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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________________
FORM 10-Q
___________________________________________________

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

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

For the quarterly period ended September 30, 2019

Commission File Number: | 1-9047

___________________________________________________
Independent Bank Corp.
(Exact name of registrant as specified in its charter)
___________________________________________________

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

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

(781) 878-6100
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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Large Accelerated Filer | x | Accelerated Filer | ☐
Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐
|  | Emerging Growth Company | ☐

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

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

As of November 4, 2019, there were 34,373,762 shares of the issuer’s common stock outstanding, par value $0.01 per share.

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Table of Contents
| PAGE
PART I. FINANCIAL INFORMATION |
Item 1. Financial Statements (unaudited) |
Consolidated Balance Sheets - September 30, 2019 and December 31, 2018 | 5
Consolidated Statements of Income - Three and Nine months ended September 30, 2019 and 2018 | 7
Consolidated Statements of Comprehensive Income -Three and Nine months ended September 30, 2019 and 2018 | 8
Consolidated Statements of Stockholders’ Equity - Three and Nine months ended September 30, 2019 and 2018 | 9
Consolidated Statements of Cash Flows - Nine months ended September 30, 2019 and 2018 | 11
Condensed Notes to Consolidated Financial Statements - September 30, 2019 |
Note 1 - Basis of Presentation | 13
Note 2 - Recent Accounting Standards Updates | 13
Note 3 - Acquisitions | 14
Note 4 - Securities | 16
Note 5 - Loans, Allowance for Loan Losses, and Credit Quality | 21
Note 6 - Borrowings | 33
Note 7 - Earnings Per Share | 33
Note 8 - Stock Based Compensation | 34
Note 9 - Derivative and Hedging Activities | 34
Note 10 - Balance Sheet Offsetting | 39
Note 11 - Fair Value Measurements | 40
Note 12 - Revenue Recognition | 49
Note 13 - Comprehensive Income (Loss) | 52
Note 14 - Leases | 54
Note 15 - Commitments and Contingencies | 55
Note 16 - Low Income Housing Project Investments | 56
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 56
Table 1 - Closed Residential Real Estate Loans | 68
Table 2 - Residential Mortgage Loan Sales | 68
Table 3 - Mortgage Servicing Asset | 69
Table 4 - Components of Loan Growth/(Decline) | 70
Table 5 - Nonperforming Assets | 75
Table 6 - Activity in Nonperforming Assets | 75
Table 7 - Troubled Debt Restructurings | 76
Table 8 - Activity in Troubled Debt Restructurings | 76
Table 9 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings | 76
Table 10 - Summary of Changes in the Allowance for Loan Losses | 78
Table 11 - Summary of Allocation of the Allowance for Loan Losses | 79
Table 12 - Components of Deposit Growth/(Decline) | 80
Table 13 - Components of Borrowings | 81
Table 14 - Company and Bank’s Capital Amounts and Ratios | 82

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Table of Contents
Table 15 - Summary of Results of Operations | 84
Table 16 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date | 85
Table 17 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date | 87
Table 18 - Volume Rate Analysis | 89
Table 19 - Noninterest Income - Three and Nine Months Ended | 92
Table 20 - Noninterest Expense - Three and Nine Months Ended | 93
Table 21 - Tax Provision and Applicable Tax Rates | 94
Table 22 - Interest Rate Sensitivity | 96
Table 23 - Sources of Liquidity | 98

Item 3. Quantitative and Qualitative Disclosures About Market Risk | 98
Item 4. Controls and Procedures | 99
PART II. OTHER INFORMATION | 99
Item 1. Legal Proceedings | 99
Item 1A. Risk Factors | 99
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 99
Item 3. Defaults Upon Senior Securities | 99
Item 4. Mine Safety Disclosures | 99
Item 5. Other Information | 99
Item 6. Exhibits | 100
Signatures | 101
Exhibit 31.1 – Certification 302 |
Exhibit 31.2 – Certification 302 |
Exhibit 32.1 – Certification 906 |
Exhibit 32.2 – Certification 906 |

4

Table of Contents
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited—Dollars in thousands)

| September 30 2019 |  | December 31 2018
Assets
Cash and due from banks | $ | 153,000 |  |  | $ | 127,503 |
Interest-earning deposits with banks | 66,272 |  |  | 122,952 |
Securities |  |  |
Trading | 1,963 |  |  | 1,504 |
Equity | 21,021 |  |  | 19,477 |
Available for sale | 391,975 |  |  | 442,752 |
Held to maturity (fair value $792,163 and $603,640) | 777,270 |  |  | 611,490 |
Total securities | 1,192,229 |  |  | 1,075,223 |
Loans held for sale (at fair value) | 55,937 |  |  | 6,431 |
Loans |  |  |
Commercial and industrial | 1,411,516 |  |  | 1,093,629 |
Commercial real estate | 4,000,487 |  |  | 3,251,248 |
Commercial construction | 520,585 |  |  | 365,165 |
Small business | 172,038 |  |  | 164,676 |
Residential real estate | 1,644,758 |  |  | 923,294 |
Home equity - first position | 644,675 |  |  | 654,083 |
Home equity - subordinate positions | 492,434 |  |  | 438,001 |
Other consumer | 27,008 |  |  | 16,098 |
Total loans | 8,913,501 |  |  | 6,906,194 |
Less: allowance for loan losses | (66,942 | ) |  | (64,293 | )
Net loans | 8,846,559 |  |  | 6,841,901 |
Federal Home Loan Bank stock | 14,976 |  |  | 15,683 |
Bank premises and equipment, net | 125,026 |  |  | 97,581 |
Goodwill | 504,562 |  |  | 256,105 |
Other intangible assets | 31,307 |  |  | 15,250 |
Cash surrender value of life insurance policies | 195,883 |  |  | 160,456 |
Other assets | 352,888 |  |  | 132,507 |
Total assets | $ | 11,538,639 |  |  | $ | 8,851,592 |
Liabilities and Stockholders' Equity
Deposits |  |  |
Noninterest-bearing demand deposits | $ | 2,752,150 |  |  | $ | 2,450,907 |
Savings and interest checking accounts | 3,199,182 |  |  | 2,865,349 |
Money market | 1,904,643 |  |  | 1,399,761 |
Time certificates of deposit of $100,000 and over | 705,578 |  |  | 351,629 |
Other time certificates of deposits | 764,538 |  |  | 359,474 |
Total deposits | 9,326,091 |  |  | 7,427,120 |
Borrowings |  |  |
Federal Home Loan Bank borrowings | 70,708 |  |  | 147,806 |

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Long-term borrowings (less unamortized debt issuance costs of $106) | 74,894 |  |  | — |
Junior subordinated debentures (less unamortized debt issuance costs of $40 and $118) | 62,848 |  |  | 76,173 |
Subordinated debentures (less unamortized debt issuance costs of $659 and $272) | 84,341 |  |  | 34,728 |
Total borrowings | 292,791 |  |  | 258,707 |
Other liabilities | 237,433 |  |  | 92,275 |
Total liabilities | 9,856,315 |  |  | 7,778,102 |
Commitments and contingencies | — |  |  | — |
Stockholders' equity |  |  |
Preferred stock, $.01 par value, authorized: 1,000,000 shares, outstanding: none | — |  |  | — |
Common stock, $.01 par value, authorized: 75,000,000 shares, issued and outstanding: 34,366,781 shares at September 30, 2019 and 28,080,408 shares at December 31, 2018 (includes 148,596 and 153,459 shares of unvested participating restricted stock awards, respectively) | 342 |  |  | 279 |
Value of shares held in rabbi trust at cost: 144,967 shares at September 30, 2019 and 153,226 shares at December 31, 2018 | (4,713 | ) |  | (4,718 | )
Deferred compensation and other retirement benefit obligations | 4,713 |  |  | 4,718 |
Additional paid in capital | 1,033,949 |  |  | 527,648 |
Retained earnings | 621,831 |  |  | 546,736 |
Accumulated other comprehensive income (loss), net of tax | 26,202 |  |  | (1,173 | )
Total stockholders’ equity | 1,682,324 |  |  | 1,073,490 |
Total liabilities and stockholders' equity | $ | 11,538,639 |  |  | $ | 8,851,592 |

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited—Dollars in thousands, except per share data)

| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
Interest income |  |  |  |  |  |  |
Interest and fees on loans | $ | 110,205 |  |  | $ | 75,220 |  |  | $ | 306,736 |  |  | $ | 214,486 |
Taxable interest and dividends on securities | 8,269 |  |  | 6,664 |  |  | 24,255 |  |  | 19,381 |
Nontaxable interest and dividends on securities | 14 |  |  | 14 |  |  | 40 |  |  | 46 |
Interest on loans held for sale | 456 |  |  | 61 |  |  | 527 |  |  | 110 |
Interest on federal funds sold and short-term investments | 680 |  |  | 916 |  |  | 1,753 |  |  | 1,768 |
Total interest and dividend income | 119,624 |  |  | 82,875 |  |  | 333,311 |  |  | 235,791 |
Interest expense |  |  |  |  |  |  |
Interest on deposits | 11,846 |  |  | 5,251 |  |  | 30,052 |  |  | 13,773 |
Interest on borrowings | 3,180 |  |  | 1,390 |  |  | 10,117 |  |  | 4,145 |
Total interest expense | 15,026 |  |  | 6,641 |  |  | 40,169 |  |  | 17,918 |
Net interest income | 104,598 |  |  | 76,234 |  |  | 293,142 |  |  | 217,873 |
Provision for loan losses | — |  |  | 1,075 |  |  | 2,000 |  |  | 3,575 |
Net interest income after provision for loan losses | 104,598 |  |  | 75,159 |  |  | 291,142 |  |  | 214,298 |
Noninterest income |  |  |  |  |  |  |
Deposit account fees | 5,299 |  |  | 4,658 |  |  | 14,785 |  |  | 13,640 |
Interchange and ATM fees | 6,137 |  |  | 4,947 |  |  | 16,447 |  |  | 13,889 |
Investment management | 7,188 |  |  | 6,564 |  |  | 21,089 |  |  | 19,528 |
Mortgage banking income | 3,968 |  |  | 1,222 |  |  | 8,184 |  |  | 3,130 |
Gain on life insurance benefits | 434 |  |  | 1,463 |  |  | 434 |  |  | 1,463 |
Increase in cash surrender value of life insurance policies | 1,304 |  |  | 984 |  |  | 3,572 |  |  | 2,929 |
Loan level derivative income | 2,739 |  |  | 392 |  |  | 4,312 |  |  | 1,547 |
Other noninterest income | 4,747 |  |  | 3,034 |  |  | 13,174 |  |  | 8,888 |
Total noninterest income | 31,816 |  |  | 23,264 |  |  | 81,997 |  |  | 65,014 |
Noninterest expenses |  |  |  |  |  |  |
Salaries and employee benefits | 39,432 |  |  | 31,095 |  |  | 111,401 |  |  | 92,483 |
Occupancy and equipment expenses | 8,555 |  |  | 6,310 |  |  | 24,109 |  |  | 20,215 |
Data processing and facilities management | 1,515 |  |  | 1,287 |  |  | 4,883 |  |  | 3,837 |
FDIC assessment | — |  |  | 725 |  |  | 1,394 |  |  | 2,214 |
Advertising expense | 1,417 |  |  | 1,395 |  |  | 3,912 |  |  | 3,684 |
Consulting expense | 1,338 |  |  | 1,128 |  |  | 3,486 |  |  | 2,973 |
Core deposit amortization | 1,567 |  |  | 507 |  |  | 3,996 |  |  | 1,670 |
Loss on sale of securities | — |  |  | — |  |  | 1,462 |  |  | — |
Merger and acquisition expense | 705 |  |  | 2,688 |  |  | 26,433 |  |  | 3,122 |
Software maintenance | 1,385 |  |  | 1,079 |  |  | 3,913 |  |  | 3,048 |
Other noninterest expenses | 11,619 |  |  | 9,225 |  |  | 31,887 |  |  | 28,332 |
Total noninterest expenses | 67,533 |  |  | 55,439 |  |  | 216,876 |  |  | 161,578 |
Income before income taxes | 68,881 |  |  | 42,984 |  |  | 156,263 |  |  | 117,734 |
Provision for income taxes | 17,036 |  |  | 9,969 |  |  | 38,565 |  |  | 26,046 |
Net income | $ | 51,845 |  |  | $ | 33,015 |  |  | $ | 117,698 |  |  | $ | 91,688 |
Basic earnings per share | $ | 1.51 |  |  | $ | 1.20 |  |  | $ | 3.65 |  |  | $ | 3.33 |
Diluted earnings per share | $ | 1.51 |  |  | $ | 1.20 |  |  | $ | 3.64 |  |  | $ | 3.32 |
Weighted average common shares (basic) | 34,361,176 |  |  | 27,537,841 |  |  | 32,283,196 |  |  | 27,517,210 |
Common share equivalents | 39,390 |  |  | 63,499 |  |  | 45,416 |  |  | 62,596 |
Weighted average common shares (diluted) | 34,400,566 |  |  | 27,601,340 |  |  | 32,328,612 |  |  | 27,579,806 |
Cash dividends declared per common share | $ | 0.44 |  |  | $ | 0.38 |  |  | $ | 1.32 |  |  | $ | 1.14 |

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited—Dollars in thousands)

| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
Net income | $ | 51,845 |  |  | $ | 33,015 |  |  | $ | 117,698 |  |  | $ | 91,688 |
Other comprehensive income (loss), net of tax |  |  |  |  |  |  |
Net change in fair value of securities available for sale | 2,175 |  |  | (2,262 | ) |  | 12,349 |  |  | (9,654 | )
Net change in fair value of cash flow hedges | 3,030 |  |  | (405 | ) |  | 14,905 |  |  | (302 | )
Net change in other comprehensive income for defined benefit postretirement plans | 41 |  |  | 117 |  |  | 121 |  |  | 351 |
Total other comprehensive income (loss) | 5,246 |  |  | (2,550 | ) |  | 27,375 |  |  | (9,605 | )
Total comprehensive income | $ | 57,091 |  |  | $ | 30,465 |  |  | $ | 145,073 |  |  | $ | 82,083 |

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended September 30, 2019 and 2018
(Unaudited—Dollars in thousands, except per share data)

| Common Stock Outstanding |  | Common Stock |  | Value of Shares Held in Rabbi Trust at Cost |  | Deferred Compensation and Other Retirement Benefit Obligations |  | Additional Paid in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income/(Loss) |  | Total
Balance June 30, 2019 | 34,321,061 |  |  | $ | 342 |  |  | $ | (4,648 | ) |  | $ | 4,648 |  |  | $ | 1,029,594 |  |  | $ | 585,111 |  |  | $ | 20,956 |  |  | $ | 1,636,003 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 51,845 |  |  | — |  |  | 51,845 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,246 |  |  | 5,246 |
Common dividend declared ($0.44 per share) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (15,125 | ) |  | — |  |  | (15,125 | )
Stock based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 981 |  |  | — |  |  | — |  |  | 981 |
Restricted stock awards issued, net of awards surrendered | (43 | ) |  | (1 | ) |  | — |  |  | — |  |  | (3 | ) |  | — |  |  | — |  |  | (4 | )
Shares issued under direct stock purchase plan | 45,763 |  |  | 1 |  |  | — |  |  | — |  |  | 3,377 |  |  | — |  |  | — |  |  | 3,378 |
Deferred compensation and other retirement benefit obligations | — |  |  | — |  |  | (65 | ) |  | 65 |  |  | — |  |  | — |  |  | — |  |  | — |
Balance September 30, 2019 | 34,366,781 |  |  | $ | 342 |  |  | $ | (4,713 | ) |  | $ | 4,713 |  |  | $ | 1,033,949 |  |  | $ | 621,831 |  |  | $ | 26,202 |  |  | $ | 1,682,324 |
Balance June 30, 2018 | 27,532,524 |  |  | $ | 274 |  |  | $ | (4,653 | ) |  | $ | 4,653 |  |  | $ | 481,979 |  |  | $ | 504,926 |  |  | $ | (10,114 | ) |  | $ | 977,065 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 33,015 |  |  | — |  |  | 33,015 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,550 | ) |  | (2,550 | )
Common dividend declared ($0.38 per share) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (10,468 | ) |  | — |  |  | (10,468 | )
Stock based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 769 |  |  | — |  |  | — |  |  | 769 |
Restricted stock awards issued, net of awards surrendered | (43 | ) |  | — |  |  | — |  |  | — |  |  | (6 | ) |  | — |  |  | — |  |  | (6 | )
Shares issued under direct stock purchase plan | 5,923 |  |  | — |  |  | — |  |  | — |  |  | 480 |  |  | — |  |  | — |  |  | 480 |
Deferred compensation and other retirement benefit obligations | — |  |  | — |  |  | (131 | ) |  | 131 |  |  | — |  |  | — |  |  | — |  |  | — |
Balance September 30, 2018 | 27,540,843 |  |  | $ | 274 |  |  | $ | (4,784 | ) |  | $ | 4,784 |  |  | $ | 483,222 |  |  | $ | 527,473 |  |  | $ | (12,664 | ) |  | $ | 998,305 |

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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2019 and 2018
(Unaudited—Dollars in thousands, except per share data)

| Common Stock Outstanding |  | Common Stock |  | Value of Shares Held in Rabbi Trust at Cost |  | Deferred Compensation and Other Retirement Benefit Obligations |  | Additional Paid in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income/(Loss) |  | Total
Balance December 31, 2018 | 28,080,408 |  |  | $ | 279 |  |  | $ | (4,718 | ) |  | $ | 4,718 |  |  | $ | 527,648 |  |  | $ | 546,736 |  |  | $ | (1,173 | ) |  | $ | 1,073,490 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 117,698 |  |  | — |  |  | 117,698 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 27,375 |  |  | 27,375 |
Common dividend declared ($1.32 per share) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (42,603 | ) |  | — |  |  | (42,603 | )
Common stock issued for acquisition | 6,166,010 |  |  | 61 |  |  | — |  |  | — |  |  | 499,632 |  |  | — |  |  | — |  |  | 499,693 |
Proceeds from exercise of stock options, net of cash paid | 11,000 |  |  | — |  |  | — |  |  | — |  |  | 281 |  |  | — |  |  | — |  |  | 281 |
Stock based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 3,413 |  |  | — |  |  | — |  |  | 3,413 |
Restricted stock awards issued, net of awards surrendered | 50,431 |  |  | 1 |  |  | — |  |  | — |  |  | (1,436 | ) |  | — |  |  | — |  |  | (1,435 | )
Shares issued under direct stock purchase plan | 58,932 |  |  | 1 |  |  | — |  |  | — |  |  | 4,411 |  |  | — |  |  | — |  |  | 4,412 |
Deferred compensation and other retirement benefit obligations | — |  |  | — |  |  | 5 |  |  | (5 | ) |  | — |  |  | — |  |  | — |  |  | — |
Balance September 30, 2019 | 34,366,781 |  |  | $ | 342 |  |  | $ | (4,713 | ) |  | $ | 4,713 |  |  | $ | 1,033,949 |  |  | $ | 621,831 |  |  | $ | 26,202 |  |  | $ | 1,682,324 |
Balance December 31, 2017 | 27,450,190 |  |  | $ | 273 |  |  | $ | (4,590 | ) |  | $ | 4,590 |  |  | $ | 479,430 |  |  | $ | 465,937 |  |  | $ | (1,831 | ) |  | $ | 943,809 |
Opening balance reclassification (1) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 397 |  |  | (397 | ) |  | — |
Cumulative effect accounting adjustment (2) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 831 |  |  | (831 | ) |  | — |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 91,688 |  |  | — |  |  | 91,688 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (9,605 | ) |  | (9,605 | )
Common dividend declared ($1.14 per share) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (31,380 | ) |  | — |  |  | (31,380 | )
Proceeds from exercise of stock options, net of cash paid | 23,195 |  |  | — |  |  | — |  |  | — |  |  | 184 |  |  | — |  |  | — |  |  | 184 |
Stock based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 3,161 |  |  | — |  |  | — |  |  | 3,161 |
Restricted stock awards issued, net of awards surrendered | 43,174 |  |  | 1 |  |  | — |  |  | — |  |  | (1,345 | ) |  | — |  |  | — |  |  | (1,344 | )
Shares issued under direct stock purchase plan | 24,284 |  |  | — |  |  | — |  |  | — |  |  | 1,792 |  |  | — |  |  | — |  |  | 1,792 |
Deferred compensation and other retirement benefit obligations | — |  |  | — |  |  | (194 | ) |  | 194 |  |  | — |  |  | — |  |  | — |  |  | — |
Balance September 30, 2018 | 27,540,843 |  |  | $ | 274 |  |  | $ | (4,784 | ) |  | $ | 4,784 |  |  | $ | 483,222 |  |  | $ | 527,473 |  |  | $ | (12,664 | ) |  | $ | 998,305 |

(1) | Represents adjustment needed to reflect the cumulative impact on retained earnings for reclassification of the income tax effects attributable to accumulated other comprehensive income, as a result of the Tax Cuts and Jobs Act (the "Tax Act"). Pursuant to the Company's adoption of Accounting Standards Update 2018-02, the Company has elected to reclassify amounts stranded in other comprehensive income to retained earnings.

(2) | Represents adjustment needed to reflect the cumulative impact on retained earnings for the classification and measurement of investments in equity securities. Pursuant to the Company's adoption of Accounting Standards Update 2016-01, the Company's investments in equity securities will no longer be classified as available for sale, therefore the Company was required to reclassify the net unrealized gain recognized on the change in fair value of these equity securities from other comprehensive income to retained earnings.

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited—Dollars in thousands)

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

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Proceeds from the sale of other real estate owned and foreclosed assets | — |  |  | 308 |
Net cash used in investing activities | (13,942 | ) |  | (260,078 | )
Cash flows provided by (used in) financing activities |  |  |
Net increase in time deposits | 28,113 |  |  | 19,226 |
Net increase (decrease) in other deposits | (56,714 | ) |  | 227,836 |
Net repayments of short-term Federal Home Loan Bank borrowings | (177,046 | ) |  | — |
Repayments of long-term Federal Home Loan Bank borrowings | (25,000 | ) |  | (2,475 | )
Net decrease in customer repurchase agreements | — |  |  | (21,503 | )
Proceeds from line of credit, net of issuance costs | 49,980 |  |  | — |
Repayment of line of credit, net of issuance costs | (49,980 | ) |  | — |
Proceeds from long-term debt, net of issuance costs | 74,867 |  |  | — |
Repayments of junior subordinated debentures, net of issuance costs | (13,329 | ) |  | — |
Proceeds from subordinated debentures, net of issuance costs | 49,526 |  |  | — |
Net proceeds from exercise of stock options | 281 |  |  | 184 |
Restricted stock awards issued, net of awards surrendered | (1,435 | ) |  | (1,344 | )
Proceeds from shares issued under direct stock purchase plan | 4,412 |  |  | 1,792 |
Common dividends paid | (38,152 | ) |  | (29,701 | )
Net cash provided by (used in) financing activities | (154,477 | ) |  | 194,015 |
Net increase (decrease) in cash and cash equivalents | (31,183 | ) |  | 37,731 |
Cash and cash equivalents at beginning of year | 250,455 |  |  | 213,116 |
Cash and cash equivalents at end of period | $ | 219,272 |  |  | $ | 250,847 |
Supplemental schedule of noncash activities |  |  |
Net increase in capital commitments relating to low income housing project investments | $ | 15,740 |  |  | $ | 65 |
Initial recognition of operating leases upon adoption of Accounting Standards Update 2016-02 (1) | $ | 32,777 |  |  | $ | — |
Initial recognition of operating lease at commencement | $ | 7,593 |  |  | $ | — |
In conjunction with the Company's acquisitions, assets were acquired and liabilities were assumed as follows |  |  |
Common stock issued for acquisition | $ | 499,693 |  |  | $ | — |
Fair value of assets acquired, net of cash acquired | $ | 2,711,067 |  |  | $ | — |
Fair value of liabilities assumed | $ | 2,106,110 |  |  | $ | — |

(1) Represents adjustment needed to reflect the opening balance of the Company's ROU assets and lease liabilities pursuant to the adoption of Accounting Standards Update 2016-02 effective January 1, 2019. Upon adoption, the Company recognized on its balance sheet Right of Use ("ROU") assets of approximately $32.8 million, with a corresponding operating lease liability of approximately $34.1 million, with an adjustment to remove the Company's existing deferred rent liability of approximately $1.3 million.
The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
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CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907.
All material intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Results for the quarter ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or any other interim period.
For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission.
NOTE 2 - RECENT ACCOUNTING STANDARDS UPDATES
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 326 "Financial Instruments - Credit Losses" Update No. 2016-13. Update No. 2016-13 was issued in June 2016 to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company will adopt the update on January 1, 2020 and is currently assessing the impact of the adoption of this standard on the Company's consolidated financial position. To date, the Company has been assessing the key differences and gaps between its current allowance methodologies and models with those it is considering to use upon adoption. In particular, the Company has completed the development and validation of historical loss and recovery data and has identified significant key assumptions needed to translate the data into a life of loan estimate. During the fourth quarter of 2019, the Company expects to perform a full parallel run of the current expected credit loss ("CECL") model in tandem with the current incurred loss model, using September 30, 2019 balances, the results of which will allow the Company to finalize and document its CECL model and processes. In addition, the Company has also begun developing accounting policies, as well as considering the need for new internal controls relevant to the updated methodologies and models. Since the Update No. 2016-13, the FASB has issued amendments intended on improving the clarification of the amendment, FASB ASC Topic 326 "Financial Instruments - Credit Losses" Update No. 2018-19 and Update No 2019-04. The amendment in Update No. 2018-19 was issued in November 2018 and was intended to clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. The amendment in Update No. 2019-04 was issued in April 2019 and was intended to clarify stakeholders' specific issues about certain aspects of the amendments in Update No. 2016-13. Update No. 2019-05 on FASB ASC Topic 326 "Financial Instruments - Credit Losses" was also issued in May 2019. This update provides entities the option to irrevocably elect the fair value option for certain financial assets previously measured at amortized costs basis. The fair value option election does not apply to held-to-maturity debt securities. An entity that elects the fair value option should subsequently apply the guidance in Subtopics 820-10, Fair Value Measurement - Overall. The amendments in this update should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings balance in the statement of financial position as of the date that an entity early adopted the amendments in update 2016-13.
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NOTE 3 - ACQUISITIONS
Blue Hills Bancorp, Inc.
On April 1, 2019, the Company completed the acquisition of Blue Hills Bancorp, Inc., parent of Blue Hills Bank (collectively "BHB"). The transaction qualified as a tax-free reorganization for federal income tax purposes and to provide a tax-free exchange for Blue Hills Bancorp stockholders for the Company's common stock portion of consideration received. For each share of BHB common stock, stockholders had the right to receive 0.2308 shares of the Company's stock and $5.25 in cash, with cash paid in lieu of fractional shares. Total consideration of $661.3 million consisted of 6,166,010 shares of the Company's common stock issued, as well as $161.6 million in cash, inclusive of cash in lieu of fractional shares. In addition to increasing its loan and deposit base, the Company will be able to provide a deeper product set to BHB's customers, as well as benefit from increased operating synergies, improving the long-term operating and financial results of the Company.
The Company accounted for the BHB acquisition using the acquisition method pursuant to the Business Combinations Topic of the FASB ASC. Accordingly, the Company recorded merger and acquisition expenses of $26.0 million during the nine months ended September 30, 2019 related to the BHB acquisition. Additionally, the acquisition method requires the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:

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

Fair value adjustments to assets acquired and liabilities assumed are generally amortized using either an effective yield or straight-line basis over periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities.
Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:
Cash and Cash Equivalents
The fair values of cash and cash equivalents approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities.
Investments
The fair values of securities were based on quoted market prices for identical securities received from an independent, nationally-recognized, third party pricing service. Prices provided by the independent pricing service were based on recent trading activity and other observable information including, but not limited to, market interest rate curves, referenced credit spreads and estimated prepayment rates where applicable.
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Loans
The loans acquired were recorded at fair value without a carryover of the allowance for loan losses. Fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. The $23.2 million discount on the loans acquired in this transaction was due to anticipated credit loss, as well as considerations for liquidity and market interest rates. In addition, the acquired loans were reviewed to determine if any loans would be deemed purchased credit impaired ("PCI"), as determined by identifying evidence of deterioration of credit quality at the purchase date combined with an assumption that all contractually required payments will not be collected. The following is a summary of these PCI loans associated with the acquisition as of the date acquired:

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

Premises and Equipment
The fair value of the premises, including land, buildings and improvements, was determined based upon appraisals by licensed real estate appraisers. The appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised.
Core Deposit Intangible
The fair value of the core deposit intangible is derived by comparing the interest rate and servicing costs that the financial institution pays on the core deposit liability versus the current market rate for alternative sources of financing, while factoring in estimates over the remaining life and attrition rate of the deposit accounts. The intangible asset represents the stable and relatively low cost source of funds that the deposits and accompanying relationships provide the Company, when compared to alternative funding sources.
Deposits
The fair value of acquired savings and transaction deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was determined based on the present value of the contractual cash flows over the remaining period to maturity using a market interest rate.
Borrowings
The fair values of borrowings were derived based upon the present value of the principal and interest payments using a current market discount rate.
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Selected Pro Forma Results
The following summarizes the unaudited pro forma results of operations as if the Company acquired BHB on January 1, 2019 (2018 amounts represent combined results for the Company and BHB). The selected pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the period presented, nor does it indicate future results for any other interim or full-year period.

|  | Three Months Ended |  | Nine Months Ended
|  | September 30 |  | September 30
|  | 2019 |  | 2018 |  | 2019 |  | 2018
|  |  | (Dollars in thousands)
Net interest income after provision for loan losses |  | $ | 104,598 |  |  | $ | 94,804 |  |  | $ | 312,925 |  |  | $ | 271,644 |
Net income |  | $ | 51,845 |  |  | $ | 38,804 |  |  | $ | 81,907 |  |  | $ | 110,517 |

Included in the pro forma net income results for the three and nine months ended September 30, 2019 are merger-related costs of $505,000 and $57.3 million, net of tax, recognized by both the Company and BHB in the aggregate, respectively. These costs were primarily made up of severance, contract terminations due to the change in control, Employee stock ownership plan termination expenses, stock compensation and integration costs.
NOTE 4 - SECURITIES
Trading Securities
The Company had trading securities of $2.0 million and $1.5 million as of September 30, 2019 and December 31, 2018, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s nonqualified 401(k) Restoration Plan and Nonqualified Deferred Compensation Plan.
Equity Securities
The Company had equity securities of $21.0 million and $19.5 million as of September 30, 2019 and December 31, 2018, respectively. These securities consist primarily of mutual funds held in a rabbi trust and will be used for future payments associated with the Company’s supplemental executive retirement plans.
The following table represents a summary of the gains and losses that relate to equity securities for the periods indicated:

| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
Net gains (losses) recognized during the period on equity securities | $ | 211 |  |  | $ | 324 |  |  | 1,562 |  |  | (107 | )
Less: net gains recognized during the period on equity securities sold during the period | — |  |  | 4 |  |  | 6 |  |  | 8 |
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | $ | 211 |  |  | $ | 320 |  |  | 1,556 |  |  | (115 | )

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Available for Sale and Held to Maturity Securities
The following table presents a summary of the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale and securities held to maturity for the periods indicated:

| September 30, 2019 |  | December 31, 2018
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value |  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
| (Dollars in thousands)
Available for sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency securities | $ | 32,475 |  |  | $ | 827 |  |  | $ | — |  |  | $ | 33,302 |  |  | $ | 32,477 |  |  | $ | — |  |  | $ | (439 | ) |  | $ | 32,038 |
Agency mortgage-backed securities | 196,278 |  |  | 4,330 |  |  | (5 | ) |  | 200,603 |  |  | 222,491 |  |  | 1,020 |  |  | (3,406 | ) |  | 220,105 |
Agency collateralized mortgage obligations | 92,574 |  |  | 1,964 |  |  | — |  |  | 94,538 |  |  | 138,149 |  |  | 197 |  |  | (3,435 | ) |  | 134,911 |
State, county, and municipal securities | 1,713 |  |  | 23 |  |  | — |  |  | 1,736 |  |  | 1,719 |  |  | 16 |  |  | — |  |  | 1,735 |
Single issuer trust preferred securities issued by banks | 717 |  |  | 3 |  |  | — |  |  | 720 |  |  | 717 |  |  | — |  |  | (10 | ) |  | 707 |
Pooled trust preferred securities issued by banks and insurers | 1,493 |  |  | — |  |  | (387 | ) |  | 1,106 |  |  | 1,678 |  |  | — |  |  | (349 | ) |  | 1,329 |
Small business administration pooled securities | 58,360 |  |  | 1,610 |  |  | — |  |  | 59,970 |  |  | 53,317 |  |  | — |  |  | (1,390 | ) |  | 51,927 |
Total available for sale securities | $ | 383,610 |  |  | $ | 8,757 |  |  | $ | (392 | ) |  | $ | 391,975 |  |  | $ | 450,548 |  |  | $ | 1,233 |  |  | $ | (9,029 | ) |  | $ | 442,752 |
Held to maturity securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency securities | $ | 12,853 |  |  | $ | 146 |  |  | $ | — |  |  | $ | 12,999 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
U.S. Treasury securities | 1,003 |  |  | 19 |  |  | — |  |  | 1,022 |  |  | 1,004 |  |  | 11 |  |  | — |  |  | 1,015 |
Agency mortgage-backed securities | 418,350 |  |  | 8,900 |  |  | (39 | ) |  | 427,211 |  |  | 252,484 |  |  | 1,548 |  |  | (3,104 | ) |  | 250,928 |
Agency collateralized mortgage obligations | 310,352 |  |  | 5,857 |  |  | (687 | ) |  | 315,522 |  |  | 332,775 |  |  | 869 |  |  | (6,920 | ) |  | 326,724 |
Single issuer trust preferred securities issued by banks | 1,500 |  |  | — |  |  | (10 | ) |  | 1,490 |  |  | 1,500 |  |  | — |  |  | (10 | ) |  | 1,490 |
Small business administration pooled securities | 33,212 |  |  | 707 |  |  | — |  |  | 33,919 |  |  | 23,727 |  |  | 105 |  |  | (349 | ) |  | 23,483 |
Total held to maturity securities | $ | 777,270 |  |  | $ | 15,629 |  |  | $ | (736 | ) |  | $ | 792,163 |  |  | $ | 611,490 |  |  | $ | 2,533 |  |  | $ | (10,383 | ) |  | $ | 603,640 |
Total | $ | 1,160,880 |  |  | $ | 24,386 |  |  | $ | (1,128 | ) |  | $ | 1,184,138 |  |  | $ | 1,062,038 |  |  | $ | 3,766 |  |  | $ | (19,412 | ) |  | $ | 1,046,392 |

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.
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The actual maturities of certain securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of securities available for sale and securities held to maturity as of September 30, 2019 is presented below:

| Due in one year or less |  | Due after one year to five years |  | Due after five to ten years |  | Due after ten years |  | Total
| Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
| (Dollars in thousands)
Available for sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency securities | $ | 10,002 |  |  | $ | 10,003 |  |  | $ | 10,003 |  |  | $ | 10,154 |  |  | $ | 12,470 |  |  | $ | 13,145 |  |  | $ | — |  |  | $ | — |  |  | $ | 32,475 |  |  | $ | 33,302 |
Agency mortgage-backed securities | — |  |  | — |  |  | 71,277 |  |  | 72,138 |  |  | 56,084 |  |  | 58,039 |  |  | 68,917 |  |  | 70,426 |  |  | 196,278 |  |  | 200,603 |
Agency collateralized mortgage obligations | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 92,574 |  |  | 94,538 |  |  | 92,574 |  |  | 94,538 |
State, county, and municipal securities | — |  |  | — |  |  | 1,021 |  |  | 1,024 |  |  | 692 |  |  | 712 |  |  | — |  |  | — |  |  | 1,713 |  |  | 1,736 |
Single issuer trust preferred securities issued by banks | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 717 |  |  | 720 |  |  | 717 |  |  | 720 |
Pooled trust preferred securities issued by banks and insurers | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,493 |  |  | 1,106 |  |  | 1,493 |  |  | 1,106 |
Small business administration pooled securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 58,360 |  |  | 59,970 |  |  | 58,360 |  |  | 59,970 |
Total available for sale securities | $ | 10,002 |  |  | $ | 10,003 |  |  | $ | 82,301 |  |  | $ | 83,316 |  |  | $ | 69,246 |  |  | $ | 71,896 |  |  | $ | 222,061 |  |  | $ | 226,760 |  |  | $ | 383,610 |  |  | $ | 391,975 |
Held to maturity securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government agency securities | $ | — |  |  | $ | — |  |  | $ | 12,853 |  |  | $ | 12,999 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 12,853 |  |  | $ | 12,999 |
U.S. Treasury securities | — |  |  | — |  |  | 1,003 |  |  | 1,022 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,003 |  |  | 1,022 |
Agency mortgage-backed securities | — |  |  | — |  |  | 11,128 |  |  | 11,153 |  |  | 37,012 |  |  | 37,523 |  |  | 370,210 |  |  | 378,535 |  |  | 418,350 |  |  | 427,211 |
Agency collateralized mortgage obligations | — |  |  | — |  |  | 154 |  |  | 154 |  |  | — |  |  | — |  |  | 310,198 |  |  | 315,368 |  |  | 310,352 |  |  | 315,522 |
Single issuer trust preferred securities issued by banks | — |  |  | — |  |  | — |  |  | — |  |  | 1,500 |  |  | 1,490 |  |  | — |  |  | — |  |  | 1,500 |  |  | 1,490 |
Small business administration pooled securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 33,212 |  |  | 33,919 |  |  | 33,212 |  |  | 33,919 |
Total held to maturity securities | $ | — |  |  | $ | — |  |  | $ | 25,138 |  |  | $ | 25,328 |  |  | $ | 38,512 |  |  | $ | 39,013 |  |  | $ | 713,620 |  |  | $ | 727,822 |  |  | $ | 777,270 |  |  | $ | 792,163 |
Total | $ | 10,002 |  |  | $ | 10,003 |  |  | $ | 107,439 |  |  | $ | 108,644 |  |  | $ | 107,758 |  |  | $ | 110,909 |  |  | $ | 935,681 |  |  | $ | 954,582 |  |  | $ | 1,160,880 |  |  | $ | 1,184,138 |

Inclusive in the table above is $17.9 million of callable securities at September 30, 2019.
The carrying value of securities pledged to secure public funds, trust deposits, and for other purposes, as required or permitted by law, was $340.6 million and $361.1 million at September 30, 2019 and December 31, 2018, respectively.
At September 30, 2019 and December 31, 2018, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of stockholders’ equity.
Other-Than-Temporary Impairment ("OTTI")
The Company continually reviews investment securities for the existence of OTTI, taking into consideration current market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, the credit worthiness of the obligor of the security, volatility of earnings, current analysts’ evaluations, the Company’s intent to sell the security, whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.
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The following tables show the gross unrealized losses and fair value of the Company’s investments in an unrealized loss position, which the Company has not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

| September 30, 2019
|  |  | Less than 12 months |  | 12 months or longer |  | Total
| # of holdings |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
| (Dollars in thousands)
Agency mortgage-backed securities | 6 |  |  | 10,155 |  |  | (39 | ) |  | 1,054 |  |  | (5 | ) |  | 11,209 |  |  | (44 | )
Agency collateralized mortgage obligations | 17 |  |  | 35,178 |  |  | (99 | ) |  | 39,827 |  |  | (588 | ) |  | 75,005 |  |  | (687 | )
Single issuer trust preferred securities issued by banks and insurers | 1 |  |  | — |  |  | — |  |  | 1,490 |  |  | (10 | ) |  | 1,490 |  |  | (10 | )
Pooled trust preferred securities issued by banks and insurers | 1 |  |  | — |  |  | — |  |  | 1,106 |  |  | (387 | ) |  | 1,106 |  |  | (387 | )
Total temporarily impaired securities | 25 |  |  | $ | 45,333 |  |  | $ | (138 | ) |  | $ | 43,477 |  |  | $ | (990 | ) |  | $ | 88,810 |  |  | $ | (1,128 | )

| December 31, 2018
|  |  | Less than 12 months |  | 12 months or longer |  | Total
| # of holdings |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
| (Dollars in thousands)
U.S.government agency securities | 3 |  |  | $ | 9,960 |  |  | $ | (43 | ) |  | $ | 22,078 |  |  | $ | (396 | ) |  | $ | 32,038 |  |  | $ | (439 | )
Agency mortgage-backed securities | 144 |  |  | 104,616 |  |  | (1,363 | ) |  | 222,850 |  |  | (5,147 | ) |  | 327,466 |  |  | (6,510 | )
Agency collateralized mortgage obligations | 48 |  |  | 57,871 |  |  | (398 | ) |  | 279,229 |  |  | (9,957 | ) |  | 337,100 |  |  | (10,355 | )
Single issuer trust preferred securities issued by banks and insurers | 2 |  |  | 2,197 |  |  | (20 | ) |  | — |  |  | — |  |  | 2,197 |  |  | (20 | )
Pooled trust preferred securities issued by banks and insurers | 1 |  |  | — |  |  | — |  |  | 1,329 |  |  | (349 | ) |  | 1,329 |  |  | (349 | )
Small business administration pooled securities | 7 |  |  | 28,257 |  |  | (662 | ) |  | 40,621 |  |  | (1,077 | ) |  | 68,878 |  |  | (1,739 | )
Total temporarily impaired securities | 205 |  |  | $ | 202,901 |  |  | $ | (2,486 | ) |  | $ | 566,107 |  |  | $ | (16,926 | ) |  | $ | 769,008 |  |  | $ | (19,412 | )

The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis. As a result, the Company does not consider these investments to be OTTI and accordingly, there was no OTTI recorded for the three and nine months ended September 30, 2019 and 2018. There was no cumulative credit related component of OTTI as of September 30, 2019 or December 31, 2018. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.
As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category are as follows at September 30, 2019:

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

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

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

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NOTE 5 - LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
The following tables bifurcate the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis as of the periods indicated:

| September 30, 2019 |
| (Dollars in thousands) |
| Commercial and Industrial |  | Commercial Real Estate |  | Commercial Construction |  | Small Business |  | Residential Real Estate |  | Home Equity |  | Other Consumer |  | Total |
Financing receivables ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collectively evaluated for impairment | $ | 1,385,379 |  |  | $ | 3,979,670 |  |  | $ | 520,585 |  |  | $ | 171,723 |  |  | $ | 1,625,923 |  |  | $ | 1,130,777 |  |  | $ | 26,545 |  |  | $ | 8,840,602 |  |
Individually evaluated for impairment | 26,137 |  |  | 13,984 |  |  | — |  |  | 315 |  |  | 11,039 |  |  | 5,325 |  |  | 140 |  |  | 56,940 |  |
Purchased credit impaired loans | — |  |  | 6,833 |  |  | — |  |  | — |  |  | 7,796 |  |  | 1,007 |  |  | 323 |  |  | 15,959 |  |
Total loans by group | $ | 1,411,516 |  |  | $ | 4,000,487 |  |  | $ | 520,585 |  |  | $ | 172,038 |  |  | $ | 1,644,758 |  |  | $ | 1,137,109 |  |  | $ | 27,008 |  |  | $ | 8,913,501 |  | (1 | )

| December 31, 2018 |
| (Dollars in thousands) |
| Commercial and Industrial |  | Commercial Real Estate |  | Commercial Construction |  | Small Business |  | Residential Real Estate |  | Home Equity |  | Other Consumer |  | Total |
Financing receivables ending balance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collectively evaluated for impairment | $ | 1,064,800 |  |  | $ | 3,235,418 |  |  | $ | 365,165 |  |  | $ | 164,135 |  |  | $ | 906,959 |  |  | $ | 1,085,961 |  |  | $ | 15,901 |  |  | $ | 6,838,339 |  |
Individually evaluated for impairment | 28,829 |  |  | 10,839 |  |  | — |  |  | 541 |  |  | 12,706 |  |  | 5,948 |  |  | 197 |  |  | 59,060 |  |
Purchased credit impaired loans | — |  |  | 4,991 |  |  | — |  |  | — |  |  | 3,629 |  |  | 175 |  |  | — |  |  | 8,795 |  |
Total loans by group | $ | 1,093,629 |  |  | $ | 3,251,248 |  |  | $ | 365,165 |  |  | $ | 164,676 |  |  | $ | 923,294 |  |  | $ | 1,092,084 |  |  | $ | 16,098 |  |  | $ | 6,906,194 |  | (1 | )

(1) | The amount of net deferred costs on originated loans included in the ending balance was $7.2 million and $7.1 million at September 30, 2019 and December 31, 2018, respectively. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was $24.7 million and $15.2 million at September 30, 2019 and December 31, 2018, respectively.

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The following tables summarize changes in allowance for loan losses by loan category for the periods indicated:

| Three Months Ended September 30, 2019
| (Dollars in thousands)
| Commercial and Industrial |  | Commercial Real Estate |  | Commercial Construction |  | Small Business |  | Residential Real Estate |  | Home Equity |  | Other Consumer |  | Total
Allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 16,857 |  |  | $ | 32,660 |  |  | $ | 5,593 |  |  | $ | 1,768 |  |  | $ | 3,296 |  |  | $ | 5,547 |  |  | $ | 239 |  |  | $ | 65,960 |
Charge-offs | — |  |  | (82 | ) |  | — |  |  | (125 | ) |  | — |  |  | (28 | ) |  | (472 | ) |  | (707 | )
Recoveries | 1,003 |  |  | 106 |  |  | — |  |  | 61 |  |  | 140 |  |  | 194 |  |  | 185 |  |  | 1,689 |
Provision (benefit) | (528 | ) |  | (33 | ) |  | 240 |  |  | 48 |  |  | (88 | ) |  | 36 |  |  | 325 |  |  | — |
Ending balance | $ | 17,332 |  |  | $ | 32,651 |  |  | $ | 5,833 |  |  | $ | 1,752 |  |  | $ | 3,348 |  |  | $ | 5,749 |  |  | $ | 277 |  |  | $ | 66,942 |
| Three Months Ended September 30, 2018
| (Dollars in thousands)
| Commercial and Industrial |  | Commercial Real Estate |  | Commercial Construction |  | Small Business |  | Residential Real Estate |  | Home Equity |  | Other Consumer |  | Total
Allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 14,788 |  |  | $ | 32,095 |  |  | $ | 5,216 |  |  | $ | 1,709 |  |  | $ | 2,909 |  |  | $ | 5,468 |  |  | $ | 372 |  |  | $ | 62,557 |
Charge-offs | (218 | ) |  | (82 | ) |  | — |  |  | (111 | ) |  | — |  |  | (87 | ) |  | (349 | ) |  | (847 | )
Recoveries | 108 |  |  | 29 |  |  | — |  |  | 10 |  |  | 9 |  |  | 71 |  |  | 223 |  |  | 450 |
Provision (benefit) | 430 |  |  | 226 |  |  | (189 | ) |  | 160 |  |  | 153 |  |  | 102 |  |  | 193 |  |  | 1,075 |
Ending balance | $ | 15,108 |  |  | $ | 32,268 |  |  | $ | 5,027 |  |  | $ | 1,768 |  |  | $ | 3,071 |  |  | $ | 5,554 |  |  | $ | 439 |  |  | $ | 63,235 |

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| Nine Months Ended September 30, 2019
| (Dollars in thousands)
| Commercial and Industrial |  | Commercial Real Estate |  | Commercial Construction |  | Small Business |  | Residential Real Estate |  | Home Equity |  | Other Consumer |  | Total
Allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 15,760 |  |  | $ | 32,370 |  |  | $ | 5,158 |  |  | $ | 1,756 |  |  | $ | 3,219 |  |  | $ | 5,608 |  |  | $ | 422 |  |  | $ | 64,293 |
Charge-offs | — |  |  | (82 | ) |  | — |  |  | (319 | ) |  | — |  |  | (212 | ) |  | (1,125 | ) |  | (1,738 | )
Recoveries | 1,127 |  |  | 152 |  |  | — |  |  | 108 |  |  | 141 |  |  | 278 |  |  | 581 |  |  | 2,387 |
Provision (benefit) | 445 |  |  | 211 |  |  | 675 |  |  | 207 |  |  | (12 | ) |  | 75 |  |  | 399 |  |  | 2,000 |
Ending balance | $ | 17,332 |  |  | $ | 32,651 |  |  | $ | 5,833 |  |  | $ | 1,752 |  |  | $ | 3,348 |  |  | $ | 5,749 |  |  | $ | 277 |  |  | $ | 66,942 |
Ending balance: collectively evaluated for impairment | $ | 17,326 |  |  | $ | 32,610 |  |  | $ | 5,833 |  |  | $ | 1,741 |  |  | $ | 2,729 |  |  | $ | 5,594 |  |  | $ | 272 |  |  | $ | 66,105 |
Ending balance: individually evaluated for impairment | $ | 6 |  |  | $ | 41 |  |  | $ | — |  |  | $ | 11 |  |  | $ | 619 |  |  | $ | 155 |  |  | $ | 5 |  |  | $ | 837 |
| Nine Months Ended September 30, 2018
| (Dollars in thousands)
| Commercial and Industrial |  | Commercial Real Estate |  | Commercial Construction |  | Small Business |  | Residential Real Estate |  | Home Equity |  | Other Consumer |  | Total
Allowance for loan losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 13,256 |  |  | $ | 31,453 |  |  | $ | 5,698 |  |  | $ | 1,577 |  |  | $ | 2,822 |  |  | $ | 5,390 |  |  | $ | 447 |  |  | $ | 60,643 |
Charge-offs | (355 | ) |  | (82 | ) |  | — |  |  | (237 | ) |  | (148 | ) |  | (261 | ) |  | (926 | ) |  | (2,009 | )
Recoveries | 179 |  |  | 67 |  |  | — |  |  | 29 |  |  | 12 |  |  | 128 |  |  | 611 |  |  | 1,026 |
Provision (benefit) | 2,028 |  |  | 830 |  |  | (671 | ) |  | 399 |  |  | 385 |  |  | 297 |  |  | 307 |  |  | 3,575 |
Ending balance | $ | 15,108 |  |  | $ | 32,268 |  |  | $ | 5,027 |  |  | $ | 1,768 |  |  | $ | 3,071 |  |  | $ | 5,554 |  |  | $ | 439 |  |  | $ | 63,235 |
Ending balance: collectively evaluated for impairment | $ | 15,101 |  |  | $ | 32,234 |  |  | $ | 5,027 |  |  | $ | 1,767 |  |  | $ | 2,197 |  |  | $ | 5,386 |  |  | $ | 426 |  |  | $ | 62,138 |
Ending balance: individually evaluated for impairment | $ | 7 |  |  | $ | 34 |  |  | $ | — |  |  | $ | 1 |  |  | $ | 874 |  |  | $ | 168 |  |  | $ | 13 |  |  | $ | 1,097 |

For the purpose of estimating the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the above tables. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. Some of the risk characteristics unique to each loan category include:
Commercial Portfolio

• | Commercial and Industrial: Loans in this category consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to: accounts receivable, inventory, plant and equipment, or real estate, if applicable. Repayment sources consist of primarily, operating cash flow, and secondarily, liquidation of assets.

• | Commercial Real Estate: Loans in this category consist of mortgage loans to finance investment in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans are typically written with amortizing payment structures. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources consist of, primarily, cash flow from operating leases and rents and, secondarily, liquidation of assets.

• | Commercial Construction: Loans in this category consist of short-term construction loans, revolving and nonrevolving credit lines and construction/permanent loans to finance the acquisition, development and construction or rehabilitation of real property. Project types include residential 1-4 family, condominium and multi-family homes, commercial/retail, office, industrial, hotels, educational and healthcare facilities and other specific use properties. Loans may be written with nonamortizing or hybrid payment structures depending upon the type of project. Collateral values are determined based upon third party appraisals and evaluations. Loan to value ratios at origination are governed by established policy and regulatory guidelines. Repayment sources vary depending upon the type of project and may consist of sale or lease of units, operating cash flows or liquidation of other assets.

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

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

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

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

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

Credit Quality
The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this information, loans demonstrating certain payment issues or other weaknesses may be categorized as adversely risk-rated, delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring (“TDR”).
The Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point credit risk-rating system, which assigns a risk-grade to each loan obligation based on a number of quantitative and qualitative factors associated with a commercial or small business loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral, and other considerations. The risk-ratings categories are defined as follows:

• | 1- 6 Rating — Pass: Risk-rating grades “1” through “6” comprise those loans ranging from ‘Substantially Risk Free’ which indicates borrowers are of unquestioned credit standing and the pinnacle of credit quality, well established companies with a very strong financial condition, and loans fully secured by cash collateral, through ‘Acceptable Risk’, which indicates borrowers may exhibit declining earnings, strained cash flow, increasing or above average leverage and/or weakening market fundamentals that indicate below average asset quality, margins and market share. Collateral coverage is protective.

• | 7 Rating — Potential Weakness: Borrowers exhibit potential credit weaknesses or downward trends deserving management’s close attention. If not checked or corrected, these trends will weaken the Company’s asset and position. While potentially weak, currently these borrowers are marginally acceptable; no loss of principal or interest is envisioned.

• | 8 Rating — Definite Weakness Loss Unlikely: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. Loans may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.

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• | 9 Rating — Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.

• | 10 Rating — Definite Loss: Borrowers deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuation as active assets of the Company is not warranted.

The credit quality of the commercial loan portfolio is actively monitored and any changes in credit quality are reflected in risk-rating changes. Risk-ratings are assigned or reviewed for all new loans, when advancing significant additions to existing relationships (over $50,000), at least quarterly for all actively managed loans, and any time a significant event occurs, including at renewal of the loan.
The Company utilizes a comprehensive strategy for monitoring commercial credit quality. Actively managed commercial borrowers are required to provide updated financial information at least annually which is carefully evaluated for any changes in credit quality. Larger loan relationships are subject to a full annual credit review by an experienced credit analysis group, while continuous portfolio monitoring techniques are employed to evaluate changes in credit quality for smaller loan relationships. Additionally, the Company retains an independent loan review firm to evaluate the credit quality of the commercial loan portfolio. The independent loan review process achieves significant penetration into the commercial loan portfolio and reports the results of these reviews to the Audit Committee of the Board of Directors on a quarterly basis.
The following tables detail the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s commercial portfolio:

|  |  | September 30, 2019
Category | Risk Rating |  | Commercial and Industrial |  | Commercial Real Estate |  | Commercial Construction |  | Small Business |  | Total
|  |  | (Dollars in thousands)
Pass | 1 - 6 |  | $ | 1,299,386 |  |  | $ | 3,857,847 |  |  | $ | 514,521 |  |  | $ | 169,023 |  |  | $ | 5,840,777 |
Potential weakness | 7 |  | 47,727 |  |  | 89,772 |  |  | 4,235 |  |  | 1,434 |  |  | 143,168 |
Definite weakness-loss unlikely | 8 |  | 64,403 |  |  | 52,868 |  |  | 1,829 |  |  | 1,581 |  |  | 120,681 |
Partial loss probable | 9 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Definite loss | 10 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  |  | $ | 1,411,516 |  |  | $ | 4,000,487 |  |  | $ | 520,585 |  |  | $ | 172,038 |  |  | $ | 6,104,626 |

|  |  | December 31, 2018
Category | Risk Rating |  | Commercial and Industrial |  | Commercial Real Estate |  | Commercial Construction |  | Small Business |  | Total
|  |  | (Dollars in thousands)
Pass | 1 - 6 |  | $ | 1,014,370 |  |  | $ | 3,156,989 |  |  | $ | 361,884 |  |  | $ | 161,851 |  |  | $ | 4,695,094 |
Potential weakness | 7 |  | 16,860 |  |  | 56,840 |  |  | 298 |  |  | 888 |  |  | 74,886 |
Definite weakness-loss unlikely | 8 |  | 58,909 |  |  | 37,419 |  |  | 2,983 |  |  | 1,937 |  |  | 101,248 |
Partial loss probable | 9 |  | 3,490 |  |  | — |  |  | — |  |  | — |  |  | 3,490 |
Definite loss | 10 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  |  | $ | 1,093,629 |  |  | $ | 3,251,248 |  |  | $ | 365,165 |  |  | $ | 164,676 |  |  | $ | 4,874,718 |

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

| September 30 2019 |  | December 31 2018
Residential portfolio |  |  |
FICO score (re-scored)(1) | 749 |  |  | 749 |
LTV (re-valued)(2) | 60.0 | % |  | 58.6 | %
Home equity portfolio |  |  |
FICO score (re-scored)(1) | 767 |  |  | 767 |
LTV (re-valued)(2)(3) | 47.1 | % |  | 49.3 | %

(1) | The average FICO scores at September 30, 2019 are based upon rescores available from June 2019 or origination data for loans booked through September 2019. The average FICO scores at December 31, 2018 are based upon rescores available from November 2018 and origination score data for loans booked in December 2018.

(2) | The combined LTV ratios for September 30, 2019 are based upon updated automated valuations as of August 2019, when available, or the most current valuation data available. The combined LTV ratios for December 31, 2018 are based upon updated automated valuations as of November 2018, when available, and/or the most current valuation data available. The updated automated valuations provide new information on loans that may be available since the previous valuation was obtained. If no new information is available, the valuation will default to the previously obtained data or most recent appraisal.

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

Asset Quality
The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. Delinquent loans are managed by a team of collection specialists and the Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. The Company also may use discretion regarding other loans over 90 days delinquent if the loan is well secured and/or in process of collection.
The following table shows information regarding nonaccrual loans at the dates indicated:

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

(1)Included in these amounts were $26.2 million and $29.3 million of nonaccruing TDRs at September 30, 2019 and December 31, 2018, respectively.
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The following table shows information regarding foreclosed residential real estate property at the dates indicated:

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

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

| September 30, 2019 |
| 30-59 days |  | 60-89 days |  | 90 days or more |  | Total Past Due |  |  |  | Total Financing Receivables |  | Recorded Investment >90 Days and Accruing |
| Number of Loans |  | Principal Balance |  | Number of Loans |  | Principal Balance |  | Number of Loans |  | Principal Balance |  | Number of Loans |  | Principal Balance |  | Current |  |
| (Dollars in thousands) |
Loan Portfolio |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | 1 |  |  | $ | 278 |  |  | 2 |  |  | $ | 100 |  |  | 3 |  |  | $ | 39 |  |  | 6 |  |  | $ | 417 |  |  | $ | 1,411,099 |  |  | $ | 1,411,516 |  |  | $ | — |  |
Commercial real estate | 6 |  |  | 1,641 |  |  | 2 |  |  | 238 |  |  | 4 |  |  | 1,021 |  |  | 12 |  |  | 2,900 |  |  | 3,997,587 |  |  | 4,000,487 |  |  | — |  |
Commercial construction | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 520,585 |  |  | 520,585 |  |  | — |  |
Small business | 10 |  |  | 315 |  |  | 5 |  |  | 260 |  |  | 7 |  |  | 99 |  |  | 22 |  |  | 674 |  |  | 171,364 |  |  | 172,038 |  |  | — |  |
Residential real estate | 24 |  |  | 3,267 |  |  | 6 |  |  | 1,257 |  |  | 40 |  |  | 8,317 |  |  | 70 |  |  | 12,841 |  |  | 1,631,917 |  |  | 1,644,758 |  |  | 1,807 |  | (1)
Home equity | 23 |  |  | 1,974 |  |  | 8 |  |  | 982 |  |  | 36 |  |  | 3,314 |  |  | 67 |  |  | 6,270 |  |  | 1,130,839 |  |  | 1,137,109 |  |  | 511 |  | (1)
Other consumer (2) | 307 |  |  | 233 |  |  | 8 |  |  | 44 |  |  | 16 |  |  | 62 |  |  | 331 |  |  | 339 |  |  | 26,669 |  |  | 27,008 |  |  | 24 |  |
Total | 371 |  |  | $ | 7,708 |  |  | 31 |  |  | $ | 2,881 |  |  | 106 |  |  | $ | 12,852 |  |  | 508 |  |  | $ | 23,441 |  |  | $ | 8,890,060 |  |  | $ | 8,913,501 |  |  | $ | 2,342 |  |

| December 31, 2018 |
| 30-59 days |  | 60-89 days |  | 90 days or more |  | Total Past Due |  |  |  | Total Financing Receivables |  | Recorded Investment >90 Days and Accruing |
| Number of Loans |  | Principal Balance |  | Number of Loans |  | Principal Balance |  | Number of Loans |  | Principal Balance |  | Number of Loans |  | Principal Balance |  | Current |  |
| (Dollars in thousands) |
Loan Portfolio |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | — |  |  | $ | — |  |  | 4 |  |  | $ | 382 |  |  | 11 |  |  | $ | 26,311 |  |  | 15 |  |  | $ | 26,693 |  |  | $ | 1,066,936 |  |  | $ | 1,093,629 |  |  | $ | — |  |
Commercial real estate | 9 |  |  | 1,627 |  |  | — |  |  | — |  |  | 8 |  |  | 2,250 |  |  | 17 |  |  | 3,877 |  |  | 3,247,371 |  |  | 3,251,248 |  |  | — |  |
Commercial construction | 1 |  |  | 1,271 |  |  | — |  |  | — |  |  | 1 |  |  | 311 |  |  | 2 |  |  | 1,582 |  |  | 363,583 |  |  | 365,165 |  |  | — |  |
Small business | 15 |  |  | 506 |  |  | 19 |  |  | 87 |  |  | 24 |  |  | 162 |  |  | 58 |  |  | 755 |  |  | 163,921 |  |  | 164,676 |  |  | — |  |
Residential real estate | 23 |  |  | 3,486 |  |  | 6 |  |  | 521 |  |  | 25 |  |  | 4,382 |  |  | 54 |  |  | 8,389 |  |  | 914,905 |  |  | 923,294 |  |  | — |  |
Home equity | 22 |  |  | 1,331 |  |  | 12 |  |  | 855 |  |  | 29 |  |  | 2,663 |  |  | 63 |  |  | 4,849 |  |  | 1,087,235 |  |  | 1,092,084 |  |  | — |  |
Other consumer (2) | 330 |  |  | 181 |  |  | 15 |  |  | 9 |  |  | 12 |  |  | 13 |  |  | 357 |  |  | 203 |  |  | 15,895 |  |  | 16,098 |  |  | 5 |  |
Total | 400 |  |  | $ | 8,402 |  |  | 56 |  |  | $ | 1,854 |  |  | 110 |  |  | $ | 36,092 |  |  | 566 |  |  | $ | 46,348 |  |  | $ | 6,859,846 |  |  | $ | 6,906,194 |  |  | $ | 5 |  |

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

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

Troubled Debt Restructurings
In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain loans. The Bank attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure actions. Any loans that are modified are reviewed by the Bank to identify if a TDR has occurred, which is when, for economic or legal reasons related
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to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.
The following table shows the Company’s total TDRs and other pertinent information as of the dates indicated:

| September 30, 2019 |  | December 31, 2018
| (Dollars in thousands)
TDRs on accrual status | $ | 20,182 |  |  | $ | 23,849 |
TDRs on nonaccrual | 26,232 |  |  | 29,348 |
Total TDRs | $ | 46,414 |  |  | $ | 53,197 |
Amount of specific reserves included in the allowance for loan losses associated with TDRs | $ | 837 |  |  | $ | 1,079 |
Additional commitments to lend to a borrower who has been a party to a TDR | $ | 61 |  |  | $ | 982 |

The Company’s policy is to have any restructured loan which is on nonaccrual status prior to being modified remain on nonaccrual status for six months subsequent to being modified before management considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Additionally, loans classified as TDRs are adjusted to reflect the changes in value of the recorded investment in the loan, if any, resulting from the granting of a concession. For all residential loan modifications, the borrower must perform during a 90 day trial period before the modification is finalized.
The following tables show the modifications which occurred during the periods indicated and the change in the recorded investment subsequent to the modifications occurring:

| Three Months Ended |  | Nine Months Ended
| September 30, 2019 |  | September 30, 2019
| Number of Contracts |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment |  | Number of Contracts |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment
| (Dollars in thousands)
Troubled debt restructurings |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | 1 |  |  | $ | 87 |  |  | $ | 87 |  |  | 2 |  |  | $ | 184 |  |  | $ | 184 |
Commercial real estate | 1 |  |  | 133 |  |  | 133 |  |  | 2 |  |  | 283 |  |  | 283 |
Small business | 1 |  |  | 19 |  |  | 19 |  |  | 2 |  |  | 33 |  |  | 33 |
Residential real estate | 1 |  |  | 163 |  |  | 168 |  |  | 1 |  |  | 163 |  |  | 168 |
Home equity | 1 |  |  | 46 |  |  | 46 |  |  | 2 |  |  | 121 |  |  | 121 |
Total | 5 |  |  | $ | 448 |  |  | $ | 453 |  |  | 9 |  |  | $ | 784 |  |  | $ | 789 |

| Three Months Ended |  | Nine Months Ended
| September 30, 2018 |  | September 30, 2018
| Number of Contracts |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment |  | Number of Contracts |  | Pre-Modification Outstanding Recorded Investment |  | Post-Modification Outstanding Recorded Investment
| (Dollars in thousands)
Troubled debt restructurings |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial | 2 |  |  | $ | 126 |  |  | $ | 126 |  |  | 2 |  |  | $ | 126 |  |  | $ | 126 |
Commercial real estate | 1 |  |  | 205 |  |  | 205 |  |  | 2 |  |  | 650 |  |  | 650 |
Residential real estate | 3 |  |  | 503 |  |  | 523 |  |  | 4 |  |  | 652 |  |  | 672 |
Home equity | 2 |  |  | 74 |  |  | 74 |  |  | 8 |  |  | 546 |  |  | 546 |
Total | 8 |  |  | $ | 908 |  |  | $ | 928 |  |  | 16 |  |  | $ | 1,974 |  |  | $ | 1,994 |

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

| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands) |  | (Dollars in thousands)
Adjusted interest rate | $ | — |  |  | $ | — |  |  | $ | 150 |  |  | $ | — |
Combination rate and maturity | — |  |  | 237 |  |  | — |  |  | 237 |
Court ordered concession | — |  |  | 74 |  |  | 75 |  |  | 695 |
Extended maturity | 453 |  |  | 617 |  |  | 606 |  |  | 1,062 |
Total | $ | 453 |  |  | $ | 928 |  |  | $ | 831 |  |  | $ | 1,994 |

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

| September 30, 2019
| Recorded Investment |  | Unpaid Principal Balance |  | Related Allowance
| (Dollars in thousands)
With no related allowance recorded |  |  |  |  |
Commercial and industrial | $ | 25,788 |  |  | $ | 36,356 |  |  | $ | — |
Commercial real estate | 12,588 |  |  | 12,797 |  |  | — |
Small business | 225 |  |  | 235 |  |  | — |
Residential real estate | 5,009 |  |  | 5,161 |  |  | — |
Home equity | 4,373 |  |  | 4,633 |  |  | — |
Other consumer | 37 |  |  | 38 |  |  | — |
Subtotal | 48,020 |  |  | 59,220 |  |  | — |
With an allowance recorded |  |  |  |  |
Commercial and industrial | $ | 349 |  |  | $ | 350 |  |  | $ | 6 |
Commercial real estate | 1,396 |  |  | 1,396 |  |  | 41 |
Small business | 90 |  |  | 127 |  |  | 11 |
Residential real estate | 6,030 |  |  | 6,934 |  |  | 619 |
Home equity | 952 |  |  | 1,114 |  |  | 155 |
Other consumer | 103 |  |  | 114 |  |  | 5 |
Subtotal | 8,920 |  |  | 10,035 |  |  | 837 |
Total | $ | 56,940 |  |  | $ | 69,255 |  |  | $ | 837 |

| December 31, 2018
| Recorded Investment |  | Unpaid Principal Balance |  | Related Allowance
| (Dollars in thousands)
With no related allowance recorded |  |  |  |  |
Commercial and industrial | $ | 28,459 |  |  | $ | 35,913 |  |  | $ | — |
Commercial real estate | 9,552 |  |  | 9,832 |  |  | — |
Small business | 358 |  |  | 439 |  |  | — |
Residential real estate | 4,518 |  |  | 4,686 |  |  | — |
Home equity | 4,957 |  |  | 5,199 |  |  | — |
Other consumer | 56 |  |  | 56 |  |  | — |
Subtotal | 47,900 |  |  | 56,125 |  |  | — |
With an allowance recorded |  |  |  |  |
Commercial and industrial | $ | 370 |  |  | $ | 370 |  |  | $ | 7 |
Commercial real estate | 1,287 |  |  | 1,287 |  |  | 37 |
Small business | 183 |  |  | 223 |  |  | 1 |
Residential real estate | 8,188 |  |  | 9,217 |  |  | 862 |
Home equity | 991 |  |  | 1,149 |  |  | 164 |
Other consumer | 141 |  |  | 143 |  |  | 8 |
Subtotal | 11,160 |  |  | 12,389 |  |  | 1,079 |
Total | $ | 59,060 |  |  | $ | 68,514 |  |  | $ | 1,079 |

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

| Three Months Ended |  | Nine Months Ended
| September 30, 2019 |  | September 30, 2019
| Average Recorded Investment |  | Interest Income Recognized |  | Average Recorded Investment |  | Interest Income Recognized
| (Dollars in thousands)
With no related allowance recorded |  |  |  |  |  |  |
Commercial and industrial | $ | 25,694 |  |  | $ | 35 |  |  | $ | 27,937 |  |  | $ | 108 |
Commercial real estate | 12,987 |  |  | 149 |  |  | 13,261 |  |  | 478 |
Small business | 235 |  |  | 3 |  |  | 266 |  |  | 10 |
Residential real estate | 5,031 |  |  | 57 |  |  | 5,061 |  |  | 175 |
Home equity | 4,417 |  |  | 50 |  |  | 4,479 |  |  | 151 |
Other consumer | 39 |  |  | 1 |  |  | 43 |  |  | 2 |
Subtotal | 48,403 |  |  | 295 |  |  | 51,047 |  |  | 924 |
With an allowance recorded |  |  |  |  |  |  |
Commercial and industrial | $ | 353 |  |  | $ | 4 |  |  | $ | 360 |  |  | $ | 13 |
Commercial real estate | 1,402 |  |  | 20 |  |  | 1,415 |  |  | 60 |
Small business | 92 |  |  | — |  |  | 95 |  |  | 2 |
Residential real estate | 6,047 |  |  | 61 |  |  | 6,115 |  |  | 179 |
Home equity | 959 |  |  | 11 |  |  | 972 |  |  | 33 |
Other consumer | 107 |  |  | 1 |  |  | 116 |  |  | 3 |
Subtotal | 8,960 |  |  | 97 |  |  | 9,073 |  |  | 290 |
Total | $ | 57,363 |  |  | $ | 392 |  |  | $ | 60,120 |  |  | $ | 1,214 |

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| Three Months Ended |  | Nine Months Ended
| September 30, 2018 |  | September 30, 2018
| Average Recorded Investment |  | Interest Income Recognized |  | Average Recorded Investment |  | Interest Income Recognized
| (Dollars in thousands)
With no related allowance recorded |  |  |  |  |  |  |
Commercial and industrial | $ | 31,376 |  |  | $ | 28 |  |  | $ | 32,424 |  |  | $ | 89 |
Commercial real estate | 12,040 |  |  | 135 |  |  | 12,423 |  |  | 428 |
Small business | 432 |  |  | 4 |  |  | 478 |  |  | 13 |
Residential real estate | 4,798 |  |  | 56 |  |  | 4,826 |  |  | 173 |
Home equity | 5,078 |  |  | 58 |  |  | 5,185 |  |  | 168 |
Other consumer | 62 |  |  | 1 |  |  | 66 |  |  | 3 |
Subtotal | 53,786 |  |  | 282 |  |  | 55,402 |  |  | 874 |
With an allowance recorded |  |  |  |  |  |  |
Commercial and industrial | $ | 324 |  |  | $ | 4 |  |  | $ | 330 |  |  | $ | 11 |
Commercial real estate | 1,701 |  |  | 24 |  |  | 1,715 |  |  | 71 |
Small business | 148 |  |  | 3 |  |  | 154 |  |  | 8 |
Residential real estate | 8,057 |  |  | 69 |  |  | 8,194 |  |  | 207 |
Home equity | 1,453 |  |  | 14 |  |  | 1,467 |  |  | 39 |
Other consumer | 187 |  |  | 1 |  |  | 194 |  |  | 4 |
Subtotal | 11,870 |  |  | 115 |  |  | 12,054 |  |  | 340 |
Total | $ | 65,656 |  |  | $ | 397 |  |  | $ | 67,456 |  |  | $ | 1,214 |

Purchased Credit Impaired Loans
Certain loans acquired by the Company may have shown evidence of deterioration of credit quality since origination and it was therefore deemed unlikely that the Company would be able to collect all contractually required payments. As such, these loans were deemed to be PCI loans and the carrying value and prospective income recognition are predicated upon future cash flows expected to be collected. The following table displays certain information pertaining to PCI loans at the dates indicated:

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

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

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

(1) Represents changes in cash flows expected to be collected and resulting in increased interest income as a prospective yield adjustment over the remaining life of the loan(s).
(2) Results in increased interest income during the period in which the loan paid off at amount greater than originally expected.
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NOTE 6 - BORROWINGS
On March 14, 2019, the Company issued $50.0 million of fixed to floating rate subordinated notes in a private placement transaction to institutional accredited investors. The subordinated debentures mature on March 15, 2029. However with regulatory approval, the Company may redeem the subordinated debt without penalty at any scheduled payment date on or after March 15, 2024 with 30 days notice. The subordinated notes carry interest at a fixed rate of 4.75% through March 15, 2024, after which it converts to a variable rate.
On March 28, 2019, the Company entered into a credit facility for an aggregate principal amount of $125.0 million, including a $50.0 million senior unsecured revolving loan credit facility and a $75.0 million senior unsecured term loan credit facility. Advances under the revolving loan facility and term loan facility bear interest at an interest rate equal to the one-month London Inter-Bank Offered Rate ("LIBOR") rate plus 1.15% for the revolving loan facility and one-month LIBOR plus 1.25% for the term loan facility, which is due and payable in full on March 28, 2022.
The Company used the proceeds of these borrowings for funding needs related to the second quarter closing of BHB. During the second quarter of 2019, the Company repaid in full the entire $50.0 million amount of the senior unsecured revolving loan.
NOTE 7 -EARNINGS PER SHARE
Earnings per share consisted of the following components for the periods indicated:

| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands, except per share data)
Net income | $ | 51,845 |  |  | $ | 33,015 |  |  | $ | 117,698 |  |  | $ | 91,688 |
Weighted Average Shares |  |  |
Basic shares | 34,361,176 |  |  | 27,537,841 |  |  | 32,283,196 |  |  | 27,517,210 |
Effect of dilutive securities | 39,390 |  |  | 63,499 |  |  | 45,416 |  |  | 62,596 |
Diluted shares | 34,400,566 |  |  | 27,601,340 |  |  | 32,328,612 |  |  | 27,579,806 |
Net income per share |  |  |  |  |  |  |
Basic EPS | $ | 1.51 |  |  | $ | 1.20 |  |  | $ | 3.65 |  |  | $ | 3.33 |
Effect of dilutive securities | — |  |  | — |  |  | (0.01 | ) |  | (0.01 | )
Diluted EPS | $ | 1.51 |  |  | $ | 1.20 |  |  | $ | 3.64 |  |  | $ | 3.32 |

During the three months ended September 30, 2019 there were 5,000 options to purchase common stock and no shares of performance-based restricted stock that were excluded from the calculation of diluted earnings per share because they were anti-dilutive. There were no such options or shares of performance-based restricted stock that were anti-dilutive during the three months ended September 30, 2018 or during the nine months ended September 30, 2019 and 2018.
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NOTE 8 - STOCK BASED COMPENSATION
Time Vested Restricted Stock Awards
During the nine months ended September 30, 2019, the Company made the following awards of restricted stock:

Date |  | Shares Granted |  | Plan |  | Grant Date Fair Value Per Share |  | Vesting Period
2/21/2019 |  | 43,250 |  |  | 2005 Employee Stock Plan |  | $ | 83.87 |  |  | Ratably over 5 years from grant date
3/15/2019 |  | 600 |  |  | 2005 Employee Stock Plan |  | $ | 79.55 |  |  | Ratably over 5 years from grant date
4/1/2019 |  | 1,090 |  |  | 2005 Employee Stock Plan |  | $ | 82.62 |  |  | Ratably over 3 years from grant date
5/21/2019 |  | 6,500 |  |  | 2018 Non-Employee Director Stock Plan |  | $ | 77.08 |  |  | Shares vested immediately

The fair value of the restricted stock awards is based upon the average of the high and low price at which the Company’s common stock traded on the date of grant. The holders of restricted stock awards are entitled to receive dividends and to vote from and as of the date of grant.
Performance-Based Restricted Stock Awards
On February 21, 2019, the Company granted 15,900 performance-based restricted stock awards to certain executive level employees. These performance-based restricted stock awards were issued from the 2005 Employee Stock Plan and were determined to have a grant date fair value per share of $83.87, determined by the average of the high and low price at which the Company's common stock traded on the date of grant. The number of shares to be vested is contingent upon the Company's attainment of certain performance measures outlined in the award agreement and will be measured as of the end of the three year performance period, January 1, 2019 through December 31, 2021. The awards will vest upon the earlier of the date on which it is determined if the performance goal is achieved subsequent to the performance period or March 31, 2022. These awards are accounted for as equity awards due to the nature of these awards and the fact that these shares will not be settled in cash.
The holders of these awards are not entitled to receive dividends or vote until the shares are vested.
On February 26, 2019, the performance-based restricted stock awards that were awarded on February 11, 2016 vested at 100% of the maximum target shares awarded, or 17,947 shares.
Stock Options
The Company did not grant any awards of options to purchase shares of common stock during the nine months ended September 30, 2019.
NOTE 9 - DERIVATIVE AND HEDGING ACTIVITIES
The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, the Company enters into interest rate derivatives and foreign exchange contracts to accommodate the business requirements of its customers (“customer related positions”). The Company minimizes the market and liquidity risks of customer related positions by entering into similar offsetting positions with broker-dealers. Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship.
The Company does not enter into proprietary trading positions for any derivatives.
Interest Rate Positions
The Company may utilize various interest rate derivatives as hedging instruments against interest rate risk associated with the Company’s borrowings and loan portfolios. An interest rate derivative is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged.
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The following tables reflect the Company's derivative positions for the periods indicated below for interest rate derivatives which qualify as cash flow hedges for accounting purposes:

September 30, 2019
|  |  |  |  |  | Weighted Average Rate |  |
|  | Notional Amount |  | Average Maturity |  | Current Rate Received |  | Pay Fixed Swap Rate |  | Fair Value
|  | (in thousands) |  | (in years) |  |  |  |  |  | (in thousands)
Interest rate swaps on borrowings |  | $ | 75,000 |  |  | 2.43 |  | 2.12 | % |  | 1.53 | % |  | $ | 5 |
|  |  |  |  |  | Current Rate Paid |  | Receive Fixed Swap Rate |  |
Interest rate swaps on loans |  | 400,000 |  |  | 3.76 |  | 2.03 | % |  | 2.47 | % |  | 16,389 |
|  |  |  |  |  | Current Rate Paid |  | Receive Fixed Swap Rate Cap - Floor |  |
Interest rate collars on loans |  | 350,000 |  |  | 3.74 |  | 2.03 | % |  | 2.87% - 2.32% |  |  | 12,913 |
Total |  | $ | 825,000 |  |  |  |  |  |  |  |  | $ | 29,307 |
December 31, 2018
|  |  |  |  |  | Weighted Average Rate |  |
|  | Notional Amount |  | Average Maturity |  | Current Rate Received |  | Pay Fixed Swap Rate |  | Fair Value
|  | (in thousands) |  | (in years) |  |  |  |  |  | (in thousands)
Interest rate swaps on borrowings |  | $ | 75,000 |  |  | 3.18 |  | 2.74 | % |  | 1.53 | % |  | $ | 2,282 |
|  |  |  |  |  | Current Rate Paid |  | Receive Fixed Swap Rate |  |
Interest rate swaps on loans |  | 250,000 |  |  | 4.52 |  | 2.57 | % |  | 2.67 | % |  | 2,938 |
|  |  |  |  |  | Current Rate Paid |  | Receive Fixed Swap Rate Cap - Floor |  |
Interest rate collars on loans |  | 250,000 |  |  | 4.17 |  | 2.47 | % |  | 3.02% - 2.51% |  |  | 3,344 |
Total |  | $ | 575,000 |  |  |  |  |  |  |  |  | $ | 8,564 |

The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 4.6 years.
For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $5.8 million (pre-tax) to be reclassified to interest income and $201,000 (pre-tax) to be reclassified as an offset to interest expense, from OCI related to the Company’s cash flow hedges in the next twelve months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of September 30, 2019.
The Company recognized $61,000 and $183,000 of net amortization income that was an offset to interest expense related to previously terminated swaps for the three and nine month periods ended September 30, 2018, respectively. The Company did not recognize any amortization income related to previously terminated swaps for the three and nine month periods ended September 30, 2019.
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The Company had no fair value hedges as of September 30, 2019 or December 31, 2018.
Customer Related Positions
Loan level derivatives, primarily interest rate swaps, offered to commercial borrowers through the Company’s loan level derivative program do not qualify as hedges for accounting purposes. The Company believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an offsetting dealer transaction. The commercial customer derivative program allows the Company to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. The amounts relating to the notional principal amount are not actually exchanged.
Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes. The Company acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions.
The following tables reflect the Company’s customer related derivative positions for the periods indicated below for those derivatives not designated as hedging:

|  |  | Notional Amount Maturing |  |
| Number of Positions (1) |  | Less than 1 year |  | Less than 2 years |  | Less than 3 years |  | Less than 4 years |  | Thereafter |  | Total |  | Fair Value
| September 30, 2019
| (Dollars in thousands)
Loan level swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Receive fixed, pay variable | 305 |  |  | $ | 74,074 |  |  | $ | 225,274 |  |  | $ | 43,837 |  |  | $ | 200,589 |  |  | $ | 1,064,509 |  |  | $ | 1,608,283 |  |  | $ | 71,302 |
Pay fixed, receive variable | 296 |  |  | $ | 74,074 |  |  | $ | 225,274 |  |  | $ | 43,837 |  |  | $ | 200,589 |  |  | $ | 1,064,509 |  |  | $ | 1,608,283 |  |  | $ | (71,292 | )
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Buys foreign currency, sells U.S. currency | 41 |  |  | $ | 82,118 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 82,118 |  |  | $ | (3,305 | )
Buys U.S. currency, sells foreign currency | 41 |  |  | $ | 82,118 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 82,118 |  |  | $ | 3,345 |
| December 31, 2018
| (Dollars in thousands)
Loan level swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Receive fixed, pay variable | 235 |  |  | $ | 50,702 |  |  | $ | 124,222 |  |  | $ | 97,904 |  |  | $ | 47,308 |  |  | $ | 631,471 |  |  | $ | 951,607 |  |  | $ | (2,907 | )
Pay fixed, receive variable | 220 |  |  | $ | 50,702 |  |  | $ | 124,222 |  |  | $ | 97,904 |  |  | $ | 47,308 |  |  | $ | 631,471 |  |  | $ | 951,607 |  |  | $ | 2,903 |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Buys foreign currency, sells U.S. currency | 27 |  |  | $ | 60,297 |  |  | $ | 3,505 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 63,802 |  |  | $ | (1,404 | )
Buys U.S. currency, sells foreign currency | 27 |  |  | $ | 60,297 |  |  | $ | 3,505 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 63,802 |  |  | $ | 1,434 |

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

Mortgage Derivatives
The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that loans will likely be sold subsequently in the secondary market. Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. These commitments are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with changes in their fair values recorded within mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The fair value of loans held for sale increased by $272,000 and $103,000 for the three month periods ended September 30, 2019 and 2018, respectively. The fair value associated
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with loans held for sale increased by $1.2 million and $147,000 for the nine months ended September 30, 2019 and 2018, respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives.
Outstanding loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might change from inception of the rate lock to funding of the loan due to changes in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases. To protect against the price risk inherent in derivative loan commitments, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Mandatory delivery contracts are accounted for as derivative instruments. Included in the mandatory delivery forward commitments are To Be Announced securities (“TBAs”). Certain assumptions, including pull through rates and rate lock periods, are used in managing the existing and future hedges. The accuracy of underlying assumptions will impact the ultimate effectiveness of any hedging strategies.
With mandatory delivery contracts, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor/counterparty to compensate the investor for the shortfall. Generally the Company makes this type of commitment once mortgage loans have been funded and are held for sale, in order to minimize the risk of failure to deliver the requisite volume of loans to the investor and paying pair-off fees as a result. The Company also sells TBA securities to offset potential changes in the fair value of derivative loan commitments. Generally the Company sells TBA securities upon entering derivative loan commitments for settlement in 30 to 90 days. The Company expects that mandatory delivery contracts, including TBA securities, will experience changes in fair value opposite to the changes in the fair value of derivative loan commitments.
With best effort contracts, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally best efforts cash contracts have no pair off risk regardless of market movement. The price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these best efforts forward loan sale commitments will experience a net neutral shift in fair value with related derivative loan commitments.
The aggregate amount of net realized gains or losses on sales of such loans included within mortgage banking income was $5.5 million and $1.1 million for the three month periods ended September 30, 2019 and 2018, respectively, and $9.5 million and $2.6 million for the nine months ended September 30, 2019 and 2018, respectively.
The table below presents the fair value of the Company’s derivative financial instruments, as well as their classification on the balance sheet at the periods indicated:

| Asset Derivatives |  | Liability Derivatives
|  |  | Fair Value at |  | Fair Value at |  |  |  | Fair Value at |  | Fair Value at
| Balance Sheet Location |  | September 30 2019 |  | December 31 2018 |  | Balance Sheet Location |  | September 30 2019 |  | December 31 2018
| (Dollars in thousands)
Derivatives designated as hedges |  |  |  |  |  |  |  |  |  |  |
Interest rate derivatives | Other assets |  | $ | 29,551 |  |  | $ | 8,955 |  |  | Other liabilities |  | $ | 244 |  |  | $ | 391 |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |  |  |
Customer Related Positions |  |  |  |  |  |  |  |  |  |  |
Loan level derivatives | Other assets |  | $ | 71,554 |  |  | $ | 15,580 |  |  | Other liabilities |  | $ | 71,544 |  |  | $ | 15,584 |
Foreign exchange contracts | Other assets |  | 3,345 |  |  | 1,578 |  |  | Other liabilities |  | 3,305 |  |  | 1,548 |
Mortgage Derivatives |  |  |  |  |  |  |  |  |  |  |
Interest rate lock commitments | Other assets |  | 2,133 |  |  | 91 |  |  | Other liabilities |  | — |  |  | — |
Forward sale loan commitments | Other assets |  | — |  |  | 106 |  |  | Other liabilities |  | 41 |  |  | — |
Forward sale hedge commitments | Other assets |  | 18 |  |  | — |  |  | Other liabilities |  | — |  |  | — |
|  |  | $ | 77,050 |  |  | $ | 17,355 |  |  |  |  | $ | 74,890 |  |  | $ | 17,132 |
Total |  |  | $ | 106,601 |  |  | $ | 26,310 |  |  |  |  | $ | 75,134 |  |  | $ | 17,523 |

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

| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands)
Derivatives designated as hedges |  |  |  |  |  |  |
Gain (loss) in OCI on derivatives (effective portion), net of tax | $ | 3,030 |  |  | $ | (405 | ) |  | $ | 14,905 |  |  | $ | (302 | )
Gain reclassified from OCI into interest income or interest expense (effective portion) | $ | 352 |  |  | $ | 268 |  |  | $ | 1,170 |  |  | $ | 525 |
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing) |  |  |  |  |  |  |
Interest expense | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Other expense | — |  |  | — |  |  | — |  |  | — |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Derivatives not designated as hedges |  |  |  |  |  |  |
Changes in fair value of customer related positions |  |  |  |  |  |  |
Other income | $ | 10 |  |  | $ | 3 |  |  | $ | 37 |  |  | $ | 27 |
Other expense | (2 | ) |  | (10 | ) |  | (13 | ) |  | (28 | )
Changes in fair value of mortgage derivatives |  |  |  |  |  |  |
Mortgage banking income | 366 |  |  | (139 | ) |  | 1,913 |  |  | 14 |
Total | $ | 374 |  |  | $ | (146 | ) |  | $ | 1,937 |  |  | $ | 13 |

The Company's derivative agreements with institutional counterparties contain various credit-risk related contingent provisions, such as requiring the Company to maintain a well-capitalized capital position. If the Company fails to meet these conditions, the counterparties could request the Company make immediate payment or demand that the Company provide immediate and ongoing full collateralization on derivative positions in net liability positions. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position was $42.2 million and $176,000 at September 30, 2019 and December 31, 2018, respectively. Although none of the contingency provisions have applied as of September 30, 2019 and December 31, 2018, the Company has posted collateral to offset the net liability exposures with institutional counterparties.
By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company's credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. Institutional counterparties must have an investment grade credit rating and be approved by the Company's Board of Directors. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. The Company's exposure relating to institutional counterparties was $30.0 million and $18.4 million at September 30, 2019 and December 31, 2018, respectively. The Company’s exposure relating to customer counterparties was approximately $71.7 million and $6.4 million at September 30, 2019 and December 31, 2018, respectively. Credit exposure may be reduced by the value of collateral pledged by the counterparty.
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NOTE 10 - BALANCE SHEET OFFSETTING
The Company does not offset fair value amounts recognized for derivative instruments. The Company does net the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be maintained at dealer banks by the Company is monitored and adjusted as necessary.
The following tables present the Company's asset and liability derivative positions and the potential effect of netting arrangements on its financial position, as of the periods indicated:

|  |  |  | Gross Amounts Not Offset in the Statement of Financial Position |
| Gross Amounts Recognized in the Statement of Financial Position | Gross Amounts Offset in the Statement of Financial Position | Net Amounts Presented in the Statement of Financial Position | Financial Instruments (1) | Collateral Pledged (Received) | Net Amount
| September 30, 2019
| (Dollars in thousands)
Derivative Assets |
Interest rate swaps | $ | 29,551 |  | $ | — |  | $ | 29,551 |  | $ | 29,551 |  | $ | — |  | $ | — |
Loan level derivatives | 71,554 |  | — |  | 71,554 |  | 126 |  | — |  | 71,428 |
Customer foreign exchange contracts | 3,345 |  | — |  | 3,345 |  | — |  | — |  | 3,345 |
| $ | 104,450 |  | $ | — |  | $ | 104,450 |  | $ | 29,677 |  | $ | — |  | $ | 74,773 |
Derivative Liabilities |
Interest rate swaps | $ | 244 |  | $ | — |  | $ | 244 |  | $ | — |  | $ | 244 |  | $ | — |
Loan level derivatives | 71,544 |  | — |  | 71,544 |  | 29,677 |  | 41,192 |  | 675 |
Customer foreign exchange contracts | 3,305 |  | — |  | 3,305 |  | — |  | — |  | 3,305 |
| $ | 75,093 |  | $ | — |  | $ | 75,093 |  | $ | 29,677 |  | $ | 41,436 |  | $ | 3,980 |

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

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|  |  |  | Gross Amounts Not Offset in the Statement of Financial Position |
| Gross Amounts Recognized in the Statement of Financial Position | Gross Amounts Offset in the Statement of Financial Position | Net Amounts Presented in the Statement of Financial Position | Financial Instruments (1) | Collateral Pledged (Received) | Net Amount
| December 31, 2018
| (Dollars in thousands)
Derivative Assets |
Interest rate swaps | $ | 8,955 |  | $ | — |  | $ | 8,955 |  | $ | 391 |  | $ | (5,527 | ) | $ | 3,037 |
Loan level derivatives | 15,580 |  | — |  | 15,580 |  | 6,165 |  | (3,001 | ) | 6,414 |
Customer foreign exchange contracts | 1,578 |  | — |  | 1,578 |  | — |  | — |  | 1,578 |
| $ | 26,113 |  | $ | — |  | $ | 26,113 |  | $ | 6,556 |  | $ | (8,528 | ) | $ | 11,029 |
Derivative Liabilities |
Interest rate swaps | $ | 391 |  | $ | — |  | $ | 391 |  | $ | 391 |  | $ | — |  | $ | — |
Loan level derivatives | 15,584 |  | — |  | 15,584 |  | 6,165 |  | 173 |  | 9,246 |
Customer foreign exchange contracts | 1,548 |  | — |  | 1,548 |  | — |  | — |  | 1,548 |
| $ | 17,523 |  | $ | — |  | $ | 17,523 |  | $ | 6,556 |  | $ | 173 |  | $ | 10,794 |

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

NOTE 11 - FAIR VALUE MEASUREMENTS
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the assumptions applied by the Company when determining fair value reflect those that the Company determines market participants would use to price the asset or liability at the measurement date. If there has been a significant decrease in the volume and level of activity for the asset or liability, regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received if the asset were to be sold or that would be or paid if the liability were to be transferred in an orderly market transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. When determining fair value, the Company considers pricing information and other inputs that are current as of the measurement date. In periods of market dislocation, the observability of prices and other inputs may be reduced for certain instruments, or not available at all. The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another.
The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
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Valuation Techniques
There have been no changes in the valuation techniques used during the current period.
Securities
Trading and Equity Securities
These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
U.S. Government Agency Securities
Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.
Agency Mortgage-Backed Securities
Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.
Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities
The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
State, County, and Municipal Securities
The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transactions, and yield relationships. These securities are categorized as Level 2.
Single and Pooled Issuer Trust Preferred Securities
The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Loans Held for Sale
The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2.
Derivative Instruments
Derivatives
The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Additionally, in conjunction with fair value measurement guidance, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate derivatives may also utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of September 30, 2019 and December 31, 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are properly classified as Level 2.
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Mortgage Derivatives
The fair value of mortgage derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified as Level 2 within the fair value hierarchy.
Impaired Loans
Collateral dependent loans that are deemed to be impaired are valued based upon the lower of cost or fair value of the underlying collateral less costs to sell. The inputs used in the appraisals of the collateral are not always observable, and in such cases the loans may be classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.
Other Real Estate Owned and Other Foreclosed Assets
Other Real Estate Owned ("OREO") and Other Foreclosed Assets are valued at the lower of cost or fair value of the property, less estimated costs to sell. The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property. Certain inputs used in appraisals are not always observable, and therefore OREO and Other Foreclosed Assets may be classified as Level 3 within the fair value hierarchy.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are subject to impairment testing. The Company conducts an annual impairment test of goodwill in the third quarter of each year, or more frequently if necessary. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. To estimate the fair value of goodwill and, if necessary, other intangible assets, the Company utilizes both a comparable analysis of relevant price multiples in recent market transactions and a discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.
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Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated:

|  |  | Fair Value Measurements at Reporting Date Using
| Balance |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| September 30, 2019
| (Dollars in thousands)
Recurring fair value measurements |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Trading securities | $ | 1,963 |  |  | $ | 1,963 |  |  | $ | — |  |  | $ | — |
Equity securities | 21,021 |  |  | 21,021 |  |  | — |  |  | — |
Securities available for sale |  |  |  |  |  |  |
U.S. Government agency securities | 33,302 |  |  | — |  |  | 33,302 |  |  | — |
Agency mortgage-backed securities | 200,603 |  |  | — |  |  | 200,603 |  |  | — |
Agency collateralized mortgage obligations | 94,538 |  |  | — |  |  | 94,538 |  |  | — |
State, county, and municipal securities | 1,736 |  |  | — |  |  | 1,736 |  |  | — |
Single issuer trust preferred securities issued by banks and insurers | 720 |  |  | — |  |  | 720 |  |  | — |
Pooled trust preferred securities issued by banks and insurers | 1,106 |  |  | — |  |  | — |  |  | 1,106 |
Small business administration pooled securities | 59,970 |  |  | — |  |  | 59,970 |  |  | — |
Loans held for sale | 55,937 |  |  | — |  |  | 55,937 |  |  | — |
Derivative instruments | 106,601 |  |  | — |  |  | 106,601 |  |  | — |
Liabilities |  |  |  |  |  |  |
Derivative instruments | 75,134 |  |  | — |  |  | 75,134 |  |  | — |
Total recurring fair value measurements | $ | 502,363 |  |  | $ | 22,984 |  |  | $ | 478,273 |  |  | $ | 1,106 |
Nonrecurring fair value measurements |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Collateral dependent impaired loans | $ | 32,645 |  |  | $ | — |  |  | $ | — |  |  | $ | 32,645 |
Other real estate owned and other foreclosed assets | 2,500 |  |  | — |  |  | — |  |  | 2,500 |
Total nonrecurring fair value measurements | $ | 35,145 |  |  | $ | — |  |  | $ | — |  |  | $ | 35,145 |

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|  |  | Fair Value Measurements at Reporting Date Using
| Balance |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| December 31, 2018
| (Dollars in thousands)
Recurring fair value measurements |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Trading securities | $ | 1,504 |  |  | $ | 1,504 |  |  | $ | — |  |  | $ | — |
Equity securities | 19,477 |  |  | 19,477 |  |  | — |  |  | — |
Securities available for sale |  |  |  |  |  |  |
U.S. Government agency securities | 32,038 |  |  | — |  |  | 32,038 |  |  | — |
Agency mortgage-backed securities | 220,105 |  |  | — |  |  | 220,105 |  |  | — |
Agency collateralized mortgage obligations | 134,911 |  |  | — |  |  | 134,911 |  |  | — |
State, county, and municipal securities | 1,735 |  |  | — |  |  | 1,735 |  |  | — |
Single issuer trust preferred securities issued by banks and insurers | 707 |  |  | — |  |  | 707 |  |  | — |
Pooled trust preferred securities issued by banks and insurers | 1,329 |  |  | — |  |  | — |  |  | 1,329 |
Small business administration pooled securities | 51,927 |  |  | — |  |  | 51,927 |  |  | — |
Loans held for sale | 6,431 |  |  | — |  |  | 6,431 |  |  | — |
Derivative instruments | 26,310 |  |  | — |  |  | 26,310 |  |  | — |
Liabilities |  |  |  |  |  |  |
Derivative instruments | 17,523 |  |  | — |  |  | 17,523 |  |  | — |
Total recurring fair value measurements | $ | 478,951 |  |  | $ | 20,981 |  |  | $ | 456,641 |  |  | $ | 1,329 |
Nonrecurring fair value measurements: |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |
Collateral dependent impaired loans | $ | 29,109 |  |  | $ | — |  |  | $ | — |  |  | $ | 29,109 |
Total nonrecurring fair value measurements | $ | 29,109 |  |  | $ | — |  |  | $ | — |  |  | $ | 29,109 |

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The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), which were valued using pricing models and discounted cash flow methodologies, as of the dates indicated:

| Three Months Ended
| September 30
| 2019 |  | 2018
| (Dollars in thousands)
Pooled Trust Preferred Securities |  |  |
Beginning balance | $ | 1,281 |  |  | $ | 1,751 |
Gains and (losses) (realized/unrealized) |  |  |
Included in other comprehensive income | (14 | ) |  | 55 |
Settlements | (161 | ) |  | (6 | )
Ending balance | $ | 1,106 |  |  | $ | 1,800 |
| Nine Months Ended
| September 30
| 2019 |  | 2018
| (Dollars in thousands)
Pooled Trust Preferred Securities |  |  |
Beginning balance | $ | 1,329 |  |  | $ | 1,640 |
Gains and (losses) (realized/unrealized) |  |  |
Included in other comprehensive income | (38 | ) |  | 180 |
Settlements | (185 | ) |  | (20 | )
Ending balance | $ | 1,106 |  |  | $ | 1,800 |

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

|  | September 30 2019 |  | December 31 2018 |  |  |  | September 30 2019 |  | December 31 2018 |  | September 30 2019 |  | December 31 2018
Valuation Technique |  | Fair Value |  | Unobservable Inputs |  | Range |  | Weighted Average
|  | (Dollars in thousands) |  |
Discounted cash flow methodology |  |  |  |  |  |  |  |  |  |
Pooled trust preferred securities |  | $ | 1,106 |  |  | $ | 1,329 |  |  | Cumulative prepayment |  | 0% - 58% |  | 0% - 59% |  | 2.7% |  | 2.1%
|  |  |  |  |  | Cumulative default |  | 2% - 100% |  | 5% - 100% |  | 13.6% |  | 16.2%
|  |  |  |  |  | Loss given default |  | 85% - 100% |  | 85% - 100% |  | 92.6% |  | 94.8%
|  |  |  |  |  | Cure given default |  | 0% - 75% |  | 0% - 75% |  | 60.9% |  | 60.9%
Appraisals of collateral(1) |  |  |  |  |  |  |  |  |  |
Collateral dependent impaired loans |  | $ | 32,645 |  |  | $ | 29,109 |  |  |  |  |  |  |  |  |  |  |

(1) | Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable. Appraisals may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary.

The significant unobservable inputs used in the fair value measurement of the Company’s pooled trust preferred securities are cumulative prepayment rates, cumulative default rates, loss given default rates and cure given default rates. Significant increases (decreases) in deferrals or defaults, in isolation, would result in a significantly lower (higher) fair value measurement. Alternatively, significant increases (decreases) in cure rates, in isolation, would result in a significantly higher (lower) fair value measurement.
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The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the periods indicated:

|  |  |  |  | Fair Value Measurements at Reporting Date Using
| Carrying Value |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| September 30, 2019
| (Dollars in thousands)
Financial assets |  |  |
Securities held to maturity(a) |  |  |  |  |  |  |  |  |
U.S. government agency securities | $ | 12,853 |  |  | $ | 12,999 |  |  | $ | — |  |  | $ | 12,999 |  |  | $ | — |
U.S. Treasury securities | 1,003 |  |  | 1,022 |  |  | — |  |  | 1,022 |  |  | — |
Agency mortgage-backed securities | 418,350 |  |  | 427,211 |  |  | — |  |  | 427,211 |  |  | — |
Agency collateralized mortgage obligations | 310,352 |  |  | 315,522 |  |  | — |  |  | 315,522 |  |  | — |
Single issuer trust preferred securities issued by banks | 1,500 |  |  | 1,490 |  |  | — |  |  | 1,490 |  |  | — |
Small business administration pooled securities | 33,212 |  |  | 33,919 |  |  | — |  |  | 33,919 |  |  | — |
Loans, net of allowance for loan losses(b) | 8,813,914 |  |  | 8,638,200 |  |  | — |  |  | — |  |  | 8,638,200 |
Federal Home Loan Bank stock(c) | 14,976 |  |  | 14,976 |  |  | — |  |  | 14,976 |  |  | — |
Cash surrender value of life insurance policies(d) | 195,883 |  |  | 195,883 |  |  | — |  |  | 195,883 |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |
Deposit liabilities, other than time deposits(e) | $ | 7,855,975 |  |  | $ | 7,855,975 |  |  | $ | — |  |  | $ | 7,855,975 |  |  | $ | — |
Time certificates of deposits(f) | 1,470,116 |  |  | 1,470,062 |  |  | — |  |  | 1,470,062 |  |  | — |
Federal Home Loan Bank borrowings(f) | 70,708 |  |  | 70,850 |  |  | — |  |  | 70,850 |  |  | — |
Long-term borrowings(f) | 74,894 |  |  | 72,497 |  |  | — |  |  | 72,497 |  |  | — |
Junior subordinated debentures(g) | 62,848 |  |  | 65,835 |  |  | — |  |  | 65,835 |  |  | — |
Subordinated debentures(f) | 84,341 |  |  | 87,884 |  |  | — |  |  | — |  |  | 87,884 |

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|  |  |  |  | Fair Value Measurements at Reporting Date Using
| Carrying Value |  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
| December 31, 2018
| (Dollars in thousands)
Financial assets |
Securities held to maturity(a) |  |  |  |  |  |  |  |  |
U.S. Treasury securities | $ | 1,004 |  |  | $ | 1,015 |  |  | $ | — |  |  | $ | 1,015 |  |  | $ | — |
Agency mortgage-backed securities | 252,484 |  |  | 250,928 |  |  | — |  |  | 250,928 |  |  | — |
Agency collateralized mortgage obligations | 332,775 |  |  | 326,724 |  |  | — |  |  | 326,724 |  |  | — |
Single issuer trust preferred securities issued by banks | 1,500 |  |  | 1,490 |  |  | — |  |  | 1,490 |  |  | — |
Small business administration pooled securities | 23,727 |  |  | 23,483 |  |  | — |  |  | 23,483 |  |  | — |
Loans, net of allowance for loan losses(b) | 6,812,792 |  |  | 6,635,209 |  |  | — |  |  | — |  |  | 6,635,209 |
Federal Home Loan Bank stock(c) | 15,683 |  |  | 15,683 |  |  | — |  |  | 15,683 |  |  | — |
Cash surrender value of life insurance policies(d) | 160,456 |  |  | 160,456 |  |  | — |  |  | 160,456 |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |
Deposit liabilities, other than time deposits(e) | $ | 6,716,017 |  |  | $ | 6,716,017 |  |  | $ | — |  |  | $ | 6,716,017 |  |  | $ | — |
Time certificates of deposits(f) | 711,103 |  |  | 703,728 |  |  | — |  |  | 703,728 |  |  | — |
Federal Home Loan Bank borrowings(f) | 147,806 |  |  | 147,603 |  |  | — |  |  | 147,603 |  |  | — |
Junior subordinated debentures(g) | 76,173 |  |  | 73,827 |  |  | — |  |  | 73,827 |  |  | — |
Subordinated debentures(f) | 34,728 |  |  | 32,509 |  |  | — |  |  | — |  |  | 32,509 |

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

(b) | Fair value of loans is measured using the exit price valuation method, determined primarily by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or cash flows, while incorporating liquidity and credit assumptions. Additionally, this amount excludes collateral dependent impaired loans, which are deemed to be marked to fair value on a nonrecurring basis.

(c) | FHLB stock has no quoted market value and is carried at cost, therefore the carrying amount approximates fair value.

(d) | Cash surrender value of life insurance is recorded at its cash surrender value (or the amount that can be realized upon surrender of the policy), therefore carrying amount approximates fair value.

(e) | Fair value of demand deposits, savings and interest checking accounts and money market deposits is the amount payable on demand at the reporting date.

(f) | Fair value was determined by discounting anticipated future cash payments using rates currently available for instruments with similar remaining maturities.

(g) | Fair value was determined based upon market prices of securities with similar terms and maturities.

This summary excludes certain financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these may include cash and due from banks, federal funds sold and short-term investments. For financial liabilities, these may include federal funds purchased. These instruments would all be considered to be classified as Level 1 within the fair value hierarchy. Also excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described.
The Company considers its current use of financial instruments to be the highest and best use of the instruments.
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NOTE 12 - REVENUE RECOGNITION
A portion of the Company's noninterest income is derived from contracts with customers, and as such, the revenue recognized depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance. To ensure its alignment with this core principle, the Company measures revenue and the timing of recognition by applying the following five steps:

1. | Identify the contract(s) with customers

2. | Identify the performance obligations

3. | Determine the transaction price

4. | Allocate the transaction price to the performance obligations

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

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

| Three Months Ended |  | Nine Months Ended
| September 30 2019 |  | September 30 2018 |  | September 30 2019 |  | September 30 2018
| (Dollars in thousands)
Deposit account fees (inclusive of cash management fees) | $ | 5,299 |  |  | $ | 4,658 |  |  | $ | 14,785 |  |  | $ | 13,640 |
Interchange fees | 4,913 |  |  | 3,943 |  |  | 13,473 |  |  | 11,267 |
ATM fees | 939 |  |  | 825 |  |  | 2,461 |  |  | 2,215 |
Investment management - wealth management and advisory services | 6,635 |  |  | 5,912 |  |  | 19,127 |  |  | 17,577 |
Investment management - retail investments and insurance revenue | 553 |  |  | 652 |  |  | 1,962 |  |  | 1,951 |
Merchant processing income | 230 |  |  | 227 |  |  | 834 |  |  | 1,006 |
Other noninterest income | 1,487 |  |  | 1,152 |  |  | 4,068 |  |  | 3,186 |
Total noninterest income in-scope of ASC 606 | 20,056 |  |  | 17,369 |  |  | 56,710 |  |  | 50,842 |
Total noninterest income out-of-scope of ASC 606 | 11,760 |  |  | 5,895 |  |  | 25,287 |  |  | 14,172 |
Total noninterest income | $ | 31,816 |  |  | $ | 23,264 |  |  | $ | 81,997 |  |  | $ | 65,014 |

In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and service requirements are generally explicitly identified in the associated contracts. Additional information related to each of the revenue streams is further noted below.
Deposit Account Fees
The Company offers various deposit account products to its customers governed by specific deposit agreements applicable to either personal customers or business customers. These agreements identify the general conditions and obligations of both parties, and include standard information regarding deposit account related fees.
Deposit account services include providing access to deposit accounts as well as access to the various deposit transactional services of the Company. These transactional services are primarily those that are identified in the standard fee schedule, and include, but are not limited to, services such as overdraft protection, wire transfer, and check collection. Revenue is recognized in conjunction with the various services being provided. For example, the Company may assess monthly fixed service fees associated with the customer having access to a deposit account, which can vary depending on the account type and daily account balance. In addition, the Company may also assess separate fixed fees associated with and at the time specific transactions are entered into by the customer. As such, the Company considers its performance obligations to be met concurrently with providing the account access or completing the requested deposit transaction.
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Cash Management
Cash management services are a subset of the deposit account fees revenue stream. These services primarily include ACH transaction processing, positive pay and remote deposit services. These services are also governed by separate agreements entered into with the customer. The fee arrangement for these services is structured to assess fees under one of two scenarios, either a per transaction fee arrangement or an earnings credit analysis arrangement. Under the per transaction fee arrangement, fixed fees are assessed concurrently with customers executing the transactions, and as such, the Company considers its performance obligations to be met concurrently with completing the requested transaction. Under the earnings credit analysis arrangement, the Company provides a monthly earnings credit to the customer that is negotiated and determined based on various factors. The credit is then available to absorb the per transaction fees that are assessed on the customer's deposit account activity for the month. Any amount of the transactional fees in excess of the earnings credit is recognized as revenue in that month.
Interchange Fees
The Company earns interchange revenue from its issuance of credit and debit cards granted through its membership in various card payment networks. The Company provides credit cards and debit cards to its customers which are authorized and settled through these payment networks, and in exchange, the Company earns revenue as determined by each payment network's interchange program. The revenue is recognized concurrently with the settlement of card transactions within each network.
ATM Fees
The Company deploys automated teller machines (ATMs) as part of its overall branch network. Certain transactions performed at the ATMs require customers to acknowledge and pay a fee for the requested service. Certain ATM fees are disclosed in the deposit account agreement fee schedules, whereas those assessed to non-Rockland Trust deposit holders are solely determined during the transaction at the machine.
The ATM fee is a fixed dollar per transaction amount, and as such, is recognized concurrently with the overall daily processing and settlement of the ATM activity.
Investment Management - Wealth Management and Advisory Services
The Company offers investment management and trust services to individuals, institutions, small businesses and charitable institutions. Each investment management product is governed by its own contract along with a separate identifiable fee schedule unique to that product. The Company also offers additional services, such as estate settlement, financial planning, tax services and other special services quoted at the client's request.
The asset management and/or custody fees are based upon a percentage of the monthly valuation of the principal assets in the customer's account, whereas fees for additional or special services are fixed in nature and are charged as services are rendered. As the fees are dependent on assets under management, which are susceptible to market factors outside of the Company's control, this variable consideration is constrained and therefore no revenue is estimated at contract initiation. As such, all revenue is recognized in correlation to the monthly management fee determinations or as transactional services are provided. Due to the fact that payments are primarily made subsequent to the valuation period, the Company records a receivable for revenue earned but not received. The following table provides the amount of investment management revenue earned but not received as of the periods indicated:

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

Investment Management - Retail Investments and Insurance Revenue
The Company offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance products through registered representatives who are both employed by the Company and licensed and contracted with various broker general agents to offer these products to the Company’s customer base. As such, the Company performs these services as an agent and earns a fixed commission on the sales of these products and services. To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds.
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In general, the Company recognizes commission revenue at the point of sale, and for certain insurance products, may also earn and recognize annual residual commissions commensurate with annual premiums being paid.
Merchant Processing Income
The Company refers customers to third party merchant processing partners in exchange for commission and fee income. The income earned is comprised of multiple components, including a fixed referral fee per each referred customer, a rebate amount determined primarily as a percentage of net revenue earned by the third party from services provided to each referred customer, and overall production bonus commissions if certain new account production thresholds are met. Merchant processing income is recognized in conjunction with either completing the referral to earn the fixed fee amount or as the merchant activity is processed to derive the Company's rebate and/or production bonus amounts.
Other Noninterest Income
The Company earns various types of other noninterest income that fall within the scope of the new revenue recognition rules, and have been aggregated into one general revenue stream in the table noted above. This amount includes, but is not limited to, the following types of revenue with customers:
Safe Deposit Rent
The Company rents out the use of safe deposit boxes to its customers, which can be accessed when the bank is open for business. The safe deposit box rental fee is paid upfront and is recognized as revenue ratably over the annual term of the contract.
1031 Exchange Fee Revenue
The Company provides like-kind exchange services pursuant to Section 1031 of the Internal Revenue Code. Fee income is recognized in conjunction with completing the exchange transactions.
Foreign Currency
The Company earns fee income associated with various transactions related to foreign currency product offerings, including foreign currency bank notes and drafts and foreign currency wires. The majority of this income is derived from commissions earned related to customers executing the above mentioned foreign currency transactions through arrangements with third party correspondents.
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NOTE 13 - COMPREHENSIVE INCOME (LOSS)
The following tables present a reconciliation of the changes in the components of other comprehensive income (loss) for the dates indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):

| Three Months Ended September 30, 2019 |  | Nine Months Ended September 30, 2019
| Pre Tax Amount |  | Tax (Expense) Benefit |  | After Tax Amount |  | Pre Tax Amount |  | Tax (Expense) Benefit |  | After Tax Amount
| (Dollars in thousands)
Change in fair value of securities available for sale | $ | 2,858 |  |  | $ | (683 | ) |  | $ | 2,175 |  |  | $ | 14,699 |  |  | $ | (3,401 | ) |  | $ | 11,298 |
Less: net security losses reclassified into other noninterest expense | — |  |  | — |  |  | — |  |  | (1,462 | ) |  | 411 |  |  | (1,051 | )
Net change in fair value of securities available for sale | 2,858 |  |  | (683 | ) |  | 2,175 |  |  | 16,161 |  |  | (3,812 | ) |  | 12,349 |
Change in fair value of cash flow hedges | 4,568 |  |  | (1,285 | ) |  | 3,283 |  |  | 21,913 |  |  | (6,167 | ) |  | 15,746 |
Less: net cash flow hedge gains reclassified into interest income or interest expense | 352 |  |  | (99 | ) |  | 253 |  |  | 1,170 |  |  | (329 | ) |  | 841 |
Net change in fair value of cash flow hedges | 4,216 |  |  | (1,186 | ) |  | 3,030 |  |  | 20,743 |  |  | (5,838 | ) |  | 14,905 |
Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period | (11 | ) |  | 3 |  |  | (8 | ) |  | (33 | ) |  | 9 |  |  | (24 | )
Amortization of net actuarial gains | (2 | ) |  | 1 |  |  | (1 | ) |  | (6 | ) |  | 2 |  |  | (4 | )
Amortization of net prior service costs | 69 |  |  | (19 | ) |  | 50 |  |  | 207 |  |  | (58 | ) |  | 149 |
Net change in other comprehensive income for defined benefit postretirement plans (1) | 56 |  |  | (15 | ) |  | 41 |  |  | 168 |  |  | (47 | ) |  | 121 |
Total other comprehensive income | $ | 7,130 |  |  | $ | (1,884 | ) |  | $ | 5,246 |  |  | $ | 37,072 |  |  | $ | (9,697 | ) |  | $ | 27,375 |

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| Three Months Ended September 30, 2018 |  | Nine Months Ended September 30, 2018
| Pre Tax Amount |  | Tax (Expense) Benefit |  | After Tax Amount |  | Pre Tax Amount |  | Tax (Expense) Benefit |  | After Tax Amount
| (Dollars in thousands)
Change in fair value of securities available for sale | $ | (2,988 | ) |  | $ | 726 |  |  | $ | (2,262 | ) |  | $ | (12,761 | ) |  | $ | 3,107 |  |  | $ | (9,654 | )
Less: net security gains reclassified into other noninterest income (expense) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Net change in fair value of securities available for sale | (2,988 | ) |  | 726 |  |  | (2,262 | ) |  | (12,761 | ) |  | 3,107 |  |  | (9,654 | )
Change in fair value of cash flow hedges | (296 | ) |  | 83 |  |  | (213 | ) |  | 100 |  |  | (25 | ) |  | 75 |
Less: net cash flow hedge gains reclassified into interest income or interest expense | 268 |  |  | (76 | ) |  | 192 |  |  | 525 |  |  | (148 | ) |  | 377 |
Net change in fair value of cash flow hedges | (564 | ) |  | 159 |  |  | (405 | ) |  | (425 | ) |  | 123 |  |  | (302 | )
Amortization of net actuarial losses | 94 |  |  | (26 | ) |  | 68 |  |  | 281 |  |  | (79 | ) |  | 202 |
Amortization of net prior service costs | 69 |  |  | (20 | ) |  | 49 |  |  | 207 |  |  | (58 | ) |  | 149 |
Net change in other comprehensive income for defined benefit postretirement plans (1) | 163 |  |  | (46 | ) |  | 117 |  |  | 488 |  |  | (137 | ) |  | 351 |
Total other comprehensive loss | $ | (3,389 | ) |  | $ | 839 |  |  | $ | (2,550 | ) |  | $ | (12,698 | ) |  | $ | 3,093 |  |  | $ | (9,605 | )

(1) The amortization of prior service costs is included in the computation of net periodic pension cost as disclosed in the Employee Benefit Plans footnote in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission.
Effective January 1, 2018, the Company elected to reclassify certain tax effects from accumulated other comprehensive income to retained earnings, related to items that were stranded in other comprehensive income as a result of the Tax Act. A description of the other income tax effects that were reclassified as a result of the Tax Act are listed in the table below.
Information on the Company’s accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the periods indicated:

| Unrealized Gain on Securities |  | Unrealized Gain (Loss) on Cash Flow Hedge |  | Deferred Gain on Hedge Transactions |  | Defined Benefit Postretirement Plans |  | Accumulated Other Comprehensive Income (Loss)
| (Dollars in thousands)
| 2019
Beginning balance: January 1, 2019 | $ | (5,947 | ) |  | $ | 6,148 |  |  | $ | — |  |  | $ | (1,374 | ) |  | $ | (1,173 | )
Net change in other comprehensive income (loss) | 12,349 |  |  | 14,905 |  |  | — |  |  | 121 |  |  | 27,375 |
Ending balance: September 30, 2019 | $ | 6,402 |  |  | $ | 21,053 |  |  | $ | — |  |  | $ | (1,253 | ) |  | $ | 26,202 |
| 2018
Beginning balance: January 1, 2018 | $ | (504 | ) |  | $ | 948 |  |  | $ | 137 |  |  | $ | (2,412 | ) |  | $ | (1,831 | )
Opening balance reclassification | (111 | ) |  | 205 |  |  | 29 |  |  | (520 | ) |  | (397 | )
Cumulative effect accounting adjustment | (831 | ) |  | — |  |  | — |  |  | — |  |  | (831 | )
Net change in other comprehensive income (loss) | (9,654 | ) |  | (170 | ) |  | (132 | ) |  | 351 |  |  | (9,605 | )
Ending balance: September 30, 2018 | $ | (11,100 | ) |  | $ | 983 |  |  | $ | 34 |  |  | $ | (2,581 | ) |  | $ | (12,664 | )

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NOTE 14 - LEASES
The Company adopted the new lease accounting standard ("the lease standard") under Accounting Standards Codification Topic 842 ("ASC 842") using the modified retrospective transition method with an effective date as of January 1, 2019. Therefore, periods prior to to that date were not restated, and are not presented below. The Company elected the package of practical expedients, which permits the Company not to reassess prior conclusions about lease identifications, lease classification and initial direct costs. The Company has elected the short-term lease recognition exemption for all leases that qualify. The Company did not elect to apply the hindsight practical expedient pertaining to using hindsight knowledge as of the effective date when determining lease terms and impairment.
The Company leases office space, space for ATM locations and certain branch locations under noncancelable operating leases. As of September 30, 2019, the Company has entered into 92 noncancelable operating lease agreements. Several of the Company's leases for office space, space for ATM locations and certain branch locations contain renewal options to extend lease terms for a period of 1 to 10 years. The Company makes the decision on whether or not to renew an option to extend a lease by considering various factors. The Company will recognize an adjustment to its ROU asset and lease liability when lease agreements are amended and executed. The discount rate used in determining the present value of lease payments is based on the Company's incremental borrowing rate for borrowings with terms similar to each lease at commencement date. The Company has no financing leases outstanding and no leases with residual value guarantees. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components and other non-components, such as common area maintenance charges, real estate taxes, and insurance are not included in the measurement of the lease liability since they are generally able to be segregated.
As of September 30, 2019, the Company had one ATM location lease with a non-employee related party. The future lease payments under this lease do not have a material effect on the Company's financial position or result of operations. The Company does not have any material sub-lease agreements.
The Company's right-of-use asset related to operating leases was $51.8 million at September 30, 2019 and is recognized in the Company's Consolidated Balance Sheet in other assets.
The following table provides information related to the Company's lease cost.

| Three Months Ended |  | Nine Months Ended
| September 30, 2019
| (Dollars in thousands)
Operating lease cost | $2,881 |  | $7,817
Short-term lease cost | 39 |  |  | 82 |
Variable lease cost | — |  |  | — |
Total lease cost | $2,920 |  | $7,899

As of September 30, 2019, the weighted average remaining lease term for operating leases was 6.88 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.91%.
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The following table sets forth the undiscounted cash flows of base rent related to operating leases outstanding at September 30, 2019 with payments scheduled over the next five years and thereafter, including a reconciliation to the operating lease liability recognized in the Company's Consolidated Balance Sheet in other liabilities.

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

NOTE 15 - COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company enters into various transactions to meet the financing needs of its customers, which, in accordance with GAAP, are not included in its consolidated balance sheets. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures.
The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of these commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding.
Standby letters of credit are written conditional commitments issued to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment were funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
The fees collected in connection with the issuance of standby letters of credit are representative of the fair value of the Company's obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees, fees collected in connection with the issuance of standby letters of credit are deferred. The fees are then recognized in income proportionately over the life of the standby letter of credit agreement. The deferred standby letter of credit fees represent the fair value of the Company's potential obligations under the standby letter of credit guarantees.
The following table summarizes the above financial instruments at the dates indicated:

| September 30, 2019 |  | December 31, 2018
| (Dollars in thousands)
Commitments to extend credit | $ | 3,113,931 |  |  | $ | 2,639,689 |
Standby letters of credit | 22,943 |  |  | 16,708 |
Deferred standby letter of credit fees | 197 |  |  | 122 |

Other Contingencies
At September 30, 2019, Rockland Trust was involved in pending lawsuits that arose in the ordinary course of business. Management has reviewed these pending lawsuits with legal counsel and has taken into consideration the view of counsel as to their outcome. In the opinion of management, the final disposition of pending lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.
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The Bank is required to maintain certain reserve requirements of vault cash and/or deposits with the Federal Reserve Bank of Boston. The reserve requirement was $48.7 million and $53.5 million at September 30, 2019 and December 31, 2018, respectively.
NOTE 16 - LOW INCOME HOUSING PROJECT INVESTMENTS
The Company has invested in low income housing projects that generate Low Income Housing Tax Credits (“LIHTC”) which provide the Company with tax credits and operating loss tax benefits over a period of approximately 15 years. None of the original investment is expected to be repaid.
The following table presents certain information related to the Company's investments in low income housing projects as of the dates indicated:

| September 30 2019 |  | December 31 2018
| (Dollars in thousands)
Original investment value | $ | 75,471 |  |  | $ | 50,232 |
Current recorded investment | 53,618 |  |  | 33,681 |
Unfunded liability obligation | 20,667 |  |  | 3,935 |
Tax credits and benefits | 6,700 |  | (1) | 5,407 |
Amortization of investments | 5,071 |  | (2) | 4,377 |
Net income tax benefit | 1,628 |  | (3) | 1,030 |

(1) This amount reflects anticipated tax credits and tax benefits for the full year ended December 31, 2019.
(2) The amortization amount reduces the tax credits and benefits anticipated for the full year ended December 31, 2019.
(3) This amount represents the net tax benefit expected to be realized for the full year ended December 31, 2019 in determining the Company's effective tax rate.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the Securities and Exchange Commission.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, in the Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by forward-looking terminology such as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors listed under the “Risk Factors” section of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, include, but are not limited to:

• | a weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area;

• | adverse changes or volatility in the local real estate market;

• | adverse changes in asset quality including an unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;

• | acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;

• | inability to raise capital on terms that are favorable;

• | additional regulatory oversight and additional costs associated with the Company's increase in assets to over $10 billion;

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• | changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

• | higher than expected tax expense, resulting from failure to comply with general tax laws, changes in tax laws, or failure to comply with requirements of the federal New Markets Tax Credit program;

• | changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of the London Inter-Bank Offered Rate ("LIBOR");

• | increased competition in the Company’s market area;

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

• | a deterioration in the conditions of the securities markets;

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

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

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

• | adverse changes in consumer spending and savings habits;

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

• | inability to retain customers and employees, including those acquired in recent acquisitions;

• | the effect of laws and regulations regarding the financial services industry including, but not limited to, the Dodd-Frank Wall Street Reform and the Consumer Protection Act and regulatory uncertainty surrounding these laws and regulations;

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

• | changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;

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

• | other unexpected material adverse changes in our operations or earnings.

Except as required by law, the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether in response to new information, future events or otherwise. Any public statements or disclosures by the Company following this Quarterly Report on Form 10-Q which modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
Selected Quarterly Financial Data
The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere in this Quarterly Report on Form 10-Q.

|  |  | Three Months Ended |  |
| September 30 2019 |  | June 30 2019 |  | March 31 2019 |  | December 31 2018 |  | September 30 2018
| (Dollars in thousands, except per share data)
Financial condition data |  |  |  |  |  |  |  |  |
Securities | $ | 1,192,229 |  |  | $ | 1,213,253 |  |  | $ | 1,083,126 |  |  | $ | 1,075,223 |  |  | $ | 1,011,577 |
Loans | 8,913,501 |  |  | 8,950,787 |  |  | 6,976,872 |  |  | 6,906,194 |  |  | 6,527,402 |
Allowance for loan losses | (66,942 | ) |  | (65,960 | ) |  | (65,140 | ) |  | (64,293 | ) |  | (63,235 | )
Goodwill and other intangible assets | 535,869 |  |  | 537,896 |  |  | 270,444 |  |  | 271,355 |  |  | 239,185 |
Total assets | 11,538,639 |  |  | 11,603,199 |  |  | 8,997,457 |  |  | 8,851,592 |  |  | 8,375,497 |
Total deposits | 9,326,091 |  |  | 9,307,915 |  |  | 7,463,602 |  |  | 7,427,120 |  |  | 6,976,239 |
Total borrowings | 292,791 |  |  | 499,702 |  |  | 308,040 |  |  | 258,707 |  |  | 299,738 |
Stockholders’ equity | 1,682,324 |  |  | 1,636,003 |  |  | 1,104,538 |  |  | 1,073,490 |  |  | 998,305 |
Nonperforming loans | 45,702 |  |  | 45,294 |  |  | 43,331 |  |  | 45,418 |  |  | 45,394 |
Nonperforming assets | 48,202 |  |  | 48,183 |  |  | 43,331 |  |  | 45,418 |  |  | 45,584 |
Income statement |  |  |  |  |  |  |  |  |
Interest income | $ | 119,624 |  |  | $ | 122,144 |  |  | $ | 91,543 |  |  | $ | 87,910 |  |  | $ | 82,875 |

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

(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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Executive Level Overview
Management evaluates the Company's operating results and financial condition using measures that include net income, earnings per share, return on assets and equity, return on tangible common equity, net interest margin, tangible book value per share, asset quality indicators, and many others. These metrics are used by management to make key decisions regarding the Company's balance sheet, liquidity, interest rate sensitivity, and capital resources and assist with identifying opportunities for improving the Company's financial position or operating results. The Company is focused on organic growth, but will also consider acquisition opportunities that can provide a satisfactory financial return, including the recent acquisition of MNB Bancorp ("MNB") in the fourth quarter of 2018 and Blue Hills Bancorp ("BHB") in the second quarter of 2019.
Interest-Earning Assets
Management’s asset strategy emphasizes loan growth, primarily in the commercial and home equity portfolios. The results depicted in the following table reflect the trend of the Company's interest-earning assets over the past five quarters. For the third quarter of 2019, the decrease in interest-earning assets was due to increased payoff activity within the loan portfolio.
Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. In addition, management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and loan losses.
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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 over 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, with the second and third quarters of 2019 reflecting the increased percentage of time deposits as a result of the BHB acquisition:
As of September 30, 2019, core deposits comprised 82.49% of total deposits. The cost of deposits for the third quarter was 0.50%, reflecting an increase of 1 basis point when compared to the second quarter of 2019. The Company's net interest margin was 4.03% for the quarter ended September 30, 2019, a six basis point decrease from the second quarter of 2019,
which was driven primarily by lower asset yields linked to the July and September Federal Reserve Rate cuts.
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Noninterest Income
Management continues to focus on noninterest income, which is primarily comprised of deposit account fees, interchange and ATM fees, investment management fees and mortgage banking income. The following chart shows the components of noninterest income over the past five quarters:
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Expense Control
Management seeks to take a balanced approach to noninterest expense control by monitoring ongoing operating expenses while making needed capital expenditures and prudently investing in growth initiatives. The Company’s primary expenses arise from Rockland Trust’s employee salaries and benefits, as well as expenses associated with buildings and equipment. The following chart depicts the Company's efficiency ratio on a GAAP basis (calculated by dividing noninterest expense by the sum of noninterest income and net interest income), as well as the Company's efficiency ratio on a non-GAAP operating basis, if applicable (calculated by dividing noninterest expense, excluding certain noncore items, by the sum of noninterest income, excluding certain noncore items, and net interest income), over the past five quarters:
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.
Tax Effectiveness
The Company participates in federal and state tax credit programs designed to promote economic development, affordable housing, and job creation. The Company continues to participate in the federal New Markets Tax Credit program and has also made low-income housing tax credit investments. The Company has also established security corporation subsidiaries and, through its subsidiaries, purchased tax-exempt bonds. Federal and state tax credit program participation and other tax strategies help the Company operate in a more tax effective manner and sometimes also create a competitive advantage for Rockland Trust and its community development subsidiaries. During the third quarter of 2019, the Company’s effective tax rate was 24.73%, compared to 24.63% at June 30, 2019.
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Capital
The Company's approach with respect to revenue, expense, and tax effectiveness is designed to promote long-term earnings growth. Strong earnings retention has contributed to capital growth, 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 of non-GAAP measures):
*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.
The Company's growth in capital enables the payment of cash dividends. The Company declared quarterly cash dividends of $0.44 per share for the first three quarters of 2019, representing an increase of 15.8% from the 2018 quarterly dividend rate of $0.38 per share.
Third Quarter 2019 Results
Net income for the third quarter of 2019 was $51.8 million, or $1.51 on a diluted earnings per share basis, and increased 57.0% and 25.8%, respectively, as compared to $33.0 million, or $1.20 on a diluted earnings per share basis, for the prior year third quarter. The third quarter of 2019 included gain on the sale of loans and merger and acquisition costs which the Company deems to be noncore. Excluding the gain on the sale of loans and merger and acquisition expenses, third quarter 2019 operating net income was $51.7 million compared to operating net income from the third quarter of 2018 of $34.9 million, an increase of 47.9%. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures.
2019 Outlook
During the Company’s third quarter 2019 earnings call, the Company's Chief Financial Officer stated that he anticipates the following for the fourth quarter of 2019:

• | Assuming minimal changes in the competitive and economic landscape, net loan growth is expected to remain relatively flat for the remainder of the year;

• | Deposits are expected to grow modestly in the fourth quarter;

• | Assuming no Federal Reserve rate changes in the fourth quarter and a normalized level of loan accretion, the net interest margin is expected to be in the low 3.90%'s range for the fourth quarter. In addition, based upon current assessments, management anticipates that any future 25 basis point Federal Reserve rate cut may further reduce the net interest margin prospectively by approximately 6 basis points;

• | Excluding the third quarter gain on sale of loans, noninterest income in the fourth quarter is expected to decrease when compared to the third quarter, the degree to which is contingent upon market demand for mortgage banking and loan level derivatives;

• | Excluding merger related expenses incurred in the third quarter, noninterest expense is expected to be flat with third quarter levels;

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

• | Effective tax rate of approximately 25%.

Non-GAAP Measures
When management assesses the Company’s financial performance for purposes of making day-to-day and strategic decisions, it does so based upon the performance of its core banking business, which is primarily derived from the combination of net interest income and noninterest or fee income, reduced by operating expenses, the provision for loan losses, and the impact of income taxes and other noncore items shown in the tables that follow. There are items that impact the Company's results that management believes are unrelated to its core banking business such as merger and acquisition expenses and other items. Management, therefore, computes certain non-GAAP measures including net operating earnings and operating EPS, noninterest income on an operating basis and efficiency ratio on an operating basis, which exclude items management considers to be noncore. Management believes excluding these items facilitates greater visibility into the Company’s core banking business and underlying trends that may, to some extent, be obscured by inclusion of such items.
Management also supplements its evaluation of financial performance with analyses of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or "tangible common equity", by common shares outstanding) and the tangible common equity ratio (which is computed by dividing tangible common equity by "tangible assets", defined as total assets less goodwill and other intangibles). The Company has included information on tangible book value per share and the tangible common equity ratio because management believes that investors may find it useful to have access to the same analytical tools used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, provides a framework to compare the capital adequacy of the Company to other companies in the financial services industry.
These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating earnings, operating EPS, operating return on average assets, operating return on average equity, tangible book value per share and the tangible common equity ratio, are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.
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The following tables summarize adjustments for noncore items for the time periods indicated below and reconcile non-GAAP measures:

| Three Months Ended September 30
| Net Income |  | Diluted Earnings Per Share
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP) | $ | 51,845 |  |  | $ | 33,015 |  |  | $ | 1.51 |  |  | $ | 1.20 |
Non-GAAP adjustments |  |  |  |  |  |  |
Noninterest income components |  |  |  |  |  |  |
Gain on sale of loans | 951 |  |  | — |  |  | 0.03 |  |  | — |
Noninterest expense components |  |  |  |  |  |  |
Merger and acquisition expenses | 705 |  |  | 2,688 |  |  | 0.02 |  |  | 0.10 |
Total impact of noncore items | (246 | ) |  | 2,688 |  |  | (0.01 | ) |  | 0.10 |
Net tax expense (benefit) associated with noncore items (1) | 72 |  |  | (756 | ) |  | — |  |  | (0.03 | )
Noncore items, net of tax | $ | (174 | ) |  | $ | 1,932 |  |  | $ | (0.01 | ) |  | $ | 0.07 |
Operating net income (Non-GAAP) | $ | 51,671 |  |  | $ | 34,947 |  |  | $ | 1.50 |  |  | $ | 1.27 |
| Nine Months Ended September 30
| Net Income |  | Diluted Earnings Per Share
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP) | $ | 117,698 |  |  | $ | 91,688 |  |  | $ | 3.64 |  |  | $ | 3.32 |
Non-GAAP adjustments |  |  |  |  |  |  |
Noninterest income components |  |  |  |  |  |  |
Gain on sale of loans | 951 |  |  | — |  |  | 0.03 |  |  | — |
Noninterest expense components |  |  |  |  |  |  |  |
Merger and acquisition expenses | 26,433 |  |  | 3,122 |  |  | 0.82 |  |  | 0.12 |
Total impact of noncore items | 25,482 |  |  | 3,122 |  |  | 0.79 |  |  | 0.12 |
Net tax expense (benefit) associated with noncore items (1) | (6,686 | ) |  | (878 | ) |  | (0.21 | ) |  | (0.03 | )
Add - adjustment for tax effect of previously incurred merger and acquisition expenses | 650 |  |  | — |  |  | 0.02 |  |  | — |
Noncore items, net of tax | $ | 19,446 |  |  | $ | 2,244 |  |  | $ | 0.60 |  |  | $ | 0.09 |
Operating net income (Non-GAAP) | $ | 137,144 |  |  | $ | 93,932 |  |  | $ | 4.24 |  |  | $ | 3.41 |

(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 |
| September 30 2019 |  | June 30 2019 |  | March 31 2019 |  | December 31 2018 |  | September 30 2018 |  |
| (Dollars in thousands) |
Net interest income (GAAP) | $ | 104,598 |  |  | $ | 106,019 |  |  | $ | 82,525 |  |  | $ | 80,292 |  |  | $ | 76,234 |  |  | (a)
Noninterest income (GAAP) | $ | 31,816 |  |  | $ | 28,648 |  |  | $ | 21,533 |  |  | $ | 23,491 |  |  | $ | 23,264 |  |  | (b)
Less: |  |  |  |  |  |  |  |  |  |  |
Gain on sale of loans | 951 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |
Noninterest income on an operating basis (Non-GAAP) | $ | 30,865 |  |  | $ | 28,648 |  |  | $ | 21,533 |  |  | $ | 23,491 |  |  | $ | 23,264 |  |  | (c)
Noninterest expense (GAAP) | $ | 67,533 |  |  | $ | 93,032 |  |  | $ | 56,311 |  |  | $ | 64,391 |  |  | $ | 55,439 |  |  | (d)
Less: |  |  |  |  |  |  |  |  |  |  |
Merger and acquisition expense | 705 |  |  | 24,696 |  |  | 1,032 |  |  | 8,046 |  |  | 2,688 |  |  |
Noninterest expense on an operating basis (Non-GAAP) | $ | 66,828 |  |  | $ | 68,336 |  |  | $ | 55,279 |  |  | $ | 56,345 |  |  | $ | 52,751 |  |  | (e)
Total revenue (GAAP) | $ | 136,414 |  |  | $ | 134,667 |  |  | $ | 104,058 |  |  | $ | 103,783 |  |  | $ | 99,498 |  |  | (a+b)
Total operating revenue (Non-GAAP)* | $ | 135,463 |  |  | $ | 134,667 |  |  | $ | 104,058 |  |  | $ | 103,783 |  |  | $ | 99,498 |  |  | (a+c)
Ratios |  |  |  |  |  |  |  |  |  |  |
Noninterest income as a % of revenue (GAAP based) | 23.32 | % |  | 21.27 | % |  | 20.69 | % |  | 22.63 | % |  | 23.38 | % |  | (b/(a+b))
Noninterest income as a % of revenue on an operating basis (Non-GAAP)* | 22.78 | % |  | 21.27 | % |  | 20.69 | % |  | 22.63 | % |  | 23.38 | % |  | (c/(a+c))
Efficiency ratio (GAAP based) | 49.51 | % |  | 69.08 | % |  | 54.12 | % |  | 62.04 | % |  | 55.72 | % |  | (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP) | 49.33 | % |  | 50.74 | % |  | 53.12 | % |  | 54.29 | % |  | 53.02 | % |  | (e/(a+c))

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

| September 30 2019 |  | June 30 2019 |  | March 31 2019 |  | December 31 2018 |  | September 30 2018 |
| (Dollars in thousands, except per share data) |
Tangible common equity |  |  |  |  |  |  |  |  |  |
Stockholders' equity (GAAP) | $ | 1,682,324 |  |  | $ | 1,636,003 |  |  | $ | 1,104,538 |  |  | $ | 1,073,490 |  |  | $ | 998,305 |  | (a)
Less: Goodwill and other intangibles | 535,869 |  |  | 537,896 |  |  | 270,444 |  |  | 271,355 |  |  | 239,185 |  |
Tangible common equity (Non-GAAP) | 1,146,455 |  |  | 1,098,107 |  |  | 834,094 |  |  | 802,135 |  |  | 759,120 |  | (b)
Tangible assets |  |  |  |  |  |  |  |  |  |
Assets (GAAP) | 11,538,639 |  |  | 11,603,199 |  |  | 8,997,457 |  |  | 8,851,592 |  |  | 8,375,498 |  | (c)
Less: Goodwill and other intangibles | 535,869 |  |  | 537,896 |  |  | 270,444 |  |  | 271,355 |  |  | 239,185 |  |
Tangible assets (Non-GAAP) | $ | 11,002,770 |  |  | $ | 11,065,303 |  |  | $ | 8,727,013 |  |  | $ | 8,580,237 |  |  | $ | 8,136,313 |  | (d)
Common shares | 34,366,781 |  |  | 34,321,061 |  |  | 28,137,504 |  |  | 28,080,408 |  |  | 27,540,843 |  | (e)
Common equity to assets ratio (GAAP) | 14.58 | % |  | 14.10 | % |  | 12.28 | % |  | 12.13 | % |  | 11.92 | % | (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) | 10.42 | % |  | 9.92 | % |  | 9.56 | % |  | 9.35 | % |  | 9.33 | % | (b/d)
Book value per share (GAAP) | $ | 48.95 |  |  | $ | 47.67 |  |  | $ | 39.26 |  |  | $ | 38.23 |  |  | $ | 36.25 |  | (a/e)
Tangible book value per share (Non-GAAP) | $ | 33.36 |  |  | $ | 32.00 |  |  | $ | 29.64 |  |  | $ | 28.57 |  |  | $ | 27.56 |  | (b/e)

Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.
There have been no material changes in critical accounting policies during the first nine months of 2019. Please refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for a complete listing of critical accounting policies.
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FINANCIAL POSITION
Securities Portfolio The Company’s securities portfolio consists of trading securities, equity securities, securities available for sale, and securities which management intends to hold until maturity. Securities increased by $117.0 million, or 10.9%, at September 30, 2019 as compared to December 31, 2018, reflecting the $196.9 million in securities included in the BHB acquisition as well as additional purchases of $73.5 million made during the nine month period. These increases were offset by paydowns on existing securities and the sale of approximately $47.3 million of acquired BHB mortgage backed securities. The ratio of securities to total assets was 10.33% and 12.15% at September 30, 2019 and December 31, 2018, respectively.
The Company monitors investment securities for the presence of other-than-temporary impairment (“OTTI”). For debt securities, the primary consideration in determining whether impairment is OTTI is whether or not the Bank expects to collect all contractual cash flows. Further details regarding the Company's analysis of potential OTTI can be found in Note 4 “Securities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.
Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans. During the nine months ended September 30, 2019 and 2018, the Company originated residential loans with the intention of selling them in the secondary market or to hold in the Company's residential portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached. The Company incurred no losses during the three and nine month periods ended September 30, 2019 and September 30, 2018 related to mortgage repurchases.
The following table shows the total residential loans that were closed and whether the amounts were held in the portfolio or sold/held for sale in the secondary market during the periods indicated:
Table 1 - Closed Residential Real Estate Loans

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands)
Held in portfolio | $ | 43,098 |  |  | $ | 52,125 |  |  | $ | 133,111 |  |  | $ | 132,711 |
Sold or held for sale in the secondary market | 232,129 |  |  | 58,320 |  |  | 450,203 |  |  | 142,262 |
Total closed loans | $ | 275,227 |  |  | $ | 110,445 |  |  | $ | 583,314 |  |  | $ | 274,973 |

The table below reflects additional information related to the loans which were sold during the periods indicated:
Table 2 - Residential Mortgage Loan Sales

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands)
Sold with servicing rights released | $ | 169,532 |  |  | $ | 61,910 |  |  | $ | 334,426 |  |  | $ | 141,048 |
Sold with servicing rights retained | 45,829 |  |  | — |  |  | 69,465 |  |  | — |
Total loans sold | $ | 215,361 |  |  | $ | 61,910 |  |  | $ | 403,891 |  |  | $ | 141,048 |

When a loan is sold the Company may decide to also sell the servicing of sold loans for a servicing release premium, simultaneous with the sale of the loan, or the Company may opt to sell the loan and retain the servicing. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the consolidated balance sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment
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no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was $649.4 million, $240.2 million and $244.9 million at September 30, 2019, December 31, 2018, and September 30, 2018, respectively.
The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated:
Table 3 - Mortgage Servicing Asset

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands)
Balance at beginning of period | $ | 4,587 |  |  | $ | 1,559 |  |  | $ | 1,445 |  |  | $ | 1,697 |
Additions | 419 |  |  | — |  |  | 632 |  |  | — |
Acquired portfolio | — |  |  | — |  |  | 3,198 |  |  | — |
Amortization | (215 | ) |  | (71 | ) |  | (483 | ) |  | (230 | )
Change in valuation allowance | (34 | ) |  | (10 | ) |  | (35 | ) |  | 11 |
Balance at end of period | $ | 4,757 |  |  | $ | 1,478 |  |  | $ | 4,757 |  |  | $ | 1,478 |

Forward sale loan commitments of mortgage loans, considered derivative instruments for accounting purposes, may be utilized by the Company in its efforts to manage risk of loss associated with its mortgage loan commitments and mortgage loans held for sale. Prior to closing and funding certain 1-4 family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans, resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments. See Note 9, “Derivative and Hedging Activities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for more information on mortgage activity and mortgage related derivatives.
Loan Portfolio The Company’s loan portfolio increased by $2.0 billion during the first nine months of 2019. The overall increase was primarily the result of the BHB loans acquired. Exclusive of the acquired loans, strong organic growth in the commercial construction portfolio of 21.0% and the commercial and industrial portfolio of 5.3% was offset by decreases in all other commercial loan categories, as payoffs outpaced new originations during the first nine months of 2019.
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The following table summarizes loan growth/decline during the periods indicated:

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

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

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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 following pie chart shows the diversification of the commercial and industrial portfolio as of September 30, 2019:

| (Dollars in thousands)
Average loan size | $ | 323 |
Largest individual commercial and industrial loan outstanding | $ | 26,615 |
Commercial and industrial nonperforming loans/commercial and industrial loans | 1.67 | %

The Company’s commercial real estate loan portfolio, inclusive of commercial construction, is the Company’s largest loan type concentration. The Company believes that this portfolio is also well-diversified with loans secured by a variety of property types, such as owner-occupied and nonowner-occupied commercial, retail, office, industrial, warehouse, and other special purpose properties, such as hotels, motels, nursing homes, restaurants, churches, recreational facilities, marinas, and golf courses. Commercial real estate also includes loans secured by certain residential-related property types including multi-family apartment buildings, residential development tracts and condominiums. The following pie chart shows the diversification of the commercial real estate loan portfolio as of September 30, 2019:
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| (Dollars in thousands)
Average loan size | $ | 1,028 |
Largest individual commercial real estate mortgage outstanding | $ | 32,000 |
Commercial real estate nonperforming loans/commercial real estate loans | 0.04 | %
Owner occupied commercial real estate loans/commercial real estate loans | 14.6 | %

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The Company's consumer portfolio consists of both fixed-rate and adjustable-rate residential real estate loans as well as residential construction lending related to single-home residential development within the Company's market area. The Company also provides home equity loans and lines that may be made as a fixed rate term loan or under a variable rate revolving line of credit secured by a first or junior mortgage on the borrower's residence or second home. Additionally, the Company makes loans for a wide variety of other personal needs. Consumer loans primarily consist of installment loans and overdraft protections. The residential, home equity and other consumer portfolios totaled $2.8 billion at September 30, 2019, as noted below:
Asset Quality The Company continually monitors the asset quality of the loan portfolio using all available information. Based on this assessment, loans demonstrating certain payment issues or other weaknesses may be categorized as delinquent, impaired, nonperforming and/or put on nonaccrual status. Additionally, in the course of resolving such loans, the Company may choose to restructure the contractual terms of certain loans to match the borrower’s ability to repay the loan based on their current financial condition. If a restructured loan meets certain criteria, it may be categorized as a troubled debt restructuring ("TDR").
Delinquency The Company’s philosophy toward managing its loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. The Company seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Company requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices may be sent and telephone calls may be made prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios contacts the borrower to ascertain the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period.
Nonaccrual Loans As a general rule, loans more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. However, certain loans that are more than 90 days past due may be kept on an accruing status if the loans are well secured and/or in the process of collection. The Company may also put a junior lien mortgage on nonaccrual status as a result of delinquency with respect to the first position, which is held by another financial institution, while the junior lien is currently performing. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest (and in certain instances remains current for up to six months), the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for loan losses.
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Troubled Debt Restructurings In the course of resolving problem loans, the Company may choose to restructure the contractual terms of certain loans. The Company attempts to work out an alternative payment schedule with the borrower in order to avoid or cure a default. Loans that are modified are reviewed by the Company to identify if a TDR has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Bank grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower's obligations have been effectively discharged through Chapter 7 Bankruptcy and the borrower has not reaffirmed the debt to the Bank, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. If such efforts by the Bank do not result in satisfactory performance, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Bank may terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan.
It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being modified remain on nonaccrual status for six months, subsequent to being modified, before management considers their return to accrual status. If the restructured loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. Loans that are considered TDRs are classified as performing, unless they are on nonaccrual status or greater than 90 days delinquent. Loans classified as TDRs remain classified as such for the life of the loan, except in limited circumstances, when it may be determined that the borrower is performing under modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable market rate for a comparable new loan at the time of the restructuring.
Purchased Credit Impaired Loans Purchased Credit Impaired (“PCI”) loans are acquired loans which had evidence of deterioration in credit quality at the purchase date and for which it is probable that all contractually required payments will not be collected. PCI loans are recorded at fair value without any carryover of the allowance for loan losses. The excess cash flows expected to be collected over the carrying amount of the loans, referred to as the "accretable yield," is accreted into interest income over the life of the loans using the effective yield method. Accordingly, PCI loans are not subject to classification as nonaccrual in the same manner as originated loans, rather they are generally considered to be accruing loans because their interest income recognized relates to the accretable yield and not to contractual interest payments. See Note 5, "Loans, Allowance for Loan Losses, and Credit Quality" within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for more information.
Nonperforming Assets Nonperforming assets are typically comprised of nonperforming loans and other real estate owned (“OREO”). Nonperforming loans consist of nonaccrual loans and loans that are more than 90 days past due but still accruing interest.
OREO consists of real estate properties, which have primarily served as collateral to secure loans, that are controlled or owned by the Bank. These properties are recorded at fair value less estimated costs to sell at the date control is established, resulting in a new cost basis. The amount by which the recorded investment in the loan exceeds the fair value (net of estimated costs to sell) of the foreclosed asset is charged to the allowance for loan losses. Subsequent declines in the fair value of the foreclosed asset below the new cost basis are recorded through the use of a valuation allowance. Subsequent increases in the fair value are recorded as reductions in the valuation allowance, but not below zero. All costs incurred thereafter in maintaining the property are generally charged to noninterest expense. In the event the real estate is utilized as a rental property, net rental income and expenses are recorded as incurred within noninterest expense.

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The following table sets forth information regarding nonperforming assets held by the Company at the dates indicated:
Table 5 - Nonperforming Assets

| September 30 2019 |  | December 31 2018 |  | September 30 2018
| (Dollars in thousands)
Loans accounted for on a nonaccrual basis |  |  |  |  |
Commercial and industrial | $ | 23,507 |  |  | $ | 26,310 |  |  | $ | 28,742 |
Commercial real estate | 1,666 |  |  | 3,326 |  |  | 1,960 |
Small business | 112 |  |  | 235 |  |  | 191 |
Residential real estate | 11,281 |  |  | 8,251 |  |  | 8,076 |
Home equity | 6,720 |  |  | 7,278 |  |  | 6,367 |
Other consumer | 74 |  |  | 13 |  |  | 49 |
Total (1) | $ | 43,360 |  |  | $ | 45,413 |  |  | $ | 45,385 |
Loans past due 90 days or more but still accruing |  |  |  |  |
Residential real estate (2) | 1,807 |  |  | — |  |  | — |
Home equity (2) | 511 |  |  | — |  |  | — |
Other consumer | 24 |  |  | 5 |  |  | 9 |
Total | $ | 2,342 |  |  | $ | 5 |  |  | $ | 9 |
Total nonperforming loans | $ | 45,702 |  |  | $ | 45,418 |  |  | $ | 45,394 |
Other real estate owned | 2,500 |  |  | — |  |  | 190 |
Total nonperforming assets | $ | 48,202 |  |  | $ | 45,418 |  |  | $ | 45,584 |
Nonperforming loans as a percent of gross loans | 0.51 | % |  | 0.66 | % |  | 0.70 | %
Nonperforming assets as a percent of total assets | 0.42 | % |  | 0.51 | % |  | 0.54 | %

(1) | Inclusive of TDRs on nonaccrual status of $26.2 million, $29.3 million, and $3.4 million at September 30, 2019, December 31, 2018, and September 30, 2018, respectively.

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

The following table summarizes the changes in nonperforming assets for the periods indicated:
Table 6 - Activity in Nonperforming Assets

| Three Months Ended |  | Nine Months Ended
| September 30 2019 |  | September 30 2018 |  | September 30 2019 |  | September 30 2018
| (Dollars in thousands)
Nonperforming assets beginning balance | $ | 48,183 |  |  | $ | 47,357 |  |  | $ | 45,418 |  |  | $ | 50,250 |
New to nonperforming | 4,946 |  |  | 4,984 |  |  | 11,604 |  |  | 10,627 |
Acquired nonperforming loans | — |  |  | — |  |  | 2,317 |  |  | — |
Loans charged-off | (707 | ) |  | (847 | ) |  | (1,738 | ) |  | (2,009 | )
Loans paid-off | (3,041 | ) |  | (4,932 | ) |  | (9,501 | ) |  | (9,833 | )
Loans restored to performing status | (714 | ) |  | (921 | ) |  | (2,212 | ) |  | (3,101 | )
Acquired other real estate owned | — |  |  | — |  |  | 2,818 |  |  | — |
Valuation write down | (389 | ) |  | — |  |  | (389 | ) |  | — |
Sale of other real estate owned | — |  |  | — |  |  | — |  |  | (254 | )
Other | (76 | ) |  | (57 | ) |  | (115 | ) |  | (96 | )
Nonperforming assets ending balance | $ | 48,202 |  |  | $ | 45,584 |  |  | $ | 48,202 |  |  | $ | 45,584 |

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The following table sets forth information regarding troubled debt restructured loans as of the dates indicated:
Table 7 - Troubled Debt Restructurings

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

(1) During the fourth quarter of 2018 nonaccrual loans associated with a large commercial loan customer that had previously declared bankruptcy were modified when a court confirmed the customer's bankruptcy reorganization plan. That revision to loan terms required the Company to deem loans associated with the customer as troubled debt restructured loans.
The following table summarizes changes in TDRs for the periods indicated:
Table 8 - Activity in Troubled Debt Restructurings

| Three Months Ended |  | Nine Months Ended
| September 30 2019 |  | September 30 2018 |  | September 30 2019 |  | September 30 2018
| (Dollars in thousands)
TDRs beginning balance | $ | 50,264 |  |  | $ | 29,623 |  |  | $ | 53,197 |  |  | $ | 31,919 |
New to TDR status | 290 |  |  | 432 |  |  | 622 |  |  | 1,045 |
Paydowns | (4,131 | ) |  | (1,952 | ) |  | (7,396 | ) |  | (4,612 | )
Charge-offs | (9 | ) |  | (179 | ) |  | (9 | ) |  | (428 | )
TDRs ending balance | $ | 46,414 |  |  | $ | 27,924 |  |  | $ | 46,414 |  |  | $ | 27,924 |

Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. The table below shows interest income that was recognized or collected on all nonaccrual loans and TDRs as of the dates indicated:
Table 9 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings

| Three Months Ended |  | Nine Months Ended
| September 30 2019 |  | September 30 2018 |  | September 30 2019 |  | September 30 2018
| (Dollars in thousands)
The amount of incremental gross interest income that would have been recorded if nonaccrual loans had been current in accordance with their original terms | $ | 705 |  |  | $ | 650 |  |  | $ | 1,997 |  |  | $ | 1,918 |
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income | $ | 1,047 |  |  | $ | 519 |  |  | $ | 3,155 |  |  | $ | 1,301 |

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.
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Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impaired loans include all commercial and industrial loans, commercial real estate loans, commercial construction and small business loans that are on nonaccrual status, TDRs, and other loans that have been categorized as impaired. Impairment is measured on a loan by loan basis by comparing the loan’s value to either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. For impaired loans deemed collateral dependent, where impairment is measured using the fair value of the collateral, the Bank will either order a new appraisal or use another available source of collateral assessment such as a broker’s opinion of value to determine a reasonable estimate of the fair value of the collateral.
Total impaired loans at September 30, 2019 and December 31, 2018 were $56.9 million and $59.1 million, respectively. For additional information regarding the Company’s asset quality, including delinquent loans, nonaccruals, TDRs, and impaired loans, see Note 5, “Loans, Allowance for Loan Losses, and Credit Quality” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.
Potential problem loans are any loans which are not included in nonaccrual or nonperforming loans, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms. At September 30, 2019, there were 70 relationships, with an aggregate balance of $82.2 million, deemed to be potential problem loans. These potential problem loans continued to perform with respect to payments. Management actively monitors these loans and strives to minimize any possible adverse impact to the Company.
Allowance for Loan Losses The allowance for loan losses is maintained at a level that management considers appropriate to provide for probable loan losses based upon evaluation of known and inherent risks in the loan portfolio. The allowance is increased by providing for loan losses through a charge to expense and by credits for recoveries of loans previously charged-off and is reduced by loans being charged-off.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on increases in nonperforming loans, changes in economic conditions, or for other reasons. Additionally, various regulatory agencies, as an integral part of the Bank's examination process, periodically assess the adequacy of the allowance for loan losses to assess whether the allowance was determined in accordance with GAAP and applicable guidance.
The allowance for loan losses is allocated to loan types using both a formula-based approach applied to groups of loans and an analysis of certain individual loans for impairment. The formula-based approach emphasizes loss factors derived from actual historical portfolio loss rates, which are combined with an assessment of certain qualitative factors to determine the allowance amounts allocated to the various loan categories. Allowance amounts are determined based on an estimate of the historical average annual percentage rate of loan loss for each loan category, an estimate of the incurred loss emergence and confirmation period for each loan category, and certain qualitative risk factors considered in the computation of the allowance for loan losses. Additionally, the Company reviews numerous credit quality indicators when assessing the risk in its loan portfolio. For the commercial portfolio, the Company utilizes a 10-point commercial risk-rating system, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Factors considered include industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral and other considerations.
As of September 30, 2019, the allowance for loan losses totaled $66.9 million, or 0.75% of total loans, as compared to $64.3 million, or 0.93% of total loans, at December 31, 2018. The decrease in this percentage is attributable to the treatment of loans acquired in connection with the BHB acquisition. These acquired loans are recorded at fair value, which includes consideration for estimated credit losses, and without carryover of the respective portfolio's historical allowance for loan losses.
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The following table summarizes changes in the allowance for loan losses and other selected statistics for the periods presented:
Table 10 - Summary of Changes in the Allowance for Loan Losses

| Three Months Ended
| September 30 2019 |  | June 30 2019 |  | March 31 2019 |  | December 31 2018 |  | September 30 2018
| (Dollars in thousands)
Average total loans | $ | 8,897,794 |  |  | $ | 9,046,591 |  |  | $ | 6,935,927 |  |  | $ | 6,688,141 |  |  | $ | 6,500,907 |
Allowance for loan losses, beginning of period | $ | 65,960 |  |  | $ | 65,140 |  |  | $ | 64,293 |  |  | $ | 63,235 |  |  | $ | 62,557 |
Charged-off loans |  |  |  |  |  |  |  |  |
Commercial and industrial | — |  |  | — |  |  | — |  |  | — |  |  | 218 |
Commercial real estate | 82 |  |  | — |  |  | — |  |  | — |  |  | 82 |
Small business | 125 |  |  | 49 |  |  | 145 |  |  | 135 |  |  | 111 |
Residential real estate | — |  |  | — |  |  | — |  |  | — |  |  | — |
Home equity | 28 |  |  | 71 |  |  | 113 |  |  | 32 |  |  | 87 |
Other consumer | 472 |  |  | 352 |  |  | 301 |  |  | 421 |  |  | 349 |
Total charged-off loans | 707 |  |  | 472 |  |  | 559 |  |  | 588 |  |  | 847 |
Recoveries on loans previously charged-off |  |  |  |  |  |  |  |  |
Commercial and industrial | 1,003 |  |  | — |  |  | 124 |  |  | 3 |  |  | 108 |
Commercial real estate | 106 |  |  | 13 |  |  | 33 |  |  | 121 |  |  | 29 |
Small business | 61 |  |  | 20 |  |  | 27 |  |  | 17 |  |  | 10 |
Residential real estate | 140 |  |  | — |  |  | 1 |  |  | — |  |  | 9 |
Home equity | 194 |  |  | 18 |  |  | 66 |  |  | 28 |  |  | 71 |
Other consumer | 185 |  |  | 241 |  |  | 155 |  |  | 277 |  |  | 223 |
Total recoveries | 1,689 |  |  | 292 |  |  | 406 |  |  | 446 |  |  | 450 |
Net loans charged-off (recovered) |  |  |  |  |  |  |  |  |
Commercial and industrial | (1,003 | ) |  | — |  |  | (124 | ) |  | (3 | ) |  | 110 |
Commercial real estate | (24 | ) |  | (13 | ) |  | (33 | ) |  | (121 | ) |  | 53 |
Small business | 64 |  |  | 29 |  |  | 118 |  |  | 118 |  |  | 101 |
Residential real estate | (140 | ) |  | — |  |  | (1 | ) |  | — |  |  | (9 | )
Home equity | (166 | ) |  | 53 |  |  | 47 |  |  | 4 |  |  | 16 |
Other consumer | 287 |  |  | 111 |  |  | 146 |  |  | 144 |  |  | 126 |
Total net loans (recovered) charged-off | (982 | ) |  | 180 |  |  | 153 |  |  | 142 |  |  | 397 |
Provision for loan losses | — |  |  | 1,000 |  |  | 1,000 |  |  | 1,200 |  |  | 1,075 |
Total allowance for loan losses, end of period | $ | 66,942 |  |  | $ | 65,960 |  |  | $ | 65,140 |  |  | $ | 64,293 |  |  | $ | 63,235 |
Net loans (recovered)/charged-off as a percent of average total loans (annualized) | (0.04 | )% |  | 0.01 | % |  | 0.01 | % |  | 0.01 | % |  | 0.02 | %
Allowance for loan losses as a percent of total loans | 0.75 | % |  | 0.74 | % |  | 0.93 | % |  | 0.93 | % |  | 0.97 | %
Allowance for loan losses as a percent of nonperforming loans | 146.47 | % |  | 145.63 | % |  | 150.33 | % |  | 141.56 | % |  | 139.30 | %

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For purposes of the allowance for loan losses, management segregates the loan portfolio into the portfolio segments detailed in the table below. The allocation of the allowance for loan losses is made to each loan category using the analytical techniques and estimation methods described herein. While these amounts represent management’s best estimate of the distribution of probable losses at the evaluation dates, they are not necessarily indicative of either the categories in which actual losses may occur or the extent of such actual losses that may be recognized within each category. Each of these loan categories possesses unique risk characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio.
The following table sets forth the allocation of the allowance for loan losses by loan category at the dates indicated:
Table 11 - Summary of Allocation of Allowance for Loan Losses

| September 30 2019 |  | December 31 2018
| Allowance Amount |  | Percent of Loans In Category To Total Loans |  | Allowance Amount |  | Percent of Loans In Category To Total Loans
| (Dollars in thousands)
Commercial and industrial | $ | 17,332 |  |  | 15.8 | % |  | $ | 15,760 |  |  | 15.8 | %
Commercial real estate | 32,651 |  |  | 44.9 | % |  | 32,370 |  |  | 47.1 | %
Commercial construction | 5,833 |  |  | 5.8 | % |  | 5,158 |  |  | 5.3 | %
Small business | 1,752 |  |  | 1.9 | % |  | 1,756 |  |  | 2.4 | %
Residential real estate | 3,348 |  |  | 18.5 | % |  | 3,219 |  |  | 13.4 | %
Home equity | 5,749 |  |  | 12.8 | % |  | 5,608 |  |  | 15.8 | %
Other consumer | 277 |  |  | 0.3 | % |  | 422 |  |  | 0.2 | %
Total allowance for loan losses | $ | 66,942 |  |  | 100.0 | % |  | $ | 64,293 |  |  | 100.0 | %

To determine if a loan should be charged-off, all possible sources of repayment are analyzed. Possible sources of repayment include the potential for future cash flows, the value of the Bank’s collateral, and the strength of co-makers or guarantors. When available information confirms that specific loans or portions thereof are uncollectible, these amounts are promptly charged-off against the allowance for loan losses and any recoveries of such previously charged-off amounts are credited to the allowance.
Regardless of whether a loan is unsecured or collateralized, the Company charges off the amount of any confirmed loan loss in the period when the loans, or portions of loans, are deemed uncollectible. For troubled, collateral-dependent loans, loss-confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral.
For additional information regarding the Company’s allowance for loan losses, see Note 5, “Loans, Allowance for Loan Losses, and Credit Quality” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.
Federal Home Loan Bank Stock The Bank held an investment in Federal Home Loan Bank (“FHLB”) of Boston stock of $15.0 million and $15.7 million at September 30, 2019 and December 31, 2018, respectively. The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for the FHLB of Boston membership is to gain access to a reliable source of wholesale funding 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 purchases or is subject to redemption of FHLB stock proportional to the volume of funding received and views the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return.
Goodwill and Other Intangible Assets Goodwill and other intangible assets were $535.9 million and $271.4 million as of September 30, 2019 and December 31, 2018, respectively. The increase was due to the BHB acquisition, partially offset by amortization of definite-lived intangibles.
The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted. Accordingly, the Company performed its annual goodwill impairment testing during the third quarter of 2019 and determined that the Company's goodwill was not impaired. Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. There were no events or changes that indicated impairment of other intangible assets.
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Cash Surrender Value of Life Insurance Policies The Bank holds life insurance policies for the purpose of offsetting its future obligations to its employees under its retirement and benefits plans. The cash surrender value of life insurance policies was $195.9 million and $160.5 million at September 30, 2019 and December 31, 2018, respectively, with $34.5 million of the increase attributable to policies obtained in the BHB acquisition. The Company recorded tax exempt income from life insurance policies of $1.3 million and $984,000 for the three months ended September 30, 2019 and 2018, respectively, and $3.6 million and $2.9 million for the nine month periods ended September 30, 2019 and 2018, respectively. In addition, during the third quarter of 2019 the Company recorded gains on life insurance benefits of $434,000.
Deposits As of September 30, 2019, total deposits were $9.3 billion, representing a $1.9 billion, or 25.6%, increase from December 31, 2018. The increase is primarily attributable to the BHB acquisition. The total cost of deposits was 0.50% and 0.30% for the three months ended September 30, 2019 and 2018, respectively, and 0.46% and 0.27%, for the nine months ended September 30, 2019 and 2018, respectively. Core deposits represented 82.49% of total deposits as of September 30, 2019.
The Company also participates in the Promontory Interfinancial Network, allowing the Bank to provide easy access to multi-million dollar Federal Deposit Insurance Corporation ("FDIC") deposit insurance protection on certificate of deposit and money market investments for consumers, businesses and public entities. This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core market and amounted to $211.0 million and $180.5 million at September 30, 2019 and December 31, 2018, respectively. In addition, the Company may occasionally raise funds through the use of brokered deposits outside of the Promontory Interfinancial Network, which amounted to $303.4 million and $6.0 million at September 30, 2019 and December 31, 2018, respectively. During 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was promulgated and determined that reciprocal deposits, such as those acquired through the Promontory Interfinancial Network, were no longer to be treated as brokered deposits. Accordingly, these amounts are no longer included in the total brokered amounts reported by the Company.
Excluding the effects of the BHB acquisition, the Company's deposits have declined modestly on an organic basis as compared to the prior year end. The table below summarizes these organic declines by category for the period indicated:
Table 12 - Components of Deposit Growth/(Decline)

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

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Borrowings The Company’s borrowings consist of both short-term and long-term borrowings and provide the Bank with one of its primary sources of funding. Maintaining available borrowing capacity provides the Bank with a contingent source of liquidity. Borrowings increased by $34.1 million, or 13.2%, at September 30, 2019, as compared to December 31, 2018. The following table presents activity for the nine months ended September 30, 2019 within each of the Company's major borrowing categories:

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

Additionally, the Bank had $4.2 billion and $2.8 billion of assets pledged as collateral against borrowings at September 30, 2019 and December 31, 2018, respectively. These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston.
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Capital Resources On September 19, 2019, the Company’s Board of Directors declared a cash dividend of $0.44 per share to stockholders of record as of the close of business on September 30, 2019. This dividend was paid on October 11, 2019.
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 Capital and Common Equity Tier 1 Capital (as defined for regulatory purposes) to risk weighted assets (as defined for regulatory purposes) and Tier 1 Capital to average assets (as defined for regulatory purposes). At September 30, 2019 and December 31, 2018, the Company and the Bank exceeded the minimum requirements for all applicable ratios that were in effect during the respective periods. The Company’s and the Bank’s capital amounts and ratios are presented in the following table, along with the applicable minimum requirements for each period indicated:
Table 14 - Company and Bank's Capital Amounts and Ratios

| Actual |  | For Capital Adequacy Purposes |  | To Be Well Capitalized Under Prompt Corrective Action Provisions
| Amount |  | Ratio |  | Amount |  |  |  | Ratio |  | Amount |  |  |  | Ratio
| September 30, 2019
| (Dollars in thousands)
Company (consolidated) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk weighted assets) | $ | 1,349,454 |  |  | 14.88 | % |  | $ | 725,646 |  |  | ≥ |  | 8.0 | % |  | N/A |  |  |  | N/A
Common equity tier 1 capital (to risk weighted assets) | 1,135,617 |  |  | 12.52 | % |  | 408,176 |  |  | ≥ |  | 4.5 | % |  | N/A |  |  |  | N/A
Tier 1 capital (to risk weighted assets) | 1,196,617 |  |  | 13.19 | % |  | 544,235 |  |  | ≥ |  | 6.0 | % |  | N/A |  |  |  | N/A
Tier 1 capital (to average assets) | 1,196,617 |  |  | 10.83 | % |  | 462,887 |  |  | ≥ |  | 4.0 | % |  | N/A |  |  |  | N/A
Bank |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk weighted assets) | $ | 1,312,911 |  |  | 14.47 | % |  | $ | 725,665 |  |  | ≥ |  | 8.0 | % |  | $ | 907,081 |  |  | ≥ |  | 10.00 | %
Common equity tier 1 capital (to risk weighted assets) | 1,244,308 |  |  | 13.72 | % |  | 408,187 |  |  | ≥ |  | 4.5 | % |  | 589,603 |  |  | ≥ |  | 6.50 | %
Tier 1 capital (to risk weighted assets) | 1,244,308 |  |  | 13.72 | % |  | 544,249 |  |  | ≥ |  | 6.0 | % |  | 725,665 |  |  | ≥ |  | 8.00 | %
Tier 1 capital (to average assets) | 1,244,308 |  |  | 11.29 | % |  | 444,347 |  |  | ≥ |  | 4.0 | % |  | 555,433 |  |  | ≥ |  | 5.00 | %
| December 31, 2018
| (Dollars in thousands)
Company (consolidated) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk weighted assets) | $ | 992,454 |  |  | 14.45 | % |  | $ | 549,297 |  |  | ≥ |  | 8.0 | % |  | N/A |  |  |  | N/A
Common equity tier 1 capital (to risk weighted assets) | 818,176 |  |  | 11.92 | % |  | 308,980 |  |  | ≥ |  | 4.5 | % |  | N/A |  |  |  | N/A
Tier 1 capital (to risk weighted assets) | 892,176 |  |  | 12.99 | % |  | 411,973 |  |  | ≥ |  | 6.0 | % |  | N/A |  |  |  | N/A
Tier 1 capital (to average assets) | 892,176 |  |  | 10.69 | % |  | 333,754 |  |  | ≥ |  | 4.0 | % |  | N/A |  |  |  | N/A
Bank |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total capital (to risk weighted assets) | $ | 937,574 |  |  | 13.66 | % |  | $ | 549,036 |  |  | ≥ |  | 8.0 | % |  | $ | 686,295 |  |  | ≥ |  | 10.00 | %
Common equity tier 1 capital (to risk weighted assets) | 872,024 |  |  | 12.71 | % |  | 308,833 |  |  | ≥ |  | 4.5 | % |  | 446,092 |  |  | ≥ |  | 6.50 | %
Tier 1 capital (to risk weighted assets) | 872,024 |  |  | 12.71 | % |  | 411,777 |  |  | ≥ |  | 6.0 | % |  | 549,036 |  |  | ≥ |  | 8.00 | %
Tier 1 capital (to average assets) | 872,024 |  |  | 10.46 | % |  | 333,595 |  |  | ≥ |  | 4.0 | % |  | 416,994 |  |  | ≥ |  | 5.00 | %

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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%. At September 30, 2019, the Company's capital levels exceeded the buffer.
Dividend Restrictions In the ordinary course of business, the Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. Under the foregoing dividend restrictions and while maintaining its "well capitalized" status, dividends paid by the Bank to the Company totaled $32.6 million and $15.5 million for the three months ended September 30, 2019 and 2018, respectively and totaled $90.3 million and $44.5 million for the nine months ended September 30, 2019 and 2018, respectively. The nine months 2019 dividends included $16.5 million that was used for funding the April 1, 2019 BHB acquisition.
Trust Preferred Securities In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities has not been included in the consolidated financial statements of the Company. At September 30, 2019 and December 31, 2018 there was $61.0 million and $74.0 million, respectively, in trust preferred securities which have been included in the Tier 1 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.
Common Stock Repurchase Program On October 17, 2019, the Company put into place a share repurchase program with the ability to repurchase up to 1.5 million shares of the Company's common stock. Repurchases may be made from time to time on the open market and in privately negotiated transactions, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic condition, legal and contractual requirements and other factors. The repurchase program will expire on October 31, 2020 and may be modified, suspended or discontinued at any time. Management will plan to utilize the repurchase program as another tool to effectively manage capital and liquidity needs.
Investment Management As of September 30, 2019, the Rockland Trust Investment Management Group had assets under administration of $4.5 billion, representing 6,024 trust, fiduciary, and agency accounts. At December 31, 2018, assets under administration were $3.6 billion, representing approximately 5,936 trust, fiduciary, and agency accounts. Included in these amounts as of September 30, 2019 and December 31, 2018 are assets under administration of $327.2 million and $268.0 million, respectively, relating to the Company’s registered investment advisor, Bright Rock Capital Management, LLC, which provides institutional quality investment management services to institutional and high net worth clients. Revenue from the Investment Management Group was $6.6 million and $5.9 million for the three months ended September 30, 2019 and 2018, respectively, and $19.1 million and $17.6 million for the nine months ended September 30, 2019 and 2018, respectively.
Retail investments and insurance revenue was $554,000 and $652,000 for the three months ended September 30, 2019 and 2018, respectively, and $2.0 million for both the nine months ended September 30, 2019 and 2018, respectively.
Retail investments and insurance revenue includes commission revenue from LPL Financial (“LPL”) and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., which offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance. Registered representatives who are both employed by the Bank and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base. These same agents are also approved and appointed with various other broker general agents for the purpose of processing insurance solutions for clients.
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RESULTS OF OPERATIONS
The following table provides a summary of results of operations for the three and nine months ended September 30, 2019 and 2018:
Table 15 - Summary of Results of Operations

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands, except per share data)
Net income | $ | 51,845 |  |  | $ | 33,015 |  |  | $ | 117,698 |  |  | $ | 91,688 |
Diluted earnings per share | $ | 1.51 |  |  | $ | 1.20 |  |  | $ | 3.64 |  |  | $ | 3.32 |
Return on average assets | 1.78 | % |  | 1.57 | % |  | 1.47 | % |  | 1.49 | %
Return on average equity | 12.33 | % |  | 13.19 | % |  | 10.77 | % |  | 12.60 | %
Net interest margin | 4.03 | % |  | 3.94 | % |  | 4.08 | % |  | 3.87 | %

Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume, mix, and interest rate sensitivity of interest-earning assets and interest-bearing liabilities.
On a fully tax equivalent basis ("FTE"), net interest income for the third quarter of 2019 was $104.9 million, representing an increase of $28.4 million, or 37.2%, when compared to the third quarter of 2018. The increase in net interest income from the year ago period is primarily due to increased interest earning assets, including those obtained in the BHB and MNB acquisitions.
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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 nine months ending September 30, 2019 and 2018, respectively. Nontaxable income from loans and securities is presented on a FTE basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing income taxes that would have been paid if the income had been fully taxable.
Table 16 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date

| Three Months Ended September 30
| 2019 |  | 2018
| Average Balance |  | Interest Earned/ Paid |  | Yield/Rate |  | Average Balance |  | Interest Earned/ Paid |  | Yield/Rate
| (Dollars in thousands)
Interest-earning assets |  |  |  |  |  |  |  |  |  |  |
Interest-earning deposits with banks, federal funds sold, and short term investments | $ | 115,255 |  |  | $ | 680 |  |  | 2.34 | % |  | $ | 180,802 |  |  | $ | 916 |  |  | 2.01 | %
Securities |  |  |  |  |  |  |  |  |  |  |
Securities - trading | 1,947 |  |  | — |  |  | — | % |  | 1,608 |  |  | — |  |  | — | %
Securities - taxable investments | 1,204,314 |  |  | 8,269 |  |  | 2.72 | % |  | 1,005,787 |  |  | 6,664 |  |  | 2.63 | %
Securities - nontaxable investments (1) | 1,739 |  |  | 18 |  |  | 4.11 | % |  | 1,992 |  |  | 18 |  |  | 3.58 | %
Total securities | $ | 1,208,000 |  |  | $ | 8,287 |  |  | 2.72 | % |  | $ | 1,009,387 |  |  | $ | 6,682 |  |  | 2.63 | %
Loans held for sale | 102,065 |  |  | 456 |  |  | 1.77 | % |  | 8,340 |  |  | 61 |  |  | 2.90 | %
Loans (2) |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial (1) | 1,380,007 |  |  | 20,274 |  |  | 5.83 | % |  | 975,980 |  |  | 11,936 |  |  | 4.85 | %
Commercial real estate (1) | 4,017,670 |  |  | 49,139 |  |  | 4.85 | % |  | 3,144,613 |  |  | 37,048 |  |  | 4.67 | %
Commercial construction | 510,277 |  |  | 7,155 |  |  | 5.56 | % |  | 356,091 |  |  | 4,572 |  |  | 5.09 | %
Small business | 172,942 |  |  | 2,626 |  |  | 6.02 | % |  | 147,518 |  |  | 2,183 |  |  | 5.87 | %
Total commercial | 6,080,896 |  |  | 79,194 |  |  | 5.17 | % |  | 4,624,202 |  |  | 55,739 |  |  | 4.78 | %
Residential real estate | 1,644,467 |  |  | 17,329 |  |  | 4.18 | % |  | 792,154 |  |  | 7,959 |  |  | 3.99 | %
Home equity | 1,142,137 |  |  | 13,309 |  |  | 4.62 | % |  | 1,071,511 |  |  | 11,457 |  |  | 4.24 | %
Total consumer real estate | 2,786,604 |  |  | 30,638 |  |  | 4.36 | % |  | 1,863,665 |  |  | 19,416 |  |  | 4.13 | %
Other consumer | 30,294 |  |  | 627 |  |  | 8.21 | % |  | 13,040 |  |  | 244 |  |  | 7.42 | %
Total loans | $ | 8,897,794 |  |  | $ | 110,459 |  |  | 4.93 | % |  | $ | 6,500,907 |  |  | $ | 75,399 |  |  | 4.60 | %
Total interest-earning assets | $ | 10,323,114 |  |  | $ | 119,882 |  |  | 4.61 | % |  | $ | 7,699,436 |  |  | $ | 83,058 |  |  | 4.28 | %
Cash and due from banks | 121,515 |  |  |  |  |  |  | 106,273 |  |  |  |  |
Federal Home Loan Bank stock | 15,781 |  |  |  |  |  |  | 13,107 |  |  |  |  |
Other assets | 1,119,388 |  |  |  |  |  |  | 547,296 |  |  |  |  |
Total assets | $ | 11,579,798 |  |  |  |  |  |  | $ | 8,366,112 |  |  |  |  |
Interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  |  |  |  |  |  |  |  |  |
Savings and interest checking accounts | $ | 3,157,870 |  |  | $ | 2,120 |  |  | 0.27 | % |  | $ | 2,654,157 |  |  | $ | 1,433 |  |  | 0.21 | %
Money market | 1,942,932 |  |  | 4,220 |  |  | 0.86 | % |  | 1,373,594 |  |  | 2,056 |  |  | 0.59 | %
Time deposits | 1,471,749 |  |  | 5,506 |  |  | 1.48 | % |  | 652,638 |  |  | 1,762 |  |  | 1.07 | %
Total interest-bearing deposits | $ | 6,572,551 |  |  | $ | 11,846 |  |  | 0.72 | % |  | $ | 4,680,389 |  |  | $ | 5,251 |  |  | 0.45 | %
Borrowings |  |  |  |  |  |  |  |  |  |  |
Federal Home Loan Bank borrowings | $ | 156,054 |  |  | $ | 945 |  |  | 2.40 | % |  | $ | 50,770 |  |  | $ | 248 |  |  | 1.94 | %
Customer repurchase agreements | — |  |  | — |  |  | — | % |  | 148,575 |  |  | 75 |  |  | 0.20 | %
Long-term borrowings | 74,885 |  |  | 684 |  |  | 3.62 | % |  | — |  |  | — |  |  | — | %
Junior subordinated debentures | 62,848 |  |  | 506 |  |  | 3.19 | % |  | 73,077 |  |  | 640 |  |  | 3.47 | %
Subordinated debentures | 84,319 |  |  | 1,045 |  |  | 4.92 | % |  | 34,711 |  |  | 427 |  |  | 4.88 | %

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Total borrowings | $ | 378,106 |  |  | $ | 3,180 |  |  | 3.34 | % |  | $ | 307,133 |  |  | $ | 1,390 |  |  | 1.80 | %
Total interest-bearing liabilities | $ | 6,950,657 |  |  | $ | 15,026 |  |  | 0.86 | % |  | $ | 4,987,522 |  |  | $ | 6,641 |  |  | 0.53 | %
Noninterest bearing demand deposits | 2,753,596 |  |  |  |  |  |  | 2,300,943 |  |  |  |  |
Other liabilities | 207,924 |  |  |  |  |  |  | 84,442 |  |  |  |  |
Total liabilities | $ | 9,912,177 |  |  |  |  |  |  | $ | 7,372,907 |  |  |  |  |
Stockholders' equity | 1,667,621 |  |  |  |  |  |  | 993,205 |  |  |  |  |
Total liabilities and stockholders' equity | $ | 11,579,798 |  |  |  |  |  |  | $ | 8,366,112 |  |  |  |  |
Net interest income (1) |  |  | $ | 104,856 |  |  |  |  |  |  | $ | 76,417 |  |  |
Interest rate spread (3) |  |  |  |  | 3.75 | % |  |  |  |  |  | 3.75 | %
Net interest margin (4) |  |  |  |  | 4.03 | % |  |  |  |  |  | 3.94 | %
Supplemental information |  |  |  |  |  |  |  |  |  |  |
Total deposits, including demand deposits | $ | 9,326,147 |  |  | $ | 11,846 |  |  |  |  | $ | 6,981,332 |  |  | $ | 5,251 |  |  |
Cost of total deposits |  |  |  |  | 0.50 | % |  |  |  |  |  | 0.30 | %
Total funding liabilities, including demand deposits | $ | 9,704,253 |  |  | $ | 15,026 |  |  |  |  | $ | 7,288,465 |  |  | $ | 6,641 |  |  |
Cost of total funding liabilities |  |  |  |  | 0.61 | % |  |  |  |  |  | 0.36 | %

(1) | The total amount of adjustment to present interest income and yield on a FTE basis is $258,000 and $183,000 for the three months ended September 30, 2019 and 2018, respectively. The FTE adjustment relates to tax exempt income relating to securities with average balances of $1.7 million and $2.0 million and tax exempt income relating to loans with average balances of $84.5 million and $57.4 million, for the three months ended September 30, 2019 and 2018, respectively.

(2) | Average nonaccruing loans are included in loans.

(3) | Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(4) | Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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Table 17 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date

| Nine Months Ended September 30
| 2019 |  | 2018
| Average Balance |  | Interest Earned/ Paid |  | Yield/ Rate |  | Average Balance |  | Interest Earned/ Paid |  | Yield/ Rate
| (Dollars in thousands)
Interest-earning assets |  |  |  |  |  |  |  |  |  |  |
Interest-earning deposits with banks, federal funds sold, and short-term investments | $ | 96,305 |  |  | $ | 1,753 |  |  | 2.43 | % |  | $ | 128,646 |  |  | $ | 1,768 |  |  | 1.84 | %
Securities |  |  |  |  |  |  |  |  |  |  |
Securities - trading | 1,820 |  |  | — |  |  | — | % |  | 1,547 |  |  | — |  |  | — | %
Securities - taxable investments | 1,176,961 |  |  | 24,255 |  |  | 2.76 | % |  | 988,885 |  |  | 19,381 |  |  | 2.62 | %
Securities - nontaxable investments (1) | 1,739 |  |  | 52 |  |  | 4.00 | % |  | 2,152 |  |  | 58 |  |  | 3.60 | %
Total securities | $ | 1,180,520 |  |  | $ | 24,307 |  |  | 2.75 | % |  | $ | 992,584 |  |  | $ | 19,439 |  |  | 2.62 | %
Loans held for sale | 40,768 |  |  | 527 |  |  | 1.73 | % |  | 5,291 |  |  | 110 |  |  | 2.78 | %
Loans (2) |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial (1) | 1,300,815 |  |  | 55,674 |  |  | 5.72 | % |  | 933,163 |  |  | 32,667 |  |  | 4.68 | %
Commercial real estate (1) | 3,785,964 |  |  | 139,229 |  |  | 4.92 | % |  | 3,115,076 |  |  | 105,511 |  |  | 4.53 | %
Commercial construction | 453,097 |  |  | 20,037 |  |  | 5.91 | % |  | 390,061 |  |  | 14,499 |  |  | 4.97 | %
Small business | 168,280 |  |  | 7,720 |  |  | 6.13 | % |  | 139,523 |  |  | 6,053 |  |  | 5.80 | %
Total commercial | 5,708,156 |  |  | 222,660 |  |  | 5.22 | % |  | 4,577,823 |  |  | 158,730 |  |  | 4.64 | %
Residential real estate | 1,442,007 |  |  | 44,351 |  |  | 4.11 | % |  | 772,663 |  |  | 23,121 |  |  | 4.00 | %
Home equity | 1,125,144 |  |  | 38,797 |  |  | 4.61 | % |  | 1,061,280 |  |  | 32,492 |  |  | 4.09 | %
Total consumer real estate | 2,567,151 |  |  | 83,148 |  |  | 4.33 | % |  | 1,833,943 |  |  | 55,613 |  |  | 4.05 | %
Other consumer | 25,317 |  |  | 1,623 |  |  | 8.57 | % |  | 11,340 |  |  | 669 |  |  | 7.89 | %
Total loans | $ | 8,300,624 |  |  | $ | 307,431 |  |  | 4.95 | % |  | $ | 6,423,106 |  |  | $ | 215,012 |  |  | 4.48 | %
Total interest-earning assets | $ | 9,618,217 |  |  | $ | 334,018 |  |  | 4.64 | % |  | $ | 7,549,627 |  |  | $ | 236,329 |  |  | 4.19 | %
Cash and due from banks | 117,465 |  |  |  |  |  |  | 101,642 |  |  |  |  |
Federal Home Loan Bank stock | 16,561 |  |  |  |  |  |  | 13,174 |  |  |  |  |
Other assets | 927,837 |  |  |  |  |  |  | 546,276 |  |  |  |  |
Total assets | $ | 10,680,080 |  |  |  |  |  |  | $ | 8,210,719 |  |  |  |  |
Interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  |  |  |  |  |  |  |  |  |
Savings and interest checking accounts | $ | 3,085,974 |  |  | $ | 6,249 |  |  | 0.27 | % |  | $ | 2,632,311 |  |  | $ | 3,819 |  |  | 0.19 | %
Money market | 1,796,081 |  |  | 11,379 |  |  | 0.85 | % |  | 1,357,488 |  |  | 5,087 |  |  | 0.50 | %
Time deposits | 1,190,950 |  |  | 12,424 |  |  | 1.39 | % |  | 646,055 |  |  | 4,867 |  |  | 1.01 | %
Total interest-bearing deposits | $ | 6,073,005 |  |  | $ | 30,052 |  |  | 0.66 | % |  | $ | 4,635,854 |  |  | $ | 13,773 |  |  | 0.40 | %
Borrowings |  |  |  |  |  |  |  |  |  |  |
Federal Home Loan Bank borrowings | $ | 213,896 |  |  | $ | 4,028 |  |  | 2.52 | % |  | $ | 62,055 |  |  | $ | 803 |  |  | 1.73 | %
Customer repurchase agreements | — |  |  | — |  |  | — | % |  | 149,174 |  |  | 205 |  |  | 0.18 | %
Line of credit | 3,595 |  |  | 104 |  |  | 3.87 | % |  | — |  |  | — |  |  | — | %
Long-term borrowings | 51,327 |  |  | 1,461 |  |  | 3.81 | % |  | — |  |  | — |  |  | — | %
Junior subordinated debentures | 69,176 |  |  | 1,891 |  |  | 3.65 | % |  | 73,076 |  |  | 1,855 |  |  | 3.39 | %
Subordinated debentures | 71,242 |  |  | 2,633 |  |  | 4.94 | % |  | 34,699 |  |  | 1,282 |  |  | 4.94 | %
Total borrowings | $ | 409,236 |  |  | $ | 10,117 |  |  | 3.31 | % |  | $ | 319,004 |  |  | $ | 4,145 |  |  | 1.74 | %
Total interest-bearing liabilities | $ | 6,482,241 |  |  | $ | 40,169 |  |  | 0.83 | % |  | $ | 4,954,858 |  |  | $ | 17,918 |  |  | 0.48 | %

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Noninterest bearing demand deposits | 2,572,357 |  |  |  |  |  |  | 2,202,305 |  |  |  |  |
Other liabilities | 164,783 |  |  |  |  |  |  | 80,964 |  |  |  |  |
Total liabilities | $ | 9,219,381 |  |  |  |  |  |  | $ | 7,238,127 |  |  |  |  |
Stockholders' equity | 1,460,699 |  |  |  |  |  |  | 972,592 |  |  |  |  |
Total liabilities and stockholders' equity | $ | 10,680,080 |  |  |  |  |  |  | $ | 8,210,719 |  |  |  |  |
Net interest income (1) |  |  | $ | 293,849 |  |  |  |  |  |  | $ | 218,411 |  |  |
Interest rate spread (3) |  |  |  |  | 3.81 | % |  |  |  |  |  | 3.71 | %
Net interest margin (4) |  |  |  |  | 4.08 | % |  |  |  |  |  | 3.87 | %
Supplemental information |  |  |  |  |  |  |  |  |  |  |
Total deposit, including demand deposits | $ | 8,645,362 |  |  | $ | 30,052 |  |  |  |  | $ | 6,838,159 |  |  | $ | 13,773 |  |  |
Cost of total deposits |  |  |  |  | 0.46 | % |  |  |  |  |  | 0.27 | %
Total funding liabilities, including demand deposits | $ | 9,054,598 |  |  | $ | 40,169 |  |  |  |  | $ | 7,157,163 |  |  | $ | 17,918 |  |  |
Cost of total funding liabilities |  |  |  |  | 0.59 | % |  |  |  |  |  | 0.33 | %

(1) | The total amount of adjustment to present interest income and yield on a FTE basis is $707,000 and $538,000 for the nine months ended September 30, 2019 and 2018, respectively. The FTE adjustment relates to nontaxable investment securities with average balances of $1.7 million and $2.2 million and tax exempt income relating to loans with average balances of $78.4 million and $54.8 million for the nine months ended September 30, 2019 and 2018, respectively.

(2) | Average nonaccruing loans are included in loans.

(3) | Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(4) | Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

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The following table presents certain information on a FTE basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to: (1) changes in rate (change in rate multiplied by prior period volume), (2) changes in volume (change in volume multiplied by old rate), and (3) changes in volume/rate (change in volume multiplied by change in rate) which is allocated to the change due to rate column:
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Table 18 - Volume Rate Analysis

| Three Months Ended September 30 |  | Nine Months Ended September 30
| 2019 Compared To 2018 |  | 2019 Compared To 2018
| Change Due to Rate |  | Change Due to Volume |  | Total Change |  | Change Due to Rate |  | Change Due to Volume |  | Total Change
| (Dollars in thousands)
Income on interest-earning assets |  |  |  |  |  |  |  |  |  |  |
Interest earning deposits, federal funds sold and short term investments | $ | 96 |  |  | $ | (332 | ) |  | $ | (236 | ) |  | $ | 429 |  |  | $ | (444 | ) |  | $ | (15 | )
Securities |  |  |  |  |  |  |  |  |  |  |
Securities - taxable investments | 290 |  |  | 1,315 |  |  | 1,605 |  |  | 1,188 |  |  | 3,686 |  |  | 4,874 |
Securities - nontaxable investments (1) | 2 |  |  | (2 | ) |  | — |  |  | 5 |  |  | (11 | ) |  | (6 | )
Total securities |  |  |  |  | 1,605 |  |  |  |  |  |  | 4,868 |
Loans held for sale | (291 | ) |  | 686 |  |  | 395 |  |  | (321 | ) |  | 738 |  |  | 417 |
Loans |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial (1) | 3,397 |  |  | 4,941 |  |  | 8,338 |  |  | 10,137 |  |  | 12,870 |  |  | 23,007 |
Commercial real estate (1) | 1,805 |  |  | 10,286 |  |  | 12,091 |  |  | 10,994 |  |  | 22,724 |  |  | 33,718 |
Commercial construction | 603 |  |  | 1,980 |  |  | 2,583 |  |  | 3,195 |  |  | 2,343 |  |  | 5,538 |
Small business | 67 |  |  | 376 |  |  | 443 |  |  | 419 |  |  | 1,248 |  |  | 1,667 |
Total commercial |  |  |  |  | 23,455 |  |  |  |  |  |  | 63,930 |
Residential real estate | 807 |  |  | 8,563 |  |  | 9,370 |  |  | 1,201 |  |  | 20,029 |  |  | 21,230 |
Home equity | 1,097 |  |  | 755 |  |  | 1,852 |  |  | 4,350 |  |  | 1,955 |  |  | 6,305 |
Total consumer real estate |  |  |  |  | 11,222 |  |  |  |  |  |  | 27,535 |
Other consumer | 60 |  |  | 323 |  |  | 383 |  |  | 129 |  |  | 825 |  |  | 954 |
Total loans (1)(2) |  |  |  |  | 35,060 |  |  |  |  |  |  | 92,419 |
Total income of interest-earning assets |  |  |  |  | $ | 36,824 |  |  |  |  |  |  | $ | 97,689 |
Expense of interest-bearing liabilities |  |  |  |  |  |  |  |  |  |  |
Deposits |  |  |  |  |  |  |  |  |  |  |
Savings and interest checking accounts | $ | 415 |  |  | $ | 272 |  |  | $ | 687 |  |  | $ | 1,772 |  |  | $ | 658 |  |  | $ | 2,430 |
Money market | 1,312 |  |  | 852 |  |  | 2,164 |  |  | 4,648 |  |  | 1,644 |  |  | 6,292 |
Time certificates of deposits | 1,533 |  |  | 2,211 |  |  | 3,744 |  |  | 3,452 |  |  | 4,105 |  |  | 7,557 |
Total interest bearing deposits |  |  |  |  | 6,595 |  |  |  |  |  |  | 16,279 |
Borrowings |  |  |  |  |  |  |  |  |  |  |
Federal Home Loan Bank borrowings | 183 |  |  | 514 |  |  | 697 |  |  | 1,260 |  |  | 1,965 |  |  | 3,225 |
Customer repurchase agreements and other short-term borrowings | — |  |  | (75 | ) |  | (75 | ) |  | — |  |  | (205 | ) |  | (205 | )
Line of Credit | — |  |  | — |  |  | — |  |  | 104 |  |  | — |  |  | 104 |
Long-term borrowings | 684 |  |  | — |  |  | 684 |  |  | 1,461 |  |  | — |  |  | 1,461 |
Junior subordinated debentures | (44 | ) |  | (90 | ) |  | (134 | ) |  | 135 |  |  | (99 | ) |  | 36 |
Subordinated debentures | 8 |  |  | 610 |  |  | 618 |  |  | 1 |  |  | 1,350 |  |  | 1,351 |
Total borrowings |  |  |  |  | 1,790 |  |  |  |  |  |  | 5,972 |
Total expense of interest-bearing liabilities |  |  |  |  | 8,385 |  |  |  |  |  |  | 22,251 |
Change in net interest income |  |  |  |  | $ | 28,439 |  |  |  |  |  |  | $ | 75,438 |

(1) | The table above reflects income determined on a FTE basis. See footnote (1) to tables 16 and 17 for the related adjustments.

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

Provision For Loan Losses The provision for loan losses represents the charge to expense that is required to maintain an appropriate level of allowance for loan losses. There was no provision for loan losses during the three months ended
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September 30, 2019 and $2.0 million for the nine months ended September 30, 2019, as compared to $1.1 million and $3.6 million for the comparable year-ago periods. The Company’s allowance for loan losses, as a percentage of total loans, was 0.75% at September 30, 2019, 0.93% at December 31, 2018, and 0.97% at September 30, 2018. The decrease in this percentage is attributable to the treatment of loans acquired in connection with the BHB acquisition. These acquired loans are recorded at fair value, which include consideration for estimated credit losses, and without carryover of the respective portfolio's historical allowance for loan losses. The Company recorded net recoveries of $982,000 and $649,000 for the three and nine months ended September 30, 2019, as compared to net charge-offs of $397,000 and $983,000 for the three and nine months ended September 30, 2018, respectively.
Management’s periodic evaluation of the appropriate allowance for loan losses considers past loan loss experience, known and inherent risks within the loan portfolio, adverse situations which may affect the borrowers’ ability to repay, the estimated value of the underlying collateral, if any, and current economic conditions. Regarding the estimated value of the underlying collateral, substantial portions of the Bank’s loans are secured by real estate in Massachusetts and Rhode Island. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio is susceptible to changes in property values within those states.
Additionally, the national and local economies remained generally strong and expansion continued despite lingering uncertainty regarding trade policy and tariffs. The labor market in the New England region remains very tight which has led to difficulty for some employers seeking to fill vacancies. Wage growth remains somewhat restrained, however increases have begun to emerge in a number of industries. Retail sales versus the prior year are up modestly with many retailers noting that they have not experienced significant pricing pressure despite the ongoing tariff negotiations with China. The spring and summer tourism market for the Boston area appears to have been strong versus the prior year with hotels reporting strong occupancy and room rate growth. Residential real estate activity appears to be moderating somewhat versus the prior year even as prices continue to rise as inventory falls. Commercial construction activity in the Boston market continues to be strong as projects related to office space have increased relative to apartment projects. Management believes that the overall economic outlook for the near term remains generally positive for the New England region.
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Noninterest Income The following table sets forth information regarding noninterest income for the periods shown:
Table 19 - Noninterest Income

| Three Months Ended
| September 30 |  | Change
| 2019 |  | 2018 |  | Amount |  | %
| (Dollars in thousands) |  |
Deposit account fees | $ | 5,299 |  |  | $ | 4,658 |  |  | $ | 641 |  |  | 13.76 | %
Interchange and ATM fees | 6,137 |  |  | 4,947 |  |  | 1,190 |  |  | 24.05 | %
Investment management | 7,188 |  |  | 6,564 |  |  | 624 |  |  | 9.51 | %
Mortgage banking income | 3,968 |  |  | 1,222 |  |  | 2,746 |  |  | 224.71 | %
Gain on life insurance benefits | 434 |  |  | 1,463 |  |  | (1,029 | ) |  | (70.33 | )%
Increase in cash surrender value of life insurance policies | 1,304 |  |  | 984 |  |  | 320 |  |  | 32.52 | %
Loan level derivative income | 2,739 |  |  | 392 |  |  | 2,347 |  |  | 598.72 | %
Other noninterest income | 4,747 |  |  | 3,034 |  |  | 1,713 |  |  | 56.46 | %
Total | $ | 31,816 |  |  | $ | 23,264 |  |  | $ | 8,552 |  |  | 36.76 | %
| Nine Months Ended
| September 30 |  | Change
| 2019 |  | 2018 |  | Amount |  | %
| (Dollars in thousands) |  |
Deposit account fees | $ | 14,785 |  |  | $ | 13,640 |  |  | $ | 1,145 |  |  | 8.39 | %
Interchange and ATM fees | 16,447 |  |  | 13,889 |  |  | 2,558 |  |  | 18.42 | %
Investment management | 21,089 |  |  | 19,528 |  |  | 1,561 |  |  | 7.99 | %
Mortgage banking income | 8,184 |  |  | 3,130 |  |  | 5,054 |  |  | 161.47 | %
Gain on life insurance benefits | 434 |  |  | 1,463 |  |  | (1,029 | ) |  | (70.33 | )%
Increase in cash surrender value of life insurance policies | 3,572 |  |  | 2,929 |  |  | 643 |  |  | 21.95 | %
Loan level derivative income | 4,312 |  |  | 1,547 |  |  | 2,765 |  |  | 178.73 | %
Other noninterest income | 13,174 |  |  | 8,888 |  |  | 4,286 |  |  | 48.22 | %
Total | $ | 81,997 |  |  | $ | 65,014 |  |  | $ | 16,983 |  |  | 26.12 | %

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

• | Deposit account fees increased due to overall increased household accounts, including the impact of recent acquisitions as well as increased debit card usage.

• | Interchange and ATM fees have increased, driven mainly by increased account activity and a larger customer base from the BHB and MNB acquisitions as well as debit card branding incentives.

• | Investment management income growth was driven primarily by growth in overall assets under administration, which were $4.5 billion as of September 30, 2019, an increase of $879.1 million, or 24.1%, compared to September 30, 2018.

• | Mortgage banking income grew due to the significantly increased production channel following the BHB acquisition, capitalizing on a strong refinance demand environment, combined with robust purchase volumes.

• | The Company received proceeds on life insurance policies during the third quarters of both 2019 and 2018, resulting in gains of $434,000 and $1.5 million, respectively.

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

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

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• | Other noninterest income increased due to higher unrealized gains on equity securities and increased Federal Home Loan Bank dividends, and increased interest on cash collateral. Additionally, the Company recognized a gain on the sale of residential loans in the third quarter of 2019 of $951,000, as well as a gain on the sale of a small business credit card portfolio of $431,000 in the second quarter of 2019.

Noninterest Expense The following table sets forth information regarding non-interest expense for the periods shown:
Table 20 - Noninterest Expense

| Three Months Ended
| September 30 |  | Change
| 2019 |  | 2018 |  | Amount |  | %
| (Dollars in thousands) |  |
Salaries and employee benefits | $ | 39,432 |  |  | $ | 31,095 |  |  | $ | 8,337 |  |  | 26.81 | %
Occupancy and equipment expenses | 8,555 |  |  | 6,310 |  |  | 2,245 |  |  | 35.58 | %
Data processing & facilities management | 1,515 |  |  | 1,287 |  |  | 228 |  |  | 17.72 | %
FDIC assessment | — |  |  | 725 |  |  | (725 | ) |  | (100.00 | )%
Advertising expense | 1,417 |  |  | 1,395 |  |  | 22 |  |  | 1.58 | %
Consulting expense | 1,338 |  |  | 1,128 |  |  | 210 |  |  | 18.62 | %
Core deposit amortization | 1,567 |  |  | 507 |  |  | 1,060 |  |  | 209.07 | %
Merger and acquisition expenses | 705 |  |  | 2,688 |  |  | (1,983 | ) |  | (73.77 | )%
Software maintenance | 1,385 |  |  | 1,079 |  |  | 306 |  |  | 28.36 | %
Other noninterest expenses | 11,619 |  |  | 9,225 |  |  | 2,394 |  |  | 25.95 | %
Total | $ | 67,533 |  |  | $ | 55,439 |  |  | $ | 12,094 |  |  | 21.81 | %
| Nine Months Ended
| September 30 |  | Change
| 2019 |  | 2018 |  | Amount |  | %
| (Dollars in thousands) |  |
Salaries and employee benefits | $ | 111,401 |  |  | $ | 92,483 |  |  | $ | 18,918 |  |  | 20.46 | %
Occupancy and equipment expenses | 24,109 |  |  | 20,215 |  |  | 3,894 |  |  | 19.26 | %
Data processing & facilities management | 4,883 |  |  | 3,837 |  |  | 1,046 |  |  | 27.26 | %
FDIC assessment | 1,394 |  |  | 2,214 |  |  | (820 | ) |  | (37.04 | )%
Advertising expense | 3,912 |  |  | 3,684 |  |  | 228 |  |  | 6.19 | %
Consulting expense | 3,486 |  |  | 2,973 |  |  | 513 |  |  | 17.26 | %
Core deposit amortization | 3,996 |  |  | 1,670 |  |  | 2,326 |  |  | 139.28 | %
Loss on sale of securities | 1,462 |  |  | — |  |  | 1,462 |  |  | 100.00% |
Merger and acquisition expenses | 26,433 |  |  | 3,122 |  |  | 23,311 |  |  | 746.67 | %
Software maintenance | 3,913 |  |  | 3,048 |  |  | 865 |  |  | 28.38 | %
Other noninterest expenses | 31,887 |  |  | 28,332 |  |  | 3,555 |  |  | 12.55 | %
Total | $ | 216,876 |  |  | $ | 161,578 |  |  | $ | 55,298 |  |  | 34.22 | %

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

• | The increase in salaries and employee benefits reflects overall increases in the employee base, including the BHB and MNB acquisitions, along with increases in expenses associated with incentives, payroll taxes, medical insurance, commissions and retirement benefit costs.

• | Occupancy and equipment expenses increased mainly due to the acquired BHB branch network.

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

• | The FDIC assessment expense decrease in 2019 was due to the Company benefiting from the small bank assessment credits allocated in conjunction with the Deposit Insurance Fund's attainment of a 1.38 percent reserve ratio, which resulted in no expense for the third quarter of 2019.

• | The core deposit amortization increase is due to the BHB acquisition, which resulted in a $19.9 million core deposit intangible.

• | The increase in merger and acquisition expenses in 2019 is primarily attributable to the BHB acquisition, with a small remainder associated with the MNB acquisition. The majority of these costs include severance, contract termination and integration costs. The majority of the merger and acquisition costs for the comparable 2018 period were contract terminations, severance and legal fees primarily associated with the MNB acquisition.

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

• | The increase in other noninterest expenses is primarily due to increases in the loss on sale of securities, marketing costs, debit card expense, card issuance costs and internet banking expenses.

Income Taxes The tax effect of all income and expense transactions is recognized by the Company in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes. The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated:
Table 21 - Tax Provision and Applicable Tax Rates

| Three Months Ended |  | Nine Months Ended
| September 30 |  | September 30
| 2019 |  | 2018 |  | 2019 |  | 2018
| (Dollars in thousands)
Combined federal and state income tax provision | $ | 17,036 |  |  | $ | 9,969 |  |  | $ | 38,565 |  |  | $ | 26,046 |
Effective income tax rate | 24.73 | % |  | 23.19 | % |  | 24.68 | % |  | 22.12 | %
Blended statutory tax rate | 28.24 | % |  | 28.22 | % |  | 28.24 | % |  | 28.22 | %

The Company's blended statutory and effective tax rates in 2019 are comparable to the year ago periods. The effective tax rate for the current quarter reflects fewer tax credits associated with the New Market Tax Credit program as compared to the year ago period as well as higher pre-tax income amounts. The effective tax rates in the table above are lower than the blended statutory tax rates due to certain tax preference assets such as life insurance policies and tax exempt bonds, as well as federal tax credits recognized primarily in connection with the New Markets Tax Credit program and investments in low income housing project investments.
The Company's subsidiaries have received several awards of tax credit allocation authority under the federal New Markets Tax Credit program which enable the Company to recognize federal tax credits over a seven year period totaling 39.0% of the total award. The Company recognizes federal tax credits as capital investments that are made into its subsidiaries to fund below market interest rate loans to qualifying businesses in low income communities. The Company's 2013 award is the only remaining award with a tax credit. The Company will recognize this remaining tax credit of $2.6 million during 2019.
The Company invests in various low income housing projects which are real estate limited partnerships that acquire, develop, own and operate low and moderate-income housing developments. As a limited partner in these operating partnerships, the Company will receive tax credits and tax deductions for losses incurred by the underlying properties. The investments are accounted for using the proportional amortization method and will be amortized over various periods through 2036, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships is $75.5 million, of which $54.8 million has been funded as of September 30, 2019. It is expected that the limited partnership investments will generate a net tax benefit of approximately $1.6 million for the full calendar year of 2019 and a total of $32.6 million over the remaining life of the investments from the combination of the tax credits and operating losses.
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Risk Management
The Board of Directors and Management have identified significant risks which affect the Company, including credit risk, market risk, liquidity risk, price risk, operations risk, cybersecurity risk, consumer compliance risk, reputation risk, and strategic risk. The Board of Directors has approved an Enterprise Risk Management Policy and Management has adopted a Risk Appetite Statement that addresses each risk category. Management reviews key risks and their mitigation on an ongoing basis and provides regular enterprise risk management reports to the Board of Directors. The Board of Directors, with the assistance of the Board’s Risk Committee, oversees Management’s enterprise risk assessment and management.
Credit Risk Credit risk is the possibility that customers or other counterparties may not repay loans or other contractual obligations according to their terms. While the collateral securing loans may be sufficient in some cases to recover the amount due, in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results. The Company makes assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of collateral for the repayment of loans. For further discussion regarding the credit risk and the credit quality of the Company’s loan portfolio, see Note 5, “Loans, Allowance for Loan Losses, and Credit Quality” within Condensed Notes to Consolidated Financial Statements included in Item 1.
Operations Risk Operations risk is the risk of loss from the Company’s operations due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, natural disasters, and security risks. Potential operational risk exposure exists throughout the Company. The continued effectiveness of colleagues, technical systems, operational infrastructure, and relationships with key third party service providers are integral to mitigating operations risk, and any shortcomings subject the Company to risks that vary in size, scale and scope. Operations risks include, but are not limited to, operational or technical failures, unlawful tampering with technical systems, cyber security, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or failure on the part of the key individuals to perform properly. Management maintains an Operations Risk Committee to assess and mitigate operations risk which contributes to periodic enterprise risk management reporting to the Board.
Compliance Risk Compliance risk is the risk of regulatory sanctions or financial loss resulting from the failure to comply with rules and regulations issued by the various banking agencies, the U.S. Securities and Exchange Commission, the NASDAQ Stock Market, and good banking practices. Activities which may expose the Company to compliance risk include money laundering, privacy and data protection, adherence to laws and regulations, community reinvestment initiatives, and employment and tax matters. Compliance risk is mitigated through the use of written policies and procedures, staff training, and continuous monitoring of activities for adherence to policies and procedures. Management maintains a Compliance Committee to assess and mitigate compliance risk that contributes to periodic enterprise risk management reporting to the Board.
Strategic and Reputation Risk Strategic and reputation risk is the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, and failure to assess current and new opportunities and threats in business, markets, and products. Management seeks to mitigate strategic and reputational risk through annual strategic planning, frequent executive review of strategic plan progress, ongoing competitive and technological observation, assessment processes of new product, new branches, and new business initiatives, adherence to ethical standards, a philosophy of customer advocacy, a structured process of customer complaint resolution, and ongoing reputational monitoring, crisis management planning, and management tools.
Market Risk Market risk is the sensitivity of income to changes in interest rates, equity prices, foreign exchange rates, commodity prices, and other market-driven rates or prices. The Company’s most significant market risk exposure is interest rate risk.
Interest Rate Risk Interest rate risk is the sensitivity of income due to changes in interest rates. Interest rate changes, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest rate risk arises directly from the Company’s core banking activities. In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and securities, and the fair value of securities and derivatives, and have other effects.
Management maintains an Asset Liability Committee to manage interest rate risk, which strives to control interest rate risk within limits approved by the Board of Directors that reflect the Company’s tolerance for interest rate risk over short-term and long-term horizons. The Company attempts to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging exposure. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is the Company's objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary, within limits Management determines to be prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors, and caps.
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The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and an Economic Value of Equity analysis. Key assumptions in these simulation analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of non-maturity deposits (e.g., demand deposit, negotiable order of withdrawal, savings, and money market accounts). In the case of prepayment of mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans. The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, interest rate sensitivity of loans cannot be determined exactly and actual behavior may differ from assumptions.
Based upon the net interest income simulation models, the Company currently forecasts that the Bank’s assets re-price faster than the liabilities. As a result, the net interest income of the Bank will benefit as market rates increase, and contract if market rates decrease. The Company runs several scenarios to quantify and effectively assist in managing this position. These scenarios include instantaneous parallel shifts in market rates as well as gradual (12-24 months) shifts in market rates, and may also include other alternative scenarios as management deems necessary, given the interest rate environment.
The results of all scenarios and the impact to net interest income are outlined in the table below:
Table 22 - Interest Rate Sensitivity

| September 30
| 2019 |  | 2018
| Year 1 |  | Year 2 |  | Year 1 |  | Year 2
Parallel rate shocks (basis points) |  |  |  |  |  |  |
-100 | (3.2 | )% |  | (7.3 | )% |  | (6.5 | )% |  | (7.0 | )%
+100 | 3.2 | % |  | 4.1 | % |  | 4.3 | % |  | 9.4 | %
+200 | 5.9 | % |  | 8.8 | % |  | 8.0 | % |  | 15.0 | %
+300 | 8.4 | % |  | 13.3 | % |  | 11.8 | % |  | 21.0 | %
+400 | 10.9 | % |  | 17.6 | % |  | 15.6 | % |  | 26.7 | %
Gradual rate shifts (basis points) |  |  |  |  |  |  |
-100 over 12 months | (1.2 | )% |  | (6.3 | )% |  | (2.7 | )% |  | (5.7 | )%
+200 over 12 months | 2.7 | % |  | 7.3 | % |  | 3.9 | % |  | 13.7 | %
+400 over 24 months | 2.7 | % |  | 9.5 | % |  | 3.9 | % |  | 17.3 | %
Alternative scenarios |  |  |  |  |  |  |
Yield Curve Twist | 1.0 | % |  | 4.7 | % |  | n/a |  |  | n/a |
Flat up 200 basis points scenario | n/a |  |  | n/a |  |  | 3.9 | % |  | 12.9 | %

The results depicted in the table above are dependent on material assumptions. For instance, asymmetrical rate behavior can have a material impact on the simulation results. If competition for deposits prompts the Company to raise rates on those liabilities more quickly than is assumed in the simulation analysis without a corresponding increase in asset yields, net interest income would be negatively impacted. Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted.
The most significant factors affecting market risk exposure of the Company’s net interest income during the nine months ended September 30, 2019 were the shape of the U.S. Government securities and interest rate swap yield curve, the U.S. prime interest rate and LIBOR rates, and the interest rates being offered on long-term fixed rate loans.
The Company manages the interest rate risk inherent in both its loan and borrowing portfolios by using interest rate swap agreements and interest rate caps and floors. An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from the other party. Interest rate caps and floors are agreements where one party agrees to pay a floating rate of interest on a notional principal amount for a predetermined period of time to a second party if certain market interest rate thresholds are realized. The amounts relating to the notional principal amount are not actually exchanged. Additionally, the Company may manage the interest rate risk inherent in its mortgage banking operations by entering into forward sales contracts. In an effort to mitigate that risk, forward delivery sales commitments are executed, under which
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the Company agrees to deliver whole mortgage loans to various investors. See Note 9, “Derivative and Hedging Activities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for additional information regarding the Company’s Derivative Financial Instruments.
The Company’s earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines. See Note 4, “Securities” within Condensed Notes to Consolidated Financial Statements included in Item 1.
Liquidity Risk Liquidity risk is the risk that the Company will not have the ability to generate adequate amounts of cash in the most economical way to meet its ongoing obligations to pay deposit withdrawals, repay borrowings, and fund loans. The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and securities. The Bank utilizes its extensive branch network to access retail customers who provide a base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors.
Management maintains an Asset Liability Committee to manage liquidity risk. The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which analyzes the relationship between liquid assets plus available funding at the FHLB, less short-term liabilities relative to total assets, was within policy limits at September 30, 2019. The Total Basic Surplus/Deficit measure is affected primarily by changes in deposits, securities and short-term investments, loans, and borrowings. An increase in deposits, without a corresponding increase in nonliquid assets, will improve the Total Basic Surplus/Deficit measure, whereas, an increase in loans, with no increase in deposits, will decrease the measure. Other factors affecting the Total Basic Surplus/Deficit measure include collateral requirements at the FHLB, changes in the securities portfolio, and the mix of deposits.
The Bank seeks to increase deposits without adversely impacting the weighted average cost of those funds. As part of a prudent liquidity risk management practice, the Company maintains various liquidity sources, some of which are only accessed on a contingency basis. Accordingly, Management has implemented funding strategies that include FHLB advances, Federal Reserve Bank borrowing capacity, and repurchase agreement lines. These funding sources are a contingent source of liquidity and, when profitable lending and investment opportunities exist, access to them provides a means to grow the balance sheet.
Borrowing capacity at the FHLB and the Federal Reserve is impacted by the amount and type of assets available to be pledged. For example, a prime, one-to-four family, residential loan, may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas, a commercial loan may provide a lower amount. As a result, the Company’s lending decisions can also affect its liquidity position.
The Company can raise additional funds through the issuance of equity or unsecured debt privately or publicly and has done so in the past. Additionally, the Company is able to enter into additional repurchase agreements or acquire brokered deposits at its discretion. The availability and cost of equity or debt on an unsecured basis is dependent on many factors. Some factors that will impact this source of liquidity are the Company’s financial position, the market environment, and the Company’s credit rating. The Company monitors the factors that could impact its ability to raise liquidity through these channels.
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The table below shows current and unused liquidity capacity from various sources as of the dates indicated:
Table 23 - Sources of Liquidity

| September 30, 2019 |  | December 31, 2018
| Outstanding |  | Additional Borrowing Capacity |  | Outstanding |  | Additional Borrowing Capacity
| (Dollars in thousands)
Federal Home Loan Bank of Boston (1) | $ | 70,708 |  |  | $ | 1,688,708 |  |  | $ | 147,806 |  |  | $ | 953,539 |
Federal Reserve Bank of Boston (2) | — |  |  | 963,280 |  |  | — |  |  | 705,242 |
Unpledged Securities | — |  |  | 826,889 |  |  | — |  |  | 691,383 |
Line of Credit | — |  |  | 50,000 |  |  | — |  |  | — |
Long-term borrowing (3) | 74,894 |  |  | — |  |  | — |  |  | — |
Junior subordinated debentures (3) | 62,848 |  |  | — |  |  | 76,173 |  |  | — |
Subordinated debt (3) | 84,341 |  |  | — |  |  | 34,728 |  |  | — |
Reciprocal deposits (3) | 211,003 |  |  | — |  |  | 180,514 |  |  | — |
Brokered deposits (3) | 303,427 |  |  | — |  |  | 6,000 |  |  | — |
| $ | 807,221 |  |  | $ | 3,528,877 |  |  | $ | 445,221 |  |  | $ | 2,350,164 |

(1) | Loans with a carrying value of $2.6 billion and $1.6 billion at September 30, 2019 and December 31, 2018, respectively, have been pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.

(2) | Loans with a carrying value of $1.6 billion and $1.2 billion at September 30, 2019 and December 31, 2018, respectively, have been pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.

(3) | The additional borrowing capacity has not been assessed for these categories.

In addition to policies used for managing operational liquidity, the Board of Directors and Management recognize the need to establish reasonable guidelines for managing through an environment of heightened liquidity risk. Catalysts for elevated liquidity risk can be Bank-specific issues and/or systemic industry-wide events. It is therefore the responsibility of Management to institute systems and controls to provide advanced detection of potentially significant funding shortages, establish methods for assessing and monitoring risk levels, and institute prompt responses that may alleviate/circumvent a potential liquidity crisis. Management has established a Liquidity Contingency Plan to provide a framework for the Bank to help detect liquidity problems promptly and appropriately address potential liquidity problems in a timely manner. In a period of perceived heightened liquidity risk, the Liquidity Contingency Plan provides for the establishment of a Liquidity Crisis Task Force. The Liquidity Crisis Task Force is responsible for monitoring the potential for a liquidity crisis and for establishing and executing an appropriate response.
Off-Balance Sheet Arrangements There were no material changes in off-balance sheet financial instruments during the three months ended September 30, 2019.
See Note 9, "Derivative and Hedging Activities" and Note 15, "Commitments and Contingencies" within Condensed Notes to Consolidated Financial Statements included in Item 1 for more information relating to the Company's other off-balance sheet financial instruments.
Contractual Obligations, Commitments, and Contingencies There were no material changes in contractual obligations, commitments, or contingencies during the three months ended September 30, 2019. See Note 6 "Borrowings" within Condensed Notes to Consolidated Financial Statements included in Item 1.
Please refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for a complete table of contractual obligations, commitments and contingencies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this Item 3 is included in the "Risk Management" section of Item 2 of Part I of this Form 10-Q, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.
Changes in Internal Controls over Financial Reporting. There were no changes in the Company's internal controls over financial reporting that occurred during the third quarter of 2019 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
At September 30, 2019, the Bank was involved in pending lawsuits that arose in the ordinary course of business. Management has reviewed these pending lawsuits with legal counsel and has taken into consideration the view of counsel as to their outcome. In the opinion of management, the final disposition of pending lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.
Item 1A. Risk Factors
As of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which are incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) The following table sets forth information regarding the Company’s repurchases of its common stock during the three months ended September 30, 2019:

| Issuer Purchases of Equity Securities
| Total Number of Shares Purchased (1) |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (2) |  | Maximum Number of Shares That May Yet Be Purchased Under the Plan or Program
Period |  |  |  |  |  |  |
July 1 to July 31, 2019 | — |  |  | $ | — |  |  | — |  |  | — |
August 1 to August 31, 2019 | — |  |  | $ | — |  |  | — |  |  | — |
September 1 to September 30, 2019 | 43 |  |  | $ | 75.04 |  |  | — |  |  | — |
Total | 43 |  |  |  |  | — |  |  | — |

(1) | Shares repurchased relate to the surrendering of shares in connection with the exercise and/or vesting of equity compensation grants to satisfy related tax withholding obligations.

(2) | As of September 30, 2019, the Company did not have a stock repurchase program or plan in place. On October 17, 2019, the Company announced that its Board of Directors authorized a share repurchase program of up to 1.5 million shares of the Company's common stock.

Item 3. Defaults Upon Senior Securities - None
Item 4. Mine Safety Disclosures - Not Applicable
Item 5. Other Information - None
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Item 6. Exhibits
Exhibit Index

No. | Exhibit

31.1 | Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.*
31.2 | Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.*
32.1 | Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
32.2 | Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached hereto.+
101 | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104 | Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101).

* | Filed herewith

+ | Furnished herewith
# | Management contract or compensatory plan or arrangement

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

November 5, 2019 |  | /s/ Christopher Oddleifson
|  | Christopher Oddleifson President and Chief Executive Officer (Principal Executive Officer)

November 5, 2019 |  | /s/ Mark J. Ruggiero
|  | Mark J. Ruggiero Chief Financial Officer (Principal Financial Officer)

101