# Eastern Bankshares, Inc.: Form 10-Q for the period ended Mar 31, 2021

- Company: [Eastern Bankshares, Inc.](/companies/ebc.md) (CIK 1810546)
- Form: 10-Q
- Filed: 2021-05-14
- Accepted by EDGAR: May 14, 2021, 09:12 ET
- Period: 2021-03-31
- Accession: 0001628280-21-010239
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1810546/000162828021010239/ebc-20210331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1810546/000162828021010239/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-01-01 to 2021-03-31 | $43.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2021-01-01 to 2021-03-31 | $1.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-01-01 to 2021-03-31 | $14.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-01-01 to 2021-03-31 | $47.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-01-01 to 2021-03-31 | $0.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-01-01 to 2021-03-31 | $0.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-01-01 to 2021-03-31 | 172,049,044 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-01-01 to 2021-03-31 | $64.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 3 months, 2021-01-01 to 2021-03-31 | $10.3m | us-gaap:PaymentsOfDividends |
| Total assets | at 2021-03-31 | $16.73bn | us-gaap:Assets |
| Total liabilities | at 2021-03-31 | $13.34bn | us-gaap:Liabilities |
| Shareholders' equity | at 2021-03-31 | $3.39bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 118,939 characters.

*This section is intended to assist in the understanding of the financial performance of the Company and its subsidiaries through a discussion of our financial condition at March 31, 2021, and our results of operations for the three months ended March 31, 2021 and 2020. This section should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto of the Company appearing in Part I, Item 1 of this Quarterly Report and the Company’s 2020 Form 10-K.*

### Forward-Looking Statements

When we use the terms “we”, “us”, “our,” and the “Company,” we mean Eastern Bankshares, Inc., a Massachusetts corporation, and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates.

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. The Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among others, factors:

- the negative impacts and disruptions of the COVID-19 pandemic and measures taken to contain its spread on our employees, customers, business operations, credit quality, financial position, liquidity and results of operations;
- the length and extent of the economic contraction as a result of the COVID-19 pandemic; continued deterioration in employment levels and other general business and economic conditions on a national basis and in the local markets in which the Company operates;
- changes in customer behavior;
- the possibility that future credit losses, loan defaults and charge-off rates are higher than expected due to changes in economic assumptions or adverse economic developments;
- turbulence in the capital and debt markets;
- changes in interest rates;
- decreases in the value of securities and other assets;
- decreases in deposit levels necessitating increased borrowing to fund loans and investments;
- competitive pressures from other financial institutions;
- operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics;
- changes in regulation;
- reputational risks relating to the Company’s participation in the PPP and other pandemic-related legislative and regulatory initiatives and programs;
- changes in accounting standards and practices;
- the risk that goodwill and intangibles recorded in our financial statements will become impaired;
- risks related to the implementation of acquisitions, dispositions, and restructurings, including the risk that acquisitions may not produce results at levels or within time frames originally anticipated;
- the risk that we may not be successful in the implementation of our business strategy;
- changes in assumptions used in making such forward-looking statements; and
- other risks and uncertainties detailed in Part I, Item 1A of our 2020 Form 10-K, as updated by Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, and as may be further updated in our filings with the SEC from time to time.

Forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

### Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results could differ from these estimates. Our significant accounting policies are discussed in detail in our 2020 Form 10-K. There have been no material changes in critical accounting policies during the three months ended March 31, 2021.

### Selected Financial Data

The selected consolidated financial and other data of the Company set forth below should be read in conjunction with more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere in this Quarterly Report on Form 10-Q.

*(Dollars in thousands, except per share data)*

| Selected Financial Position Data: | As of March 31, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Total assets | $16,726,795 | $15,964,190 |
| Cash and cash equivalents | 1,860,332 | 2,054,070 |
| Securities available for sale | 3,986,253 | 3,183,861 |
| Loans, net of allowance for loan losses and unamortized premiums, net of unearned discounts and deferred fees | 9,772,722 | 9,593,958 |
| Federal Home Loan Bank stock, at cost | 8,805 | 8,805 |
| Goodwill and other intangibles, net | 376,002 | 376,534 |
| Total liabilities | 13,339,750 | 12,536,138 |
| Total deposits | 12,980,875 | 12,155,784 |
| Total borrowings | 29,351 | 28,049 |
| Total shareholders' equity | 3,387,045 | 3,428,052 |
| Nonperforming loans | 43,954 | 43,252 |
| Nonperforming assets | 43,954 | 43,252 |
| **Per Share Data:** |  |  |
| Book value | $18.14 | $18.36 |
| Tangible book value (1) | $16.12 | $16.34 |

(1) Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” in this Part 1, Item 2.

*(Dollars in thousands, except per share data)*

| Selected Operating Data: | For the Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Interest and dividend income | $101,133 | $106,159 |
| Interest expense | 1,042 | 6,013 |
| Net interest income | 100,091 | 100,146 |
| (Release of) provision for loan losses | (580) | 28,600 |
| Net interest income after provision for loan losses | 100,671 | 71,546 |
| Noninterest income | 55,212 | 33,369 |
| Noninterest expense | 94,049 | 95,172 |
| Income before income taxes | 61,834 | 9,743 |
| Provision for income taxes | 14,171 | 1,298 |
| Net income | $47,663 | $8,445 |
| **Per Share Data:** |  |  |
| Basic earnings per share | $0.28 | $— |
| Diluted earnings per share | 0.28 | — |

| Performance Ratios: | As of and for the Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Return on average assets (1) (6) | 1.19% | 0.29% |
| Return on average equity (2) (6) | 5.66% | 2.08% |
| Interest rate spread (FTE) (3) (6) | 2.67% | 3.64% |
| Net interest margin (FTE) (4) (6) | 2.71% | 3.80% |
| Noninterest expenses to average assets (6) | 2.34% | 3.25% |
| Efficiency ratio (5) | 60.56% | 71.28% |
| Average interest-earning assets to average interest-bearing liabilities | 205.03% | 169.37% |
| **Capital Ratios:** |  |  |
| Average equity to average assets | 20.95% | 13.86% |
| Total capital to risk weighted assets | 29.80% | 13.57% |
| Tier 1 capital to risk weighted assets | 28.67% | 12.42% |
| Common equity tier 1 capital to risk weighted assets | 28.67% | 12.42% |
| Tier 1 capital to average assets | 19.18% | 11.28% |
| **Asset Quality Ratios:** |  |  |
| Allowance for loan losses as a percentage of total loans | 1.12% | 1.20% |
| Allowance for loan losses as a percentage of nonperforming loans | 252.72% | 222.34% |
| Net charge-offs (recoveries) to average outstanding loans during the period | 0.01% | 0.02% |
| Nonperforming loans as a percentage of total loans | 0.44% | 0.54% |
| Nonperforming loans as a percentage of total assets | 0.26% | 0.40% |
| Total nonperforming assets as a percentage of total assets | 0.26% | 0.40% |

(1) Represents net income divided by average total assets.

(2) Represents net income divided by average equity.

(3) Represents the difference between average yield on average interest-earning assets and the average cost of interest-bearing liabilities for the periods on a fully tax-equivalent (“FTE”) basis.

(4) Represents net interest income as a percentage of average interest-earning assets adjusted on a FTE basis.

(5) Represents noninterest expenses divided by the sum of net interest income and noninterest income.

(6) Ratios have been annualized.

### Overview

We are a bank holding company, and our principal subsidiary, Eastern Bank, is a Massachusetts-chartered bank that has served the banking needs of our customers since 1818. Our business philosophy is to operate as a diversified financial services enterprise providing a broad array of banking and other financial services primarily to retail, commercial and small business customers. We had total assets of $16.7 billion and $16.0 billion at March 31, 2021 and December 31, 2020, respectively. We are subject to comprehensive regulation and examination by the Massachusetts Commissioner of Banks, the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Board and the Consumer Financial Protection Bureau.

We manage our business under two business segments: our banking business, which contributed $127.1 million, or 81.8%, of our total income (pre-provision net interest and dividend income and noninterest income) for the three months ended March 31, 2021, and our insurance agency business, which contributed $28.3 million, or 18.2%, of our total income for the three months ended March 31, 2021. Our banking business consists of a full range of banking, lending (commercial, residential and consumer), savings and small business offerings, including our wealth management and trust operations that we conduct through our Eastern Wealth Management division. Our insurance agency business consists of insurance-related activities, acting as an independent agent in offering commercial, personal and employee benefits insurance products to individual and commercial clients.

Net income for the three months ended March 31, 2021 computed in accordance with GAAP was $47.7 million, as compared to $8.4 million for the three months ended March 31, 2020, representing a 464.4% increase. This increase was largely driven by a decrease in the provision for the allowance for loan losses of $29.2 million as we released reserves of $0.6 million for the three months ended March 31, 2021. In addition, interest rate swap income and income from investments held in rabbi trusts increased by $11.4 million and $8.6 million, respectively, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. These items are discussed further in the “Results of Operations” section below. Net income for the three months ended March 31, 2021 and 2020 included items that our management considers noncore, which management excludes for purposes of assessing our operating net income, a non-GAAP financial measure. Operating net income for the three months ended March 31, 2021 was $46.5 million compared to operating net income of $10.9 million for the three months ended March 31, 2020, representing a 328.6% increase. This increase was largely driven by the aforementioned change in the provision for the allowance for loan losses. See “Non-GAAP Financial Measures” below for a reconciliation of operating net income to GAAP net income.

### Banking Business

Our banking business offers a range of commercial, retail, wealth management and banking services, and consists primarily of attracting deposits from the general public, including municipalities, and investing those deposits, together with borrowings and funds generated from operations, to originate loans in a variety of sectors and to invest in securities. The financial condition and results of operations of our banking business depend primarily on (i) attracting and retaining low cost, stable deposits, (ii) using those deposits to originate and acquire loans and earn net interest income and (iii) operating expenses incurred.

### Lending Activities

We use funds obtained from deposits, as well as funds obtained from the Federal Home Loan Bank (“FHLB”) of Boston (“FHLBB”) advances and federal funds, primarily to originate loans and to invest in securities. Our lending focuses on the following categories of loans:

### Commercial Lending

- Commercial and industrial: Loans in this category consist of revolving and term loans extended to businesses and corporate enterprises for the purpose of financing working capital, facilitating equipment purchases and facilitating acquisitions. As of March 31, 2021 and December 31, 2020, we had total commercial and industrial loans of $2.0 billion, representing 20.1% and 20.6%, respectively, of our total loans. The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. Our primary focus for commercial and industrial loans is middle-market companies located in the markets we serve. In addition, we participate in the syndicated loan market and the Shared National Credit Program (“SNC Program”). As of March 31, 2021 and December 31, 2020, our SNC Program portfolio totaled $402.6 million and $425.1 million, or 20.3% and 21.3%, respectively, of our commercial and industrial portfolio, and 42.0% and 46.4%, respectively, of our SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial and

industrial portfolio also includes our Asset Based Lending Portfolio (“ABL Portfolio”). As of March 31, 2021 and December 31, 2020, our ABL Portfolio totaled $142.8 million and $134.5 million, or 7.2% and 6.7%, respectively, of our commercial and industrial portfolio.

- Commercial real estate: Loans in this category include mortgage loans on commercial real estate, both investment and owner occupied. As of March 31, 2021 and December 31, 2020, we had total commercial real estate loans of $3.7 billion and $3.6 billion, representing 37.2% and 36.8%, respectively, of our total loans. As of March 31, 2021, and December 31, 2020, owner-occupied loans totaled $696.7 million and $694.6 million, representing 18.9% and 19.4%, respectively, of our commercial real estate loans. Collateral values are established by independent third-party appraisals and evaluations. The primary repayment sources include operating income generated by the real estate, permanent debt refinancing and/or the sale of the real estate.
- Commercial construction: Loans in this category include construction project financing and are comprised of commercial real estate, business banking and residential loans for the purpose of constructing and developing real estate. As of March 31, 2021 and December 31, 2020, we had total commercial construction loans of $249.4 million and $305.7 million, representing 2.5% and 3.1%, respectively, of our total loans.
- Business banking: Loans in this category are comprised of loans to small businesses with exposures of under $1 million and small investment real estate projects with exposures of under $3 million. These loans are separate and distinct from our commercial and industrial and commercial real estate portfolios described above due to the size of the loans. As of March 31, 2021 and December 31, 2020, we had total business banking loans of $1.5 billion and $1.3 billion, respectively, representing 15.3% and 13.8% of our total loans for each period end, respectively. In this category, commercial and industrial loans and commercial real estate loans totaled $833.8 million and $679.2 million, respectively, as of March 31, 2021, and $675.1 million and $664.1 million, respectively, as of December 31, 2020. Business banking originations include traditionally underwritten loans as well as partially automated scored loans. Our proprietary decision matrix, which includes a number of quantitative factors including, but not limited to, a guarantor’s credit score, industry risk, and time in business, is used to determine whether to make business banking loans. We also engage in Small Business Association (“SBA”) lending. SBA guarantees reduce our risk of loss when default occurs and are considered a credit enhancement to the loan structure.

### Residential Lending

- Residential real estate: Loans in this category consist of mortgage loans on residential real estate. As of March 31, 2021 and December 31, 2020, we had total residential loans of $1.4 billion, representing 14.2% and 14.1%, respectively, of our total loans. Underwriting considerations include, among others, income sources and their reliability, willingness to repay as evidenced by credit repayment history, financial resources including cash reserves and the value of the collateral. We maintain policy standards for minimum credit score and cash reserves and maximum loan to value consistent with a “prime” portfolio. Collateral consists of mortgage liens on residential dwellings. We do not originate or purchase sub-prime or other high-risk loans. Residential loans are originated either for sale to investors or to retain in our loan portfolio. Decisions about whether to sell or retain residential loans are made based on the interest rate characteristics, pricing for loans in the secondary mortgage market, competitive factors and our capital needs. During the three months ended March 31, 2021 and the three months ended March 31, 2020, residential real estate mortgage originations were $260.1 million and $60.8 million, respectively, of which $57.2 million and $49.7 million, respectively, were sold on the secondary markets. We generally do not continue to service residential loans that we sell in the secondary market.

### Consumer Lending

- Consumer home equity: Loans in this category consist of home equity lines of credit and home equity loans. As of March 31, 2021 and December 31, 2020, we had total consumer home equity loans of $832.5 million and $868.3 million, representing 8.4% and 8.9%, respectively, of our total loans. Home equity lines of credit are granted for ten years with monthly interest-only repayment requirements. Home equity lines of credit can be converted to term loans that are fully amortized. Underwriting considerations are materially consistent with those utilized in the residential real estate category. Collateral consists of a senior or subordinate lien on owner-occupied residential property.
- Other consumer: Loans in this category consist of unsecured personal lines of credit, overdraft protection, automobile and aircraft loans, and other personal loans. As of March 31, 2021 and December 31, 2020, we had total other consumer loans of $251.7 million and $277.8 million, representing 2.5% and 2.9%, respectively, of our total loans. Our policy and underwriting in this category include the following factors, among others: income sources and reliability, credit histories, term of repayment and collateral value, as applicable. Included in this category are $103.4 million and $126.7 million of automobile loans, respectively, at March 31, 2021 and December 31, 2020.

### Other Banking Products and Services

In addition to our lending activities, which are the core part of our banking business, we offer other banking products and services primarily related to (i) other commercial banking products, (ii) other consumer deposit products and (iii) wealth management services.

### Other Commercial Banking Products

- We offer a variety of deposit, treasury management, electronic banking, interest rate protection and foreign exchange products to our customers. Deposit products include checking products, both interest-bearing and noninterest-bearing, as well as money market deposits, savings deposits and certificates of deposits. Our treasury management products include a variety of cash management and payment products. Our interest rate protection and foreign exchange products include interest rate swaps and currency related transactions. As of March 31, 2021 and December 31, 2020, our total commercial deposits were $4.7 billion and $4.4 billion, respectively, and our commercial noninterest income during the three months ended March 31, 2021 and the three months ended March 31, 2020 was $5.1 million and $4.9 million, respectively.

### Other Consumer Deposit Products

- We offer a wide variety of deposit products and services to our consumer customers. We service these customers through our 88 branches located in eastern Massachusetts and New Hampshire, through our call center in our facility in Lynn, MA and through our online and mobile banking applications.

### Wealth Management Services

- Through our Eastern Wealth Management division, we provide a wide range of trust services, including (i) managing customer investments, (ii) serving as custodian for customer assets and (iii) providing other fiduciary services, including serving as the trustee and personal representative of estates. As of March 31, 2021 and December 31, 2020, we held $3.0 billion and $2.9 billion, respectively, of assets in a fiduciary, custodial or agency capacity for customers, which are not our assets and therefore not included on the consolidated balance sheets included in this Quarterly Report on Form 10-Q. For the three months ended March 31, 2021 and the three months ended March 31, 2020, we had noninterest income of $5.7 million and $5.1 million, respectively, from providing these services.

### Insurance Agency Business

Our insurance agency business consists of insurance-related activities such as acting as an independent agent in offering commercial, personal and employee benefits insurance products to individual and commercial clients through our wholly owned agency, Eastern Insurance Group LLC (“Eastern Insurance Group”). Our insurance products include commercial property and liability, workers compensation, life, accident and health and automobile insurance. We also offer a wide range of employee benefits products and services, including professional advice related to health care cost management, employee engagement and retirement and executive services. As an agency business, we do not assume any underwriting or insurance risk. The commissions we earn on the sale of these insurance products and services is the most significant portion of our noninterest income, representing $28.1 million and $27.5 million, or 51.0% and 82.3%, respectively, of our noninterest income during the three months ended March 31, 2021 and the three months ended March 31, 2020. Our insurance business operates through 24 non-branch offices located primarily in eastern Massachusetts and had 405 full-time equivalent employees as of March 31, 2021.

### Acquisitions

### Proposed Acquisition

On April 7, 2021, we entered into a definitive merger agreement with Century Bancorp, Inc. under which we will acquire Century for $641.9 million in cash (the “Merger Agreement”). Century is the stock holding company of Century Bank and Trust Company, a Massachusetts-chartered stock bank headquartered in Medford, Massachusetts with $6.4 billion in assets, $5.4 billion in deposits and 27 full-service branches in Massachusetts as of December 31, 2020. Pursuant to the terms of the Merger Agreement, Century Bank and Trust Company will merge with and into Eastern Bank, our wholly-owned subsidiary, upon completion of the transaction. The transaction is subject to customary closing conditions, including the receipt of regulatory approval and Century shareholder approval. We currently expect the merger to be completed during the fourth quarter of 2021. For additional information about the Merger Agreement and the proposed transaction, please see our Current Report on Form 8-K filed with the SEC on April 8, 2021. See also “Risk Factors” included in Part II, Item 1A of this Quarterly Report on Form 10-Q.

### Outlook and Trends

### COVID-19 Pandemic

The COVID-19 pandemic has had and continues to have an adverse effect on our business and the markets in which we operate. We expect the short-term and long-term economic consequences of the COVID-19 pandemic to our customers will continue to be significant, and that the continuing health and safety concerns relating to the ongoing pandemic will change the way we conduct our business and interact with our customers.

***COVID-19 Modifications.*** In light of the COVID-19 pandemic, we implemented loan modification programs for our borrowers that allowed for either full payment deferrals (both interest and principal) or deferral of principal only. These modifications met the criteria of either Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) or the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) and therefore are not deemed troubled debt restructurings (“TDRs”). We have deemed these modified loans, “COVID-19 modifications.”

The Consolidated Appropriations Act (the “Appropriations Act”), which was enacted on December 27, 2020, extends certain expiring tax provisions related to the COVID-19 pandemic in the United States and provides additional emergency relief to individuals and businesses. Included within the provisions of the Appropriations Act is the extension of Section 4013 of the CARES Act to January 1, 2022. As such, we intend to apply CARES Act TDR relief to any qualifying loan modifications executed during the allowable time period.

As of March 31, 2021, the balance of loans that had received a COVID-19 modification since the inception of the modification programs in 2020 was $985.7 million, of which $20.0 million were executed during the three months ended March 31, 2021. Approximately 47% of the aggregate $985.7 million balance of modified loans at March 31, 2021 were modified to permit for full payment deferrals (both interest and principal) and 53% were modified to permit for deferral of principal payments. Modified loans at March 31, 2021 included $625.0 million of commercial real estate loans, including construction loans, $118.7 million of commercial and industrial loans, $127.2 million of business banking loans, $88.5 million of residential real estate loans and $26.3 million of consumer loans, including home equity loans. As of March 31, 2021, $807.3 million, or 82%, of the balance of total modified loans had resumed payments and were not 30 days or more past due. The loans remaining in a modified status as of March 31, 2021 compared to remaining modifications executed through December 31, 2020 are presented by portfolio below.

*(Dollars in thousands)*

|  | Remaining COVID-19 Modifications as of March 31, 2021 (1) Balance | % of Total Portfolio | Remaining COVID-19 Modifications as of December 31, 2020 (1) Balance | % of Total Portfolio |
| --- | ---: | ---: | ---: | ---: |
| Commercial and industrial | $22,776 | 1.1% | $34,076 | 1.7% |
| Commercial real estate | 127,683 | 3.5% | 231,794 | 6.5% |
| Commercial construction | — | —% | 10,987 | 3.6% |
| Business banking | 11,681 | 0.8% | 23,434 | 1.7% |
| Residential real estate | 13,754 | 1.0% | 26,772 | 2.0% |
| Consumer home equity | 1,274 | 0.2% | 3,432 | 0.4% |
| Other consumer | 1,262 | 0.5% | 2,187 | 0.8% |
| Total | $178,430 | 1.8% | $332,682 | 3.4% |

55

(1) Remaining COVID-19 modifications reflect only those loans which underwent a modification and have not yet resumed payment. We define a modified loan to have resumed payment if it is one month past the modification end date and not more than 30 days past due.

***High Risk Industries.*** As of the date of this Quarterly Report on Form 10-Q, we are unable to reasonably estimate the aggregate amount of loans that will likely become delinquent after the respective deferral period. The following table shows certain data, as of March 31, 2021, related to loans to our borrowers in industry categories that we believe have experienced and will likely continue to experience the most adverse effects of the COVID-19 pandemic. Loans included in the table that had been modified as of March 31, 2021 represented approximately 1.8% of our aggregate outstanding loan balances as of March 31, 2021.

*(Dollars in thousands)*

| High Risk Industries | Loan Balance | Balance (%) | COVID-19 Modification % (1) |
| --- | ---: | ---: | ---: |
| Retail (2) | $491,210 | 5.0% | 1.0% |
| Restaurants | 199,239 | 2.0% | 10.7% |
| Hotels | 178,094 | 1.8% | 51.6% |
| Construction contractors financing | 83,112 | 0.8% | 0.9% |
| Auto dealerships | 77,658 | 0.8% | —% |
| Other high risk | 81,529 | 0.8% | 0.8% |
| All impacted industries total | 1,110,842 | 11.2% | 10.8% |
| Remaining commercial and business banking | 6,314,932 | 63.7% | 0.7% |
| Total commercial and business banking | 7,425,774 | 74.9% | 2.2% |
| All other loans | 2,490,701 | 25.1% | 0.7% |
| **Total** | $9,916,475 | 100.0% | 1.8% |

(1) The percentage of loans in each category, calculated as a percentage of aggregate outstanding loan balances for each such category as of March 31, 2021, that we modified primarily due to the effects on borrowers of the COVID-19 pandemic and related economic slowdown beginning in late March 2020.

(2) The retail segment includes all retail commercial real estate loans and non-essential commercial and industrial retail loans.

***Paycheck Protection Program Loans.*** We are a participating lender in the SBA’s Paycheck Protection Program (“PPP”). The vast majority of our PPP borrowers are existing commercial and small business borrowers, non-profit customers, retail banking customers and clients of Eastern Wealth Management and Eastern Insurance Group LLC.

- During the three months ended March 31, 2021, we originated approximately 4,700 PPP loans totaling $452.6 million. These loans have a maturity of five years. Fees received from the SBA and direct loan origination costs are being deferred over the five-year term. Through March 31, 2021, we had received $19.9 million in fees from the SBA and had deferred $2.8 million in direct loan origination costs related to 2021 originations.
- During the year ended December 31, 2020, we originated approximately 8,900 PPP loans totaling $1.2 billion. The majority of these loans have a maturity of two years. Fees received from the SBA and direct loan origination costs are being deferred over the loan term, which is generally two years. During the year ended December 31, 2020, we received $37.1 million in fees from the SBA and deferred $4.6 million in direct loan origination costs. During the three months ended March 31, 2021, certain 2020 originations were modified and we received a nominal amount of additional fees from the SBA. We anticipate that the vast majority of the remaining 2020 originations will be forgiven during the year ended December 31, 2021.
- Net PPP fee accretion (fee accretion less cost amortization) for all PPP loans for the three months ended March 31, 2021 was $8.3 million.

The following table shows certain data related to PPP originations by period:

*(Dollars in thousands)*

|  | PPP Loans Originated During the Three Months Ended March 31, 2021 | Year ended December 31, 2020 | Total |
| --- | ---: | ---: | ---: |
| Number of loans originated | 4,693 | 8,902 | 13,595 |
| Original balance of loans originated | $452,596 | $1,167,137 | $1,619,733 |
| Current balance of loans originated in respective periods(1) | 452,619 | 785,434 | 1,238,053 |
| Total SBA fees received(2) | 19,942 | 37,180 | 57,122 |
| SBA fees recognized in interest income related to loans originated in respective periods(3) | 686 | 24,672 | 25,358 |
| Unaccreted SBA fees related to loans originated in respective periods | 19,256 | 12,508 | 31,764 |

(1) Current loan balance for 2021 originations exceeds the original balance of loans originated in 2021 as certain loans had additional funds advanced subsequent to origination.

(2) Total SBA fees received on 2020 originations includes additional fees received from the SBA in 2021 for originations that were modified in 2021.

(3) Reflects life-to-date accretion.

The following table shows certain data related to our remaining PPP loans as of March 31, 2021:

*(Dollars in thousands)*

| Loan Size | Loan Balance | Number of Loans |
| --- | ---: | ---: |
| $0 to $50 thousand | $126,812 | 6,992 |
| $50 thousand to $150 thousand | 190,590 | 2,212 |
| $150 thousand to $1 million | 471,623 | 1,409 |
| $1 million to $2 million | 169,582 | 119 |
| $2 million to $5 million | 213,143 | 76 |
| Over $5 million | 66,303 | 11 |
| Total | $1,238,053 | 10,819 |

The following table shows the balance of our PPP loans by industry as of March 31, 2021:

*(Dollars in thousands)*

| Industry | Loan Balance | Number of Loans |
| --- | ---: | ---: |
| Construction | $200,670 | 1,432 |
| Professional, scientific, & technical services | 170,461 | 1,749 |
| Health care & social assistance | 166,199 | 961 |
| Accommodation & food services | 153,197 | 1,130 |
| Other services | 108,471 | 1,568 |
| Manufacturing | 91,184 | 458 |
| Administrative & support | 82,669 | 577 |
| Wholesale trade | 66,734 | 307 |
| Retail trade | 55,742 | 988 |
| Transportation & warehousing | 32,123 | 319 |
| Real estate, rental, & leasing | 30,672 | 434 |
| All other | 79,931 | 896 |
| Total | $1,238,053 | 10,819 |

### Non-GAAP Financial Measures

We present certain non-GAAP financial measures, which management uses to evaluate our performance and which exclude the effects of certain transactions, non-cash items and GAAP adjustments that we believe are unrelated to our core business and are therefore not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into our core businesses as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding GAAP financial measures.

There are items in our financial statements that impact our results but which we believe are unrelated to our core business. Accordingly, we present operating net income, noninterest income on an operating basis, noninterest expense on an operating basis, total operating revenue, operating earnings per share, and the operating efficiency ratio, each of which excludes the impact of such items because we believe such exclusion can provide greater visibility into our core business and underlying trends. Such items that we do not consider to be core to our business include (i) income and expenses from investments held in rabbi trusts, (ii) gains and losses on sales of securities available for sale, net, (iii) gains and losses on the sale of other assets, (iv) rabbi trust employee benefits, (v) impairment charges on tax credit investments and associated tax credit benefits, (vi) expenses indirectly associated with our initial public offering (“IPO”), (vii) other real estate owned (“OREO”) gains, (viii) merger and acquisition expenses, and (ix) the stock donation to the Eastern Bank Charitable Foundation (the “Foundation”) in connection with our mutual-to-stock conversion and IPO. There were no impairment charges on tax credit investments, other real estate owned gains, or stock donations to the Foundation during the periods presented in this Quarterly Report on Form 10-Q.

We also present tangible shareholders’ equity, tangible assets, the ratio of tangible shareholders’ equity to tangible assets, and tangible book value per share, each of which excludes the impact of goodwill and other intangible assets, as we believe these financial measures provide investors with the ability to further assess our performance, identify trends in our core business and provide a comparison of our capital adequacy to other companies. We have included the 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.

Our non-GAAP financial measures should not be considered as an alternative or substitute to GAAP net income, or as an indication of our cash flows from operating activities, a measure of our liquidity or an indication of funds available for our cash needs. An item which we consider to be non-core and exclude when computing these non-GAAP financial measures can be of substantial importance to our results for any particular period. In addition, our methodology for calculating non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar performance measures and, accordingly, our reported non-GAAP financial measures may not be comparable to the same or similar performance measures reported by other companies.

The following table summarizes the impact of non-core items recorded for the time periods indicated below and reconciles them to the most directly comparable GAAP financial measure:

*(Dollars in thousands, except per share data)*

|  | For the Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| **Net income (GAAP)** | $47,663 | $8,445 |
| Non-GAAP adjustments: |  |  |
| Add: |  |  |
| Noninterest income components: |  |  |
| (Income) loss from investments held in rabbi trusts | (1,846) | 6,743 |
| (Gain) loss on sales of securities available for sale, net | (1,164) | (122) |
| (Gain) loss on sale of other assets | (18) | (29) |
| Noninterest expense components: |  |  |
| Rabbi trust employee benefit expenses (income) | 986 | (3,479) |
| Indirect initial public offering costs (1) | — | 270 |
| Merger and acquisition expenses | 589 | — |
| Total impact of non-GAAP adjustments | (1,453) | 3,383 |
| Less net tax (expense) benefit associated with non-GAAP adjustment (2) | (327) | 970 |
| Non-GAAP adjustments, net of tax | $(1,126) | $2,413 |
| **Operating net income (non-GAAP)** | $46,537 | $10,858 |
| Weighted average common shares outstanding during the period: |  |  |
| Basic | 172,049,044 | n.a |
| Diluted | 172,049,044 | n.a |
| Earnings per share, basic | $0.28 | n.a |
| Earnings per share, diluted | $0.28 | n.a |
| Operating earnings per share, basic (non-GAAP) | $0.27 | n.a |
| Operating earnings per share, diluted (non-GAAP) | $0.27 | n.a |

(1) Reflects costs associated with the IPO that are indirectly related to the IPO and were not recorded as a reduction of capital.

(2) The net tax (expense) benefit associated with these items is determined by assessing whether each item is included or excluded from net taxable income and applying our combined statutory tax rate only to those items included in net taxable income.

The following table summarizes the impact of non-core items with respect to our total income, noninterest income, noninterest expense and the efficiency ratio, which reconciles to the most directly comparable respective GAAP financial measure, for the periods indicated:

*(Dollars in thousands)*

|  | For the Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| **Net interest income (GAAP)** | $100,091 | $100,146 |
| Add: |  |  |
| Tax-equivalent adjustment (non-GAAP) | 1,297 | 1,368 |
| Fully-taxable equivalent net interest income (non-GAAP) | 101,388 | 101,514 |
| Noninterest income (GAAP) | 55,212 | 33,369 |
| Less: |  |  |
| Income (losses) from investments held in rabbi trusts | 1,846 | (6,743) |
| Gains (losses) on sales of securities available for sale, net | 1,164 | 122 |
| Gains (losses) on sale of other assets | 18 | 29 |
| Noninterest income on an operating basis (non-GAAP) | 52,184 | 39,961 |
| Noninterest expense (GAAP) | $94,049 | $95,172 |
| Less: |  |  |
| Rabbi trust benefit expense (income) | 986 | (3,479) |
| Merger and acquisition expenses | 589 | — |
| Indirect IPO costs (1) | — | 270 |
| Noninterest expense on an operating basis (non-GAAP) | $92,474 | $98,381 |
| Total revenue (GAAP) | $155,303 | $133,515 |
| Total operating revenue (non-GAAP) | $153,572 | $141,475 |
| **Ratios** |  |  |
| Efficiency ratio (GAAP) | 60.56% | 71.28% |
| Operating efficiency ratio (non-GAAP) | 60.22% | 69.54% |

(1) Reflects costs associated with the IPO that are indirectly related to the IPO and were not recorded as a reduction of capital.

The following table summarizes the calculation of our tangible shareholders’ equity, tangible assets, the ratio of tangible shareholders’ equity to tangible assets, and tangible book value per share, which reconciles to the most directly comparable respective GAAP measure, as of the dates indicated:

*(Dollars in thousands)*

| Tangible shareholders’ equity: | As of March 31, 2021 As of | As of December 31, 2020 |
| --- | ---: | ---: |
| Total shareholders’ equity (GAAP) | $3,387,045 | $3,428,052 |
| Less: Goodwill and other intangibles | 376,002 | 376,534 |
| Tangible shareholders’ equity (non-GAAP) | 3,011,043 | 3,051,518 |
| **Tangible assets:** |  |  |
| Total assets (GAAP) | 16,726,795 | 15,964,190 |
| Less: Goodwill and other intangibles | 376,002 | 376,534 |
| Tangible assets (non-GAAP) | $16,350,793 | $15,587,656 |
| Shareholders’ equity to assets ratio (GAAP) | 20.2% | 21.5% |
| Tangible shareholders’ equity to tangible assets ratio (non-GAAP) | 18.4% | 19.6% |
| **Book value per share:** |  |  |
| Common shares issued and outstanding | 186,758,154 | 186,758,154 |
| Book value per share (GAAP) | $18.14 | $18.36 |
| Tangible book value per share (non-GAAP) | $16.12 | $16.34 |

### Financial Position

### Summary of Financial Position

*(Dollars in thousands)*

|  | As of March 31, 2021 As of | As of December 31, 2020 Amount ($) | Change Percentage (%) |  |
| --- | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $1,860,332 | $2,054,070 | $(193,738) | (9.4)% |
| Securities available for sale | 3,986,253 | 3,183,861 | 802,392 | 25.2% |
| Loans, net of allowance for credit losses | 9,772,722 | 9,593,958 | 178,764 | 1.9% |
| Federal Home Loan Bank Stock | 8,805 | 8,805 | — | —% |
| Goodwill and other intangible assets | 376,002 | 376,534 | (532) | (0.1)% |
| Deposits | 12,980,875 | 12,155,784 | 825,091 | 6.8% |
| Borrowed funds | 29,351 | 28,049 | 1,302 | 4.6% |

### Cash and cash equivalents

Total cash and cash equivalents decreased by $193.7 million, or 9.4%, to $1.9 billion at March 31, 2021 from $2.1 billion at December 31, 2020. This decrease was primarily due to available for sale security purchases and funding of new loan originations.

### Securities

Our current investment policy authorizes us to invest in various types of investment securities and liquid assets, including U.S. Treasury obligations, securities of government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, corporate notes, asset-backed securities and municipal securities. We do not engage in any investment hedging activities or trading activities, nor do we purchase any high-risk investment products. We typically invest in the following types of securities:

**U.S. government securities:** At March 31, 2021 and December 31, 2020 our U.S. government securities consisted of U.S. Agency bonds and U.S. Treasury securities. We maintain these investments, to the extent appropriate, for liquidity purposes, at zero risk weighting for capital purposes, and as collateral for interest rate derivative positions. U.S. Agency bonds include securities issued by Fannie Mae, Freddie Mac, the FHLB, and the Federal Farm Credit Bureau.

**Mortgage-backed securities:** We invest in residential and commercial mortgage-backed securities insured or guaranteed by Freddie Mac or Fannie Mae. We have not purchased any privately-issued mortgage-backed securities. We invest in mortgage-backed securities to achieve a positive interest rate spread with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac or Fannie Mae.

Investments in residential mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities. We periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments. There is also reinvestment risk associated with the cash flows from such securities. In addition, the market value of such securities may be adversely affected by changes in interest rates.

**State and municipal securities:** We invest in fixed rate investment grade bonds issued primarily by municipalities in our local communities within Massachusetts and by the Commonwealth of Massachusetts. The market value of these securities may be affected by call options, long dated maturities, general market liquidity and credit factors.

The Risk Management Committee of our Board of Directors is responsible for approving and overseeing our investment policy, which it reviews at least annually. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns and market risk considerations.

The following table shows the fair value of our securities by investment category as of the dates indicated:

### Securities Portfolio Composition

*(In thousands)*

| Available for sale securities: | As of March 31, 2021 As of | As of December 31, 2020 |
| --- | ---: | ---: |
| Government-sponsored residential mortgage-backed securities | $2,691,702 | $2,148,800 |
| Government-sponsored commercial mortgage-backed securities | 116,271 | 17,081 |
| U.S. Agency bonds | 831,672 | 666,709 |
| U.S. Treasury securities | 69,090 | 70,369 |
| State and municipal bonds and obligations | 277,518 | 280,902 |
| Total | $3,986,253 | $3,183,861 |

Our securities portfolio has increased year-to-date. Available for sale securities increased $802.4 million, or 25.2%, to $4.0 billion at March 31, 2021 from $3.2 billion at December 31, 2020. This increase is due to investment purchases during three months ended March 31, 2021. In addition, at March 31, 2021 the unrealized loss was $37.5 million compared to an unrealized gain of $58.7 million at December 31, 2020, representing a $96.1 million decrease.

We did not have trading securities or held-to-maturity investments at March 31, 2021 or December 31, 2020.

A portion of our securities portfolio continues to be tax-exempt. Investments in federally tax-exempt securities totaled $277.5 million at March 31, 2021 compared to $280.9 million at December 31, 2020.

Our available for sale securities are carried at fair value and are categorized within the fair value hierarchy based on the observability of model inputs. Securities which require inputs that are both significant to the fair value measurement and unobservable are classified as Level 3 within the fair value hierarchy. As of both March 31, 2021 and December 31, 2020, we had no securities categorized as Level 3 within the fair value hierarchy.

Maturities of our securities portfolio are based on the final contractual payment dates, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur.

The following tables show contractual maturities of our available for sale securities and weighted average yields at and for the periods ended March 31, 2021 and December 31, 2020. Weighted average yields in the table below have been calculated based on the amortized cost of the security:

### Securities Portfolio, Amounts Maturing

*(Dollars in thousands)*

| Available for sale securities: | Securities Maturing as of March 31, 2021 Within One Year | After One Year But Within Five Years | After Five Years But Within Ten Years | After Ten Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Government-sponsored residential mortgage-backed securities | $— | $21,777 | $91,340 | $2,578,585 | $2,691,702 |
| Government-sponsored commercial mortgage-backed securities | — | 23,771 | 92,500 | — | 116,271 |
| U.S. Agency bonds | — | 98,111 | 733,561 | — | 831,672 |
| U.S. Treasury securities | 10,095 | 58,995 | — | — | 69,090 |
| State and municipal bonds and obligations | 406 | 26,220 | 76,077 | 174,815 | 277,518 |
| Total | $10,501 | $228,874 | $993,478 | $2,753,400 | $3,986,253 |
| Weighted-average yield | 0.46% | 0.96% | 1.07% | 1.61% | 1.43% |

*(Dollars in thousands)*

| Within One Year Available for sale securities: | Securities Maturing as of December 31, 2020 After One Year But Within Five Years | After Five Years But Within Ten Years | After Ten Years | Total |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Government-sponsored residential mortgage-backed securities | $— | $48,925 | $100,278 | $1,999,597 | $2,148,800 |
| Government-sponsored commercial mortgage-backed securities | — | — | 17,081 | — | 17,081 |
| U.S. Agency bonds | — | 99,834 | 566,875 | — | 666,709 |
| U.S. Treasury securities | 50,251 | 20,118 | — | — | 70,369 |
| State and municipal bonds and obligations | 408 | 21,431 | 79,635 | 179,428 | 280,902 |
| Total | $50,659 | $190,308 | $763,869 | $2,179,025 | $3,183,861 |
| Weighted-average yield | 2.05% | 1.34% | 1.15% | 1.50% | 1.41% |

The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a FTE basis by adjusting tax-exempt income upward by an amount equivalent to the prevailing federal income taxes that would have been paid if the income had been fully taxable.

Net unrealized (losses) gains on available for sale securities as of March 31, 2021 and December 31, 2020 totaled $(37.5) million and $58.7 million, respectively. The change from December 31, 2020 to March 31, 2021 is primarily rate driven.

### Loans

We consider our loan portfolio to be relatively diversified by borrower and industry. Our loans increased $186.0 million, or 1.9%, to $9.9 billion at March 31, 2021 from $9.7 billion at December 31, 2020. The increase as of March 31, 2021 was primarily due to an increase in business banking and commercial real estate loan balances.

- The $173.9 million increase in our business banking loans from December 31, 2020 to March 31, 2021 was primarily a result of an increase of $170.8 million in PPP loans during the three months ended March 31, 2021.
- The $103.3 million increase in our commercial real estate loans was primarily a result of an increase of $87.6 million in the investment commercial real estate category during the three months ended March 31, 2021.
- The $26.3 million decrease in our retail portfolio was primarily a result of a decrease in the auto lending portfolio of $23.3 million during the three months ended March 31, 2021.

The following table shows the composition of our loan portfolio, by category, as of the dates indicated:

### Loan Portfolio Composition

*(In thousands)*

|  | As of March 31, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Commercial and industrial | $1,986,366 | $1,995,016 |
| Commercial real estate | 3,676,941 | 3,573,630 |
| Commercial construction | 249,416 | 305,708 |
| Business banking | 1,513,051 | 1,339,164 |
| Residential real estate | 1,406,510 | 1,370,957 |
| Consumer home equity | 832,466 | 868,270 |
| Other consumer | 251,725 | 277,780 |
| Total loans | 9,916,475 | 9,730,525 |
| Less: |  |  |
| Allowance for loan losses | (111,080) | (113,031) |
| Unamortized premiums, net of unearned discounts and deferred fees | (32,673) | (23,536) |
| Total loans receivable, net | $9,772,722 | $9,593,958 |

We believe that our commercial loan portfolio composition is relatively diversified in terms of industry sectors, property types and various lending specialties, and is concentrated in the New England geographical area, with 90.9% of our loans in Massachusetts and New Hampshire as of March 31, 2021.

***Asset quality.*** We continually monitor the asset quality of our loan portfolio utilizing portfolio scorecards and various credit quality indicators. Based on this process, loans meeting certain criteria are categorized as delinquent, impaired, or non-performing and further assessed to determine if nonaccrual status is appropriate.

For the commercial portfolio, which includes our commercial and industrial, commercial real estate, commercial construction and business banking loans, we monitor credit quality using a risk rating scale, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Effective December 2020, management implemented an enhanced loan risk rating methodology based on a 15-point scale and adopted new risk rating scorecard tools. The rating scale expanded from the prior 12-point scale to provide more refinement in the pass grade categories; new pass grades are 0-10. There are no changes to non-pass categories, which continue to align with regulatory guidelines and are found in ratings: special mention (11), substandard (12), doubtful (13) and loss (14).

Risk rating assignment is determined using one of 14 separate scorecards developed for distinctive portfolio segments based on common attributes. Key factors 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 new risk rating methodology, inclusive of the expanded grade levels and the scorecard tools, has increased, and is expected to continue to increase, the granularity and distribution of risk rating assignment with more precision and effectiveness; provide customized and enhanced templates to incorporate more risk factors and attributes applicable to loan and collateral types; increase precision and effectiveness of credit risk identification; and provide a foundation for enhanced reporting, including migration of risk rating analysis.

Special mention, substandard and doubtful loans totaled 7.4% and 7.7% of total commercial loans outstanding at March 31, 2021 and December 31, 2020, respectively. This decrease was driven by risk rating upgrades in the construction and commercial and industrial portfolios.

Our philosophy toward managing our loan portfolios is predicated upon careful monitoring, which stresses early detection and response to delinquent and default situations. We seek to make arrangements to resolve any delinquent or default situation over the shortest possible time frame.

The delinquency rate of our total loan portfolio increased to 0.58% at March 31, 2021 from 0.49% at December 31, 2020, primarily due to an increase in our commercial and industrial and commercial real estate portfolios.

The following table provides details regarding our delinquency rates as of the dates indicated:

### Loan Delinquency Rates

|  | Delinquency Rate as of (1) March 31, 2021 | December 31, 2020 |
| --- | ---: | ---: |
| Commercial and industrial | 0.54% | 0.11% |
| Commercial real estate | 0.13% | 0.06% |
| Commercial construction | —% | —% |
| Business banking | 1.53% | 1.40% |
| Residential real estate | 0.91% | 1.21% |
| Consumer home equity | 0.59% | 0.60% |
| Other consumer | 0.69% | 0.98% |
| Total | 0.58% | 0.49% |

(1) In the calculation of the delinquency rate as of March 31, 2021 and December 31, 2020, the total amount of loans outstanding includes $1.2 billion and $1.0 billion, respectively, of PPP loans.

The following table provides details regarding the age analysis of past due loans as of the dates indicated:

### Age Analysis of Past Due Loans

*(In thousands)*

|  | As of March 31, 2021 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | As of December 31, 2020 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $9,460 | $3 | $1,174 | $4 | $268 | $1,924 |
| Commercial real estate | 3,225 | — | 1,403 | — | 556 | 1,545 |
| Commercial construction | — | — | — | — | — | — |
| Business banking | 13,299 | 1,404 | 8,513 | 5,279 | 3,311 | 10,196 |
| Residential real estate | 5,738 | 857 | 6,271 | 9,184 | 2,517 | 4,904 |
| Consumer home equity | 1,416 | 496 | 3,006 | 1,806 | 364 | 3,035 |
| Other Consumer | 975 | 419 | 349 | 1,978 | 234 | 517 |
| Total | $34,113 | $3,179 | $20,716 | $18,251 | $7,250 | $22,121 |

As a general rule, loans more than 90 days past due with respect to principal or interest are classified as non-accrual loans. However, based on our assessment of collateral and/or payment prospects, certain loans that are more than 90 days past due may be kept on an accruing status. Income accruals are suspended on all non-accrual loans and all previously accrued and uncollected interest is reversed against current income. A loan is expected to remain on non-accrual status until it becomes current with respect to principal and interest, the loan is liquidated, or the loan is determined to be uncollectible and is charged-off against the allowance for loan losses.

Non-performing assets (“NPAs”) are comprised of non-performing loans (“NPLs”), OREO and non-performing securities. NPLs 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 primarily serve as collateral to secure our loans, that we control due to foreclosure or acceptance of a deed in lieu of foreclosure. These properties are recorded at the lower of cost or fair value less estimated costs to sell on the date we obtain control.

The following table sets forth information regarding NPAs held as of the dates indicated:

### Non-performing Assets

*(In thousands)*

| Non-accrual loans: | As of March 31, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Commercial | $30,275 | $30,059 |
| Residential | 8,127 | 6,815 |
| Consumer | 3,873 | 4,131 |
| Total non-accrual loans | 42,275 | 41,005 |
| Accruing loans past due 90 days or more: |  |  |
| Commercial | 1,390 | 1,959 |
| Residential | 280 | 279 |
| Consumer | 9 | 9 |
| Total accruing loans past due 90 days or more | 1,679 | 2,247 |
| Total non-performing loans | 43,954 | 43,252 |
| Other real estate owned | — | — |
| Other non-performing assets: | — | — |
| Total non-performing assets | $43,954 | $43,252 |
| Total accruing troubled debt restructured loans | $39,367 | $41,095 |
| Total non-performing loans to total loans | 0.44% | 0.45% |
| Total non-performing assets to total assets | 0.26% | 0.27% |

NPLs increased $0.7 million, or 1.6%, to $44.0 million at March 31, 2021 from $43.3 million at December 31, 2020. NPLs as a percentage of total loans decreased to 0.44% at March 31, 2021 from 0.45% at December 31, 2020 as a result of an increase in performing loans driven by PPP loans, slightly offset by an increase in NPLs in our residential portfolio.

Non-accrual loans increased $1.3 million, or 3.1%, to $42.3 million at March 31, 2021 from $41.0 million at December 31, 2020, primarily due to increases in our residential real estate and commercial and industrial portfolios, partially offset by a decline in the consumer portfolio.

The total amount of interest recorded on NPLs was $0.1 million for the three months ended March 31, 2021. The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $0.8 million for the three months ended March 31, 2021. The total amount of interest recorded on NPLs was $0.1 million for the three months ended March 31, 2020. The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $0.9 million for the three months ended March 31, 2020.

In the course of resolving NPLs, we may choose to restructure the contractual terms of certain loans. We attempt to work-out alternative payment schedules with the borrowers in order to avoid foreclosure actions. We review any loans that are modified to identify whether a TDR has occurred. TDRs involve situations in which, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider. As noted previously, loan modifications made in response to the COVID-19 pandemic met the criteria of either Section 4013 of the CARES Act or the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) and therefore are not deemed TDRs.

All TDR loans are considered impaired and therefore are subject to a specific review for impairment loss. The impairment analysis 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 or the fair value of collateral if the loan is collateral dependent. The amount of impairment loss, if any, is recorded as a specific reserve to each individual loan in the allowance for loan losses. Commercial loans (commercial and industrial, commercial real estate, commercial construction, and business banking) and residential loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent.

TDR loans modified during the three months ended March 31, 2021 and 2020 were $0.3 million (post modification balance) and $0.7 million, respectively. The overall decrease in TDR loans consisted of a decrease of $0.3 million in commercial loan TDRs and a decrease of $0.1 million in consumer loan TDRs. Two loans totaling $0.5 million were modified during the preceding 12 months, which subsequently defaulted during the three months ended March 31, 2021.

It is our policy to have any restructured loans, which are on non-accrual status prior to being modified, remain on non-accrual status for approximately six months subsequent to being modified before we consider its return to accrual status. If the restructured loan is on accrual status prior to being modified, we review it to determine if the modified loan should remain on accrual status.

Purchase credit impaired (“PCI”) loans are loans we acquired that have shown evidence of deterioration of credit quality since origination and, therefore, it was deemed unlikely that all contractually required payments would be collected upon the acquisition date. We consider factors such as payment history, collateral values and accrual status when determining whether there was evidence of deterioration at the acquisition date. The carrying value and prospective income recognition of PCI loans are predicated on future cash flows expected to be collected. As of March 31, 2021 and December 31, 2020 the carrying amount of PCI loans was $7.6 million and $9.3 million, respectively.

The following table provides additional details related to our loan portfolio and the distribution of NPLs as of the dates indicated:

### Distribution of Nonperforming Loans

*(Dollars in thousands)*

| Loans: | As of March 31, 2021 Gross Loans Outstanding (1) | 90+ Days Due Still Accruing | Non-accruing Loans | TDR Loans, but Accruing | NPLs | NPLs as a % of Gross Loans Outstanding |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | $7,425,774 | $1,390 | $30,275 | $13,169 | $31,665 | 0.43% |
| Residential | 1,406,510 | 280 | 8,127 | 22,565 | 8,407 | 0.60% |
| Consumer | 1,084,191 | 9 | 3,873 | 3,633 | 3,882 | 0.36% |
| Total | $9,916,475 | $1,679 | $42,275 | $39,367 | $43,954 | 0.44% |

(1) Total loans outstanding includes $1.2 billion of PPP loans.

*(Dollars in thousands)*

| Loans: | As of December 31, 2020 Gross Loans Outstanding (1) | 90+ Days Due Still Accruing | Non-accruing Loans | TDR Loans, but Accruing | NPLs | NPLs as a % of Gross Loans Outstanding |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | $7,213,518 | $1,959 | $30,059 | $13,620 | $32,018 | 0.44% |
| Residential | 1,370,957 | 279 | 6,815 | 23,416 | 7,094 | 0.52% |
| Consumer | 1,146,050 | 9 | 4,131 | 4,059 | 4,140 | 0.36% |
| Total | $9,730,525 | $2,247 | $41,005 | $41,095 | $43,252 | 0.45% |

(1) Total loans outstanding includes $1.0 billion of PPP loans.

In the normal course of business, we become aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans, but which currently do not yet meet the criteria for classification as NPLs. In response to the COVID-19 pandemic, we reviewed all of our credit exposures in industries that were expected to experience significant problems due to the pandemic and resulting economic contraction. As part of that review, we downgraded our hotel loans, restaurant loans and other loans that we expected to have associated challenges as a result of the economic impact of the COVID-19 pandemic. These loans were neither delinquent nor on non-accrual status. At March 31, 2021 and December 31, 2020, our potential problem loans (including these COVID-19-related loans), or loans with potential weaknesses that were not included in the non-accrual loans or in the loans 90 days or more past due categories, totaled $551.6 million and $563.3 million, respectively.

***Allowance for loan losses.*** Due to our emerging growth company status under the JOBS Act, we still follow the incurred loss allowance GAAP accounting model. For additional information, see “Risk Factors—We may be required to increase our allowance for loan losses as a result of our adoption as of January 1, 2022 of the new accounting standard for determining the amount of the allowance for loan losses” in Part I, Item 1A of our 2020 Form 10-K.

For the purpose of estimating our allowance for loan losses, we segregate the loan portfolio into homogenous loan pools that possess unique risk characteristics such as loan purpose, repayment source, and collateral that are considered when determining the appropriate level of the allowance for loan losses for each category.

While we use available information to recognize losses on loans, future additions or subtractions to/from the allowance for loan losses may be necessary based on changes in NPLs, changes in economic conditions, or other reasons. Additionally, various regulatory agencies, as an integral part of our examination process, periodically assess the adequacy of the allowance for loan losses to assess whether the allowance for loan losses was determined in accordance with GAAP and applicable guidance.

We perform an evaluation of our allowance for loan losses on a regular basis (at least quarterly), and establish the allowance for loan losses based upon an evaluation of our loan categories, as each possess unique risk characteristics that are considered when determining the appropriate level of allowance for loan losses, including:

- estimated probable loss in all impaired loans in each category;
- known increases in concentrations within each category;
- certain higher risk classes of loans, or pledged collateral;
- historical loan loss experience within each category;
- results of any independent review and evaluation of the category’s credit quality;
- trends in volume, maturity and composition of each category;
- volume and trends in delinquencies and non-accruals;
- national and local economic conditions and downturns in specific local industries;
- corporate goals and objectives;
- expertise of our lending staff;
- lending policy and practices; and
- current and forecasted banking industry conditions, as well as regulatory environment.

Loans are periodically evaluated using changes in asset quality, historical losses, and other loss allocation factors, which form our basis for estimating incurred losses. For risk rated loans, our risk-rating system takes into consideration a number of quantitative and qualitative factors, such as the borrower’s financial capacity, cash flow, liquidity, leverage, adequacy of collateral, tangible net worth, management team, industry, sales and supplier concentration, credit history, additional support and the impact of outside factors on repayment ability. Homogenous populations of loans that are not risk rated loans, are analyzed by loan category, taking into account delinquency ratios and historical loss experience.

The allowance for loan losses is allocated to loan categories using both a formula-based approach and an analysis of certain individual loans for impairment. We use a methodology to systematically estimate the amount of credit loss incurred in the loan portfolio. Under our current methodology, the allowance for loan losses contains specific, general and other components.

The specific component consists of reserves for impaired loans (defined as those where we determine it is probable we will not collect all payments when due, typically classified as either doubtful or substandard). All commercial, residential and consumer loan portfolios are periodically reviewed to identify the loans with deteriorating performance. The reports used to identify those loans include, but are not limited to, delinquency reports, risk rating migration (for risk rated loans), asset quality reports, watch loan list and other credit risk management reports. When a loan is determined to be impaired, the measurement will be based on the present value of expected future cash flows, except for collateral-dependent loans, where the impairment is based on the fair value of the collateral.

The general loss reserves methodology, which is applied to categories of loans with similar characteristics, covers all non-impaired loans and is based on our portfolio’s segment historical loss experience adjusted for qualitative factors. The general loss reserve methodology considers multiple qualitative factors that may impact the loss experience during the incurred loss horizon period, including internal infrastructure factors, external macroeconomic factors, internal credit quality factors and external industry data, tailored to the specific loan category.

For additional discussion of our risk rating methodology, see *Note 4, “Loans and Allowance for Loan Losses”* within the Notes to the Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.

The allowance for loan losses decreased by $1.9 million, or 1.7%, to $111.1 million, or 1.12% of total loans, at March 31, 2021 from $113.0 million, or 1.16% of total loans at December 31, 2020. The decrease in the allowance for loan losses was primarily a result of improved macroeconomic conditions and risk rating upgrades in the commercial portfolios. The current environment is being assisted by government stimulus and the impacts of the loan deferral programs. This, along with other factors, resulted in a release in the allowance for loan loss of $0.6 million for the three months ended March 31, 2021.

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

### Summary of Changes in the Allowance for Loan Losses

*(Dollars in thousands)*

|  | For the Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Average total loans | $9,816,788 | $9,016,223 |
| Allowance for loan losses, beginning of the period | $113,031 | $82,297 |
| Charged-off loans: |  |  |
| Commercial and industrial | — | — |
| Commercial real estate | 234 | — |
| Commercial construction | — | — |
| Business banking | 1,384 | 1,337 |
| Residential real estate | — | — |
| Consumer home equity | — | 473 |
| Other consumer | 364 | 533 |
| Total charged-off loans | 1,982 | 2,343 |
| Recoveries on loans previously charged-off: |  |  |
| Commercial and industrial | 9 | 322 |
| Commercial real estate | — | 1 |
| Commercial construction | — | — |
| Business banking | 365 | 127 |
| Residential real estate | 10 | 60 |
| Consumer home equity | 71 | 14 |
| Other consumer | 156 | 60 |
| Total recoveries | 611 | 584 |
| Net loans charged-off (recoveries): |  |  |
| Commercial and industrial | (9) | (322) |
| Commercial real estate | 234 | (1) |
| Commercial construction | — | — |
| Business banking | 1,019 | 1,210 |
| Residential real estate | (10) | (60) |
| Consumer home equity | (71) | 459 |
| Other consumer | 208 | 473 |
| Total net loans charged-off | 1,371 | 1,759 |
| (Release of) provision for loan losses | (580) | 28,600 |
| Total allowance for loan losses, end of period | $111,080 | $109,138 |
| Net charge-offs to average total loans outstanding during this period | 0.01% | 0.02% |
| Allowance for loan losses as a percent of total loans | 1.12% | 1.20% |
| Allowance for loan losses as a percent of nonperforming loans | 252.72% | 222.34% |

70

The following table sets forth the allocation of the allowance for loan losses by loan categories listed in loan portfolio composition as of the dates indicated:

### Summary of Allocation of Allowance for Loan Losses

*(Dollars in thousands)*

|  | As of March 31, 2021 Allowance for Loan Losses | Percent of Allowance in Category to Total Allocated Allowance | Percent of Loans in Category to Total Loans | As of December 31, 2020 Allowance for Loan Losses | Percent of Allowance in Category to Total Allocated Allowance | Percent of Loans in Category to Total Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial (1) | $25,406 | 22.87% | 20.03% | $26,617 | 23.54% | 20.51% |
| Commercial real estate | 55,138 | 49.64% | 37.08% | 54,569 | 48.28% | 36.73% |
| Commercial construction | 3,350 | 3.02% | 2.52% | 4,553 | 4.03% | 3.14% |
| Business banking (1) | 13,504 | 12.16% | 15.26% | 13,152 | 11.64% | 13.76% |
| Residential real estate | 6,235 | 5.61% | 14.18% | 6,435 | 5.69% | 14.09% |
| Consumer home equity | 3,576 | 3.22% | 8.39% | 3,744 | 3.31% | 8.92% |
| Other consumer | 3,498 | 3.15% | 2.54% | 3,467 | 3.07% | 2.85% |
| Other | 373 | 0.33% | —% | 494 | 0.44% | —% |
| Total | $111,080 | 100.00% | 100.00% | $113,031 | 100.00% | 100.00% |

(1) PPP loans are included within these portfolios as of March 31, 2021 and December 31, 2020; however, as of March 31, 2021 and December 31, 2020, no allowance for loan losses have been recorded on these loans due to the SBA guarantee of 100% of the loans.

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, liquidation of the 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 for loan losses.

Regardless of whether a loan is unsecured or collateralized, we charge 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 our allowance for loan losses, see *Note 4, “Loans and Allowance for Loan Losses”* within the Notes to the Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.

### Federal Home Loan Bank stock

The FHLBB is a cooperative that provides services to its member banking institutions. The primary reason for our membership in the FHLBB is to gain access to a reliable source of wholesale funding and 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. We purchase and/or are subject to redemption of FHLBB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return.

We held an investment in the FHLBB of $8.8 million at both March 31, 2021 and December 31, 2020, respectively.

### Goodwill and other intangible assets

Goodwill and other intangible assets were $376.0 million and $376.5 million at March 31, 2021 and December 31, 2020, respectively. The decrease in goodwill and other intangibles assets was due to the amortization of definite-lived intangibles during the three months ended March 31, 2021. We did not record any impairment to our goodwill or other intangible assets during the three months ended March 31, 2021. We will continue to assess our goodwill and other intangible assets to determine if impairments are necessary as it relates to the COVID-19 pandemic.

### Deposits and other interest-bearing liabilities

Deposits originating within the markets we serve continue to be our primary source of funding our earning assets. We have been able to compete effectively for deposits in our primary market areas. The distribution and market share of deposits by type of deposit and by type of depositor are important considerations in our assessment of the stability of our fund sources and our access to additional funds. Furthermore, we shift the mix and maturity of the deposits depending on economic conditions and loan and investment policies in an attempt, within set policies, to minimize cost and maximize net interest margin. We do not, and in recent years have not, obtained deposit funding through brokered deposits.

The following table presents our deposits as of the dates presented:

### Components of Deposits

*(Dollars in thousands)*

|  | As of March 31, 2021 | As of December 31, 2020 Amount ($) | Change Percentage (%) |  |
| --- | ---: | ---: | ---: | ---: |
| Demand | $5,369,164 | $4,910,794 | $458,370 | 9.3% |
| Interest checking | 2,482,731 | 2,380,497 | 102,234 | 4.3% |
| Savings | 1,362,463 | 1,256,736 | 105,727 | 8.4% |
| Money market investments | 3,522,990 | 3,348,898 | 174,092 | 5.2% |
| Certificate of deposits | 243,527 | 258,859 | (15,332) | (5.9)% |
| Total deposits | $12,980,875 | $12,155,784 | $825,091 | 6.8% |

Deposits increased by $825.1 million, or 6.8%, to $13.0 billion at March 31, 2021 from $12.2 billion at December 31, 2020. This increase was primarily the result of an increase in demand deposits of $458.4 million, an increase in money market deposits of $174.1 million, an increase in savings deposits of $105.7 million, and a increase in interest checking deposits of $102.2 million.

The following table presents the classification of deposits on an average basis for the periods below:

### Classification of Deposits on an Average Basis

*(Dollars in thousands)*

|  | For the Three Months Ended March 31, 2021 Average Amount | Average Rate | For the Year Ended December 31, 2020 Average Amount | Average Rate |
| --- | ---: | ---: | ---: | ---: |
| Demand | $5,125,831 | —% | $4,535,066 | —% |
| Interest checking | 2,391,025 | 0.04% | 2,227,185 | 0.09% |
| Savings | 1,300,057 | 0.02% | 1,123,584 | 0.02% |
| Money market investments | 3,440,214 | 0.07% | 3,212,752 | 0.23% |
| Certificate of deposits | 251,115 | 0.19% | 300,381 | 0.52% |
| Total deposits | $12,508,242 | 0.03% | $11,398,968 | 0.10% |

Other time deposits of $100,000 and greater, including certificates of deposits of $100,000 and greater, as of the dates indicated had maturities as follows:

### Maturities of Time Certificates of Deposits $100,000 and over

*(In thousands)*

| Maturing in | As of March 31, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Three months or less | $42,818 | $49,740 |
| Over three months through six months | 27,954 | 24,608 |
| Over six months through 12 months | 23,659 | 31,009 |
| Over 12 months | 9,989 | 9,956 |
| Total | $104,420 | $115,313 |

72

### Borrowings

Our borrowings consist of both short-term and long-term borrowings and provide us with sources of funding. Maintaining available borrowing capacity provides us with a contingent source of liquidity.

Our total borrowings increased by $1.3 million, or 4.6%, to $29.4 million at March 31, 2021 compared to $28.0 million at December 31, 2020. The increase was primarily due to an increase in escrow deposits of our borrowers.

The following table sets forth information concerning balances on our borrowings as of the dates and for the periods indicated:

### Borrowings by Category

*(Dollars in thousands)*

|  | As of March 31, 2021 | As of December 31, 2020 Amount ($) | Change Percentage (%) |  |
| --- | ---: | ---: | ---: | ---: |
| Federal Home Loan Bank advances | $14,473 | $14,624 | $(151) | (1.0)% |
| Escrow deposits of borrowers | 14,878 | 13,425 | 1,453 | 10.8% |
| Total | $29,351 | $28,049 | $1,302 | 4.6% |

### Results of Operations

### Summary of Results of Operations

*(Dollars in thousands)*

|  | For the Three Months Ended March 31, 2021 | 2020 | Change Amount ($) | Percentage (%) |
| --- | ---: | ---: | ---: | ---: |
| Interest and dividend income | $101,133 | $106,159 | (5,026) | (4.7)% |
| Interest expense | 1,042 | 6,013 | (4,971) | (82.7)% |
| Net interest income | 100,091 | 100,146 | (55) | (0.1)% |
| (Release of) provision for loan losses | (580) | 28,600 | (29,180) | (102.0)% |
| Noninterest income | 55,212 | 33,369 | 21,843 | 65.5% |
| Noninterest expense | 94,049 | 95,172 | (1,123) | (1.2)% |
| Income tax expense | 14,171 | 1,298 | 12,873 | 991.8% |
| Net income | 47,663 | 8,445 | 39,218 | 464.4% |

### Comparison of the three months ended March 31, 2021 and 2020

### Interest and Dividend Income

Interest and dividend income decreased by $5.0 million, or 4.7%, to $101.1 million during the three months ended March 31, 2021 from $106.2 million during the three months ended March 31, 2020. The decrease was a result of the negative impact of a lower interest rate environment.

- Interest income on loans decreased by $6.9 million, or 7.2%, to $88.6 million during the three months ended March 31, 2021 from $95.5 million during the three months ended March 31, 2020. The decrease in interest income on our loans was primarily due to the decrease in the yield on average loans which was driven by the downward adjustment of the interest rates on our existing adjustable-rate loans as a result of lower interest rates. The average balance of loans increased primarily due to PPP loan originations, partially offsetting the decline in interest rates. The FTE yield on average loans decrease 61 basis points to 3.7% during the three months ended March 31, 2021. The average balance of our loans increased by $800.6 million, or 8.9%, to $9.8 billion as of March 31, 2021 compared to $9.0 billion as of March 31, 2020.
- Partially offsetting the negative impact of the downward adjustment of the interest rates on our existing adjustable-rate loans was the recognition of net PPP loan fee accretion. During the three months ended March 31, 2021 we recognized $8.3 million in net PPP loan fee accretion. We did not begin originating PPP loans until the second quarter of 2020, therefore, we did not recognize any net PPP loan fee accretion during the three months ended March 31, 2020.
- Interest income on securities increased $1.9 million, or 17.6% to $12.5 million for the three months ended March 31, 2021 compared to $10.6 million for the three months ended March 31, 2020. The increase in interest income on securities was due to security purchases between March 31, 2020 and March 31, 2021, partially offset by lower overall market rates. The FTE yield on average securities and other interest-earning assets decreased 160 basis points to 0.98% during the three months ended March 31, 2021. The average balance of securities and other-interest earning assets increased by $3.6 billion, or 208.6%, to $5.4 billion as of March 31, 2021 compared to $1.7 billion as of March 31, 2020.

The overall decrease in interest and dividend income was primarily a result of lower yields on both our loans and securities, partially offset by an increase in investment security volume. Our yields on loans and securities are generally presented on an FTE basis where the embedded tax benefit on loans or securities are calculated and added to the yield. This presentation allows for better comparability between institutions with different tax structures. The yield on average interest-earning assets decreased 129 basis points to 2.73% during the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Our average interest-earning assets increased by $4.4 billion, or 41.2%, to $15.2 billion as of March 31, 2021 compared to $10.8 billion as of March 31, 2020.

### Interest Expense

Interest expense decreased $5.0 million, or 82.7%, to $1.0 million during the three months ended March 31, 2021 from $6.0 million during the three months ended March 31, 2020. The decrease was a result of lower funding costs associated with the decline in market interest rates.

- Interest expense on our interest-bearing deposits decreased by $4.4 million, or 81.5%, to $1.0 million during the three months ended March 31, 2021 from $5.4 million during the three months ended March 31, 2020.
- Interest expense on borrowed funds decreased by $0.6 million, or 93.3%, to less than $0.1 million during the three months ended March 31, 2021 from $0.6 million during the three months ended March 31, 2020.

Average interest-bearing deposits increased $1.2 billion, or 19.3%, at March 31, 2021 compared to March 31, 2020. The increase in deposit costs associated with the increase in average deposits was more than offset by the reduction in rates paid on deposits during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

### Net Interest Income

Net interest income was $100.1 million for both the three months ended March 31, 2021 and the three months ended March 31, 2020. Net interest income remained stable between the two periods as the reduction in interest income resulting from the lower interest rate environment was offset by a corresponding reduction in interest expense coupled with a substantial increase in average balances of interest-earning assets during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Net interest margin is determined by dividing FTE net interest income by average-earning assets. For purposes of the following discussion, income from tax-exempt loans and investment securities has been adjusted to an FTE basis, using a marginal tax rate of 21.2% for the three months ended March 31, 2021 and 2020. Net interest margin decreased 109 basis points to 2.71% during the three months ended March 31, 2021, from 3.80% during the three months ended March 31, 2020.

The following table sets forth average balance sheet items, annualized average yields and costs, and certain other information for the periods indicated. All average balances in the table reflect daily average balances. Non-accrual loans were included in the computation of average balances but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

### Average Balances, Interest Earned/Paid, & Average Yields

*(Dollars in thousands)*

| Interest-earning assets: Loans (1) | As of and for the Three Months Ended March 31, 2021 Average Outstanding Balance | Interest | Average Yield/Cost (5) | 2020 Average Outstanding Balance | Interest | Average Yield /Cost (5) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Residential | $1,393,139 | $11,274 | 3.28% | $1,429,994 | $13,303 | 3.74% |
| Commercial | 7,317,951 | 69,210 | 3.84% | 6,275,057 | 69,615 | 4.46% |
| Consumer | 1,105,698 | 8,937 | 3.28% | 1,311,172 | 13,407 | 4.11% |
| Total loans | 9,816,788 | 89,421 | 3.69% | 9,016,223 | 96,325 | 4.30% |
| Investment securities | 3,631,530 | 12,577 | 1.40% | 1,500,413 | 10,685 | 2.86% |
| Federal funds sold and other short-term investments | 1,740,561 | 432 | 0.10% | 240,440 | 517 | 0.86% |
| Total interest-earning assets | 15,188,879 | 102,430 | 2.73% | 10,757,076 | 107,527 | 4.02% |
| Non-interest-earning assets | 1,120,603 |  |  | 1,022,216 |  |  |
| Total assets | $16,309,482 |  |  | $11,779,292 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Savings accounts | $1,300,057 | $64 | 0.02% | $976,881 | $54 | 0.02% |
| Interest checking accounts | 2,391,025 | 234 | 0.04% | 1,902,128 | 819 | 0.17% |
| Money market | 3,440,214 | 587 | 0.07% | 2,981,427 | 3,904 | 0.53% |
| Time deposits | 251,115 | 117 | 0.19% | 327,144 | 638 | 0.78% |
| Total interest-bearing deposits | 7,382,411 | 1,002 | 0.06% | 6,187,580 | 5,415 | 0.35% |
| Borrowings | 25,625 | 40 | 0.63% | 163,463 | 599 | 1.47% |
| Total interest-bearing liabilities | 7,408,036 | 1,042 | 0.06% | 6,351,043 | 6,014 | 0.38% |
| Demand accounts | 5,125,831 |  |  | 3,477,377 |  |  |
| Other noninterest-bearing liabilities | 358,087 |  |  | 318,656 |  |  |
| Total liabilities | 12,891,954 |  |  | 10,147,076 |  |  |
| Total net worth | 3,417,528 |  |  | 1,632,216 |  |  |
| Total liabilities and retained earnings | $16,309,482 |  |  | $11,779,292 |  |  |
| Net interest income – FTE |  | $101,388 |  |  | $101,513 |  |
| Net interest rate spread (2) |  |  | 2.67% |  |  | 3.64% |
| Net interest-earning assets (3) | $7,780,843 |  |  | $4,406,033 |  |  |
| Net interest margin – FTE (4) |  |  | 2.71% |  |  | 3.80% |
| Average interest-earning assets to interest-bearing liabilities | 205.03% |  |  | 169.37% |  |  |

(1) Non-accrual loans are included in loans.

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

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

(5) Presented on an annualized basis.

### 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. We currently follow the incurred loss model for determining the provision for loan losses and anticipate adopting what is commonly referred to as the “CECL model” on January 1, 2022.

We recorded a release of provision for loan losses of $0.6 million for the three months ended March 31, 2021, compared to a provision of $28.6 million for the three months ended March 31, 2020. Given improved economic and credit conditions during the three months ended March 31, 2021, we determined that a release of the provision was necessary. In March 2020, in response to the COVID-19 pandemic, we downgraded the risk ratings for all commercial loans we expected to be significantly impacted by the pandemic, including our hotel and restaurant loan portfolios. Along with other activity during the three months ended March 31, 2020, these adjustments resulted in the provision for loan losses of $28.6 million.

Our periodic evaluation of the appropriate allowance for loan losses considers the risk characteristics of the loan portfolio, current economic conditions, and trends in loan delinquencies and charge-offs.

### Noninterest Income

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

### Noninterest Income

*(Dollars in thousands)*

|  | For the Three Months Ended March 31, 2021 | 2020 | Change Amount ($) | Percentage (%) |
| --- | ---: | ---: | ---: | ---: |
| Insurance commissions | $28,147 | $27,477 | $670 | 2.4% |
| Service charges on deposit accounts | 5,367 | 6,098 | (731) | (12.0)% |
| Trust and investment advisory fees | 5,663 | 5,095 | 568 | 11.1% |
| Debit card processing fees | 2,749 | 2,470 | 279 | 11.3% |
| Interest swap income (losses) | 5,405 | (6,009) | 11,414 | (189.9)% |
| Income (losses) from investments held in rabbi trusts | 1,846 | (6,743) | 8,589 | (127.4)% |
| Losses on trading securities, net | — | (2) | 2 | (100.0)% |
| Gains on sales of mortgage loans held for sale, net | 1,479 | 93 | 1,386 | 1,490.3% |
| Gains on sales of securities available for sale, net | 1,164 | 122 | 1,042 | 854.1% |
| Other | 3,392 | 4,768 | (1,376) | (28.9)% |
| Total noninterest income | $55,212 | $33,369 | $21,843 | 65.5% |

Noninterest income increased by $21.8 million, or 65.5%, to $55.2 million for the three months ended March 31, 2021 from $33.4 million for the three months ended March 31, 2020. This increase was primarily due to an $11.4 million increase in interest rate swap income, an $8.6 million increase in income from investments held in rabbi trusts, a $1.4 million increase in net gains on sales of mortgage loans held for sale, and a $1.0 million increase in net gains on sales of securities available for sale. These items were partially offset by a decrease in other noninterest income of $1.4 million and a decrease in service charges on deposit accounts of $0.7 million.

- Loan-level interest rate swap income increased primarily as a result of a favorable mark-to-market adjustment on these transactions due to higher longer term interest rates. We recognized an unfavorable mark-to-market adjustment for the three months ended March 31, 2020 primarily as a result of the decline in longer term interest rates resulting from the initial economic impacts of the COVID-19 pandemic.
- Income from investments held in rabbi trust accounts increased primarily as a result of a favorable mark-to-market adjustment on equity securities held in these accounts. We recognized an unfavorable mark-to-market adjustment for the three months ended March 31, 2020 primarily as a result of the decline in asset values resulting from the initial economic impacts of the COVID-19 pandemic.
- Net gains on sales of mortgage loans held for sale increased primarily due to the low interest rate environment which resulted in increased volume for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase was partially offset by a decrease in the mark-to-market adjustment on mortgage loan-related derivatives, which is included within other noninterest income.
- Net gains on securities available for sale increased primarily due to volume and the composition of security sales. During the three months ended March 31, 2021 we sold certain government-sponsored residential mortgage backed securities. During the three months ended March 31, 2020 we sold some municipal bonds.
- Deposit service charges decreased primarily as a result of reduced overdraft charges due to reduced transactional volume during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

### Noninterest Expense

The following table sets forth information regarding noninterest expense for the periods shown:

### Noninterest Expense

*(Dollars in thousands)*

|  | For the Three Months Ended March 31, 2021 | 2020 | Change Amount ($) | Percentage (%) |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $64,040 | $61,589 | $2,451 | 4.0% |
| Office occupancy and equipment | 8,217 | 8,689 | (472) | (5.4)% |
| Data processing | 12,129 | 10,004 | 2,125 | 21.2% |
| Professional services | 4,148 | 3,689 | 459 | 12.4% |
| Charitable contributions | — | 1,187 | (1,187) | (100.0)% |
| Marketing | 1,691 | 2,468 | (777) | (31.5)% |
| Loan expenses | 1,847 | 1,112 | 735 | 66.1% |
| FDIC insurance | 948 | 906 | 42 | 4.6% |
| Amortization of intangible assets | 532 | 702 | (170) | (24.2)% |
| Other | 497 | 4,826 | (4,329) | (89.7)% |
| Total noninterest expense | $94,049 | $95,172 | $(1,123) | (1.2)% |

Noninterest expense decreased by $1.1 million, or 1.2%, to $94.0 million during the three months ended March 31, 2021 from $95.2 million during the three months ended March 31, 2020. This decrease was primarily due to a $4.3 million decrease in other noninterest expenses as well as a reduction in charitable contributions of $1.2 million. Partially offsetting these favorable items were increases in salaries and employee benefits and data processing expenses of $2.5 million and $2.1 million, respectively.

- Other noninterest expenses decreased primarily due to the conversion of our Defined Benefit Plan and BEP from a traditional final average earnings plan design to a cash balance plan design. Non-service cost expenses for the defined benefit plan and the benefit equalization plan decreased by $3.2 million and $0.6 million, respectively, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.
- Salaries and employee benefits increased due to an increase in rabbi trust employee benefits of $4.5 million primarily as a result of the favorable equity securities valuations, ESOP expense of $2.1 million, an increase in salaries and wages of $2.1 million, and an increase in pension service cost of $2.0 million. Partially offsetting these unfavorable items were a $5.0 million decrease in incentive compensation expense that was, in part, due to the decline in total shareholders’ equity due to higher market interest rates, and an increase in salary expense deferrals of $4.1 million primarily due to PPP loan originations. We established the ESOP in October 2020 when we completed our IPO. Accordingly, we did not have any ESOP expense during the three months ended March 31, 2020.
- Data processing expenses increased due to an increase in software service and support expenses (including depreciation expense) of $1.5 million and an increase in core data processing expenses of $0.7 million. Core data processing expenses increased primarily as a result of increased costs due to PPP loan originations.

### Income Taxes

We recognize the tax effect of all income and expense transactions 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 our tax provision and applicable tax rates for the periods indicated:

### Tax Provision and Applicable Tax Rates

*(Dollars in thousands)*

|  | For the Three Months Ended March 31, 2021 | 2020 |
| --- | ---: | ---: |
| Combined federal and state income tax provisions | $14,171 | $1,298 |
| Effective income tax rates | 22.9% | 13.3% |
| Blended statutory tax rate | 28.1% | 28.1% |

Income tax expense increased by $12.9 million, or 991.8%, to $14.2 million in the three months ended March 31, 2021 from $1.3 million in the three months ended March 31, 2020. The increase in income tax expense was due primarily to higher pre-tax income during the three months ended March 31, 2021 compared to the three months ended March 31, 2020, decreasing the impact on the effective rate related to favorable permanent differences, including investment tax credits and tax exempt income. For additional information related to the Company’s income taxes see *Note 8, “Income Taxes”* and *Note 9, “Low Income Housing Tax Credits and Other Tax Credit Investments”* within the Notes to the Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.

### Financial Position and Results of Operations of our Business Segments

### Comparison of the Three Months Ended March 31, 2021 and 2020

*(Dollars In Thousands)*

|  | As of and for the Three Months Ended March 31, 2021 Banking Business | Insurance Agency Business | Other/ Eliminations | Total | 2020 Banking Business | Insurance Agency Business | Other/ Eliminations | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net interest income | $100,091 | $— | $— | $100,091 | $100,146 | $— | $— | $100,146 |
| (Release of) provision for loan losses | (580) | — | — | (580) | 28,600 | — | — | 28,600 |
| Net interest income after provision for loan losses | 100,671 | — | — | 100,671 | 71,546 | — | — | 71,546 |
| Noninterest income | 26,960 | 28,284 | (32) | 55,212 | 6,868 | 26,523 | (22) | 33,369 |
| Noninterest expense | 75,274 | 19,811 | (1,036) | 94,049 | 78,465 | 17,642 | (935) | 95,172 |
| Income before provision for income taxes | 52,357 | 8,473 | 1,004 | 61,834 | (51) | 8,881 | 913 | 9,743 |
| Income tax provision (benefit) | 11,793 | 2,378 | — | 14,171 | (1,214) | 2,512 | — | 1,298 |
| Net income | $40,564 | $6,095 | $1,004 | $47,663 | $1,163 | $6,369 | $913 | $8,445 |
| Total assets | $16,595,311 | $194,664 | $(63,180) | $16,726,795 | $12,221,799 | $182,564 | $(60,609) | $12,343,754 |
| Total liabilities | $13,359,075 | $43,855 | $(63,180) | $13,339,750 | $10,696,509 | $45,120 | $(60,609) | $10,681,020 |

### Banking Segment

- Average interest-earning assets grew $4.4 billion, or 41.2%, to $15.2 billion as of March 31, 2021 from $10.8 billion as of March 31, 2020, with average total loans, our largest category of average interest-earning assets, growing $800.6 million, or 8.9%, to $9.8 billion as of March 31, 2021 compared to $9.0 billion as of March 31, 2020.
- Average interest-bearing liabilities grew $1.1 billion, or 16.6%, to $7.4 billion as of March 31, 2021 from $6.4 billion as of March 31, 2020, with average total deposits, our largest category of average interest-bearing liabilities, growing $1.2 billion, or 19.3%, to $7.4 billion as of March 31, 2021 compared to $6.2 billion as of March 31, 2020.
- As noted above:
- Loan-level interest rate swap income increased $11.4 million primarily as a result of a favorable mark-to-market adjustment on these transactions due to higher longer term interest rates.
- Net gains on sales of mortgage loans held for sale increased $1.4 million primarily due to the low interest rate environment which resulted in increased volume for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This increase was partially offset by a decrease in the mark-to-market adjustment on mortgage loan-related derivatives, which is included within other noninterest income.
- Net gains on securities available for sale increased $1.0 million primarily due to volume and the composition of security sales.
- Deposit service charges decreased $0.7 million primarily as a result of reduced overdraft charges due to reduced transactional volume during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.
- In addition, income from investments held in rabbi trust accounts increased $7.5 million primarily as a result of a favorable mark-to-market adjustment on equity securities held in these accounts.

### Insurance Agency Segment

- Noninterest income related to our insurance agency business increased by $1.8 million, or 6.6%, to $28.3 million during the three months ended March 31, 2021 from $26.5 million during the three months ended March 31, 2020. The increase was driven primarily by an increase in income from investments held in rabbi trusts of $1.1 million primarily as a result of a favorable mark-to-market adjustment on equity securities held in these accounts. In addition, profit sharing revenues and recurring commissions increased by $0.4 million and $0.3 million, respectively.

### Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. The financial instruments include commitments to originate loans, unused lines of credit, unadvanced portions of construction loans and standby letters of credit, all of which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.

At March 31, 2021, we had $4.0 billion of commitments to originate loans, comprised of $2.3 billion of commitments under commercial loans and lines of credit (including $284.1 million of unadvanced portions of construction loans), $1.3 billion of commitments under home equity loans and lines of credit, $179.1 million in standard overdraft coverage commitments, $96.9 million of unfunded commitments related to residential real estate loans and $60.8 million in other consumer loans and lines of credit. In addition, at March 31, 2021, we had $64.0 million in standby letters of credit outstanding. We also had $35.6 million in forward commitments to sell loans.

### Management of Market Risk

***General.*** 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 we are 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, our primary source of income. Interest rate risk arises directly from our 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 Risk Management Committee of our Board of Directors.

These limits reflect our tolerance for interest rate risk over both short-term and long-term horizons. We attempt to 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. Our objective is 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 and, within limits that management determines to be prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors and caps.

***Net Interest Income.*** We analyze our sensitivity to changes in interest rates through a net interest income model. We estimate what our net interest income would be for a 12-month period assuming no changes in interest rates. We then calculate what the net interest income would be for the same period under the assumption that the U.S. Treasury yield curve increases or decreases instantaneously by +200, +300, +400 and -100 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Changes in Interest Rates” column below. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates. The relatively low level of interest rates prevalent at March 31, 2021 precluded the modeling of certain falling rate scenarios. We do not model negative interest rate scenarios.

The tables below set forth, as of March 31, 2021 and December 31, 2020, the calculation of the estimated changes in our net interest income on an FTE basis that would result from the designated immediate changes in the U.S. Treasury yield curve:

### Interest Rate Sensitivity

*(Dollars in thousands)*

| Change in Interest Rates (basis points) (1) | As of March 31, 2021 Net Interest Income Year 1 Forecast | Year 1 Change from Level |
| ---: | ---: | ---: |
| 400 | $568,519 | 44.1% |
| 300 | 524,891 | 33.0% |
| 200 | 481,564 | 22.1% |
| Flat | 394,511 | —% |
| (100) | 375,522 | (4.8)% |
|  | **As of December 31, 2020** |  |
| **Change in Interest Rates (basis points) (1)** | **Net Interest Income Year 1 Forecast** | **Year 1 Change from Level** |
|  | (Dollars in thousands) |  |
| 400 | $571,842 | 50.0% |
| 300 | 524,847 | 37.7% |
| 200 | 478,307 | 25.5% |
| Flat | 381,259 | —% |
| (100) | 362,186 | (5.0)% |

(1) Assumes an immediate uniform change in interest rates at all maturities, except in the down 100 basis points scenario, where rates are floored at zero at all maturities.

The tables above indicate that at March 31, 2021 and December 31, 2020, in the event of an instantaneous parallel 200 basis points increase in rates, we would have experienced a 22.1% and 25.5% increase, respectively, in net interest income on an FTE basis, and in the event of an instantaneous 100 basis points decrease in interest rates, we would have experienced a 4.8% and a 5.0% decrease at March 31, 2021 and December 31, 2020, respectively, in net interest income, on an FTE basis. Management may use interest rate derivative financial instruments, within internal policy guidelines, to manage interest rate risk as part of our asset/liability strategy. These derivatives provide significant protection against falling interest rates.

***Economic Value of Equity Analysis.*** We also analyze the sensitivity of our financial condition in interest rates through our economic value of equity (“EVE”) model. This analysis calculates the difference between the present value of expected cash flows from assets and liabilities assuming various changes in current interest rates.

The table below represents an analysis of our interest rate risk (excluding the effect of our pension plans) as measured by the estimated changes in our EVE, resulting from an instantaneous and sustained parallel shift in the yield curve (+200, +300, +400 basis points and -100 basis points) at March 31, 2021 and December 31, 2020. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates. The relatively low level of interest rates prevalent at March 31, 2021 precluded the modeling of certain falling rate scenarios, including negative interest rates.

Our 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.

### EVE Interest Rate Sensitivity

*(Dollars in thousands)*

| Change in Interest Rate (basis points) (1) | Estimated EVE (2) Estimated Increase (Decrease) in EVE from Level Amount | As of March 31, 2021 Percent |  | EVE as a Percentage of Total Assets (3) |
| ---: | ---: | ---: | ---: | ---: |
| 400 | $4,477,682 | $349,568 | 8.5% | 28.68% |
| 300 | 4,402,223 | 274,109 | 6.6% | 27.74% |
| 200 | 4,324,403 | 196,289 | 4.8% | 26.77% |
| Flat | 4,128,114 | — | — | 24.60% |
| (100) | 3,919,926 | (208,188) | (5.0)% | 23.05% |

*(Dollars in thousands)*

| Change in Interest Rate (basis points) (1) | Estimated EVE (2) Estimated Increase (Decrease) in EVE from Level Amount | As of December 31, 2020 Percent |  | EVE as a Percentage of Total Assets (3) |
| ---: | ---: | ---: | ---: | ---: |
| 400 | $4,385,795 | $452,022 | 11.5% | 29.09% |
| 300 | 4,297,682 | 363,909 | 9.3% | 28.06% |
| 200 | 4,205,867 | 272,094 | 6.9% | 27.00% |
| Flat | 3,933,773 | — | — | 24.38% |
| (100) | 3,663,432 | (270,341) | (6.9)% | 22.65% |

(1) Assumes an immediate uniform change in interest rates at all maturities, except in the down 100 basis points scenario, where rates are floored at zero at all maturities.

(2) EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

### Liquidity and Capital Resources

***Liquidity.*** Liquidity describes our ability to meet the financial obligations that arise in the normal course of business. Liquidity is primarily needed to meet deposit withdrawals and anticipated loan fundings, as well as current and planned expenditures. We seek to maintain sources of liquidity that are deep and diversified and that may be used during the normal course of business as well as on a contingency basis.

The net proceeds from our IPO significantly increased our liquidity and capital resources at both Eastern Bankshares, Inc. and Eastern Bank. Over time, the initial level of liquidity will be reduced as net proceeds from the IPO are used for general corporate purposes, including the funding of loans. Our financial condition and results of operations will be enhanced by the net proceeds from the IPO, resulting in increased net interest-earning assets and net interest and dividend income. However, due to the increase in equity resulting form the net proceeds raised in our IPO, our return on equity has been and will continue to be adversely affected until we can effectively employ the proceeds of the IPO.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from calls, maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and due from banks and securities classified as available for sale. In the future, our liquidity position will be affected by the level of customer deposits and payments, as well as acquisitions, dividends, and stock repurchases in which we may engage. We believe that our existing resources will be sufficient to meet the liquidity and capital requirements of our operations for the foreseeable future.

We participate in the IntraFi Network (formerly “Promontory”), which allows us to provide access to multi-million dollar FDIC deposit insurance protection on customer deposits for consumers, businesses and public entities. We can elect to sell or repurchase this funding as reciprocal deposits from other IntraFi Network banks depending on our funding needs. At March 31, 2021 and December 31, 2020, we had a total of $384.7 million and $364.8 million of IntraFi Network one-way sell deposits, respectively. These deposits could have been repurchased as reciprocal deposits and should be considered a source of liquidity.

Although customer deposits remain our preferred source of funds, maintaining additional back up sources of liquidity is part of our prudent liquidity risk management practices. We have the ability to borrow from the FHLBB. At March 31, 2021, we had $14.5 million in outstanding advances and the ability to borrow up to an additional $1.5 billion. We also have the ability to borrow from the FRBB as well as the Paycheck Protection Program Liquidity Facility. At March 31, 2021, we had a $492.3 million collateralized line of credit from the FRBB with no outstanding balance. Additionally, we had $1.2 billion in PPP loans that could have been pledged to the Paycheck Protection Program Liquidity Facility. We had a total of $770.0 million of discretionary lines of credit at March 31, 2021.

### Sources of Liquidity

*(Dollars in thousands)*

|  | As of March 31, 2021 Outstanding | Additional Capacity | As of December 31, 2020 Outstanding | Additional Capacity |
| --- | ---: | ---: | ---: | ---: |
| IntraFi Network deposits | $— | $384,730 | $— | $364,794 |
| Federal Home Loan Bank (1) | 14,473 | 1,533,364 | 14,624 | 1,581,016 |
| Federal Reserve Bank of Boston (2) | — | 492,333 | — | 503,512 |
| Federal Reserve Paycheck Protection Program Liquidity Facility | — | 1,238,053 | — | 1,026,117 |
| Unsecured lines of credit | — | 770,000 | — | 620,000 |
| Total deposits | $14,473 | $4,418,480 | $14,624 | $4,095,439 |

(1) As of both March 31, 2021 and December 31, 2020, loans have been pledged to the FHLBB with a carrying value of $2.4 billion to secure additional borrowing capacity.

(2) Loans with a carrying value of $832.4 million and $884.1 million at March 31, 2021 and December 31, 2020, respectively, have been pledged to the FRBB resulting in this additional unused borrowing capacity

We believe that advanced preparation, early detection, and prompt responses can avoid, minimize, or shorten potential liquidity crises. Our Board of Directors and our Asset Liability Committee have put a Liquidity Contingency Plan in place to establish methods for assessing and monitoring risk levels, as well as potential responses during unanticipated stress events. As part of its risk management framework, we perform periodic liquidity stress testing to assess its need for liquid assets as well as backup sources of liquidity.

***Capital Resources.*** We are subject to various regulatory capital requirements administered by the Massachusetts Commissioner of Banks, the FDIC and the Federal Reserve (with respect to our consolidated capital requirements). At March 31, 2021 and December 31, 2020, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines.

### Contractual Obligations, Commitments and Contingencies

In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities. At March 31, 2021 there were no material changes in our contractual obligations, other commitments and contingencies from those disclosed in our 2020 Form 10-K.

## Market risk

As filed, 152 characters.

The information required by this Item is included in Part I, Item 2 of this Quarterly Report on Form 10-Q under the heading “Management of Market Risk.”

## Controls and procedures

As filed, 1,520 characters.

### 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(c) promulgated under the Exchange Act of 1934. 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 were effective as of March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.

### Internal Controls over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting. The Company has not experienced any material impact to the Company’s internal controls over financial reporting due to the fact that most of the Company’s employees responsible for financial reporting are working remotely during the COVID-19 pandemic. The Company is continually monitoring and assessing the impact of the COVID-19 pandemic on the Company’s internal controls to minimize the impact to their design and operating effectiveness.

## Risk factors

As filed, 16,054 characters.

For information regarding the Company’s risk factors, see Part I, Item 1A “Risk Factors” in our 2020 Form 10-K. Other than the Risks Related to Our Acquisition Strategy set forth below, including the revised risk factors below regarding “To the extent that we acquire other companies, our business may be negatively impacted by certain risks inherent with such acquisitions,” as of the date of this Quarterly Report on Form 10-Q, the risk factors of the Company have not changed materially from those disclosed in our 2020 Form 10-K. The COVID-19 pandemic has led to general uncertainty and adverse changes in economic conditions and has heightened, and in some cases manifested, certain of the risks we normally face in operating our business, including those disclosed in our 2020 Form 10-K. The risk factors disclosure in our 2020 Form 10-K is therefore qualified by the information relating to COVID-19 that is described in this Quarterly Report on Form 10-Q.

**To the extent that we acquire other companies, our business may be negatively impacted by certain risks inherent with such acquisitions.**

We have acquired and will continue to consider the acquisition of other financial services companies. A significant component of our business strategy is to grow through acquisitions of other financial institutions, including banks and insurance agencies, or business lines as opportunities arise. Although we have been successful with this strategy in the past, we may not be able to grow our business in the future through acquisitions for a number of reasons, including:

- Competition with other prospective buyers resulting in our inability to complete an acquisition or in our paying a substantial premium over the fair value of the net assets of the acquired business;
- Inability to obtain regulatory approvals or to obtain such approvals on a timely basis;
- Potential difficulties and/or unexpected expenses relating to the integration of the operations, technologies, products and the key employees of the acquired business, resulting in the diversion of resources from the operation of our existing business;
- Acquisitions of new lines of business may present risks that are different in kind or degree compared to those that we are accustomed to managing, requiring us to implement new or enhance existing procedures and controls and diverting resources from the operation of our existing business;
- Inability to maintain existing customers of the acquired business or to sell the products and services of the acquired business to our existing customers;
- Inability to retain key management of the acquired business;
- Assumption of or potential exposure to significant liabilities of the acquired business, some of which may be unknown or contingent at the time of acquisition, including, without limitation, liabilities for regulatory and compliance issues;
- Exposure to potential asset quality issues of the acquired business;
- Failure to mitigate deposit erosion or loan quality deterioration at the acquired business;
- Potential changes in banking or tax laws or regulations that may affect the acquired business;
- Inability to improve the revenues and profitability or realize the cost savings and synergies expected of the acquired business;
- Potential future impairment of the value of goodwill and intangible assets acquired; and
- Identification of internal control deficiencies of the acquired business.

All of these and other potential risks may serve as a diversion of our management’s attention from other business concerns, and any of these factors could have a material adverse effect on our business. Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of our tangible book value and net income per share may occur in connection with any future transaction.

**Our business may be negatively impacted by certain risks inherent with our pending acquisition of Century Bancorp, Inc.**

In April 2021, we entered into a definitive merger agreement with Century Bancorp, Inc. under which we will acquire Century for $641.9 million in cash (the “Century Merger”). Century is the stock holding company of Century Bank and Trust Company, a Massachusetts-chartered stock bank headquartered in Medford, Massachusetts with $6.4 billion in assets, $5.4 billion in deposits and 27 full-service branches in Massachusetts as of December 31, 2020. Pursuant to the terms of the Merger Agreement, Century Bank and Trust Company will merge with and into Eastern Bank, our wholly-owned subsidiary, upon completion of the transaction. The transaction is subject to customary closing conditions, including the receipt of regulatory approval and Century shareholder approval. We currently expect the Century Merger to be completed during the fourth quarter of 2021.

**The consummation of the Century Merger is contingent upon the satisfaction of a number of conditions, including regulatory approval, that may be outside of our or Century’s control and that we and Century may be unable to satisfy or obtain or which may delay the consummation of the Century Merger or result in the imposition of conditions that could reduce the anticipated benefits from the Century Merger or cause the parties to abandon the Century Merger.**

Consummation of the Century Merger is contingent upon the satisfaction of a number of conditions, some of which are beyond our and Century’s control, including, among others, the receipt of required regulatory approval and approval of Century’s shareholders.

These conditions to the closing of the Century Merger may not be fulfilled in a timely manner or at all, and, accordingly, the Century Merger may be delayed substantially or may not be completed. In addition, the parties can mutually decide to terminate the Merger Agreement at any time, or we or Century may elect to terminate the Merger Agreement in certain other circumstances.

As a condition to granting required regulatory approvals, governmental entities may impose conditions, limitations or costs, require divestitures or place restrictions on our conduct after the closing of the Century Merger. Such conditions or changes and the process of obtaining regulatory approvals could, among other things, have the effect of delaying completion of the Century Merger or of imposing additional costs or limitations on us following the Century Merger, any of which may have an adverse effect on us following the Century Merger.

**Our acquisition of new lines of business at Century may present risks that are different in kind or degree compared to those that we are accustomed to managing, requiring us to implement new or enhance existing procedures and controls and diverting resources from the operation of our existing business.**

Our acquisition of new lines of business at Century will present risks that are different in kind or degree compared to those that we are accustomed to managing, requiring us to implement new or enhance existing procedures and controls.

Century Bank’s lines of business include two categories of cash-based businesses that are new to us and will necessitate robust compliance policies and procedures in order to comply with various laws and regulations. Century provides depository services to marijuana-related businesses, including marijuana retailers and marijuana dispensaries. Century also provides loans to various marijuana-related businesses that in the aggregate are not material to Century. We understand Century's customer due diligence process confirms each new marijuana-related customer is appropriately licensed under Massachusetts law and monitors that such customers continue to be licensed. Century also provides depository services to check cashers and other businesses, sometimes generally referred to as a “money services business,” that regularly engage in the transfer of funds domestically and internationally.

We expect that after the closing of the Century Merger, these lines of business will require proportionately greater compliance and risk management resources than our current businesses in order for us to comply with laws and regulations related to the prevention of financial crimes and combating terrorism, including the U.S. Patriot Act of 2001. These laws and regulations require us to, among other things, implement policies and procedures related to anti-money laundering, anti-bribery and corruption, fraud, compliance, suspicious activities, currency transaction reporting, and due diligence on new and existing customers.

With respect to marijuana-related businesses, the Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana, and therefore federal law, including the money laundering statutes and the Bank Secrecy Act, apply to marijuana-related conduct. Financial transactions involving proceeds generated by marijuana-related conduct can form the basis for prosecution under the money laundering statutes. Financial institutions must report currency transactions and conduct suspicious activity monitoring and reporting in connection with marijuana-related businesses to the Financial Crimes Enforcement Network (“FinCEN”).

Our ability to comply with anti-money laundering laws and our reporting obligations to FinCEN will depend on our ability to maintain robust customer due diligence, surveillance, detection, reporting and analytic capabilities. Although we believe that we will have policies and procedures designed to comply with these laws and regulations, to the extent our policies or procedures are not fully effective or do not meet heightened regulatory standards or expectations, we may be subject to fines, penalties, restrictions on certain activities including future acquisitions, reputational harm, or other adverse consequences from our federal bank regulators, the Department of Justice or FinCEN.

We intend to continue to evaluate, both prior to and after the closing of the Century Merger, the banking services that Century provides to marijuana-related businesses and money services businesses and to assess our competencies to manage those businesses in a manner that provides appropriate risk-adjusted returns.

**We may fail to realize all of the anticipated benefits of the Century Merger, or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating with Century.**

We and Century have operated and, until the completion of the Century Merger, will continue to operate, independently. The success of the Century Merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully integrate Century’s operations in a manner that results in various benefits and that does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers. The process of integrating operations could result in a loss of key personnel or cause an interruption of, or loss of momentum in, the activities of one or more of the combined company's businesses. Inconsistencies in standards, controls, procedures and policies could adversely affect the combined company. The diversion of management's attention and any delays or difficulties encountered in connection with the Century Merger and the integration of Century’s operations could have an adverse effect on the business, financial condition, operating results and prospects of the combined company.

If we experience difficulties in the integration process, including those listed above, we may fail to realize the anticipated benefits and synergies of the Century Merger in a timely manner or at all.

**While the Century Merger is pending, we will be subject to business uncertainties and contractual restrictions that could adversely affect our business and operations.**

Uncertainty about the effect of the Century Merger on employees, customers and other persons with whom we or Century have a business relationship may have an adverse effect on our business, operations and stock price. Our existing customers or existing customers of Century could decide to no longer do business with us, Century or the combined company, reducing the anticipated benefits of the Century Merger. In addition, Century is subject to certain restrictions on the conduct of its business while the Century Merger is pending. As a result, certain other projects may be delayed or abandoned, and business decisions could be deferred. Employee retention at our Company and Century may be challenging before or after completion of the Century Merger, as certain employees may experience uncertainty about their future roles with the combined company, and these retention challenges may require us to incur additional expenses in order to retain or replace key employees. If key officers or employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with us, Century or the combined company, the benefits of the Century Merger could be materially diminished and we could encounter difficulties in replacing them and successfully managing new lines of business with which we do not have management experience or expertise.

**We expect to incur substantial expenses related to the Century Merger and the integration with Century.**

We and Century will incur substantial expenses in connection with the Century Merger and integration. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses and the realization of economies of scale. We anticipated that some of the expenses we incur will not be deductible due to the application of Section 162(m) of the Internal Revenue Code of 1986, as amended, as discussed in Part I, Item 1A of our 2020 Form 10-K. See “—Due to Section 162(m) of the Internal Revenue Code, we may not be able to deduct all of the compensation of some executives, including executives of companies we may acquire in the future.”

**Our future results will suffer if we do not effectively manage our expanded operations following the Century Merger.**

Following the Century Merger, the size and operational scope of our business will increase significantly beyond its current size and scope. The Century Merger will increase our asset size and will further increase the breadth and complexity of our business with the addition of new business lines in which we have not previously engaged and with which we lack familiarity, and exposure to industry sectors, such as higher education, which we have not historically served. We expect that the size and scope of our commercial loan and lease portfolio will also increase in size as a result of the Century Merger. Century’s commercial loan portfolio includes loans that are concentrated in industry sectors (such as higher education and nonprofit organizations) that will be relatively new to us. Some such loans are of greater size than the typical size of commercial loans that we have made in recent years.

Our future success depends, in part, upon our ability to manage this expanded business, which will pose substantial challenges for our management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that we will be successful in this regard or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Century Merger.

Filed May 14, 2021.
Source: SEC EDGAR, the filing index for accession 0001628280-21-010239. Last ingested by Listed: Nov 6, 2026, 12:48 ET. No prices; not investment advice.