------------------------------------------------- Table of Contents Interest-Earning Assets The results depicted in the following table reflect the trend of the Company's interest-earning assets over the past five quarters. Management's asset strategy typically emphasizes loan growth, however, the mix of interest earning assets has experienced volatility over the last five quarters due to the unique operating environment, as well as the Company's acquisition of Meridian during the fourth quarter of 2021. The following table summarizes the Company's interest-earning assets as of the periods indicated.
[[Image Removed: indb-20220630_g1.jpg]]
Management strives to be disciplined about loan pricing and considers interest
rate sensitivity when generating loan assets. In addition, management takes a
disciplined approach to credit underwriting, seeking to avoid undue credit risk
and credit losses.
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Funding and Net Interest Margin
The Company's overall sources of funding reflect strong business and retail
deposit growth with a management emphasis on core deposit growth to fund loans.
The following chart shows the sources of funding and the percentage of core
deposits to total deposits for the trailing five quarters:
[[Image Removed: indb-20220630_g2.jpg]]
The following table shows the net interest margin and cost of deposits trends
for the trailing five quarters:
[[Image Removed: indb-20220630_g3.jpg]]
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Noninterest Income
Noninterest income is primarily comprised of deposit account fees, interchange
and ATM fees, investment management fees and mortgage banking income. The
following chart shows the components of noninterest income over the past five
quarters:
[[Image Removed: indb-20220630_g4.jpg]]
Expense Control
Management seeks to take a balanced approach to noninterest expense control by monitoring ongoing operating expenses while making needed capital expenditures and prudently investing in growth initiatives. The Company's primary expenses arise fromRockland Trust's employee salaries and benefits, as well as expenses associated with buildings and equipment. The following chart depicts the Company's efficiency ratio on a GAAP basis (calculated by dividing noninterest expense by the sum of noninterest income and net interest income), as well as the Company's efficiency ratio on a non-GAAP operating basis, if applicable (calculated by dividing noninterest expense, excluding certain noncore items, by the sum of noninterest income, excluding certain noncore items, and net interest income), over the past five quarters: 56 -------------------------------------------------------------------------------- Table of Contents [[Image Removed: indb-20220630_g5.jpg]] *See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.
Capital
The Company's approach with respect to revenue and expense is designed to promote long-term earnings growth, which in turn contributes to capital growth. Strong earnings retention has contributed to capital growth, both on an absolute level and per share basis. The following chart shows the Company's book value and tangible book value per share over the past five quarters (see "Non-GAAP Measures" below for a reconciliation to GAAP financial measures):
[[Image Removed: indb-20220630_g6.jpg]] *See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.
The Company declared a quarterly cash dividend of$0.51 per share for each of the first two quarters of 2022, representing an increase of 6.3% from the 2021 quarterly dividend rate of$0.48 per share. Additionally, the Company repurchased 1.3 million shares during the six months endedJune 30, 2022 under the Company's previously announced buyback program, which totaled$105.3 million . 57
-------------------------------------------------------------------------------- Table of Contents Non-GAAP Measures When management assesses the Company's financial performance for purposes of making day-to-day and strategic decisions, it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and noninterest or fee income, reduced by operating expenses, the provision for credit losses, and the impact of income taxes and other noncore items shown in the table that follows. There are items that impact the Company's results that management believes are unrelated to its core banking business such as gains or losses on the sales of securities, merger and acquisition expenses, provision for credit losses on acquired portfolios, loss on extinguishment of debt, impairment, and other items, such as one-time adjustments as a result of changes in laws and regulations. Management, therefore, excludes items management considers to be noncore when computing the Company's non-GAAP operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis. Management believes excluding these items facilitates greater visibility into the Company's core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items. Management also supplements its evaluation of financial performance with an analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or tangible common equity, by common shares outstanding) and with the Company's tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets) which are non-GAAP measures. The Company has included information on these tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends. The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry. These non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company's results for any particular period. The Company's non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies.
The following tables summarize adjustments for noncore items for the periods indicated below and reconcile non-GAAP measures:
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Three Months Ended June 30
Diluted
Net Income Earnings Per Share
2022 2021 2022 2021
(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP) $ 61,776 $ 37,572 $ 1.32 $ 1.14 Non-GAAP adjustments
Noninterest expense components
Add: merger and acquisition expenses - 1,731 - 0.05 Noncore increases to income before taxes - 1,731 - 0.05 Net tax benefit associated with noncore items (1) - (487) - (0.02) Total tax impact - (487) - (0.02) Noncore increases to net income - 1,244 - 0.03 Operating net income (Non-GAAP)$ 61,776 $ 38,816 $ 1.32 $ 1.17 Six Months Ended June 30 Diluted Net Income Earnings Per Share 2022 2021 2022 2021 (Dollars in thousands, except per share data) Net income available to common shareholders (GAAP)$ 114,873 $ 79,283 $ 2.44 $ 2.40
Non-GAAP adjustments
Noninterest expense components
Add: merger and acquisition expenses 7,100 1,731 0.15 0.05 Noncore increases to income before taxes 7,100 1,731 0.15 0.05
Net tax benefit associated with noncore items (1) (1,995)
(487) (0.04) (0.02)
Noncore increases to net income 5,105 1,244 0.11 0.03
Operating net income (Non-GAAP) $ 119,978 $ 80,527 $ 2.55 $ 2.44
(1)The net tax benefit associated with noncore items is determined by assessing
whether each noncore item is included or excluded from net taxable income and
applying the Company's combined marginal tax rate to only those items included
in net taxable income.
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Three Months Ended
June 30 March 31 December 31 September 30 June 30
2022 2022 2021 2021 2021
(Dollars in thousands)
Net interest income (GAAP)
Noninterest income (GAAP)
Noninterest expense (GAAP)
Merger and acquisition expense - 7,100 37,166 1,943 1,731
Noninterest expense on an
operating basis (Non-GAAP)
Total revenue (GAAP)$ 172,759 $ 163,704 $
151,710
Ratios
Noninterest income as a % of
revenue (GAAP based) 16.15 % 16.05 % 19.23 % 22.70 % 21.10 % (b/(a+b))
Efficiency ratio (GAAP
based) 52.42 % 58.34 % 77.20 % 62.14 % 61.95 % (c/(a+b))
Efficiency ratio on an
operating basis (Non-GAAP) 52.42 % 54.00 % 52.71 % 60.47 % 60.49 % (d/(a+b))
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The following table summarizes the calculation of the Company's tangible common equity to tangible assets ratio and tangible book value per share:
June 30 March 31 December 31 September 30 June 30
2022 2022 2021 2021 2021
(Dollars in thousands, except per share data)
Tangible common equity
Stockholders' equity (GAAP) $ 2,871,185 $ 2,965,439
1,013,917 1,015,831 1,017,844 525,261 526,576
Tangible common equity (Non-GAAP) 1,857,268 1,949,608 2,000,605 1,230,693 1,215,046 (b)
Tangible assets
Assets (GAAP) 19,982,450 20,159,178 20,423,405 14,533,311 14,194,207 (c)
Less: Goodwill and other
intangibles 1,013,917 1,015,831 1,017,844 525,261 526,576
Tangible assets (Non-GAAP)
46,069,761 47,377,125 47,349,778 33,043,812 33,037,859 (e)
Common equity to assets ratio
(GAAP) 14.37 % 14.71 % 14.78 % 12.08 % 12.27 % (a/c)
Tangible common equity to tangible
assets ratio (Non-GAAP) 9.79 % 10.18 % 10.31 % 8.79 % 8.89 % (b/d)
Book value per share (GAAP) $ 62.32 $ 62.59 $ 63.75 $ 53.14 $ 52.72 (a/e)
Tangible book value per share
(Non-GAAP) $ 40.31 $ 41.15 $ 42.25 $ 37.24 $ 36.78 (b/e)
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. The
Company believes that the most critical accounting policies are those which the
Company's financial condition depends upon, and which involve the most complex
or subjective decisions or assessments.
There have been no material changes in critical accounting policies during the
first six months of 2022. Refer to "Critical Accounting Policies and Estimates"
in Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 2021 Form 10-K for a complete listing of
critical accounting policies.
FINANCIAL POSITION
Securities PortfolioThe Company's securities portfolio consists of trading securities, equity securities, securities available for sale, and securities which management intends to hold until maturity. Securities increased by$270.1 million , or 10.1%, atJune 30, 2022 as compared toDecember 31, 2021 , primarily reflecting$561.9 million of purchases which were partially offset by unrealized losses of$112.4 million related to the available for sale portfolio, as well as paydowns, calls, and maturities. The ratio of securities to total assets increased to 14.7% atJune 30, 2022 compared to 13.0% atDecember 31, 2021 , as management has been effectively deploying excess liquidity with increased investment security purchases. The Company estimates expected credit losses for its available for sale and held to maturity securities in accordance with the current expected credit loss ("CECL") methodology. Further details regarding the Company's measurement of expected credit losses on securities can be found in Note 3 "Securities" within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report. 61
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Residential Mortgage Loan SalesThe Company's primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans. The Company originates residential loans with the intention of selling them in the secondary market or holding them in the Company's residential real estate portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached. The Company incurred no material losses related to residential mortgage repurchases during the three and six months endedJune 30, 2022 and 2021, respectively. The following table shows the total residential real estate loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market during the periods indicated: Table 1 - Closed Residential Real Estate Loans Three Months Ended June 30 Six Months Ended June 30 2022 2021 2022 2021 (Dollars in thousands) Held in portfolio$ 225,525 $ 131,423 $ 406,050 $ 213,344 Sold or held for sale in the secondary market 18,739 158,178 55,984 428,001 Total closed loans$ 244,264 $ 289,601 $ 462,034 $ 641,345 As shown in the above table, the Company experienced a lower volume of residential real estate loans sales for the three and six months endedJune 30, 2022 in comparison to the same prior year periods, driven primarily by reduced customer demand in the rising interest rate environment. In addition, the volume of closed residential real estate loans held in portfolio increased during the three and six months endedJune 30, 2022 .
The table below reflects additional information related to the loans which were sold during the periods indicated:
Table 2 - Residential Mortgage Loan Sales
Three Months Ended June 30 Six Months Ended June 30
2022 2021 2022 2021
(Dollars in thousands)
Sold with servicing rights released $ 21,936 $ 165,775 $ 75,800 $ 446,914
Sold with servicing rights retained (1) 261 6,657 681 8,087
Total loans sold $ 22,197 $ 172,432 $ 76,481 $ 455,001 (1)All loans sold with servicing rights retained during the three and six months
ended
When a loan is sold, the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneously with the sale of the loan, or the Company may opt to sell the loan and retain the servicing. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the Consolidated Balance Sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was$348.1 million ,$382.6 million and$373.2 million atJune 30, 2022 ,December 31, 2021 , andJune 30, 2021 , respectively. 62
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The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated:
Table 3 - Mortgage Servicing Asset
Three Months Ended June 30 Six Months Ended June 30
2022 2021 2022 2021
(Dollars in thousands)
Balance at beginning of period $ 2,805 $ 2,541 $ 2,627 $ 2,365
Additions 2 52 6 65
Amortization (163) (282) (357) (525)
Change in valuation allowance 349 (16) 717 390
Balance at end of period $ 2,993 $
2,295
See Note 6, "Derivative and Hedging Activities" within the Notes to Consolidated Financial Statements included in Part I. Item 1 of this Report for more information on mortgage activity and mortgage related derivatives.
Loan Portfolio Total loans atJune 30, 2022 increased by$88.5 million , or 0.65%, when compared toDecember 31, 2021 . Excluding$185.6 million of net paydowns associated with the PPP for the first six months of 2022, the loan portfolio increased by$274.1 million , or 4.1% on an annualized basis, compared toDecember 31, 2021 . Organic loan growth was driven primarily by strong consumer loan activity, as the majority of residential real estate loan closings were retained on the balance sheet, while increased demand and line utilization fueled growth in home equity balances. Excluding the net reduction in PPP loans, the commercial portfolio remained relatively flat atJune 30, 2022 in comparison toDecember 31, 2021 , as increased line utilization and higher closing volumes in the commercial and industrial and construction categories were countered by elevated levels of attrition within commercial real estate. 63
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The Company's commercial loan portfolio is comprised primarily of commercial and industrial loans as well as commercial real estate loans. Management considers the Company's commercial and industrial portfolio to be well-diversified with loans to various types of industries. The Company's previous participation in the PPP resulted in significant loan fundings within the commercial and industrial category, which have now declined to$30.6 million or 2.0% of the total commercial and industrial category atJune 30, 2022 , primarily as a result of the ongoing forgiveness process, and are reflected within the various sectors below. During the three and six months endedJune 30, 2022 , the Company amortized into income$1.8 million and$3.5 million , respectively, in PPP fee revenue related to loans forgiven under the program. The following pie chart shows the diversification of the commercial and industrial portfolio as ofJune 30, 2022 : [[Image Removed: indb-20220630_g7.jpg]] (Dollars in thousands) Average loan size (excluding floor plan tranches) $ 367 Largest individual commercial and industrial loan outstanding $ 37,650
Commercial and industrial nonperforming loans/commercial and industrial loans
0.23 %
The Company's commercial real estate loan portfolio, inclusive of commercial
construction, is the Company's largest loan type concentration. The Company
believes that this portfolio is also well-diversified with loans secured by a
variety of property types, such as owner-occupied and nonowner-occupied
commercial, retail, office, industrial, warehouse, and other special purpose
properties, such as hotels, motels, nursing homes, restaurants, churches,
recreational facilities, marinas, and golf courses. Commercial real estate also
includes loans secured by certain residential-related property types, including
multi-family apartment buildings, residential development tracts and
condominiums. The following pie chart shows the diversification of the
commercial real estate loan portfolio as of June 30, 2022 :
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[[Image Removed: indb-20220630_g8.jpg]]
(Dollars in
thousands)
Average loan size $ 1,587
Largest individual commercial real estate mortgage outstanding $ 64,527
Commercial real estate nonperforming loans/commercial real estate loans 0.45 %
Owner occupied commercial real estate loans/commercial real estate loans
11.6 %
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The Company's consumer portfolio primarily consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area. The Company also provides home equity loans and lines of credit that may be made as a fixed-rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home. Additionally, the Company makes loans for a wide variety of other personal needs. Other consumer loans primarily consist of installment loans and overdraft protections. The residential real estate, home equity and other consumer portfolios totaled$2.9 billion atJune 30, 2022 , as noted below: [[Image Removed: indb-20220630_g9.jpg]] Asset QualityThe Company continually monitors the asset quality of the loan portfolio using all available information. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, nonperforming and/or put on nonaccrual status. In the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower's ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR"). In addition, the Company has offered need-based payment relief options for commercial and small business loans, residential mortgages, and home equity loans and lines of credit in response to the COVID-19 pandemic. In accordance with the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), these modifications are not accounted for as TDRs or reflected as delinquent or non-accrual loans if the borrower was in compliance with the loan terms as ofDecember 31, 2019 . Delinquency The Company's philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank's personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower's needs are considered as much as reasonably possible without jeopardizing the Bank's position. A late charge is usually assessed on loans upon expiration of the grace period. Nonaccrual Loans As a general rule, loans 90 days or more past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are 90 days or more past due may be kept on an accruing status if the loans are well secured and in the process of collection. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with 66 -------------------------------------------------------------------------------- respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for credit losses. Troubled Debt Restructurings In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default. Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower's financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan. It is the Company's policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or are delinquent for 90 days or more. Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it may be determined that the borrower is performing under modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring. Purchased Credit Deteriorated Loans Purchased Credit Deteriorated ("PCD") loans are acquired loans which have shown a more-than-insignificant deterioration in credit quality since origination. PCD loans are recorded at amortized cost with an allowance for credit losses recorded upon purchase. Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate owned. Nonperforming loans consist of nonaccrual loans and loans that are 90 days or more past due but still accruing interest. 67
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The following table sets forth information regarding nonperforming assets held by the Company at the dates indicated:
Table 4 - Nonperforming Assets
June 30 December 31 June 30
2022 2021 2021
(Dollars in thousands)
Loans accounted for on a nonaccrual basis
Commercial and industrial $ 3,518 $ 3,439 $ 20,831
Commercial real estate 40,074 10,870 9,031
Small business 31 44 558
Residential real estate 8,563 9,182 12,786
Home equity 3,514 3,781 4,517
Other consumer 215 504 95
Total nonperforming assets (1) $ 55,915 $ 27,820 $ 47,818
Nonperforming loans as a percent of gross loans 0.41 % 0.20 % 0.53 %
Nonperforming assets as a percent of total assets 0.28 % 0.14 % 0.34 %
(1)Inclusive of TDRs on nonaccrual status of
The following table summarizes the changes in nonperforming assets for the periods indicated:
Table 5 - Activity in Nonperforming Assets
2022 2021
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
2022 2021 2022 2021
(Dollars in thousands)
Nonperforming assets beginning balance $ 56,618 $ 59,201 $ 27,820 $ 66,861
New to nonperforming 2,822 2,233 36,576 4,592
Loans charged-off (545) (481) (1,251) (4,167)
Loans paid-off (2,239) (10,364) (3,724) (14,389)
Loans restored to performing status (738) (2,771) (3,440) (5,330)
Other (3) -
(66) 251
Nonperforming assets ending balance
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The following table sets forth information regarding troubled debt restructured loans as of the dates indicated:
Table 6 - Troubled Debt Restructurings
June 30 December 31 June 30
2022 2021 2021
(Dollars in thousands)
Performing troubled debt restructurings $ 11,734 $ 14,635 $ 19,495
Nonaccrual troubled debt restructurings 1,677 1,993 20,212
Total $ 13,411 $ 16,628 $ 39,707
Performing troubled debt restructurings as a % of total loans 0.09 % 0.11 % 0.21 %
Nonaccrual troubled debt restructurings as a % of total loans 0.01 %
0.01 % 0.23 %
Total troubled debt restructurings as a % of total loans 0.10 % 0.12 % 0.44 %
The following table summarizes changes in TDRs for the periods indicated:
Table 7 - Activity in Troubled Debt Restructurings
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
2022 2021 2022 2021
(Dollars in thousands)
TDRs beginning balance $ 15,260 $ 41,429 $ 16,628 $ 39,192
New to TDR status - 82 - 3,918
Paydowns (1,849) (1,804) (3,217) (3,403)
TDRs ending balance $ 13,411 $ 39,707 $ 13,411 $ 39,707
Income accruals are suspended on all nonaccrual loans and all previously
accrued and uncollected interest is reversed against current income. The table
below shows interest income that was recognized or collected on all nonaccrual
loans and TDRs for the periods indicated:
Table 8 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
2022 2021 2022 2021
(Dollars in thousands)
The amount of incremental gross interest
income that would have been recorded if
nonaccrual loans had been current in
accordance with their original terms $ 1,601 $ 693 $ 2,864 $ 1,610
The amount of interest income on nonaccrual
loans and performing TDRs that was included
in net income $ 168 $ 263 $ 315 $ 494
Potential problem loans are any loans which are not included in nonaccrual or
nonperforming loans, where known information about possible credit problems of
the borrowers causes management to have concerns as to the ability of such
borrowers to comply with present loan repayment terms. At June 30, 2022 , there
were 47 relationships, with an aggregate balance of $162.9 million , deemed to be
potential problem loans. These potential problem loans continued to perform with
respect to payments. Management actively monitors these loans and strives to
minimize any possible adverse impact to the Company. A portion of the potential
problem loans identified by management were granted a deferral in accordance
with the relief options offered in response to the COVID-19 pandemic.
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As previously noted, the Company has offered need-based payment relief options to its customers in response to the COVID-19 pandemic, primarily in the form of payment deferrals, all of which were granted prior toDecember 31, 2020 . Loans that were modified are not accounted for as TDRs or reflected as delinquent or nonaccrual loans if the borrower was in compliance with their loan terms as ofDecember 31, 2019 . The following table summarizes active deferrals by modification type as ofJune 30, 2022 : Table 9 - Deferrals Maturity Schedule Total Q4 2022 2023 2024 Deferrals (2) Total Portfolio % Deferral (Dollars in thousands) Commercial real estate (1)$ 137,669 $ 51,072 $ 8,700 $ 197,441 8,986,334 2.2 % Other portfolios - - - - 4,689,430 - % Total active deferrals as of June 30, 2022$ 137,669 $ 51,072 $ 8,700 $ 197,441 13,675,764 1.4 %
(1)Balances include commercial construction deferrals.
(2)All active deferrals as of
Allowance for Credit Losses The allowance for credit losses is maintained at a
level that management considers appropriate to provide for the Company's current
estimate of expected lifetime credit losses on loans measured at amortized cost.
The allowance is increased by providing for credit losses through a charge to
expense and by credits for recoveries of loans previously charged-off and is
reduced by loans being charged-off.
In accordance with the CECL methodology, the Company estimates credit losses for
financial assets on a collective basis for loans sharing similar risk
characteristics using a quantitative model combined with an assessment of
certain qualitative factors designed to address forecast risk and model risk
inherent in the quantitative model output. The model estimates expected credit
losses using loan level data over the contractual life of the exposure,
considering the effect of prepayments. Economic forecasts are incorporated into
the estimate over a reasonable and supportable forecast period of one year,
beyond which is a reversion to the Company's historical long-run average for a
period of six months. The Company's qualitative assessment is structured based
upon nine environmental factors impacting the expected risk of loss within the
loan portfolio. Loans that do not share similar risk characteristics with any
pools of assets are subject to individual assessment and are removed from the
collectively assessed pools to avoid double counting. For the loans that will be
individually assessed, the Company uses either a discounted cash flow ("DCF")
approach or a fair value of collateral approach. The latter approach is used for
loans deemed to be collateral dependent or when foreclosure is probable.
The allowance for credit losses of $144.3 million at June 30, 2022 represents a
decrease of $2.6 million , or 1.8% compared to December 31, 2021 . The decrease in
the allowance was primarily driven by a stabilized credit quality environment,
continued strong asset quality metrics and overall consistent loan balances.
The aforementioned stabilization of credit quality and continued strong asset
quality metrics experienced by the Company resulted in a lower quantitative
allowance for credit loss reserve at June 30, 2022 , as compared to December 31,
2021 . Partially offsetting this decline was the impact of increased economic
uncertainty over the reasonable and supportable forecast modeled in the
allowance for credit losses. Management's forecast anticipates that the federal
funds rates will rise in the near term, that supply chain issues will persist,
inflation remains elevated, the military conflict between Russia and Ukraine
will persist longer than originally anticipated for the foreseeable future,
potentially impacting global oil supplies and the supply chain more generally
and general economic conditions, as well as concerns regarding rising COVID-19
cases and the possibility of resurgences. The forecast used by management also
anticipates that the U.S. economy will fall into a mild recession during the
third quarter of 2022 and persist for the short term. Additionally, the
allowance for credit losses continues to be qualitatively adjusted in order to
ensure coverage for relationships that are deemed to be more at risk within
certain industries, specific collateral types, or other specific characteristics
that may be highly impacted by the current economic environment.
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The following table summarizes the ratio of net charge-offs to average loans outstanding within each major loan category for the periods presented:
Table 10 - Summary Net Charge-Offs to Average Loans Outstanding
Ratio of Annualized Net Ratio of Annualized Net
Net Charge-Offs Average Amount Charge-Offs/(Recoveries) to Average Net Charge-Offs Average Amount Charge-Offs/(Recoveries) to Average
(Recoveries) Outstanding Loans (Recoveries) Outstanding Loans
(Dollars in thousands)
Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
Commercial and industrial $ (29) $ 1,537,883 (0.01) % $ (42) $ 1,536,757 (0.01) %
Commercial real estate - 7,827,442 - % (3) 7,869,164 - %
Commercial construction - 1,193,353 - % - 1,192,013 - %
Small business (22) 203,947 (0.04) % - 199,408 - %
Residential real estate - 1,761,986 - % - 1,705,883 - %
Home equity 84 1,046,933 0.03 % 82 1,039,661 0.02 %
Other consumer 166 31,554 2.11 % 566 30,690 3.72 %
Total $ 199 $ 13,603,098 0.01 % $ 603 $ 13,573,576 0.01 %
Ratio of Annualized Net Ratio of Annualized Net
Net Charge-Offs Average Amount Charge-Offs/(Recoveries) to Average Net Charge-Offs
Average Amount Charge-Offs/(Recoveries) to Average
(Recoveries) Outstanding Loans (Recoveries) Outstanding Loans
(Dollars in thousands)
Three Months Ended June 30, 2021 Six Months Ended June 30, 2021
Commercial and industrial $ 107 $ 1,944,026 0.02 % $ 3,374 $ 2,029,075 0.34 %
Commercial real estate - 4,196,171 - % (57) 4,176,202 - %
Commercial construction - 514,935 - % - 534,933 - %
Small business 31 178,525 0.07 % 86 176,434 0.10 %
Residential real estate - 1,226,520 - % (1) 1,248,778 - %
Home equity 24 1,024,798 0.01 % 11 1,037,446 - %
Other consumer 30 22,471 0.54 % 122 22,087 1.11 %
Total $ 192 $ 9,107,446 0.01 % $ 3,535$ 9,224,955 0.08 % As noted in the table above, net charge-offs incurred by the Company have been minimal for the periods presented, with larger losses being isolated to individual loan workouts, and are not indicative of declining credit quality in the Company's overall loan portfolio. 71
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For purposes of the allowance for credit losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for credit losses is made to each loan category using the analytical techniques and estimation methods described in this Report. While these amounts represent management's best estimate of credit losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories possess unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio.
The following table sets forth the allocation of the allowance for credit losses by loan category at the dates indicated:
Table 11 - Summary of Allocation of Allowance for Credit Losses
June 30 December 31
2022 2021
Percent of Percent of
Loans Loans
Allowance In Category Allowance In Category
Amount To Total Loans Amount To Total Loans
(Dollars in thousands)
Commercial and industrial (1) $ 14,107 11.3 % $ 14,402 11.5 %
Commercial real estate 83,456 57.0 % 83,486 58.8 %
Commercial construction 11,710 8.7 % 12,316 8.6 %
Small business 2,784 1.5 % 3,508 1.4 %
Residential real estate 19,750 13.5 % 14,484 11.8 %
Home equity 11,740 7.8 % 17,986 7.7 %
Other consumer 772 0.2 % 740 0.2 %
Total allowance for credit losses $ 144,319 100.0 % $ 146,922 100.0 %
(1)Total loans in this category are inclusive of $30.6 million and $216.2
million in loans, at June 30, 2022 and December 31, 2021 , respectively, which
were originated as part of the PPP established by the CARES Act. These loans
have been excluded from the credit loss calculations as these loans are 100%
guaranteed by the U.S. Government .
To determine if a loan should be charged-off, all possible sources of repayment
are analyzed. Possible sources of repayment include the potential for future
cash flows, the value of the Bank's collateral, and the strength of co-makers or
guarantors. When available information confirms that specific loans or portions
thereof are uncollectible, these amounts are promptly charged-off against the
allowance for credit losses and any recoveries of such previously charged-off
amounts are credited to the allowance.
Regardless of whether a loan is unsecured or collateralized, the Company charges
off the amount of any confirmed loan loss in the period when the loans, or
portions of loans, are deemed uncollectible. For troubled, collateral-dependent
loans, loss-confirming events may include an appraisal or other valuation that
reflects a shortfall between the value of the collateral and the carrying value
of the loan or receivable, or a deficiency balance following the sale of the
collateral.
For additional information regarding the Company's allowance for credit losses,
see Note 4 "Loans, Allowance for Credit Losses and Credit Quality" within the
Notes to Consolidated Financial Statements included in Part I. Item 1 of this
Report.
Federal Home Loan Bank Stock The FHLB is a cooperative that provides services to
its member banking institutions. The primary reason for the FHLB of Boston
membership is to gain access to a reliable source of wholesale funding as a tool
to manage liquidity and interest rate risk. The purchase of stock in the FHLB is
a requirement for a member to gain access to funding. The Company either
purchases additional FHLB stock or is subject to redemption of FHLB stock
proportional to the volume of funding received. The Company views the holdings
as a necessary long-term investment for the purpose of balance sheet liquidity
and not for investment return. The Bank held investments in FHLB of Boston stock
of $6.2 million and $11.4 million at June 30, 2022 and December 31, 2021 ,
respectively, reflecting redemption activity occurring during the first half of
2022.
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The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted. Accordingly, the Company last performed its annual goodwill impairment testing during the third quarter of 2021 and determined that the Company's goodwill was not impaired as ofSeptember 30, 2021 . Other intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. There were no events or changes during the second quarter of 2022 that indicated impairment of goodwill and other intangible assets. Cash Surrender Value of Life Insurance PoliciesThe Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans. The cash surrender value of life insurance policies was$292.8 million atJune 30, 2022 compared to$289.3 million atDecember 31, 2021 , representing an increase of$3.5 million , or 1.2%, primarily due to income earned on the policies. The Company recorded tax exempt income from life insurance policies of$1.9 million and$1.6 million for the three months endedJune 30, 2022 and 2021, respectively, and$3.7 million and$2.9 million for the six months endedJune 30, 2022 and 2021, respectively. The Company recorded gains on life insurance benefits of$123,000 for the three and six months endedJune 30, 2022 , and$258,000 for the six months endedJune 30, 2022 . No gains were recognized during the three months endedJune 30, 2021 . Deposits As ofJune 30, 2022 , total deposits were$16.6 billion , representing a$277.5 million , or 1.6%, decrease fromDecember 31, 2021 , primarily attributable to continued runoff in higher cost time deposits. The total cost of deposits was 0.05% and 0.07% for the three months endedJune 30, 2022 and 2021, respectively, and 0.05% and 0.08% for the six months endedJune 30, 2022 and 2021, respectively. Core deposits increased to 86.8% of total deposits as ofJune 30, 2022 from 84.5% atDecember 31, 2021 . The Company also participates in the IntraFi Network, allowing the Bank to provide easy access to multi-million dollarFederal Deposit Insurance Corporation ("FDIC") deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities. This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank's core market, and amounted to$819.7 million and$998.1 million atJune 30, 2022 andDecember 31, 2021 , respectively. In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the IntraFi Network, which amounted to$113.8 million and$141.6 million atJune 30, 2022 andDecember 31, 2021 , respectively. Borrowings The Company's borrowings consist of both short-term and long-term borrowings and provide the Bank with one of its primary sources of funding. Maintaining available borrowing capacity provides the Bank with a contingent source of liquidity. Borrowings were$138.3 million atJune 30, 2022 , a decrease of$14.0 million , or 9.2%, as compared toDecember 31, 2022 , due primarily to the re-payment of a revolving loan credit facility during the first quarter of 2022. Additionally, the Bank had$4.4 billion and$4.2 billion of assets pledged as collateral against borrowings atJune 30, 2022 andDecember 31, 2021 , respectively. These assets are primarily pledged to the FHLB ofBoston and theFederal Reserve Bank of Boston . 73
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Capital Resources OnJune 16, 2022 the Company's Board of Directors declared a cash dividend of$0.51 per share to shareholders of record as of the close of business onJune 27, 2022 . This dividend was paid onJuly 8, 2022 . The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 Capital and Common Equity Tier 1 Capital (as defined for regulatory purposes) to risk weighted assets (as defined for regulatory purposes) and Tier 1 Capital to average assets (as defined for regulatory purposes). AtJune 30, 2022 andDecember 31, 2021 , the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods. The Company's and the Bank's capital amounts and ratios are presented in the following table, along with the applicable minimum requirements as of each date indicated: Table 12 - Company and Bank's Capital Amounts and Ratios To Be
Well Capitalized Under Prompt
Actual For Capital Adequacy Purposes Corrective Action Provisions
Amount Ratio Amount Ratio Amount Ratio
June 30, 2022
(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted
assets) $ 2,230,736 15.62 % $ 1,142,190 ? 8.0 % N/A N/A
Common equity tier 1 capital
(to risk weighted assets) 1,984,977 13.90 % 642,482 ? 4.5 % N/A N/A
Tier 1 capital (to risk weighted
assets) 1,984,977 13.90 % 856,643 ? 6.0 % N/A N/A
Tier 1 capital (to average assets) 1,984,977 10.42 % 762,182 ? 4.0 % N/A N/A
Bank
Total capital (to risk weighted assets)$ 2,128,013 14.91 %$ 1,142,018 ? 8.0 %$ 1,427,523 ? 10.0 % Common equity tier 1 capital (to risk weighted assets) 1,993,092 13.96 % 642,385 ? 4.5 % 927,890 ? 6.5 % Tier 1 capital (to risk weighted assets) 1,993,092 13.96 % 856,514 ? 6.0 % 1,142,018 ? 8.0 % Tier 1 capital (to average assets) 1,993,092 10.46 % 762,170 ? 4.0 % 952,712 ? 5.0 % December 31, 2021 (Dollars in thousands) Company (consolidated) Total capital (to risk weighted assets)$ 2,262,740 16.04 %$ 1,128,900 ? 8.0 % N/A N/A Common equity tier 1 capital (to risk weighted assets) 2,017,497 14.30 % 635,006 ? 4.5 % N/A N/A Tier 1 capital (to risk weighted assets) 2,017,497 14.30 % 846,675 ? 6.0 % N/A N/A Tier 1 capital (to average assets) 2,017,497 12.03 % 670,659 ? 4.0 % N/A N/A
Bank
Total capital (to risk weighted assets)$ 2,083,689 14.77 %$ 1,128,536 ? 8.0 %$ 1,410,670 ? 10.0 % Common equity tier 1 capital (to risk weighted assets) 1,949,237 13.82 % 634,801 ? 4.5 % 916,935 ? 6.5 % Tier 1 capital (to risk weighted assets) 1,949,237 13.82 % 846,402 ? 6.0 % 1,128,536 ? 8.0 % Tier 1 capital (to average assets) 1,949,237 11.62 % 670,827 ? 4.0 % 838,534 ? 5.0 % 74
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In addition to the minimum risk-based capital requirements outlined in the table above, the Company is required to maintain a minimum capital conservation buffer, in the form of common equity, in order to avoid restrictions on capital distributions and discretionary bonuses. The required amount of the capital conservation buffer is 2.5%. AtJune 30, 2022 , the Company's capital levels exceeded the buffer. Dividend RestrictionsThe Company is subject to capital and dividend requirements administered by federal and state bank regulators, and the Company will not declare a cash dividend that would cause the Company to violate regulatory requirements. The Company is, in the ordinary course of business, dependent upon the receipt of cash dividends from the Bank to pay cash dividends to shareholders and satisfy the Company's other cash needs. Federal and state law impose limits on capital distributions by the Bank.Massachusetts -chartered banks, such as the Bank, may declare from net profits cash dividends not more frequently than quarterly and non-cash dividends at any time. No dividends may be declared, credited, or paid if the Bank's capital stock would be impaired.Massachusetts Bank Commissioner approval is required if the total of all dividends declared by the Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. Dividends paid by the Bank to the Company totaled$53.2 million and$5.0 million for the three months endedJune 30, 2022 and 2021, respectively and totaled$78.2 million and$5.0 million for the six months endedJune 30, 2022 and 2021, respectively. Trust Preferred Securities In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities has not been included in the consolidated financial statements of the Company. At each ofJune 30, 2022 andDecember 31, 2021 there were$61.0 million in trust preferred securities included in the Tier 2 capital of the Company for regulatory reporting purposes pursuant to theFederal Reserve's capital adequacy guidelines.
Investment Management The following table presents total assets under
administration and number of accounts held by the
Table 13 - Assets Under Administration
June 30 December 31 June 30
2022 2021 2021
(Dollars in thousands)
Assets under administration $ 5,156,575 $ 5,726,368 $ 5,407,211
Number of trust, fiduciary and agency
accounts 6,721 6,379 6,283
The decrease in assets under administration at June 30, 2022 was driven
primarily by depressed market valuations experienced during the first half of
2022. Included in these amounts as of June 30, 2022 and December 31, 2021 are
assets under administration of $376.3 million and $447.4 million , respectively,
relating to the Company's registered investment advisor, Bright Rock Capital
Management, LLC , which provides institutional quality investment management
services to institutional and high net worth clients. Revenue from the
Investment Management Group was $7.8 million and $8.0 million for the three
months ended June 30, 2022 and 2021, respectively, and $15.7 million and $15.4
million for the six months ended June 30, 2022 and 2021, respectively.
The administration of trust and fiduciary accounts is monitored by the Trust
Committee of the Bank's Board of Directors. The Trust Committee has delegated
administrative responsibilities to three committees, one for investments, one
for administration, and one for operations, all of which are comprised of
Investment Management Group officers who meet no less than quarterly.
The Bank has an agreement with LPL Financial ("LPL") and its affiliates and
their insurance subsidiary, LPL Insurance Associates, Inc. , to offer the sale of
mutual fund shares, unit investment trust shares, general securities, fixed and
variable annuities and life insurance. Registered representatives who are both
employed by the Bank and licensed and contracted with LPL are onsite to offer
these products to the Bank's customer base. These same agents are also approved
and appointed with various other Broker General Agents for the purposes of
processing insurance solutions for clients. Retail investments and insurance
revenue was $1.5 million and $845,000 for the three months ended June 30, 2022
and 2021, respectively, and $2.3 million and $1.7 million for the six months
ended June 30, 2022 and 2021, respectively.
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RESULTS OF OPERATIONS
The following table provides a summary of results of operations for the three
and six months ended
Table 14 - Summary of Results of Operations
Three Months Ended June 30 Six Months Ended June 30
2022 2021 2022 2021
(Dollars in thousands, except per share data)
Net income $ 61,776 $ 37,572 $ 114,873 $ 79,283
Diluted earnings per share $ 1.32 $ 1.14 $ 2.44 $ 2.40
Return on average assets 1.24 % 1.08 % 1.15 % 1.17 %
Return on average equity 8.49 % 8.70 % 7.82 % 9.28 %
Net interest margin 3.27 % 2.99 % 3.18 % 3.12 %
Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities.
On a fully tax equivalent basis ("FTE"), net interest income for the second
quarter of 2022 was $145.8 million , representing an increase of $52.3 million ,
or 55.9%, when compared to the second quarter of 2021. For the six months ended
June 30, 2022 , the net interest income on a FTE basis was $284.2 million ,
representing an increase of $94.8 million , or 50.1%, when compared to the year
ago period. The year-over-year increases in net interest income are primarily
attributable to the impact of the Meridian acquisition which closed during the
fourth quarter of 2021, as well as the positive impact of asset repricing in the
rising rate environment and relatively stable funding costs experienced during
the first half of 2022.
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The following tables present the Company's average balances, net interest income, interest rate spread, and net interest margin for the three and six months endedJune 30, 2022 and 2021. Nontaxable income from loans and securities is presented on a FTE basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing income tax rate that would have been paid if the income had been fully taxable. Table 15 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date Three Months Ended June 30 2022 2021 Interest Interest Average Earned/ Average Earned/ Balance Paid Yield/Rate Balance Paid Yield/Rate (Dollars in thousands) Interest-earning assets Interest-earning deposits with banks, federal funds sold, and short term investments$ 1,377,286 $ 2,817 0.82 %$ 1,882,285 $ 513 0.11 % Securities Securities - trading 3,863 - - % 3,359 - - % Securities - taxable investments 2,889,245 11,281 1.57 % 1,514,336 7,184 1.90 % Securities - nontaxable investments (1) 197 3 6.11 % 555 6 4.34 % Total securities$ 2,893,305 $ 11,284 1.56 %$ 1,518,250 $ 7,190 1.90 % Loans held for sale 3,842 35 3.65 % 28,279 186 2.64 % Loans (2) Commercial and industrial (1) 1,537,883 17,496 4.56 % 1,944,026 20,351 4.20 % Commercial real estate (1) 7,827,442 76,771 3.93 % 4,196,171 41,532 3.97 % Commercial construction 1,193,353 13,456 4.52 % 514,935 4,777 3.72 % Small business 203,947 2,656 5.22 % 178,525 2,302 5.17 % Total commercial 10,762,625 110,379 4.11 % 6,833,657 68,962 4.05 % Residential real estate 1,761,986 14,879 3.39 % 1,226,520 11,058 3.62 % Home equity 1,046,933 9,178 3.52 % 1,024,798 8,591 3.36 % Total consumer real estate 2,808,919 24,057 3.44 % 2,251,318 19,649 3.50 % Other consumer 31,554 507 6.44 % 22,471 411 7.34 % Total loans$ 13,603,098 $ 134,943 3.98 %$ 9,107,446 $ 89,022 3.92 % Total interest-earning assets$ 17,877,531 $ 149,079 3.34 %$ 12,536,260 $ 96,911 3.10 % Cash and due from banks 190,501 142,198 Federal Home Loan Bank stock 6,249 9,410 Other assets 1,855,351 1,258,056 Total assets$ 19,929,632 $ 13,945,924 Interest-bearing liabilities Deposits Savings and interest checking accounts$ 6,192,761 $ 710 0.05 %$ 4,339,645 $ 384 0.04 % Money market 3,486,017 607 0.07 % 2,347,852 429 0.07 % Time deposits 1,356,507 794 0.23 % 843,090 1,204 0.57 % Total interest-bearing deposits$ 11,035,285 $ 2,111 0.08 %$ 7,530,587 $ 2,017 0.11 % Borrowings Federal Home Loan Bank borrowings$ 25,654 $ 123 1.92 %$ 35,704 $ 191 2.15 % Long-term borrowings - - - % 23,417 94 1.61 % Junior subordinated debentures 62,854 410 2.62 % 62,852 429 2.74 % Subordinated debentures 49,825 618 4.97 % 49,730 618 4.98 % 77
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