# Eastern Bankshares, Inc.: Form 10-Q for the period ended Jun 30, 2021

- Company: [Eastern Bankshares, Inc.](/companies/ebc.md) (CIK 1810546)
- Form: 10-Q
- Filed: 2021-08-13
- Accepted by EDGAR: Aug 13, 2021, 11:39 ET
- Period: 2021-06-30
- Accession: 0001628280-21-016937
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1810546/000162828021016937/ebc-20210630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1810546/000162828021016937/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-04-01 to 2021-06-30 | $40.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2021-01-01 to 2021-06-30 | $84.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2021-04-01 to 2021-06-30 | $1.1m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2021-01-01 to 2021-06-30 | $2.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-04-01 to 2021-06-30 | $11.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2021-01-01 to 2021-06-30 | $25.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-04-01 to 2021-06-30 | $34.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2021-01-01 to 2021-06-30 | $82.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-04-01 to 2021-06-30 | $0.20 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2021-01-01 to 2021-06-30 | $0.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-04-01 to 2021-06-30 | $0.20 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2021-01-01 to 2021-06-30 | $0.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-04-01 to 2021-06-30 | 172,173,707 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2021-01-01 to 2021-06-30 | 172,111,372 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2021-01-01 to 2021-06-30 | $59.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2021-01-01 to 2021-06-30 | $24.1m | us-gaap:PaymentsOfDividends |
| Total assets | at 2021-06-30 | $17.05bn | us-gaap:Assets |
| Total liabilities | at 2021-06-30 | $13.62bn | us-gaap:Liabilities |
| Shareholders' equity | at 2021-06-30 | $3.43bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 134,601 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 June 30, 2021, and our results of operations for the three and six months ended June 30, 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 on Form 10-Q 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 the rate of inflation of prices of goods and services in our market and nationally and changes in expectations regarding future inflation rates;
- 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 for the three months ended March 31, 2021 (“Q1 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 and six months ended June 30, 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.

*(In thousands, except per share data)*

| Selected Financial Position Data: | As of June 30, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Total assets | $17,047,453 | $15,964,190 |
| Cash and cash equivalents | 1,564,247 | 2,054,070 |
| Securities available for sale | 4,848,781 | 3,183,861 |
| Loans, net of allowance for loan losses and unamortized premiums, net of unearned discounts and deferred fees | 9,485,699 | 9,593,958 |
| FHLB stock, at cost | 10,601 | 8,805 |
| Goodwill and other intangibles, net | 380,402 | 376,534 |
| Total liabilities | 13,616,831 | 12,536,138 |
| Total deposits | 13,250,433 | 12,155,784 |
| Total borrowings | 28,442 | 28,049 |
| Total shareholders’ equity | 3,430,622 | 3,428,052 |
| Nonperforming loans | 41,632 | 43,252 |
| Nonperforming assets | 41,670 | 43,252 |
| **Per Share Data:** |  |  |
| Book value | $18.37 | $18.36 |
| Tangible book value (1) | $16.33 | $16.34 |

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

*(In thousands, except per share data)*

| Selected Operating Data: | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: |
| Interest and dividend income | $206,814 | $208,092 |
| Interest expense | 2,115 | 9,191 |
| Net interest income | 204,699 | 198,901 |
| (Release of) provision for loan losses | (3,880) | 37,200 |
| Net interest income after provision for loan losses | 208,579 | 161,701 |
| Noninterest income | 100,945 | 81,026 |
| Noninterest expense | 201,384 | 195,937 |
| Income before income taxes | 108,140 | 46,790 |
| Provision for income taxes | 25,668 | 8,495 |
| Net income | $82,472 | $38,295 |
| **Per Share Data:** |  |  |
| Basic earnings per share | $0.48 | $— |
| Diluted earnings per share | $0.48 | $— |

55

| Performance Ratios: | As of and for the Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: |
| Return on average assets (1) (6) | 1.00% | 0.61% |
| Return on average equity (2) (6) | 4.87% | 4.64% |
| Interest rate spread (FTE) (3) (6) | 2.67% | 3.38% |
| Net interest margin (FTE) (4) (6) | 2.70% | 3.49% |
| Noninterest expenses to average assets (6) | 2.45% | 3.11% |
| Efficiency ratio (5) | 65.89% | 70.00% |
| Average interest-earning assets to average interest-bearing liabilities | 204.53% | 172.86% |
| **Capital Ratios:** |  |  |
| Average equity to average assets | 20.60% | 13.09% |
| Total capital to risk weighted assets | 29.13% | 14.00% |
| Tier 1 capital to risk weighted assets | 28.08% | 12.77% |
| Common equity tier 1 capital to risk weighted assets | 28.08% | 12.77% |
| Tier 1 capital to average assets | 18.66% | 9.99% |
| **Asset Quality Ratios:** |  |  |
| Allowance for loan losses as a percentage of total loans | 1.10% | 1.17% |
| Allowance for loan losses as a percentage of nonperforming loans | 253.74% | 210.55% |
| Net charge-offs to average outstanding loans during the period (6) | 0.07% | 0.06% |
| Nonperforming loans as a percentage of total loans | 0.43% | 0.56% |
| Nonperforming loans as a percentage of total assets | 0.24% | 0.40% |
| Total nonperforming assets as a percentage of total assets | 0.24% | 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 $17.0 billion and $16.0 billion at June 30, 2021 and December 31, 2020, respectively. We are subject to comprehensive regulation and examination by the Massachusetts Commissioner of Banks, the FDIC, the Federal Reserve Board and the Consumer Financial Protection Bureau.

We manage our business under two business segments: our banking business, which contributed $126.2 million, or 83.9%, of our total income (pre-provision net interest and dividend income and noninterest income) for the three months ended June 30, 2021 and $253.2 million, or 82.8%, of our total income for the six months ended June 30, 2021, and our insurance agency business, which contributed $24.2 million, or 16.1%, of our total income for the three months ended June 30, 2021 and $52.5 million, or 17.2%, of our total income for the six months ended June 30, 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 and six months ended June 30, 2021 computed in accordance with GAAP was $34.8 million and $82.5 million, respectively, as compared to $29.9 million and $38.3 million for the three and six months ended

June 30, 2020, respectively, representing an increase of 16.6% and 115.4%, respectively. This increase was largely driven by a decrease in the provision for the allowance for loan losses of $11.9 million and $41.1 million for the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, respectively, which is attributable to greater prior period provisions that resulted from the impact of the COVID-19 pandemic on the Bank’s borrowers during such periods, and current period releases of provisions for loans losses of $3.3 million and $3.9 million for the three and six months ended June 30, 2021, respectively. These items are discussed further in the “Results of Operations” section below. Net income for the three and six months ended June 30, 2021 and 2020 included items that our management considers non-core, which management excludes for purposes of assessing our operating net income, a non-GAAP financial measure. Operating net income for the three and six months ended June 30, 2021 was $37.1 million and $83.6 million compared to operating net income for the three and six months ended June 30, 2020 of $27.3 million and $38.2 million, respectively, representing a respective increase of 35.9% and increase of 119.2%. These increases were 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 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 June 30, 2021 and December 31, 2020, we had total commercial and industrial loans of $1.7 billion and $2.0 billion, representing 18.1% 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 SNC Program. As of June 30, 2021 and December 31, 2020, our SNC Program portfolio totaled $374.4 million and $425.1 million, or 21.5% and 21.3%, respectively, of our commercial and industrial portfolio, and 42.6% 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 June 30, 2021 and December 31, 2020, our ABL Portfolio totaled $141.6 million and $134.5 million, or 8.1% and 6.7%, respectively, of our commercial and industrial portfolio. Our commercial and industrial portfolio also includes a portion of our PPP loans. As of June 30, 2021 and December 31, 2020, the amount of PPP loans included in our commercial and industrial portfolio was $366.1 million and $568.8 million, respectively.
- Commercial real estate: Loans in this category include mortgage loans on commercial real estate, both investment and owner occupied. As of June 30, 2021 and December 31, 2020, we had total commercial real estate loans of $3.8 billion and $3.6 billion, representing 39.4% and 36.8%, respectively, of our total loans. As of June 30, 2021, and December 31, 2020, owner occupied loans totaled $713.5 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 June 30, 2021 and December 31, 2020, we had total commercial construction loans of $237.9 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 both June 30, 2021 and December 31, 2020, we had total business banking loans of $1.3 billion representing 14.0% 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 $649.3 million and $690.6 million, respectively, as of June 30, 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 SBA lending. SBA guarantees reduce our risk of loss when default occurs and are considered a credit enhancement to the loan structure. Our business banking portfolio also includes a portion of our PPP loans which are included in the aforementioned commercial and industrial total. As of June 30, 2021 and December 31, 2020, the amount of PPP loans included in our business banking portfolio was $459.7 million and $457.4 million, respectively.

### Residential Lending

- Residential real estate: Loans in this category consist of mortgage loans on residential real estate. As of June 30, 2021 and December 31, 2020, we had total residential loans of $1.5 billion and $1.4 billion, respectively, representing 15.2% 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 scores 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 and six months ended June 30, 2021, residential real estate mortgage originations were $236.5 million and $496.6 million, respectively, of which $46.1 million and $103.3 million, respectively, were sold on the secondary markets. Comparatively, during the three and six months ended June 30, 2020, residential real estate mortgage originations were $256.9 million and $380.3 million, respectively, of which $130.9 million and $201.4 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 June 30, 2021 and December 31, 2020, we had total consumer home equity loans of $834.9 million and $868.3 million, representing 8.7% 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 June 30, 2021 and December 31, 2020, we had total other consumer loans of $234.4 million and $277.8 million, representing 2.4% 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 $83.7 million and $126.7 million of automobile loans, respectively, at June 30, 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 June 30, 2021 and December 31, 2020, our total commercial deposits were $5.0 billion and $4.4 billion, respectively. During the three and six months ended June 30, 2021 our commercial noninterest income was $4.1 million and $8.3 million, respectively, compared to $5.0 million and $8.4 million for the three and six months ended June 30, 2020, 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 86 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 June 30, 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 and six months ended June 30, 2021, we had noninterest income of $6.1 million and $11.7 million, respectively, from providing these services compared to $5.2 million and $10.3 million, respectively, for the three and six months ended June 30, 2020.

### 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. 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 $23.7 million and $51.8 million, respectively, or 51.7% and 51.3%, respectively of our noninterest income during the three and six months ended June 30, 2021. Comparatively, such income represented $22.7 million and $50.2 million, or 47.6% and 61.9%, respectively, of our noninterest income during the three and six months ended June 30, 2020. Our insurance business operates through 25 non-branch offices located primarily in eastern Massachusetts and had 396 full-time equivalent employees as of June 30, 2021.

### Acquisitions

### Proposed Acquisition

On April 7, 2021, we entered into a definitive merger agreement with Century Bancorp, Inc. ("Century") 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. On July 7, 2021, Century held its special meeting of shareholders at which Century's shareholders approved the Merger Agreement. 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 Q1 Form 10-Q.

### Other Acquisitions

During the three and six months ended June 30, 2021, Eastern Insurance Group completed two insurance agency acquisitions. The aggregate purchase price and goodwill recorded as a result of the acquisitions were not material.

### Outlook and Trends

### Century Acquisition

During the three and six months ended June 30, 2021, we incurred and recorded merger and acquisition costs related to the proposed Century acquisition of $3.5 million and $4.1 million, respectively. The following table depicts Century-related merger and acquisition costs broken down by the line item on the consolidated statements of income for the periods indicated in which the costs are included:

*(In thousands)*

|  | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
| --- | ---: | ---: |
| Salaries and employee benefits | $2 | $2 |
| Data processing | 1,084 | 1,084 |
| Professional services | 2,393 | 2,978 |
| Total | $3,479 | $4,064 |

In addition to the Century-related costs, total merger and acquisition expenses disclosed in our non-GAAP financial measures include costs associated with the aforementioned insurance agency acquisitions completed during the year.

We anticipate incurring additional expenses related to the Century acquisition during the remainder of the year ended December 31, 2021.

### Paycheck Protection Program Loans

We are a participating lender in the SBA’s Paycheck Protection Program. We concluded PPP loan originations during the six months ended June 30, 2021 as the SBA announced that PPP funds were exhausted. The vast majority of our PPP borrowers are existing commercial and small business borrowers, non-profit customers, retail banking customers and clients of our Eastern Wealth Management division and Eastern Insurance Group.

- During the six months ended June 30, 2021, we originated approximately 6,600 PPP loans totaling $543.2 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 loan term. Through June 30, 2021, we had received $28.7 million in fees from the SBA and had deferred $4.0 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 six months ended June 30, 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 ending December 31, 2021.
- Net PPP fee accretion (fee accretion less cost amortization) for all PPP loans for the six months ended June 30, 2021 was $17.6 million.

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

*(Dollars in thousands)*

|  | PPP Loans Originated During the Six Months Ended June 30, 2021 | Year ended December 31, 2020 | Total |
| --- | ---: | ---: | ---: |
| Number of loans originated | 6,628 | 8,902 | 15,530 |
| Original balance of loans originated | $543,212 | $1,167,137 | $1,710,349 |
| Current balance of loans originated in respective periods | 540,173 | 285,611 | 825,784 |
| Total SBA fees received(1) | 28,677 | 37,224 | 65,901 |
| SBA fees recognized in interest income related to loans originated in respective periods(2) | 2,249 | 33,650 | 35,899 |
| Unaccreted SBA fees related to loans originated in respective periods | 26,427 | 3,574 | 30,001 |

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

(2) Reflects life-to-date accretion.

The following table shows certain data related to our remaining PPP loans as of June 30, 2021:

*(Dollars in thousands)*

| Loan Size | Loan Balance | Number of Loans |
| --- | ---: | ---: |
| $0 to $50 thousand | $110,281 | 6,454 |
| $50 thousand to $150 thousand | 125,647 | 1,452 |
| $150 thousand to $1 million | 338,263 | 1,020 |
| $1 million to $2 million | 112,351 | 79 |
| $2 million to $5 million | 118,961 | 45 |
| Over $5 million | 20,281 | 3 |
| Total | $825,784 | 9,053 |

The following table shows the balance of our PPP loans by industry as of June 30, 2021:

*(Dollars in thousands)*

| Industry | Loan Balance | Number of Loans |
| --- | ---: | ---: |
| Accommodation & food services | $129,421 | 880 |
| Construction | 114,574 | 1,205 |
| Health care & social assistance | 97,958 | 783 |
| Professional, scientific & technical services | 92,711 | 1,324 |
| Other services | 76,691 | 1,320 |
| Manufacturing | 61,301 | 338 |
| Administrative & support | 56,378 | 481 |
| Wholesale trade | 44,260 | 234 |
| Retail trade | 38,314 | 814 |
| Transportation & warehousing | 28,954 | 560 |
| Real estate, rental & leasing | 27,483 | 366 |
| All other | 57,739 | 748 |
| Total | $825,784 | 9,053 |

### 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, (ix) the stock donation to the Eastern Bank Charitable Foundation (now known as the Eastern Bank Foundation, or the “Foundation”) in connection with our mutual-to-stock conversion and IPO, and (x) settlement of putative consumer class action litigation matters related to overdraft and non-sufficient funds fees, and associated settlement expenses. There were no OREO 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)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| **Net income (GAAP)** | $34,809 | $29,850 | $82,472 | $38,295 |
| Non-GAAP adjustments: |  |  |  |  |
| Add: |  |  |  |  |
| Noninterest income components: |  |  |  |  |
| Income from investments held in rabbi trusts | (4,216) | (7,745) | (6,062) | (1,002) |
| Gains on sales of securities available for sale, net | (1) | (163) | (1,165) | (285) |
| (Gains) losses on sale of other assets | (29) | 27 | (47) | (2) |
| Noninterest expense components: |  |  |  |  |
| Rabbi trust employee benefit expenses | 2,063 | 3,985 | 3,049 | 506 |
| Impairment reversal on tax credit investments | (1,419) | — | (1,419) | — |
| Indirect IPO costs (1) | — | 380 | — | 650 |
| Merger and acquisition expenses | 3,479 | — | 4,068 | — |
| Settlement and expenses for putative consumer class action matters | 3,325 | — | 3,325 | — |
| Total impact of non-GAAP adjustments | 3,202 | (3,516) | 1,749 | (133) |
| Less net tax benefit (expense) associated with non-GAAP adjustment (2) | 914 | (967) | 587 | 3 |
| Non-GAAP adjustments, net of tax | $2,288 | $(2,549) | $1,162 | $(136) |
| **Operating net income (non-GAAP)** | $37,097 | $27,301 | $83,634 | $38,159 |
| Weighted average common shares outstanding during the period: |  |  |  |  |
| Basic | 172,173,707 | n.a | 172,111,372 | n.a |
| Diluted | 172,173,707 | n.a | 172,111,372 | n.a |
| Earnings per share, basic | $0.20 | n.a | $0.48 | n.a |
| Earnings per share, diluted | $0.20 | n.a | $0.48 | n.a |
| Operating earnings per share, basic (non-GAAP) | $0.22 | n.a | $0.49 | n.a |
| Operating earnings per share, diluted (non-GAAP) | $0.22 | n.a | $0.49 | 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 revenue, 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)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| **Net interest income (GAAP)** | $104,608 | $98,755 | $204,699 | $198,901 |
| Add: |  |  |  |  |
| Tax-equivalent adjustment (non-GAAP) | 1,269 | 1,378 | 2,566 | 2,746 |
| Fully-taxable equivalent net interest income (non-GAAP) | 105,877 | 100,133 | 207,265 | 201,647 |
| Noninterest income (GAAP) | 45,733 | 47,657 | 100,945 | 81,026 |
| Less: |  |  |  |  |
| Income from investments held in rabbi trusts | 4,216 | 7,745 | 6,062 | 1,002 |
| Gains on sales of securities available for sale, net | 1 | 163 | 1,165 | 285 |
| Gains (losses) on sales of other assets | 29 | (27) | 47 | 2 |
| Noninterest income on an operating basis (non-GAAP) | 41,487 | 39,776 | 93,671 | 79,737 |
| **Noninterest expense (GAAP)** | $107,335 | $100,765 | $201,384 | $195,937 |
| Less: |  |  |  |  |
| Rabbi trust benefit expense | 2,063 | 3,985 | 3,049 | 506 |
| Impairment reversal on tax credit investments | (1,419) | — | (1,419) | — |
| Indirect IPO costs (1) | — | 380 | — | 650 |
| Merger and acquisition expenses | 3,479 | — | 4,068 | — |
| Settlement and expenses for putative consumer class action matters | 3,325 | — | 3,325 | — |
| Noninterest expense on an operating basis (non- GAAP) | $99,887 | $96,400 | $192,361 | $194,781 |
| Total revenue (GAAP) | $150,341 | $146,412 | $305,644 | $279,927 |
| Total operating revenue (non-GAAP) | $147,364 | $139,909 | $300,936 | $281,384 |
| **Ratios:** |  |  |  |  |
| Efficiency ratio (GAAP) | 71.39% | 68.82% | 65.89% | 70.00% |
| Operating efficiency ratio (non-GAAP) | 67.78% | 68.90% | 63.92% | 69.22% |

(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, except per share data)*

| Tangible shareholders’ equity: | As of June 30, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Total shareholders’ equity (GAAP) | $3,430,622 | $3,428,052 |
| Less: Goodwill and other intangibles | 380,402 | 376,534 |
| Tangible shareholders’ equity (non-GAAP) | 3,050,220 | 3,051,518 |
| **Tangible assets:** |  |  |
| Total assets (GAAP) | 17,047,453 | 15,964,190 |
| Less: Goodwill and other intangibles | 380,402 | 376,534 |
| Tangible assets (Non-GAAP) | $16,667,051 | $15,587,656 |
| Shareholders’ equity to assets ratio (GAAP) | 20.1% | 21.5% |
| Tangible shareholders’ equity to tangible assets ratio (Non-GAAP) | 18.3% | 19.6% |
| **Book value per share:** |  |  |
| Common shares issued and outstanding | 186,758,154 | 186,758,154 |
| Book value per share (GAAP) | $18.37 | $18.36 |
| Tangible book value per share (non-GAAP) | $16.33 | $16.34 |

### Financial Position

### Summary of Financial Position

*(Dollars in thousands)*

|  | As of June 30, 2021 Amount ($) | As of December 31, 2020 Percentage (%) | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $1,564,247 | $2,054,070 | $(489,823) | (23.8)% |
| Securities available for sale | 4,848,781 | 3,183,861 | 1,664,920 | 52.3% |
| Loans, net of allowance for loan losses | 9,485,699 | 9,593,958 | (108,259) | (1.1)% |
| Federal Home Loan Bank Stock | 10,601 | 8,805 | 1,796 | 20.4% |
| Goodwill and other intangible assets | 380,402 | 376,534 | 3,868 | 1.0% |
| Deposits | 13,250,433 | 12,155,784 | 1,094,649 | 9.0% |
| Borrowed funds | 28,442 | 28,049 | 393 | 1.4% |

### Cash and cash equivalents

Total cash and cash equivalents decreased by $0.5 billion, or 23.8%, to $1.6 billion at June 30, 2021 from $2.1 billion at December 31, 2020. This decrease was primarily due to available for sale security purchases partially offset by an increase in total customer deposits.

### 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 June 30, 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 June 30, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Government-sponsored residential mortgage-backed securities | $3,478,529 | $2,148,800 |
| Government-sponsored commercial mortgage-backed securities | 181,795 | 17,081 |
| U.S. Agency bonds | 841,005 | 666,709 |
| U.S. Treasury securities | 69,331 | 70,369 |
| State and municipal bonds and obligations | 278,121 | 280,902 |
| Total | $4,848,781 | $3,183,861 |

Our securities portfolio has increased year-to-date. Available for sale securities increased $1.7 billion, or 52.3%, to $4.8 billion at June 30, 2021 from $3.2 billion at December 31, 2020. This increase is due to investment purchases during the six months ended June 30, 2021. Partially offsetting the increase in the securities portfolio from December 31, 2020 to June 30, 2021 was the reduction in the unrealized gain on the securities. At June 30, 2021 the unrealized loss was $4.8 million compared to an unrealized gain of $58.7 million at December 31, 2020, representing a $63.5 million decrease.

We did not have trading or held-to-maturity investments at June 30, 2021 or December 31, 2020.

A portion of our securities portfolio continues to be tax-exempt. Investments in federally tax-exempt securities totaled $278.1 million at June 30, 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 June 30, 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 June 30, 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

*(In thousands)*

| Available for sale securities: | Securities Maturing as of June 30, 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 | $— | $19,323 | $597,546 | $2,861,660 | $3,478,529 |
| Government-sponsored commercial mortgage-backed securities | — | 23,781 | 158,014 | — | 181,795 |
| U.S. Agency bonds | — | 196,383 | 644,622 | — | 841,005 |
| U.S. Treasury securities | 10,071 | 59,260 | — | — | 69,331 |
| State and municipal bonds and obligations | 486 | 29,781 | 76,046 | 171,808 | 278,121 |
| Total | $10,557 | $328,528 | $1,476,228 | $3,033,468 | $4,848,781 |
| Weighted-average yield | 0.50% | 0.87% | 1.01% | 1.54% | 1.33% |

*(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 June 30, 2021 and December 31, 2020 totaled $(4.8) million and $58.7 million, respectively. The change from December 31, 2020 to June 30, 2021 is primarily driven by a steepening yield curve.

### Loans

We consider our loan portfolio to be relatively diversified by borrower and industry. Our loans decreased $109.5 million, or 1.1%, to $9.6 billion at June 30, 2021 from $9.7 billion at December 31, 2020. The decrease as of June 30, 2021 was primarily due to a decrease in our PPP loan balances within the C&I portfolio, as further noted below.

- The $254.3 million decrease in our commercial and industrial portfolio was primarily a result of a decrease of $202.7 million in PPP loan balances during the six months ended June 30, 2021.
- The $202.1 million increase in our commercial real estate loans from December 31, 2020 to June 30, 2021 was primarily a result of an increase of $176.2 million of commercial real estate investment loan balances,

which represents loans secured by commercial real estate that are non-owner-occupied, during the six months ended June 30, 2021.

- The $9.8 million increase in our retail portfolio was primarily a result of an increase of $86.5 million in residential real estate loans during the six months ended June 30, 2021 which was partially offset by a decrease in our other consumer and consumer home equity portfolios of $43.4 million and $33.3 million, respectively.

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

### Loan Portfolio Composition

*(In thousands)*

|  | As of June 30, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Commercial and industrial | $1,740,679 | $1,995,016 |
| Commercial real estate | 3,775,771 | 3,573,630 |
| Commercial construction | 237,927 | 305,708 |
| Business banking | 1,339,852 | 1,339,164 |
| Residential real estate | 1,457,498 | 1,370,957 |
| Consumer home equity | 834,938 | 868,270 |
| Other consumer | 234,410 | 277,780 |
| Total loans | 9,621,075 | 9,730,525 |
| Less: |  |  |
| Allowance for loan losses | (105,637) | (113,031) |
| Unamortized premiums, net of unearned discounts and deferred fees | (29,739) | (23,536) |
| Total loans receivable, net | $9,485,699 | $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 90.7% of our loans in Massachusetts and New Hampshire as of June 30, 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 non-accrual 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 6.8% and 7.7% of total commercial loans outstanding at June 30, 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 decreased to 0.42% at June 30, 2021 from 0.49% at December 31, 2020.

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

### Loan Delinquency Rates

| Portfolio | Delinquency Rate as of (1) June 30, 2021 | December 31, 2020 |
| --- | ---: | ---: |
| Commercial and industrial | 0.05% | 0.11% |
| Commercial real estate | 0.09% | 0.06% |
| Commercial construction | —% | —% |
| Business banking | 0.93% | 1.40% |
| Residential real estate | 1.21% | 1.21% |
| Consumer home equity | 0.53% | 0.60% |
| Other consumer | 0.86% | 0.98% |
| Total | 0.42% | 0.49% |

***(1)*** In the calculation of the delinquency rate as of June 30, 2021 and December 31, 2020, the total amount of loans outstanding includes $0.8 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 June 30, 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 | $— | $267 | $647 | $4 | $268 | $1,924 |
| Commercial real estate | 1,896 | — | 1,414 | — | 556 | 1,545 |
| Commercial construction | — | — | — | — | — | — |
| Business banking | 4,004 | 1,902 | 6,609 | 5,279 | 3,311 | 10,196 |
| Residential real estate | 11,706 | 1,330 | 4,631 | 9,184 | 2,517 | 4,904 |
| Consumer home equity | 610 | 403 | 3,408 | 1,806 | 364 | 3,035 |
| Other Consumer | 1,074 | 438 | 513 | 1,978 | 234 | 517 |
| Total | $19,290 | $4,340 | $17,222 | $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.

Nonperforming assets (“NPAs”) are comprised of nonperforming loans (“NPLs”), OREO and nonperforming securities. NPLs consist of non-accrual 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.

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

### Nonperforming Assets

*(In thousands)*

| Non-accrual loans: | As of June 30, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Commercial | $29,356 | $30,059 |
| Residential | 6,445 | 6,815 |
| Consumer | 4,106 | 4,131 |
| Total non-accrual loans | 39,907 | 41,005 |
| Accruing loans past due 90 days or more: |  |  |
| Commercial | 1,439 | 1,959 |
| Residential | 277 | 279 |
| Consumer | 9 | 9 |
| Total accruing loans past due 90 days or more | 1,725 | 2,247 |
| Total nonperforming loans | 41,632 | 43,252 |
| Total real estate owned | 38 | — |
| Other nonperforming assets: | — | — |
| Total nonperforming assets | $41,670 | $43,252 |
| Total accruing troubled debt restructured loans | $38,316 | $41,095 |
| Total nonperforming loans to total loans | 0.43% | 0.45% |
| Total nonperforming assets to total assets | 0.24% | 0.27% |

NPLs decreased $1.6 million, or 3.7%, to $41.6 million at June 30, 2021 from $43.3 million at December 31, 2020. NPLs as a percentage of total loans decreased to 0.43% at June 30, 2021 from 0.45% at December 31, 2020 primarily due to a decrease in business banking, commercial real estate, and residential real estate non-accrual loans.

Non-accrual loans decreased $1.1 million, or 2.7%, to $39.9 million at June 30, 2021 from $41.0 million at December 31, 2020, primarily due to a decrease in non-accrual loans in our business banking portfolio, partially offset by an increase in non-accrual loans in our commercial and industrial portfolio.

The total amount of interest recorded on NPLs was $0.2 million for the six months ended June 30, 2021. The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $1.5 million for the six months ended June 30, 2021. The total amount of interest recorded on NPLs was $0.3 million for the six months ended June 30, 2020. The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $2.0 million for the six months ended June 30, 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 each loan that is 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 six months ended June 30, 2021 and 2020 were $0.8 million (post modification balance) and $2.8 million, respectively. The overall decrease in TDR loans modified during the aforementioned periods consisted of a decrease of $1.4 million in commercial loan TDR modifications and a decrease of $0.7 million in consumer loan

TDR modifications. Two loans totaling $0.5 million were modified during the preceding 12 months, which subsequently defaulted during the six months ended June 30, 2021. One loan totaling $1.3 million was modified during the 12 months ended June 30, 2020, which subsequently defaulted during six months ended June 30, 2020.

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.

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 June 30, 2021 and December 31, 2020 the carrying amount of PCI loans was $4.5 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

*(In thousands)*

| Loans: | As of June 30, 2021 Gross Loans Outstanding (1) | 90+ Days Past Due Still Accruing | Non-accruing Loans | NPLs | NPLs as a % of Outstanding | Accruing Troubled Debt Restructured Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | $7,094,229 | $1,439 | $29,356 | $30,795 | 0.43% | $13,140 |
| Residential | 1,457,498 | 277 | 6,445 | 6,722 | 0.46% | 21,677 |
| Consumer | 1,069,348 | 9 | 4,106 | 4,115 | 0.38% | 3,499 |
| Total | $9,621,075 | $1,725 | $39,907 | $41,632 | 0.43% | $38,316 |

(1) Total gross loans outstanding includes $0.8 billion of PPP loans.

*(In thousands)*

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

(1) Total gross 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 June 30, 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 $492.1 million and $563.3 million, respectively.

***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 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. We have deemed these modified loans “COVID-19 modifications.”

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.

The following table presents the balance of loans that received a COVID-19 modification and have not yet resumed repayment as of June 30, 2021 and December 31, 2020:

*(Dollars in thousands)*

| Portfolio | Remaining COVID-19 Modifications as of June 30, 2021 (1) Balance | % of Total Portfolio | Remaining COVID-19 Modifications as of December 31, 2020 (1) Balance | % of Total Portfolio |
| --- | ---: | ---: | ---: | ---: |
| Commercial and industrial | $18,850 | 1.1% | $34,076 | 1.7% |
| Commercial real estate | 113,301 | 3.0% | 231,794 | 6.5% |
| Commercial construction | — | —% | 10,987 | 3.6% |
| Business banking | 2,102 | 0.2% | 23,434 | 1.7% |
| Residential real estate | 13,428 | 0.9% | 26,772 | 2.0% |
| Consumer home equity | 1,124 | 0.1% | 3,432 | 0.4% |
| Other consumer | 999 | 0.4% | 2,187 | 0.8% |
| Total | $149,805 | 1.6% | $332,682 | 3.4% |

(1) Remaining COVID-19 modifications reflect only those loans which underwent a modification and have not yet resumed repayment. 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. As of June 30, 2021, we believe loans to our borrowers in retail, restaurant, and hotel industry categories represent those which have experienced and will likely continue to experience the most adverse effects of the COVID-19 pandemic. As of June 30, 2021, the aggregate outstanding loan balance of loans to our borrowers in retail, restaurant, and hotel industry categories was $477.5 million, $191.2 million and $169.6 million, respectively, representing 5.0%, 2.0% and 1.8% of total loans, respectively. As of June 30, 2021, the percentage of loans to our borrowers in retail, restaurant, and hotel industry categories that we modified primarily due to the effects on borrowers of the COVID-19 pandemic and related economic slowdown beginning in late March 2020 were 0.9%, 9.9% and 52.6%, 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 the 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 $7.4 million, or 6.5%, to $105.6 million, or 1.10% of total loans, at June 30, 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 during the period. The economic environment during the three and six months ended June 30, 2021 was assisted by government stimulus, the impacts of loan deferral programs, reductions in unemployment and reductions in COVID-19 related restrictions. These, along with other factors, resulted in a release of provisions for loan losses of $3.3 million and $3.9 million for the three and six months ended June 30, 2021 in comparison to provisions for loan losses of $8.6 million and $37.2 million for the three and six months ended June 30, 2020.

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)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Average total loans | $9,796,701 | $9,875,110 | $9,806,688 | $9,445,666 |
| Allowance for loan losses, beginning of the period | $111,080 | $109,138 | $113,031 | $82,297 |
| Charged-off loans: |  |  |  |  |
| Commercial and industrial | 550 | 27 | 550 | 27 |
| Commercial real estate | — | 24 | 234 | 24 |
| Commercial construction | — | — | — | — |
| Business banking | 1,838 | 1,198 | 3,222 | 2,535 |
| Residential real estate | — | — | — | — |
| Consumer home equity | — | — | — | 473 |
| Other consumer | 275 | 15 | 639 | 548 |
| Total charged-off loans | 2,663 | 1,264 | 4,645 | 3,607 |
| Recoveries on loans previously charged-off: |  |  |  |  |
| Commercial and industrial | 13 | 58 | 22 | 380 |
| Commercial real estate | 4 | 5 | 4 | 6 |
| Commercial construction | — | — | — | — |
| Business banking | 291 | 27 | 656 | 154 |
| Residential real estate | 17 | 13 | 27 | 73 |
| Consumer home equity | 3 | 8 | 74 | 22 |
| Other consumer | 192 | 51 | 348 | 111 |
| Total recoveries | 520 | 162 | 1,131 | 746 |
| Net loans charged-off (recoveries): |  |  |  |  |
| Commercial and industrial | 537 | (31) | 528 | (353) |
| Commercial real estate | (4) | 19 | 230 | 18 |
| Commercial construction | — | — | — | — |
| Business banking | 1,547 | 1,171 | 2,566 | 2,381 |
| Residential real estate | (17) | (13) | (27) | (73) |
| Consumer home equity | (3) | (8) | (74) | 451 |
| Other consumer | 83 | (36) | 291 | 437 |
| Total net loans charged-off | 2,143 | 1,102 | 3,514 | 2,861 |
| (Release of) provision for loan losses | (3,300) | 8,600 | (3,880) | 37,200 |
| Total allowance for loan losses, end of period | $105,637 | $116,636 | $105,637 | $116,636 |
| Net charge-offs to average total loans outstanding during this period | 0.02% | 0.01% | 0.04% | 0.03% |
| Allowance for loan losses as a percent of total loans | 1.10% | 1.20% | 1.10% | 1.20% |
| Allowance for loan losses as a percent of nonperforming loans | 253.74% | 210.55% | 253.74% | 210.55% |

74

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 June 30, 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) | $22,596 | 21.39% | 18.09% | $26,617 | 23.54% | 20.51% |
| Commercial real estate | 52,759 | 49.95% | 39.24% | 54,569 | 48.28% | 36.73% |
| Commercial construction | 3,446 | 3.26% | 2.47% | 4,553 | 4.03% | 3.14% |
| Business banking (1) | 12,705 | 12.03% | 13.93% | 13,152 | 11.64% | 13.76% |
| Residential real estate | 6,478 | 6.13% | 15.15% | 6,435 | 5.69% | 14.09% |
| Consumer home equity | 3,588 | 3.40% | 8.68% | 3,744 | 3.31% | 8.92% |
| Other consumer | 3,626 | 3.43% | 2.44% | 3,467 | 3.07% | 2.85% |
| Other | 439 | 0.41% | —% | 494 | 0.44% | —% |
| Total | $105,637 | 100.00% | 100.00% | $113,031 | 100.00% | 100.00% |

***(1)*** PPP loans are included within these portfolios as of June 30, 2021 and December 31, 2020; however, as of June 30, 2021 and December 31, 2020 no allowance for loan losses was 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 $10.6 million and $8.8 million at June 30, 2021 and December 31, 2020, respectively.

### Goodwill and other intangible assets

Goodwill and other intangible assets were $380.4 million and $376.5 million at June 30, 2021 and December 31, 2020, respectively. The increase in goodwill and other intangibles assets was due to the purchase of two insurance agencies during the six months ended June 30, 2021. We did not record any impairment to our goodwill or other intangible assets during the six months ended June 30, 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 rely upon, 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 June 30, 2021 Amount ($) | As of December 31, 2020 Percentage (%) | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Demand | $5,399,297 | $4,910,794 | $488,503 | 9.9% |
| Interest checking | 2,656,610 | 2,380,497 | 276,113 | 11.6% |
| Savings | 1,403,472 | 1,256,736 | 146,736 | 11.7% |
| Money market investments | 3,544,897 | 3,348,898 | 195,999 | 5.9% |
| Certificate of deposits | 246,157 | 258,859 | (12,702) | (4.9)% |
| Total deposits | $13,250,433 | $12,155,784 | $1,094,649 | 9.0% |

Deposits increased by $1.1 billion, or 9.0%, to $13.3 billion at June 30, 2021 from $12.2 billion at December 31, 2020. This increase was primarily the result of an increase in demand deposits of $488.5 billion, an increase in interest checking deposits of $276.1 million and an increase in money market deposits of $196.0 million. These increases reflect strong deposit flows, in part due to government stimulus.

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 Six Months Ended June 30, 2021 Average Amount | Average Rate | For the Year Ended December 31, 2020 Average Amount | Average Rate |
| --- | ---: | ---: | ---: | ---: |
| Demand | $5,241,134 | —% | $4,535,066 | —% |
| Interest checking | 2,466,860 | 0.04% | 2,227,185 | 0.09% |
| Savings | 1,343,133 | 0.02% | 1,123,584 | 0.02% |
| Money market investments | 3,482,002 | 0.07% | 3,212,752 | 0.23% |
| Certificate of deposits | 248,946 | 0.18% | 300,381 | 0.52% |
| Total deposits | $12,782,075 | 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:

*(In thousands)*

| Maturing in | As of June 30, 2021 | As of December 31, 2020 |
| --- | ---: | ---: |
| Three months or less | $58,098 | $49,740 |
| Over three months through six months | 26,877 | 24,608 |
| Over six months through 12 months | 16,083 | 31,009 |
| Over 12 months | 9,626 | 9,956 |
| Total | $110,684 | $115,313 |

76

### 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 $0.4 million, or 1.4%, to $28.4 million at June 30, 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

*(In thousands)*

|  | As of June 30, 2021 | As of December 31, 2020 | Change Amount ($) | Percentage (%) |
| --- | ---: | ---: | ---: | ---: |
| FHLB advances | $14,323 | $14,624 | $(301) | (2.1)% |
| Escrow deposits of borrowers | 14,119 | 13,425 | 694 | 5.2% |
| Total | $28,442 | $28,049 | $393 | 1.4% |

### Results of Operations

### Summary of Results of Operations

*(Dollars in thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Change Amount ($) | Percentage | Six Months Ended June 30, 2021 | 2020 | Change Amount ($) | Percentage |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest and dividend income | $105,681 | $101,933 | 3,748 | 3.7% | $206,814 | 208,092 | $(1,278) | (0.6)% |
| Interest expense | 1,073 | 3,178 | (2,105) | (66.2)% | 2,115 | 9,191 | (7,076) | (77.0)% |
| Net interest income | 104,608 | 98,755 | 5,853 | 5.9% | 204,699 | 198,901 | 5,798 | 2.9% |
| Provision for loan losses | (3,300) | 8,600 | (11,900) | (138.4)% | (3,880) | 37,200 | (41,080) | (110.4)% |
| Noninterest income | 45,733 | 47,657 | (1,924) | (4.0)% | 100,945 | 81,026 | 19,919 | 24.6% |
| Noninterest expense | 107,335 | 100,765 | 6,570 | 6.5% | 201,384 | 195,937 | 5,447 | 2.8% |
| Income tax expense | 11,497 | 7,197 | 4,300 | 59.7% | 25,668 | 8,495 | 17,173 | 202.2% |
| Net income | 34,809 | 29,850 | 4,959 | 16.6% | 82,472 | 38,295 | 44,177 | 115.4% |

### Comparison of the three and six months ended June 30, 2021 and 2020

### Interest and Dividend Income

Interest and dividend income increased by $3.7 million, or 3.7%, to $105.7 million during the three months ended June 30, 2021 from $101.9 million during the three months ended June 30, 2020. The increase was primarily a result of an increase in the average balance of securities partially offset by a decrease in the yield on such securities.

- Interest income on securities and federal funds sold and other short-term investments increased $5.0 million, or 50.6%, to $14.7 million during the three months ended June 30, 2021 from $9.8 million during the three months ended June 30, 2020. The increase in interest income on our securities was primarily due to an increase in the average balance of such securities of $3.4 billion, or 129.0%, to $6.0 billion for the three months ended June 30, 2021 from $2.6 billion for the three months ended June 30, 2020 which was partially offset by a decrease in the yield on such securities.
- Interest income on loans decreased $1.2 million, or 1.3%, to $90.9 million during the three months ended June 30, 2021 from $92.1 million during the three months ended June 30, 2020. The decrease in interest income on our loans was primarily due to the decrease in 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 decrease in loan yields was partially offset by an increase in net accretion of PPP loan deferred fees

and costs of $5.2 million, or 126.8%, to $9.3 million during the three months ended June 30, 2021 from $4.1 million during three months ended June 30, 2020.

Interest and dividend income decreased by $1.3 million, or 0.6%, to $206.8 million during the six months ended June 30, 2021 from $208.1 million during the six months ended June 30, 2020. This decrease was a result of lower interest income on our loans as the yield on average interest-earning assets on an FTE basis decreased 92 basis points to 2.7% during the six months ended June 30, 2021, partially offset by accretion of deferred fees related to our PPP loans. Our average interest-earning assets increased by $3.9 billion, or 33.2%, to $15.5 billion as of June 30, 2021 compared to $11.6 billion as of June 30, 2020, primarily reflecting the investment of the proceeds from our October 2020 IPO. 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.

- Interest income on loans decreased by $8.1 million, or 4.3%, to $179.6 million during the six months ended June 30, 2021 from $187.7 million during the six months ended June 30, 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 decreased 30 basis points to 3.7% during the six months ended June 30, 2021. The average balance of our loans increased by $361.0 million, or 3.8%, to $9.8 billion as of June 30, 2021 compared to $9.4 billion as of June 30, 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 six months ended June 30, 2021, we recognized $17.6 million in net PPP loan fee accretion. We began originating PPP loans in the second quarter of 2020 and recognized $4.1 million in net PPP loan fee accretion during the six months ended June 30, 2020.
- Interest income on securities and federal funds sold and other short-term investments increased $6.8 million, or 33.5%, to $27.2 million for the six months ended June 30, 2021 compared to $20.4 million for the six months ended June 30, 2020. The increase in interest income on securities was due to a larger average security balance driven by security purchases between June 30, 2021 and June 30, 2020, partially offset by lower overall market rates. The FTE yield on average securities and other interest-earning assets decreased 99 basis points to 1.0% during the six months ended June 30, 2021. The average balance of securities and other interest-earning assets increased by $3.5 billion, or 160.9%, to $5.7 billion as of June 30, 2021 compared to $2.2 billion as of June 30, 2020. The increase was primarily due to the investment of the proceeds of our October 2020 IPO.

### Interest Expense

Interest expense decreased $2.1 million, or 66.2%, to $1.1 million during the three months ended June 30, 2021 from $3.2 million during the three months ended June 30, 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 $2.1 million, or 66.8%, to $1.0 million during the three months ended June 30, 2021 from $3.1 million during the three months ended June 30, 2020.
- Interest expense on borrowed funds decreased by $32.0 thousand, or 43.2%, to $42.0 thousand during the three months ended June 30, 2021 from $74.0 thousand during the three months ended June 30, 2020.

Interest expense decreased $7.1 million, or 77.0%, to $2.1 million during the six months ended June 30, 2021 from $9.2 million during the six months ended June 30, 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 $6.5 million, or 76.1%, to $2.0 million during the six months ended June 30, 2021 from $8.5 million during the six months ended June 30, 2020.
- Interest expense on borrowed funds decreased by $591.0 thousand, or 87.8%, to $82.0 thousand during the six months ended June 30, 2021 from $673.0 thousand during the six months ended June 30, 2020.

Average interest-bearing deposits increased $0.9 billion, or 14.2%, for the six months ended June 30, 2021 compared to the six months ended June 30, 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 six months ended June 30, 2021 compared to the six months ended June 30, 2020.

### Net Interest Income

Net interest income was $104.6 million for the three months ended June 30, 2021 compared to $98.8 million for the three months ended June 30, 2020, representing an increase of $5.9 million, or 5.9%. Net interest income was $204.7 million during the six months ended June 30, 2021 compared to $198.9 million for the six months ended June 30, 2020, representing an increase of $5.8 million, or 2.9%. Net interest income increased slightly between the two periods as the reduction in interest income associated with the lower interest rate environment was more than offset by a related reduction in interest expense coupled with a substantial increase in average balances of interest-earning assets during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020, primarily reflecting the investment of the proceeds from our October 2020 IPO.

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 20.9% for the six months ended June 30, 2021 and 2020. Net interest margin decreased 79 basis points to 2.70% during the six months ended June 30, 2021, from 3.49% during the six months ended June 30, 2020.

The following tables set 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 June 30, 2021 Average Outstanding Balance | Interest | Average Yield/Cost (5) | 2020 Average Outstanding Balance | Interest | Average Yield /Cost (5) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Residential | $1,433,056 | $11,397 | 3.19% | $1,416,326 | $12,555 | 3.57% |
| Commercial | 7,301,745 | 71,747 | 3.94% | 7,195,093 | 69,779 | 3.90% |
| Consumer | 1,061,900 | 8,597 | 3.25% | 1,263,691 | 10,610 | 3.38% |
| Total loans | 9,796,701 | 91,741 | 3.76% | 9,875,110 | 92,944 | 3.79% |
| Investment securities | 4,344,690 | 14,778 | 1.36% | 1,455,901 | 10,083 | 2.79% |
| Federal funds sold and other short-term investments | 1,617,741 | 431 | 0.11% | 1,148,332 | 284 | 0.10% |
| Total interest-earning assets | 15,759,132 | 106,950 | 2.72% | 12,479,343 | 103,311 | 3.33% |
| Non-interest-earning assets | 1,061,121 |  |  | 1,106,217 |  |  |
| Total assets | $16,820,253 |  |  | $13,585,560 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Savings account | $1,385,735 | $69 | 0.02% | $1,095,806 | $64 | 0.02% |
| Interest checking account | 2,541,862 | 253 | 0.04% | 2,414,356 | 649 | 0.11% |
| Money market investment | 3,523,330 | 605 | 0.07% | 3,192,669 | 1,929 | 0.24% |
| Time account | 246,801 | 104 | 0.17% | 313,410 | 462 | 0.59% |
| Total interest-bearing deposits | 7,697,728 | 1,031 | 0.05% | 7,016,241 | 3,104 | 0.18% |
| Borrowings | 25,042 | 42 | 0.67% | 74,960 | 74 | 0.40% |
| Total interest-bearing liabilities | 7,722,770 | 1,073 | 0.06% | 7,091,201 | 3,178 | 0.18% |
| Demand accounts | 5,355,170 |  |  | 4,448,756 |  |  |
| Other noninterest-bearing liabilities | 335,816 |  |  | 356,700 |  |  |
| Total liabilities | 13,413,756 |  |  | 11,896,657 |  |  |
| Shareholders’ equity | 3,406,497 |  |  | 1,688,903 |  |  |
| Total liabilities and shareholders’ equity | $16,820,253 |  |  | $13,585,560 |  |  |
| Net interest income – FTE |  | $105,877 |  |  | $100,133 |  |
| Net interest rate spread (2) |  |  | 2.66% |  |  | 3.15% |
| Net interest-earning assets (3) | $8,036,362 |  |  | $5,388,142 |  |  |
| Net interest margin – FTE (4) |  |  | 2.69% |  |  | 3.23% |
| Average interest-earning assets to interest-bearing liabilities | 204.06% |  |  | 175.98% |  |  |

(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.

*(Dollars in thousands)*

| Interest-earning assets: Loans (1) | As of and for the six months ended June 30, 2021 Average Outstanding Balance | Interest | Average Yield /Cost (5) | 2020 Average Outstanding Balance | Interest | Average Yield/Cost (5) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Residential | $1,413,208 | $22,671 | 3.24% | $1,423,161 | $25,858 | 3.65% |
| Commercial | 7,309,803 | 140,952 | 3.89% | 6,735,075 | 139,394 | 4.16% |
| Consumer | 1,083,677 | 17,534 | 3.26% | 1,287,430 | 24,017 | 3.75% |
| Total loans | 9,806,688 | 181,157 | 3.73% | 9,445,666 | 189,269 | 4.03% |
| Investment securities | 3,990,080 | 27,360 | 1.38% | 1,478,156 | 20,768 | 2.83% |
| Federal funds sold and other short-term investments | 1,678,812 | 863 | 0.10% | 694,386 | 801 | 0.23% |
| Total interest-earning assets | 15,475,580 | 209,380 | 2.73% | 11,618,208 | 210,838 | 3.65% |
| Non-interest-earning assets | 1,089,585 |  |  | 1,064,218 |  |  |
| Total assets | $16,565,165 |  |  | $12,682,426 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Savings account | $1,343,133 | $133 | 0.02% | $1,036,344 | $118 | 0.02% |
| Interest checking account | 2,466,860 | 487 | 0.04% | 2,158,242 | 1,467 | 0.14% |
| Money market investment | 3,482,002 | 1,193 | 0.07% | 3,087,048 | 5,833 | 0.38% |
| Time account | 248,946 | 220 | 0.18% | 320,277 | 1,100 | 0.69% |
| Total interest-bearing deposits | 7,540,941 | 2,033 | 0.05% | 6,601,911 | 8,518 | 0.26% |
| Borrowings | 25,332 | 82 | 0.65% | 119,211 | 673 | 1.14% |
| Total interest-bearing liabilities | 7,566,273 | 2,115 | 0.06% | 6,721,122 | 9,191 | 0.27% |
| Demand accounts | 5,241,134 |  |  | 3,963,066 |  |  |
| Other noninterest-bearing liabilities | 345,776 |  |  | 337,679 |  |  |
| Total liabilities | 13,153,183 |  |  | 11,021,867 |  |  |
| Shareholders’ equity | 3,411,982 |  |  | 1,660,559 |  |  |
| Total liabilities and shareholders’ equity | $16,565,165 |  |  | $12,682,426 |  |  |
| Net interest income – FTE |  | $207,265 |  |  | $201,647 |  |
| Net interest rate spread (2) |  |  | 2.67% |  |  | 3.38% |
| Net interest-earning assets (3) | $7,909,307 |  |  | $4,897,086 |  |  |
| Net interest margin – FTE (4) |  |  | 2.70% |  |  | 3.49% |
| Average interest-earning assets to interest-bearing liabilities | 204.53% |  |  | 172.86% |  |  |

(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 $3.3 million for the three months ended June 30, 2021, compared to a provision of $8.6 million for the three months ended June 30, 2020. Given continued improved economic and credit conditions during the three months ended June 30, 2021, we determined that a release of the provision was necessary. We had made a similar determination in connection with the release of provision for loan losses of $0.6 million recorded for the three months ended March 31, 2021. Overall, we recorded a total release of provision for loan losses of $3.9 million for the six months ended June 30, 2021 compared to a provision of $37.2 million for the six months ended June 30, 2020. 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.

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)*

|  | Three Months Ended June 30, 2021 | 2020 | Change Amount% |  | Six Months Ended June 30, 2021 | 2020 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Insurance commissions | $23,664 | $22,697 | $967 | 4.3% | $51,811 | $50,174 | $1,637 | 3.3% |
| Service charges on deposit accounts | 5,708 | 4,364 | 1,344 | 30.8% | 11,075 | 10,462 | 613 | 5.9% |
| Trust and investment advisory fees | 6,074 | 5,194 | 880 | 16.9% | 11,737 | 10,289 | 1,448 | 14.1% |
| Debit card processing fees | 3,170 | 2,337 | 833 | 35.6% | 5,919 | 4,807 | 1,112 | 23.1% |
| Interest swap (losses) income | (1,164) | 771 | (1,935) | (251.0)% | 4,241 | (5,238) | 9,479 | (181.0)% |
| Income (losses) from investments held in rabbi trusts | 4,216 | 7,745 | (3,529) | (45.6)% | 6,062 | 1,002 | 5,060 | 505.0% |
| Losses on trading securities, net | — | (1) | 1 | (100.0)% | — | (3) | 3 | (100.0)% |
| Gain on sales of mortgage loans held for sale, net | 848 | 1,420 | (572) | (40.3)% | 2,327 | 1,513 | 814 | 53.8% |
| Gains on sales of securities available for sale, net | 1 | 163 | (162) | (99.4)% | 1,165 | 285 | 880 | 308.8% |
| Other | 3,216 | 2,967 | 249 | 8.4% | 6,608 | 7,735 | (1,127) | (14.6)% |
| Total noninterest income | $45,733 | $47,657 | $(1,924) | (4.0)% | $100,945 | $81,026 | $19,919 | 24.6% |

Noninterest income decreased by $1.9 million, or 4.0%, to $45.7 million for the three months ended June 30, 2021 from $47.7 million for the three months ended June 30, 2020. This decrease was primarily due to a $3.5 million decrease in income from investments held in rabbi trusts and a $1.9 million decrease in interest rate swap income, which were partially offset by a $1.3 million increase in service charges on deposit accounts.

- Income (loss) from investments held in rabbi trust decreased primarily as a result of a less favorable mark-to-market adjustment during the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
- The Company experienced swap losses during the three months ended June 30, 2021 as compared to income during the three months ended June 30, 2020 primarily as a result of an unfavorable mark-to-market adjustment due to the current interest rate and economic environment.
- Service charges on deposit accounts increased primarily as a result of increased corporate account analysis charges as a result of greater commercial deposit customer activity.

Noninterest income increased by $19.9 million, or 24.6%, to $100.9 million for the six months ended June 30, 2021 from $81.0 million for the six months ended June 30, 2020. The increase was primarily due to a $9.5 million increase in interest rate swap income, a $5.1 million increase in income from investments held in rabbi trusts, a $1.6 million increase in insurance commissions, a $1.4 million increase in trust and investment advisory fees, and a $1.1 million increase in debit card processing fees.

- Swap income increased primarily as a result of a favorable mark-to-market adjustment due to the current interest rate and economic environment.
- Income (loss) from investments held in rabbi trusts increased primarily as a result of a more favorable mark-to-market adjustment during the six months ended June 30, 2021, compared to the six months ended June 30, 2020.
- Insurance commissions increased primarily as a result of an increase in our profit-sharing revenues and commissions.
- Trust and investment advisory fees increased primarily as a result of higher asset values associated with the principal assets in customers’ accounts.
- Debit card processing fees increased as a result of greater customer spending volume.

### Noninterest Expense

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

### Noninterest Expense

*(Dollars in thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Change Amount% |  | Six Months Ended June 30, 2021 | 2020 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $69,276 | $63,335 | $5,941 | 9.4% | $133,316 | $124,924 | $8,392 | 6.7% |
| Office occupancy and equipment | 8,094 | 8,615 | (521) | (6.0)% | 16,311 | 17,304 | (993) | (5.7)% |
| Data processing | 13,572 | 12,180 | 1,392 | 11.4% | 25,701 | 22,184 | 3,517 | 15.9% |
| Professional services | 6,439 | 4,396 | 2,043 | 46.5% | 10,587 | 8,085 | 2,502 | 30.9% |
| Charitable contributions | — | 2,797 | (2,797) | (100.0)% | — | 3,984 | (3,984) | (100.0)% |
| Marketing | 3,497 | 1,645 | 1,852 | 112.6% | 5,188 | 4,113 | 1,075 | 26.1% |
| Loan expenses | 1,854 | 2,036 | (182) | (8.9)% | 3,701 | 3,148 | 553 | 17.6% |
| FDIC insurance | 985 | 944 | 41 | 4.3% | 1,933 | 1,850 | 83 | 4.5% |
| Amortization of intangible assets | 625 | 701 | (76) | (10.8)% | 1,157 | 1,403 | (246) | (17.5)% |
| Other | 2,993 | 4,116 | (1,123) | (27.3)% | 3,490 | 8,942 | (5,452) | (61.0)% |
| Total noninterest expense | $107,335 | $100,765 | $6,570 | 6.5% | $201,384 | $195,937 | $5,447 | 2.8% |

Noninterest expense increased by $6.6 million, or 6.5%, to $107.3 million during the three months ended June 30, 2021 from $100.8 million during the three months ended June 30, 2020. This increase was primarily due to a $5.9 million increase in salaries and employee benefits partially offset by a decrease in charitable contributions of $2.8 million.

- Salaries and employee benefits increased primarily as a result of ESOP expense, for which no expenses were incurred during the three months ended June 30, 2020 as the ESOP was established in October 2020, and lower deferrals of nonrefundable costs associated with originating or acquiring loans.
- Professional services expenses increased primarily as a result of costs incurred associated with the Company’s acquisition of Century Bancorp, Inc and an accrual for legal expenses associated with the anticipated settlement of the putative consumer class action litigation matters related to overdraft and non-sufficient funds fees.
- Charitable contributions decreased as no contributions were made during the six months ended June 30, 2021 following the Company’s stock donation to the Foundation that occurred in 2020 in connection with the Company’s IPO.

Noninterest expense increased by $5.4 million, or 2.8%, to $201.4 million during the six months ended June 30, 2021 from $195.9 million during the six months ended June 30, 2020. The increase was primarily due to an $8.4 million increase in salaries and employee benefits, a $3.5 million increase in data processing expenses and a $2.5 million increase in professional services. Partially offsetting these increases was a $4.0 million decrease in charitable contributions and a $5.5 million decrease in other noninterest expenses.

- Salaries and employee benefits increased primarily as a result of ESOP expense, for which no expenses were incurred during the six months ended June 30, 2020 as the ESOP was established in October 2020, and higher pension service costs.
- Data processing expenses increased due to an increase in software service and support expenses (including depreciation expense) of $2.8 million and an increase in core data processing expenses of $1.5 million. Core data processing expenses increased primarily as a results of increased costs due to costs incurred associated with the Company’s acquisition of Century Bancorp, Inc.
- Professional services expenses increased primarily as a result of costs incurred associated with the Company’s acquisition of Century Bancorp, Inc and an accrual for legal expenses associated with the anticipated settlement of the putative consumer class action litigation matters related to overdraft and non-sufficient funds fees.
- Charitable contributions decreased as no contributions were made during the six months ended June 30, 2021 following the Company’s stock donation to the Foundation that occurred in 2020 in connection with the Company’s IPO.
- 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 BEP decreased by $6.4 million and $1.2 million, respectively, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

### 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)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Combined federal and state income tax provisions | $11,497 | $7,197 | $25,668 | $8,495 |
| Effective income tax rates | 24.8% | 19.4% | 23.7% | 18.2% |
| Blended statutory tax rate | 28.1% | 28.1% | 28.1% | 28.1% |

Income tax expense increased by $4.3 million, or 59.7%, to $11.5 million in the three months ended June 30, 2021 from $7.2 million in the three months ended June 30, 2020. Income tax expense increased by $17.2 million, or 202.2%, to $25.7 million in the six months ended June 30, 2021 from $8.5 million in the six months ended June 30, 2020. The increase in income tax expense was due primarily to higher pre-tax income during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 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 12, “Income Taxes”* within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s 2020 10-K.

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

### Comparison of the three and six months ended June 30, 2021 and 2020

*(In thousands)*

|  | As of and for the three months ended June 30, 2021 Banking Business Insurance Agency Business Other/ Eliminations Total | 2020 Banking Business Insurance Agency Business Other/ Eliminations Total |
| --- | ---: | ---: |
| Net interest income | $104,608 $— $— $104,608 | $98,755 $— $— $98,755 |
| (Release of) provision for loan losses | (3,300) — — (3,300) | 8,600 — — 8,600 |
| Net interest income after provision for loan losses | 107,908 — — 107,908 | 90,155 — — 90,155 |
| Noninterest income | 21,567 24,166 — 45,733 | 23,779 23,886 (8) 47,657 |
| Noninterest expense | 87,799 20,496 (960) 107,335 | 81,713 20,084 (1,032) 100,765 |
| Income before provision for income taxes | 41,676 3,670 960 46,306 | 32,221 3,802 1,024 37,047 |
| Income tax provision | 10,464 1,033 — 11,497 | 6,121 1,076 — 7,197 |
| Net income | $31,212 $2,637 $960 $34,809 | $26,100 $2,726 $1,024 $29,850 |
| Total assets | $16,905,267 $209,416 $(67,230) $17,047,453 | $13,867,746 $193,320 $(64,543) $13,996,523 |
| Total liabilities | $13,628,092 $55,969 $(67,230) $13,616,831 | $12,314,286 $53,150 $(64,543) $12,302,893 |
|  | **For the six months ended June 30,** |  |
|  | **2021** | **2020** |
|  | **Banking Business** **Insurance Agency Business** **Other/ Eliminations** **Total** | **Banking Business** **Insurance Agency Business** **Other/ Eliminations** **Total** |
|  | (In thousands) |  |
| Net interest income | $204,699 $— $— $204,699 | $198,901 $— $— $198,901 |
| (Release of ) provision for loan losses | (3,880) — — (3,880) | 37,200 — — 37,200 |
| Net interest income after provision for loan losses | 208,579 — — 208,579 | 161,701 — — 161,701 |
| Noninterest income | 48,527 52,450 (32) 100,945 | 30,647 50,408 (29) 81,026 |
| Noninterest expense | 163,074 40,307 (1,997) 201,384 | 160,178 37,725 (1,966) 195,937 |
| Income before provision for income taxes | 94,032 12,143 1,965 108,140 | 32,170 12,683 1,937 46,790 |
| Income tax provision | 22,257 3,411 — 25,668 | 4,906 3,589 — 8,495 |
| Net income | $71,775 $8,732 $1,965 $82,472 | $27,264 $9,094 $1,937 $38,295 |

### Banking Segment

- Average interest-earning assets grew $3.3 billion, or 26.3%, to $15.8 billion for the three months ended June 30, 2021 from $12.5 billion for the three months ended June 30, 2020. The increase is primarily due to an increase in average investment securities and federal funds sold and other short-term investments which increased $3.4 billion, or 129.0%, to $6.0 billion for the three months ended June 30, 2021 compared to $2.6 billion for the three months ended June 30, 2020. The increase in average interest-earning assets resulted in an increase in interest income and was partially offset by a decline in market rates of interest. For additional discussion, refer to the earlier “*Interest and Dividends”* section.
- Average interest-bearing liabilities grew $0.6 billion, or 8.9%, to $7.7 billion for the three months ended June 30, 2021 from $7.1 billion for the three months ended June 30, 2020, with average total interest-bearing deposits, our largest category of average interest-bearing liabilities, growing $0.7 billion, or 9.7%, to $7.7 billion for the three months ended June 30, 2021 compared to $7.0 billion for the three months ended June 30, 2020. The increase in average interest-bearing liabilities was more than offset by a decline in market rates of interest resulting in an overall decrease in interest expense. For additional discussion, refer to the earlier “*Interest and Dividends”* section.
- Average interest-earning assets grew $3.9 billion, or 33.2%, to $15.5 billion for the six months ended June 30, 2021 from $11.6 billion for the six months ended June 30, 2020, with average total loans, our largest

category of average interest-earning assets, growing $0.4 billion, or 3.8%, to $9.8 billion for the six months ended June 30, 2021 compared to $9.4 billion for the six months ended June 30, 2020. The increase in average interest-earning assets resulted in an increase in interest income and was partially offset by a decline in market rates of interest. For additional discussion, refer to the earlier “*Interest and Dividends”* section.

- Average interest-bearing liabilities grew $0.8 billion, or 12.6%, to $7.6 billion for the six months ended June 30, 2021 from $6.7 billion for the six months ended June 30, 2020, with average total interest-bearing deposits, our largest category of average interest-bearing liabilities, growing $0.9 billion, or 14.2%, to $7.5 billion for the six months ended June 30, 2021 compared to $6.6 billion for the six months ended June 30, 2020. The increase in average interest-bearing liabilities was more than offset by a decline in market rates of interest resulting in an overall decrease in interest expense. For additional discussion, refer to the earlier “*Interest and Dividends”* section.
- We recorded a release of provision for loan losses of $3.3 million for the three months ended June 30, 2021, compared to a provision of $8.6 million for the three months ended June 30, 2020 and a total release of provision for loan losses of $3.9 million for the six months ended June 30, 2021 compared to a provision of $37.2 million for the six months ended June 30, 2020. Given continued improved economic and credit conditions during the three and six months ended June 30, 2021, we determined that a release of the provision was necessary. Refer to the earlier discussion within this section for additional information.
- Income from investments held in rabbi trust accounts decreased $2.8 million, or 43.0% for the three months ended June 30, 2021 primarily as a result of a less favorable mark-to-market adjustment on equity securities held in these accounts.
- Income from investments held in rabbi trust accounts increased $4.7 million, or 512.1% for the six months ended June 30, 2021 primarily as a result of a favorable mark-to-market adjustment on equity securities held in these accounts.
- Non-interest expense increased during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 primarily due to costs associated with our proposed acquisition of Century and an aforementioned accrual for legal expenses associated with the anticipated settlement of the putative consumer class action litigation matters related to overdraft and non-sufficient funds fees.

### Insurance Agency Segment

- Noninterest income related to our insurance agency business increased by $0.3 million, or 1.17%, to $24.2 million during the three months ended June 30, 2021 from $23.9 million during the three months ended June 30, 2020. The slight increase was driven by recurring commissions and profit sharing revenues which increased by $0.6 million and $0.4 million, respectively. These increases were partially offset by a decrease in income from investments held in rabbi trusts of $0.7 million which was primarily attributable to a less favorable mark-to-market adjustment on equity securities held in these accounts during the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
- Noninterest income related to our insurance agency business increased by $2.0 million, or 4.05%, to $52.5 million during the six months ended June 30, 2021 from $50.4 million during the six months ended June 30, 2020. The increase was driven primarily by recurring commissions and profit sharing revenues which both increased by $0.8 million. In addition, income from investments held in rabbi trusts increased by $0.4 million which was primarily attributable to a favorable mark-to-market adjustment on equity securities held in these accounts.

### 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 June 30, 2021, we had $4.1 billion of commitments to originate loans, comprised of $2.4 billion of commitments under commercial loans and lines of credit (including $356.9 million of unadvanced portions of construction loans), $1.4 billion of commitments under home equity loans and lines of credit, $182.1 million in standard overdraft coverage commitments, $85.6 million of unfunded commitments related to residential real estate loans and $60.1 million in other consumer loans and lines of credit. In addition, at June 30, 2021, we had $61.8 million in standby letters of credit outstanding. We also had $45.3 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 June 30, 2021 and December 31, 2020 precluded the modeling of certain falling rate scenarios. We do not model negative interest rate scenarios.

The tables below set forth, as of June 30, 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 June 30, 2021 Net Interest Income Year 1 Forecast | Year 1 Change from Level |
| ---: | ---: | ---: |
| 400 | $557,547 | 40.4% |
| 300 | 518,005 | 30.4% |
| 200 | 478,885 | 20.6% |
| Flat | 397,106 | —% |
| (100) | 369,259 | (7.0)% |
|  | **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 June 30, 2021 and December 31, 2020, in the event of an instantaneous parallel 200 basis points increase in rates, we would have experienced a 20.6% 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 7.0% and a 5.0% decrease at June 30, 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 June 30, 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 June 30, 2021 and December 31, 2020 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 June 30, 2021 Percent | EVE as a Percentage of Total Assets (3) |  |
| ---: | ---: | ---: | ---: | ---: |
| 400 | $4,483,593 | $319,567 | 7.7% | 28.18% |
| 300 | 4,426,492 | 262,466 | 6.3% | 27.31% |
| 200 | 4,361,352 | 197,326 | 4.7% | 26.40% |
| Flat | 4,164,026 | — | — | 24.23% |
| (100) | 3,895,942 | (268,084) | (6.4)% | 22.43% |

*(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 have been enhanced by the net proceeds from the IPO, resulting in increased net interest-earning assets and net interest and dividend income. In April 2021, we announced that we had executed the Merger Agreement with Century, under which we expect to acquire Century for $641.9 million in cash. The transaction, which we expect to close in the middle of the fourth quarter of 2021, will reduce the net proceeds from the IPO. However, we continue to expect that due to the increase in equity resulting from 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 June 30, 2021 and December 31, 2020, we had a total of $464.7 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 June 30, 2021, we had $14.3 million in outstanding advances and the ability to borrow up to an additional $1.6 billion. We also have the ability to borrow from the FRBB as well as the Federal Reserve Paycheck Protection Program Liquidity Facility. At June 30, 2021, we had a $482.1 million collateralized line of credit from the FRBB with no outstanding balance. Additionally, we had $825.8 million in PPP loans that could have been pledged to the Federal Reserve Paycheck Protection Program Liquidity Facility. We had a total of $770.0 million of discretionary lines of credit at June 30, 2021.

### Sources of Liquidity

*(In thousands)*

|  | As of June 30, 2021 Outstanding | Additional Capacity | As of December 31, 2020 Outstanding | Additional Capacity |
| --- | ---: | ---: | ---: | ---: |
| IntraFi Network deposits | $— | $464,671 | $— | $364,794 |
| Federal Home Loan Bank (1) | 14,323 | 1,627,016 | 14,624 | 1,581,016 |
| Federal Reserve Bank of Boston (2) | — | 482,107 | — | 503,512 |
| Federal Reserve Paycheck Protection Program Liquidity Facility | — | 825,784 | — | 1,026,117 |
| Unsecured lines of credit | — | 770,000 | — | 620,000 |
| Total deposits | $14,323 | $4,169,578 | $14,624 | $4,095,439 |

***(1)*** As of June 30, 2021 and December 31, 2020, loans have been pledged to the FHLBB with a carrying value of $2.3 billion and $2.4 billion, respectively, to secure additional borrowing capacity.

***(2)*** Loans with a carrying value of $812.6 million and $884.1 million at June 30, 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 management's 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 June 30, 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 June 30, 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, 1,518 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 June 30, 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 June 30, 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, 847 characters.

For information regarding the Company’s risk factors, see Part I, Item 1A “Risk Factors” in our 2020 Form 10-K, as updated by Part II, Item 1A “Risk Factors” of Q1 Form 10-Q. 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, as updated by the Q1 Form 10-Q. 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 and updated in the Q1 Form 10-Q. The risk factors disclosure in our 2020 Form 10-K and our Q1 Form 10-Q is therefore qualified by the information relating to COVID-19 that is described in this Quarterly Report on Form 10-Q.

Filed Aug 13, 2021.
Source: SEC EDGAR, the filing index for accession 0001628280-21-016937. Last ingested by Listed: Nov 6, 2026, 12:48 ET. No prices; not investment advice.