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Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-03-29 · 446 added, 415 removed, 821 unchanged (51% of the section changed)

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Net income for years ended December 31, 2021 and 2020 included items that our management considers noncore, which are excluded for purposes of assessing operating earnings.

Net operating earnings, a non-GAAP financial measure, for year ended December 31, 2020 was $102.1 million compared to net operating earnings of $129.7 million for year ended December 31, 2019, representing a 21.3% decrease.

This decrease was largely driven by an increase in the provision for credit losses and a decrease in net interest income, both of which are attributed to the impact of the COVID-19 pandemic.

Operating net income, a non-GAAP financial measure, for year ended December 31, 2021 was $165.9 million compared to operating net income of $102.1 million for year ended December 31, 2020, representing a 62.4% increase.

This increase was largely driven by a decrease in the provision for allowance for loan losses 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 allowance for loan losses totaling $9.7 million.

See “Non-GAAP Financial Measures” below for a reconciliation of net operating earnings to GAAP net income.

On November 12, 2021, we acquired Century, which operated 29 banking offices in 21 cities and towns in Massachusetts and southern New Hampshire for $641.9 million in cash.

Century had total assets of approximately $6.8 billion at the time of our acquisition, at fair value and excluding goodwill and intangible assets.

Outlook and Trends

COVID-19 Pandemic

The COVID-19 pandemic has had and continues to have an adverse effect on our business and the markets in which we operate.

We expect the short-term and long-term economic consequences of the COVID-19 pandemic to our customers will continue to be significant, and that the continuing health and safety concerns relating to the ongoing pandemic will change the way we conduct our business and interact with our customers.

Consistent with our philosophy of seeking to be a source of economic strength to our communities, we have taken a broad range of steps intended to help our colleagues, our borrowers and our communities during the COVID-19 pandemic.

Our Borrowers.

In light of the COVID-19 pandemic, we temporarily modified our practices with respect to the collection of delinquent loans to assist our customers during this difficult economic time, and during the year ended December 31, 2020 we originated $1.2 billion of Paycheck Protection Program ("PPP") loans, $1.0 billion of which remained outstanding at December 31, 2020.

• For our retail customers, we temporarily suspended all collection of overdue payments beginning March 16, 2020, including residential property foreclosure and related property sales.

We resumed collection activities with respect to delinquent consumer loans beginning in late July 2020.

• Through December 31, 2020, the balance of loans that had received a COVID-19 modification was $1.0 billion, of which approximately 48% were for full payment deferrals (both interest and principal) and 52% were for deferral of only principal payments, and included $616.6 million of commercial real estate loans, including construction loans, $132.9 million of commercial and industrial loans, $133.4 million of business banking loans, $102.8 million of residential real estate loans and $28.7 million of consumer loans, including home equity loans.

Most of these deferrals ended in the third or fourth quarter of the year ended December 31, 2020, and $703.1 million of these loans have resumed payments and were not 30 days or more past due at December 31, 2020.

The loans remaining in a modified status as of December 31, 2020 compared to total modifications executed through September 30, 2020 are presented by portfolio below.

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 troubled debt restructurings ("TDRs").

Total COVID-19 Modifications

as of September 30, 2020 Remaining COVID-19 Modifications

as of December 31, 2020 (1)

Total Modifications % of Total Portfolio Balance Remaining Modifications % of Total Portfolio Balance

(In thousands)

Commercial and industrial $ 142,318 6.5 % $ 34,076 1.7 %

Commercial real estate 574,785 15.9 % 231,794 6.5 %

Commercial construction 13,330 4.5 % 10,987 3.6 %

Business banking 112,765 9.0 % 23,434 1.7 %

Residential real estate 101,556 7.4 % 26,772 2.0 %

Consumer home equity 19,796 2.2 % 3,432 0.4 %

Other consumer 9,480 3.1 % 2,187 0.8 %

Total $ 974,030 9.8 % $ 332,682 3.4 %

(1) Remaining COVID-19 modifications reflect only those loans which underwent a modification and have not yet resumed payment.

We define a modified loan to have resumed payment if it is one month past the modification end date and not more than 30 days past due.

• As of the date of this Annual Report on Form 10-K, we are unable to reasonably estimate the aggregate amount of loans that will likely become delinquent after the respective deferral period.

The following table shows certain data, as of December 31, 2020, related to loans to our borrowers in the industry categories that we believe will likely experience the most adverse effects of the COVID-19 pandemic.

Loans included in the table that had been modified as of December 31, 2020 represented approximately 3.4% of our aggregate outstanding loan balances to all borrowers in those categories as of December 31, 2020.

Loan Balance Percentage (%) COVID-19

Modification % (1)

Interest Rates

We expect increases in the federal funds rate in 2022 which is anticipated to be beneficial to our net interest income and net interest margin.

In its statement released on January 26, 2022, the Federal Open Market Committee stated that it would soon be appropriate to raise the target range for the federal funds rate above the current range of 0.0% to 0.25% in response to inflation that is above their 2.0% target and a strong labor market.

Approximately 40% of our loans are indexed to a market rate that is expected to reprice along with the federal funds rate.

Refer to the section titled “Management of Market Risk” within this Item 7 for additional discussion including the estimated change to net interest income which assumes a variety of immediate and parallel changes in the U.S.

Treasury yield curve.

CECL Adoption

We adopted the current expected credit losses accounting methodology (ASU 2016-13), commonly referred to as the “CECL standard” on January 1, 2022.

The cumulative day one impact is estimated to be an increase of between $25.0 million and $30.0 million to the allowance which is attributable to the change in accounting methodology for estimating the allowance for credit losses from our adoption of ASU 2016-13 and includes the impact of loans acquired from Century.

The portion of the total estimated impact that is attributable to loans acquired from Century is estimated to be between $25.0 million and $28.0 million.

The anticipated increase in the allowance is expected to be a result of a) the change in accounting treatment

for loans acquired from Century;

and b) transitioning from an “incurred loss” model, which estimates the allowance for loan losses based upon current known and inherent losses within our portfolio, to an “expected loss” model, which estimates the allowance for credit losses based upon losses expected to be incurred over the life of loans in our portfolio.

For further information, refer to Note 2, “Summary of Significant Accounting Policies” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Paycheck Protection Program Loans

We are a participating lender in the SBA’s Paycheck Protection Program.

We concluded PPP loan originations in the second quarter of 2021 as the SBA announced in May 2021 that PPP funds were exhausted.

The 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 year ended December 31, 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 December 31, 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 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 year ended December 31, 2021, certain 2020 originations were modified and we received a nominal amount of additional fees from the SBA.

• Net PPP fee accretion (fee accretion less cost amortization) for all PPP loans for the year ended December 31, 2021 was $34.3 million.

In connection with the Century acquisition, we acquired Century’s PPP loans with a remaining unpaid principal balance of $73.7 million at the time of our acquisition.

In accordance with ASC 805, Business Combinations (commonly referred to as “purchase accounting”), remaining unearned fees received from the SBA and unamortized direct loan origination costs associated with these loans were written off with a corresponding adjustment to goodwill.

The net purchase discount associated with these loans was $1.1 million, of which $0.1 million was accreted into income during the year ended December 31, 2021.

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

This table is specific to Eastern PPP loan originations and does not include data related to PPP loans that we acquired from Century:

PPP Loans Originated During the Year Ended December 31, Total

(Dollars in thousands)

High Risk Industries

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 254,725 12,746 267,471

Total SBA fees received (1)

28,699 37,249 65,948

Restaurants 197,388 2.0 % 12.7 %

Hotels 178,696 1.8 % 51.4 %

Construction contractors financing 89,466 0.9 % 1.0 %

Auto dealerships 79,486 0.8 % — %

Other high risk 85,132 0.9 % 2.7 %

All impacted industries total 1,126,526 11.5 % 11.6 %

Remaining commercial and business banking 6,086,992 62.6 % 2.8 %

Total commercial and business banking 7,213,518 74.1 % 4.2 %

All other loans 2,517,007 25.9 % 1.3 %

Total $ 9,730,525 100.0 % 3.4 %

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

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

• As of December 31, 2020, we concluded the first round of originations of PPP loans under the CARES Act.

We disbursed $1.2 billion of loans to approximately 8,900 borrowers under the PPP of the CARES Act during the year ended December 31, 2020, $1.0 billion of which was outstanding at December 31, 2020.

The vast majority of our PPP borrowers are existing commercial and small business borrowers, non-profit customers, retail banking customers and clients of Eastern Wealth Management and Eastern Insurance Group LLC.

We anticipate that the vast majority of our remaining PPP exposure will be forgiven in the year ending December 31, 2021.

$28.8 million of our PPP exposure at December 31, 2020 had a maturity of five years;

all of our other PPP loans outstanding at December 31, 2020 have a maturity of two years.

• Through December 31, 2020, we received approximately $37.1 million of PPP loan origination fees from the SBA.

We also deferred certain origination costs, totaling $4.6 million, related to PPP loans.

Our net PPP fee accretion (fee accretion less cost amortization) for the year ended December 31, 2020 totaled $13.9 million.

• As of the date of this Annual Report on Form 10-K, we have commenced PPP lending under the latest government stimulus package.

The following table shows certain data related to our remaining PPP loans as of December 31, 2020:

SBA fees recognized in interest income related to loans originated in respective periods (2)

18,227 37,166 55,393

Unaccreted SBA fees related to loans originated in respective periods 10,472 84 10,556

(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 the remaining balance of our aggregate PPP loans (Eastern originations and Century originations) as of December 31, 2021:

Loan Size Loan Balance Number

of Loans Fee Received

(Dollars in thousands)

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Total $ 331,385 3,293

Our Operating Results.

The COVID-19 pandemic has had a significant impact on our operating results for the year ended December 31, 2020, and we believe it will continue to have a significant impact during the year ending December 31, 2021.

• During March 2020, the Federal Reserve took multiple steps to lower interest rates and reduced the target range for the federal funds rate to between 0.0% and 0.25%, compared to the previous target of between 1.00% and 1.25%.

These interest rate reductions, combined with the decline in longer term rates, have lowered and will continue to lower our net interest income over time from the levels we experienced in the year ended December 31, 2019.

• Our loan loss provision for the year ended December 31, 2020 was $38.8 million compared to $6.3 million for the year ended December 31, 2019.

We expect our loan loss provision to continue to be elevated until the economy has recovered from the COVID-19 pandemic.

The economic uncertainties caused by the COVID-19 pandemic are significant, and the timing and pace of the economic recovery both locally and nationally will determine the severity and timing of our future loan losses.

The following table shows the balance of our PPP loans (Eastern originations and Century originations) by industry as of December 31, 2021:

Industry Loan Balance Number of Loans

(Dollars in thousands)

Accommodation & food services $ 84,739 469

Construction 44,021 449

Health care & social assistance 34,735 251

Professional, scientific & technical services 28,368 426

Other services 35,964 480

Manufacturing 17,659 117

Retail trade 13,191 291

Administrative & support 17,368 180

Wholesale trade 9,626 74

Transportation & warehousing 12,912 169

Arts, entertainment & recreation 9,912 104

All other 22,890 283

Total $ 331,385 3,293

Non-GAAP Financial Measures

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There are items in our financial statements that impact our results but which we believe are unrelated to our core business.

Accordingly, we present net operating earnings, noninterest income on an operating basis, noninterest expense on an operating basis, total operating income, net operating earnings per share, and the efficiency ratio on an operating basis, 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 IPO, (vii) other real estate owned gains, (viii) merger and acquisition expenses, and (ix) the stock donation to the Eastern Bank Charitable Foundation in connection with our mutual-to-stock conversion and IPO.

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 IPO, (vii) other real estate owned (“OREO”) gains, (viii) merger and acquisition expenses, (ix) the stock donation to the Eastern Bank Foundation (formerly known as the Eastern Bank Charitable 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 fund fees, and associated settlement expenses.

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.

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Noninterest income components:

(Income) loss from investments held in rabbi trusts (10,337) (9,866) 1,542

(Gain) loss on sales of securities available for sale, net (288) (2,016) (50)

(Gain) loss on sale of other assets 20 15 (1,989)

Income from investments held in rabbi trusts (10,217) (10,337) (9,866)

Gains on sales of securities available for sale, net (1,166) (288) (2,016)

(Gains) losses on sales of other assets (571) 20 15

Noninterest expense components:

Rabbi trust employee benefit expense (income) 4,789 4,604 (847)

Impairment charge on tax credit investments 10,779 — —

Rabbi trust employee benefit expense 5,515 4,789 4,604

Impairment (reversal) charge on tax credit investments (170) 10,779 —

Indirect IPO costs (1) — 1,199 —

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Merger and acquisition expenses 35,460 90 —

Stock donation to the Eastern Bank Charitable Foundation 91,287 — —

Settlement and expenses for putative consumer class action matters 3,325 — —

Stock donation to the Eastern Bank Foundation — 91,287 —

Total impact of non-GAAP adjustments 32,089 96,933 (7,263)

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Non-GAAP adjustments, net of tax $ 11,220 $ 79,396 $ (5,402)

Net operating earnings (non-GAAP)

Operating net income (non-GAAP)

$ 165,885 $ 102,134 $ 129,696

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Diluted 172,252,057 171,812,535 —

(Loss) earnings per share, basic $ 0.13 n.a.

(Loss) earnings per share, diluted $ 0.13 n.a.

Net operating earnings per share, basic (non-GAAP) $ 0.59 n.a.

Net operating earnings per share, diluted (non-GAAP) $ 0.59 n.a.

Earnings per share, basic $ 0.90 $ 0.13 n.a.

Earnings per share, diluted $ 0.90 0.13 n.a.

Operating earnings per share, basic (non-GAAP) $ 0.96 $ 0.59 n.a.

Operating earnings per share, diluted (non-GAAP) $ 0.96 0.59 n.a.

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

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

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

(2) The net tax benefit (expense) 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 2020 net tax benefit amount reflects the impact of the $12.0 million valuation allowance associated with the stock donation to the Eastern Bank Foundation.

The 2021 net tax benefit amount reflects the impact of the reversal of $11.3 million of the $12.0 million valuation allowance associated with the stock donation to the Eastern Bank Foundation.

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:

For the Year Ended December 31,

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6,093 5,472 5,254 5,696 10,607

Net interest income (non-GAAP)

406,723 416,518 395,740 349,121 301,845

Fully-taxable equivalent net interest income (non-GAAP) 435,920 406,723 416,518 395,740 349,121

Noninterest income (GAAP) 193,155 178,373 182,299 180,595 197,727

Gain (loss) from investments held in rabbi trusts 10,337 9,866 (1,542) 6,587 2,161

Gain on sales of securities available for sale, net 288 2,016 50 11,356 261

(Loss) gain on sale of other assets (20) (15) 1,989 6,075 2,698

Income (loss) from investments held in rabbi trusts 10,217 10,337 9,866 (1,542) 6,587

Gains on sales of securities available for sale, net 1,166 288 2,016 50 11,356

Gains (losses) on sales of other assets 571 (20) (15) 1,989 6,075

Noninterest income on an operating basis (non-GAAP) 181,201 167,768 170,432 180,098 173,709

Noninterest expense (GAAP) $ 443,956 $ 504,923 $ 412,684 $ 397,928 $ 389,413

Rabbi trust benefit expense (income) 4,789 4,604 (847) 2,888 965

Merger and acquisition expenses 90 — 244 149 149

Impairment charge on tax credit investments 10,779 — — — —

Rabbi trust employee benefit expense (income) 5,515 4,789 4,604 (847) 2,888

Impairment (reversal) charge on tax credit investments (170) 10,779 — — —

Indirect IPO costs (1) — 1,199 — — —

Stock donation to the Eastern Bank Charitable Foundation 91,287 — — — —

Merger and acquisition expenses 35,460 90 — 244 149

Settlement and expenses for putative consumer class action matters 3,325 — — — —

Stock donation to the Eastern Bank Foundation — 91,287 — — —

Gain on sale of other real estate owned 87 606 — — —

Noninterest expense on an operating basis (non-GAAP) $ 399,913 $ 397,385 $ 408,080 $ 398,531 $ 386,376

Total income (GAAP) $ 579,624 $ 593,563 $ 570,639 $ 536,241 $ 462,702

Total operating income (non-GAAP) $ 574,491 $ 586,950 $ 575,838 $ 522,830 $ 465,853

Total revenue (GAAP) $ 622,982 $ 579,624 $ 593,563 $ 570,639 $ 536,241

Total operating revenue (non-GAAP) $ 617,121 $ 574,491 $ 586,950 $ 575,838 $ 522,830

Efficiency ratio (GAAP) 71.26 % 87.11 % 69.53 % 69.73 % 72.62 %

Efficiency ratio on an operating basis (non-GAAP) 69.17 % 69.53 % 69.21 % 73.90 % 78.68 %

Operating efficiency ratio (non-GAAP) 64.80 % 69.17 % 69.53 % 69.21 % 73.90 %

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

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Securities available for sale 8,511,224 3,183,861 5,327,363 167.3 %

Loans, net of allowance for credit losses 9,593,958 8,899,184 694,774 7.8 %

Loans, net of allowance for loan losses 12,157,281 9,593,958 2,563,323 26.7 %

Federal Home Loan Bank stock 10,904 8,805 2,099 23.8 %

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Cash and cash equivalents

Total cash and cash equivalents increased by $1.7 billion, or 466.5%, to $2.1 billion at December 31, 2020 from $362.6 million at December 31, 2019.

This increase was primarily due to proceeds received from investors in our IPO, as well as customer deposit growth, which exceeded our funding needs for new lending activities.

Total cash and cash equivalents decreased by $0.8 billion, or 40.0%, to $1.2 billion at December 31, 2021 from $2.1 billion at December 31, 2020.

This decrease was primarily due to available for sale security purchases partially offset by deposit growth.

Our current investment policy authorizes us to invest in various types of investment securities and liquid assets, including U.S.

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government securities:

At December 31, 2020 our U.S.

At December 31, 2021 and 2020 our U.S.

government securities consisted of U.S.

Agency bonds and U.S.

Treasury securities.

At December 31, 2019, our U.S.

government securities consisted solely of U.S.

Treasury securities.

Agency bonds, U.S.

Treasury securities and Small Business Administration pooled 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.

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Mortgage-backed securities:

We invest in residential and commercial mortgage-backed securities insured or guaranteed by Freddie Mac or Fannie Mae.

We invest in residential and commercial mortgage-backed securities insured or guaranteed by Freddie Mac, Ginnie Mae or Fannie Mae, including collateralized mortgage obligations.

We have not purchased any privately-issued mortgage-backed securities.

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State and municipal bonds and obligations 280,329 280,902

Qualified zone academy bond — 6,310

Trading securities:

Municipal bonds and obligations — 961

Small Business Administration pooled securities 32,103 —

Other debt securities 1,597 —

Total $ 8,511,224 $ 3,183,861

The following table presents the composition of securities acquired in connection with our acquisition of Century at fair value as of the November 12, 2021 acquisition date:

Acquired Securities at Fair Value

As of November 12, 2021

(Dollars in thousands)

Available for sale securities:

Government-sponsored residential mortgage-backed securities $ 1,675,002

Government-sponsored commercial mortgage-backed securities 1,055,228

Agency bonds 346,538

State and municipal bonds and obligations 6,532

Small Business Administration pooled securities 31,827

Other debt securities 1,895

Total $ 3,117,022

Our securities portfolio has increased year-to-date.

Available for sale securities increased $5.3 billion, or 167.3%, to $8.5 billion at December 31, 2021 from $3.2 billion at December 31, 2020.

This increase is due to investment purchases, as well as an increase in unrealized gains during the year ended December 31, 2020.

Trading securities totaled $1.0 million at December 31, 2019, and all securities have matured as of December 31, 2020.

We did not have held-to-maturity investments at December 31, 2020 and 2019.

This increase is due to investment purchases during the year ended December 31, 2021 and securities acquired in the Century acquisition as shown in the table above.

Partially offsetting the increase in the securities portfolio from December 31, 2020 to December 31, 2021, was the reduction in the unrealized gain on the securities.

At December 31, 2021 the unrealized loss was $76.0 million compared to an unrealized gain of $58.7 million at December 31, 2020, representing a $134.6 million decrease.

This change is primarily driven by a steepening yield curve.

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

A portion of our securities portfolio continues to be tax-exempt.

Investments in federally tax-exempt securities totaled $279.8 million at December 31, 2021 compared to $280.9 million at December 31, 2020.

Investments in state tax-exempt securities totaled $70.9 million at December 31, 2020 compared to $0 at December 31, 2019.

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 December 31, 2020 and 2019, we had $0 and $6.3 million, respectively, of 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 December 31, 2020 and 2019.

Weighted average yields in the table below have been calculated based on the amortized cost of the security:

Securities Portfolio, Amounts Maturing

As of both December 31, 2021 and 2020, we had no securities categorized as level 3 within the fair value hierarchy.

The following table shows investment security weighted-average yields by category of security and contractual maturity at December 31, 2021.

Weighted-average yields in the table below have been calculated based upon the amortized cost of the security:

Securities Portfolio, Weighted-Average Yield

Securities Maturing as of December 31, 2021

Year After One Year But Within Five Years After Five Years But Within Ten Years After Ten

(Dollars in thousands)

Available for sale securities:

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State and municipal bonds and obligations (2) (1.24) 2.46 3.17 4.04 3.48

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 %

Securities Maturing as of December 31, 2019

Year After One Year But Within Five Years After Five Years But Within Ten Years After Ten Years Total

(Dollars in thousands)

Available for sale securities:

Government-sponsored residential mortgage-backed securities $ — $ 8,464 $ 203,706 $ 955,798 $ 1,167,968

Treasury securities 40 50,380 — — 50,420

State and municipal bonds and obligations 381 9,109 79,504 194,544 283,538

Qualified zone academy bond 6,310 — — — 6,310

Trading securities:

Municipal bonds and obligations 961 — — — 961

Small business administration pooled securities — 1.72 — 1.93 1.90

Other debt securities 1.01 0.84 — — 0.87

Total 0.10 % 0.95 % 1.12 % 1.60 % 1.42 %

Weighted-average yield 5.44 % 2.38 % 2.95 % 2.92 % 2.90 %

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 gains on available for sale securities as of December 31, 2020 and 2019 totaled $58.7 million and $28.0 million, respectively.

We consider our loan portfolio to be relatively diversified by borrower and industry.

Our loans increased $743.5 million, or 8.3%, to $9.7 billion at December 31, 2020 from $9.0 billion at December 31, 2019.

The increase as of December 31, 2020 was primarily due to an increase in business banking loans of $567.7 million and an increase in commercial and industrial loans of $352.8 million, both related to PPP loan originations, partially offset by a decrease in other consumer loans of $124.7 million.

• The increase in our commercial and industrial loans from December 31, 2019 to December 31, 2020 was primarily a result of $568.8 million PPP loan originations, offset by a transfer of smaller loans to business banking during the year ended December 31, 2020.

• The increase in our business banking loans from December 31, 2019 to December 31, 2020 was primarily a result of $457.4 million in PPP loan originations during the year ended December 31, 2020, and a transfer of smaller loans from commercial and industrial and commercial real estate portfolios.

• The $38.2 million increase in our commercial real estate loans from December 31, 2019 to December 31, 2020 was primarily a result of an increase of $119.3 million of investment commercial real estate loans, offset by a decrease of $65.4 million in owner-occupied commercial real estate loans.

• The decrease in our retail portfolio from December 31, 2019 to December 31, 2020 was due to the following:

◦ The residential portfolio decreased $57.7 million due to an increase in secondary market sales and higher refinance activity in 2020 due to the low interest rate environment;

◦ The home equity portfolio decreased $64.8 million due to a high level of prepayments driven by a strong residential refinance market;

◦ Other consumer loans decreased $124.7 million primarily as a result of a $117.2 million decrease in the automobile portfolio due to the Bank's exit from the indirect automobile lending business.

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

Loan Portfolio Composition

As of December 31,

2020 2019 2018 2017 2016

(1) Investment security weighted-average yields were calculated on a level-yield basis by weighting the tax equivalent yield for each security type by the book value of each maturity.

(2) The negative yield indicated in the “Within One Year” category is the result of premium amortization that is in excess of earned income.

The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a fully taxable equivalent basis (“FTE”) 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.

The following table shows the composition of our loan portfolio, by category, as of the dates indicated, the loans, by category, that were acquired from Century, and their balances as of the acquisition date of November 12, 2021 and net PPP loan activity for the year ended December 31, 2021:

As of December 31, Organic Change (excluding net PPP loan activity)

2021 2020 Change ($) Century Acquired Balance (1) PPP Loan Activity, net (3) Amount ($) Percentage (%)

(In thousands)

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Other consumer 214,485 277,780 (63,295) 9,429 — (72,724) (26.2) %

Total loans 9,730,525 8,987,046 8,856,003 8,227,041 7,705,131

Allowance for loan losses (113,031) (82,297) (80,655) (74,111) (70,188)

Unamortized premiums, net of unearned discounts and deferred fees (23,536) (5,565) (435) 1,056 895

Total loans receivable, net $ 9,593,958 $ 8,899,184 $ 8,774,913 $ 8,153,986 $ 7,635,838

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 90.6% of our loans in Massachusetts and New Hampshire as of December 31, 2020.

As of December 31, 2020, concentrations in our commercial loan portfolios were as follows:

Total gross loans (2) $ 12,281,510 $ 9,730,525 $ 2,550,985 $ 2,919,685 $ (768,466) $ 399,766 4.1 %

(1) Balances of loans acquired through our acquisition of Century represent unpaid principal balances and do not include the fair value adjustment recorded upon acquisition.

Refer to Note 3, “Mergers and Acquisitions” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

(2) Amounts presented exclude unamortized premiums, unearned discounts and deferred fees and costs.

(3) Amounts exclude change attributable to acquired PPP loans.

We consider our loan portfolio to be relatively diversified by borrower and industry.

Our loans increased $2.6 billion, or 26.2%, to $12.3 billion at December 31, 2021 from $9.7 billion at December 31, 2020.

The increase as of December 31, 2021 was primarily due to loans acquired from Century of $2.9 billion partially offset by a decrease in our PPP loan balances within our commercial and industrial balances and business banking portfolios.

The changes to our loan portfolio, excluding the impact of the Century acquisition and PPP loan activity, are further detailed below:

• The $342.7 million increase in our commercial real estate loans from December 31, 2020 to December 31, 2021 was primarily a result of an increase of $296.3 million in our investment commercial real estate loan balances, which represents loans secured by commercial real estate that are non-owner-occupied, during the year ended December 31, 2021.

• The $59.4 million increase in our retail portfolio was primarily a result of an increase of $137.7 million in residential real estate loans during the year ended December 31, 2021 which was partially offset by a decrease in our other consumer and consumer home equity portfolios of $72.7 million and $5.6 million, respectively.

The increase in residential real estate loans is due to the Company retaining more residential real estate loans as held for investment rather than selling such loans on the secondary market.

The decrease in other consumer is primarily the result of the continued run-off of our indirect auto loan portfolio.

We believe that our commercial loan portfolio composition is relatively diversified in terms of industry sectors, property types and various lending specialties.

As of December 31, 2021, concentrations in our commercial loan portfolios were as follows and includes loans acquired from Century:

Commercial and Industrial

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(Dollars in thousands)

Educational services $ 821,187 27.7 %

Professional, scientific, and technical services 288,532 9.7 %

Wholesale trade 264,988 9.0 %

Finance and insurance 180,398 6.1 %

Transportation and warehousing 171,976 5.8 %

Healthcare and social assistance 171,316 5.8 %

Manufacturing 170,490 5.8 %

Administrative and support 186,242 9.3 %

Accommodation and food services 153,683 5.2 %

Finance and insurance 157,623 7.9 %

Administrative and support 148,979 5.0 %

Real estate, rental and leasing 124,239 4.2 %

Construction 151,024 7.6 %

Healthcare and social assistance 148,811 7.5 %

Professional, scientific, and technical services 148,485 7.4 %

Other industries 464,739 15.7 %

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Office 492,669 10.9 %

Retail 428,097 12.0 %

Industrial/warehouse 486,344 10.8 %

Retail 471,147 10.4 %

School 365,706 8.1 %

Mixed use - retail/office 330,017 7.3 %

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Hotel/motel/hospitality 178,561 3.9 %

Self storage 101,830 2.8 %

Other property types 863,148 19.1 %

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Affordable housing $ 82,739 37.2 %

For sale housing 39,852 17.9 %

Multi-family 35,195 15.8 %

Industrial/warehouse 14,584 6.6 %

Assisted living 13,364 6.0 %

Mixed use - retail/multi-family 10,904 4.9 %

Office 25,377 8.3 %

For sale housing 22,561 7.4 %

1-4 Family 5,705 2.6 %

Self storage 1,832 0.8 %

Other property types 18,153 8.2 %

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We believe that the loan to value ratio (“LTV”) is an important factor in monitoring the risk characteristics of our loans secured by real estate.

The following tables show the distribution of loan balances by LTV and year of origination for each of our portfolios of loans secured by real estate as of December 31, 2020:

The following tables show the distribution of loan balances by LTV and year of origination for each of our portfolios of loans, including those acquired from Century, secured by real estate as of December 31, 2021:

Balance of Commercial Real Estate Loans Originated During the Year Ended December 31,

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(2) Insufficient data available to calculate LTV.

(3) We generally require an LTV of 80% or less on new CRE loan originations.

Certain CRE loans with LTVs greater than 80% may have additional collateral pledged which is not included in the computation of the amounts stated.

The maturity distribution of our loan portfolio is one factor used by management to evaluate the risk characteristics of our loan portfolio.

The following table shows the maturity distribution of our loans as of December 31, 2020:

The following table shows the maturity distribution of our loans, including those acquired from Century, as of December 31, 2021:

Scheduled Contractual Loan Maturity

One Year or Less One to Five Years After Five Years Total

One Year or Less (1) One to Five Years Five to Fifteen Years After Fifteen Years Total

(In thousands)

Commercial and industrial $ 287,526 $ 1,070,642 $ 605,759 $ 996,600 $ 2,960,527

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Total loans $ 886,906 $ 3,003,171 $ 4,384,811 $ 4,006,622 $ 12,281,510

(1) Includes demand loans, or loans without a stated maturity.

The interest rate risk to our loan portfolio is an important element in the management of net interest margin.

We attempt to manage the relationship between the interest rate sensitivity of our assets and liabilities to produce an effective interest differential that is not significantly impacted by changes in the level of interest rates.

The following table shows the interest rate risk of our loans, net of allowance for credit losses and unamortized premiums, due one year after December 31, 2020:

The following table shows the interest rate risk of our loans, on a gross basis, due one year after December 31, 2021:

Loan Interest Rate Risk

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Fixed Adjustable Total

(In thousands)

Commercial and industrial $ 845,673 $ 1,827,328 $ 2,673,001

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Total loans $ 4,651,159 $ 6,743,445 $ 11,394,604

(1) Total adjustable rate loans include approximately $3.4 billion of loans with interest rates utilizing LIBOR as a benchmark rate.

Asset quality.

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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:

Management utilizes a loan risk rating methodology based on a 15-point scale with the assistance of risk rating scorecard tools.

Pass grades are 0-10 and non-pass categories, which align with regulatory guidelines, are:

special mention (11), substandard (12), doubtful (13) and loss (14).

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The new risk rating methodology, inclusive of the expanded grade levels and the scorecard tools, has increased, and is expected to continue to increase 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;

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.

Over the past five years, the asset quality of our commercial loan portfolio remained strong.

Special mention, substandard and doubtful loans totaled 5.8% and 7.7% of total commercial loans outstanding at December 31, 2021 and 2020, respectively.

This increase was driven by an increase in the special mention category, due to the downgrading of our hotel and restaurant loan portfolios as a result of the COVID-19 pandemic.

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.

For the retail portfolio, which includes residential real estate, consumer home equity, and other consumer portfolios, we monitor credit quality using the borrower’s FICO score.

As of December 31, 2021, 70.8% of retail borrowers, based on loan balance, have a FICO score of 740 or greater.

The following table shows the balances by borrower’s current FICO score as of December 31, 2020:

The following table shows the balances by borrower’s current FICO score as of the dates indicated:

As of December 31, 2021 As of December 31, 2020

Real Estate Consumer

Home Equity Other

Consumer Residential

Real Estate Consumer

Home Equity Other

Current FICO (1)

(Dollars in thousands)

(Dollars in thousands) (Dollars in thousands)

Not available (2) $ 3,954 $ 1,122 $ 27,448 $ 15,762 $ 224 $ 35,097

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Average FICO 764.7 764.5 765.7 762.9 763.3 757.5

(1) Borrower FICO scores are updated on a semi-annual basis, and the most recent update occurred in July 2020.

(1) Borrower FICO scores are updated on a semi-annual basis, and the most recent update occurred in August 2021.

With respect to loans acquired in connection with our acquisition of Century, borrower FICO scores were updated in December 2021.

(2) Insufficient data available to report.

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.

Reflecting in part the loan modifications that continued through December 31, 2020 (see “Outlook and Trends—COVID-19 Pandemic—Our Borrowers” within this section), the delinquency rate of our total loan portfolio remained constant at 0.49% at both December 31, 2020 and 2019.

The delinquency rate of our total loan portfolio increased to 0.65% at December 31, 2021 from 0.49% at December 31, 2020.

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

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Total 0.65 % 0.49 %

(1) In the calculation of the delinquency rate as of December 31, 2020, the total amount of loans outstanding includes $1.0 billion 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

As of December 31,

30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due

(In thousands)

Commercial and industrial $ 4 $ 268 $ 1,924 $ 1,407 $ — $ 963

Commercial real estate — 556 1,545 1,290 100 1,856

Commercial construction — — — — — —

Business banking 5,279 3,311 10,196 3,031 763 6,095

Residential real estate 9,184 2,517 4,904 14,030 2,563 3,030

Consumer home equity 1,806 364 3,035 2,497 430 1,636

Other consumer 1,978 234 517 3,451 514 579

Total $ 18,251 $ 7,250 $ 22,121 $ 25,706 $ 4,370 $ 14,159

(1) In the calculation of the delinquency rate as of December 31, 2021 and 2020, the total amount of loans outstanding includes $0.3 billion and $1.0 billion, respectively, of PPP loans.

As a general rule, loans more than 90 days past due with respect to principal or interest are classified as non-accrual loans.

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A loan is expected to remain on non-accrual status until it becomes current with respect to principal and interest, the loan is liquidated, or the loan is determined to be uncollectible and is charged-off against the allowance for loan losses.

Non-performing assets (“NPAs”) are comprised of non-performing loans (“NPLs”), other real estate owned (“OREO”) and non-performing securities.

Non-performing assets (“NPAs”) are comprised of non-performing loans (“NPLs”), OREO and non-performing 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.

These properties are recorded at the lower of cost or fair value less estimated costs to sell on the date we obtain control.

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

Non-performing Assets

As of December 31,

2020 2019 2018 2017 2016

(Dollars in thousands)

Non-accrual loans:

Commercial $ 30,059 $ 34,093 $ 17,599 $ 10,273 $ 13,056

Residential 6,815 5,598 5,535 6,680 6,512

Consumer 4,131 2,760 3,038 1,212 722

Total non-accrual loans 41,005 42,451 26,172 18,165 20,290

Accruing loans past due 90 days or more:

Commercial 1,959 1,315 410 471 1,978

Residential 279 — — — 510

Consumer 9 9 9 9 9

Total accruing loans past due 90 days or more 2,247 1,324 419 480 2,497

Total non-performing loans 43,252 43,775 26,591 18,645 22,787

Other real estate owned — — 35 35 653

Other non-performing assets:

— — — — 13,834

Total non-performing assets $ 43,252 $ 43,775 $ 26,626 $ 18,680 $ 37,274

Total accruing troubled debt restructured loans $ 41,095 $ 48,623 $ 41,465 $ 46,448 $ 43,687

Total non-performing loans to total loans 0.45 % 0.49 % 0.30 % 0.23 % 0.30 %

Total non-performing assets to total assets 0.27 % 0.38 % 0.23 % 0.17 % 0.38 %

These properties are recorded at the fair value less estimated costs to sell on the date we obtain control.

Any write-downs to the cost of the related asset upon transfer to OREO to reflect the asset at fair value less estimated costs to sell is recorded through the allowance for loan losses.

NPLs decreased $8.3 million, or 20%, to $35.0 million at December 31, 2021 from $43.3 million at December 31, 2020.

NPLs as a percentage of total loans decreased to 0.45% at December 31, 2020 from 0.49% at December 31, 2019 as a result of an increase in NPLs in our business banking and residential real estate portfolios, offset by a decrease in our commercial and industrial portfolio due to a single, larger loan payoff and a reduction in the outstanding balance of a single, larger Asset Based Lending (“ABL”) credit, and an increase in loan balances due to PPP.

Non-accrual loans decreased $1.4 million, or 3.4%, to $41.0 million at December 31, 2020 from $42.5 million at December 31, 2019, primarily due to a $9.8 million decrease in commercial and industrial non-accruals and partially offset by an $8.9 million increase in business banking non-accruals.

NPLs as a percentage of total loans decreased to 0.29% at December 31, 2021 from 0.45% at December 31, 2020 primarily due to a decrease in residential non-accrual loans, commercial real estate non-accrual loans, and commercial and industrial loans greater than 90 days past due and still accruing.

The decreases in these categories was partially offset by an increase in consumer loans greater than 90 days and still accruing.

For additional discussion of non-accrual loans, refer to the later “Credit Ratios” section.

The total amount of interest recorded on NPLs was $0.5 million for the year ended December 31, 2021.

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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.

As described further below, 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.

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The overall decrease in TDR loans consisted of a decrease of $2.3 million in commercial loan TDRs and a decrease of $1.2 million in consumer loan TDRs.

One loan totaling $40,000 was modified during the preceding 12 months, which subsequently defaulted during the year ended December 31, 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.

No loans were modified during the preceding 12 months which subsequently defaulted during the year ended December 31, 2021.

It is our policy to have any restructured loans that are on non-accrual status prior to being modified remain on non-accrual status for approximately six months subsequent to being modified before we consider its return to accrual status.

If the restructured loan is on accrual status prior to being modified, we review it to determine if the modified loan should remain on accrual status.

Purchase credit impaired (“PCI”) loans are loans we acquired that have shown evidence of deterioration of credit quality since origination and, therefore, it was deemed unlikely that all contractually required payments would be collected upon the acquisition date.

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.

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As of December 31, 2021 and 2020 the carrying amount of PCI loans was $69.6 million and $9.3 million, respectively.

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

Distribution of Non-performing Loans

The increase of $60.3 million was primarily attributable to PCI loans acquired from Century of $67.3 million, partially offset by borrower principal payments during the year ended December 31, 2021.

COVID-19 Modifications In light of the COVID-19 pandemic, we implemented loan modification programs for our borrowers in 2020 that allowed for either full payment deferrals (both interest and principal) or deferral of principal only.

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

The Appropriations Act, which was enacted on December 27, 2020, extended certain expiring tax provisions related to the COVID-19 pandemic in the United States and provides additional emergency relief to individuals and businesses.

within the provisions of the Appropriations Act was the extension of Section 4013 of the CARES Act to January 1, 2022.

As such, we applied CARES Act TDR relief to 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 December 31, 2021 and 2020 and excludes loans acquired from Century:

Remaining COVID-19 Modifications

as of December 31, 2021 (1)

Gross Loans Outstanding (1) 90+ Days Due

Still Accruing Non-accruing

Loans TDR Loans, but Accruing NPLs NPLs as a % of Gross Loans Outstanding

(Dollars in thousands)

Commercial $ 7,213,518 $ 1,959 $ 30,059 $ 13,620 $ 32,018 0.44 %

Residential 1,370,957 279 6,815 23,416 7,094 0.52 %

Consumer 1,146,050 9 4,131 4,059 4,140 0.36 %

Total $ 9,730,525 $ 2,247 $ 41,005 $ 41,095 $ 43,252 0.44 %

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

Remaining COVID-19 Modifications

as of December 31, 2020 (1)

Gross Loans Outstanding 90+ Days Due

Still Accruing Non-accruing

Accruing NPLs NPLs as a % of Gross Loans Outstanding

(Dollars in thousands)

Commercial $ 6,222,897 $ 1,315 $ 34,093 $ 17,575 $ 35,408 0.57 %

Residential 1,428,630 — 5,598 25,093 5,598 0.39 %

Consumer 1,335,519 9 2,760 5,955 2,769 0.21 %

Balance % of Total Portfolio Balance % of Total Portfolio

(In thousands)

Commercial and industrial $ 4,548 0.2 % $ 34,076 1.7 %

Commercial real estate 93,519 2.1 % 231,794 6.5 %

Commercial construction — — % 10,987 3.6 %

Business banking 649 0.1 % 23,434 1.7 %

Residential real estate 5,870 0.3 % 26,772 2.0 %

Consumer home equity 1,365 0.1 % 3,432 0.4 %

Other consumer 706 0.3 % 2,187 0.8 %

Total $ 106,657 0.9 % $ 332,682 3.4 %

(1) Remaining COVID-19 modifications reflect only those loans which underwent a modification and have not yet resumed payment.

We define a modified loan to have resumed payment if it is one month past the modification end date and not more than 30 days past due.

As of December 31, 2021, the aggregate amount of loans that received a COVID-19 modification and have become a non-performing loan after the respective deferral period is $4.7 million and are included in the total remaining COVID-19 modifications shown in the table above.

COVID-19 Pandemic-Impacted Industries.

Management evaluated the risk present in our commercial loan portfolios with respect to COVID-19 pandemic-impacted industries as of December 31, 2021 and, in connection with that evaluation, identified commercial real estate loans collateralized by properties with office space as a high risk industry sector primarily resulting from the delay in many companies’ return to office plans.

As of December 31, 2021, we believe loans to our borrowers in office, 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 December 31, 2021, the aggregate outstanding balance of loans to our borrowers in office, retail, restaurant, and hotel industry categories was $1.1 billion, $549.0 million, $188.9 million, and $189.0 million respectively, representing 8.8%, 4.5%, 1.5% and 1.5% of total loans, respectively.

As of December 31, 2020, the aggregate outstanding loan balance of loans to our borrowers in office, retail, restaurant, and hotel industry categories was $1.0 billion, $496.4 million, $197.4 million, and $178.7 million, respectively, representing 10.6%, 5.1%, 2.0%, and 1.8% of total loans, respectively.

As of December 31, 2021, the current balance of loans modified which we considered to be COVID-19 modifications was $987.0 million, of which 40% were for full payment deferrals, while 60% were for full deferral of principal only.

This includes $631.7 million in commercial real estate (including commercial construction loans), $105.7 million in commercial and industrial loans, $133.5 million in business banking loans, $88.5 million in residential real estate loans, and $27.5 million in consumer loans.

The balance of COVID-19 modifications that have not resumed scheduled repayment or have become delinquent as of December 31, 2021 was $106.7 million compared to $332.7 million as of December 31, 2020.

As of December 31, 2021, the percentage of loans to our borrowers in retail, restaurant and hotel industries that were modified primarily due to the effects on borrowers of the COVID-19 pandemic and related economic slowdown beginning in late March 2020 which have not yet resumed payment were less than 0.1%, 2.9%, and 37.6%, respectively.

As of December 31, 2021, there were no loans to our borrowers in office industries that were modified primarily due to the effects on borrowers of the COVID-19 pandemic and related economic slowdown beginning in late March 2020 and which have not yet resumed payment.

As of December 31, 2020, the percentage of loans to our borrowers in office, retail, restaurant, and hotel industries that were modified primarily due to the effects on borrowers of the COVID-19 pandemic and related economic slowdown beginning in late March 2020 which have not yet resumed payment were 7.7%, 2.1%, 12.7%, and 39.4%, respectively.

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 in the current economic environment.

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 December 31, 2020 and 2019, 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 $563.3 million and $157.3 million, respectively.

Management evaluated loans to borrowers in our office segment as of December 31, 2021 and observed increases in vacancy rates in properties collateralized by such properties.

Due to the long-term nature of leases at such properties, the full impact of the COVID-19 pandemic on borrowers’ ability to repay is not currently reasonably estimable.

However, based upon management’s regular evaluation of such loans, downgrades to the respective risk ratings have occurred and may occur again at such time heightened risk is identified.

At December 31, 2021 and 2020, our potential problem loans (including these COVID-19 pandemic-impacted 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 $470.9 million and $563.3 million, respectively.

Included in these potential problem loans was $335.9 million and $319.5 million at December 31, 2021 and 2020, respectively, of loans in COVID-19 impacted industries, which includes borrowers in office industries as previously described at both December 31, 2021 and 2020.

Allowance for loan losses.

Due to our emerging growth company status under the Jumpstart Our Business ("JOBS") Act, we still follow the incurred loss allowance GAAP accounting model.

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 this Annual Report on Form 10-K.

Because we continued to qualify for emerging growth company status under the Jumpstart Our Business (“JOBS”) Act until December 31, 2021, we were permitted to delay adoption of the CECL standard until the earlier of the date at which non-public business entities are required to adopt the standard and the date we ceased to be an EGC.

Included in the Appropriations Act was an extension of the adoption date to the earlier of January 1, 2022 or 60 days after the date on which the COVID-19 national emergency terminates.

We elected this extension and, accordingly, adopted the CECL standard on January 1, 2022.

As of December 31, 2021, we followed the incurred loss allowance GAAP accounting model.

See “Risk Factors—Our loan loss allowance at December 31, 2021 may be difficult to evaluate in comparison to our peers” in Part I, Item 1A of this Annual Report on 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.

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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.

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.

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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 a discussion of our risk rating methodology, see Note 5, “Loans and Allowance for Loan Losses” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

The allowance for loan losses increased by $30.7 million, or 37.3%, to $113.0 million, or 1.16% of total loans (including PPP loans), at December 31, 2020 from $82.3 million, or 0.92% of total loans at December 31, 2019.

The increase in the allowance for loan losses was primarily a result of the COVID-19 pandemic and its impact on the Bank's borrowers.

This, along with other factors, resulted in a provision for credit losses of $38.8 million for the year ended December 31, 2020, as compared to $6.3 million for the year ended December 31, 2019.

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

For additional discussion of our risk rating methodology, see Note 5, “Loans and Allowance for Loan Losses” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

The following table summarizes credit ratios for the periods presented:

Credit Ratios

For the Year Ended December 31,

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(Dollars in thousands)

Average total loans $ 9,651,844 $ 8,948,947 $ 8,566,149 $ 7,968,358 $ 7,397,564

Allowance for loan losses, beginning of period $ 82,297 $ 80,655 $ 74,111 $ 70,188 $ 65,500

Charged-off loans:

Net loan charge-offs (recoveries):

Commercial and industrial $ 623 $ 992 $ (2,625) $ 893 $ (4,489)

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Other consumer 1,373 2,129 1,811 1,676 1,707

Total charged-off loans 9,853 9,499 12,461 8,980 5,891

Recoveries on loans previously charged-off:

Total net loan charge-offs (recoveries) $ 5,558 $ 8,066 $ 4,658 $ 8,556 $ 1,877

Average loans:

Commercial and industrial $ 2,015,665 $ 2,053,093 $ 1,419,875 $ 1,185,224 $ 1,074,875

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Other consumer 233,932 334,257 471,602 619,406 670,881

Total recoveries 1,787 4,841 3,905 7,103 2,679

Net loans charged-off (recoveries):

Average total loans (1) $ 10,021,862 $ 9,649,273 $ 8,947,876 $ 8,564,890 $ 7,967,034

Net charge-offs (recoveries) to average loans outstanding during the period:

Commercial and industrial 0.03 % 0.05 % (0.18) % 0.08 % (0.42) %

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Other consumer 0.59 0.64 0.38 0.27 0.25

Total net loans charged-off 8,066 4,658 8,556 1,877 3,212

Provision for loan losses 38,800 6,300 15,100 5,800 7,900

Total allowance for loan losses, end of period $ 113,031 $ 82,297 $ 80,655 $ 74,111 $ 70,188

Net charge-offs to average total loans outstanding during this period 0.08 % 0.05 % 0.10 % 0.02 % 0.04 %

Total net charge-offs (recoveries) to average total loans outstanding during the period 0.06 % 0.08 % 0.05 % 0.10 % 0.02 %

Total loans $ 12,281,510 $ 9,730,525 $ 8,987,046 $ 8,856,003 $ 8,227,041

Total non-accrual loans 32,993 41,005 42,451 26,172 18,165

Allowance for loan losses $ 97,787 $ 113,031 $ 82,297 $ 80,655 $ 74,111

Allowance for loan losses as a percent of total loans 0.80 % 1.16 % 0.92 % 0.91 % 0.90 %

Allowance for loan losses as a percent of non-performing loans 261.33 % 188.00 % 303.32 % 397.48 % 308.02 %

Non-accrual loans as a percent of total loans 0.27 % 0.42 % 0.47 % 0.30 % 0.22 %

Allowance for loan losses as a percent of non-accrual loans 296.39 % 275.65 % 193.86 % 308.17 % 407.99 %

(1) Average loan balances exclude loans held for sale.

Non-accrual loans decreased $8.0 million, or 20%, to $33.0 million at December 31, 2021 from $41.0 million at December 31, 2020, primarily due to a decrease in non-accrual loans in our business banking portfolio and commercial real estate portfolio, partially offset by an increase in non-accrual loans in our commercial and industrial portfolio.

The allowance for loan losses decreased by $15.2 million, or 13.5%, to $97.8 million, or 0.80% of total loans (including PPP loans), at December 31, 2021 from $113.0 million, or 1.16% of total loans at December 31, 2020.

The decrease in the allowance for loan losses was primarily a result of improved macroeconomic conditions, risk rating upgrades in the commercial portfolios during the period and loans acquired from Century for which the estimated incurred losses were substantively included in the initial fair value determination as of the acquisition date of November 12, 2021.

The economic environment during the year ended December 31, 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 allowance for loan losses of $9.7 million for the year ended December 31, 2021, as compared to a provision for allowance for loan losses of $38.8 million for the year ended December 31, 2020.

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:

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Total $ 97,787 100.00 % 100.00 % $ 113,031 100.00 % 100.00 %

(1) PPP loans are included within these portfolios as of December 31, 2020;

however, as of December 31, 2020, no allowance for loan losses have been recorded on these loans due to the SBA guarantee of 100% of the loans.

(1) PPP loans are included within these portfolios as of December 31, 2021 and December 31, 2020;

however, as of December 31, 2021 and December 31, 2020, no allowance for loan losses have been recorded on these loans due to the SBA guarantee of 100% of the loans.

As of December 31,

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For additional information regarding our allowance for loan losses, see Note 5, “Loans and Allowance for Loan Losses” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

We adopted the CECL standard on January 1, 2022 and will use the CECL methodology to determine our allowance for loan loss in future periods.

For information about risks associated with our adoption of the CECL standard, see “Risk Factors—“We increased 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 and may be required to do so again in the future.” in Part I, Item 1A of this Annual Report on Form 10-K.

Federal Home Loan Bank stock

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Goodwill and other intangible assets were $649.7 million and $376.5 million at December 31, 2021 and 2020, respectively.

The decrease in goodwill and other intangibles assets was due to the amortization of definite-lived intangibles during the year ended December 31, 2020, which was partially offset by an increase in goodwill and other intangibles associated with an insurance agency acquisition during the year.

We did not record any impairment to our goodwill or other intangible assets during the year ended December 31, 2020.

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.

The increase in goodwill and other intangibles assets was due to our acquisition of Century which resulted in the addition of goodwill and intangible assets of $259.0 million and $11.6 million, respectively, as well as two insurance agency acquisitions which resulted in additional goodwill and intangible assets that are not considered to be material.

This was partially offset by amortization of definite-lived intangibles during the year ended December 31, 2021.

We did not record any impairment to our goodwill or other intangible assets during the years ended December 31, 2021 and 2020.

We routinely assess our goodwill and other intangible assets to determine if impairments are necessary.

Deposits and other interest-bearing liabilities

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Furthermore, we shift the mix and maturity of the deposits depending on economic conditions and loan and investment policies in an attempt, within set policies, to minimize cost and maximize net interest margin.

We do not, and in recent years have not, obtained deposit funding through brokered deposits.

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

The following table presents our deposits, including those acquired from Century in 2021, as of the dates presented:

Components of Deposits

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Total deposits $ 19,628,311 $ 12,155,784 $ 7,472,527 61.5 %

(1) The Bank’s estimate of total uninsured deposits was $11.0 billion and $5.5 billion at December 31, 2021 and December 31, 2020, respectively.

The increase in estimated uninsured deposits between December 31, 2020 and December 31, 2021 was primarily due to our acquisition of Century.

The following table presents the composition of deposits acquired in connection with our acquisition of Century at fair value as of the November 12, 2021 acquisition date:

Acquired Deposits at Fair Value

As of November 12, 2021

(Dollars in thousands)

Demand $ 1,744,600

Interest checking 1,406,039

Savings 1,011,569

Money market investments 1,611,947

Certificates of deposit 325,666

Total deposits $ 6,099,821

Deposits increased by $7.5 billion, or 61.5%, to $19.6 billion at December 31, 2021 from $12.2 billion at December 31, 2020.

This increase was primarily the result of an increase in demand deposits of $1.4 billion, an increase in interest checking deposits of $566.2 million, and an increase in money market deposits of $429.5 million.

During the year ended December 31, 2020, we transferred a product for our Financial Institutions customers from borrowings to deposits.

The product totaled $109.6 million at December 31, 2020.

This increase was primarily a result of our acquisition of Century through which we acquired $6.1 billion total deposits.

For more information regarding deposits acquired as a result of the Century acquisition, see Note 26, “Subsequent Events” within the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on form 10-K.

Excluding deposits acquired from Century, interest checking deposits, money market deposits and demand deposits, the deposit types primarily contributed to the increase in legacy deposits (e.g., deposits not acquired from Century) and increased $0.7 billion, $0.6 billion and $0.4 billion, respectively.

The increases in these deposit categories reflect strong deposit flows, in part due to government stimulus.

The following table presents the classification of deposits on an average basis for the years indicated:

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Total deposits $ 14,047,830 0.04 % $ 11,398,968 0.10 % $ 9,365,581 0.29 %

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

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

Other time deposits in excess of the FDIC insurance limit of $250,000, including certificates of deposits as of the dates indicated had maturities as follows:

Maturities of Time Certificates of Deposit $250,000 and Over

As of December 31,

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Total $ 224,040 $ 59,077

Our borrowings consist of both short-term and long-term borrowings and provide us with sources of funding.

Our borrowings may 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 decreased by $207.3 million, or 88.1%, to $28.0 million at December 31, 2020 compared to $235.4 million at December 31, 2019.

The decrease was primarily due to a decrease of $201.1 million of federal funds purchased.

The decrease in our federal funds purchased was primarily due to the transfer of a product for our Financial Institution customers (which totaled $109.6 million at December 31, 2020) from borrowings to deposits as described above.

Our total borrowings increased by $6.2 million, or 22.2%, to $34.3 million at December 31, 2021 compared to $28.0 million at December 31, 2020.

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

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(Dollars in thousands)

Federal funds purchased $ — $ 201,082 $ (201,082) (100.0) %

Federal Home Loan Bank advances $ 14,020 $ 14,624 $ (604) (4.1) %

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Interest and Dividend Income

Interest and dividend income increased by $21.8 million, or 5.3%, to $435.2 million during the year ended December 31, 2021 from $413.3 million during the year ended December 31, 2020.

This increase was primarily a result of our acquisition of Century on November 12, 2021 which added approximately $6.6 billion in interest-earning assets.

Overall, the average balance of our interest-earning assets increased $3.9 billion, or 30.7%, to $16.7 billion as of December 31, 2021 compared to $12.8 billion as of December 31, 2020, reflecting the addition of Century assets and the purchase of investment securities resulting from the investment of the proceeds from our October 2020 IPO.

Partially offsetting this increase was a decrease in the yield on average interest-earning assets which decreased by 64 basis points to 2.64% during the year ended December 31, 2021.

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 and dividend income decreased by $31.7 million, or 7.1%, to $413.3 million during the year ended December 31, 2020 from $445.0 million during the year ended December 31, 2019.

This decrease was a result of lower interest income on our loans, partially offset by net PPP fee accretion (fee accretion less cost amortization).

The FTE yield on average interest-earning assets decreased 100 basis points to 3.3% during the year ended December 31, 2020.

Our average interest-earning assets increased by $2.2 billion, or 21.2%, to $12.8 billion as of December 31, 2020 compared to $10.5 billion as of December 31, 2019.

Management believes that this presentation allows for better comparability between institutions with different tax structures.

• Interest income on securities and federal funds sold and other short-term investments increased $26.4 million, or 64.1%, to $67.6 million for the year ended December 31, 2021 compared to $41.2 million for the year ended December 31, 2020.

The increase in interest income on securities was primarily due to an increase in the average balance of such securities of $3.6 billion, or 114.0%, to $6.7 billion as of December 31, 2021 compared to $3.1 billion as of December 31, 2020, which was partially offset by a decrease in the yield on such securities.

The increase in the average balance of securities was attributable to security purchases of $3.3 billion during the year ended December 31, 2021, reflecting the investment of the proceeds from our October 2020 IPO, and investment securities acquired of $3.1 billion as a result of our acquisition of Century.

• Interest income on loans decreased by $4.6 million, or 1.2%, to $367.6 million during the year ended December 31, 2021 from $372.2 million during the year ended December 31, 2020.

The decrease in interest income on our loans was primarily due to the decrease in the yield on average loans.

The decrease in the average yield on our loans was primarily due to the downward adjustment of the interest rates on our existing adjustable-rate loans as a result of the lowering interest rate environment, whereas the average balance of loans increased primarily due to the addition of PPP loans to the portfolio.

On an average basis, PPP loans were $761.7 million for the year ended December 31, 2020, and had a contractual interest rate of 1%.

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 FTE yield on average loans decreased 18 basis points to 3.71% during the year ended December 31, 2021.

The average balance of our loans increased by $702.9 million, or 7.9%, to $9.7 billion as of December 31, 2020 compared to $8.9 billion as of December 31, 2019.

• Interest income on securities decreased $1.7 million, or 4.1%, to $41.2 million for the year ended December 31, 2020 compared to $42.9 million for the year ended December 31, 2019.

The decrease in interest income on securities was due to lower overall market rates.

The FTE yield on average securities and other interest-earning assets decreased 148 basis points to 1.4% during the year ended December 31, 2020.

The average balance of securities and other interest earning assets increased by $1.5 billion, or 97.1%, to $3.1 billion as of December 31, 2020 compared to $1.6 billion as of December 31, 2019.

• We received approximately $37.1 million of PPP loan origination fees from the SBA.

We also deferred certain origination costs, totaling $4.2 million, related to our PPP loans.

The loan fees and the deferred costs will be amortized through interest income over the life of the PPP loans, which is expected to be 24 months, but the amortization period will be adjusted as PPP loans are forgiven or repaid.

During the year ended December 31, 2020, we recorded $13.9 million in PPP loan fees, net in interest income.

The decrease in loan yields was partially offset by an increase in net accretion of PPP loan deferred fees and costs of $20.4 million to $34.3 million during year ended December 31, 2021 from $13.9 million during the year ended December 31, 2020.

Also partially offsetting the decline in average yield was a slight increase in the average balance of loans of $371.9 million, or 3.9%, from $9.7 billion to $10.0 billion which was primarily the result of our acquisition of Century which added $2.9 billion in loans as of November 12, 2021, partially offset by a decline in PPP loan balances of $0.7 billion reflecting pay-offs of such balances.

Interest Expense

Interest expense decreased $6.7 million, or 55.8%, to $5.3 million during the year ended December 31, 2021 from $12.1 million during the year ended December 31, 2020.

The decrease was a result of decreased rates paid on deposits.

The overall rates paid on average interest-bearing liabilities decreased 37 basis points to 0.17% during the year ended December 31, 2020.

Average interest-bearing liabilities increased $648.4 million, or 10.3%, to $6.9 billion as of December 31, 2020 compared to $6.3 billion as of December 31, 2019.

The decrease was a result of lower funding costs associated with the decline in the market interest rates.

• Interest expense on our interest-bearing deposits decreased by $6.1 million, or 54.3%, to $5.2 million during the year ended December 31, 2021 from $11.3 million during the year ended December 31, 2020.

The decrease in our interest expense on interest-bearing deposits was due to a decrease in the cost of deposits that more than offset the increase in the average balance of deposits during the period.

The average balance of interest-bearing deposits increased due to our increasing core deposits to help fund loan growth, whereas the average cost of deposits decreased due to the interest rate decreases occurring in the year ended December 31, 2020.

The average cost of our interest-bearing deposits decreased 30 basis points to 0.16% in the year ended December 31, 2020.

The average balance of our interest-bearing deposits increased by $867.7 million, or 14.5%, to $6.9 billion as of December 31, 2020 compared to $6.0 billion as of December 31, 2019.

• Interest expense on borrowed funds decreased by $0.6 million, or 78.3%, to $0.2 million during the year ended December 31, 2021 from $0.8 million during the year ended December 31, 2020.

The decrease in interest expense on borrowed funds was primarily due to a reduction in federal funds purchased as a result of the transfer of a product for our Financial Institution customers from borrowings to deposits as described above.

In addition, the average balance of FHLB advances decreased by $78.7 million to $15.5 million during the year ended December 31, 2020 compared to $94.2 million during the year ended December 31, 2019.

The reduction in FHLB borrowings was driven by an increase in deposits that reduced the Company’s need to borrow.

The average balance of borrowed funds decreased by $219.3 million, or 75.3%, to $72.1 million as of December 31, 2020 compared to $291.4 million as of December 31, 2019.

Average interest-bearing deposits increased $1.6 billion, or 23.8%, for year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to the Century acquisition.

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 year ended December 31, 2021 compared to the year ended December 31, 2020.

Net Interest Income

Net interest income decreased by $10.0 million, or 2.4%, to $401.3 million during the year ended December 31, 2020, from $411.3 million during the year ended December 31, 2019.

The decrease was primarily a result of the decrease in interest and dividend income partially offset by the decrease in interest expense, which are each attributable to the decrease in interest rates during the year ended December 31, 2020.

Net interest income increased by $28.6 million, or 7.1%, to $429.8 million during the year ended December 31, 2021, from $401.3 million during the year ended December 31, 2020.

Net interest income increased slightly as the reduction in interest income associated with the lower interest rate environment was more than offset by a related reduction in interest expense.

In addition, the average balances of interest-earning assets substantially increased during the year ended December 31, 2021 compared to year ended December 31, 2020 which reflects assets acquired in connection with our acquisition of Century and the investment of the proceeds from our October 2020 IPO in investment securities.

Net interest margin is determined by dividing FTE net interest income by average-earning assets.

For purposes of the following discussion, income from tax-exempt loans and investment securities has been adjusted to an FTE basis, using a marginal tax rate of 21.8% for the years ended December 31, 2020 and 2019, and 21.7% for the year ended December 31, 2018.

For purposes of the following discussion, income from tax-exempt loans and investment securities has been adjusted to an FTE basis, using a marginal tax rate of 21.0% for the year ended December 31, 2021, and 21.8% for the years ended December 31, 2020 and 2019.

Net interest margin decreased 57 basis points to 2.61% during the year ended December 31, 2021, from 3.19% during the year ended December 31, 2020.

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Total loans 10,023,769 371,719 3.71 % 9,651,844 375,312 3.89 % 8,948,947 404,800 4.52 %

Investment securities 1,826,121 41,730 2.29 % 1,435,719 42,494 2.96 % 1,539,901 45,707 2.97 %

Non-taxable investment securities 260,399 9,335 3.58 % 265,511 9,899 3.73 % 287,128 10,852 3.78 %

Taxable investment securities 4,890,737 58,312 1.19 % 1,560,610 31,831 2.04 % 1,148,591 31,642 2.75 %

Federal funds sold and other short-term investments 1,514,351 1,886 0.12 % 1,288,714 1,758 0.14 % 144,856 2,977 2.06 %

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Interest-bearing liabilities:

Savings account $ 1,123,584 $ 242 0.02 % $ 991,244 $ 210 0.02 % $ 1,048,289 $ 229 0.02 %

Interest checking account 2,227,185 2,033 0.09 % 1,842,993 3,947 0.21 % 1,821,854 3,325 0.18 %

Money market investment 3,212,752 7,492 0.23 % 2,769,934 19,150 0.69 % 2,422,531 9,988 0.41 %

Time account 300,381 1,548 0.52 % 392,035 3,994 1.02 % 452,885 3,843 0.85 %

Savings accounts $ 1,483,271 $ 230 0.02 % $ 1,123,584 $ 242 0.02 % $ 991,244 $ 210 0.02 %

Interest checking accounts 2,866,091 1,997 0.07 % 2,227,185 2,033 0.09 % 1,842,993 3,947 0.21 %

Money market investments 3,870,712 2,342 0.06 % 3,212,752 7,492 0.23 % 2,769,934 19,150 0.69 %

Time accounts 280,141 598 0.21 % 300,381 1,548 0.52 % 392,035 3,994 1.02 %

Total interest-bearing deposits 8,500,215 5,167 0.06 % 6,863,902 11,315 0.16 % 5,996,206 27,301 0.46 %

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Average interest-earning assets to interest-bearing liabilities 195.73 % 184.06 % 167.46 %

Return on average assets (5) 0.87 % 0.16 % 1.18 %

Return on average equity (6) 4.52 % 1.11 % 8.75 %

Noninterest expenses to average assets 2.49 % 3.64 % 3.62 %

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

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

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

(6) Represents net income divided by average equity.

The following table presents, on a tax equivalent basis, the effects of changing rates and volumes on our net interest income for the periods indicated.

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Rate Volume Rate Volume

(Dollars in thousands)

(In thousands)

Interest-earning assets:

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Total loans (18,381) 14,788 (3,593) (61,648) 32,160 (29,488)

Investment securities (10,886) 10,122 (764) (152) (3,061) (3,213)

Non-taxable investment securities (376) (188) (564) (145) (808) (953)

Taxable investment securities (17,822) 44,303 26,481 (9,452) 9,641 189

Federal funds sold and other short-term investments (162) 290 128 (5,100) 3,881 (1,219)

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Interest-bearing liabilities:

Savings account $ 4 $ 28 $ 32 $ — $ (19) $ (19)

Interest checking account (2,611) 697 (1,914) 582 40 622

Money market investment (14,325) 2,667 (11,658) 7,572 1,590 9,162

Time account (1,660) (786) (2,446) 709 (558) 151

Savings accounts $ (78) $ 66 $ (12) $ 4 $ 28 $ 32

Interest checking accounts (544) 508 (36) (2,611) 697 (1,914)

Money market investments (6,438) 1,288 (5,150) (14,325) 2,667 (11,658)

Time accounts (852) (98) (950) (1,660) (786) (2,446)

Total interest-bearing deposits (7,912) 1,764 (6,148) (18,592) 2,606 (15,986)

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The provision for loan losses represents the charge to expense that is required to maintain an appropriate level of allowance for loan losses.

The provision for loan losses increased by $32.5 million, or 515.9%, to $38.8 million for the year ended December 31, 2020, compared to $6.3 million for the year ended December 31, 2019.

The increase was primarily due to the change in loan risk ratings to reflect the impact of the increased concerns about customers that are expected to face financial difficulties due to the current economic environment resulting from the COVID-19 pandemic, primarily related to the downgrading of our hotel and restaurant loan portfolios.

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

We recorded a release of the allowance for loan losses of $9.7 million for the year ended December 31, 2021, compared to a provision of $38.8 million for the year ended December 31, 2020.

Given the continued improved economic and credit conditions during year ended December 31, 2021, we determined that a release of the allowance was necessary.

In March 2020, in response to the COVID-19 pandemic, we downgraded the risk ratings for all commercial loans we expected at the time to be significantly impacted by the pandemic, including our hotel and restaurant loan portfolios, which resulted in a total provision of $28.6 million recorded in the first quarter of 2020.

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.

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Debit card processing fees 12,118 10,277 1,841 17.9 %

Interest swap income (1,381) 4,362 (5,743) (131.7) %

Interest swap income (losses) 5,634 (1,381) 7,015 508.0 %

Income from investments held in rabbi trusts 10,217 10,337 (120) (1.2) %

Trading securities gains, net (4) 1,297 (1,301) (100.3) %

Net gain on sales of mortgage loans held for sale 7,066 795 6,271 788.8 %

Losses trading securities gains, net — (4) 4 (100.0) %

Gains on sales of mortgage loans held for sale, net 3,605 7,066 (3,461) (49.0) %

Gains on sales of securities available for sale, net 1,166 288 878 304.9 %

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Total noninterest income $ 193,155 $ 178,373 $ 14,782 8.3 %

Noninterest income decreased by $3.9 million, or 2.2%, to $178.4 million for the year ended December 31, 2020 from $182.3 million for the year ended December 31, 2019.

The decrease was primarily due to a $5.7 million decrease in interest rate swap income, a $5.5 million decrease in service charges on deposit accounts, a $1.7 million decrease in gains on sales of securities available for sale, net, and a $1.3 million decrease in trading securities gains, net, partially offset by a $6.3 million increase in net gains on sales of mortgage loans held for sale and a $3.9 million increase in insurance commissions.

• Interest rate swap income decreased primarily as a result of lower volume.

In addition, the unfavorable mark-to-market adjustment was greater during the year ended December 31, 2020 compared to the year ended December 31, 2019 due to the current interest rate and economic environment.

• Deposit service charges decreased primarily as a result of reduced overdraft charges as a result of lower volume due to the COVID-19 pandemic.

• Gains on securities available for sale decreased due to fewer sales during the year ended December 31, 2020, compared to the year ended December 31, 2019.

• Trading securities gains decreased due to our exit from the capital markets business during the year ended December 31, 2019.

• Net gains on sales of mortgage loans held for sale increased primarily due to the low interest rate environment.

• Insurance commissions increased primarily as a result of an increase in our profit-sharing revenues and commissions.

Noninterest income increased by $14.8 million, or 8.3%, to $193.2 million for the year ended December 31, 2021 from $178.4 million for the year ended December 31, 2020.

The increase was primarily due to a $7.0 million increase in interest rate swap income, and a $3.5 million increase in trust and investment advisory fees, which were partially offset by a $3.5 million decrease in net gains resulting from the sale of mortgage loans held for sale.

• Interest rate swap income increased primarily as a result of a favorable mark-to-market adjustment due to the current interest rate and economic environment.

• Trust and investment advisory fees increased primarily as a result of higher asset values associated with the principal assets in customers’ accounts.

• Net gains resulting from the sale of mortgage loans held for sale decreased primarily due to a combination of fewer residential real estate loans originated as held for sale as we designate more residential mortgage loans originated as held for investment and increases in market rates of interest.

Noninterest Expense

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Marketing 8,741 8,879 (138) (1.6) %

Operational losses 7,786 2,493 5,293 212.3 %

Loan expenses 6,516 6,727 (211) (3.1) %

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Total noninterest expense $ 443,956 $ 504,923 $ (60,967) (12.1) %

Noninterest expense increased by $92.2 million, or 22.4%, to $504.9 million during the year ended December 31, 2020 from $412.7 million during the year ended December 31, 2019.

The increase was primarily due to an $82.4 million increase in charitable contributions, a $9.6 million increase in salaries and employee benefits, and a $2.9 million increase in professional services.

• Charitable contributions increased primarily as a result of a $91.3 million stock contribution to the Eastern Bank Charitable Foundation made in connection with the Company's IPO during the year ended December 31, 2020.

• Salaries and employee benefits increased primarily as a result of an increase in salaries and commissions as well as increases in other compensation due to the payment of COVID-19 premiums for employees working onsite during the COVID-19 pandemic.

• Professional services increased primarily as a result of costs associated with our IPO that are indirectly related to the IPO and were not recorded as a reduction of capital, and higher legal costs related to corporate-related matters.

The Company recorded merger and acquisition expenses of $35.5 million during the year ended December 31, 2021 related to the Century acquisition.

These merger and acquisition expenses were included in the following line items of the consolidated statements of income:

Century Merger & Acquisition Expenses

For the Year Ended December 31, 2021

(In thousands)

Salaries and employee benefits $ 15,947

Office occupancy and equipment 7,198

Data processing 1,286

Professional services 9,223

Total merger and acquisition expenses $ 35,456

Noninterest expense decreased by $61.0 million, or 12.1%, to $444.0 million during the year ended December 31, 2021 from $504.9 million during the year ended December 31, 2020.

The decrease was primarily due to a $95.3 million decrease in charitable contributions and a $24.5 million decrease in other noninterest expenses, excluding merger and acquisition expenses.

Partially offsetting these decreases were $35.5 million in merger and acquisition expenses, for which there were none during the year ended December 31, 2020, an increase in salaries and employee benefits of $18.1 million, excluding merger and acquisition expenses, and an increase in operational losses of $5.3 million.

• Charitable contributions decreased as the Company made no contributions during the year ended December 31, 2021 following the Company’s $91.3 million stock contribution to the Eastern Bank Foundation made in connection with the Company's IPO during the year ended December 31, 2020.

• Other noninterest expenses, excluding merger and acquisition expenses, decreased primarily due to reduced costs associated with the conversion of each of our noncontributory, defined benefit plan (“Defined Benefit Plan”) and Benefit Equalization Plan (“BEP”) from a traditional final average earnings plan design to a cash balance plan design, which occurred in the fourth quarter of 2020 and was effective as of November 1, 2020.

In addition, other noninterest expenses, excluding merger and acquisition expenses, decreased due to a reduction in impairment charges taken on certain tax credit investments.

Non-service cost expenses for the Defined Benefit Plan and the BEP decreased by $13.0 million and $2.1 million, respectively, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Impairment charges taken on certain tax credit investments decreased primarily due to write-downs taken of $10.8 million on certain tax credit investments accounted for under the equity method of accounting during the year ended December 31, 2020, which was primarily composed of a $7.6

million impairment charge reflecting management’s estimate of the future benefit of the investments.

During the year ended December 31, 2021 we recorded a net recovery of impairment charges of $0.2 million.

For additional information on this impairment charge see Note 13, “Low Income Housing Tax Credits and Other Tax Credit Investments” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

• Merger and acquisition expenses were $35.5 million and resulted from our acquisition of Century which we completed on November 12, 2021.

No such expenses were incurred during the year ended December 31, 2020 as there were no acquisitions.

For additional information on our acquisition of Century, see Note 3, “Mergers and Acquisitions” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

• Salaries and employee benefits increased primarily as a result of an increase of $7.1 million in ESOP expense, for which fewer expenses were incurred during the year ended December 31, 2020, in which the ESOP was established in October of such year.

Also contributing to the increase were pension service costs which increased $6.9 million from the year ended December 31, 2020 which resulted from an increase in the projected retirement benefits earned by plan participants during the year ended December 31, 2021.

The higher pension service costs were more than offset by a decrease in the non-service cost components of net periodic pension expense for the Defined Benefit Plan and the BEP, as discussed further above.

• Operational losses increased primarily as a result of an accrual of $3.3 million during the year ended December 31, 2021 for legal expenses associated with the preliminary settlement of the putative consumer class action litigation matters related to overdraft and non-sufficient funds fees.

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.

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Blended statutory tax rate 28.1 % 28.1 %

Income tax expense decreased by $26.3 million, or 66.7%, to $13.2 million in the year ended December 31, 2020 from $39.5 million in the year ended December 31, 2019.

The decrease in income tax expense and increase in the effective tax rate during the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to lower income before income tax expense, increasing the impact on the effective rate related to favorable permanent differences, including investment tax credits and tax-exempt income.

The reduction in income tax expense related to lower income before income tax expense was partially offset by the establishment of a $12.0 million valuation allowance against the Company's charitable contribution carryover deferred tax asset.

Income tax expense increased by $20.9 million to $34.0 million in the year ended December 31, 2021 from $13.2 million in the year ended December 31, 2020.

The increase in income tax expense was due primarily to higher pre-tax income during the year ended December 31, 2021 compared to the year ended December 31, 2020, which lessened the impact on the effective rate related to favorable permanent differences, including investment tax credits and tax exempt income.

Partially offsetting this increase was a release of $11.3 million related to a valuation allowance of $12.0 million, established as of December 31, 2020 against our charitable contribution carryover deferred tax asset in connection with our 2020 charitable contribution to the Foundation.

For additional information related to the Company’s income taxes see Note 12, “Income Taxes” and Note 13, “Low Income Housing Tax Credits and Other Tax Credit Investments” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

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Net interest income $ 429,827 $ — $ — $ 429,827 $ 401,251 $ — $ — $ 401,251

Provision for loan losses 38,800 — — 38,800 6,300 — — 6,300

(Release of) provision for allowance for loan losses (9,686) — — (9,686) 38,800 — — 38,800

Net interest income after provision for loan losses 439,513 — — 439,513 362,451 — — 362,451

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Banking Segment

• Average interest-earning assets increased $2.2 billion, or 21.2%, to $12.8 billion as of December 31, 2020 from $10.5 billion as of December 31, 2019, and average total loans, our largest category of average interest-earning assets, increased $702.9 million, or 7.9%, to $9.7 billion as of December 31, 2020 compared to $8.9 billion as of December 31, 2019.

• Average interest-bearing liabilities increased $648.4 million, or 10.3%, to $6.9 billion as of December 31, 2020 from $6.3 billion as of December 31, 2019, and average total deposits, our largest category of average interest-bearing liabilities, increased $867.7 million, or 14.5%, to $6.9 as of December 31, 2020 compared to $6.0 billion as of December 31, 2019.

• Losses related to interest rate swaps were $1.4 million for the year ended December 31, 2020 compared to income of $4.4 million for the year ended December 31, 2019, representing a decrease of 131.7%.

This change was due to a decrease in transactional volume of $4.3 million and an increase in the unfavorable mark-to-market adjustment of $1.5 million.

• Service charges on deposit accounts decreased by $5.5 million, or 20.3%, to $21.6 million for the year ended December 31, 2020 compared to $27.0 million for the year ended December 31, 2019.

The decrease was primarily due to a decrease in overdraft fees as a result of the COVID-19 pandemic.

• Assets under management in our wealth management business increased $336.7 million or 13.1%, to $2.9 billion as of December 31, 2020 from $2.6 billion as of December 31, 2019.

Our income related to our asset management business, which we record as noninterest income, increased $1.4 million, or 7.4%, to $21.1 million for the year ended December 31, 2020 compared to $19.7 million for the year ended December 31, 2019.

The increase was due to the fees we earned, which are largely based upon asset values.

• Gains on sales of mortgage loans held for sale, net, increased by $6.3 million, or 788.8%, to $7.1 million for the year ended December 31, 2020 compared to $0.8 million for the year ended December 31, 2019.

The increase was due to increased volume due to the low interest rate environment.

• Average interest-earning assets increased $3.9 billion, or 30.7%, to $16.7 billion for the year ended December 31, 2021 from $12.8 billion for the year ended December 31, 2020, reflecting the addition of Century assets and the purchase of investment securities representing the investment of the proceeds from our October 2020 IPO.

Our acquisition of Century closed on November 12, 2021 and added approximately $6.6 billion in interest-earning assets.

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 increased $1.6 billion, or 22.9%, to $8.5 billion for the year ended December 31, 2021 from $6.9 billion for the year ended December 31, 2020, with average total interest-bearing deposits, our largest category of average interest-bearing liabilities, growing $1.6 billion, or 23.8%, to $8.5 billion as of December 31, 2021 compared to $6.9 billion as of December 31, 2020.

The increase in average interest-bearing liabilities was more than offset by a reduction in rates paid on deposits resulting in an overall decrease in interest expense.

For additional discussion, refer to the earlier “Interest and Dividends” section.

• We recorded a release of allowance for loan losses of $9.7 million for the year ended December 31, 2021, compared to a provision of $38.8 million for the year ended December 31, 2020.

Given continued improved economic and credit conditions during the year ended December 31, 2021, we determined that a release of the provision was necessary.

For additional discussion, refer to the earlier “Provision for Loan Losses” section.

• Gains related to interest rate swaps were $5.6 million for the year ended December 31, 2021 compared to losses of $1.4 million for the year ended December 31, 2020, representing an increase of 508.0%.

This change was due primarily to a favorable mark-to-market adjustment which resulted in an increase in income of $9.8 million which was partially offset by a decrease of $2.7 million attributable to a decline in transactional volume.

• Trust and investment advisory fees increased $3.5 million from $21.1 million for the year ended December 31, 2020 to $24.6 million for the year ended December 31, 2021 primarily as a result of higher asset values associated with the principal assets in customers’ accounts.

Assets under management as of December 31, 2021 were $3.4 billion compared to $2.9 billion as of December 31, 2020.

• Noninterest expense decreased during the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to charitable contributions which decreased as no contributions were made during the year ended December 31, 2021 following the our $91.3 million stock contribution to the Eastern Bank Foundation made in connection with our IPO during the year ended December 31, 2020.

This decrease was partially offset by costs associated with our acquisition of Century of $35.5 million.

For additional discussion, refer to the earlier “Noninterest Expense” section.

Insurance Agency Segment

• Noninterest income related to our insurance agency business increased by $4.0 million, or 4.4%, to $96.7 million during the year ended December 31, 2020 from $92.7 million during the year ended December 31, 2019.

The increase was driven primarily by an increase in recurring commissions of $3.6 million due to organic growth as well as a $1.2 million non-recurring item, and an increase in our combined negotiated commission and profit sharing income of $0.8 million, partially offset by a $0.3 million decrease in income from investments held in rabbi trusts.

• Expenses related to our insurance agency business decreased $1.2 million, or 1.6%, to $77.8 million during the year ended December 31, 2020 from $79.0 million during the year ended December 31, 2019, due to decreases in

amortization of intangible assets, printing and supplies, and salaries, wages and benefits, partially offset by an increase in data processing services.

• Noninterest income related to our insurance agency business remained relatively consistent with a slight increase of $0.4 million, or 0.4%, to $97.2 million during the year ended December 31, 2021 from $96.7 million during the year ended December 31, 2020.

• Noninterest expense related to our insurance agency business increased $5.0 million, or 6.4%, to $82.8 million during the year ended December 31, 2021 from $77.8 million during the year ended December 31, 2020, due to increases in salaries, wages and benefits to employees in this business unit.

Critical Accounting Policies and Estimates

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Allowance for Loan Losses .

The allowance for credit losses is the amount estimated by us as necessary to absorb loan losses incurred in the loan portfolio that are probable and reasonably estimable at the balance sheet date.

The allowance for loan losses is the amount estimated by us as necessary to absorb loan losses incurred in the loan portfolio that are probable and reasonably estimable at the balance sheet date.

The amount of the allowance is based on significant judgments and estimates, and the ultimate losses may vary from such estimates as more information becomes available or conditions change.

The methodology for determining the allowance for credit losses is considered a critical accounting policy due to the high degree of judgement involved in determining the risk characteristics of the loan portfolio, subjectivity of assumptions used and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

The methodology for determining the allowance for loan losses is considered a critical accounting policy due to the high degree of judgement involved in determining the risk characteristics of the loan portfolio, subjectivity of assumptions used and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

Additionally, various regulatory agencies, as an integral part of the regulatory examination process, periodically assess the appropriateness of the allowance for loan losses and may require us to increase the provision for loan losses or recognize further loan charge-offs, in accordance with GAAP.

The allowance for credit losses is evaluated at least quarterly.

The allowance for loan losses is evaluated at least quarterly.

While we use current information in establishing the allowance for losses, future adjustments to the allowance may be necessary if economic conditions or conditions relative to borrowers differ substantially from the assumptions used in making the evaluation.

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The general component covers non-impaired, non-classified loans and is based on historical loss experience adjusted for qualitative factors.

Through December 31, 2021, we followed the incurred loss methodology for determining our allowance for loan loss.

We adopted the CECL standard effective January 1, 2022.

For additional information on our allowance for loan losses, refer to Note 5, “Loans and Allowance for Loan Losses” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Income Taxes .

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The tax position is measured at the largest amount of benefit that we believe is greater than 50% likely of being realized upon settlement.

For additional information on our income taxes, refer to Note 12, “Income Taxes” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Goodwill and Other Intangibles .

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We amortize other intangible assets over their respective estimated useful lives.

For additional information on our goodwill and other intangibles, refer to Note 8, “Goodwill and Other Intangibles” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Debt securities are classified at the time of purchase as either “trading,” “available for sale,” or “held to maturity.” Equity securities are measured at fair value with changes in the fair value recognized through net income.

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Gains and losses on sales of securities are recognized at the time of sale on the specific-identification basis.

Pension Plans .

We provide pension benefits for employees using a noncontributory, defined benefit plan, through membership in the Savings Banks Employees Retirement Association ("SBERA").

For additional information on our investment securities, refer to Note 3, “Securities” and Note 20, “Fair Value of Assets and Liabilities” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Pension and other Post Retirement Benefit Plans .

We provide pension benefits for employees using a noncontributory, defined benefit plan, through membership in the SBERA.

Effective November 1, 2020, the Defined Benefit Plan was amended to convert the plan from a traditional final average earnings plan design to a cash balance plan design.

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Service cost is included in salaries and employee benefits in the consolidated statements of income.

The amortization of actuarial gains and losses for the Defined Benefit Supplemental Executive Retirement Plan ("DB SERP") and Outside Directors' Retainer Continuance Plan (“ODRCP”) is determined using the 10% corridor minimum amortization approach and is taken over the average remaining future service of the plan participants for the ODRCP, and over the average remaining future life expectancy of plan participants for the DB SERP.

The amortization of actuarial gains and losses for the Defined Benefit Plan and Benefit Equalization Plan (“BEP”) is determined without using the 10% corridor minimum amortization approach and is taken over the average remaining future service of the plan participants.

The amortization of actuarial gains and losses for the Defined Benefit Supplemental Executive Retirement Plan (“DB SERP”) and Outside Directors' Retainer Continuance Plan (“ODRCP”) is determined using the 10%

corridor minimum amortization approach and is taken over the average remaining future service of the plan participants for the ODRCP, and over the average remaining future life expectancy of plan participants for the DB SERP.

The amortization of actuarial gains and losses for the Defined Benefit Plan and BEP are determined without using the 10% corridor minimum amortization approach and is taken over the average remaining future service of the plan participants.

The overfunded or underfunded status of the plans is recorded as an asset or liability on the consolidated balance sheets, with changes in that status recognized through other comprehensive income, net of related taxes.

Funded status represents the difference between the projected benefit obligation of the plan and the market value of the plan’s assets.

For additional information on our employee benefit plans, refer to Note 16, “Employee Benefits” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Derivative Financial Instruments.

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The interest rate and foreign exchange risks associated with customer interest rate swaps and foreign exchange contracts are mitigated by entering into similar derivatives having offsetting terms with correspondent bank counterparties.

For additional information on our derivatives, refer to Note 18, “Derivative Financial Instruments” and Note 19, “Balance Sheet Offsetting” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Fair Value Measurements .

“Fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We estimate the fair value of a financial instrument and any related asset impairment using a variety of valuation methods.

We estimate the fair value in recording acquisition transactions and for financial instruments and any related asset impairment using a variety of valuation methods.

For acquisition transactions, the Company uses quotable market prices or observable data when possible in valuing acquired assets and liabilities.

Where financial instruments are actively traded and have quoted market prices, quoted market prices as of the measurement date are used for fair value.

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Accordingly, the degree of judgment we exercise in determining fair value is greatest for instruments categorized in Level 3.

For additional information on our fair value measurements, refer to Note 20, “Fair Value of Assets and Liabilities” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, Financial Instruments–Credit Losses on Financial Instruments and relevant amendments (Topic 326) (“ASU 2016-13”).

In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses on Financial Instruments and relevant amendments (Topic 326) (“ASU 2016-13”).

This update was created to replace the current GAAP method of calculating credit losses.

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The guidance requires a cumulative effect of the initial application to be recognized in retained earnings at the date of initial application.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (Topic 326) (“ASU 2018-19”).

The amendments in Update No.

2018-19 were intended to clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (“ASU 2018-19”).

The amendments in ASU 2018-19 were intended to clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20.

Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases .

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses .

This update requires entities to include expected recoveries of the amortized cost basis previously written off or expected to be written off in the valuation account for purchased financial assets with credit deterioration.

This update requires entities to include expected recoveries of the amortized cost basis previously written off or expected to be written off in the valuation

account for purchased financial assets with credit deterioration.

In addition, the amendments in this update clarify and improve various aspects of the guidance for ASU 2016-13.

For public entities that meet the definition of a U.S.

Securities and Exchange Commission (“SEC”) filer (excluding smaller reporting entities) the guidance is effective for annual reporting periods beginning after December 15, 2019.

For public entities that meet the definition of an SEC filer (excluding smaller reporting entities) the guidance is effective for annual reporting periods beginning after December 15, 2019.

Early adoption is permitted for all entities as of the fiscal years beginning after December 15, 2018.

For all other entities, the guidance is effective for annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years.

The Company, which currently qualifies as an emerging growth company (“EGC”) under the JOBS Act, anticipates adopting this standard on January 1, 2022 and is currently assessing the impact of the adoption of this standard on its Consolidated Financial Statements.

To date, the Company has been assessing the key differences and gaps between its current allowance methodology and model and those it is considering using upon adoption.

The Company has contracted with a vendor and is currently assessing the adequacy of existing loss data and developing models for default and loss estimates.

While currently unable to reasonably estimate the impact of adopting ASU 2016-13, it is expected that the impact of adoption will be influenced by the composition, characteristics and quality of the loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic in the United States.

to provide economic relief measures including the option to defer adoption of ASU 2016-13 to the earlier of the ending of the national emergency declaration related to the COVID-19 crisis or December 31, 2020.

On December 27, 2020, the Consolidated Appropriations Act (the “Appropriations Act”) was enacted to fund the federal government through their fiscal year, extend certain expiring tax provisions and provide additional emergency relief to individuals and businesses related to the COVID-19 pandemic in the United States.

Included within the provisions of the Appropriations Act is an extension of the adoption date for ASU 2016-13 from December 31, 2020 to the earlier of January 1, 2022 or 60 days after the date on which the COVID-19 national emergency terminates.

Effective January 1, 2022, the Company adopted ASU 2016-13.

For a description of recent accounting pronouncements that may affect our financial position or results of operations, refer to Note 2, “Summary of Significant Accounting Policies” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

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 December 31, 2020, we had $3.8 billion of commitments to originate loans, comprised of $2.3 billion of commitments under commercial loans and lines of credit (including $292.5 million of unadvanced portions of construction loans), $1.2 billion of commitments under home equity loans and lines of credit, $210.2 million in overdraft coverage commitments, $98.5 million of unfunded commitments related to residential real estate loans and $19.2 million in other consumer loans and lines of credit.

In addition, at December 31, 2020, we had $60.2 million in standby letters of credit outstanding.

We also had $41.2 million in forward commitments to sell loans.

Management of Market Risk

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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, 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.

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.

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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 December 31, 2020 precluded the modeling of certain falling rate scenarios, including negative interest rates.

The relatively low level of interest rates prevalent at December 31, 2021 and 2020 precluded the modeling of certain falling rate scenarios.

We do not model negative interest rate scenarios.

The tables below set forth, as of December 31, 2021 and 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.

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The relatively low level of interest rates prevalent at December 31, 2020 precluded the modeling of certain falling rate scenarios, including negative interest rates.

The relatively low level of interest rates prevalent at December 31, 2021 and 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.

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Change in Interest

Rate (basis points) (1) Estimated EVE (2) As of December 31, 2020 EVE as a

Rates (basis points) (1) Estimated EVE (2) As of December 31, 2021 EVE as a

Percentage of

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

Liquidity and Capital Resources

Liquidity, Capital Resources, Contractual Obligations, Commitments and Contingencies

Liquidity describes our ability to meet the financial obligations that arise in the normal course of business.

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and Eastern Bank.

Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of loans.

Our financial condition and results of operations will be enhanced by the net proceeds from the stock offering, resulting in increased net interest-earning assets and net interest and dividend income.

However, due to the increase in equity resulting form the net proceeds raised in our IPO, our return on equity has been and will continue to be adversely affected until we can effectively employ the proceeds of the offering.

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 were enhanced by the net proceeds from the stock offering and resulted in increased net interest-earning assets and net interest and dividend income.

As previously discussed in “Overview” within this section, on November 12, 2021, we completed our previously announced merger with Century for $641.9 million in cash.

Although, the transaction reduced the net proceeds from the IPO, 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 deploy the remaining 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.

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At December 31, 2021 and 2020, we had a total of $520.5 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.

At December 31, 2021 and December 31, 2020, no amounts were repurchased of previously sold reciprocal deposits.

The additional capacity of $520.5 million and $364.8 million at December 31, 2021 and 2020, respectively, 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.

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At December 31, 2021, we had $14.0 million in outstanding advances and the ability to borrow up to an additional $1.8 billion.

also have the ability to borrow from the Federal Reserve Bank of Boston as well as the Paycheck Protection Program Liquidity Facility.

We also have the ability to borrow from the Federal Reserve Bank of Boston.

At December 31, 2021, we had a $456.1 million collateralized line of credit from the Federal Reserve Bank of Boston with no outstanding balance.

Additionally, we had $1.0 billion in PPP loans that could have been pledged to the Paycheck Protection Program Liquidity Facility.

Additionally, at December 31, 2020 we had the ability to borrow from the Federal Reserve Paycheck Protection Program Liquidity Facility (“PPPLF”).

The Federal Reserve ended the PPPLF as of July 30, 2021.

Accordingly, at December 31, 2021, we no longer had additional capacity under the PPPLF.

We had a total of $790.0 million of discretionary lines of credit at December 31, 2021.

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Total deposits $ 14,020 $ 3,606,149 $ 14,624 $ 4,095,439

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

As of December 31, 2019, loans and securities were pledged to the FHLBB with a carrying value of $1.5 billion and $0.9 billion, respectively, to secure additional borrowing capacity.

(1) As of December 31, 2021 and December 31, 2020, loans have been pledged to the FHLBB with a carrying value of $2.6 billion and $2.4 billion, respectively, to secure our total borrowing capacity.

(2) Loans with a carrying value of $0.8 billion and $0.9 billion at December 31, 2021 and 2020, respectively, have been pledged to the Federal Reserve Bank of Boston resulting in this additional unused borrowing capacity.

We believe that advanced preparation, early detection, and prompt responses can avoid, minimize, or shorten potential liquidity crises.

Our Board of Directors and our Asset Liability Committee have put a liquidity contingency plan in place to establish methods for assessing and monitoring risk levels, as well as potential responses during unanticipated stress events.

As part of its risk management framework, we perform periodic liquidity stress testing to assess our need for liquid assets as well as backup sources of liquidity.

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 our risk management framework, we perform periodic liquidity stress testing to assess our need for liquid assets as well as backup sources of liquidity.

Capital Resources.

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At December 31, 2021 and 2020, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines.

For additional information regarding our regulatory capital requirements, refer to Note 15, “Minimum Regulatory Capital Requirements” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Contractual Obligations, Commitments and Contingencies.

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The amounts below assume the contractual obligations and commitments will run through the end of the applicable term and, as such, do not include early termination fees or penalties where applicable.

The following table summarizes our contractual obligations, other commitments and contingencies at December 31, 2020.

Contractual Obligations, Commitments and Contingencies

Less Than One Year One to Three Years Four to Five Years After Five Years Total

The following table summarizes our short-term (e.g.

maturity of one year or less) and long-term (e.g.

maturity of greater than one year) contractual obligations, other commitments and contingencies at December 31, 2021.

One Year or Less After One Year Total

(In thousands)

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(1) Unused commitments that are deemed to be unconditionally cancellable are included in the less than one year category in the above table.

Impact of Inflation and Changing Prices

The financial nature of our Consolidated Financial Statements and related notes thereto presented elsewhere in this Annual Report on Form 10-K is more clearly affected by changes in interest rates than by inflation.

Interest rates do not necessarily fluctuate in the same direction or in the same magnitude as the prices of goods and services.

However, as prices and money supply grow, interest rates are affected by inflationary expectations, which in turn affects our business.

The impact on our business is noted in the increase in the size of loan requests with resulting growth in total assets.

In addition, operating expenses may increase without a corresponding increase in productivity.

There is no precise method to measure the effects of inflation on our Consolidated Financial Statements and related notes thereto presented elsewhere in this Annual Report on Form 10-K.

Accordingly, any examination or analysis of the Consolidated Financial Statements and related notes thereto presented elsewhere in this Annual Report on Form 10-K should take into consideration the possible effects of inflation.

Commitments to extend credit was comprised of $3.0 billion of commitments under commercial loans and lines of credit (including $423.2 million of unadvanced portions of construction loans), $1.9 billion of commitments under home equity loans and lines of credit, $197.2 million in overdraft coverage commitments, $38.6 million of unfunded commitments related to residential real estate loans and $59.9 million in other consumer loans and lines of credit as of December 31, 2021.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis