UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2018

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)

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted 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 ~~and post~~ 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	x	Accelerated Filer	o

Non-accelerated Filer	o	Smaller Reporting Company	o

		Emerging Growth Company	o

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 Acts. o

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

As of ~~November~~August 1, ~~2017,~~2018, there were ~~27,443,142~~27,538,339 shares of the issuer’s common stock outstanding, par value $0.01 per share.

Table of Contents

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	4
Consolidated Statements of Income - Three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	6
Consolidated Statements of Comprehensive Income -Three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~	7
~~Consolidated Statements of Stockholders’ Equity - Nine months ended September 30,~~ 2017 ~~and 2016~~	8
Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity - ~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	9
Consolidated Statements of Cash Flows - Six months ended June 30, 2018 and 2017	11

Condensed Notes to Consolidated Financial Statements - ~~September~~June 30, ~~2017~~2018
Note 1 - Basis of Presentation	1113
Note 2 - Recent Accounting Standards Updates	1113
Note 3 - ~~Acquisitions~~Securities	14
Note 4 ~~- Securities~~	16
~~Note 5~~ - Loans, Allowance for Loan Losses, and Credit Quality	1918
Note 5 - Earnings Per Share	30
Note 6 - ~~Bank Premises and Equipment~~Stock Based Compensation	3231
Note 7 - ~~Earnings Per Share~~Repurchase Agreements	32
Note 8 - ~~Stock Based Compensation~~Derivative and Hedging Activities	3332
Note 9 - ~~Repurchase Agreements~~Balance Sheet Offsetting	3336
Note 10 - ~~Derivative and Hedging Activities~~Fair Value Measurements	3437
Note 11 - ~~Balance Sheet Offsetting~~Revenue Recognition	3846
Note 12 - ~~Fair Value Measurements~~	39
~~Note 13 -~~ Comprehensive Income (Loss)	47
~~Note 14 - Commitments and Contingencies~~	49
Note 1513 - Commitments and Contingencies	51
Note 14 - Low Income Housing Project Investments	5052

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	5153
Table 1 - Closed Residential Real Estate Loans	6264
Table 2 - Mortgage Servicing Asset	6365
Table 3 - ~~Components of Loan Growth/(Decline)~~Nonperforming Assets	6469
Table 4 ~~- Nonperforming Assets~~	67
~~Table 5~~ - Activity in Nonperforming Assets	6769
Table 65 - Troubled Debt Restructurings	6870
Table 76 - Activity in Troubled Debt Restructurings	6870
Table 87 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings	6870
Table 98 - Summary of Changes in the Allowance for Loan Losses	7072
Table 109 - Summary of Allocation of the Allowance for Loan Losses	7173
Table 10 - Borrowings	75
Table 11 ~~- Components of Deposit Growth/(Decline)~~	73
~~Table 12 - Borrowings~~	74
~~Table 13~~ - Company and Bank’s Capital Amounts and Ratios	7576
Table 1412 - Summary of Results of Operations	7778
Table 1513 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date	7879
Table 14 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date	81
Table 15 - Volume Rate Analysis	83
Table 16 - Noninterest Income - Three and Six Months Ended	85
Table 17 - Noninterest Expense - Three and Six Months Ended	86

Table of Contents

Table ~~16 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date~~	80
~~Table 17 - Volume Rate Analysis~~	82
~~Table~~ 18 ~~- Noninterest Income - Three and Nine Months Ended~~	85
~~Table 19 - Noninterest Expense - Three and Nine Months Ended~~	86
~~Table 20~~ - Tax Provision and Applicable Tax Rates	8887
Table 2119 - New Markets Tax Credit Recognition Schedule	8887
Table 2220 - Interest Rate Sensitivity	90
Table 2321 - Sources of Liquidity	92



Item 3. Quantitative and Qualitative Disclosures About Market Risk	92
Item 4. Controls and Procedures	93

PART II. OTHER INFORMATION	93
Item 1. Legal Proceedings	93
Item 1A. Risk Factors	93
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 3. Defaults Upon Senior Securities	93
Item 4. Mine Safety Disclosures	93
Item 5. Other Information	93
Item 6. Exhibits	94
Signatures	95

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

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEPENDENT BANK CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited—Dollars in thousands)


	September 30, 2017			December 31 2016			June 30, 2018			December 31 2017
Assets
Cash and due from banks	$	100,404		$	97,196		$	113,930		$	103,485
Interest-earning deposits with banks	158,861			191,899			209,176			109,631
Securities
Securities - trading	1,298			804
Securities - available for sale	429,125			363,644
Securities - held to maturity (fair value $479,662 and $485,650)	478,798			487,076
Trading							1,598			1,324
Equities							20,133			—
Available for sale							442,929			447,498
Held to maturity (fair value $523,288 and $494,194)							538,261			497,688
Total securities	909,221			851,524			1,002,921			946,510
Loans held for sale (at fair value)	5,459			6,139			9,614			4,768
Loans
Commercial and industrial	858,522			902,053			976,264			888,528
Commercial real estate	3,087,160			3,010,798			3,131,337			3,116,561
Commercial construction	395,267			320,391			364,225			401,797
Small business	130,656			122,726			147,137			132,370
Residential real estate	756,130			644,426			779,421			754,329
Home equity - first position	615,132			577,006			646,626			612,990
Home equity - subordinate positions	437,163			411,141			422,671			439,098
Other consumer	9,872			11,064			11,590			9,880
Total loans	6,289,902			5,999,605			6,479,271			6,355,553
Less: allowance for loan losses	(59,710		)	(61,566		)	(62,557		)	(60,643		)
Net loans	6,230,192			5,938,039			6,416,714			6,294,910
Federal Home Loan Bank stock	11,597			11,497			13,107			11,597
Bank premises and equipment, net	94,906			78,480			95,838			94,722
Goodwill	231,806			221,526			231,806			231,806
Other intangible assets	10,299			9,848			7,918			9,341
Cash surrender value of life insurance policies	150,352			144,503			153,574			151,528
Other real estate owned and other foreclosed assets	2,898			4,173			245			612
Other assets	146,924			154,551			126,159			123,119
Total assets	$	8,052,919		$	7,709,375		$	8,381,002		$	8,082,029
Liabilities and Stockholders' Equity
Deposits
Demand deposits	$	2,183,760		$	2,057,086		$	2,262,871		$	2,159,396
Savings and interest checking accounts	2,568,620			2,469,237			2,739,228			2,599,922
Money market	1,302,662			1,236,778			1,351,623			1,325,634
Time certificates of deposit of $100,000 and over	260,404			266,190			302,219			278,531
Other time certificates of deposits	367,496			382,962			357,549			365,770
Total deposits	6,682,942			6,412,253			7,013,490			6,729,253
Borrowings
Federal Home Loan Bank borrowings	53,272			50,819


Federal Home Loan Bank borrowings							50,775			53,264
Customer repurchase agreements	179,670			176,913			142,235			162,679
Junior subordinated debentures (less unamortized debt issuance costs of $127 and $136)	73,071			73,107
Subordinated debentures (less unamortized debt issuance costs of $330 and $365)	34,670			34,635
Junior subordinated debentures (less unamortized debt issuance costs of $121 and $125)							73,077			73,073
Subordinated debentures (less unamortized debt issuance costs of $295 and $318)							34,705			34,682
Total borrowings	340,683			335,474			300,792			323,698
Other liabilities	98,070			96,958			89,655			85,269
Total liabilities	7,121,695			6,844,685			7,403,937			7,138,220
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: 27,437,791 shares at September 30, 2017 and 27,005,813 shares at December 31, 2016 (includes 184,846 and 212,698 shares of unvested participating restricted stock awards, respectively)	273			268
Value of shares held in rabbi trust at cost: 163,777 shares at September 30, 2017 and 170,036 shares at December 31, 2016	(4,505		)	(4,277		)
Common stock, $.01 par value, authorized: 75,000,000 shares, issued and outstanding: 27,532,524 shares at June 30, 2018 and 27,450,190 shares at December 31, 2017 (includes 159,969 and 177,191 shares of unvested participating restricted stock awards, respectively)							274			273
Value of shares held in rabbi trust at cost: 156,714 shares at June 30, 2018 and 164,438 shares at December 31, 2017							(4,653		)	(4,590		)
Deferred compensation and other retirement benefit obligations	4,505			4,277			4,653			4,590
Additional paid in capital	477,877			451,664			481,979			479,430
Retained earnings	452,658			414,095			504,926			465,937
Accumulated other comprehensive income (loss), net of tax	416			(1,337		)
Accumulated other comprehensive loss, net of tax							(10,114		)	(1,831		)
Total stockholders’ equity	931,224			864,690			977,065			943,809
Total liabilities and stockholders' equity	$	8,052,919		$	7,709,375		$	8,381,002		$	8,082,029

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited—Dollars in thousands, except per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30				September 30				June 30				June 30
	2017		2016		2017		2016		2018		2017		2018		2017
Interest income
Interest and fees on loans	$	65,667	$	56,778	$	186,747	$	166,683	$	72,082	$	62,287	$	139,266	$	121,080
Taxable interest and dividends on securities	5,642		5,034		16,618		15,500		6,498		5,609		12,717		10,976
Nontaxable interest and dividends on securities	19		28		71		89		16		26		32		52
Interest on loans held for sale	33		81		68		170		30		21		49		35
Interest on federal funds sold and short-term investments	417		387		814		767		541		190		852		397
Total interest and dividend income	71,778		62,308		204,318		183,209		79,167		68,133		152,916		132,540
Interest expense
Interest on deposits	3,331		2,733		9,010		8,339		4,587		2,912		8,522		5,679
Interest on borrowings	1,374		1,907		4,280		5,778		1,412		1,466		2,755		2,906
Total interest expense	4,705		4,640		13,290		14,117		5,999		4,378		11,277		8,585
Net interest income	67,073		57,668		191,028		169,092		73,168		63,755		141,639		123,955
Provision for loan losses	—		950		1,650		2,075		2,000		1,050		2,500		1,650
Net interest income after provision for loan losses	67,073		56,718		189,378		167,017		71,168		62,705		139,139		122,305
Noninterest income
Deposit account fees	4,401		4,766		13,337		13,979		4,551		4,392		8,982		8,936
Interchange and ATM fees	4,525		4,190		12,881		12,050		4,769		4,434		8,942		8,356
Investment management	5,967		5,446		17,576		16,183		6,822		5,995		12,964		11,609
Mortgage banking income	1,338		1,963		3,609		4,458		1,038		1,314		1,908		2,271
Gain on sale of equity securities	12		—		19		5		2		3		2		7
Increase in cash surrender value of life insurance policies	1,019		984		3,000		2,980		998		1,017		1,945		1,981
Loan level derivative income	784		810		2,727		4,627		708		1,337		1,155		1,943
Other noninterest income	2,724		2,257		7,931		6,384		2,999		2,906		5,852		5,207
Total noninterest income	20,770		20,416		61,080		60,666		21,887		21,398		41,750		40,310
Noninterest expenses
Salaries and employee benefits	29,289		27,395		86,267		81,561		30,288		28,654		61,388		56,978
Occupancy and equipment expenses	6,085		5,433		18,302		16,927		6,497		6,059		13,905		12,217
Data processing and facilities management	1,272		1,400		3,732		3,831		1,264		1,188		2,550		2,460
FDIC assessment	673		725		2,234		2,655		691		778		1,489		1,561
Advertising expense	1,359		1,654		4,018		4,134		1,166		1,365		2,289		2,659
Consulting expense	937		770		2,753		2,235		1,089		1,262		1,845		1,816
Debit card expense	992		730		2,616		2,162		841		852		1,650		1,624
Legal fees	1,423		321		2,074		1,132
Loss on extinguishment of debt	—		—		—		437
Loss on sale of equity securities	1		—		6		32		—		2		—		5
Merger and acquisition expense	—		151		3,393		691		434		2,909		434		3,393
Mortgage operations expense	723		820		1,896		1,880
Software maintenance	888		765		2,714		2,254		997		896		1,969		1,826
Other noninterest expenses	7,668		6,693		22,887		20,554		9,421		8,844		18,620		17,043
Total noninterest expenses	51,310		46,857		152,892		140,485		52,688		52,809		106,139		101,582
Income before income taxes	36,533		30,277		97,566		87,198		40,367		31,294		74,750		61,033
Provision for income taxes	12,681		9,793		32,426		27,729		9,249		10,731		16,077		19,745
Net income	$	23,852	$	20,484	$	65,140	$	59,469	$	31,118	$	20,563	$	58,673	$	41,288
Basic earnings per share	$	0.87	$	0.78	$	2.39	$	2.26	$	1.13	$	0.75	$	2.13	$	1.52
Diluted earnings per share	$	0.87	$	0.78	$	2.38	$	2.26	$	1.13	$	0.75	$	2.13	$	1.52
Weighted average common shares (basic)	27,436,792		26,324,316		27,242,902		26,301,340		27,526,653		27,257,799		27,506,724		27,144,350
Common share equivalents	76,307		53,072		78,043		48,354
Weighted average common shares (diluted)	27,513,099		26,377,388		27,320,945		26,349,694
Cash dividends declared per common share	$	0.32	$	0.29	$	0.96	$	0.87



Common share equivalents	54,525		74,497		61,480		78,757
Weighted average common shares (diluted)	27,581,178		27,332,296		27,568,204		27,223,107
Cash dividends declared per common share	$	0.38	$	0.32	$	0.76	$	0.64

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited—Dollars in thousands)


	Three Months Ended					Nine Months Ended				Three Months Ended						Six Months Ended
	September 30					September 30				June 30						June 30
	2017		2016			2017		2016		2018			2017			2018			2017
Net income	$	23,852	$	20,484		$	65,140	$	59,469	$	31,118		$	20,563		$	58,673		$	41,288
Other comprehensive income (loss), net of tax
Net change in fair value of securities available for sale	188		(816		)	1,511		5,119		(1,924		)	792			(7,392		)	1,323
Net change in fair value of cash flow hedges	109		674			8		653		(112		)	(190		)	103			(101		)
Net change in other comprehensive income for defined benefit postretirement plans	78		59			234		180		117			78			234			156
Total other comprehensive income (loss)	375		(83		)	1,753		5,952		(1,919		)	680			(7,055		)	1,378
Total comprehensive income	$	24,227	$	20,401		$	66,893	$	65,421	$	29,199		$	21,243		$	51,618		$	42,666

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(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			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, 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																					—	—		—			—		—			58,673			—			58,673
Other comprehensive loss																					—	—		—			—		—			—			(7,055		)	(7,055		)
Common dividend declared ($0.76 per share)																					—	—		—			—		—			(20,912		)	—			(20,912		)
Proceeds from exercise of stock options, net of cash paid																					20,756	—		—			—		184			—			—			184
Stock based compensation																					—	—		—			—		2,392			—			—			2,392
Restricted stock awards issued, net of awards surrendered																					43,217	1		—			—		(1,339		)	—			—			(1,338		)
Shares issued under direct stock purchase plan																					18,361	—		—			—		1,312			—			—			1,312
Deferred compensation and other retirement benefit obligations																					—	—		(63		)	63		—			—			—			—
Balance June 30, 2018																					27,532,524	$	274	$	(4,653	)	$	4,653	$	481,979		$	504,926		$	(10,114	)	$	977,065

Balance December 31, 2016	27,005,813	$	268	$	(4,277	)	$	4,277	$	451,664		$	414,095		$	(1,337	)	$	864,690		27,005,813	$	268	$	(4,277	)	$	4,277	$	451,664		$	414,095		$	(1,337	)	$	864,690
Cumulative effect accounting adjustment (1)	—	—		—			—		542			(365		)	—			177
Cumulative effect accounting adjustment (3)																					—	—		—			—		542			(365		)	—			177
Net income	—	—		—			—		—			65,140			—			65,140			—	—		—			—		—			41,288			—			41,288
Other comprehensive income	—	—		—			—		—			—			1,753			1,753			—	—		—			—		—			—			1,378			1,378
Common dividend declared ($0.96 per share)	—	—		—			—		—			(26,212		)	—			(26,212		)
Common dividend declared ($0.64 per share)																					—	—		—			—		—			(17,431		)	—			(17,431		)
Common stock issued for acquisition	369,286	4		—			—		23,464			—			—			23,468			369,286	4		—			—		23,464			—			—			23,468
Proceeds from exercise of stock options, net of cash paid	11,590	—		—			—		(5		)	—			—			(5		)	11,174	—		—			—		8			—			—			8
Stock based compensation	—	—		—			—		2,346			—			—			2,346			—	—		—			—		1,560			—			—			1,560
Restricted stock awards issued, net of awards surrendered	32,476	1		—			—		(1,364		)	—			—			(1,363		)	32,524	—		—			—		(1,361		)	—			—			(1,361		)
Shares issued under direct stock purchase plan	18,626	—		—			—		1,230			—			—			1,230			12,374	—		—			—		807			—			—			807
Deferred compensation and other retirement benefit obligations	—	—		(228		)	228		—			—			—			—			—	—		(137		)	137		—			—			—			—
Balance September 30, 2017	27,437,791	$	273	$	(4,505	)	$	4,505	$	477,877		$	452,658		$	416		$	931,224

Balance December 31, 2015	26,236,352	$	260	$	(3,958	)	$	3,958	$	405,486		$	368,169		$	(2,452	)	$	771,463
Net income	—	—		—			—		—			59,469			—			59,469
Other comprehensive income	—	—		—			—		—			—			5,952			5,952
Common dividend declared ($0.87 per share)	—	—		—			—		—			(22,888		)	—			(22,888		)
Proceeds from exercise of stock options, net of cash paid	9,022	—		—			—		160			—			—			160
Tax benefit related to equity award activity	—	—		—			—		354			—			—			354
Stock based compensation	—	—		—			—		2,308			—			—			2,308
Restricted stock awards issued, net of awards surrendered	32,567	1		—			—		(674		)	—			—			(673		)
Shares issued under direct stock purchase plan	42,526	—		—			—		1,918			—			—			1,918
Deferred compensation and other retirement benefit obligations	—	—		(241		)	241		—			—			—			—
Tax benefit related to deferred compensation distributions	—	—		—			—		179			—			—			179
Balance September 30, 2016	26,320,467	$	261	$	(4,199	)	$	4,199	$	409,731		$	404,750		$	3,500		$	818,242
Balance June 30, 2017																					27,431,171	$	272	$	(4,414	)	$	4,414	$	476,684		$	437,587		$	41		$	914,584

(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.

(3)

Represents adjustment needed to reflect the cumulative impact on retained earnings for previously recognized stock based compensation, which included an adjustment for estimated forfeitures. Pursuant to the Company's adoption of Accounting Standards Update 2016-09, the Company has elected to recognize stock based compensation without inclusion of a forfeiture estimate, and as such has recognized this adjustment to present retained earnings consistent with this election.

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited—Dollars in thousands)


	Nine Months Ended						Six Months Ended
	September 30						June 30
	2017			2016			2018			2017
Cash flow from operating activities
Net income	$	65,140		$	59,469		$	58,673		$	41,288
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	11,497			10,729			8,021			7,454
Provision for loan losses	1,650			2,075			2,500			1,650
Deferred income tax expense	443			314			283			642
Net (gain) loss on sale of securities	(13		)	27
Net (gain) loss on bank premises and equipment	(93		)	10
Loss on extinguishment of debt	—			437
Net unrealized loss on equity securities							433			—
Net gain on sale of securities							(2		)	(2		)
Net gain on bank premises and equipment							(4		)	(92		)
Net loss on other real estate owned and foreclosed assets	308			41			1			70
Realized gain on sale leaseback transaction	(775		)	(775		)	(441		)	(517		)
Stock based compensation	2,346			2,308			2,392			1,560
Excess tax benefit related to equity award activity	—			(354		)
Increase in cash surrender value of life insurance policies	(3,000		)	(2,980		)	(1,945		)	(1,981		)
Change in fair value on loans held for sale	102			(60		)	(44		)	(6		)
Net change in:
Trading assets	(494		)	(453		)	(274		)	(489		)
Loans held for sale	578			(7,284		)	(4,802		)	(3,236		)
Other assets	4,561			(42,044		)	(1,591		)	8,973
Other liabilities	6,177			18,314			4,444			(6,104		)
Total adjustments	23,287			(19,695		)	8,971			7,922
Net cash provided by operating activities	88,427			39,774			67,644			49,210
Cash flows used in investing activities
Proceeds from sales of equity securities							10			—
Purchases of equity securities							(202		)	—
Proceeds from sales of securities available for sale	523			285			—			35
Proceeds from maturities and principal repayments of securities available for sale	40,228			48,421			27,625			24,406
Purchases of securities available for sale	(104,284		)	(60,888		)	(53,559		)	(74,956		)
Proceeds from maturities and principal repayments of securities held to maturity	58,308			62,005			42,716			38,634
Purchases of securities held to maturity	(49,802		)	(14,998		)	(83,047		)	(49,802		)
Net redemption of Federal Home Loan Bank stock	386			3,127
Net purchases of Federal Home Loan Bank stock							(1,510		)	(2,438		)
Investments in low income housing projects	(4,713		)	(5,473		)	(2,132		)	(3,871		)
Purchases of life insurance policies	(115		)	(116		)	(101		)	(101		)
Net increase in loans	(138,622		)	(198,731		)	(124,355		)	(118,579		)
Cash acquired in business combinations, net of cash paid	6,289			—			—			6,289
Purchases of bank premises and equipment	(18,643		)	(6,022		)	(5,707		)	(14,182		)
Proceeds from the sale of bank premises and equipment	1,919			26			63			1,918
Proceeds from the sale of other real estate owned and foreclosed assets	1,531			842			253			1,531
Net payments relating to other real estate owned and foreclosed assets	—			(145		)
Net cash used in investing activities	(206,995		)	(171,667		)	(199,946		)	(191,116		)
Cash flows provided by financing activities
Net decrease in time deposits	(35,947		)	(55,759		)
Net increase (decrease) in time deposits							15,522			(55,787		)


Net increase in other deposits	147,331			334,516			268,770			179,495
Repayments of long-term Federal Home Loan Bank borrowings	—			(51,641		)	(2,475		)	—
Net increase in customer repurchase agreements	2,757			6,956
Proceeds from exercise of stock options, net of cash paid	(5		)	160
Net decrease in customer repurchase agreements							(20,444		)	(17,542		)
Net proceeds from exercise of stock options							184			8
Restricted stock awards issued, net of awards surrendered	(1,363		)	(673		)	(1,338		)	(1,361		)
Excess tax benefit from stock based compensation	—			354
Tax benefit from deferred compensation distribution	—			179
Proceeds from shares issued under direct stock purchase plan	1,230			1,918			1,312			807
Common dividends paid	(25,265		)	(22,079		)	(19,239		)	(16,487		)
Net cash provided by financing activities	88,738			213,931			242,292			89,133
Net increase (decrease) in cash and cash equivalents	(29,830		)	82,038			109,990			(52,773		)
Cash and cash equivalents at beginning of year	289,095			275,765			213,116			289,095
Cash and cash equivalents at end of period	$	259,265		$	357,803		$	323,106		$	236,322
Supplemental schedule of noncash investing and financing activities
Transfer of loans to other real estate owned & foreclosed assets	$	564		$	377		$	—		$	457
Net increase in capital commitments relating to low income housing project investments	$	248		$	163		$	4		$	46
In conjunction with the Company's acquisition of Island Bancorp, Inc., assets were acquired and liabilities were assumed as follows
In conjunction with the Company's acquisitions, assets were acquired and liabilities were assumed as follows
Common stock issued for acquisition	$	23,468		$	—		$	—		$	23,468
Fair value of assets acquired, net of cash acquired	$	179,252		$	—		$	—		$	179,252
Fair value of liabilities assumed	$	162,073		$	—		$	—		$	162,073

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

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907.

All material intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current year’s presentation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Results for the quarter ended ~~September~~June 30, ~~2017~~2018 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017~~2018 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, ~~2016,~~2017, filed with the Securities and Exchange Commission.

NOTE 2 - RECENT ACCOUNTING STANDARDS UPDATES

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic ~~718 "Compensation~~326 "Financial Instruments - ~~Stock Compensation"~~Credit Losses" Update No. ~~2016-09.~~2016-13. Update No. ~~2016-09~~2016-13 was issued in ~~March~~June 2016 to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and ~~affects all entities that issue share-based awards~~other commitments to ~~their employees. This update was issued as part of~~extend credit held by a reporting entity at each reporting date. To achieve this objective, the ~~FASB’s simplification initiative. The areas for simplification~~amendments in this update ~~involve several aspects~~replace 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 entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. 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 ~~accounting for share-based payment transactions, including~~scope that have the ~~income tax consequences, classification of awards as either equity or liabilities, and classification on~~contractual right to receive cash. For public companies, the ~~statement of cash flows. The~~ amendments in this update are effective for fiscal years beginning after December 15, ~~2016,~~2019, including interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company ~~adopted~~is currently assessing the impact of the adoption of this standard ~~effective January 1, 2017. Upon adoption, the Company elected to no longer estimate forfeitures~~ on ~~stock compensation and instead recognize forfeitures when they occur. The election required a cumulative effect adjustment to retained earnings which did not materially impact~~ the Company's consolidated financial position. ~~Additionally, the disclosure requirements of this standard will be applied on a prospective basis.~~

FASB ASC Topic ~~815 "Derivatives and Hedging"~~842 "Leases" Update No. ~~2017-12.~~ 2016-02.Update No. ~~2017-12~~2016-02 was issued in ~~August 2017~~February 2016 and affects any entity that enters into a lease (as that term is defined in this update), with some specified scope exemptions. The core principle of this update is that a lessee should recognize in the statement of financial position a liability to ~~better align~~make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an ~~entity's risk management activities~~accounting policy election by class of underlying asset not to recognize lease assets and ~~financial reporting for hedging relationships through changes to both the designation and~~lease liabilities. The recognition, measurement, guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of expenses and cash flows arising from a lease have not significantly changed from previous GAAP. In addition, the ~~effects of~~accounting applied by a lessor is largely unchanged from that applied under previous GAAP. For public companies, the ~~hedging instrument and the hedged item in the financial statements. The~~ amendments in this ~~Update~~update are effective for fiscal years beginning after December 15, 2018, ~~and~~including interim periods within those fiscal years. ~~Early application~~The Company is ~~permitted~~currently in ~~any interim period after issuance~~the process of reviewing its current lease agreements to assess the ~~Update. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. The effect of adoption should be reflected as~~impact of the ~~beginning of the fiscal period of adoption. The~~ adoption of this ~~standard is not expected to have a material impact on the Company's consolidated financial position.~~standard.

~~FASB ASC Topic 718 "Compensation - Stock Compensation" Update No. 2017-09~~. Update No. 2017-09 was issued in May 2017 to provide clarity and reduce diversity in practice when applying guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all the following are met: (1) The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. (3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this update. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued and all other entities for

reporting periods for which financial statements have not yet been made available for issuance. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position.

~~FASB ASC Topic 310-20 "Receivables - Nonrefundable fees and Other Costs" Update No. 2017-08.~~ Update No. 2017-08 was issued in March 2017 to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company early adopted this standard effective January 1, 2017 and the impact on the Company's consolidated financial position was immaterial.

~~FASB ASC Topic 715 "Compensation - Retirement Benefits" Update No. 2017-07~~. Update No. 2017-07 was issued in March 2017 to improve the presentation of net periodic pension cost and net periodic postretirement benefit costs. This update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. The amendments in this update are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period for which the financial statements (interim or annual) have not been issued or made available for issuance. That is, early adoption should be within the first interim period if an employer issues interim financial statements. Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position.

~~FASB ASC Subtopic 610-20 "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets" Update No. 2017-05.~~ Update No. 2017-05 was issued in February 2017 to clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments define the term in substance nonfinancial asset, in part, as a financial asset promised to a counterparty in a contract if substantially all of the fair value of the assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets. The amendments in this update also clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. For purposes of that evaluation, the amendments require an entity to evaluate the underlying assets in consolidated subsidiaries to determine whether those assets are within the scope of Subtopic 610-20. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The guidance may be applied earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods in that reporting period. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position.

~~FASB ASC Topic 350 "Intangibles - Goodwill and Other " Update No. 2017-04.~~ Update No. 2017-04 was issued in January 2017 to simplify the subsequent measurement of goodwill, by eliminating Step 2 for the goodwill impairment test. The amendments in this update modify the concept of impairment from the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity is no longer required to determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit has been acquired in a business combination. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is a U.S. Securities and Exchange Commission (SEC)filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial position.

~~FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2014-09.~~ Update No. 2014-09 was issued in May 2014 to address the previous revenue recognition requirements in GAAP that differ from those in International Financial Reporting Standards (IFRS). Accordingly, the FASB and the International Accounting Standards Board (IASB) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. The largely converged revenue recognition standards will supersede virtually all revenue recognition guidance in GAAP and IFRS. The core principle of the guidance is that an entity should recognize revenue to depict 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. Since the issuance of Update 2014-09, the FASB has finalized various amendments to the standard as summarized below:

~~FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2016-20~~

~~FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2016-12~~

~~FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2016-10~~

~~FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2016-08~~.

~~FASB ASC Topic 606 "Revenue from Contracts with Customers" Update No. 2015-14.~~

The amendments in Update 2016-20 make minor corrections or minor improvements to the codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities.

Through Updates 2016-12, 2016-10 and 2016-08, the FASB amended its new revenue guidance on licenses of intellectual property, identification of performance obligations, collectability, noncash consideration and the presentation of sales and other similar taxes. The FASB also clarified the definition of a completed contract at transition and added a practical expedient to ease transition for contracts that were modified prior to adoption. The FASB also amended the new revenue recognition guidance on determining whether an entity is a principal or an agent in an arrangement which affects whether revenue should be reported gross or net.

Following the issuance of Update 2015-14, Update 2014-09, as amended, is effective for the Company for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. A full or modified retrospective transition method is required. The Company's revenue is comprised of net interest income on financial assets and liabilities, and noninterest income. Interest income, mortgage banking income, gain on sale of equity securities, increase in cash surrender value of life insurance policies and loan level derivative income are accounted for under other U.S. GAAP standards, and are therefore out of scope of the ASC 606 revenue standard. Deposit account fees, interchange and ATM fees, investment management and certain categories of other noninterest income are within the scope of the ASC 606 revenue standard. As such, the Company is currently reviewing contracts related to these revenue streams and at this point does not anticipate any material changes to revenue recognition upon adoption, however, the Company’s review is still ongoing. The Company plans to adopt the revenue recognition standard as of January 1, 2018 and anticipates using the modified retrospective transition method upon adoption.

NOTE 3 - ~~ACQUISITIONS~~

~~Island Bancorp, Inc.~~

On May 12, 2017, the Company completed its acquisition of Island Bancorp, Inc., the parent of The Edgartown National Bank ("Island Bancorp"). The transaction qualified as a tax-free reorganization for federal income tax purposes and Island Bancorp shareholders received, for each share of Island Bancorp common stock, the right to receive either $500 in cash per share or 9.525 shares of the Company's stock (valued at $605.31 per share, based upon the highest trading value of the Company's stock on May 12, 2017 of $63.55). The total deal consideration was $28.3 million and was comprised of 20% cash and 80% stock consideration. The cash consideration was $4.8 million in the aggregate, inclusive of cash paid in lieu of fractional shares. The total stock consideration was $23.5 million resulting in an increase to the Company's outstanding shares of 369,286 shares.

The Company accounted for the acquisition using the acquisition method pursuant to the Business Combinations Topic of the FASB ASC. Accordingly, the Company recorded merger and acquisition expenses of $3.2 million during the nine months ended September 30, 2017. 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 $ 11,137
Loans 155,551
Premises and equipment 5,828
Goodwill 10,280
Core deposit and other intangibles 2,964
Other assets 4,629
Total assets acquired 190,389
Liabilities
Deposits 159,580
Borrowings 2,475
Other liabilities 18
Total liabilities assumed 162,073
Purchase price $ 28,316

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.~~

~~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 overall 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 the loan had evidence of deterioration of credit quality at the purchase date and also reviewed to determine if it was probable that all contractually required payments will not be collected. Based on the review of the loan portfolio at the time of the acquisition it was deemed that there was no evidence to show that any of the acquired loans were purchased credit impaired.

~~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 were 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 Federal Home Loan Bank ("FHLB") advances were derived based upon the present value of the principal and interest payments using a current market discount rate.~~

~~Selected Pro Forma Results~~

The following summarizes the unaudited pro forma results of operations as if the Company acquired Island Bancorp on January 1, 2017 (2016 amounts represent combined results for the Company and Island Bancorp). 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 periods 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
2017 2016 2017 2016
(Dollars in thousands)
Net interest income after provision for loan losses $ 67,073
$ 58,119
$ 191,485
$ 171,221
Net income 23,852
20,769
67,961
60,257

There were no merger related costs excluded from the pro forma results of operations for the three months ended September 30, 2017 whereas the pro forma results of operations for the nine months ended September 30, 2017 exclude merger-related costs of $2.6 million, net of tax, recognized by both the Company and Island Bancorp in the aggregate. There were no merger and acquisition expenses recognized during the three and nine months ended September 30, 2016. These costs were primarily made up of contract terminations arising due to the change in control, the acceleration of certain compensation and benefit costs, and other merger expenses.

~~NOTE 4 -~~ SECURITIES

Trading Securities

The Company had trading securities of $1.6 million and $1.3 million ~~and $804,000~~ as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. These securities are held in a rabbi trust and will be used for future payments associated with the Company’s ~~non-qualified~~nonqualified 401(k) Restoration Plan and ~~Non-Qualified~~Nonqualified Deferred Compensation Plan.

Equity Securities

The Company had equity securities of $20.1 million as of June 30, 2018. 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. These securities were previously classified as available for sale and were reclassified as equity securities due to a change in accounting guidance effective January 1, 2018. The equity securities had a fair value of $20.6 million as of December 31, 2017 and are reflected accordingly as available for sale in the table below.

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, 2017									December 31, 2016									June 30, 2018									December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)																		(Dollars in thousands)
Available for sale securities
U.S. government agency securities	$	23,010	$	218	$	—		$	23,228	$	24,006	$	238	$	—		$	24,244	$	33,479	$	—	$	(760	)	$	32,719	$	35,475	$	86	$	(131	)	$	35,430
Agency mortgage-backed securities	211,757		3,060		(253		)	214,564		173,268		2,852		(736		)	175,384		219,409		1,019		(5,439		)	214,989		214,934		1,897		(1,067		)	215,764
Agency collateralized mortgage obligations	115,504		405		(1,080		)	114,829		101,094		106		(1,332		)	99,868		150,122		90		(5,065		)	145,147		124,098		78		(2,164		)	122,012
State, county, and municipal securities	2,492		47		—			2,539		3,743		50		—			3,793		1,977		19		—			1,996		2,237		37		—			2,274
Single issuer trust preferred securities issued by banks	2,025		19		—			2,044		2,311		3		(3		)	2,311		1,320		9		—			1,329		2,012		4		—			2,016
Pooled trust preferred securities issued by banks and insurers	2,182		—		(558		)	1,624		2,200		—		(616		)	1,584		2,166		—		(415		)	1,751		2,179		—		(539		)	1,640
Small business administration pooled securities	50,194		45		(53		)	50,186		37,561		—		(372		)	37,189		46,102		—		(1,104		)	44,998		47,852		44		(118		)	47,778
Equity securities	19,176		1,334		(399		)	20,111		19,183		641		(553		)	19,271		—		—		—			—		19,432		1,594		(442		)	20,584
Total available for sale securities	$	426,340	$	5,128	$	(2,343	)	$	429,125	$	363,366	$	3,890	$	(3,612	)	$	363,644	$	454,575	$	1,137	$	(12,783	)	$	442,929	$	448,219	$	3,740	$	(4,461	)	$	447,498
Held to maturity securities
U.S. Treasury securities	$	1,006	$	42	$	—		$	1,048	$	1,007	$	47	$	—		$	1,054	$	1,005	$	9	$	—		$	1,014	$	1,006	$	29	$	—		$	1,035
Agency mortgage-backed securities	171,664		2,508		(192		)	173,980		156,088		2,274		(858		)	157,504		186,299		286		(4,585		)	182,000		204,768		1,791		(736		)	205,823
Agency collateralized mortgage obligations	275,894		1,244		(2,905		)	274,233		297,445		1,002		(3,797		)	294,650		323,746		151		(10,555		)	313,342		262,998		397		(4,987		)	258,408
Single issuer trust preferred securities issued by banks	1,500		39		—			1,539		1,500		44		—			1,544		1,500		23		—			1,523		1,500		29		—			1,529
Small business administration pooled securities	28,734		228		(100		)	28,862		31,036		189		(327		)	30,898		25,711		51		(353		)	25,409		27,416		183		(200		)	27,399
Total held to maturity securities	$	478,798	$	4,061	$	(3,197	)	$	479,662	$	487,076	$	3,556	$	(4,982	)	$	485,650	$	538,261	$	520	$	(15,493	)	$	523,288	$	497,688	$	2,429	$	(5,923	)	$	494,194
Total	$	905,138	$	9,189	$	(5,540	)	$	908,787	$	850,442	$	7,446	$	(8,594	)	$	849,294	$	992,836	$	1,657	$	(28,276	)	$	966,217	$	945,907	$	6,169	$	(10,384	)	$	941,692

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

The actual maturities of certain securities may differ from the contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. A schedule of the contractual maturities of securities available for sale and securities held to maturity as of ~~September~~June 30, ~~2017~~2018 is presented below:

Available for Sale Held to Maturity

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value
(Dollars in thousands)
Due in one year or less $ 3,229
$ 3,237
$ —
$ —
Due after one year to five years 36,704
37,152
15,731
15,917
Due after five to ten years 105,842
106,576
18,158
18,654
Due after ten years 261,389
262,049
444,909
445,091
Total debt securities $ 407,164
$ 409,014
$ 478,798
$ 479,662
Equity securities $ 19,176
$ 20,111
$ —
$ —
Total $ 426,340
$ 429,125
$ 478,798
$ 479,662



	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	$	999	$	998	$	20,014	$	19,781	$	12,466	$	11,940	$	—	$	—	$	33,479	$	32,719
Agency mortgage-backed securities	520		524		43,223		42,216		95,410		93,245		80,256		79,004		219,409		214,989
Agency collateralized mortgage obligations	—		—		—		—		—		—		150,122		145,147		150,122		145,147
State, county, and municipal securities	—		—		1,024		1,026		953		970		—		—		1,977		1,996
Single issuer trust preferred securities issued by banks	—		—		—		—		—		—		1,320		1,329		1,320		1,329
Pooled trust preferred securities issued by banks and insurers	—		—		—		—		—		—		2,166		1,751		2,166		1,751
Small business administration pooled securities	—		—		—		—		—		—		46,102		44,998		46,102		44,998
Total available for sale securities	$	1,519	$	1,522	$	64,261	$	63,023	$	108,829	$	106,155	$	279,966	$	272,229	$	454,575	$	442,929
Held to maturity securities
U.S. Treasury securities	$	—	$	—	$	1,005	$	1,014	$	—	$	—	$	—	$	—	$	1,005	$	1,014
Agency mortgage-backed securities	—		—		8,998		8,846		29,911		29,380		147,390		143,774		186,299		182,000
Agency collateralized mortgage obligations	—		—		—		—		1,179		1,175		322,567		312,167		323,746		313,342
Single issuer trust preferred securities issued by banks	—		—		—		—		1,500		1,523		—		—		1,500		1,523
Small business administration pooled securities	—		—		—		—		—		—		25,711		25,409		25,711		25,409
Total held to maturity securities	$	—	$	—	$	10,003	$	9,860	$	32,590	$	32,078	$	495,668	$	481,350	$	538,261	$	523,288

Inclusive in the table above ~~are $9.7~~is $6.6 million of callable securities ~~in the Company’s investment portfolio~~ at ~~September~~June 30, ~~2017.~~2018.

The carrying value of securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law, was ~~$514.2~~$545.4 million and ~~$482.1~~$547.2 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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 is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment.

The following tables show 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, 2017																June 30, 2018
		Less than 12 months					12 months or longer					Total						Less than 12 months					12 months or longer					Total
	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)																(Dollars in thousands)
U.S. government agency securities																	4	$	32,719	$	(760	)	$	—	$	—		$	32,719	$	(760	)
Agency mortgage-backed securities	23	$	88,083	$	(438	)	$	762	$	(7	)	$	88,845	$	(445	)	151	341,018		(9,349		)	14,003		(675		)	355,021		(10,024		)
Agency collateralized mortgage obligations	25	145,572		(2,278		)	52,466		(1,707		)	198,038		(3,985		)	52	274,293		(7,235		)	137,912		(8,385		)	412,205		(15,620		)
Pooled trust preferred securities issued by banks and insurers	1	—		—			1,624		(558		)	1,624		(558		)	1	—		—			1,751		(415		)	1,751		(415		)
Small business administration pooled securities	4	46,925		(153		)	—		—			46,925		(153		)	6	54,637		(1,264		)	8,947		(193		)	63,584		(1,457		)
Equity securities	24	897		(17		)	7,557		(382		)	8,454		(399		)
Total temporarily impaired securities	77	$	281,477	$	(2,886	)	$	62,409	$	(2,654	)	$	343,886	$	(5,540	)	214	$	702,667	$	(18,608	)	$	162,613	$	(9,668	)	$	865,280	$	(28,276	)


	December 31, 2016																December 31, 2017
		Less than 12 months					12 months or longer					Total						Less than 12 months					12 months or longer					Total
	# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			# of holdings	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)																(Dollars in thousands)
U.S.government agency securities																	4	$	24,343	$	(131	)	$	—	$	—		$	24,343	$	(131	)
Agency mortgage-backed securities	57	$	137,949	$	(1,594	)	$	—	$	—		$	137,949	$	(1,594	)	84	235,411		(1,493		)	14,886		(310		)	250,297		(1,803		)
Agency collateralized mortgage obligations	32	243,051		(3,140		)	47,403		(1,989		)	290,454		(5,129		)	42	178,142		(1,579		)	159,506		(5,572		)	337,648		(7,151		)
Single issuer trust preferred securities issued by banks and insurers	1	—		—			1,036		(3		)	1,036		(3		)
Pooled trust preferred securities issued by banks and insurers	1	—		—			1,583		(616		)	1,583		(616		)	1	—		—			1,640		(539		)	1,640		(539		)
Small business administration pooled securities	5	59,846		(699		)	—		—			59,846		(699		)	4	34,553		(223		)	9,647		(95		)	44,200		(318		)
Equity securities	25	3,625		(77		)	6,334		(476		)	9,959		(553		)	28	3,290		(39		)	7,619		(403		)	10,909		(442		)
Total temporarily impaired securities	121	$	444,471	$	(5,510	)	$	56,356	$	(3,084	)	$	500,827	$	(8,594	)	163	$	475,739	$	(3,465	)	$	193,298	$	(6,919	)	$	669,037	$	(10,384	)

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 ~~the~~each security before the recovery of its amortized cost basis. As a

result, the Company does not consider these investments to be ~~OTTI.~~ OTTI and accordingly, there was no OTTI recorded and no cumulative credit related component of OTTI for the three and six months ended June 30, 2018 and 2017.

The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, and current analysts’ evaluations.

As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the table above by category are as follows at ~~September~~June 30, ~~2017:~~2018:

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

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.

~~Equity Securities~~: This portfolio consists of mutual funds and other equity investments. During some periods, the mutual funds in the Company’s investment portfolio may have unrealized losses resulting from market fluctuations, as well as the risk premium associated with that particular asset class. For example, emerging market equities tend to trade at a higher risk premium than U.S. government bonds and thus, will fluctuate to a greater degree on both the upside and the downside. In the context of a well-diversified portfolio, however, the correlation amongst the various asset classes represented by the funds serves to minimize downside risk. The Company evaluates each mutual fund in the portfolio regularly and measures performance on both an absolute and relative basis. A reasonable recovery period for positions with an unrealized loss is based on management’s assessment of general economic data, trends within a particular asset class, valuations, earnings forecasts and bond durations. The Company has the ability and intent to hold these equity securities until a recovery of fair value.

~~For the three and nine months ended September 30, 2017 and 2016 there was no OTTI recorded and no cumulative credit related component of OTTI.~~

NOTE 54 - 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, 2017																		June 30, 2018
	(Dollars in thousands)																		(Dollars in thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total				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	$	823,007	$	3,060,211	$	395,267	$	129,676	$	735,454	$	1,045,445	$	9,550	$	6,198,610			$	943,722	$	3,110,500	$	364,225	$	146,334	$	761,476	$	1,062,334	$	11,335	$	6,399,926
Individually evaluated for impairment	$	35,515	$	19,018	$	—	$	980	$	13,649	$	6,636	$	322	$	76,120			$	32,542	$	15,016	$	—	$	803	$	12,705	$	6,759	$	255	$	68,080
Purchased credit impaired loans	$	—	$	7,931	$	—	$	—	$	7,027	$	214	$	—	$	15,172			$	—	$	5,821	$	—	$	—	$	5,240	$	204	$	—	$	11,265
Total loans by group	$	858,522	$	3,087,160	$	395,267	$	130,656	$	756,130	$	1,052,295	$	9,872	$	6,289,902	(1	)	$	976,264	$	3,131,337	$	364,225	$	147,137	$	779,421	$	1,069,297	$	11,590	$	6,479,271	(1	)


	December 31, 2016																		December 31, 2017
	(Dollars in thousands)																		(Dollars in thousands)
	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Residential Real Estate		Home Equity		Other Consumer		Total				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	$	862,875	$	2,983,642	$	320,391	$	121,855	$	622,392	$	982,095	$	10,666	$	5,903,916			$	853,885	$	3,093,945	$	401,797	$	131,667	$	733,809	$	1,045,053	$	9,573	$	6,269,729
Individually evaluated for impairment	$	39,178	$	16,813	$	—	$	871	$	14,175	$	5,863	$	397	$	77,297			$	34,643	$	16,638	$	—	$	703	$	13,684	$	6,826	$	307	$	72,801
Purchased credit impaired loans	$	—	$	10,343	$	—	$	—	$	7,859	$	189	$	1	$	18,392			$	—	$	5,978	$	—	$	—	$	6,836	$	209	$	—	$	13,023
Total loans by group	$	902,053	$	3,010,798	$	320,391	$	122,726	$	644,426	$	988,147	$	11,064	$	5,999,605	(1	)	$	888,528	$	3,116,561	$	401,797	$	132,370	$	754,329	$	1,052,088	$	9,880	$	6,355,553	(1	)

(1)

The amount of net deferred costs on originated loans included in the ending balance was ~~$5.6~~$6.7 million and ~~$5.1~~$6.1 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Net unamortized discounts on acquired loans not deemed to be purchased credit impaired ("PCI") included in the ending balance was ~~$9.8~~$8.8 million and ~~$8.6~~$9.4 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

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


	Three Months Ended September 30, 2017																							Three Months Ended June 30, 2018
	(Dollars in thousands)																							(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction		Small Business			Residential Real Estate			Home Equity			Other Consumer			Total			Commercial and Industrial			Commercial Real Estate		Commercial Construction			Small Business			Residential Real Estate			Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	13,544		$	30,947		$	4,814	$	1,613		$	2,693		$	5,353		$	515		$	59,479		$	13,533		$	31,459	$	5,679		$	1,593		$	2,837		$	5,359		$	402		$	60,862
Charge-offs	(124		)	—			—		(164		)	(43		)	(81		)	(405		)	(817		)	(4		)	—		—			(102		)	(109		)	(95		)	(259		)	(569		)
Recoveries	404			286			—		17			15			65			261			1,048			59			18		—			10			1			23			153			264
Provision (benefit)	(994		)	(233		)	806		140			111			89			81			—			1,200			618		(463		)	208			180			181			76			2,000
Ending balance	$	12,830		$	31,000		$	5,620	$	1,606		$	2,776		$	5,426		$	452		$	59,710		$	14,788		$	32,095	$	5,216		$	1,709		$	2,909		$	5,468		$	372		$	62,557

	Three Months Ended September 30, 2016																							Three Months Ended June 30, 2017
	(Dollars in thousands)																							(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction		Small Business			Residential Real Estate			Home Equity			Other Consumer			Total			Commercial and Industrial			Commercial Real Estate		Commercial Construction			Small Business			Residential Real Estate			Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	14,027		$	29,011		$	5,216	$	1,441		$	2,578		$	4,986		$	468		$	57,727		$	16,518		$	30,743	$	5,023		$	1,533		$	2,716		$	5,345		$	440		$	62,318
Charge-offs	(27		)	(341		)	—		(98		)	—			(154		)	(523		)	(1,143		)	(3,591		)	—		—			(24		)	(116		)	(122		)	(345		)	(4,198		)
Recoveries	63			124			—		28			130			24			302			671			13			26		—			13			2			26			229			309
Provision (benefit)	(189		)	609			117		113			(44		)	196			148			950			604			178		(209		)	91			91			104			191			1,050
Ending balance	$	13,874		$	29,403		$	5,333	$	1,484		$	2,664		$	5,052		$	395		$	58,205		$	13,544		$	30,947	$	4,814		$	1,613		$	2,693		$	5,353		$	515		$	59,479


	Nine Months Ended September 30, 2017																								Six Months Ended June 30, 2018
	(Dollars in thousands)																								(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction			Small Business			Residential Real Estate			Home Equity			Other Consumer			Total			Commercial and Industrial			Commercial Real Estate		Commercial Construction			Small Business			Residential Real Estate			Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	16,921		$	30,369		$	4,522		$	1,502		$	2,621		$	5,238		$	393		$	61,566		$	13,256		$	31,453	$	5,698		$	1,577		$	2,822		$	5,390		$	447		$	60,643
Charge-offs	(3,715		)	—			—			(258		)	(182		)	(217		)	(1,151		)	(5,523		)	(137		)	—		—			(126		)	(148		)	(174		)	(577		)	(1,162		)
Recoveries	604			343			—			96			29			167			778			2,017			71			38		—			19			3			57			388			576
Provision (benefit)	(980		)	288			1,098			266			308			238			432			1,650			1,598			604		(482		)	239			232			195			114			2,500
Ending balance	$	12,830		$	31,000		$	5,620		$	1,606		$	2,776		$	5,426		$	452		$	59,710		$	14,788		$	32,095	$	5,216		$	1,709		$	2,909		$	5,468		$	372		$	62,557
Ending balance: collectively evaluated for impairment																									$	14,780		$	32,021	$	5,216		$	1,708		$	2,050		$	5,237		$	358		$	61,370
Ending balance: individually evaluated for impairment	$	71		$	49		$	—		$	1		$	1,020		$	257		$	19		$	1,417		$	8		$	74	$	—		$	1		$	859		$	231		$	14		$	1,187
Ending balance: collectively evaluated for impairment	$	12,759		$	30,951		$	5,620		$	1,605		$	1,756		$	5,169		$	433		$	58,293
	Nine Months Ended September 30, 2016																								Six Months Ended June 30, 2017
	(Dollars in thousands)																								(Dollars in thousands)
	Commercial and Industrial			Commercial Real Estate			Commercial Construction			Small Business			Residential Real Estate			Home Equity			Other Consumer			Total			Commercial and Industrial			Commercial Real Estate		Commercial Construction			Small Business			Residential Real Estate			Home Equity			Other Consumer			Total
Allowance for loan losses
Beginning balance	$	13,802		$	27,327		$	5,366		$	1,264		$	2,590		$	4,889		$	587		$	55,825		$	16,921		$	30,369	$	4,522		$	1,502		$	2,621		$	5,238		$	393		$	61,566
Charge-offs	(31		)	(365		)	—			(191		)	(27		)	(491		)	(1,152		)	(2,257		)	(3,591		)	—		—			(94		)	(139		)	(136		)	(746		)	(4,706		)
Recoveries	850			535			—			122			182			77			796			2,562			200			57		—			79			14			102			517			969
Provision (benefit)	(747		)	1,906			(33		)	289			(81		)	577			164			2,075			14			521		292			126			197			149			351			1,650
Ending balance	$	13,874		$	29,403		$	5,333		$	1,484		$	2,664		$	5,052		$	395		$	58,205		$	13,544		$	30,947	$	4,814		$	1,613		$	2,693		$	5,353		$	515		$	59,479
Ending balance: collectively evaluated for impairment																									$	13,474		$	30,781	$	4,814		$	1,612		$	1,657		$	5,110		$	495		$	57,943
Ending balance: individually evaluated for impairment	$	134		$	355		$	—		$	2		$	1,156		$	223		$	23		$	1,893		$	70		$	166	$	—		$	1		$	1,036		$	243		$	20		$	1,536
Ending balance: collectively evaluated for impairment	$	13,740		$	29,048		$	5,333		$	1,482		$	1,508		$	4,829		$	372		$	56,312

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.

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 of 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. ~~The Company does not originate or purchase sub-prime loans.~~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. Each home equity line of credit has a variable rate and is billed in interest-only payments during the draw period. At the end of the draw period, ~~each~~the home equity line of credit is billed as a percentage of the then outstanding principal balance plus all accrued ~~interest.~~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 ~~commercial~~credit risk-rating system, which assigns a risk-grade to each ~~borrower~~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. Loan may be inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. However, there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Collateral coverage may be inadequate to cover the principal obligation.

9 Rating — Partial Loss Probable: Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt with the added provision that the weaknesses make collection of the debt in full, on the basis of currently existing facts,

conditions, and values, highly questionable and improbable. Serious problems exist to the point where partial loss of principal is likely.

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

The credit quality of the commercial loan portfolio is actively monitored and any changes in credit quality are reflected in risk-rating changes. Risk-ratings are assigned or reviewed for all new loans, when advancing significant additions to existing relationships (over $50,000), at least quarterly for all actively managed loans, and any time a significant event occurs, including at renewal of the loan.

The Company utilizes a comprehensive strategy for monitoring commercial credit quality. ~~Borrowers~~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.~~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 ~~table details~~tables detail the amount of outstanding principal balances relative to each of the risk-rating categories for the Company’s commercial portfolio:


		September 30, 2017											June 30, 2018
Category	Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total		Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)											(Dollars in thousands)
Pass	1 - 6	$	764,946	$	2,968,237	$	393,836	$	128,464	$	4,255,483	1 - 6	$	896,554	$	3,037,955	$	364,225	$	144,865	$	4,443,599
Potential weakness	7	23,477		73,219		—		1,543		98,239		7	17,294		47,608		—		1,293		66,195
Definite weakness-loss unlikely	8	63,856		45,240		1,431		646		111,173		8	56,413		45,311		—		977		102,701
Partial loss probable	9	6,243		464		—		3		6,710		9	6,003		463		—		2		6,468
Definite loss	10	—		—		—		—		—		10	—		—		—		—		—
Total		$	858,522	$	3,087,160	$	395,267	$	130,656	$	4,471,605		$	976,264	$	3,131,337	$	364,225	$	147,137	$	4,618,963


		December 31, 2016											December 31, 2017
Category	Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total		Risk Rating	Commercial and Industrial		Commercial Real Estate		Commercial Construction		Small Business		Total
		(Dollars in thousands)											(Dollars in thousands)
Pass	1 - 6	$	783,825	$	2,876,570	$	317,099	$	120,304	$	4,097,798	1 - 6	$	806,331	$	3,007,672	$	400,964	$	130,265	$	4,345,232
Potential weakness	7	46,176		84,641		1,363		1,859		134,039		7	16,563		69,788		—		1,471		87,822
Definite weakness-loss unlikely	8	71,991		47,164		1,929		556		121,640		8	59,415		38,637		833		631		99,516
Partial loss probable	9	61		2,423		—		7		2,491		9	6,219		464		—		3		6,686
Definite loss	10	—		—		—		—		—		10	—		—		—		—		—
Total		$	902,053	$	3,010,798	$	320,391	$	122,726	$	4,355,968		$	888,528	$	3,116,561	$	401,797	$	132,370	$	4,539,256

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, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Residential portfolio
FICO score (re-scored)(1)	745		743		747		745
LTV (re-valued)(2)	61.0	%	63.2	%	58.1	%	59.2	%
Home equity portfolio
FICO score (re-scored)(1)	766		767		768		766
LTV (re-valued)~~(2)~~(3)	55.9	%	55.9	%	49.2	%	50.1	%

(1)

The average FICO scores at June 30, 2018 are based upon rescores available from February 2018 and origination score data for ~~September 30,~~loans booked between March and June 2018. The average FICO scores at December 31, 2017 are based upon rescores available from August ~~31,~~ 2017 and origination score data for loans booked between September 1, 2017 and September 30, 2017. The average FICO scores for December 31, 2016 are based upon rescores available from November 30, 2016 and origination score data for loans booked between December 1, 2016 and December ~~31, 2016.~~2017.

(2)

The combined LTV ratios for ~~September~~June 30, ~~2017 and December 31, 2016~~2018 are based upon updated automated valuations as of ~~March~~May 2018, when available or the most current valuation data available. The combined LTV ratios for December 31, ~~2015 and origination value~~2017 are based upon updated automated valuations as of August 2017, when available, or the most current valuation data ~~for~~available. The updated automated valuations provides new information on loans ~~booked between April 1, 2015 and through~~that may be available since the ~~dates indicated.~~ 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, ~~position,~~ 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 ~~seasoned~~ 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, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(Dollars in thousands)				(Dollars in thousands)
Commercial and industrial	$	32,556	$	37,455	$	30,095	$	32,055
Commercial real estate	3,052		6,266		3,110		3,123
Small business	403		302		384		230
Residential real estate	8,297		7,782		7,612		8,129
Home equity	5,903		5,553		5,861		6,022
Other consumer	59		47		36		71
Total nonaccrual loans (1)	$	50,270	$	57,405	$	47,098	$	49,630

(1)Included in these amounts were $4.1 million and $6.1 million of nonaccruing TDRs at June 30, 2018 and December 31, 2017, respectively.


~~(1)~~	~~Included in these amounts were $5.8 million and $5.2 million of nonaccruing TDRs at September 30, 2017 and December 31, 2016, respectively.~~

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


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(Dollars in thousands)				(Dollars in thousands)
Foreclosed residential real estate property held by the creditor	$	2,538	$	3,775	$	245	$	612
Recorded investment in mortgage loans collateralized by residential real estate property that are in the process of foreclosure	$	1,608	$	1,715	$	2,152	$	2,971

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


	September 30, 2017																		June 30, 2018
	30-59 days			60-89 days			90 days or more			Total Past Due					Total Financing Receivables		Recorded Investment >90 Days and Accruing		30-59 days			60-89 days			90 days or more			Total Past Due					Total Financing Receivables		Recorded Investment >90 Days and Accruing
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	(Dollars in thousands)																		(Dollars in thousands)
Loan Portfolio
Commercial and industrial	12	$	839	2	$	315	45	$	32,490	59	$	33,644	$	824,878	$	858,522	$	—	5	$	291	2	$	368	12	$	30,042	19	$	30,701	$	945,563	$	976,264	$	—
Commercial real estate	10	4,413		—	—		8	1,755		18	6,168		3,080,992		3,087,160		—		12	9,675		3	2,534		9	2,272		24	14,481		3,116,856		3,131,337		—
Commercial construction	1	566		—	—		—	—		1	566		394,701		395,267		—		—	—		—	—		—	—		—	—		364,225		364,225		—
Small business	11	130		5	14		17	107		33	251		130,405		130,656		—		8	120		8	59		14	286		30	465		146,672		147,137		—
Residential real estate	12	1,125		10	2,392		20	2,843		42	6,360		749,770		756,130		—		15	2,567		7	908		18	3,405		40	6,880		772,541		779,421		—
Home equity	20	1,016		9	516		20	2,559		49	4,091		1,048,204		1,052,295		—		21	1,388		11	1,191		24	2,618		56	5,197		1,064,100		1,069,297		—
Other consumer (1)	229	226		10	38		12	14		251	278		9,594		9,872		7		205	81		9	11		10	22		224	114		11,476		11,590		14
Total	295	$	8,315	36	$	3,275	122	$	39,768	453	$	51,358	$	6,238,544	$	6,289,902	$	7	266	$	14,122	40	$	5,071	87	$	38,645	393	$	57,838	$	6,421,433	$	6,479,271	$	14


	December 31, 2016																		December 31, 2017
	30-59 days			60-89 days			90 days or more			Total Past Due					Total Financing Receivables		Recorded Investment >90 Days and Accruing		30-59 days			60-89 days			90 days or more			Total Past Due					Total Financing Receivables		Recorded Investment >90 Days and Accruing
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Current		Total Financing Receivables		Recorded Investment >90 Days and Accruing
	(Dollars in thousands)																		(Dollars in thousands)
Loan Portfolio
Commercial and industrial	8	$	100	32	$	253	6	$	2,480	46	$	2,833	$	899,220	$	902,053	$	—	2	$	195	2	$	370	14	$	32,007	18	$	32,572	$	855,956	$	888,528	$	—
Commercial real estate	5	1,518		8	1,957		8	3,105		21	6,580		3,004,218		3,010,798		—		7	3,060		—	—		9	1,793		16	4,853		3,111,708		3,116,561		—
Commercial construction	—	—		—	—		—	—		—	—		320,391		320,391		—		—	—		—	—		—	—		—	—		401,797		401,797		—
Small business	9	323		—	—		19	140		28	463		122,263		122,726		—		17	339		11	144		10	57		38	540		131,830		132,370		—
Residential real estate	11	1,277		9	1,950		27	3,507		47	6,734		637,692		644,426		—		6	870		13	2,385		22	3,471		41	6,726		747,603		754,329		—
Home equity	19	1,117		11	767		16	1,209		46	3,093		985,054		988,147		—		22	1,310		6	451		20	2,025		48	3,786		1,048,302		1,052,088		—
Other consumer (1)	249	184		12	17		15	7		276	208		10,856		11,064		2		265	197		16	27		17	45		298	269		9,611		9,880		8
Total	301	$	4,519	72	$	4,944	91	$	10,448	464	$	19,911	$	5,979,694	$	5,999,605	$	2	319	$	5,971	48	$	3,377	92	$	39,398	459	$	48,746	$	6,306,807	$	6,355,553	$	8

(1) 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 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, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(Dollars in thousands)				(Dollars in thousands)
TDRs on accrual status	$	26,731	$	27,093	$	25,528	$	25,852
TDRs on nonaccrual	5,776		5,199		4,095		6,067
Total TDRs	$	32,507	$	32,292	$	29,623	$	31,919
Amount of specific reserves included in the allowance for loan losses associated with TDRs	$	1,417	$	1,417	$	1,149	$	1,342
Additional commitments to lend to a borrower who has been a party to a TDR	$	1,084	$	1,378	$	767	$	487

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 ~~table shows~~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					Three Months Ended					Six Months Ended
	September 30, 2017					September 30, 2017					June 30, 2018					June 30, 2018
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)
	(Dollars in thousands)										(Dollars in thousands)
Troubled debt restructurings
Commercial and industrial	1	$	196	$	196	9	$	1,575	$	1,575
Commercial real estate	—	—		—		6	1,884		1,884		—	—		—		1	445		445
Small business	2	183		183		10	447		447
Residential real estate	—	—		—		5	889		900		1	149		149		1	149		149
Home equity	4	436		436		14	1,427		1,430		4	230		230		6	472		472
Total	7	$	815	$	815	44	$	6,222	$	6,236	5	$	379	$	379	8	$	1,066	$	1,066


	Three Months Ended					Nine Months Ended					Three Months Ended					Six Months Ended
	September 30, 2016					September 30, 2016					June 30, 2017					June 30, 2017
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment (1)
	(Dollars in thousands)										(Dollars in thousands)
Troubled debt restructurings
Commercial and industrial	—	$	—	$	—	7	$	528	$	528	6	$	1,299	$	1,299	8	$	1,379	$	1,379
Commercial real estate	3	986		986		9	2,329		2,329		2	950		950		6	1,884		1,884
Small business	1	59		59		3	168		168		4	121		121		8	264		264
Residential real estate	—	—		—		5	1,167		1,209		5	889		900		5	889		900
Home equity	4	328		328		8	632		632		8	851		854		10	991		994
Other consumer	—	—		—		5	107		107
Total	8	$	1,373	$	1,373	37	$	4,931	$	4,973	25	$	4,110	$	4,124	37	$	5,407	$	5,421


(1)	The post-modification balances represent the legal principal balance of the loan on the date of modification. These amounts may show an increase when modifications include a capitalization of interest.

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


									Three Months Ended				Six Months Ended
	Three Months Ended September 30				Nine Months Ended September 30				June 30				June 30
	2017		2016		2017		2016		2018		2017		2018		2017
	(Dollars in thousands)				(Dollars in thousands)				(Dollars in thousands)				(Dollars in thousands)
Extended maturity	$	486	$	256	$	4,565	$	2,638	$	—	$	2,872	$	445	$	4,079
Adjusted interest rate	—		—		—		92
Combination rate and maturity	196		730		196		990
Court ordered concession	133		387		1,475		1,253		379		1,252		621		1,342
Total	$	815	$	1,373	$	6,236	$	4,973	$	379	$	4,124	$	1,066	$	5,421

The Company considers a loan to have defaulted when it reaches 90 days past due. ~~There~~As of June 30, 2018, there were no loans modified during the ~~preceding~~past twelve months that had subsequently defaulted during the three and six months ended ~~September~~June 30, ~~2017. There~~2018. As of June 30, 2017, there was one residential real estate loan modified during the past twelve months with a recorded investment of $205,000 which has subsequently defaulted during the nine months ended September 30, 2017. There was one home equity loan modified during the preceding twelve months with a recorded investment of ~~$141,000 that~~$205,000, which had subsequently defaulted during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.

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.

The tables below set forth information regarding the Company’s impaired loans by loan portfolio at the dates indicated:


	September 30, 2017						June 30, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)						(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	33,824	$	38,181	$	—	$	32,319	$	38,662	$	—
Commercial real estate	14,462		15,476		—		12,858		13,719		—
Small business	678		762		—		645		744		—
Residential real estate	3,908		4,066		—		4,803		4,945		—
Home equity	4,880		4,984		—		5,037		5,243		—
Other consumer	97		97		—		64		65		—
Subtotal	57,849		63,566		—		55,726		63,378		—
With an allowance recorded
Commercial and industrial	$	1,691	$	1,691	$	71	$	223	$	223	$	8
Commercial real estate	4,556		4,670		49		2,158		2,282		74
Small business	302		315		1		158		166		1
Residential real estate	9,741		10,421		1,020		7,902		8,752		859
Home equity	1,756		1,977		257		1,722		1,942		231
Other consumer	225		227		19		191		193		14
Subtotal	18,271		19,301		1,417		12,354		13,558		1,187
Total	$	76,120	$	82,867	$	1,417	$	68,080	$	76,936	$	1,187


	December 31, 2016						December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(Dollars in thousands)						(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	28,776	$	29,772	$	—	$	34,267	$	38,329	$	—
Commercial real estate	11,628		12,891		—		13,245		14,374		—
Small business	494		569		—		556		619		—
Residential real estate	4,216		4,427		—		4,264		4,397		—
Home equity	4,485		4,572		—		4,950		5,056		—
Other consumer	146		146		—		91		92		—
Subtotal	49,745		52,377		—		57,373		62,867		—
With an allowance recorded
Commercial and industrial	$	10,402	$	10,440	$	3,661	$	376	$	376	$	10
Commercial real estate	5,185		5,533		196		3,393		3,399		42
Small business	377		392		8		147		153		1
Residential real estate	9,959		10,530		1,086		9,420		10,154		1,007
Home equity	1,378		1,547		242		1,876		2,110		265
Other consumer	251		252		21		216		217		17
Subtotal	27,552		28,694		5,214		15,428		16,409		1,342
Total	$	77,297	$	81,071	$	5,214	$	72,801	$	79,276	$	1,342

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				Three Months Ended				Six Months Ended
	September 30, 2017				September 30, 2017				June 30, 2018				June 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	33,935	$	18	$	36,329	$	179	$	32,557	$	34	$	33,198	$	68
Commercial real estate	14,569		151		14,798		460		13,018		148		13,131		295
Small business	682		5		702		17		672		3		703		8
Residential real estate	3,928		51		3,962		152		4,825		60		4,842		119
Home equity	4,883		50		4,935		146		5,100		54		5,160		106
Other consumer	99		2		104		5		66		1		68		2
Subtotal	58,096		277		60,830		959		56,238		300		57,102		598
With an allowance recorded
Commercial and industrial	$	1,698	$	21	$	1,768	$	65	$	225	$	2	$	226	$	5
Commercial real estate	4,569		65		4,599		195		2,165		24		2,172		48
Small business	305		3		315		11		163		3		169		6
Residential real estate	9,752		79		9,838		234		8,003		68		8,045		136
Home equity	1,765		14		1,782		41		1,732		15		1,744		27
Other consumer	229		2		237		5		194		1		198		3
Subtotal	18,318		184		18,539		551		12,482		113		12,554		225
Total	$	76,414	$	461	$	79,369	$	1,510	$	68,720	$	413	$	69,656	$	823


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30, 2016				September 30, 2016				June 30, 2017				June 30, 2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
With no related allowance recorded
Commercial and industrial	$	2,444	$	16	$	2,584	$	48	$	49,477	$	19	$	49,502	$	240
Commercial real estate	11,549		115		11,775		348		11,547		110		11,655		217
Small business	646		5		679		18		549		3		559		7
Residential real estate	4,255		42		4,286		134		4,064		48		4,082		96
Home equity	4,616		45		4,677		138		4,746		48		4,781		96
Other consumer	162		3		168		9		114		2		118		4
Subtotal	23,672		226		24,169		695		70,497		230		70,697		660
With an allowance recorded
Commercial and industrial	$	2,097	$	4	$	2,135	$	13	$	1,521	$	18	$	1,555	$	37
Commercial real estate	6,854		42		6,977		126		5,633		56		5,656		112
Small business	367		6		384		17		316		3		321		7
Residential real estate	10,004		92		10,071		272		9,841		77		9,882		157
Home equity	1,299		13		1,310		36		1,489		13		1,497		26
Other consumer	265		2		272		6		237		2		241		3
Subtotal	20,886		159		21,149		470		19,037		169		19,152		342
Total	$	44,558	$	385	$	45,318	$	1,165	$	89,534	$	399	$	89,849	$	1,002

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, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(Dollars in thousands)				(Dollars in thousands)
Outstanding balance	$	17,025	$	20,477	$	12,702	$	14,485
Carrying amount	$	15,172	$	18,392	$	11,265	$	13,023

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


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30						Six Months Ended June 30
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in thousands)												(Dollars in thousands)
Beginning balance	$	2,185		$	2,625		$	2,370		$	2,827		$	1,642		$	2,279		$	1,791		$	2,370
Accretion	(359		)	(359		)	(968		)	(1,188		)	(198		)	(302		)	(413		)	(609		)
Other change in expected cash flows (1)	167			213			573			744			160			190			204			406
Reclassification from nonaccretable difference for loans which have paid off (2)	70			—			88			96			—			18			22			18
Ending balance	$	2,063		$	2,479		$	2,063		$	2,479		$	1,604		$	2,185		$	1,604		$	2,185

(1) Represents changes in cash flows expected to be collected and resulting in increased interest income as a prospective yield adjustment over the remaining life of the loan(s).

(2) Results in increased interest income during the period in which the loan paid off at amount greater than originally expected.

~~NOTE 6 - BANK PREMISES AND EQUIPMENT~~

During 2017, the Company purchased equipment that was subject to a master lease agreement with a third party lessee. As such, the Company assumed the role of lessor in conjunction with the purchase, which was deemed to be an operating lease for accounting purposes. The Company purchased a total of $10.6 million of equipment subject to the lease agreement in 2017. In addition, the Company recognized rental income of $412,000 and $860,000 for the three and nine months ended September 30, 2017, respectively, as well as depreciation expense of $325,000 and $614,000 for the same time periods.

NOTE 75 -EARNINGS PER SHARE

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


	Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
	September 30				September 30					June 30				June 30
	2017		2016		2017			2016		2018		2017		2018		2017
	(Dollars in thousands, except per share data)									(Dollars in thousands, except per share data)
Net income	$	23,852	$	20,484	$	65,140		$	59,469	$	31,118	$	20,563	$	58,673	$	41,288

Weighted Average Shares
Basic shares	27,436,792		26,324,316		27,242,902			26,301,340		27,526,653		27,257,799		27,506,724		27,144,350
Effect of dilutive securities	76,307		53,072		78,043			48,354		54,525		74,497		61,480		78,757
Diluted shares	27,513,099		26,377,388		27,320,945			26,349,694		27,581,178		27,332,296		27,568,204		27,223,107

Net income per share
Basic EPS	$	0.87	$	0.78	$	2.39		$	2.26	$	1.13	$	0.75	$	2.13	$	1.52
Effect of dilutive securities	—		—		(0.01		)	—		—		—		—		—
Diluted EPS	$	0.87	$	0.78	$	2.38		$	2.26	$	1.13	$	0.75	$	2.13	$	1.52

The following table illustrates the options to purchase common stock or shares of performance-based restricted stock that were excluded from the calculation of diluted earnings per share because they were anti-dilutive for the periods indicated:


	Three Months Ended		Nine Months Ended		Three Months Ended		Six Months Ended
	September 30		September 30		June 30		June 30
	2017	2016	2017	2016	2018	2017	2018	2017
Stock options	—	4,293	—	1,441	181	—	163	—
Performance-based restricted stock	—	—	—	—	—	—	—	—

NOTE 86 - STOCK BASED COMPENSATION

Time Vested Restricted Stock Awards

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company made the following awards of restricted stock:

Date Shares Granted Plan Grant Date Fair Value Per Share Vesting Period
2/13/2017 1,200
2005 Employee Stock Plan $ 62.53
Ratably over 5 years from grant date
2/16/2017 34,150
2005 Employee Stock Plan $ 63.10
Ratably over 5 years from grant date
3/31/2017 500
2005 Employee Stock Plan $ 65.63
Ratably over 5 years from grant date
4/3/2017 1,500
2005 Employee Stock Plan $ 64.14
Ratably over 5 years from grant date
5/15/2017 1,000
2005 Employee Stock Plan $ 64.03
Ratably over 5 years from grant date
5/23/2017 7,000
2010 Non-Employee Director Stock Plan $ 61.95
At the end of 5 years from grant date (1)
6/15/2017 950
2005 Employee Stock Plan $ 66.18
Ratably over 5 years from grant date



Date	Shares Granted	Plan	Grant Date Fair Value Per Share		Vesting Period
2/15/2018	39,950	2005 Employee Stock Plan	$	71.75	Ratably over 5 years from grant date
2/27/2018	1,150	2005 Employee Stock Plan	$	72.60	Ratably over 5 years from grant date
5/15/2018	530	2005 Employee Stock Plan	$	74.00	Ratably over 5 years from grant date
5/22/2018	6,000	2018 Non-Employee Director Stock Plan	$	76.58	Shares vested immediately


~~(1)~~	~~These restricted stock grants will vest at the end of a five year period, or earlier if the director ceases to be a director for any reason other than cause, such as, for example, by retirement.~~

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 ~~participate fully in the rewards of stock ownership~~are entitled to receive dividends and to vote from and as of the ~~Company, including voting and dividend rights.~~

date of grant.

Performance-Based Restricted Stock Awards

On February ~~16, 2017,~~15, 2018, the Company granted ~~14,400~~16,300 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 ~~$63.10,~~$71.75, 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 will be 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, ~~2017~~2018 through December 31, ~~2019.~~2020. 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, ~~2020.~~2021. These awards will be 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 ~~28, 2017,~~27, 2018, the performance-based restricted stock awards that were awarded on ~~March 20, 2014~~February 12, 2015 vested at ~~94%~~100% of the maximum target shares awarded, or ~~15,289~~16,427 shares.

Stock Options

The Company ~~did not grant any~~has made the following awards of nonqualified options to purchase shares of common stock during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018:



	Six Months Ended June 30, 2018
Date of grant	4/3/2018
Plan	2010 Non-Employee Director Stock Plan
Options granted	5,000
Vesting period (1)	21 months
Expiration date	4/3/2028
Expected volatility	21.15		%
Expected life (years)	5.5
Expected dividend yield	1.94		%
Risk free interest rate	2.62		%
Fair value per option	$	13.46

(1) Vesting period began on the grant date.

NOTE 97 - REPURCHASE AGREEMENTS

The Company can raise additional liquidity by entering into repurchase agreements at its discretion. These repurchases are accounted for as a secured borrowing transaction for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement the Company is subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, the Company enters into repurchase agreements that stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by the Company's safekeeping agents.

The table below sets forth information regarding the Company’s repurchase agreements allocated by source of collateral at the dates indicated:


	September 30, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Total		June 30, 2018		December 31, 2017
	(Dollars in thousands)				(Dollars in thousands)
Sources of collateral
U.S. government agency securities	$	20,219	$	20,219	$	14,149	$	16,867
Agency mortgage-backed securities	63,931		63,931		57,546		51,273
Agency collateralized mortgage obligations	95,520		95,520		70,540		94,539
Total borrowings	$	179,670	$	179,670
Total customer repurchase agreements (1)					$	142,235	$	162,679

December 31, 2016
Remaining Contractual Maturity of the Agreements
Overnight and Continuous Total
(Dollars in thousands)
Sources of collateral
U.S. government agency securities $ 20,233
$ 20,233
Agency mortgage-backed securities 79,079
79,079
Agency collateralized mortgage obligations 77,601
77,601
Total borrowings $ 176,913
$ 176,913
(1) All customer repurchase agreements have an overnight and continuous maturity date.

~~Certain counterparties monitor collateral, and may request additional collateral to be posted from time to time.~~ For further information regarding the Company's repurchase agreements see Note 119 - Balance Sheet Offsetting.

NOTE 108 - DERIVATIVE AND HEDGING ACTIVITIES

The Company early adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities as of January 1, 2018 to incorporate the new standard’s alignment of hedge accounting qualifications with the Company’s interest rate risk management with respect to new hedges entered into during the first quarter of 2018. This new standard was adopted under a modified retrospective transition, resulting in no changes to the accounting for hedge positions entered in to prior to January 1, 2018.

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

The following tables reflect the Company's derivative positions for the periods indicated below for interest rate derivatives which qualify as cash flow hedges for accounting purposes:



June 30, 2018
Notional Amount		Trade Date	Effective Date	Maturity Date	Receive (Variable) Index	Current Rate Received		Pay Fixed Swap Rate		Fair Value
(Dollars in thousands)
$	25,000	12/9/2008	12/10/2008	12/10/2018	3 Month LIBOR	2.33	%	2.94	%	$	(61	)
25,000		4/1/2016	1/17/2017	12/15/2021	3 Month LIBOR	2.34	%	1.36	%	1,227
25,000		4/1/2016	1/17/2017	12/15/2021	3 Month LIBOR	2.34	%	1.36	%	1,218
25,000		7/18/2017	8/15/2017	8/15/2022	3 Month LIBOR	2.32	%	1.88	%	949

Notional Amount		Trade Date	Effective Date	Maturity Date	Pay (Variable) Index	Current Rate Paid		Receive Fixed Swap Rate		Fair Value
50,000		1/9/2018	1/16/2018	1/15/2023	1 Month LIBOR	2.07	%	2.24	%	$	(1,073	)

Notional Amount		Trade Date	Effective Date	Maturity Date	Pay (Variable) Index	Current Rate Paid		Receive Fixed Swap Rate Cap - Floor		Fair Value
50,000		1/9/2018	1/16/2018	1/15/2022	1 Month LIBOR	2.07	%	2.75% - 1.80%		$	(382	)

										$	1,878



December 31, 2017
Notional Amount		Trade Date	Effective Date	Maturity Date	Receive (Variable) Index	Current Rate Received		Pay Fixed Swap Rate		Fair Value
(Dollars in thousands)
$	25,000	12/9/2008	12/10/2008	12/10/2018	3 Month LIBOR	1.54	%	2.94	%	$	(264	)
25,000		4/1/2016	1/17/2017	12/15/2021	3 Month LIBOR	1.59	%	1.36	%	772
25,000		4/1/2016	1/17/2017	12/15/2021	3 Month LIBOR	1.59	%	1.36	%	763
25,000		7/18/2017	8/15/2017	8/15/2022	3 Month LIBOR	1.42	%	1.88	%	345
										$	1,616

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 five years.

~~The following table reflects the Company’s derivative positions for the periods indicated below for interest rate swaps which qualify as cash flow hedges for accounting purposes:~~

September 30, 2017
Notional Amount Trade Date Effective Date Maturity Date Receive (Variable) Index Current Rate Received Pay Fixed Swap Rate Fair Value
(Dollars in thousands)
$ 25,000
9-Dec-08 10-Dec-08 10-Dec-18 3 Month LIBOR 1.32 % 2.94 % $ (407 )
25,000
1-Apr-16 17-Jan-17 15-Dec-21 3 Month LIBOR 1.32 % 1.36 % 568
25,000
1-Apr-16 17-Jan-17 15-Dec-21 3 Month LIBOR 1.32 % 1.36 % 560
25,000
18-Jul-17 15-Aug-17 15-Aug-22 3 Month LIBOR 1.31 % 1.88 % 101
$ 100,000
$ 822
December 31, 2016
Notional Amount Trade Date Effective Date Maturity Date Receive (Variable) Index Current Rate Received Pay Fixed Swap Rate Fair Value
(Dollars in thousands)
$ 25,000
9-Dec-08 10-Dec-08 10-Dec-18 3 Month LIBOR 0.95 % 2.94 % $ (740 )
25,000
1-Apr-16 17-Jan-17 15-Dec-21 3 Month LIBOR N/A
1.36 % 689
25,000
1-Apr-16 17-Jan-17 15-Dec-21 3 Month LIBOR N/A
1.36 % 675
$ 75,000
$ 624

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 ~~$103,000~~$77,000 to be reclassified to interest income and $822,000 (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~~June 30, ~~2017.~~2018.

The Company recognized $61,000 and ~~$183,000~~$122,000 of net amortization income that was an offset to interest expense related to previously terminated swaps for each of the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

The Company had no fair value hedges as of ~~September~~June 30, ~~2017~~2018 or December 31, ~~2016.~~2017.

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.

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 ~~table reflects~~tables reflect the Company’s customer related derivative positions for the periods indicated below for those derivatives not designated as hedging:


		Notional Amount Maturing																Notional Amount Maturing
	Number of Positions (1)	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value			Number of Positions (1)	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	September 30, 2017																June 30, 2018
	(Dollars in thousands)																(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	238	$	10,533	$	73,428	$	68,458	$	177,864	$	575,721	$	906,004	$	11,271		244	$	59,965	$	61,506	$	176,919	$	57,508	$	614,476	$	970,374	$	(17,467	)
Pay fixed, receive variable	223	$	10,533	$	73,428	$	68,458	$	177,864	$	575,721	$	906,004	$	(11,272	)	229	$	59,965	$	61,506	$	176,919	$	57,508	$	614,476	$	970,374	$	17,456
Foreign exchange contracts
Buys foreign currency, sells U.S. currency	17	$	32,390	$	3,780	$	—	$	—	$	—	$	36,170	$	1,683		28	$	48,077	$	—	$	—	$	—	$	—	$	48,077	$	(1,041	)
Buys U.S. currency, sells foreign currency	17	$	32,390	$	3,780	$	—	$	—	$	—	$	36,170	$	(1,668	)	28	$	48,077	$	—	$	—	$	—	$	—	$	48,077	$	1,067
	December 31, 2016																December 31, 2017
	(Dollars in thousands)																(Dollars in thousands)
Loan level swaps
Receive fixed, pay variable	222	$	30,245	$	21,708	$	63,771	$	165,783	$	567,897	$	849,404	$	12,005		246	$	36,023	$	61,500	$	152,287	$	111,147	$	591,385	$	952,342	$	3,875
Pay fixed, receive variable	207	$	30,245	$	21,708	$	63,771	$	165,783	$	567,897	$	849,404	$	(12,008	)	231	$	36,023	$	61,500	$	152,287	$	111,147	$	591,385	$	952,342	$	(3,880	)
Foreign exchange contracts
Buys foreign currency, sells U.S. currency	33	$	45,711	$	—	$	—	$	—	$	—	$	45,711	$	(2,250	)	15	$	26,382	$	3,780	$	—	$	—	$	—	$	30,162	$	1,202
Buys U.S. currency, sells foreign currency	33	$	45,711	$	—	$	—	$	—	$	—	$	45,711	$	2,277		15	$	26,382	$	3,780	$	—	$	—	$	—	$	30,162	$	(1,188	)


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

Mortgage Derivatives

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, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors. These forward commitments carry a market price that has a strong inverse relationship to that of mortgage prices. 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 ~~the economic hedges rely on the accuracy of these assumptions.~~any hedging strategies.

The change in fair value on the interest rate lock commitments and forward delivery sale commitments are recorded in current period earnings as a component of mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The change in fair value associated with loans held for sale was ~~a decrease of $108,000 and~~ an increase of ~~$47,000~~$70,000 and $153,000 for the three month periods ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively, ~~and a decrease of $102,000~~ and an increase of ~~$60,000~~$44,000 and $6,000 for the ~~nine month periods~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives. Additionally, the aggregate amount of net realized gains or losses on sales of such loans included within mortgage banking income was ~~$1.4 million~~$755,000 and ~~$1.7 million~~$977,000 for the three month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively and ~~$3.4~~$1.5 million and ~~$3.9~~$2.0 million for the ~~nine month periods~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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					Asset Derivatives					Liability Derivatives
		Fair Value at		Fair Value at			Fair Value at		Fair Value at			Fair Value at		Fair Value at			Fair Value at		Fair Value at
	Balance Sheet Location	September 30 2017		December 31 2016		Balance Sheet Location	September 30 2017		December 31 2016		Balance Sheet Location	June 30 2018		December 31 2017		Balance Sheet Location	June 30 2018		December 31 2017
	(Dollars in thousands)										(Dollars in thousands)
Derivatives designated as hedges
Interest rate derivatives	Other assets	$	1,229	$	1,364	Other liabilities	$	407	$	740	Other assets	$	3,394	$	1,880	Other liabilities	$	1,516	$	264
Derivatives not designated as hedges
Customer Related Positions
Loan level derivatives	Other assets	$	16,991	$	18,629	Other liabilities	$	16,992	$	18,632	Other assets	$	21,861	$	14,236	Other liabilities	$	21,872	$	14,241
Foreign exchange contracts	Other assets	1,809		2,338		Other liabilities	1,794		2,311		Other assets	1,137		1,202		Other liabilities	1,111		1,188
Mortgage Derivatives
Interest rate lock commitments	Other assets	274		430		Other liabilities	—		—		Other assets	231		149		Other liabilities	—		—
Forward sales agreements	Other assets	—		—		Other liabilities	6		233		Other assets	80		9		Other liabilities	—		—
		$	19,074	$	21,397		$	18,792	$	21,176		$	23,309	$	15,596		$	22,983	$	15,429
Total		$	20,303	$	22,761		$	19,199	$	21,916		$	26,703	$	17,476		$	24,499	$	15,693

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30						September 30						June 30						June 30
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in thousands)												(Dollars in thousands)
Derivatives designated as hedges
Loss in OCI on derivatives (effective portion), net of tax	$	109		$	674		$	8		$	653
Loss reclassified from OCI into interest expense (effective portion)	$	(91	)	$	(648	)	$	(264	)	$	(1,949	)
Gain (loss) in OCI on derivatives (effective portion), net of tax													$	(112	)	$	(190	)	$	103		$	(101	)
Gain (loss) reclassified from OCI into interest income or interest expense (effective portion)													$	167		$	(80	)	$	257		$	(173	)
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	$	7		$	(42	)	$	7		$	71		$	15		$	7		$	24		$	—
Other expense	(7		)	(12		)	(17		)	(46		)	(5		)	(4		)	(18		)	(10		)
Changes in fair value of mortgage derivatives
Mortgage banking income	(33		)	115			71			419			141			54			153			104
Total	$	(33	)	$	61		$	61		$	444		$	151		$	57		$	159		$	94

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 ~~$10.5~~$106,000 and $4.2 million ~~and $12.8 million~~

at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Although none of the contingency provisions have applied as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company has posted collateral to offset ~~the majority of~~ 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 ~~those~~institutional counterparties is remote. The Company's exposure relating to institutional counterparties was ~~$4.1~~$23.2 million and ~~$4.7~~$7.1 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. The Company’s exposure relating to customer counterparties was approximately ~~$14.7~~$2.4 million and ~~$16.1~~$9.5 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. Credit exposure may be reduced by the ~~amount~~value of collateral pledged by the counterparty.

NOTE 119 - BALANCE SHEET OFFSETTING

The Company does not offset fair value amounts recognized for derivative instruments or repurchase agreements. 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 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		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, 2017												June 30, 2018
	(Dollars in thousands)												(Dollars in thousands)
Derivative Assets
Interest rate swaps	$	1,229	$	—	$	1,229	$	1,229	$	—	$	—	$	3,394	$	—	$	3,394	$	1,455	$	(1,227	)	$	712
Loan level derivatives	16,991		—		16,991		2,858		—		14,133		21,861		—		21,861		2,171		(10,123		)	9,567
Customer foreign exchange contracts	1,809		—		1,809		—		—		1,809		1,137		—		1,137		—		—			1,137
	$	20,029	$	—	$	20,029	$	4,087	$	—	$	15,942	$	26,392	$	—	$	26,392	$	3,626	$	(11,350	)	$	11,416

Derivative Liabilities
Interest rate swaps	$	407	$	—	$	407	$	—	$	407	$	—	$	1,516	$	—	$	1,516	$	1,455	$	61		$	—
Loan level derivatives	16,992		—		16,992		4,087		9,854		3,051		21,872		—		21,872		2,171		32			19,669
Customer foreign exchange contracts	1,794		—		1,794		—		—		1,794		1,111		—		1,111		—		—			1,111
Repurchase agreements
													$	24,499	$	—	$	24,499	$	3,626	$	93		$	20,780

Customer repurchase agreements	179,670		—		179,670		—		179,670		—		142,235		—		142,235		—		142,235			—
	$	198,863	$	—	$	198,863	$	4,087	$	189,931	$	4,845


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


							Gross Amounts Not Offset in the Statement of Financial Position												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		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, 2016												December 31, 2017
	(Dollars in thousands)												(Dollars in thousands)
Derivative Assets
Interest rate swaps	$	1,364	$	—	$	1,364	$	961	$	—	$	403	$	1,880	$	—	$	1,880	$	805	$	—	$	1,075
Loan level derivatives	18,629		—		18,629		3,261		—		15,368		14,236		—		14,236		4,578		—		9,658
Customer foreign exchange contracts	2,338		—		2,338		—		—		2,338		1,202		—		1,202		—		—		1,202
	$	22,331	$	—	$	22,331	$	4,222	$	—	$	18,109	$	17,318	$	—	$	17,318	$	5,383	$	—	$	11,935

Derivative Liabilities
Interest rate swaps	$	740	$	—	$	740	$	—	$	740	$	—	$	264	$	—	$	264	$	—	$	264	$	—
Loan level derivatives	18,632		—		18,632		4,222		11,106		3,304		14,241		—		14,241		5,383		3,675		5,183
Customer foreign exchange contracts	2,311		—		2,311		—		—		2,311		1,188		—		1,188		—		—		1,188
Repurchase agreements
													$	15,693	$	—	$	15,693	$	5,383	$	3,939	$	6,371

Customer repurchase agreements	176,913		—		176,913		—		176,913		—		162,679		—		162,679		—		162,679		—
	$	198,596	$	—	$	198,596	$	4,222	$	188,759	$	5,615


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

NOTE 1210 - 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 ~~Company’s own~~ assumptions ~~are set to~~applied by the Company when determining fair value reflect those that the Company determines market participants would use ~~in pricing~~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 ~~sell an asset~~be sold or that would be or paid if liability were to ~~transfer a liability~~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. ~~The~~When determining fair value, the Company ~~uses prices~~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 ~~many instruments. This condition~~certain instruments, or not available at all. The unavailability or reduced availability of pricing or other input information could cause an instrument to be reclassified from one level to another.

The Fair Value Measurements and Disclosures Topic of the FASB ASC defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the FASB ASC are described below:

Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining

fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Valuation Techniques

There have been no changes in the valuation techniques used during the current period.

Securities

Trading and Equity Securities

These equity securities are valued based on market quoted prices. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.

U.S. Government Agency Securities

Fair value is estimated using either multi-dimensional spread tables or benchmarks. The inputs used include benchmark yields, reported trades, and broker/dealer quotes. These securities are classified as Level 2.

Agency Mortgage-Backed Securities

Fair value is estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities are categorized as Level 2.

Agency Collateralized Mortgage Obligations and Small Business Administration Pooled Securities

The valuation model for these securities is volatility-driven and ratings based, and uses multi-dimensional spread tables. The inputs used include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.

State, County, and Municipal Securities

The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent ~~transaction,~~transactions, and yield relationships. These securities are categorized as Level 2.

Single and Pooled Issuer Trust Preferred Securities

The fair value of trust preferred securities, including pooled and single issuer preferred securities, is estimated using external pricing models, discounted cash flow methodologies or similar techniques. The inputs used in these valuations include benchmark yields, reported trades, new issue data, broker dealer quotes, and collateral performance. If there is at least one significant model assumption or input that is not observable, these securities are classified as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.

Loans Held for Sale

The Company has elected the fair value option to account for originated closed loans intended for sale. The fair value is measured on an individual loan basis using quoted market prices and when not available, comparable market value or discounted cash flow analysis may be utilized. These assets are typically classified as Level 2.

Derivative Instruments

Derivatives

The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings. Additionally, in conjunction with fair value measurement guidance, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although the Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate derivatives may also utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall

valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are properly classified as Level 2.

Mortgage Derivatives

The fair value of mortgage derivatives is determined based on current market prices for similar assets in the secondary market and, therefore, classified as Level 2 within the fair value hierarchy.

Impaired 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 ~~therefore~~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

~~The fair values are generally estimated based upon recent appraisal values of the property less costs to sell the property, as~~ 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, and other~~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 discounted cash flow analysis. Both valuation models require a significant degree of management judgment. In the event the fair value as determined by the valuation model is less than the carrying value, the intangibles may be impaired. If the impairment testing resulted in impairment, the Company would classify the impaired goodwill and other intangible assets subjected to nonrecurring fair value adjustments as Level 3.

Assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows as of the dates indicated:


			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	September 30, 2017								June 30, 2018
	(Dollars in thousands)								(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	1,298	$	1,298	$	—	$	—	$	1,598	$	1,598	$	—	$	—
Equity securities									20,133		20,133		—		—
Securities available for sale
U.S. Government agency securities	23,228		—		23,228		—		32,719		—		32,719		—
Agency mortgage-backed securities	214,564		—		214,564		—		214,989		—		214,989		—
Agency collateralized mortgage obligations	114,829		—		114,829		—		145,147		—		145,147		—
State, county, and municipal securities	2,539		—		2,539		—		1,996		—		1,996		—
Single issuer trust preferred securities issued by banks and insurers	2,044		—		2,044		—		1,329		—		1,329		—
Pooled trust preferred securities issued by banks and insurers	1,624		—		—		1,624		1,751		—		—		1,751
Small business administration pooled securities	50,186		—		50,186		—		44,998		—		44,998		—
Equity securities	20,111		20,111		—		—
Loans held for sale	5,459		—		5,459		—		9,614		—		9,614		—
Derivative instruments	20,303		—		20,303		—		26,703		—		26,703		—
Liabilities
Derivative instruments	19,199		—		19,199		—		24,499		—		24,499		—
Total recurring fair value measurements	$	436,986	$	21,409	$	413,953	$	1,624	$	476,478	$	21,731	$	452,996	$	1,751

Nonrecurring fair value measurements
Assets
Collateral dependent impaired loans	$	33,974	$	—	$	—	$	33,974	$	35,732	$	—	$	—	$	35,732
Other real estate owned and other foreclosed assets	2,898		—		—		2,898		245		—		—		245
Total nonrecurring fair value measurements	$	36,872	$	—	$	—	$	36,872	$	35,977	$	—	$	—	$	35,977


			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	December 31, 2016								December 31, 2017
	(Dollars in thousands)								(Dollars in thousands)
Recurring fair value measurements
Assets
Trading securities	$	804	$	804	$	—	$	—	$	1,324	$	1,324	$	—	$	—
Equity securities									20,584		20,584		—		—
Securities available for sale
U.S. Government agency securities	24,244		—		24,244		—		35,430		—		35,430		—
Agency mortgage-backed securities	175,384		—		175,384		—		215,764		—		215,764		—
Agency collateralized mortgage obligations	99,868		—		99,868		—		122,012		—		122,012		—
State, county, and municipal securities	3,793		—		3,793		—		2,274		—		2,274		—
Single issuer trust preferred securities issued by banks and insurers	2,311		—		2,311		—		2,016		—		2,016		—
Pooled trust preferred securities issued by banks and insurers	1,584		—		—		1,584		1,640		—		—		1,640
Small business administration pooled securities	37,189		—		37,189		—		47,778		—		47,778		—
Equity securities	19,271		19,271		—		—
Loans held for sale	6,139		—		6,139		—		4,768		—		4,768		—
Derivative instruments	22,761		—		22,761		—		17,476		—		17,476		—
Liabilities
Derivative instruments	21,916		—		21,916		—		15,693		—		15,693		—
Total recurring fair value measurements	$	371,432	$	20,075	$	349,773	$	1,584	$	455,373	$	21,908	$	431,825	$	1,640

Nonrecurring fair value measurements:
Assets
Collateral dependent impaired loans	$	33,974	$	—	$	—	$	33,974	$	33,567	$	—	$	—	$	33,567
Other real estate owned and other foreclosed assets	4,173		—		—		4,173		612		—		—		612
Total nonrecurring fair value measurements	$	38,147	$	—	$	—	$	38,147	$	34,179	$	—	$	—	$	34,179

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
2017 2016
(Dollars in thousands)
Pooled Trust Preferred Securities
Beginning balance $ 1,593
$ 1,506
Gains and (losses) (realized/unrealized)
Included in other comprehensive income 51
41
Settlements (20 ) (9 )
Ending balance $ 1,624
$ 1,538


	Nine Months Ended						Three Months Ended
	September 30						June 30
	2017			2016			2018			2017
	(Dollars in thousands)						(Dollars in thousands)
Pooled Trust Preferred Securities
Beginning balance	$	1,584		$	1,572		$	1,655		$	1,596
Gains and (losses) (realized/unrealized)
Included in other comprehensive income	58			(17		)	104			(4		)
Settlements	(18		)	(17		)	(8		)	1
Ending balance	$	1,624		$	1,538		$	1,751		$	1,593

							Six Months Ended
							June 30
							2018			2017
							(Dollars in thousands)
Pooled Trust Preferred Securities
Beginning balance							$	1,640		$	1,584
Gains and (losses) (realized/unrealized)
Included in other comprehensive income							125			7
Settlements							(14		)	2
Ending balance							$	1,751		$	1,593

It is the Company’s policy to recognize the transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers between the levels of the fair value hierarchy for any assets or liabilities measured at fair value on a recurring basis during the ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 or ~~2016.~~2017.

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


		September 30 2017		December 31 2016			September 30 2017	December 31 2016	September 30 2017	December 31 2016		June 30 2018		December 31 2017			June 30 2018	December 31 2017	June 30 2018	December 31 2017
Valuation Technique		Fair Value				Unobservable Inputs	Range		Weighted Average			Fair Value				Unobservable Inputs	Range		Weighted Average
		(Dollars in thousands)										(Dollars in thousands)
Discounted cash flow methodology	Discounted cash flow methodology										Discounted cash flow methodology
Pooled trust preferred securities		$	1,624	$	1,584	Cumulative prepayment	0% - 61%	0% - 62%	2.5%	2.5%		$	1,751	$	1,640	Cumulative prepayment	0% - 60%	0% - 61%	2.4%	2.5%
						Cumulative default	5% - 100%	5% - 100%	12.5%	12.8%						Cumulative default	5% - 100%	5% - 100%	13.6%	12.4%
						Loss given default	85% - 100%	85% - 100%	94.3%	94.2%						Loss given default	85% - 100%	85% - 100%	94.4%	94.3%
						Cure given default	0% - 75%	0% - 75%	60.9%	60.9%						Cure given default	0% - 75%	0% - 75%	60.9%	60.9%
Appraisals of collateral(1)	Appraisals of collateral(1)										Appraisals of collateral(1)
Collateral dependent impaired loans		$	33,974	$	33,974							$	35,732	$	33,567
Other real estate owned and foreclosed assets		$	2,898	$	4,173							$	245	$	612


(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.

For the fair value measurements in the table above, which are classified as Level 3 within the fair value hierarchy, the Company’s Treasury and Finance groups determine the valuation policies and procedures. For the pricing of the securities, the Company uses third-party pricing information, without adjustment. Depending on the type of the security, management employs various techniques to analyze the pricing it receives from third parties, such as analyzing changes in market yields and in certain instances reviewing the underlying collateral of the security. Management reviews changes in fair value from period to period and performs testing to ensure that prices received from the third parties are consistent with their expectation of the market. For the securities whose market is deemed to be inactive and which are categorized as Level 3, the fair value models are calibrated and significant inputs are back tested on a quarterly basis, to the extent possible. This testing is done by the third party service provider, who performs this testing by comparing anticipated inputs to actual results. Significant changes in fair value from period to period are closely scrutinized to ensure fair value models are not flawed. The driver(s) of the respective change in fair value and the method for forecasting the driver(s) is closely considered by management.

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.

Additionally, the Company has certain assets which are marked to fair value on a nonrecurring basis which are categorized within Level 3. These assets include collateral dependent impaired loans and OREO. The determination of the fair value amount is derived from the use of independent third party appraisals and evaluations. Real estate appraisals are prepared by firms from a predetermined list of qualified and approved appraisers or evaluators. Upon receipt of a real estate appraisal or evaluation, the Company's Commercial Real Estate Appraisal Department will review the report for compliance with regulatory and Company standards, as well as reasonableness and acceptance of the value conclusions. Any issues or concerns regarding compliance or value conclusions will be addressed with the engaged firm and the report may be adjusted or revised. If a disagreement cannot be resolved, the Company will either address the key issues and modify the report for acceptance or reject the report and re-order a new report. Ultimately, the Company will confirm the collateral value as part of its review process.

The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the periods indicated:


					Fair Value Measurements at Reporting Date Using										Fair Value Measurements at Reporting Date Using
	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	September 30, 2017										June 30, 2018
	(Dollars in thousands)										(Dollars in thousands)
Financial assets
Securities held to maturity(a)
U.S. Treasury securities	$	1,006	$	1,048	$	—	$	1,048	$	—	$	1,005	$	1,014	$	—	$	1,014	$	—
Agency mortgage-backed securities	171,664		173,980		—		173,980		—		186,299		182,000		—		182,000		—
Agency collateralized mortgage obligations	275,894		274,233		—		274,233		—		323,746		313,342		—		313,342		—
Single issuer trust preferred securities issued by banks	1,500		1,539		—		1,539		—		1,500		1,523		—		1,523		—
Small business administration pooled securities	28,734		28,862		—		28,862		—		25,711		25,409		—		25,409		—
Loans, net of allowance for loan losses(b)	6,196,218		6,072,612		—		—		6,072,612		6,380,982		6,198,830		—		—		6,198,830
Federal Home Loan Bank stock(c)	11,597		11,597		—		11,597		—		13,107		13,107		—		13,107		—
Cash surrender value of life insurance policies(d)	150,352		150,352		—		150,352		—		153,574		153,574		—		153,574		—
Financial liabilities
Deposit liabilities, other than time deposits(e)	$	6,055,042	$	6,055,042	$	—	$	6,055,042	$	—	$	6,353,722	$	6,353,722	$	—	$	6,353,722	$	—
Time certificates of deposits(f)	627,900		625,275		—		625,275		—		659,768		651,660		—		651,660		—
Federal Home Loan Bank borrowings(f)	53,272		52,125		—		52,125		—		50,775		49,975		—		49,975		—
Customer repurchase agreements and other short-term borrowings(f)	179,670		179,670		—		—		179,670		142,235		142,235		—		—		142,235
Junior subordinated debentures(g)	73,071		74,320		—		74,320		—		73,077		71,192		—		71,192		—
Subordinated debentures(f)	34,670		32,857		—		—		32,857		34,705		31,885		—		—		31,885


					Fair Value Measurements at Reporting Date Using										Fair Value Measurements at Reporting Date Using
	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	December 31, 2016										December 31, 2017
	(Dollars in thousands)										(Dollars in thousands)
Financial assets
Securities held to maturity(a)
U.S. Treasury securities	$	1,007	$	1,054	$	—	$	1,054	$	—	$	1,006	$	1,035	$	—	$	1,035	$	—
Agency mortgage-backed securities	156,088		157,504		—		157,504		—		204,768		205,823		—		205,823		—
Agency collateralized mortgage obligations	297,445		294,650		—		294,650		—		262,998		258,408		—		258,408		—
Single issuer trust preferred securities issued by banks	1,500		1,544		—		1,544		—		1,500		1,529		—		1,529		—
Small business administration pooled securities	31,036		30,898		—		30,898		—		27,416		27,399		—		27,399		—
Loans, net of allowance for loan losses(b)	5,904,065		5,784,778		—		—		5,784,778		6,261,343		6,116,051		—		—		6,116,051
Federal Home Loan Bank stock(c)	11,497		11,497		—		11,497		—		11,597		11,597		—		11,597		—
Cash surrender value of life insurance policies(d)	144,503		144,503		—		144,503		—		151,528		151,528		—		151,528		—
Financial liabilities
Deposit liabilities, other than time deposits(e)	$	5,763,101	$	5,763,101	$	—	$	5,763,101	$	—	$	6,084,952	$	6,084,952	$	—	$	6,084,952	$	—
Time certificates of deposits(f)	649,152		647,038		—		647,038		—		644,301		639,060		—		639,060		—
Federal Home Loan Bank borrowings(f)	50,819		50,898		—		50,898		—		53,264		52,111		—		52,111		—
Customer repurchase agreements and other short-term borrowings(f)	176,913		176,913		—		—		176,913		162,679		162,679		—		—		162,679
Junior subordinated debentures(g)	73,107		72,510		—		72,510		—		73,073		74,680		—		74,680		—
Subordinated debentures(f)	34,635		34,241		—		—		34,241		34,682		32,707		—		—		32,707


(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~~In accordance with recent accounting guidance, the fair value isof loans as of June 30, 2018 was 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. Previously the fair value of loans as of December 31, 2017 was estimated solely 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. 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 ~~financial instruments'~~ current use of financial instruments to be the highest and best use of the instruments.

NOTE 1311 - REVENUE RECOGNITION

The Company adopted the new revenue recognition standard under Accounting Standards Codification Topic 606 ("ASC 606") as of January 1, 2018 and is using the modified retrospective transition method upon adoption. The Company determined that there were no material changes to be made to revenue recognition upon adoption and that there were no practical expedients to apply to its contracts.

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


1.	Identify the contract(s) with customers


2.	Identify the performance obligations


3.	Determine the transaction price


4.	Allocate the transaction price to the performance obligations


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

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



	Three Months Ended				Six Months Ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
	(Dollars in thousands)
Deposit account fees (inclusive of cash management fees)	$	4,551	$	4,392	$	8,982	$	8,936
Interchange fees	3,919		3,561		7,324		6,682
ATM fees	736		759		1,390		1,446
Investment management - wealth management and advisory services	6,083		5,488		11,665		10,625
Investment management - retail investments and insurance revenue	739		507		1,299		984
Merchant processing income	348		274		779		567
Other noninterest income	1,060		1,259		2,034		2,081
Total noninterest income in-scope of ASC 606	17,436		16,240		33,473		31,321
Total noninterest income out-of-scope of ASC 606	4,451		5,158		8,277		8,989
Total noninterest income	21,887		21,398		41,750		40,310

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 the 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 in to by the customer. As such, the Company considers its performance obligations to be met concurrently with providing the account access or completing the requested deposit transaction.

Cash Management

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

Interchange Fees

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

ATM Fees

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

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

Investment Management - Wealth Management and Advisory Services

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

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



	June 30, 2018		December 31, 2017
	(Dollars in thousands)
Receivables, included in other assets	$	1,850	$	1,934

Investment Management - Retail Investments and Insurance Revenue

The Company offers the sale of mutual fund shares, unit investment trust shares, general securities, fixed and variable annuities and life insurance products through registered representatives who are both employed by the Company and licensed and contracted with various Broker General Agents to offer these products to the Company’s customer base. As such, the Company performs these services as an agent and earns a fixed commission on the sales of these products and services. To a lesser degree, production bonus commissions can also be earned based upon the Company meeting certain volume thresholds.

In general, the Company recognizes commission revenue at the point of sale, and for certain insurance products, may also earn and recognize annual residual commissions commensurate with annual premiums being paid.

Merchant Processing Income

The Company refers customers to third party merchant processing partners in exchange for commission and fee income. The income earned is comprised of multiple components, including a fixed referral fee per each referred customer, a rebate amount determined primarily as a percentage of net revenue earned by the third party from services provided to each referred customer, and overall production bonus commissions if certain new account production thresholds are met. Merchant processing income is recognized in conjunction with either completing the referral to earn the fixed fee amount or as the merchant activity is processed to derive the Company's rebate and/or production bonus amounts.

Other Noninterest Income

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

Safe Deposit Rent

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

1031 Exchange Fee Revenue

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

Foreign Currency

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

NOTE 12 - COMPREHENSIVE INCOME (LOSS)

The following ~~table presents~~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, 2017									Nine Months Ended September 30, 2017									Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount
	(Dollars in thousands)																		(Dollars in thousands)
Change in fair value of securities available for sale	$	347		$	(152	)	$	195		$	2,520		$	(1,001	)	$	1,519		$	(2,533	)	$	609		$	(1,924	)	$	(9,773	)	$	2,381		$	(7,392	)
Less: net security gains reclassified into other noninterest income (expense)	11			(4		)	7			13			(5		)	8			—			—			—			—			—			—
Net change in fair value of securities available for sale	336			(148		)	188			2,507			(996		)	1,511			(2,533		)	609			(1,924		)	(9,773		)	2,381			(7,392		)

Change in fair value of cash flow hedges	91			(36		)	55			(250		)	102			(148		)	10			(2		)	8			396			(108		)	288
Less: net cash flow hedge losses reclassified into interest on borrowings expense (1)	(91		)	37			(54		)	(264		)	108			(156		)
Less: net cash flow hedge gains reclassified into interest income or interest expense (1)																			167			(47		)	120			257			(72		)	185
Net change in fair value of cash flow hedges	182			(73		)	109			14			(6		)	8			(157		)	45			(112		)	139			(36		)	103

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period	(6		)	2			(4		)	(20		)	8			(12		)
Amortization of net actuarial losses	69			(28		)	41			208			(85		)	123			93			(27		)	66			187			(53		)	134
Amortization of net prior service costs	70			(29		)	41			208			(85		)	123			69			(18		)	51			138			(38		)	100
Net change in other comprehensive income for defined benefit postretirement plans (2)	133			(55		)	78			396			(162		)	234			162			(45		)	117			325			(91		)	234
Total other comprehensive income	$	651		$	(276	)	$	375		$	2,917		$	(1,164	)	$	1,753
Total other comprehensive loss																			$	(2,528	)	$	609		$	(1,919	)	$	(9,309	)	$	2,254		$	(7,055	)


	Three Months Ended September 30, 2016									Nine Months Ended September 30, 2016									Three Months Ended June 30, 2017									Six Months Ended June 30, 2017
	Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount			Pre Tax Amount			Tax (Expense) Benefit			After Tax Amount
	(Dollars in thousands)																		(Dollars in thousands)
Change in fair value of securities available for sale	$	(1,315	)	$	499		$	(816	)	$	8,351		$	(3,248	)	$	5,103		$	1,277		$	(485	)	$	792		$	2,173		$	(849	)	$	1,324
Less: net security losses reclassified into other noninterest income	—			—			—			(27		)	11			(16		)
Less: net security gains reclassified into other noninterest income																			1			(1		)	—			2			(1		)	1
Net change in fair value of securities available for sale	(1,315		)	499			(816		)	8,378			(3,259		)	5,119			1,276			(484		)	792			2,171			(848		)	1,323

Change in fair value of cash flow hedges	486			(196		)	290			(852		)	352			(500		)	(399		)	162			(237		)	(341		)	138			(203		)
Less: net cash flow hedge losses reclassified into interest on borrowings expense (1)	(648		)	264			(384		)	(1,949		)	796			(1,153		)
Less: net cash flow hedge losses reclassified into interest income or interest expense (1)																			(80		)	33			(47		)	(173		)	71			(102		)
Net change in fair value of cash flow hedges	1,134			(460		)	674			1,097			(444		)	653			(319		)	129			(190		)	(168		)	67			(101		)

Net unamortized loss related to defined benefit pension and other postretirement adjustments arising during the period	(28		)	11			(17		)	(84		)	33			(51		)	(7		)	3			(4		)	(14		)	6			(8		)
Amortization of net actuarial losses	61			(25		)	36			183			(75		)	108			69			(28		)	41			139			(57		)	82
Amortization of net prior service credits	69			(29		)	40			207			(84		)	123
Amortization of net prior service costs																			69			(28		)	41			138			(56		)	82
Net change in other comprehensive income for defined benefit postretirement plans (2)	102			(43		)	59			306			(126		)	180			131			(53		)	78			263			(107		)	156
Total other comprehensive income (loss)	$	(79	)	$	(4	)	$	(83	)	$	9,781		$	(3,829	)	$	5,952
Total other comprehensive income																			$	1,088		$	(408	)	$	680		$	2,266		$	(888	)	$	1,378

(1)

Includes the amortization of the remaining balance of a realized but unrecognized gain, net of tax, from the termination of interest rate swaps in 2009. The original gain of $1.4 million, net of tax, is being recognized in earnings through December 2018, the original maturity date of the swap. The balance of this gain has amortized to ~~$173,000~~$78,000 and ~~$281,000~~$137,000 at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.


(2)	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, ~~2016,~~2017, 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 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)			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)														(Dollars in thousands)
	2017														2018
Beginning balance: January 1, 2018															$	(504	)	$	948		$	137		$	(2,412	)	$	(1,831	)
Opening balance reclassification															(111		)	205			29			(520		)	(397		)
Cumulative effect accounting adjustment															(831		)	—			—			—			(831		)
Net change in other comprehensive income (loss)															(7,392		)	191			(88		)	234			(7,055		)
Ending balance: June 30, 2018															$	(8,838	)	$	1,344		$	78		$	(2,698	)	$	(10,114	)
															2017
Beginning balance: January 1, 2017	$	173	$	361		$	281		$	(2,152	)	$	(1,337	)	$	173		$	361		$	281		$	(2,152	)	$	(1,337	)
Net change in other comprehensive income (loss)	1,511		116			(108		)	234			1,753			1,323			(29		)	(72		)	156			1,378
Ending balance: September 30, 2017	$	1,684	$	477		$	173		$	(1,918	)	$	416
	2016
Beginning balance: January 1, 2016	$	1,306	$	(1,955	)	$	427		$	(2,230	)	$	(2,452	)
Net change in other comprehensive income (loss)	5,119		763			(110		)	180			5,952
Ending balance: September 30, 2016	$	6,425	$	(1,192	)	$	317		$	(2,050	)	$	3,500
Ending balance: June 30, 2017															$	1,496		$	332		$	209		$	(1,996	)	$	41

NOTE 1413 - 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 ~~its~~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, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(Dollars in thousands)				(Dollars in thousands)
Commitments to extend credit	$	2,436,512	$	2,227,955	$	2,536,434	$	2,443,478
Standby letters of credit	15,883		18,190		16,132		15,534
Deferred standby letter of credit fees	130		108		115		102

Lease Commitments

The Company leases office space, space for ATM locations, and certain branch locations under noncancelable operating leases. Several of these leases have renewal options that typically range from 5 to 10 years.

Rent expense incurred under operating leases was approximately $2.3 million and $2.1 million for ~~both~~ the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$6.3~~$4.8 million and ~~$6.4~~$4.2 million for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively. ~~Renewal options ranging from 4 months to 10 years exist for several of these leases.~~

There has been no significant change in the future minimum lease payments payable by the Company since December 31, ~~2016.~~2017. See the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2017 for information regarding ~~our~~ leases and other commitments.

Other Contingencies

At ~~September~~June 30, ~~2017,~~2018, Rockland Trust was involved in pending lawsuits that arose in the ordinary course of business. Management has reviewed these pending lawsuits with legal counsel and has taken into consideration the view of counsel as to their outcome. In the opinion of management, the final disposition of pending lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.

The Bank is required to maintain certain reserve requirements of vault cash and/or deposits with the Federal Reserve Bank of Boston. The ~~amount of this~~ reserve requirement was ~~$6.7~~$35.4 million and ~~$31.8~~$35.8 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

NOTE 1514 - 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, 2017			December 31, 2016		June 30 2018			December 31 2017
	(Dollars in thousands)					(Dollars in thousands)
Original investment value	$	47,627		$	47,379	$	47,403		$	47,399
Current recorded investment	36,868			39,606		33,010			35,225
Unfunded liability obligation	7,696			12,161		2,408			4,536
Tax credits and benefits	5,705		(1)	5,366		5,505		(1)	5,654
Amortization of investments	3,988		(2)	3,725		4,388		(2)	4,402		(4)
Net income tax benefit	1,718		(3)	1,641		1,117		(3)	1,253

(1) This amount reflects anticipated tax credits and tax benefits for the full year ended December 31, ~~2017.~~2018.

(2) The amortization amount reduces the tax credits and benefits anticipated for the full year ended December 31, ~~2017.~~2018.

(3) This amount represents the net tax benefit expected to be realized for the full year ended December 31, ~~2017~~2018 in determining the Company's effective tax rate.

(4) The 2017 amount is inclusive of $466,000 related to the revaluation of LIHTC investments as a result of the Tax Act.

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, ~~2016,~~2017, 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, ~~2016,~~2017, 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;

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;

unexpected changes in market interest rates for interest earning assets and/or interest bearing liabilities;

unexpected 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;

our 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;

failure to consummate or a delay in consummating the acquisition of MNB Bancorp, which is subject to certain standard conditions, including regulatory approvals and approval by MNB Bancorp shareholders;

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

inability to retain customers and employees, including those acquired in previous 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															Three Months Ended
	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017
	(Dollars in thousands, except per share data)															(Dollars in thousands, except per share data)
Financial condition data
Securities available for sale	$	429,125		$	415,943		$	401,837		$	363,644		$	387,008
Securities held to maturity	478,798			498,392			502,123			487,076			430,763
Securities																$	1,002,921		$	996,287		$	946,510		$	909,221		$	915,628
Loans	6,289,902			6,269,696			6,064,366			5,999,605			5,746,133			6,479,271			6,362,056			6,355,553			6,289,902			6,269,696
Allowance for loan losses	(59,710		)	(59,479		)	(62,318		)	(61,566		)	(58,205		)	(62,557		)	(60,862		)	(60,643		)	(59,710		)	(59,479		)
Goodwill and other intangible assets	242,105			243,005			230,613			231,374			210,834			239,724			240,268			241,147			242,105			243,005
Total assets	8,052,919			8,017,293			7,738,114			7,709,375			7,502,009			8,381,002			8,090,410			8,082,029			8,052,919			8,017,293
Total deposits	6,682,942			6,695,380			6,470,674			6,412,253			6,269,460			7,013,490			6,751,511			6,729,253			6,682,942			6,695,380
Total borrowings	340,683			320,378			304,297			335,474			299,521			300,792			298,939			323,698			340,683			320,378
Stockholders’ equity	931,224			914,584			877,480			864,690			818,242			977,065			956,059			943,809			931,224			914,584
Nonperforming loans	50,277			51,783			55,052			57,407			24,793			47,112			47,713			49,638			50,277			51,783
Nonperforming assets	53,175			54,812			58,456			61,580			26,591			47,357			48,071			50,250			53,175			54,812
Income statement
Interest income	$	71,778		$	68,133		$	64,407		$	63,428		$	62,308		$	79,167		$	73,749		$	72,876		$	71,778		$	68,133
Interest expense	4,705			4,378			4,207			4,676			4,640			5,999			5,278			5,044			4,705			4,378
Net interest income	67,073			63,755			60,200			58,752			57,668			73,168			68,471			67,832			67,073			63,755
Provision for loan losses	—			1,050			600			4,000			950			2,000			500			1,300			—			1,050
Noninterest income	20,770			21,398			18,912			21,762			20,416			21,887			19,863			21,914			20,770			21,398
Noninterest expenses	51,310			52,809			48,773			51,637			46,857			52,688			53,451			51,467			51,310			52,809
Net income	23,852			20,563			20,725			17,179			20,484			31,118			27,555			22,064			23,852			20,563
Per share data
Net income—basic	$	0.87		$	0.75		$	0.77		$	0.64		$	0.78		$	1.13		$	1.00		$	0.80		$	0.87		$	0.75
Net income—diluted	0.87			0.75			0.76			0.64			0.78			1.13			1.00			0.80			0.87			0.75
Cash dividends declared	0.32			0.32			0.32			0.29			0.29			0.38			0.38			0.32			0.32			0.32
Book value per share	33.94			33.34			32.44			32.02			31.09			35.49			34.75			34.38			33.94			33.34
Tangible book value per share (1)	25.12			24.48			23.92			23.45			23.08			26.78			26.02			25.60			25.12			24.48
Performance ratios
Return on average assets	1.18		%	1.06		%	1.10		%	0.89		%	1.09		%	1.52		%	1.39		%	1.08		%	1.18		%	1.06		%
Return on average common equity	10.18		%	9.15		%	9.59		%	8.07		%	9.98		%	12.85		%	11.73		%	9.28		%	10.18		%	9.15		%
Net interest margin (on a fully tax equivalent basis)	3.65		%	3.60		%	3.51		%	3.36		%	3.40		%	3.89		%	3.77		%	3.64		%	3.65		%	3.60		%
Equity to assets	11.56		%	11.41		%	11.34		%	11.22		%	10.91		%	11.66		%	11.82		%	11.68		%	11.56		%	11.41		%
Dividend payout ratio	36.80		%	42.09		%	37.79		%	44.43		%	37.25		%	33.60		%	31.88		%	39.79		%	36.80		%	42.09		%
Asset Quality Ratios
Nonperforming loans as a percent of gross loans	0.80		%	0.83		%	0.91		%	0.96		%	0.43		%
Nonperforming assets as a percent of total assets	0.66		%	0.68		%	0.76		%	0.80		%	0.35		%


Asset Quality Ratios
Nonperforming loans as a percent of gross loans											0.73	%	0.75	%	0.78	%	0.80	%	0.83	%
Nonperforming assets as a percent of total assets											0.57	%	0.59	%	0.62	%	0.66	%	0.68	%
Allowance for loan losses as a percent of total loans	0.95	%	0.95	%	1.03	%	1.03	%	1.01	%	0.97	%	0.96	%	0.95	%	0.95	%	0.95	%
Allowance for loan losses as a percent of nonperforming loans	118.76	%	114.86	%	113.20	%	107.24	%	234.76	%	132.78	%	127.56	%	122.17	%	118.76	%	114.86	%
Capital ratios
Tier 1 leverage capital ratio	10.03	%	10.07	%	9.92	%	9.77	%	9.59	%	10.39	%	10.32	%	10.04	%	10.03	%	10.07	%
Common equity tier 1 capital ratio	11.13	%	10.95	%	10.89	%	10.82	%	10.78	%	11.64	%	11.47	%	11.20	%	11.13	%	10.95	%
Tier 1 risk-based capital ratio	12.24	%	12.07	%	12.05	%	11.99	%	12.01	%	12.73	%	12.57	%	12.31	%	12.24	%	12.07	%
Total risk-based capital ratio	13.75	%	13.58	%	13.66	%	13.60	%	13.63	%	14.24	%	14.08	%	13.82	%	13.75	%	13.58	%


(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.

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. ~~The Company completed the acquisition of Island Bancorp Inc. ("Island Bancorp") in~~During the second quarter of ~~2017.~~2018, the Company announced the signing of a definitive merger agreement with MNB Bancorp ("MNB"), which is expected to close in the fourth quarter of 2018.

Interest-Earning Assets

Management’s balance sheet strategy emphasizes commercial and home equity lending. The results depicted in the following table reflect an overall increase in total loans over the past five quarters due to the results of that strategy, as well as the impact from acquisitions. For the ~~2016 Q4 New England Bancorp, Inc. ("NEB") acquisition and 2017 Q2 Island Bancorp acquisition. Modest~~second quarter of 2018, total loan growth ~~in the quarter~~ was ~~driven primarily by increases in the commercial construction, home equity and residential categories, partly offset by a decline in commercial and industrial related balances.~~strong across all major categories.

Management strives to be disciplined about loan pricing and considers interest rate sensitivity when generating loan assets. The Company has gradually and intentionally shifted its balance sheet composition so that its interest-rate risk position is fundamentally asset-sensitive.

Management takes a disciplined approach to credit underwriting, seeking to avoid undue credit risk and loan losses.

Funding and Net Interest Margin

The Company's overall sources of funding reflect strong business and retail deposit growth, supporting management's emphasis on core deposit growth to fund loans, as depicted by the following chart:

As of ~~September~~June 30, ~~2017,~~2018, core deposits comprised ~~90.2%~~90.35% of total deposits. The continued emphasis on core deposits has resulted in a cost of deposits of ~~only 0.20%~~0.27% for the ~~2017 third~~2018 second quarter, which increased by ~~two~~three basis points when compared to the ~~second~~first quarter of ~~2017.~~2018.

The Company's net interest margin was ~~3.65%~~3.89% for the quarter ended ~~September~~June 30, ~~2017,~~2018, a 512 basis point increase from the ~~second~~first quarter of ~~2017,~~2018, reflecting the Company's asset sensitive position, as shown by the following chart:

Noninterest Income

Management continues to focus on noninterest income growth, which ~~can often experience volatility due to seasonality and overall economic related conditions. Noninterest income~~ is primarily comprised of deposit account fees, interchange and

ATM fees, investment management fees and mortgage banking income. The following chart shows the components of noninterest income over the past five quarters:

Expense Control

Management seeks to take a balanced approach to noninterest expense control by monitoring the management of 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, ~~and~~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 ~~creates~~create a competitive advantage for Rockland Trust and its community development subsidiaries. During the ~~third~~second quarter of ~~2017,~~2018, the Company’s effective tax rate was ~~34.71%, representing a slight increase from the prior quarter rate of 34.29%~~22.91%.

Capital

The Company's ~~disciplined~~ approach with respect to revenue, expense, and tax effectiveness is designed to promote long-term earnings growth. Strong earnings ~~growth~~retention has contributed to ~~healthy~~ capital growth. Book value per share increased ~~1.8%~~2.1% in the ~~third~~second quarter of ~~2017~~2018 and ~~9.2%~~6.4% over the past four quarters. In addition, tangible book value per share rose 2.9% in the second quarter of 2018 and has higher by 9.4% over the past four quarters (see "Non-GAAP Measures" below for a reconciliation of non-GAAP measures). ~~In addition, tangible book value per share increased 2.6% in the third quarter of 2017 and has increased by 8.8% over the past four quarters.~~ Stockholders' equity as a percentage of total assets was ~~11.56%~~11.66% for ~~the third quarter of 2017, compared to 11.41% in~~ the second quarter of ~~2017.~~2018, compared to 11.82% in the first quarter of 2018. The Company's tangible common equity ratio (or tangible common equity as a percentage of tangible assets) ~~increased~~decreased to ~~8.82%~~9.06% for ~~the third quarter of 2017, as compared to 8.64% in~~ the second quarter of ~~2017.~~2018, as compared to 9.12% in the first quarter of 2018. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures. The following chart shows the Company's book value and tangible book value per share over the past five quarters:

*See "Non-GAAP Measures" below for a reconciliation to GAAP financial measures.

The Company's ~~strong~~ growth in capital enables the payment of cash dividends. The Company ~~paid quarterly cash dividends during the first three quarters of 2017 of $0.32 per share, representing a 10.3% increase from the 2016~~declared quarterly cash dividends of ~~$0.29~~$0.38 per share for the first two quarters of 2018, representing an increase of 18.8% from the 2017 quarterly dividend rate of $0.32 per share.

~~Third~~Second Quarter ~~2017~~2018 Results

Net income for the ~~third~~second quarter of ~~2017~~2018 was ~~$23.9~~$31.1 million, or ~~$0.87~~$1.13 on a diluted earnings per share basis, an increase of ~~16.4%~~51.3% and ~~11.5%~~50.7%, respectively, as compared to ~~$20.5~~$20.6 million, or ~~$0.78~~$0.75 on a diluted earnings per ~~diluted~~ share basis, for the prior year ~~third~~second quarter. ~~Third~~Both periods results included merger and acquisition results which the Company deems to be noncore. Excluding these merger and acquisition expenses, second quarter ~~2017~~2018 operating net income ~~of $23.9~~was $31.4 million ~~(which included no adjustments)~~ compared to the operating net income from the ~~third~~second quarter of ~~2016~~2017 of ~~$20.6~~$22.4 million, ~~reflected~~ an increase of ~~15.9%~~40.4%. See "Non-GAAP Measures" below for a reconciliation of non-GAAP measures.

~~2017~~2018 Outlook

During the Company’s ~~third~~second quarter ~~2017~~2018 earnings call, the Company stated that it anticipates the following for the full year ending December 31, ~~2017~~2018 (as compared with the year ending December 31, ~~2016 and as of December 31, 2016, as applicable)~~2017):

~~Organic loan growth expected to increase in the fourth quarter compared to third quarter results, but full year growth will be lower than the mid-to-upper single digit pace anticipated;~~

~~Organic~~Loan and deposit growth ~~will likely resume in the fourth quarter following a third quarter decrease;~~

~~Net interest margin~~ for the full year ~~expected to improve approximately 20 basis points as compared to the 3.40% reported for the full year 2016;~~

~~Fee income growth expected in the fourth quarter, but subject to volatility in loan level derivative income;~~

~~Efficiency ratio for the fourth quarter expected~~2018 to be in the ~~mid 50s~~low single digit range;

Assuming no further Fed Funds rate increases, the full year 2018 net interest margin is expected to expand by 25 to 30 basis points versus the full year 2017, with deposit costs increasing 4 to 5 basis points per quarter;

Both full year 2018 noninterest income and noninterest expense are expected to increase at a low to mid-single digit rate compared to 2017, with the operating efficiency ratio improving for the remainder of the year;

There is no near term pressure on credit quality, but a gradual normalization of credit is inevitable; and

~~A fourth quarter~~The effective tax rate for the remainder of the year (excluding discrete items) is expected to be approximately ~~34.5%~~23.3%.

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 table that follows. There are items that impact the Company's results that management believes are unrelated to its core banking business such as gains or losses on the sales of securities, merger and acquisition expenses ~~loss on extinguishment of debt, impairment~~ and other ~~items.~~items, such as one-time adjustments as a result of changes in laws and regulations. Management, therefore, computes ~~the Company’s~~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 an analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or tangible common equity, by common shares outstanding) and with the Company's tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets) which are ~~non- GAAP~~non-GAAP measures. The Company has included information on these tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends. The Company has recognized goodwill and other intangible assets in conjunction with merger and acquisition activities. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, facilitates comparison of the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for financial results determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. The Company’s non-GAAP performance measures are not necessarily comparable to similarly named non-GAAP performance measures which may be presented by other companies.

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


	Three Months Ended September 30												Three Months Ended June 30
	Net Income						Diluted Earnings Per Share						Net Income						Diluted Earnings Per Share
	2017			2016			2017			2016			2018			2017			2018		2017
	(Dollars in thousands, except per share data)												(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)	$	23,852		$	20,484		$	0.87		$	0.78		$	31,118		$	20,563		$	1.13	$	0.75
Non-GAAP adjustments
Noninterest expense components
Merger and acquisition expenses	—			151			—			0.01			434			2,909			0.01		0.11
Total impact of noncore items	—			151			—			0.01			434			2,909			0.01		0.11
Net tax benefit associated with noncore items (1)	—			(61		)	—			(0.01		)	(122		)	(1,088		)	—		(0.04		)
Net operating earnings (Non-GAAP)	$	23,852		$	20,574		$	0.87		$	0.78
Noncore items, net of tax													$	312		$	1,821		$	0.01	$	0.07
Operating net income (Non-GAAP)													$	31,430		$	22,384		$	1.14	$	0.82

	Nine Months Ended September 30												Six Months Ended June 30
	Net Income						Diluted Earnings Per Share						Net Income						Diluted Earnings Per Share
	2017			2016			2017			2016			2018			2017			2018		2017
	(Dollars in thousands, except per share data)												(Dollars in thousands, except per share data)
Net income available to common shareholders (GAAP)	$	65,140		$	59,469		$	2.38		$	2.26		$	58,673		$	41,288		$	2.13	$	1.52
Non-GAAP adjustments
Noninterest income components
Gain on sale of fixed income securities													—			—			—		n/a
Gain on life insurance benefits, tax exempt													—			—			n/a		n/a
Noninterest expense components
Impairment on acquired facilities													—			—			—		—
Loss on extinguishment of debt	—			437			—			0.02			—			—			—		0.02
Loss on sale of fixed income securities													—			—			—		—
Merger and acquisition expenses	3,393			691			0.12			0.03			434			3,393			0.01		0.12
Loss on termination of derivatives													—			—			—		—
Total impact of noncore items	3,393			1,128			0.12			0.05			434			3,393			0.01		0.14
Net tax benefit associated with noncore items (1)	(1,241		)	(461		)	(0.04		)	(0.03		)	(122		)	(1,241		)	—		(0.06		)
Net operating earnings (Non-GAAP)	$	67,292		$	60,136		$	2.46		$	2.28
Operating net income (Non-GAAP)													$	58,985		$	43,440		$	2.14	$	1.60


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


	Three Months Ended																Three Months Ended
	September 30 2017			June 30 2017			March 31 2017			December 31 2016			September 30 2016				June 30 2018			March 31 2018			December 31 2017			September 30 2017			June 30 2017
	(Dollars in thousands)																(Dollars in thousands)
Net interest income (GAAP)	$	67,073		$	63,755		$	60,200		$	58,752		$	57,668		(a)	$	73,168		$	68,471		$	67,832		$	67,073		$	63,755		(a)

Noninterest income (GAAP)	$	20,770		$	21,398		$	18,912		$	21,762		$	20,416		(b)	$	21,887		$	19,863		$	21,914		$	20,770		$	21,398		(b)
Noninterest income on an operating basis (Non-GAAP)*	$	20,770		$	21,398		$	18,912		$	21,762		$	20,416		(c)	$	21,887		$	19,863		$	21,914		$	20,770		$	21,398		(c)

Noninterest expense (GAAP)	$	51,310		$	52,809		$	48,773		$	51,637		$	46,857		(d)	$	52,688		$	53,451		$	51,467		$	51,310		$	52,809		(d)
Less:
Merger and acquisition expense	—			2,909			484			4,764			151				434			—			—			—			2,909
Noninterest expense on an operating basis (Non-GAAP)	$	51,310		$	49,900		$	48,289		$	46,873		$	46,706		(e)	$	52,254		$	53,451		$	51,467		$	51,310		$	49,900		(e)

Total revenue (GAAP)	$	87,843		$	85,153		$	79,112		$	80,514		$	78,084		(a+b)	$	95,055		$	88,334		$	89,746		$	87,843		$	85,153		(a+b)
Total operating revenue (Non-GAAP)	$	87,843		$	85,153		$	79,112		$	80,514		$	78,084		(a+c)
Total operating revenue (Non-GAAP)*																	$	95,055		$	88,334		$	89,746		$	87,843		$	85,153		(a+c)

Ratios
Noninterest income as a % of revenue (GAAP based)	23.64		%	25.13		%	23.91		%	27.03		%	26.15		%	(b/(a+b))	23.03		%	22.49		%	24.42		%	23.64		%	25.13		%	(b/(a+b))
Noninterest income as a % of revenue on an operating basis (Non-GAAP)	23.64		%	25.13		%	23.91		%	27.03		%	26.15		%	(c/(a+c))
Noninterest income as a % of revenue on an operating basis (Non-GAAP)*																	23.03		%	22.49		%	24.42		%	23.64		%	25.13		%	(c/(a+c))
Efficiency ratio (GAAP based)	58.41		%	62.02		%	61.65		%	64.13		%	60.01		%	(d/(a+b))	55.43		%	60.51		%	57.35		%	58.41		%	62.02		%	(d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP)	58.41		%	58.60		%	61.04		%	58.22		%	59.82		%	(e/(a+c))	54.97		%	60.51		%	57.35		%	58.41		%	58.60		%	(e/(a+c))

* There were no adjustments for the periods presented.

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


	September 30, 2017			June 30 2017			March 31 2017			December 31 2016			September 30, 2016				June 30, 2018			March 31 2018			December 31 2017			September 30 2017			June 30, 2017
	(Dollars in thousands, except per share data)																(Dollars in thousands, except per share data)
Tangible common equity
Stockholders' equity (GAAP)	$	931,224		$	914,584		$	877,480		$	864,690		$	818,242		(a)	$	977,065		$	956,059		$	943,809		$	931,224		$	914,584		(a)
Less: Goodwill and other intangibles	242,105			243,005			230,613			231,374			210,834				239,724			240,268			241,147			242,105			243,005
Tangible common equity (Non-GAAP)	689,119			671,579			646,867			633,316			607,408			(b)	737,341			715,791			702,662			689,119			671,579			(b)
Tangible assets
Assets (GAAP)	8,052,919			8,017,293			7,738,114			7,709,375			7,502,009			(c)	8,381,002			8,090,410			8,082,029			8,052,919			8,017,293			(c)
Less: Goodwill and other intangibles	242,105			243,005			230,613			231,374			210,834				239,724			240,268			241,147			242,105			243,005
Tangible assets (Non-GAAP)	$	7,810,814		$	7,774,288		$	7,507,501		$	7,478,001		$	7,291,175		(d)	$	8,141,278		$	7,850,142		$	7,840,882		$	7,810,814		$	7,774,288		(d)
Common shares	27,437,791			27,431,171			27,046,768			27,005,813			26,320,467			(e)	27,532,524			27,512,328			27,450,190			27,437,791			27,431,171			(e)

Common equity to assets ratio (GAAP)	11.56		%	11.41		%	11.34		%	11.22		%	10.91		%	(a/c)	11.66		%	11.82		%	11.68		%	11.56		%	11.41		%	(a/c)
Tangible common equity to tangible assets ratio (Non-GAAP)	8.82		%	8.64		%	8.62		%	8.47		%	8.33		%	(b/d)	9.06		%	9.12		%	8.96		%	8.82		%	8.64		%	(b/d)
Book value per share (GAAP)	$	33.94		$	33.34		$	32.44		$	32.02		$	31.09		(a/e)	$	35.49		$	34.75		$	34.38		$	33.94		$	33.34		(a/e)
Tangible book value per share (Non-GAAP)	$	25.12		$	24.48		$	23.92		$	23.45		$	23.08		(b/e)	$	26.78		$	26.02		$	25.60		$	25.12		$	24.48		(b/e)

Critical Accounting Policies

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

There have been no material changes in critical accounting policies during the first ~~nine~~six months of ~~2017.~~2018. Please refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2017 for a complete listing of critical accounting policies.

FINANCIAL POSITION

Securities Portfolio The Company’s securities portfolio consists of trading securities, equity securities, securities available for sale, and securities which management intends to hold until maturity. Securities increased by ~~$57.7~~$56.4 million, or ~~6.8%~~6.0%, at ~~September~~June 30, ~~2017~~2018 as compared to December 31, ~~2016,~~2017, reflecting new purchases of $136.8 million made during the ~~nine~~six month period, partially offset by paydowns on existing securities. The ratio of securities to total assets was ~~11.3%~~11.97% and ~~11.1%~~11.71% at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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 43 “Securities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.

Residential Mortgage Loan Sales The Company’s primary loan sale activity arises from the sale of government sponsored enterprise eligible residential mortgage loans. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Bank originated residential loans with the intention of selling them in the secondary market or to hold in the Company's residential portfolio. When a loan is sold, the Company enters into agreements that contain representations and warranties about the characteristics of the loans sold and their origination. The Company may be required to either repurchase mortgage loans or to indemnify the purchaser from losses if representations and warranties are breached. The Company incurred ~~minimal~~no losses during the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 and ~~September~~June 30, ~~2016~~2017 related to these activities.

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 ~~period~~periods indicated:

Table 1 - Closed Residential Real Estate Loans


	Three Months Ended September 30				Nine Months Ended September 30				Three Months Ended June 30				Six Months Ended June 30
	2017		2016		2017		2016		2018		2017		2018		2017
	(Dollars in thousands)								(Dollars in thousands)
Held in portfolio	$	31,766	$	45,786	$	116,537	$	97,065	$	41,770	$	42,191	$	80,586	$	84,771
Sold or held for sale in the secondary market	64,924		84,571		164,458		198,003		45,851		54,077		83,942		99,534
Total closed loans	$	96,690	$	130,357	$	280,995	$	295,068	$	87,621	$	96,268	$	164,528	$	184,305

The Company sold ~~$68.3~~$40.2 million and ~~$84.1~~$48.2 million in residential loans during the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively and ~~$166.1~~$79.1 million and ~~$190.7~~$97.8 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. All loans sold during these periods were sold with servicing rights released.

Currently, the Bank sells the servicing of sold loans for a servicing release premium, simultaneous with the sale of the loan. In the past, the Bank may have opted to sell loans and retain the servicing. In the event of a sale with servicing rights retained, a mortgage servicing asset is established, which represents the then current estimated fair value based on market prices for comparable mortgage servicing contracts, when available, or alternatively is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing rights are recorded in other assets in the consolidated balance sheets, are amortized in proportion to and over the period of estimated net servicing income, and are assessed for impairment based on fair value at each reporting date. Impairment is determined by stratifying the rights based on predominant characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized amount. If the Company later determines that all or a portion of the impairment no longer exists, a reduction of the allowance may be recorded as an increase to income. The principal balance of loans serviced by the Bank on behalf of investors was ~~$292.2~~$256.9 million, ~~$311.3~~$277.8 million and ~~$329.2~~$303.7 million at ~~September~~June 30, ~~2017,~~2018, December 31, ~~2016,~~2017, and ~~September~~June 30, ~~2016,~~2017, respectively. The following table shows the adjusted cost of the servicing rights associated with these loans and the changes for the periods indicated:

Table 2 - Mortgage Servicing Asset


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30						Six Months Ended June 30
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in thousands)												(Dollars in thousands)
Balance at beginning of period	$	1,876		$	2,121		$	2,048		$	2,581		$	1,632		$	1,958		$	1,697		$	2,048
Acquired portfolio	—			—			28			—			—			28			—			28
Amortization	(100		)	(140		)	(309		)	(419		)	(76		)	(108		)	(159		)	(209		)
Change in valuation allowance	9			(21		)	18			(202		)	3			(2		)	21			9
Balance at end of period	$	1,785		$	1,960		$	1,785		$	1,960		$	1,559		$	1,876		$	1,559		$	1,876

Forward sale contracts 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 one-to-four 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, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to investors which economically hedges this market risk. See Note ~~10,~~8, “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 Management continues to focus on growth in the commercial and home equity lending categories. Management believes this emphasis is prudent, given the prevailing interest rate and economic environment, as well as strategic priorities. The Company’s loan portfolio increased by ~~$290.3~~$123.7 million during the first ~~nine~~six months of ~~2017, due in part to~~2018, primarily driven by the ~~acquired loan~~commercial and industrial portfolio ~~related to~~which increased by $87.7 million and by the ~~Island Bancorp acquisition.~~residential real estate portfolio which increased by $25.1 million.

~~Excluding the effects of the Island Bancorp acquisition, the Company has experienced organic~~

The Company's commercial loan ~~growth across most major loan categories, with the exception~~portfolio is comprised primarily of commercial and industrial ~~which has declined due to lower utilization rates. The following table summarizes loan growth/decline during the periods indicated:~~

Table 3 - Components of Loan Growth/(Decline)
September 30
2017 December 31
2016 Island Bancorp Acquisition Organic Growth/(Decline) Organic Growth/ (Decline) %
(Dollars in thousands)
Commercial and industrial $ 858,522
$ 902,053
$ 4,271
$ (47,802 ) (5.30 )%
Commercial real estate 3,087,160
3,010,798
44,510
31,852
1.06 %
Commercial construction 395,267
320,391
106
74,770
23.34 %
Small business 130,656
122,726
57
7,873
6.42 %
Total commercial 4,471,605
4,355,968
48,944
66,693
1.53 %
Residential real estate 756,130
644,426
87,450
24,254
3.76 %
Home equity 1,052,295
988,147
18,921
45,227
4.58 %
Total consumer real estate 1,808,425
1,632,573
106,371
69,481
4.26 %
Total other consumer 9,872
11,064
236
(1,428 ) (12.91 )%
Total loans $ 6,289,902
$ 5,999,605
$ 155,551
$ 134,746
2.25 %

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~~June 30, ~~2017:~~2018:


	(Dollars in thousands)			(Dollars in thousands)
Average loan size	$	221		$	248
Largest individual commercial and industrial loan outstanding	$	20,000		$	27,500
Commercial and industrial nonperforming loans/commercial and industrial loans	3.79		%	3.08		%

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, industrial development bonds, and other special purpose properties, such as hotels, motels, nursing homes, restaurants, churches, recreational facilities, marinas, and golf courses. Commercial real estate also includes loans secured by certain residential-related property types including multi-family apartment buildings, residential development tracts and condominiums. The following pie chart shows the diversification of the commercial real estate loan portfolio as of ~~September~~June 30, ~~2017:~~2018:


	(Dollars in thousands)			(Dollars in thousands)
Average loan size	$	850		$	872
Largest individual commercial real estate mortgage outstanding	$	27,496		$	27,522
Commercial real estate nonperforming loans/commercial real estate loans	0.09		%	0.09		%
Owner occupied commercial real estate loans/commercial real estate loans	15.7		%	15.2		%

In addition to the commercial portfolios, the Company also originates 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 ~~$1.8~~$1.9 billion at ~~September~~June 30, ~~2017.~~2018.

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.

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 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. 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 5,4, "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 comprised of ~~nonperforming~~nonaccrual loans, loans past due 90 days or more but still accruing interest, and other real estate owned ~~(“OREO”~~("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.

The following table sets forth information regarding nonperforming assets held by the Company at the dates indicated:

Table 43 - Nonperforming Assets


	September 30, 2017			December 31, 2016			September 30, 2016			June 30, 2018			December 31, 2017			June 30, 2017
	(Dollars in thousands)									(Dollars in thousands)
Loans accounted for on a nonaccrual basis
Commercial and industrial ~~(1)~~	$	32,556		$	37,455		$	3,065		$	30,095		$	32,055		$	33,630
Commercial real estate	3,052			6,266			7,399			3,110			3,123			4,679
Small business	403			302			288			384			230			453
Residential real estate	8,297			7,782			7,684			7,612			8,129			7,683
Home equity	5,903			5,553			6,311			5,861			6,022			5,240
Other consumer	59			47			44			36			71			90
Total ~~(2)~~(1)	$	50,270		$	57,405		$	24,791		$	47,098		$	49,630		$	51,775
Loans past due 90 days or more but still accruing
Other consumer	7			2			2			14			8			8
Total	$	7		$	2		$	2		$	14		$	8		$	8
Total nonperforming loans	$	50,277		$	57,407		$	24,793		$	47,112		$	49,638		$	51,783
Other real estate owned	2,898			4,173			1,798			245			612			3,029
Total nonperforming assets	$	53,175		$	61,580		$	26,591		$	47,357		$	50,250		$	54,812
Nonperforming loans as a percent of gross loans	0.80		%	0.96		%	0.43		%	0.73		%	0.78		%	0.83		%
Nonperforming assets as a percent of total assets	0.66		%	0.80		%	0.35		%	0.57		%	0.62		%	0.68		%


(1)	~~Included in the September 30, 2017 and December 31, 2016 amounts are loans related to one large relationship that was place on nonaccrual status in December 2016.~~


~~(2)~~	Inclusive of TDRs on nonaccrual status of ~~$5.8~~$4.1 million, ~~$5.2~~$6.1 million, and ~~$0.0~~$5.7 million at ~~September~~June 30, ~~2017,~~2018, December 31, ~~2016,~~2017, and ~~September~~June 30, ~~2016,~~2017, respectively.

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

Table 54 - Activity in Nonperforming Assets


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
	(Dollars in thousands)												(Dollars in thousands)
Nonperforming assets beginning balance	$	54,812		$	27,473		$	61,580		$	29,849		$	48,071		$	58,456		$	50,250		$	61,580
New to nonperforming	3,573			2,630			11,140			9,732			3,642			3,619			5,643			7,567
Loans charged-off	(817		)	(1,143		)	(5,523		)	(2,256		)	(568		)	(4,198		)	(1,162		)	(4,706		)
Loans paid-off	(3,679		)	(2,049		)	(9,548		)	(7,698		)	(2,209		)	(1,124		)	(4,901		)	(5,869		)
Loans transferred to other real estate owned and foreclosed assets	(107		)	—			(564		)	(377		)	—			—			—			(457		)
Loans restored to performing status	(557		)	(288		)	(2,828		)	(2,450		)	(1,490		)	(1,642		)	(2,180		)	(2,271		)
New to other real estate owned	107			—			564			377			—			—			—			457
Valuation write down	(238		)	(5		)	(333		)	(158		)	—			(95		)	—			(95		)
Sale of other real estate owned	—			(42		)	(1,505		)	(725		)	—			(279		)	(254		)	(1,505		)
Capital improvements to other real estate owned	—			—			—			144
Other	81			15			192			153			(89		)	75			(39		)	111
Nonperforming assets ending balance	$	53,175		$	26,591		$	53,175		$	26,591		$	47,357		$	54,812		$	47,357		$	54,812

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

Table 65 - Troubled Debt Restructurings


	September 30, 2017			December 31, 2016			September 30, 2016			June 30, 2018			December 31, 2017			June 30, 2017
	(Dollars in thousands)									(Dollars in thousands)
Performing troubled debt restructurings	$	26,731		$	27,093		$	27,644		$	25,528		$	25,852		$	26,908
Nonaccrual troubled debt restructurings	5,776			5,199			5,910			4,095			6,067			5,728
Total	$	32,507		$	32,292		$	33,554		$	29,623		$	31,919		$	32,636
Performing troubled debt restructurings as a % of total loans	0.42		%	0.45		%	0.48		%	0.39		%	0.41		%	0.43		%
Nonaccrual troubled debt restructurings as a % of total loans	0.09		%	0.09		%	0.10		%	0.06		%	0.10		%	0.09		%
Total troubled debt restructurings as a % of total loans	0.51		%	0.54		%	0.58		%	0.46		%	0.50		%	0.52		%

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

Table 76 - Activity in Troubled Debt Restructurings


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30 2017			September 30 2016			September 30 2017			September 30 2016			June 30 2018			June 30 2017			June 30 2018			June 30 2017
	(Dollars in thousands)												(Dollars in thousands)
TDRs beginning balance	$	32,636		$	33,440		$	32,292		$	38,074		$	31,254		$	31,014		$	31,919		$	32,292
New to TDR status	799			1,367			4,006			3,398			378			2,976			613			3,207
Transfer to OREO	(107		)	—			(322		)	—			—			—			—			(215		)
Paydowns	(821		)	(1,194		)	(3,450		)	(7,844		)	(1,815		)	(1,352		)	(2,660		)	(2,629		)
Charge-offs	—			(59		)	(19		)	(74		)	(194		)	(2		)	(249		)	(19		)
TDRs ending balance	$	32,507		$	33,554		$	32,507		$	33,554		$	29,623		$	32,636		$	29,623		$	32,636

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 87 - Interest Income - Nonaccrual Loans and Troubled Debt Restructurings


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	2017		2016		2017		2016		2018		2017		2018		2017
	(Dollars in thousands)								(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	$	639	$	280	$	1,670	$	857	$	632	$	481	$	1,268	$	1,031
The amount of interest income on nonaccrual loans and performing TDRs that was included in net income	$	434	$	552	$	1,148	$	1,457	$	544	$	395	$	928	$	764

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment

shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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

Total impaired loans at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were ~~$76.1~~$68.1 million and ~~$77.3~~$72.8 million, respectively. For additional information regarding the Company’s asset quality, including delinquent loans, nonaccruals, TDRs, and impaired loans, see Note 5,4, “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~~June 30, ~~2017,~~2018, there were 5948 relationships, with an aggregate balance of ~~$84.7~~$52.7 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 ~~ensure its~~access 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~~June 30, ~~2017,~~2018, the allowance for loan losses totaled ~~$59.7~~$62.6 million, or 0.97% of total loans, as compared to $60.6 million, or 0.95% of total loans, ~~as compared to $61.6 million, or 1.03% of total loans,~~ at December 31, ~~2016.~~2017.

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

Table 98 - Summary of Changes in the Allowance for Loan Losses


	Three Months Ended															Three Months Ended
	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			June 30, 2018			March 31, 2018			December 31, 2017			September 30, 2017			June 30, 2017
	(Dollars in thousands)															(Dollars in thousands)
Average total loans	$	6,275,200		$	6,158,997		$	6,017,713		$	5,841,546		$	5,660,271		$	6,432,287		$	6,334,295		$	6,308,374		$	6,275,200		$	6,158,997
Allowance for loan losses, beginning of period	$	59,479		$	62,318		$	61,566		$	58,205		$	57,727		$	60,862		$	60,643		$	59,710		$	59,479		$	62,318
Charged-off loans
Commercial and industrial	124			3,591			—			562			27			4			133			176			124			3,591
Commercial real estate	—			—			—			49			341			—			—			39			—			—
Small business	164			24			70			37			98			102			24			44			164			24
Residential real estate	43			116			23			1			—			109			39			25			43			116
Home equity	81			122			14			111			154			95			79			59			81			122
Other consumer	405			345			401			455			523			259			318			343			405			345
Total charged-off loans	817			4,198			508			1,215			1,143			569			593			686			817			4,198
Recoveries on loans previously charged-off
Commercial and industrial	404			13			187			9			63			59			12			11			404			13
Commercial real estate	286			26			31			29			124			18			20			42			286			26
Small business	17			13			66			73			28			10			9			18			17			13
Residential real estate	15			2			12			117			130			1			2			2			15			2
Home equity	65			26			76			64			24			23			34			31			65			26
Other consumer	261			229			288			284			302			153			235			215			261			229
Total recoveries	1,048			309			660			576			671			264			312			319			1,048			309
Net loans charged-off (recovered)
Commercial and industrial	(280		)	3,578			(187		)	553			(36		)	(55		)	121			165			(280		)	3,578
Commercial real estate	(286		)	(26		)	(31		)	20			217			(18		)	(20		)	(3		)	(286		)	(26		)
Small business	147			11			4			(36		)	70			92			15			26			147			11
Residential real estate	28			114			11			(116		)	(130		)	108			37			23			28			114
Home equity	16			96			(62		)	47			130			72			45			28			16			96
Other consumer	144			116			113			171			221			106			83			128			144			116
Total net loans charged-off (recovered)	(231		)	3,889			(152		)	639			472			305			281			367			(231		)	3,889
Provision for loan losses	—			1,050			600			4,000			950			2,000			500			1,300			—			1,050
Total allowance for loan losses, end of period	$	59,710		$	59,479		$	62,318		$	61,566		$	58,205		$	62,557		$	60,862		$	60,643		$	59,710		$	59,479
Net loans charged-off (recovered) as a percent of average total loans (annualized)	(0.01		)%	0.25		%	(0.01		)%	0.04		%	0.03		%	0.02		%	0.02		%	0.02		%	(0.01		)%	0.25		%
Allowance for loan losses as a percent of total loans	0.95		%	0.95		%	1.03		%	1.03		%	1.01		%	0.97		%	0.96		%	0.95		%	0.95		%	0.95		%
Allowance for loan losses as a percent of nonperforming loans	118.76		%	114.86		%	113.20		%	107.24		%	234.76		%	132.78		%	127.56		%	122.17		%	118.76		%	114.86		%

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 possess unique risk

characteristics that are considered when determining the appropriate level of allowance for each segment. The total allowance is available to absorb losses from any segment of the loan portfolio.

The following table sets forth the allocation of the allowance for loan losses by loan category at the dates indicated:

Table 109 - Summary of Allocation of Allowance for Loan Losses


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	Allowance Amount		Percent of Loans In Category To Total Loans		Allowance Amount		Percent of Loans In Category To Total Loans		Allowance Amount		Percent of Loans In Category To Total Loans		Allowance Amount		Percent of Loans In Category To Total Loans
	(Dollars in thousands)								(Dollars in thousands)
Commercial and industrial	$	12,830	13.6	%	$	16,921	15.0	%	$	14,788	15.1	%	$	13,256	14.0	%
Commercial real estate	31,000		49.1	%	30,369		50.2	%	32,095		48.3	%	31,453		48.9	%
Commercial construction	5,620		6.3	%	4,522		5.3	%	5,216		5.6	%	5,698		6.3	%
Small business	1,606		2.1	%	1,502		2.1	%	1,709		2.3	%	1,577		2.1	%
Residential real estate	2,776		12.0	%	2,621		10.7	%	2,909		12.0	%	2,822		11.9	%
Home equity	5,426		16.7	%	5,238		16.5	%	5,468		16.5	%	5,390		16.6	%
Other consumer	452		0.2	%	393		0.2	%	372		0.2	%	447		0.2	%
Total allowance for loan losses	$	59,710	100.0	%	$	61,566	100.0	%	$	62,557	100.0	%	$	60,643	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 5,4, “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 of $13.1 million and $11.6 million ~~and $11.5 million~~ at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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, particularly term funding, as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. The Company purchases and/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 purposes of balance sheet liquidity and not for investment return.

Goodwill and Other Intangible Assets Goodwill and other intangible assets were ~~$242.1~~$239.7 million and ~~$231.4~~$241.1 million as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. The ~~increase is~~decrease in 2018 was due to ~~the Island Bancorp acquisition offset by~~ amortization of definite-lived intangibles.

The Company typically performs its annual goodwill impairment testing during the third quarter of the year, unless certain indicators suggest earlier testing to be warranted. The Company performed its annual goodwill impairment testing during the third quarter of 2017 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.

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 ~~$150.4~~$153.6 million and ~~$144.5~~$151.5 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, respectively, with $2.7 million of the increase attributable to policies obtained in the Island Bancorp acquisition.~~2017, respectively. The Company recorded tax exempt income from the life insurance policies of $998,000 and $1.0 million ~~and $984,000~~ for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$3.0~~$1.9 million and $2.0 million for ~~both~~ the ~~nine~~six month periods ended ~~September~~June 30, 2018 and 2017, ~~and 2016.~~respectively.

Deposits As of ~~September~~June 30, ~~2017,~~2018, total deposits were ~~$6.7~~$7.0 billion, representing a ~~$270.7~~$284.2 million, or 4.2%, increase from December 31, ~~2016.~~2017. The ~~increase is attributable to the Island Bancorp acquisition combined~~Company experienced growth in all categories with ~~growth in~~a continued emphasis on core deposits, which represent ~~90.2%~~90.35% of total deposits as of ~~September~~June 30, ~~2017.~~2018. The total cost of deposits was ~~0.20%~~0.27% and 0.18% for the ~~third quarter of~~three months ended June 30, 2018 and 2017, ~~representing an increase from~~respectively, and 0.25% and 0.18%, for the ~~prior quarter of two basis points.~~six months ended June 30, 2018 and 2017, respectively.

~~Excluding the effects of the Island Bancorp acquisition, the Company has experienced organic deposit growth as summarized in the table below during the periods indicated:~~

~~Table 11 - Components of Deposit Growth/(Decline)~~

September 30
2017 December 31
2016 Island Bancorp Acquisition Organic Growth/(Decline) Organic Growth/ (Decline)%
(Dollars in thousands)
Demand deposits $ 2,183,760
$ 2,057,086
$ 33,599
$ 93,075
4.5 %
Savings and interest checking 2,568,620
2,469,237
47,095
52,288
2.1 %
Money market 1,302,662
1,236,778
63,915
1,969
0.2 %
Time certificates of deposits 627,900
649,152
14,971
(36,223 ) (5.6 )%
Total $ 6,682,942
$ 6,412,253
$ 159,580
$ 111,109
1.7 %

The ~~Bank~~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. ~~In addition, the Company may occasionally raise funds through brokered certificates of deposit.~~ This channel allows the Company to seek additional funding in potentially large quantities by attracting deposits from outside the Bank’s core ~~market. At September~~market and amounted to $51.9 million and $48.5 million, at June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. During the second quarter of 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was promulgated and determined that reciprocal deposits, such as those acquired through the Promontory Interfinancial Network, were no longer to be treated as brokered deposits. Accordingly, these amounts are no longer included in the total brokered amounts reported by the Company.

In addition, the Company ~~had~~may occasionally raise funds through the use of brokered deposits outside of ~~$44.9 million and $14.7 million, respectively, primarily consisting of deposits associated with~~ the Promontory ~~Network.~~network, which which amounted to $6.0 million at both June 30, 2018 and December 31, 2017.

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.

The Company’s borrowings, net of applicable debt issuance costs, consisted of the following as of the periods indicated:

Table 1210 - Borrowings


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
	(Dollars in thousands)				(Dollars in thousands)
Federal Home Loan Bank borrowings	$	53,272	$	50,819	$	50,775	$	53,264
Short-term borrowings - one year and under (1)
Customer repurchase agreements	179,670		176,913		142,235		162,679
Long-term borrowings - over one year (1)
Junior subordinated debentures:
Capital Trust V	51,502		51,500		51,504		51,503
Slades Ferry Trust I	10,228		10,224		10,232		10,229
Central Trust I	5,258		5,256		5,258		5,258
Central Trust II	6,083		6,127		6,083		6,083
Subordinated debentures	34,670		34,635		34,705		34,682
Total long-term borrowings	$	107,741	$	107,742	$	107,782	$	107,755
Total borrowings	$	340,683	$	335,474	$	300,792	$	323,698

(1) Classification is based upon duration at origination and not predicated upon remaining time to maturity.

The Bank had $2.9 billion ~~and $2.8 billion~~ of assets pledged as collateral against borrowings as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. These assets are primarily pledged to the FHLB of Boston and the Federal Reserve Bank of Boston. Assets are also pledged as collateral for customer repurchase agreements.

Capital Resources On ~~September 22, 2017,~~June 21, 2018, the Company’s Board of Directors declared a cash dividend of ~~$0.32~~$0.38 per share to stockholders of record as of the close of business on ~~October~~July 2, ~~2017.~~2018. This dividend was paid on ~~October 6, 2017.~~July 10, 2018.

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 classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total, Tier 1 Capital and Common Equity Tier 1 Capital (as defined for regulatory purposes) to risk weighted assets (as defined for regulatory purposes) and Tier 1 Capital to average assets (as defined for regulatory purposes). At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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 1311 - Company and Bank's Capital Amounts and Ratios


	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio		Amount		Ratio		Amount			Ratio		Amount			Ratio
	September 30, 2017														June 30, 2018
	(Dollars in thousands)														(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)	$	876,292	13.75	%	$	509,974	≥	8.0	%	N/A			N/A		$	929,728	14.24	%	$	522,274	≥	8.0	%	N/A			N/A
Common equity tier 1 capital (to risk weighted assets)	709,355		11.13	%	286,860		≥	4.5	%	N/A			N/A		760,189		11.64	%	293,779		≥	4.5	%	N/A			N/A
Tier 1 capital (to risk weighted assets)	780,352		12.24	%	382,480		≥	6.0	%	N/A			N/A		831,189		12.73	%	391,706		≥	6.0	%	N/A			N/A
Tier 1 capital (to average assets)	780,352		10.03	%	311,310		≥	4.0	%	N/A			N/A		831,189		10.39	%	320,139		≥	4.0	%	N/A			N/A
Bank
Total capital (to risk weighted assets)	$	838,627	13.16	%	$	509,801	≥	8.0	%	$	637,252	≥	10.00	%	$	882,616	13.52	%	$	522,130	≥	8.0	%	$	652,663	≥	10.00	%
Common equity tier 1 capital (to risk weighted assets)	777,357		12.20	%	286,763		≥	4.5	%	414,213		≥	6.50	%	818,782		12.55	%	293,698		≥	4.5	%	424,231		≥	6.50	%
Tier 1 capital (to risk weighted assets)	777,357		12.20	%	382,351		≥	6.0	%	509,801		≥	8.00	%	818,782		12.55	%	391,598		≥	6.0	%	522,130		≥	8.00	%
Tier 1 capital (to average assets)	777,357		9.99	%	311,178		≥	4.0	%	388,972		≥	5.00	%	818,782		10.23	%	320,025		≥	4.0	%	400,031		≥	5.00	%
	December 31, 2016														December 31, 2017
	(Dollars in thousands)														(Dollars in thousands)
Company (consolidated)
Total capital (to risk weighted assets)	$	824,265	13.60	%	$	484,942	≥	8.0	%	N/A			N/A		$	886,807	13.82	%	$	513,398	≥	8.0	%	N/A			N/A
Common equity tier 1 capital (to risk weighted assets)	656,080		10.82	%	272,780		≥	4.5	%	N/A			N/A		718,995		11.20	%	288,787		≥	4.5	%	N/A			N/A
Tier 1 capital (to risk weighted assets)	727,070		11.99	%	363,706		≥	6.0	%	N/A			N/A		789,992		12.31	%	385,049		≥	6.0	%	N/A			N/A
Tier 1 capital (to average assets)	727,070		9.77	%	297,748		≥	4.0	%	N/A			N/A		789,992		10.04	%	314,756		≥	4.0	%	N/A			N/A
Bank
Total capital (to risk weighted assets)	$	788,320	13.01	%	$	484,834	≥	8.0	%	$	606,042	≥	10.00	%	$	846,147	13.19	%	$	513,175	≥	8.0	%	$	641,469	≥	10.00	%
Common equity tier 1 capital (to risk weighted assets)	725,760		11.98	%	272,719		≥	4.5	%	393,927		≥	6.50	%	784,014		12.22	%	288,661		≥	4.5	%	416,955		≥	6.50	%
Tier 1 capital (to risk weighted assets)	725,760		11.98	%	363,625		≥	6.0	%	484,834		≥	8.00	%	784,014		12.22	%	384,881		≥	6.0	%	513,175		≥	8.00	%
Tier 1 capital (to average assets)	725,760		9.76	%	297,589		≥	4.0	%	371,986		≥	5.00	%	784,014		9.97	%	314,630		≥	4.0	%	393,288		≥	5.00	%

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 being phased-in, beginning at 0.625% on January 1, 2016 and ultimately increasing to 2.5% on January 1, 2019. At ~~September~~June 30, ~~2017~~2018 the Company's capital levels exceeded the fully-phased in buffer of 2.5%.

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 ~~$11.8~~$15.5 million and ~~$11.1~~$11.7 million for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and totaled ~~$35.2~~$28.9 million and ~~$33.4~~$23.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

Trust Preferred Securities In accordance with the applicable accounting standard related to variable interest entities, the common stock of trusts which have issued trust preferred securities have not been included in the consolidated financial statements of the Company. At both ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, $71.0 million in trust preferred securities have been included in the Tier 1 capital of the Company for regulatory reporting purposes pursuant to the Federal Reserve's capital adequacy guidelines.

Community Reinvestment Act In September 2017, the FDIC and the Massachusetts Division of Banks assigned the Bank a CRA rating of Satisfactory.

Investment Management As of ~~September~~June 30, ~~2017,~~2018, the Rockland Trust Investment Management Group had assets under administration of ~~$3.3~~$3.6 billion, representing ~~approximately 5,585~~5,693 trust, fiduciary, and agency accounts. At December 31, ~~2016,~~2017, assets under administration were ~~$2.9~~$3.5 billion, representing approximately ~~5,431~~5,616 trust, fiduciary, and agency accounts. Included in these amounts as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 are assets under administration of ~~$284.3~~$293.2 million and ~~$266.5~~$303.7 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 ~~$5.4~~$6.1 million and ~~$5.0~~$5.5 million for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$16.0~~$11.7 million and ~~$14.7~~$10.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

Retail investments and insurance revenue was ~~$565,000~~$739,000 and ~~$451,000~~$507,000 for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$1.5~~$1.3 million and $1.0 million for ~~both~~ the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Retail investments and insurance revenue includes commission revenue from LPL Financial (“LPL”) and its affiliates and their insurance subsidiary, LPL Insurance Associates, Inc., ~~Savings~~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 ~~Life Insurance~~and licensed and contracted with LPL are onsite to offer these products to the Bank’s customer base. These same agents are also approved and appointed with various other Broker General Agents for the purposes of ~~Massachusetts, Highland Capital Brokerage, and Smith Companies LTD, a division of Capitas Financial, LLC.~~processing insurance solutions for clients.

RESULTS OF OPERATIONS

The following table provides a summary of results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:

Table 1412 - Summary of Results of Operations


	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended June 30						Six Months Ended June 30
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in thousands, except per share data)												(Dollars in thousands, except per share data)
Net Income	$	23,852		$	20,484		$	65,140		$	59,469		$	31,118		$	20,563		$	58,673		$	41,288
Diluted earnings per share	$	0.87		$	0.78		$	2.38		$	2.26		$	1.13		$	0.75		$	2.13		$	1.52
Return on average assets	1.18		%	1.09		%	1.11		%	1.09		%	1.52		%	1.06		%	1.46		%	1.08		%
Return on average equity	10.18		%	9.98		%	9.65		%	9.92		%	12.85		%	9.15		%	12.30		%	9.36		%
Net interest margin	3.65		%	3.40		%	3.59		%	3.42		%	3.89		%	3.60		%	3.83		%	3.56		%

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

On a fully tax equivalent basis ("FTE"), net interest income for the ~~third~~second quarter of ~~2017~~2018 was ~~$67.4~~$73.3 million, representing an increase of ~~$9.4~~$9.2 million, or ~~16.2%~~14.4%, when compared to the ~~third~~second quarter of ~~2016. The overall increase in~~2017. Net interest earning assets is driven by both recent acquisitions and organic growth. Additionally, net interest margin has been impacted by increased market rates on short-term indexed assets, lower borrowings cost, andincome benefited from the ~~reinvestment of excess liquidity.~~Company's sustained asset sensitive position.

The following tables present the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and ~~nine~~six months ending ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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 1513 - Average Balance, Interest Earned/Paid & Average Yields Quarter-to-Date


	Three Months Ended September 30												Three Months Ended June 30
	2017						2016						2018						2017
	Average Balance		Interest Earned/ Paid		Yield/Rate		Average Balance		Interest Earned/ Paid		Yield/Rate		Average Balance		Interest Earned/ Paid		Yield/Rate		Average Balance		Interest Earned/ Paid		Yield/Rate
	(Dollars in thousands)												(Dollars in thousands)
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short term investments	$	132,327	$	417	1.25	%	$	305,728	$	387	0.50	%	$	122,116	$	541	1.78	%	$	72,676	$	190	1.05	%
Securities
Securities - trading	1,299		—		—	%	805		—		—	%	1,599		—		—	%	1,292		—		—	%
Securities - taxable investments	908,560		5,642		2.46	%	815,889		5,034		2.45	%	993,222		6,498		2.62	%	900,086		5,609		2.50	%
Securities - nontaxable investments (1)	2,817		29		4.08	%	4,382		43		3.90	%	2,204		20		3.64	%	3,787		40		4.24	%
Total securities	912,676		5,671		2.47	%	821,076		5,077		2.46	%	$	997,025	$	6,518	2.62	%	$	905,165	$	5,649	2.50	%
Loans held for sale	5,766		33		2.27	%	11,652		81		2.77	%	4,719		30		2.55	%	3,733		21		2.26	%
Loans (2)
Commercial and industrial	868,358		9,173		4.19	%	851,497		8,420		3.93	%	943,110		11,116		4.73	%	895,173		9,098		4.08	%
Commercial real estate (1)	3,104,098		32,875		4.20	%	2,723,832		28,466		4.16	%	3,092,771		35,175		4.56	%	3,028,745		30,968		4.10	%
Commercial construction	365,143		4,177		4.54	%	370,085		3,881		4.17	%	416,830		5,256		5.06	%	362,603		4,105		4.54	%
Small business	130,275		1,828		5.57	%	111,932		1,502		5.34	%	138,758		2,008		5.80	%	129,100		1,776		5.52	%
Total commercial	4,467,874		48,053		4.27	%	4,057,346		42,269		4.14	%	4,591,469		53,555		4.68	%	4,415,621		45,947		4.17	%
Residential real estate	749,813		7,656		4.05	%	631,582		6,334		3.99	%	769,441		7,661		3.99	%	704,726		7,024		4.00	%
Home equity	1,046,894		10,081		3.82	%	958,317		8,243		3.42	%	1,061,082		10,830		4.09	%	1,028,109		9,444		3.68	%
Total consumer real estate	1,796,707		17,737		3.92	%	1,589,899		14,577		3.65	%	1,830,523		18,491		4.05	%	1,732,835		16,468		3.81	%
Other consumer	10,619		241		9.00	%	13,026		291		8.89	%	10,295		211		8.22	%	10,541		240		9.13	%
Total loans	6,275,200		66,031		4.17	%	5,660,271		57,137		4.02	%	$	6,432,287	$	72,257	4.51	%	$	6,158,997	$	62,655	4.08	%
Total interest-earning assets	$	7,325,969	$	72,152	3.91	%	$	6,798,727	$	62,682	3.67	%	$	7,556,147	$	79,346	4.21	%	$	7,140,571	$	68,515	3.85	%
Cash and due from banks	100,228						94,547						100,952						97,129
Federal Home Loan Bank stock	12,734						11,304						13,399						13,700
Other assets	567,297						552,247						545,994						551,388
Total assets	$	8,006,228					$	7,456,825					$	8,216,492					$	7,802,788
Interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	2,562,557	$	992	0.15	%	$	2,408,498	$	756	0.12	%	$	2,664,148	$	1,293	0.19	%	$	2,568,020	$	849	0.13	%
Money market	1,309,457		1,171		0.35	%	1,197,382		758		0.25	%	1,360,216		1,667		0.49	%	1,287,991		935		0.29	%
Time deposits	611,080		1,168		0.76	%	635,635		1,219		0.76	%	653,373		1,627		1.00	%	609,787		1,128		0.74	%
Total interest-bearing deposits	$	4,483,094	$	3,331	0.29	%	$	4,241,515	$	2,733	0.26	%	$	4,677,737	$	4,587	0.39	%	$	4,465,798	$	2,912	0.26	%
Borrowings
Federal Home Loan Bank borrowings	$	53,926	$	302	2.22	%	$	51,100	$	391	3.04	%	$	62,600	$	295	1.89	%	$	63,275	$	418	2.65	%
Customer repurchase agreements	172,387		67		0.15	%	151,982		52		0.14	%	143,259		64		0.18	%	155,692		55		0.14	%
Junior subordinated debentures	73,070		578		3.14	%	73,184		1,037		5.64	%	73,076		625		3.43	%	73,068		565		3.10	%
Subordinated debentures	34,664		427		4.89	%	34,617		427		4.91	%	34,699		428		4.95	%	34,652		428		4.95	%
Total borrowings	$	334,047	$	1,374	1.63	%	$	310,883	$	1,907	2.44	%	$	313,634	$	1,412	1.81	%	$	326,687	$	1,466	1.80	%


Total interest-bearing liabilities	$	4,817,141	$	4,705	0.39	%	$	4,552,398	$	4,640	0.41	%	$	4,991,371	$	5,999	0.48	%	$	4,792,485	$	4,378	0.37	%
Demand deposits	2,174,600						1,976,177						2,174,571						2,026,770
Other liabilities	84,782						112,018						79,266						81,725
Total liabilities	$	7,076,523					$	6,640,593					$	7,245,208					$	6,900,980
Stockholders' equity	929,705						816,232						971,284						901,808
Total liabilities and stockholders' equity	$	8,006,228					$	7,456,825					$	8,216,492					$	7,802,788
Net interest income (1)			$	67,447					$	58,042					$	73,347					$	64,137
Interest rate spread (3)					3.52	%					3.26	%					3.73	%					3.48	%
Net interest margin (4)					3.65	%					3.40	%					3.89	%					3.60	%
Supplemental information
Total deposits, including demand deposits	$	6,657,694	$	3,331			$	6,217,692	$	2,733			$	6,852,308	$	4,587			$	6,492,568	$	2,912
Cost of total deposits					0.20	%					0.17	%					0.27	%					0.18	%
Total funding liabilities, including demand deposits	$	6,991,741	$	4,705			$	6,528,575	$	4,640			$	7,165,942	$	5,999			$	6,819,255	$	4,378
Cost of total funding liabilities					0.27	%					0.28	%					0.34	%					0.26	%

(1)

The total amount of adjustment to present interest income and yield on a FTE basis is ~~$374,000~~$179,000 and $382,000 for ~~both~~ the three months ended ~~September~~June 30, 2018 and 2017, ~~and 2016.~~respectively. The FTE adjustment relates to nontaxable investment securities with average balances of ~~$2.8~~$2.2 million and ~~$4.4~~$3.8 million and nontaxable industrial development bonds recorded within commercial real estate with average balances of ~~$69.3~~$55.1 million and ~~$67.8~~$70.3 million, for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.


(2)	Average nonaccruing loans are included in loans.


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


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

Table 1614 - Average Balance, Interest Earned/Paid & Average Yields Year-to-Date


	Nine Months Ended September 30												Six Months Ended June 30
	2017						2016						2018						2017
	Average Balance		Interest Earned/ Paid		Yield/ Rate		Average Balance		Interest Earned/ Paid		Yield/ Rate		Average Balance		Interest Earned/ Paid		Yield/ Rate		Average Balance		Interest Earned/ Paid		Yield/ Rate
	(Dollars in thousands)												(Dollars in thousands)
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short-term investments	$	103,437	$	814	1.05	%	$	202,397	$	767	0.51	%	$	102,136	$	852	1.68	%	$	88,752	$	397	0.90	%
Securities
Securities - trading	1,198		—		—	%	667		—		—	%	1,517		—		—	%	1,146		—		—	%
Securities - equity
Securities - taxable investments	894,809		16,618		2.48	%	824,449		15,500		2.51	%	980,293		12,717		2.62	%	887,820		10,976		2.49	%
Securities - nontaxable investments (1)	3,462		109		4.21	%	4,557		137		4.02	%	2,233		40		3.61	%	3,790		80		4.26	%
Total securities	899,469		16,727		2.49	%	829,673		15,637		2.52	%	$	984,043	$	12,757	2.61	%	$	892,756	$	11,056	2.50	%
Loans held for sale	4,086		68		2.23	%	8,005		170		2.84	%	3,741		49		2.64	%	3,232		35		2.18	%
Loans (2)							—												—
Commercial and industrial	881,387		26,913		4.08	%	845,565		24,759		3.91	%	911,399		20,731		4.59	%	888,009		17,740		4.03	%
Commercial real estate (1)	3,054,336		94,057		4.12	%	2,703,300		83,082		4.11	%	3,100,063		68,464		4.45	%	3,029,043		61,182		4.07	%
Commercial construction	353,134		11,859		4.49	%	369,403		11,376		4.11	%	407,328		9,927		4.91	%	347,031		7,682		4.46	%
Small business	127,938		5,284		5.52	%	105,761		4,266		5.39	%	135,460		3,870		5.76	%	126,750		3,456		5.50	%
Total commercial	4,416,795		138,113		4.18	%	4,024,029		123,483		4.10	%	4,554,250		102,992		4.56	%	4,390,833		90,060		4.14	%
Residential real estate	699,793		20,779		3.97	%	631,343		18,939		4.01	%	762,755		15,162		4.01	%	674,368		13,123		3.92	%
Home equity	1,024,164		28,233		3.69	%	943,857		24,452		3.46	%	1,056,080		21,035		4.02	%	1,012,610		18,152		3.61	%
Total consumer real estate	1,723,957		49,012		3.80	%	1,575,200		43,391		3.68	%	1,818,835		36,197		4.01	%	1,686,978		31,275		3.74	%
Other consumer	10,828		722		8.91	%	13,743		924		8.98	%	10,476		425		8.18	%	10,934		481		8.87	%
Total loans	6,151,580		187,847		4.08	%	5,612,972		167,798		3.99	%	$	6,383,561	$	139,614	4.41	%	$	6,088,745	$	121,816	4.03	%
Total interest-earning assets	$	7,158,572	$	205,456	3.84	%	$	6,653,047	$	184,372	3.70	%	$	7,473,481	$	153,272	4.14	%	$	7,073,485	$	133,304	3.80	%
Cash and due from banks	97,457						90,527						99,288						96,048
Federal Home Loan Bank stock	13,180						12,940						13,209						13,406
Other assets	553,129						542,271						545,756						545,929
Total assets	$	7,822,338					$	7,298,785					$	8,131,734					$	7,728,868
Interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	2,536,954	$	2,604	0.14	%	$	2,386,520	$	2,416	0.14	%	$	2,613,945	$	2,386	0.18	%	$	2,523,941	$	1,612	0.13	%
Money market	1,285,492		2,963		0.31	%	1,157,731		2,171		0.25	%	1,349,301		3,031		0.45	%	1,273,310		1,792		0.28	%
Time deposits	618,518		3,443		0.74	%	651,044		3,752		0.77	%	649,970		3,105		0.96	%	622,298		2,275		0.74	%
Total interest-bearing deposits	$	4,440,964	$	9,010	0.27	%	$	4,195,295	$	8,339	0.27	%	$	4,613,216	$	8,522	0.37	%	$	4,419,549	$	5,679	0.26	%
Borrowings
Federal Home Loan Bank borrowings	$	61,206	1,123		2.45	%	$	63,869	$	1,275	2.67	%	$	67,792	555		1.65	%	$	64,905	$	821	2.55	%
Customer repurchase agreements	161,850		178		0.15	%	144,393		149		0.14	%	149,479		130		0.18	%	156,494		111		0.14	%
Junior subordinated debentures	73,074		1,697		3.10	%	73,233		3,072		5.60	%	73,075		1,215		3.35	%	73,077		1,119		3.09	%
Subordinated debentures	34,652		1,282		4.95	%	34,606		1,282		4.95	%	34,693		855		4.97	%	34,647		855		4.98	%
Total borrowings	$	330,782	$	4,280	1.73	%	$	316,101	$	5,778	2.44	%	$	325,039	$	2,755	1.71	%	$	329,123	$	2,906	1.78	%
Total interest-bearing liabilities	$	4,771,746	$	13,290	0.37	%	$	4,511,396	$	14,117	0.42	%	$	4,938,255	$	11,277	0.46	%	$	4,748,672	$	8,585	0.36	%
Demand deposits	2,063,668						1,878,558						2,152,168						2,007,282
Other liabilities	84,063						107,983


Other liabilities													79,196						83,697
Total liabilities	$	6,919,477					$	6,497,937					$	7,169,619					$	6,839,651
Stockholders' equity	902,861						800,848						962,115						889,217
Total liabilities and stockholders' equity	$	7,822,338					$	7,298,785					$	8,131,734					$	7,728,868
Net interest income (1)			$	192,166					$	170,255					$	141,995					$	124,719
Interest rate spread (3)					3.47	%					3.28	%					3.68	%					3.44	%
Net interest margin (4)					3.59	%					3.42	%					3.83	%					3.56	%
Supplemental information
Total deposit, including demand deposits	$	6,504,632	$	9,010			$	6,073,853	$	8,339			$	6,765,384	$	8,522			$	6,426,831	$	5,679
Cost of total deposits					0.19	%					0.18	%					0.25	%					0.18	%
Total funding liabilities, including demand deposits	$	6,835,414	$	13,290			$	6,389,954	$	14,117			$	7,090,423	$	11,277			$	6,755,954	$	8,585
Cost of total funding liabilities					0.26	%					0.30	%					0.32	%					0.26	%

(1)

The total amount of adjustment to present interest income and yield on a FTE basis is ~~$1.1 million~~$356,000 and ~~$1.2 million~~$764,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The FTE adjustment relates to nontaxable investment securities with average balances of ~~$3.5~~$2.2 million and ~~4.6~~$3.8 million and nontaxable industrial development bonds recorded within commercial real estate with average balances of ~~$71.1~~$53.5 million and ~~$69.8~~$72.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.


(2)	Average nonaccruing loans are included in loans.


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


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

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

Table 1715 - Volume Rate Analysis


	Three Months Ended September 30									Nine Months Ended September 30									Three Months Ended June 30									Six Months Ended June 30
	2017 Compared To 2016									2017 Compared To 2016									2018 Compared To 2017									2018 Compared To 2017
	Change Due to Rate			Change Due to Volume			Total Change			Change Due to Rate			Change Due to Volume			Total Change			Change Due to Rate			Change Due to Volume			Total Change			Change Due to Rate			Change Due to Volume			Total Change
	(Dollars in thousands)																		(Dollars in thousands)
Income on interest-earning assets
Interest earning deposits, federal funds sold and short term investments	$	249		$	(219	)	$	30		$	422		$	(375	)	$	47		$	222		$	129		$	351		$	395		$	60		$	455
Securities
Securities - taxable investments	36			572			608			(205		)	1,323			1,118			309			580			889			598			1,143			1,741
Securities - nontaxable investments (1)	1			(15		)	(14		)	5			(33		)	(28		)	(3		)	(17		)	(20		)	(7		)	(33		)	(40		)
Total securities							594									1,090									869									1,701
Loans held for sale	(7		)	(41		)	(48		)	(19		)	(83		)	(102		)	3			6			9			8			6			14
Loans
Commercial and industrial	586			167			753			1,105			1,049			2,154			1,531			487			2,018			2,524			467			2,991
Commercial real estate (1)	435			3,974			4,409			186			10,789			10,975			3,552			655			4,207			5,848			1,434			7,282
Commercial construction	348			(52		)	296			984			(501		)	483			537			614			1,151			910			1,335			2,245
Small business	80			246			326			123			895			1,018			99			133			232			177			237			414
Total commercial							5,784									14,630									7,608									12,932
Residential real estate	136			1,186			1,322			(213		)	2,053			1,840			(8		)	645			637			319			1,720			2,039
Home equity	1,076			762			1,838			1,701			2,080			3,781			1,083			303			1,386			2,104			779			2,883
Total consumer real estate							3,160						4,098			5,621									2,023									4,922
Other consumer	4			(54		)	(50		)	(6		)	(196		)	(202		)	(23		)	(6		)	(29		)	(36		)	(20		)	(56		)
Total loans (1)(2)							8,894									20,049									9,602									17,798
Total income of interest-earning assets							$	9,470								$	21,084								$	10,831								$	19,968
Expense of interest-bearing liabilities
Deposits
Savings and interest checking accounts	$	188		$	48		$	236		$	36		$	152		$	188		$	412		$	32		$	444		$	717		$	57		$	774
Money market	342			71			413			552			240			792			680			52			732			1,132			107			1,239
Time certificates of deposits	(4		)	(47		)	(51		)	(122		)	(187		)	(309		)	418			81			499			729			101			830
Total interest bearing deposits							598									671									1,675									2,843
Borrowings
Federal Home Loan Bank borrowings	(111		)	22			(89		)	(99		)	(53		)	(152		)	(119		)	(4		)	(123		)	(303		)	37			(266		)
Customer repurchase agreements and other short-term borrowings	8			7			15			11			18			29			13			(4		)	9			24			(5		)	19
Junior subordinated debentures	(457		)	(2		)	(459		)	(1,368		)	(7		)	(1,375		)	60			—			60			96			—			96
Subordinated debentures	(1		)	1			—			(2		)	2			—			(1		)	1			—			(1		)	1			—
Total borrowings							(533		)							(1,498		)							(54		)							(151		)
Total expense of interest-bearing liabilities							65									(827		)							1,621									2,692
Change in net interest income							$	9,405								$	21,911								$	9,210								$	17,276


(1)	The table above reflects income determined on a FTE basis. See footnote (1) to ~~tables 15~~table 13 and 1614 above 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. The provision for loan losses was ~~zero~~$2.0 million and $2.5 million, for the three and six months ended June 30, 2018, respectively, as compared to $1.1 million and $1.7 million for the ~~three and nine months ended September 30, 2017, respectively, as compared to $950,000 and $2.1 million for the~~ comparable year-ago ~~periods.~~

period. The Company’s allowance for loan losses, as a percentage of total loans, was 0.97% at June 30, 2018, and 0.95% at ~~September 30, 2017, 1.03% at~~both December 31, ~~2016,~~2017, and ~~1.01% at September~~June 30, 2016. The decrease is attributable to a significant charge-off recorded for a previously recognized specific reserve, combined with the impact of loans acquired in connection with the Island Bancorp acquisition. These acquired loans are recorded at fair value, including a reduction for estimated credit losses, and without carryover of the respective portfolio's historical allowance for loan losses.2017. The Company recorded net ~~recoveries of $231,000 and net~~ charge-offs of ~~$3.5 million~~$305,000 and $586,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2018, as compared to net charge-offs of ~~$472,000~~$3.9 million and ~~net recoveries of $305,000~~$3.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~

Overall economic conditions remained healthy and stable within New England. Hiring activity was mixed with unemployment levels remaining quite low. Shortages in labor supply were noted during the summer months, notably in regions where tourism drives seasonal hiring decisions like Cape Cod and the Berkshires, however, there was relatively little upward pressure on wages. In general, prices on retail items and consumer goods remained stable, and seasonal businesses impacted by tourism reported healthy revenues. Commercial real estate trends have remained generally consistent through 2017. Valuations remain at or near record levels for most property types and vacancy levels have remained relatively low, although office leasing activity has exhibited some mixed activity in certain Boston sub-markets due to limited supply. Residential real estate metrics also remain strong with median sales prices continuing their upward momentum throughout New England. Overall volume of closed sales through July was down slightly from a year prior due to continued tightening of supply. Continued strength in most economic fundamentals is generally expected throughout the remainder of 2017 with most industries and sectors maintaining a positive to stable outlook.

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. ~~Substantial~~

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.

In addition, economic activity maintained its moderate pace of expansion into the second quarter of 2018. A tight labor market persists in the New England market, however wages appear to be rising as a result. Retailers noted some upward movement on prices in some categories; specifically those most impacted by energy and transportation costs. Also, retailers and manufacturers are feeling some anxiety over the looming effects of tariffs as they take effect as it remains unclear what exactly that might do to pricing of components and final products. In general, sales levels of most retailers in the region were improved compared to a year prior with increases spanning the mid-single-digit to double-digit levels. Retail outlook was positive, specifically with businesses related to tourism as the summer season begins. Median sales prices on residential real estate have continued to increase, although sales volume remains mixed due to a tight supply. Commercial real estate markets remain strong with good to robust office leasing activity throughout the region. A number of new projects are breaking ground throughout New England, spanning multiple industries such as hotels, student housing, and industrial complexes. The overall outlook for the near term remains positive for the New England region.

Noninterest Income The following table sets forth information regarding noninterest income for the periods shown:

Table 1816 - Noninterest Income

Three Months Ended
September 30 Change
2017 2016 Amount %
(Dollars in thousands)
Deposit account fees $ 4,401
$ 4,766
$ (365 ) (7.66 )%
Interchange and ATM fees 4,525
4,190
335
8.00 %
Investment management 5,967
5,446
521
9.57 %
Mortgage banking income 1,338
1,963
(625 ) (31.84 )%
Increase in cash surrender value of life insurance policies 1,019
984
35
3.56 %
Gain on sale of equity securities 12
—
12
nm
Loan level derivative income 784
810
(26 ) (3.21 )%
Other noninterest income 2,724
2,257
467
20.69 %
Total $ 20,770
$ 20,416
$ 354
1.73 %

Nine Months Ended
September 30 Change
2017 2016 Amount %
(Dollars in thousands)
Deposit account fees $ 13,337
$ 13,979
$ (642 ) (4.59 )%
Interchange and ATM fees 12,881
12,050
831
6.90 %
Investment management 17,576
16,183
1,393
8.61 %
Mortgage banking income 3,609
4,458
(849 ) (19.04 )%
Increase in cash surrender value of life insurance policies 3,000
2,980
(15 ) 0.67 %
Gain on sale of equity securities 19
5
14
280.00 %
Loan level derivative income 2,727
4,627
(1,900 ) (41.06 )%
Other noninterest income 7,931
6,384
1,547
24.23 %
Total $ 61,080
$ 60,666
$ 414
0.68 %

~~nm - the percentage is not meaningful.~~



	Three Months Ended
	June 30				Change
	2018		2017		Amount			%
	(Dollars in thousands)
Deposit account fees	$	4,551	$	4,392	$	159		3.62	%
Interchange and ATM fees	4,769		4,434		335			7.56	%
Investment management	6,822		5,995		827			13.79	%
Mortgage banking income	1,038		1,314		(276		)	(21.00	)%
Gain on sale of equity securities	2		3		(1		)	(33.33	)%
Increase in cash surrender value of life insurance policies	998		1,017		(19		)	(1.87	)%
Loan level derivative income	708		1,337		(629		)	(47.05	)%
Other noninterest income	2,999		2,906		93			3.20	%
Total	$	21,887	$	21,398	$	489		2.29	%

	Six Months Ended
	June 30				Change
	2018		2017		Amount			%
	(Dollars in thousands)
Deposit account fees	$	8,982	$	8,936	$	46		0.51	%
Interchange and ATM fees	8,942		8,356		586			7.01	%
Investment management	12,964		11,609		1,355			11.67	%
Mortgage banking income	1,908		2,271		(363		)	(15.98	)%
Increase in cash surrender value of life insurance policies	1,945		1,981		(36		)	(1.82	)%
Gain on sale of equity securities	2		7		(5		)	(71.43	)%
Loan level derivative income	1,155		1,943		(788		)	(40.56	)%
Other noninterest income	5,852		5,207		645			12.39	%
Total	$	41,750	$	40,310	$	1,440		3.57	%

The primary reasons for the ~~significant~~ variances in the noninterest income category shown in the preceding tables ~~are noted below:~~include:

•Deposit account fees ~~decreased~~increased due primarily to ~~reduced overdraft fees.~~seasonality and increased household accounts.

Interchange and ATM fees have increased ~~as compared to the prior year periods as a result of new accounts and~~driven mainly by increased ~~volume, partly due to the 2017 second quarter Island Bancorp acquisition and 2016 fourth quarter NEB acquisition.~~account activity.

Investment management income growth iswas driven primarily from growth in overall assets under administration, which were ~~$3.3~~$3.6 billion as of ~~September~~June 30, ~~2017,~~2018, an increase of ~~$393.1~~$375.4 million, or ~~13.6%~~11.7%, compared to ~~September~~June 30, ~~2016.~~2017.

Mortgage banking income ~~decreases are primarily driven by overall sold loan volume for~~decreased in the ~~time~~current year periods ~~presented.~~due to a decrease in loans closed during those periods.

Loan level derivative income decreased ~~due to~~as a result of lower customer demand.

Other noninterest income increased ~~in the current periods mainly~~ due to ~~increases in~~higher rental income related to ~~a new~~ equipment leasing, ~~initiative entered into during 2017. The increase compared to the year ago period was further impacted by gains recognized~~merchant processing income and a gain on ~~the~~ sale of loans ~~and fixed assets in~~during the ~~first~~second quarter of ~~2017, and increased foreign currency exchange fees.~~2018, offset by decreases in income associated with the Company's 1031 Tax Exchange program.

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

Table 1917 - Noninterest Expense


	Three Months Ended									Three Months Ended
	September 30				Change					June 30				Change
	2017		2016		Amount			%		2018		2017		Amount			%
	(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	$	29,289	$	27,395	$	1,894		6.91	%	$	30,288	$	28,654	$	1,634		5.70	%
Occupancy and equipment expenses	6,085		5,433		652			12.00	%	6,497		6,059		438			7.23	%
Data processing & facilities management	1,272		1,400		(128		)	(9.14	)%	1,264		1,188		76			6.40	%
FDIC assessment	673		725		(52		)	(7.17	)%	691		778		(87		)	(11.18	)%
Advertising expense	1,359		1,654		(295		)	(17.84	)%	1,166		1,365		(199		)	(14.58	)%
Consulting expense	937		770		167			21.69	%	1,089		1,262		(173		)	(13.71	)%
Debit card expense	992		730		262			35.89	%	841		852		(11		)	(1.29	)%
Legal fees	1,423		321		1,102			343.30	%
Loss on sale of equity securities	1		—		1			nm		—		2		(2		)	nm
Merger and acquisition expenses	—		151		(151		)	nm		434		2,909		(2,475		)	(85.08	)%
Mortgage operations expense	723		820		(97		)	(11.83	)%
Software maintenance	888		765		123			16.08	%	997		896		101			11.27	%
Other noninterest expenses	7,668		6,693		975			14.57	%	9,421		8,844		577			6.52	%
Total	$	51,310	$	46,857	$	4,453		9.50	%	$	52,688	$	52,809	$	(121	)	(0.23	)%

	Nine Months Ended									Six Months Ended
	September 30				Change					June 30				Change
	2017		2016		Amount			%		2018		2017		Amount			%
	(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	$	86,267	$	81,561	$	4,706		5.77	%	$	61,388	$	56,978	$	4,410		7.74	%
Occupancy and equipment expenses	18,302		16,927		1,375			8.12	%	13,905		12,217		1,688			13.82	%
Data processing & facilities management	3,732		3,831		(99		)	(2.58	)%	2,550		2,460		90			3.66	%
FDIC assessment	2,234		2,655		(421		)	(15.86	)%	1,489		1,561		(72		)	(4.61	)%
Advertising expense	4,018		4,134		(116		)	(2.81	)%	2,289		2,659		(370		)	(13.92	)%
Consulting expense	2,753		2,235		518			23.18	%	1,845		1,816		29			1.60	%
Debit card expense	2,616		2,162		454			21.00	%	1,650		1,624		26			1.60	%
Legal fees	2,074		1,132		942			83.22	%
Loss on extinguishment of debt	—		437		(437		)	nm
Loss on sale of equity securities	6		32		(26		)	(81.25	)%	—		5		(5		)	nm
Merger and acquisition expenses	3,393		691		2,702			391.03	%	434		3,393		(2,959		)	(87.21	)%
Mortgage operations expense	1,896		1,880		16			0.85	%
Software maintenance	2,714		2,254		460			20.41	%	1,969		1,826		143			7.83	%
Other noninterest expenses	22,887		20,554		2,333			11.35	%	18,620		17,043		1,577			9.25	%
Total	$	152,892	$	140,485	$	12,407		8.83	%	$	106,139	$	101,582	$	4,557		4.49	%

nm - the percentage is not meaningful.

The primary reasons for the ~~significant~~ variances in the noninterest expense category shown in the preceding tables ~~are noted below:~~

include:

The increase in salaries and employee benefits reflects overall increases in the employee base due to new hires ~~as well as~~and the 2017 second quarter Edgartown National Bank ("Island ~~Bancorp acquisition and 2016 fourth quarter NEB~~Bancorp") acquisition, along with ~~an increase~~increases in expenses associated with merit and incentive programs, payroll taxes, medical insurance ~~expenses~~ and ~~payroll taxes.~~commissions.

Occupancy and equipment expense increases were attributable to rent expense on leased properties, rental expense depreciation on equipment associated with the Company's ~~new~~equipment leasing initiative, as well as increases in ~~equipment maintenance~~snow removal costs and ~~repairs.~~utility costs.

~~The FDIC assessment decreased due to a reduction in assessment rates effective July 1, 2016, combined with strong financial results driving further reductions in the rate.~~

•Advertising expenses decreased due to timing of various ~~campaigns.~~

~~Consulting expense has increased due primarily to process improvement~~campaigns and strategic ~~initiatives, as well as increased loan work out related costs.~~initiatives.

~~Debit card~~

Merger and acquisition expense ~~has increased driven mainly by increased volume/usage by customers.~~

~~Legal~~in 2018 reflects legal and professional fees ~~increased primarily due to increased loan work out costs~~ associated with the ~~bankruptcy~~pending acquisition of ~~a large commercial customer.~~

~~The Company recognized a $437,000 loss in conjunction with its payoff of approximately $49.0 million in Federal Home Loan Bank borrowings~~MNB which is anticipated to close in the ~~first~~fourth quarter of ~~2016. No such losses have been recorded in 2017.~~

2018. Merger and acquisition expense in 2017 is primarily related to compensation and severance agreements, as well as contract termination costs on the Island Bancorp acquisition which closed in the second quarter of 2017. The majority of the expenses related to compensation and severance agreements, as well as contract termination costs, associated with the Island Bancorp acquisition. Additionally, a portion of the 2017 merger and acquisition expense is attributable to the 2016 NEB acquisition.

~~Software maintenance increases reflect additional investments in technology to support the Company’s growth.~~

Other noninterest expenses increased primarily due to unrealized losses on equity securities (governed by new accounting guidance effective in 2018 which requires income statement recognition of unrealized gains and losses on equity securities), and a change in classification of certain retirement plan expenses previously recognized in salaries and benefits (also due to new accounting guidance effective in 2018). Additionally, the ~~current periods due primarily to~~change reflects increases in ~~provision for unfunded commitments, amortization of intangibles, OREO valuation write-downs,~~director fees and ~~directors' fees.~~legal fees as compared to the year ago periods.

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 2018 - Tax Provision and Applicable Tax Rates


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30						September 30						June 30						June 30
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in thousands)												(Dollars in thousands)
Combined federal and state income tax provision	$	12,681		$	9,793		$	32,426		$	27,729		$	9,249		$	10,731		$	16,077		$	19,745
Effective income tax rate	34.71		%	32.34		%	33.23		%	31.80		%	22.91		%	34.29		%	21.51		%	32.35		%
Blended statutory tax rate													28.20		%	40.86		%	28.20		%	40.86		%

The Company's blended statutory and effective tax rates in 2018 are lower as compared to the year ago period due primarily to the impact of the Tax Cuts and Jobs Act ("Tax Act"), which decreased the maximum Federal corporate tax rate ~~was 40.86% for each of~~from 35% to 21%. Additionally, the ~~three and nine month periods ended September 30, 2017 and September 30, 2016. The~~ effective ~~income~~ tax rates ~~noted~~ in the table above are lower than the blended statutory tax ~~rate~~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~~Lastly, the effective tax rate ~~when compared to~~includes the year ago period was impacted by a reduction in the benefits recognized from the New Markets Tax Credit program, partially offset by discrete benefits recognized as a result of the Company’s adoption of ASU 2016-09 effective January 1, 2017, which required that recognitionimpact of excess tax benefits ~~on certain~~associated with stock compensation transactions ~~be recorded through earnings as a~~and other discrete ~~item within the Company’s effective tax rate during the period of the transaction.~~items which can fluctuate year over year.

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 following table details the remaining tax credit recognition by year associated with this program:

Table 2119 - New Markets Tax Credit Recognition Schedule


Year and Amount of Investment	Year and Amount of Investment		2017		2018		2019		Total Remaining Credits		Year and Amount of Investment		2018		2019		Total Remaining Credits

2012	$	21,400	$	1,285	$	1,285	$	—	$	2,570	$	21,400	$	1,285	$	—	$	1,285
2013	44,600		2,675		2,675		2,675		8,025		44,600		2,675		2,675		5,350
Total	$	66,000	$	3,960	$	3,960	$	2,675	$	10,595	$	66,000	$	3,960	$	2,675	$	6,635

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 2032, which represents the period that the tax credits and other tax benefits will be utilized. The total committed investment in these partnerships is ~~$47.6~~$47.4 million, of which ~~$39.9~~$45.0 million has been ~~funded.~~funded as of June 30, 2018. It is expected that the limited partnership investments will

generate a net tax benefit of approximately ~~$1.7~~$1.1 million for the full calendar year of ~~2017~~2018 and a total of ~~$12.4~~$6.7 million over the remaining life of the investments from the combination of the tax credits and operating losses.

Risk Management

The Company’s Board of Directors and Executive Management have identified significant risk categories which affect the Company. The risk categories include: credit risk, operations risk, compliance risk, strategic and reputation risk, market risk and liquidity risk. The Board of Directors has approved an Enterprise Risk Management Policy that addresses each category of risk. The Senior Portfolio Risk Officer, Chief Financial Officer, Chief Information Officer, Director of Residential Lending, Compliance Officer, Executive Vice President of Commercial Lending and other members of management provide regular reports to the Board of Directors, identifying key risk issues and plans to ~~address these issues.~~mitigate key risks. The Board of Directors seeks to ensure the level of risk is maintained within limits established by both the Risk Management Policy and other previously approved policies.

Credit Risk Credit risk represents the possibility that the Company's borrowing customers or other counterparties may not repay loans or other contractual obligations according to their terms due to changes in the financial capacity, ability and willingness of such borrowing customers or counterparties to meet their obligations. In some cases, the collateral securing the payment of the loans may be sufficient to assure repayment, but in other cases the Company may experience significant credit losses which could have an adverse effect on its operating results. The Company makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and counterparties and the value of the real estate and other assets serving as 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 5,4, “Loans, Allowance for Loan Losses, and Credit Quality” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.

Operations Risk Operations risk is the risk of loss 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. The potential for operational risk exposure exists throughout the organization. Integral to the Company's performance is the continued ~~efficiency~~effectiveness of the Company's technical systems, operational infrastructure, relationships with third parties and the associates and key executives in day-to-day and ongoing operations. Failure by any or all of these resources subjects the Company to risks that may vary in size, scale and scope. These 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. The Bank has an Operations Risk Management Committee that meets monthly and reports to the Board quarterly, or more frequently if warranted. The Committee is chaired by the Director of Risk Management and members of the Committee include representatives from Audit, Finance, Technology, Operations, Information Security, Compliance and periodic attendance from business units throughout the organization. An operations risk management ~~dashboard~~report is updated quarterly and reviewed with the Board.

Compliance Risk Compliance risk represents the risk of regulatory sanctions or financial loss resulting from the Company’s 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 standards of good banking practice. Activities which may expose the Company to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, adherence to all applicable laws and regulations, community reinvestment initiatives and employment and tax matters. Compliance risk is mitigated through the use of written policies and procedures, training of staff, and monitoring of activities for adherence to those procedures. The Bank has a Compliance Committee that meets quarterly and updates the Board and ~~Management~~management quarterly or more frequently if warranted. The Committee is chaired by the Director of Compliance, and members of the Committee include representatives from each of the principal business lines as well as Enterprise Risk Management, Audit, Finance, Technology and Information Security.

Strategic and Reputation Risk Strategic and reputation risk represent 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 ~~mitigates~~seeks to mitigate strategic and reputational risk through ~~robust~~ annual strategic planning, frequent executive strategic reviews, ongoing competitive and technological observation, ~~rigorous~~ assessment processes of new product, new branch, 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 ~~plan,~~planning, and management tools.

Market Risk Market risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices. Interest rate sensitivity is the most significant market risk to which the Company is exposed.

Interest rate risk is the sensitivity of income to changes in interest rates. Changes in interest rates, 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, as well as other effects.

The primary goal of interest rate risk management is to control this risk within limits approved by the Board of Directors. These limits reflect the Company’s tolerance for interest rate risk over both short-term and long-term horizons. The Company attempts to ~~control~~manage interest rate risk by identifying, quantifying, and where appropriate, hedging its exposure. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is ~~management’s~~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, ~~limits,~~ through the use of off-balance sheet hedging instruments such as interest rate swaps, floors and caps.

The Company quantifies its interest rate exposures using net interest income simulation models, as well as simpler gap analysis, and 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 nonmaturity deposits (e.g. DDA, NOW, savings and money market). 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, ~~the resultant~~ interest rate sensitivity of loans cannot be determined ~~exactly.~~exactly and actual behavior may differ from assumptions.

The Company’s policy on interest-rate risk simulation specifies that for all "core" interest rate scenarios, estimated net interest income for the subsequent one-year period should not decline by more than 10%, and for the second year should not decline by more than 15.0%. The Company was within policy limits at June 30, 2018 and 2017.

The Company's core scenarios for ~~September~~June 30, ~~2017~~2018 included five instantaneous parallel shifts (“shocks”) to market interest rates and four gradual (12 to 24 months) shifts in interest. The Company also regularly analyzes other "noncore" scenarios as it deems appropriate.

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

Table 2220 - Interest Rate Sensitivity


	September 30								June 30
	2017				2016				2018				2017
	Year 1		Year 2		Year 1		Year 2		Year 1		Year 2		Year 1		Year 2
Parallel rate shocks (basis points)
-100	(9.5	)%	(12.4	)%	(3.4	)%	(7.3	)%	(7.7	)%	(9.1	)%	(9.3	)%	(12.0	)%
+100	5.7	%	9.1	%	7.1	%	9.8	%	4.9	%	9.4	%	5.4	%	9.1	%
+200	11.1	%	16.9	%	14.0	%	19.6	%	9.3	%	15.9	%	10.5	%	16.6	%
+300	16.4	%	24.7	%	20.7	%	29.2	%	13.8	%	22.6	%	15.5	%	24.2	%
+400	21.8	%	32.3	%	27.3	%	38.6	%	18.3	%	29.1	%	20.6	%	31.7	%

Gradual rate shifts (basis points)
-100 over 12 months	(4.9	)%	(11.2	)%	(1.6	)%	(5.9	)%	(3.2	)%	(7.7	)%	(4.8	)%	(10.9	)%
+200 over 12 months	5.3	%	14.9	%	6.6	%	17.1	%	4.5	%	14.3	%	5.0	%	14.8	%
+400 over 24 months	5.3	%	20.0	%	6.6	%	23.8	%	4.5	%	18.6	%	5.0	%	19.7	%
Flat +500 over 12 months	6.8	%	24.8	%	8.3	%	29.3	%	5.6	%	22.3	%	6.4	%	24.4	%

Alternative scenarios
Flat up 200 basis points scenario	5.6	%	14.9	%	6.6	%	16.2	%	4.5	%	13.6	%	5.3	%	14.8	%

~~In addition,~~As previously noted, the ~~Company's policy on interest rate risk simulation specifies that estimated net interest income for~~results in the ~~second year of all “core scenarios” should not decline by more than 15.0%. The Company was within policy limits at September 30, 2017 and 2016. It should be emphasized, however, that the results~~table above are dependent on material ~~assumptions such as those discussed above.~~assumptions. For instance, asymmetrical rate behavior can have a material impact on the simulation results. If competition for deposits ~~forced~~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 ~~may~~would be negatively impacted. Alternatively, if the Company is able to lag increases in deposit rates as loans re-price upward, net interest income would be positively impacted.

The most significant factors affecting market risk exposure of the Company’s net interest income during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were the shape of the U.S. Government securities and interest rate swap yield curve, the ~~level of~~ U.S. prime interest rate and LIBOR rates, and the ~~level of~~ 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 utilizing 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 a second party. Interest rate caps and floors are agreements whereby 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. 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, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors. See Note ~~10,~~8, “Derivative and Hedging Activities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for additional information regarding the Company’s Derivative Financial Instruments.

The Company’s earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines. See Note 4,3, “Securities” within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof.

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 for the institution to meet its ongoing obligations to pay deposit withdrawals, service borrowings, and to fund loan commitments. 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 ~~stable~~ 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.

The Company actively manages its liquidity position under the direction of the Asset-Liability Committee of the Bank ("ALCO"). The Company’s primary measure of short-term liquidity is the Total Basic Surplus/Deficit as a percentage of assets. This ratio, which is an analysis of the relationship between liquid assets plus available funding at the FHLB less short-term liabilities relative to total assets, was within policy limits at ~~September~~June 30, ~~2017.~~2018. 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 ~~is careful~~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 nondeposit funds are also viewed as a contingent source of liquidity and, when profitable lending and investment opportunities exist, access to such funds 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 strategic lending decisions can also affect its liquidity position.

The Company can raise additional ~~liquidity~~funds through the issuance of equity or unsecured debt privately or ~~publicly.~~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. As such, the Company is careful to monitor the various factors that could impact its ability to raise liquidity through these channels.

The table below shows current and unused liquidity capacity from various sources as of the dates indicated:

Table 2321 - Sources of Liquidity


	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
	Outstanding		Additional Borrowing Capacity				Outstanding		Additional Borrowing Capacity				Outstanding		Additional Borrowing Capacity				Outstanding				Additional Borrowing Capacity
	(Dollars in thousands)												(Dollars in thousands)
Federal Home Loan Bank of Boston	$	53,272	$	942,706	(3	)	$	50,819	$	793,118	(3	)	$	50,775	$	971,184	(1	)	$	53,264			$	954,789	(1	)
Federal Reserve Bank of Boston	—		724,411		(4	)	—		696,085		(4	)	—		705,463		(2	)	—				720,005		(2	)
Unpledged Securities	—		393,694				—		368,585				—		433,809				—				375,155
Customer repurchase agreements	179,670		—		(5	)	176,913		—		(5	)	142,235		—		(3	)	162,679				—		(3	)
Junior subordinated debentures ~~(1)~~	73,071		—		(5	)	73,107		—		(5	)	73,077		—		(3	)	73,073				—		(3	)
Subordinated debt	34,670		—		(5	)	34,635		—		(5	)	34,705		—		(3	)	34,682				—		(3	)
Brokered deposits (2)	44,916		—		(5	)	14,724		—		(5	)
Reciprocal deposits													51,895		—		(3	)	—				—
Brokered deposits													6,000		—		(3	)	54,541		(4	)	—		(3	)
	$	385,599	$	2,060,811			$	350,198	$	1,857,788			$	358,687	$	2,110,456			$	378,239			$	2,049,949


(1)	~~Amounts shown are inclusive of fair value marks associated with previous acquisitions.~~


~~(2)~~	~~Inclusive of $38.9 millionand $13.7 million of brokered deposits acquired through participation in the Promontory Interfinancial Network as of September 30, 2017 and December 31, 2016, respectively.~~


~~(3)~~	Loans with a carrying value of $1.5 billion ~~and $1.4 billion~~ at ~~September~~both June 30, ~~2017~~2018 and December 31, ~~2016~~2017 have been pledged to the Federal Home Loan Bank of Boston resulting in this additional unused borrowing capacity.


~~(4)~~(2)	Loans with a carrying value of $1.2 billion at both ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 have been pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.


~~(5)~~(3)	The additional borrowing capacity has not been assessed for these categories.

(4)

Inclusive of $48.5 million of reciprocal deposits acquired through participation in the Promontory Interfinancial Network as of and December 31, 2017. The Economic Growth, Regulatory Relief, and Consumer Protection Act, which was promulgated during the second quarter of 2018, states that most reciprocal deposits are no longer treated as brokered deposits. As such, the Company is prospectively reporting deposits from the Promontory Interfinancial Network as nonbrokered.

In addition to policies used for managing operational liquidity, the Board of Directors and the ALCO 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 the Board and the ALCO 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. As such, the Board of Directors and the ALCO have put a Liquidity Contingency Plan in place. The overall goal of this plan is 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 ~~have been~~were no material changes in off-balance sheet financial instruments during the three months ended ~~September~~June 30, ~~2017.~~2018. See Note ~~10,~~8, "Derivative and Hedging Activities" and Note ~~14,~~13, "Commitments and Contingencies" within Condensed Notes to Consolidated Financial Statements included in Item 1 hereof for more information relating to the Company's off-balance sheet financial instruments.

Contractual Obligations, Commitments, and Contingencies There ~~have been~~were no material changes in contractual obligations, commitments, or contingencies during the three months ended ~~September~~June 30, ~~2017.~~2018. Please refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2017 for a complete table of contractual obligations, commitments and contingencies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information required by this Item 3 is included in the "Risk Management" section of Item 2 of Part I of this Form 10-Q, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

Changes in Internal Controls over Financial Reporting. There were no changes in ~~our~~the Company's internal ~~control~~controls over financial reporting that occurred during the ~~third~~second quarter of ~~2017~~2018 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~~June 30, ~~2017,~~2018, 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, ~~2016,~~2017, 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~~June 30, ~~2017:~~2018:

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, 2017 —
$ —
—
—
August 1 to August 31, 2017 295
$ 68.80
—
—
September 1 to September 30, 2017 242
$ 72.11
—
—
Total 537
—
—



	Issuer Purchases of Equity Securities
	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (2)	Maximum Number of Shares That May Yet Be Purchased Under the Plan or Program
Period
April 1 to April 30, 2018	169	$	73.20	—	—
May 1 to May 31, 2018	54	$	74.00	—	—
June 1 to June 30, 2018	51	$	80.68	—	—
Total	274			—	—


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


(2)	The Company does not currently have a stock repurchase program or plan in place.

Item 3. Defaults Upon Senior Securities—None

Item 4. Mine Safety Disclosures - Not Applicable

Item 5. Other Information—None

Item 6. Exhibits

Exhibit Index



No.	Exhibit



~~3.1~~2.1	~~Amended~~Agreement and ~~Restated By-laws~~Plan of ~~the~~Merger dated May 29, 2018 by and among Independent Bank Corp., Rockland Trust Company, ~~adopted on October 19, 2017,~~ MNB Bancorp and The Milford national Bank And Trust Company is incorporated by reference to ~~Exhibit 3.1~~2.1 to ~~Form~~form 8-K filed on ~~October 23, 2017.~~May 31, 2018.
~~4.1~~10.1	Independent Bank Corp. ~~2014 Dividend Reinvestment and~~2018 Nonemployee Director Stock ~~Purchase~~ Plan, incorporated herein by reference to Exhibit A to Form ~~S-3~~DEF 14A filed on ~~October 31, 2017.~~March 29, 2018.
31.1	Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached ~~hereto.~~hereto.*
31.2	Section 302 Certification of Sarbanes-Oxley Act of 2002 is attached ~~hereto.~~hereto.*
32.1	Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached ~~hereto.~~hereto.+
32.2	Section 906 Certification of Sarbanes-Oxley Act of 2002 is attached ~~hereto.~~hereto.+
101	Interactive Data File *



*	Filed herewith



+	Furnished herewith

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~~August 2, ~~2017~~2018		/s/ Christopher Oddleifson
		Christopher Oddleifson President and Chief Executive Officer (Principal Executive Officer)



~~November~~August 2, ~~2017~~2018		/s/ Robert D. Cozzone
		Robert D. Cozzone Chief Financial Officer ~~and Treasurer~~ (Principal Financial Officer)



	Net Assets Acquired at Fair Value
	(Dollars in thousands)
Assets
Cash	$	11,137
Loans	155,551
Premises and equipment	5,828
Goodwill	10,280
Core deposit and other intangibles	2,964
Other assets	4,629
Total assets acquired	190,389
Liabilities
Deposits	159,580
Borrowings	2,475
Other liabilities	18
Total liabilities assumed	162,073
Purchase price	$	28,316



	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
Due in one year or less	$	3,229	$	3,237	$	—	$	—
Due after one year to five years	36,704		37,152		15,731		15,917
Due after five to ten years	105,842		106,576		18,158		18,654
Due after ten years	261,389		262,049		444,909		445,091
Total debt securities	$	407,164	$	409,014	$	478,798	$	479,662
Equity securities	$	19,176	$	20,111	$	—	$	—
Total	$	426,340	$	429,125	$	478,798	$	479,662



	September 30 2017		December 31 2016		Island Bancorp Acquisition		Organic Growth/(Decline)			Organic Growth/ (Decline)%
	(Dollars in thousands)
Demand deposits	$	2,183,760	$	2,057,086	$	33,599	$	93,075		4.5	%
Savings and interest checking	2,568,620		2,469,237		47,095		52,288			2.1	%
Money market	1,302,662		1,236,778		63,915		1,969			0.2	%
Time certificates of deposits	627,900		649,152		14,971		(36,223		)	(5.6	)%
Total	$	6,682,942	$	6,412,253	$	159,580	$	111,109		1.7	%