Eastern Bankshares, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Eastern Bankshares, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Eastern Bankshares, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 101 Allowance for loan losses Description of the matter The Company’s loan portfolio totaled $12.3 billion as of December 31, 2021. As of December 31, 2021, management established an allowance for loan losses of $97.8 million. The allowance for loan losses represents management’s estimate of incurred losses inherent in the loan portfolio at the balance sheet date. As described in Note 2 and Note 5 to the consolidated financial statements, the Company uses both a formula-based approach and an analysis of certain individual loans to develop its allowance for loan losses estimate. As part of developing the formula-based reserve, management considers both the Company’s historical loss experience and qualitative factors to determine the allowance for loan losses. The Company’s qualitative factor methodology considers 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, all customized to loan pools that include loans with similar characteristics. Auditing the allowance for loan losses was challenging due to the subjectivity involved in assessing the judgment management applied in determining the adjustments to the formula-based reserve attributable to the qualitative risk factors for the Company’s commercial real estate, commercial and industrial, and residential real estate loan portfolios. Management’s identification and measurement of the qualitative adjustments was highly judgmental and could have a significant effect on the allowance for loan losses. How we addressed the matter in our audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the allowance for loan losses process, which included, among others, controls over management’s review of the adjustments to the formula-based reserve attributable to the qualitative risk factors identified. We also evaluated other key allowance for loan losses controls including the review and approval of calculations used to estimate the allowance for loan losses. We assessed management’s determination of qualitative risk factors for the Company’s commercial real estate, commercial and industrial, and residential real estate loan portfolios and tested these factors by comparing conclusions reached to independently-obtained third-party data or internally available Company-specific data. We evaluated the measurement of the qualitative adjustments by performing procedures including, among others, recalculating management’s application of qualitative risk factors to the allowance for loan losses calculation in a manner consistent with the Company’s approved allowance for loan losses methodology. Certain qualitative risk factors including management’s application of external macroeconomic factors and external industry data were more subjective in nature given an increased reliance on management judgement. For these qualitative risk factors, we evaluated the identification and measurement of the qualitative adjustments, including the basis for concluding an adjustment was warranted when considering historical loss experience utilized in the formula-based reserve. Additionally, we considered the existence of new or contrary evidence in evaluating the qualitative risk factors based on macroeconomic or external industry data. 102 Fair value of loans recognized as part of the acquisition of Century Bancorp Description of the matter In 2021, the Company completed its acquisition of Century Bancorp (Century) for total consideration of $642 million, which was accounted for as a business combination. As disclosed in Note 3 to the consolidated financial statements, the Company recognized acquired loans of $2.9 billion, net of a fair value adjustment of $13.5 million. Auditing the Company's estimate of the fair value adjustment to acquired loans was complex due to the sensitivity of the fair values to underlying assumptions determined by management in estimating the fair values. With the assistance of an external specialist, the Company utilized a discounted cash flow model to measure the fair values of acquired loans. The most significant judgmental assumptions in measuring the fair values of the acquired loans included the estimates of future credit losses and prepayments along with the application of a market-based discount rate applied to those cash flows. These assumptions were primarily based on market data and the Company’s industry experience. These assumptions are forward looking and could be affected by future economic and market conditions. How we addressed the matter in our audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting for business combinations. Our tests included controls supporting the recognition and measurement of consideration transferred along with acquired assets and liabilities. We also tested management’s review controls over the assumptions used in the valuation models for acquired loans. To test the estimated fair values of acquired loans, we involved our valuation specialists to assist with our evaluation of the methodology used by the Company, significant assumptions included in the fair value estimates, and assessment of the competence and objectivity of management’s external specialist. We assessed the significant assumptions included in the fair value estimates by performing procedures over the estimates of future credit losses and prepayments and the market-based discount rate for the acquired loans. In our assessment, we considered economic information and historical Company-specific information. We tested, on a sample basis, both the market data and the internally-developed assumptions used by management to calculate the fair values and, on a sample basis, performed independent comparative calculations of the fair value adjustment to the acquired loans. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002 Boston, Massachusetts February 25, 2022 103 EASTERN BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2021 2020 (In thousands) ASSETS Cash and due from banks $ 144,634 $ 116,591 Short-term investments 1,087,158 1,937,479 Cash and cash equivalents 1,231,792 2,054,070 Available for sale securities 8,511,224 3,183,861 Loans held for sale 1,206 1,140 Loans: Commercial and industrial 2,960,527 1,995,016 Commercial real estate 4,522,513 3,573,630 Commercial construction 222,328 305,708 Business banking 1,334,694 1,339,164 Residential real estate 1,926,810 1,370,957 Consumer home equity 1,100,153 868,270 Other consumer 214,485 277,780 Total loans 12,281,510 9,730,525 Less: allowance for loan losses ( 97,787 ) ( 113,031 ) Less: unamortized premiums, net of unearned discounts and deferred fees ( 26,442 ) ( 23,536 ) Net loans 12,157,281 9,593,958 Federal Home Loan Bank stock, at cost 10,904 8,805 Premises and equipment 80,984 49,398 Bank-owned life insurance 157,091 78,561 Goodwill and other intangibles, net 649,703 376,534 Deferred income taxes, net 76,535 13,229 Prepaid expenses 179,330 148,680 Other assets 456,078 455,954 Total assets $ 23,512,128 $ 15,964,190 LIABILITIES AND EQUITY Deposits: Demand $ 7,020,864 $ 4,910,794 Interest checking accounts 4,478,566 2,380,497 Savings accounts 2,077,495 1,256,736 Money market investment 5,525,005 3,348,898 Certificates of deposit 526,381 258,859 Total deposits 19,628,311 12,155,784 Borrowed funds: Federal Home Loan Bank advances 14,020 14,624 Escrow deposits of borrowers 20,258 13,425 Total borrowed funds 34,278 28,049 Other liabilities 443,187 352,305 Total liabilities 20,105,776 12,536,138 Commitments and contingencies (see footnote 17) — — Shareholders’ Equity Common shares, $ 0.01 par value, 1,000,000,000 shares authorized; 186,305,332 and 186,758,154 shares issued and outstanding at December 31, 2021 and 2020, respectively 1,863 1,868 Additional paid in capital 1,835,241 1,854,068 Unallocated common shares held by the Employee Stock Ownership Plan ( 142,709 ) ( 147,725 ) Retained earnings 1,768,653 1,665,607 Accumulated other comprehensive income, net of tax ( 56,696 ) 54,234 Total shareholders’ equity 3,406,352 3,428,052 Total liabilities and shareholders’ equity $ 23,512,128 $ 15,964,190 The accompanying notes are an integral part of these Consolidated Financial Statements. 104 EASTERN BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME For the Year Ended December 31, 2021 2020 2019 (In thousands, except per share data) Interest and dividend income: Interest and fees on loans $ 367,585 $ 372,152 $ 402,092 Taxable interest and dividends on available for sale securities 58,312 31,825 31,400 Non-taxable interest and dividends on available for sale securities 7,376 7,588 8,306 Interest on federal funds sold and other short-term investments 1,886 1,757 2,977 Interest and dividends on trading securities — 6 242 Total interest and dividend income 435,159 413,328 445,017 Interest expense: Interest on deposits 5,167 11,315 27,301 Interest on borrowings 165 762 6,452 Total interest expense 5,332 12,077 33,753 Net interest income 429,827 401,251 411,264 (Release of) provision for loan losses ( 9,686 ) 38,800 6,300 Net interest income after (release of) provision for loan losses 439,513 362,451 404,964 Noninterest income: Insurance commissions 94,704 94,495 90,587 Service charges on deposit accounts 24,271 21,560 27,043 Trust and investment advisory fees 24,588 21,102 19,653 Debit card processing fees 12,118 10,277 10,452 Interest rate swap income (losses) 5,634 ( 1,381 ) 4,362 Income from investments held in rabbi trusts 10,217 10,337 9,866 (Losses) gains on trading securities, net — ( 4 ) 1,297 Gains on sales of mortgage loans held for sale, net 3,605 7,066 795 Gains on sales of securities available for sale, net 1,166 288 2,016 Other 16,852 14,633 16,228 Total noninterest income 193,155 178,373 182,299 Noninterest expense: Salaries and employee benefits 295,916 261,827 252,238 Office occupancy and equipment 40,465 33,796 36,458 Data processing 50,839 45,259 45,939 Professional services 24,477 18,902 15,958 Charitable contributions — 95,272 12,905 Marketing 8,741 8,879 9,619 Operational losses 7,786 2,493 3,215 Loan expenses 6,516 6,727 4,593 FDIC insurance 4,226 3,734 1,878 Amortization of intangible assets 2,512 2,857 3,542 Other 2,478 25,177 26,339 Total noninterest expense 443,956 504,923 412,684 Income before income tax expense 188,712 35,901 174,579 Income tax expense 34,047 13,163 39,481 Net income $ 154,665 $ 22,738 $ 135,098 Basic earnings per share $ 0.90 $ 0.13 $ — Diluted earnings per share $ 0.90 $ 0.13 $ — The accompanying notes are an integral part of these Consolidated Financial Statements. 105 EASTERN BANKSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Year Ended December 31, 2021 2020 2019 (In thousands) Net income $ 154,665 $ 22,738 $ 135,098 Other comprehensive (loss) income, net of tax: Net change in fair value of securities available for sale ( 104,258 ) 23,874 41,158 Net change in fair value of cash flow hedges ( 22,454 ) 14,191 12,636 Net change in other comprehensive income for defined benefit postretirement plans 15,782 60,016 ( 21,880 ) Total other comprehensive (loss) income ( 110,930 ) 98,081 31,914 Total comprehensive income $ 43,735 $ 120,819 $ 167,012 The accompanying notes are an integral part of these Consolidated Financial Statements. 106 EASTERN BANKSHARES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Shares of Common Stock Outstanding Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Income Unallocated Common Stock Held by ESOP Total (In thousands, except share data) Balance at December 31, 2018 — $ — $ — $ 1,508,902 $ ( 75,761 ) $ — $ 1,433,141 Net income — — — 135,098 — — 135,098 Other comprehensive income, net of tax — — — — 31,914 — 31,914 Balance at December 31, 2019 — — — 1,644,000 ( 43,847 ) — 1,600,153 Cumulative effect accounting adjustment (1) — — — ( 1,131 ) — — ( 1,131 ) Net income — — — 22,738 — — 22,738 Other comprehensive income, net of tax — — — — 98,081 — 98,081 Proceeds of stock offering and issuance of common shares (net of costs of $ 28.9 million) 179,287,828 1,793 1,762,187 — — — 1,763,980 Issuance of common shares donated to the Eastern Bank Foundation 7,470,326 75 91,212 — — — 91,287 Purchase of common shares by the ESOP ( 14,940,652 shares) — — — — — ( 149,407 ) ( 149,407 ) ESOP shares committed to be released — — 669 — — 1,682 2,351 Balance at December 31, 2020 186,758,154 1,868 1,854,068 1,665,607 54,234 ( 147,725 ) 3,428,052 Dividends to common shareholders — — — ( 51,619 ) — — ( 51,619 ) Repurchased common stock ( 1,135,878 ) ( 12 ) ( 23,212 ) — — — ( 23,224 ) Issuance of restricted stock awards 683,056 7 ( 7 ) — — — — Net income — — — 154,665 — — 154,665 Other comprehensive income, net of tax — — — — ( 110,930 ) — ( 110,930 ) ESOP shares committed to be released — — 4,392 — — 5,016 9,408 Balance at December 31, 2021 186,305,332 $ 1,863 $ 1,835,241 $ 1,768,653 $ ( 56,696 ) $ ( 142,709 ) $ 3,406,352 (1) Represents cumulative impact on retained earnings pursuant to the Company’s adoption of Accounting Standards Update 2016-02 Leases. The transition adjustment to the opening balance of retained earnings on January 1, 2020 amounted to $ 1.1 million, net of tax, related to an incremental accrued rent adjustment calculated as a result of electing the hindsight practical expedient. The accompanying notes are an integral part of these Consolidated Financial Statements. 107 EASTERN BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, (In thousands) 2021 2020 2019 Operating activities Net income $ 154,665 $ 22,738 $ 135,098 Adjustments to reconcile net income to net cash provided by operating activities (Release of) provision for allowance for loan losses ( 9,686 ) 38,800 6,300 Depreciation and amortization 14,479 15,827 19,482 (Accretion) amortization of deferred loan fees and premiums, net ( 27,991 ) ( 14,574 ) 5,130 Deferred income tax (benefit) expense ( 5,313 ) ( 20,359 ) 1,376 Amortization of investment security premiums and discounts, net 16,713 5,585 3,063 Right-of-use asset amortization 12,703 12,082 — Increase in cash surrender value of bank-owned life insurance ( 2,348 ) ( 2,188 ) ( 2,112 ) Gain on life insurance benefits ( 1,813 ) ( 174 ) — Gain on sale of securities available for sale, net ( 1,166 ) ( 288 ) ( 2,016 ) Loss on bank premises and equipment, net 4,715 73 271 Loss on lease termination/modification, net 2,182 — — Amortization of gains from terminated interest rate swaps ( 31,234 ) ( 15,889 ) — ESOP expense 9,408 2,351 — Issuance of common shares donated to the Eastern Bank Foundation (1) — 91,287 — Other ( 526 ) ( 587 ) — Change in: Trading securities — 961 51,938 Loans held for sale ( 47 ) ( 1,133 ) ( 4 ) Prepaid pension expense 1,130 ( 24,055 ) ( 11,031 ) Other assets 61,501 ( 89,590 ) ( 30,952 ) Other liabilities ( 22,882 ) 48,984 19,680 Net cash provided by operating activities 174,490 69,851 196,223 Investing activities Proceeds from sales of securities available for sale 23,798 9,097 47,985 Proceeds from maturities and principal paydowns of securities available for sale 939,575 452,392 204,065 Purchases of securities available for sale ( 3,323,893 ) ( 2,111,773 ) ( 252,571 ) Proceeds from sale of Federal Home Loan Bank stock 6,692 749 42,034 Purchases of Federal Home Loan Bank stock ( 2,101 ) ( 527 ) ( 33,102 ) Contributions to low income housing tax credit investments ( 11,379 ) ( 12,372 ) ( 6,349 ) Contributions to other equity investments ( 2,519 ) ( 4,395 ) ( 4,545 ) Distributions from other equity investments 337 201 62 Proceeds from life insurance policies — 1,347 — Net decrease (increase) in outstanding loans 380,807 ( 719,041 ) ( 135,666 ) Acquisitions, net of cash and cash equivalents acquired ( 13,439 ) ( 1,363 ) — Purchased banking premises and equipment, net ( 5,728 ) ( 5,144 ) ( 7,187 ) Proceeds from sale of premises held for sale 21,981 — — Proceeds from sale of other real estate owned 125 646 — Net cash used in investing activities ( 1,985,744 ) ( 2,390,183 ) ( 145,274 ) Financing activities Net increase in demand, savings, interest checking, and money market investment deposit accounts (2) 1,155,868 2,674,672 297,708 Net decrease in time deposits ( 58,144 ) ( 70,280 ) ( 145,809 ) Net increase (decrease) in borrowed funds 2,580 ( 207,346 ) ( 98,892 ) Repayment of acquired subordinated debentures (3) ( 36,277 ) — — Contingent consideration paid ( 263 ) ( 165 ) ( 716 ) Proceeds from issuance of common shares — 1,792,878 — Purchase of shares by the ESOP — ( 149,407 ) — Payment of deferred offering costs — ( 28,552 ) ( 346 ) Payments for repurchases of common stock ( 23,224 ) — — Dividends declared and paid to common shareholders ( 51,564 ) — — Net cash provided by financing activities 988,976 4,011,800 51,945 108 Net (decrease) increase in cash, cash equivalents, and restricted cash ( 822,278 ) 1,691,468 102,894 Cash, cash equivalents, and restricted cash at beginning of period 2,054,070 362,602 259,708 Cash, cash equivalents, and restricted cash at end of period $ 1,231,792 $ 2,054,070 $ 362,602 Supplemental disclosure of cash flow information Cash paid during the period for: Interest paid $ 5,354 $ 13,684 $ 34,217 Income taxes 43,299 35,128 31,308 Non-cash activities Net increase in capital commitments relating to low income housing tax credit projects $ 28,291 $ 25,816 $ 10,000 Maturity of acquired securities sold under agreements to repurchase (2) 274,982 — — Initial recognition of operating lease right-of-use assets upon adoption of ASU 2016-02 — 92,948 — Initial recognition of operating lease liabilities upon adoption of ASU 2016-02 — 96,426 — (1) Represents a non-cash common stock donation of 7,470,326 shares at a fair value of $ 91.3 million to the Eastern Bank Foundation. The donation is included in charitable contributions as a non-interest expense in the Consolidated Income Statement for the year ended December 31, 2020. (2) Includes non-cash item representing maturity of acquired securities sold under agreements to repurchase which were converted to deposits upon maturity. (3) The Company deposited funds into escrow prior to the Century acquisition date to pay the balance of subordinated debentures assumed in the Century acquisition which was considered to be a defeasance of the debt. Accordingly, Century recorded a payable to the Company in the amount of the escrow deposit and the Company recorded a receivable from Century in the same amount. The payable was reclassified to other assets upon acquisition and is reflected as such balance in the summary of net assets acquired included in Note 3 to the consolidated financial statements. Subsequent to the closing of the acquisition and prior to December 31, 2021, the amounts placed in escrow were disbursed to the holders of the subordinated debentures resulting in a full pay-off of the outstanding balance of the debt. The accompanying notes are an integral part of these Consolidated Financial Statements. 109 EASTERN BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Structure and Nature of Operations; Conversion and Reorganization; Basis of Presentation Corporate Structure and Nature of Operations Eastern Bankshares, Inc., a Massachusetts corporation (the “Company”), is a bank holding company. Through its wholly-owned subsidiaries, Eastern Bank (the “Bank”) and Eastern Insurance Group LLC, the Company provides a variety of banking services, trust and investment services, and insurance services, through its full-service bank branches and insurance offices, located primarily in Eastern Massachusetts, southern and coastal New Hampshire and Rhode Island. Eastern Insurance Group LLC is a wholly-owned subsidiary of the Bank. The activities of the Company are subject to the regulatory supervision of the Board of Governors of the Federal Reserve System (“Federal Reserve”). The activities of the Bank are subject to the regulatory supervision of the Massachusetts Commissioner of Banks, the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau (“CFPB”). The Company and the activities of the Bank are also subject to various Massachusetts and New Hampshire and Rhode Island business and banking regulations. Conversion and Reorganization Pursuant to a Plan of Conversion (the “Plan”), Eastern Bank Corporation, the predecessor of the Company, reorganized from a mutual holding company into a publicly traded stock form of organization on October 14, 2020. In connection with the reorganization, Eastern Bank Corporation transferred to the Company 100 % of Eastern Bank’s common stock, and immediately thereafter merged into the Company. Pursuant to the Plan, the Company sold 179,287,828 shares of common stock in a public offering at $ 10.00 per share, including 14,940,652 shares of common stock purchased by the Bank’s employee stock ownership plan (the “ESOP”), for gross offering proceeds of approximately $ 1,792,878,000 . The Company completed the offering on October 14, 2020. Effective as of October 15, 2020, the Company donated 7,470,326 shares of common stock to the Eastern Bank Charitable Foundation (now known as the Eastern Bank Foundation, or the “Foundation”). A total of 186,758,154 shares of common stock of the Company were issued and outstanding immediately after the donation to the Foundation. The purchase of common stock by the ESOP was financed by a loan from the Company. Pursuant to the Plan, eligible account holders have received an interest in a liquidation account maintained by the Company in an amount equal to (i) Eastern Bank Corporation’s ownership interest in the Bank’s total shareholders’ equity as of March 31, 2020, the date of the latest statement of financial position included in the latest prospectus filed with the U.S. Securities and Exchange Commission (“SEC”) for the Company's initial public offering (“IPO”), plus (ii) the value of the net assets of Eastern Bank Corporation as of March 31, 2020 (excluding its ownership of Eastern Bank). Also pursuant to the Plan, a parallel liquidation account maintained at the Bank was established to support the Company’s liquidation account in the event the Company does not have sufficient assets to fund its obligations under its liquidation account. The Company and the Bank hold the liquidation accounts for the benefit of eligible account holders who continue to maintain deposits in the Bank. The Company is not permitted to pay dividends on its capital stock if the shareholders’ equity of the Company would be reduced below the amount of the liquidation account. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts. In the event of a complete liquidation of the Bank, and only in such event, each account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. See “Regulation—Liquidation Account Effect on Dividends” included in Item 1A in this Annual Report on Form 10-K. Basis of Presentation The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) as set forth by the Financial Accounting Standards Board (“FASB”) and its Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) as well as the rules and interpretive releases of the SEC under the authority of federal securities laws. The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and entities in which it holds a controlling financial interest through being the primary beneficiary or through holding a majority of the voting interest. All intercompany accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current year’s presentation. 110 2. Summary of Significant Accounting Policies Use of Estimates In preparing the Consolidated Financial Statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and income and expenses for the periods reported. Actual results could differ from those estimates based on changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, valuation and fair value measurements, other-than-temporary impairment on investment securities, the liabilities for benefit obligations (particularly pensions), the provision for income taxes and impairment of goodwill and other intangibles. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and amounts due from banks, federal funds sold, and other short-term investments including restricted cash pledged, all of which have an original maturity of 90 days or less. Cash and cash equivalents includes $ 21.3 million and $ 49.2 million of restricted cash pledged as collateral at December 31, 2021 and 2020, respectively, which for purposes of the Company’s consolidated statements of cash flows, is included in cash, cash equivalents and restricted cash. Securities 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. Debt securities that are bought and held principally for the purpose of resale in the near term are classified as trading securities and recorded at fair value, with subsequent changes in fair value included in net income. Debt securities that the Company has the positive intent and the ability to hold to maturity are classified as held to maturity securities and recorded at amortized cost. Debt securities not classified as either trading or held to maturity are classified as available for sale and recorded at fair value, with changes in fair value excluded from net income and reported in other comprehensive income, net of related tax. Amortization of premiums and accretion of discounts are computed using the effective interest rate method. Management evaluates impaired securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which the fair value has been less than cost, current market conditions, the financial condition and near-term prospects of the issuer, performance of collateral underlying the securities, the ratings of the individual securities, the interest rate environment, the Company’s intent to sell the security or whether it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors. If a decline in fair value below the amortized cost basis of an investment is judged to be other than temporary, the investment is written down to fair value. The portion of the impairment related to credit losses is included in net income, and the portion of the impairment related to other factors is included in other comprehensive income. Gains and losses on sales of securities are recognized at the time of sale on the specific-identification basis. Loans Loans are reported at their principal amount outstanding, net of deferred loan fees and any unearned discount or unamortized premium for acquired loans. Unearned discount and unamortized premium are accreted and amortized, respectively, to interest and dividend income on a basis that results in level rates of return over the terms of the loans. For originated loans, origination fees and related direct incremental origination costs are offset, and the resulting net amount is deferred and amortized over the life of the related loans using the effective interest method, assuming a certain level of prepayments. When loans are sold or repaid, the unamortized fees and costs are recorded to interest and dividend income. Interest income on loans is accrued based upon the daily principal amount outstanding except for loans on non-accrual status. For acquired loans with no signs of credit deterioration at acquisition, interest income is also accrued based upon the daily principal amount outstanding, adjusted further by the accretion of any discount or amortization of any premium associated with the loan. 111 Non-performing Loans (“NPLs”) Non-accrual Loans Interest accruals are generally discontinued when management has determined that the borrower may be unable to meet contractual obligations and/or when loans are 90 days or more past due. Exceptions may be made if management believes that collateral held by the Company is clearly sufficient and in full satisfaction of both principal and interest or the loan is accounted for as a purchased credit-impaired loan. When a loan is placed on non-accrual, all interest previously accrued but not collected is reversed against current period income and amortization of deferred loan fees is discontinued. Interest received on non-accrual loans is either applied against principal or reported as income according to management’s judgment as to the collectability of principal. Non-accrual loans may be returned to an accrual status when principal and interest payments are no longer delinquent, and the risk characteristics of the loan have improved to the extent that there no longer exists a concern as to the collectability of principal and interest. Loans are considered past due based upon the number of days delinquent according to their contractual terms. Non-accrual loans and loans that are more than 90 days past due but still accruing interest are considered NPLs. Impaired Loans Impaired loans consist of all loans for which management has determined it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreements. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. The Company measures impairment of loans using a discounted cash flow method, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Troubled Debt Restructured (“TDR”) Loans In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a TDR. Modifications may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower’s obligations have been effectively discharged through Chapter 7 bankruptcy and the borrower has not reaffirmed the debt to the Company, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. All TDR loans are considered impaired and therefore are subject to a specific review for impairment loss. The impairment analysis discounts the present value of the anticipated cash flows by the loan’s contractual rate of interest in effect prior to the loan’s modification or the fair value of collateral if the loan is collateral dependent. The amount of impairment loss, if any, is recorded as a specific loss allocation to each individual loan in the allowance for loan losses. Commercial loans (commercial and industrial, commercial real estate, commercial construction, and business banking loans) and residential loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent. In such an instance, any shortfall between the value of the collateral and the book value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less costs to sell. The Company’s policy is to retain any restructured loans, which are on non-accrual status prior to being modified, on non-accrual status for approximately six months subsequent to being modified before the Company considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, the Company reviews it to determine if the modified loan should remain on accrual status. Purchased Credit-impaired (“PCI”) Loans At acquisition, loans that have evidence of deterioration in credit quality since origination and for which it is probable that all contractually required payments will not be collected are initially recorded at fair value with no valuation allowance. Such loans are deemed to be PCI loans. Under the accounting model for PCI loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield,” is accreted into interest income over the life of the loans using the effective yield method. Accordingly, PCI loans are not subject to classification as non-accrual in the same manner as originated loans. Rather, acquired loans are considered to be accruing loans because their interest income relates to the accretable yield recognized and not to contractual interest payments at the loan level. The difference between contractually required principal and interest payments and the cash flows expected to be collected, referred to as the “non-accretable difference,” includes estimates of both the impact of prepayments and future credit losses expected to be incurred over the life of the loans. 112 The estimate of cash flows expected to be collected is regularly re-assessed subsequent to acquisition. These re-assessments involve updates, as necessary, of the key assumptions and estimates used in the initial estimate of fair value. Generally speaking, expected cash flows are affected by: • Changes in the expected principal and interest payments over the estimated life – Changes in expected cash flows may be driven by the credit outlook and actions taken with borrowers. Changes in expected future cash flows resulting from loan modifications are included in the assessment of expected cash flows. • Change in prepayment assumptions – Prepayments affect the estimated life of the loans, which may change the amount of interest income expected to be collected. • Change in interest rate indices for variable rate loans – Expected future cash flows are based, as applicable, on the variable rates in effect at the time of the assessment of expected cash flows. A decrease in expected cash flows in subsequent periods may indicate that the loan is impaired which would require the establishment of an allowance for loan losses by a charge to the provision for loan losses. An increase in expected cash flows in subsequent periods serves, first, to reduce any previously established allowance for loan losses by the increase in the present value of cash flows expected to be collected, and results in a recalculation of the amount of accretable yield for the loan. The adjustment of accretable yield due to an increase in expected cash flows is accounted for as a change in estimate. The additional cash flows expected to be collected are reclassified from the non-accretable difference to the accretable yield, and the amount of periodic accretion is adjusted accordingly over the remaining life of the loans. A PCI loan may be resolved either through receipt of payment (in full or in part) from the borrower, the sale of the loan to a third party, or foreclosure of the collateral. For PCI loans accounted for on an individual loan basis and resolved directly with the borrower, any amount received from resolution in excess of the carrying amount of the loan is recognized and reported within interest income. A refinancing or modification of a PCI loan accounted for individually is assessed to determine whether the modification represents a TDR. If the loan is considered to be a TDR, it will be included in the total impaired loans reported by the Company. The loan will continue to recognize interest income based upon the excess of cash flows expected to be collected over the carrying amount of the loan. Allowance for Loan Losses The allowance for loan losses is established to provide for probable losses incurred in the Company’s loan portfolio at the balance sheet date and is established through a provision for loan losses charged to net income. The allowance is based on management’s assessment of many factors, including the risk characteristics of the loan portfolio, current economic conditions, and trends in loan delinquencies and charge-offs. Charge-offs, net of recoveries, are charged directly to the allowance. Commercial and residential loans are charged-off in the period in which they are deemed uncollectible. Delinquent loans in these product types are subject to ongoing review and analysis to determine if a charge-off in the current period is appropriate. For consumer finance loans, policies and procedures exist that require charge-off consideration upon a certain triggering event depending on the product type. Charge-off triggers include: 120 days delinquent for automobile, home equity, and other consumer loans with the exception of cash reserve loans for which the trigger is 150 days delinquent; death of the borrower; or Chapter 7 bankruptcy. In addition to those events, the charge-off determination includes other loan quality indicators, such as collateral position and adequacy or the presence of other repayment sources. The allowance for loan losses is evaluated on a regular basis by management. While management uses 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. Management uses a methodology to systematically estimate the amount of loss incurred in the portfolio. The Company’s commercial real estate, commercial and industrial, commercial construction and business banking loans are evaluated using a loan rating system, historical losses and other factors which form the basis for estimating incurred losses. Homogeneous populations of loans, including residential mortgages and consumer loans, are analyzed as groups taking into account delinquency ratios, historical loss experience and charge-offs. The allowance consists of specific and general components. The specific component consists of reserves for impaired loans (defined as those where management has determined it is probable it will not collect all payments when due), typically classified as either doubtful or substandard. For impaired loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the loan is lower than the carrying value of the loan. The general component covers non-impaired, non-classified loans and is based on the Company’s historical loss experience adjusted for qualitative factors, including internal infrastructure factors, external macroeconomic factors, internal portfolio factors and external industry data, all customized to loan pools that include loans with similar characteristics. 113 In the ordinary course of business, the Company enters into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses. The reserve for unfunded lending commitments is included in other liabilities in the balance sheet. Additionally, various regulatory agencies, as an integral part of the Company’s examination process, periodically assess the appropriateness of the allowance for loan losses and may require the Company to increase its provision for loan losses or recognize further loan charge-offs, in accordance with GAAP. Mortgage Banking Activities Mortgage loans held for sale to the secondary market are carried at the lower of cost or estimated market value on an individual loan basis. The Company enters into commitments to fund residential mortgage loans with an offsetting forward commitment to sell them in the secondary markets in order to mitigate interest rate risk. Gains or losses on sales of mortgage loans are recognized in the consolidated statements of income at the time of sale. Interest income is recognized on loans held for sale between the time the loan is funded and the loan is sold. Direct loan origination costs and fees are deferred upon origination and are recognized in the consolidated statements of income on the date of sale. Other Real Estate Owned OREO consists of properties and other assets acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. OREO is recorded in other assets in the consolidated balance sheets, on an individual asset basis 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. The Company relies primarily on third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, estimated equipment auction or liquidation values, income capitalization, or a combination of income capitalization and comparable sales. As of December 31, 2021 and 2020, the Company’s OREO was immaterial. Federal Home Loan Bank Stock The Company, as a member of the Federal Home Loan Bank (“FHLB”) of Boston (“FHLBB”), is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions, the stock has no quoted market value and is carried at cost. Premises and Equipment Land is carried at cost. Buildings, leasehold improvements and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the lease terms or the estimated lives of the improvements. Expected lease terms include lease options to the extent that the exercise of such options is reasonably assured. Banking premises and equipment held for sale are carried at the lower of cost or estimated fair value, less estimated costs to sell. Goodwill and Other Intangible Assets Acquisitions of businesses are accounted for using the acquisition method of accounting. Accordingly, the net assets of the companies acquired are recorded at their fair values at the date of acquisition. Goodwill represents the excess of purchase price over the fair value of net assets acquired. Other intangible assets represent acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights, or because the asset is capable of being sold or exchanged either on its own, or in combination with a related contract, asset, or liability. The Company evaluates goodwill for impairment at least annually, during the third quarter, or more often if warranted, using a quantitative impairment approach. The quantitative impairment test compares the book value to the fair value of each reporting unit. If the book value exceeds the fair value, an impairment is charged to net income. Management has identified two reporting units for purposes of testing goodwill for impairment: the banking business and the insurance agency business. Other intangible assets, all of which are definite-lived, are stated at cost less accumulated amortization. The Company evaluates other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be fully recovered. The Company considers factors including, but not limited to, changes in legal factors and business climate that could affect the value of the intangible asset. Any impairment losses are charged to net 114 income. The Company amortizes other intangible assets over their respective estimated useful lives. The estimated useful lives of core deposit identifiable intangible assets fall within a range of seven to ten years and the estimated useful life of customer lists from insurance agency acquisitions is ten years . The estimated useful life of non-compete agreements resulting from insurance agency acquisitions are dependent upon the terms of the agreement. The Company reassesses the useful lives of other intangible assets at least annually, or more frequently based on specific events or changes in circumstances. Retirement Plans The Company provides benefits to its employees and executive officers through various retirement plans, including a defined benefit plan, a defined benefit supplemental executive retirement plan, a defined contribution plan, a benefit equalization plan, and an outside directors’ retainer continuance plan. Effective November 1, 2020, the defined benefit plan (“Defined Benefit Plan”) and the benefit equalization plan (“BEP”) were amended to convert the plans from a traditional final average earnings plan design to a cash balance plan design. Benefits earned under the final average earnings plan design were frozen at October 31, 2020. Starting November 1, 2020, future benefits are earned under the cash balance plan design. The defined benefit plan benefits are provided through membership in the Savings Banks Employees’ Retirement Association (“SBERA”). The Defined Benefit Plan is a noncontributory, defined benefit plan. Under the final average earnings plan design, benefits became fully vested after three years of eligible service for individuals employed on or before October 31, 1989. For individuals employed subsequent to October 31, 1989 and who were already in the Defined Benefit Plan as of November 1, 2020, benefits became fully vested after five years of eligible service. Under the cash balance plan design and for employees who were not already in the Defined Benefit Plan as of November 1, 2020, benefits become fully vested after three years of eligible service. The annual contribution to the Defined Benefit Plan is based upon standards established by the Pension Protection Act. The contribution is based on an actuarial method intended to provide not only for benefits attributable to service to date, but also for those expected to be earned in the future. The Company also has an unfunded Defined Benefit Supplemental Executive Retirement Plan (“DB SERP”) that provides certain retired and currently employed officers with defined pension benefits in excess of qualified plan limits imposed by U.S. federal tax law. The DB SERP has a plan year end of December 31. The Company’s BEP, which is an unfunded plan, provides retirement benefits to certain employees whose retirement benefits under the Defined Benefit Plan are limited per the Internal Revenue Code. The BEP has a plan year end of October 31. The Company also has an unfunded Outside Directors’ Retainer Continuance Plan (“ODRCP”) that provides pension benefits to outside directors who retire from service. The Outside Directors’ Retainer Continuance Plan has a plan year end of December 31. Effective December 31, 2020, the Company closed the ODRCP to new participants and froze benefit accruals for active participants. Plan assets are invested in various investment funds and held at fair value which generally represents observable market prices. Pension liability is determined based on the actuarial cost method factoring in assumptions such as salary increases, expected retirement date, mortality rate, and employee turnover. The actuarial cost method used to compute the pension liabilities and related expense is the projected unit credit method. The projected benefit obligation is principally determined based on the present value of the projected benefit distributions at an assumed discount rate (which is the rate at which the projected benefit obligation could be effectively settled as of the measurement date). The discount rate which is utilized is determined using the spot rate approach whereby the individual spot rates on the Financial Times and Stock Exchange (“FTSE”) above-median yield curve are applied to each corresponding year’s projected cash flow used to measure the respective plan’s service cost and interest cost. Periodic pension expense (or income) includes service costs, interest costs based on the assumed discount rate, the expected return on plan assets, if applicable, based on the market value of assets and amortization of actuarial gains and losses. Net period benefit cost excluding service cost is included within other noninterest expense in the consolidated statements of income. Service cost for all plans except the ODRCP is included in salaries and employee benefits in the consolidated statements of income. Service cost for the ODRCP is included in professional services in the consolidated statements of income. The amortization of actuarial gains and losses for the DB SERP and 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 is 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. 115 Employee Tax Deferred Incentive Plan The Company has an employee tax deferred incentive plan (“401(k) plan”) under which the Company makes voluntary contributions within certain limitations. All employees who meet specified age and length of service requirements are eligible to participate in the 401(k) plan. The amount contributed by the Company is included in salaries and employee benefits expense. Defined Contribution Supplemental Executive Retirement Plan The Company has a defined contribution supplemental executive retirement plan (“DC SERP”), which allows certain senior officers to earn benefits calculated as a percentage of their compensation. The participant benefits are adjusted based upon a deemed investment performance of measurement funds selected by the participant. These measurement funds are for tracking purposes and are used only to track the performance of a mutual fund, market index, savings instrument, or other designated investment or portfolio of investments. Effective December 31, 2021, the Company closed the DC SERP to new participants and froze benefit accruals for active participants. Deferred Compensation The Company sponsors three plans which allow for elective compensation deferrals by directors, former trustees, and certain senior-level employees. Each plan allows its participants to designate deemed investments for deferred amounts from certain options which include diversified choices, such as exchange traded funds and mutual funds. Portfolios with various risk profiles are available to participants with the approval of the Compensation Committee. The Company purchases and sells investments which track the deemed investment choices, so that it has available funds to meet its payment liabilities. Deferred amounts, adjusted for deemed investment performance, are paid at the time of a participant designated date or event, such as separation from service, death, or disability. The total amounts due to participants under these plans are included in other liabilities on the Company’s consolidated balance sheets. Employee Stock Ownership Plan (“ESOP”) ESOP shares are shown as a reduction of equity and are presented in the consolidated statements of shareholders’ equity as unallocated common stock held by ESOP. Compensation expense for the Company’s ESOP is recorded at an amount equal to the shares committed to be allocated by the ESOP multiplied by the average fair market value of the shares during the year. The Company recognizes compensation expense ratably over the year based upon the Company’s estimate of the number of shares committed to be allocated by the ESOP. When the shares are released, unallocated common stock held by ESOP is reduced by the cost of the ESOP shares released and the difference between the average fair market value and the cost of the shares committed to be allocated by the ESOP is recorded as an adjustment to additional paid-in capital. The loan receivable from the ESOP is not reported as an asset nor is the Company’s guarantee to fund the ESOP reported as a liability on the Company’s consolidated balance sheet. Share-Based Compensation The Company measures share-based compensation on the grant date fair value on a straight-line basis over the vesting period during which an employee is required to provide services in exchange for the award; the requisite service period. The Company uses various pricing models to estimate the fair value of stock awards granted. The Company measures the fair value of the restricted stock using the closing market price of the Company’s common stock on the date of grant. The Company records compensation expense equal to the grant date fair value of the Company’s restricted stock with a corresponding increase in equity. Reductions in compensation expense associated with forfeited awards are accounted for as incurred. Upon vesting, the fair value of the award in excess of recorded expense is recognized as a component of income tax expense. Variable Interest Entities (“VIE”) and Voting Interest Entities (“VOE”) The Company is involved in the normal course of business with various types of special purpose entities, some of which meet the definition for VIEs and VOEs. VIEs are entities that possess any of the following characteristics: 1) the total equity investment at risk is insufficient to permit the legal entity to finance its activities without additional subordinated financial support from other parties; 2) as a group, the holders of the equity investment at risk lack any of the characteristics of a controlling financial interest; or 3) the equity investors’ voting rights are not proportional to the economics, and substantially all of the activities of the entity either involve or are conducted on behalf of an investor that has disproportionately few voting rights. The Company consolidates entities deemed to be VIEs when it, or a wholly-owned subsidiary, is determined to be the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. An enterprise has a controlling financial interest in a VIE if it has both 1) the power to direct the activities of a VIE that most significantly impact the VIE’s 116 economic performance and 2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE. VOEs are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. The Company generally consolidates VOEs when it, or a wholly-owned subsidiary, holds the majority of the voting interest in the VOE. Rabbi Trusts The Company established rabbi trusts to meet its obligations under certain executive non-qualified retirement benefits and deferred compensation plans and to mitigate the expense volatility of the aforementioned retirement plans. The rabbi trusts are considered VIEs as the equity investment at risk is insufficient to permit the trust to finance its activities without additional subordinated financial support from the Company. The Company is considered the primary beneficiary of the rabbi trusts as it has the power to direct the activities of the rabbi trusts that significantly affect the rabbi trust’s economic performance and it has the obligation to absorb losses of the rabbi trusts that could potentially be significant to the rabbi trusts by virtue of its contingent call options on the rabbi trust’s assets in the event of the Company’s bankruptcy. As the primary beneficiary of these VIEs, the Company consolidates the rabbi trust investments. In general, the rabbi trust investments and any earnings received thereon are accumulated, reinvested and used exclusively for trust purposes. These rabbi trust investments consist primarily of cash and cash equivalents, U.S. government agency obligations, equity securities, mutual funds and other exchange-traded funds, and are recorded at fair value in the Company’s consolidated balance sheet. Changes in fair value are recorded in noninterest income in the statements of income. These rabbi trust assets are included within other assets in the Company’s consolidated balance sheet. Tax Credit Investment Through a wholly-owned subsidiary, the Company is the sole member of a tax credit investment company through which it consolidates a community development entity (“CDE”) that is considered a VIE. The CDE is considered a VIE because as a group, the holders of the equity investment at risk lack any of the characteristics of a controlling financial interest. The tax credit investment company is considered the primary beneficiary of the CDE as it has the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and the obligation to absorb losses of and the right to receive benefits from the VIE that potentially could be significant to the VIE. Bank Owned Life Insurance The Company holds bank-owned life insurance on the lives of certain participating executives, primarily as a result of mergers and acquisitions. The amount reported as an asset on the balance sheet is the sum of the cash surrender values reported to the Company by the various insurance carriers. Certain policies are split-dollar life insurance policies whereby the Company recognizes a liability for the postretirement benefit related to the arrangement. This postretirement benefit is included in other liabilities on the balance sheet. Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled. A valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax assets will not be realized. Interest and penalties paid on the underpayment of income taxes are classified as income tax expense. The Company periodically evaluates the potential uncertainty of its tax positions as to whether it is more likely than not its position would be upheld upon examination by the appropriate taxing authority. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the Consolidated Financial Statements. The tax position is measured at the largest amount of benefit that management believes is greater than 50% likely of being realized upon settlement. Low Income Housing Tax Credits and Other Tax Credit Investments As part of its community reinvestment initiatives, the Company primarily invests in qualified affordable housing projects in addition to other tax credit investment projects. The Company receives low-income housing tax credits, investment tax credits, rehabilitation tax credits, solar tax credits and other tax credits as a result of its investments in these limited partnership investments. 117 The Company accounts for its investments in qualified affordable housing projects using the proportional amortization method and amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits allocated to the Company. The amortization of the excess of the carrying amount of the investment over its estimated residual value is included as a component of income tax expense. At investment inception, the Company records a liability for the committed amount of the investment; this liability is reduced as contributions are made. The Company evaluates investments in tax credit investment companies for consolidation based on the variable or voting interest entity guidance, as appropriate. Other tax credit investment projects are accounted for using either the cost method or equity method. Advertising Costs All advertising costs are expensed in the period in which they are incurred. Advertising costs were not significant for any periods presented. Insurance Commissions Through Eastern Insurance Group LLC, the Company acts as an agent in offering property, casualty, and life and health insurance to both consumer and commercial customers. Insurance commissions consist of the several types of insurance revenue related to insurance policy sales. The Company earns a fixed commission on the sale of these insurance products and services and may occasionally earn a bonus commission if certain volume thresholds are met. The Company recognizes insurance commission revenues as performance obligations of underlying agreements are satisfied, which is typically the effective date of the insurance policy. Additionally, for certain types of insurance products, the Company may earn and recognize revenue related to the annual residual commissions commensurate with annual premiums being paid. The Company’s contracts typically contain a single, material distinct performance obligation, therefore the Company does not estimate standalone selling prices as the entire transaction price is allocated to the single performance obligation. The Company also earns profit sharing revenue from insurers whom they place into business. Such revenues are considered performance bonuses based upon certain performance metrics. This amount can vary from period to period and is difficult to predict. Therefore, the Company does not recognize revenue until it has concluded that a significant revenue reversal will not occur in future periods. Trust Operations The Bank is a full-service trust company that provides a wide range of trust services to customers that includes managing customer investments, safekeeping customer assets, supplying disbursement services, and providing other fiduciary services. Trust assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets as they are not assets of the Company. The fees charged are variable based on various factors such as the Company’s responsibility, the type of account, and account size. Revenue from administrative and management activities associated with these assets is recognized as performance obligations of underlying agreements are satisfied. Derivative Financial Instruments Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship, and further, by the type of hedging relationship. At the inception of a hedge, the Company documents certain items, including, but not limited to, the following: the relationship between hedging instruments and hedged items, the Company’s risk management objectives, hedging strategies, and the evaluation of hedge transaction effectiveness. Documentation includes linking all derivatives that are designated as hedges to specific assets or liabilities on the balance sheet or to specific forecasted transactions. The Company’s derivative instruments that are designated and qualify for hedge accounting are classified as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows associated with a recognized asset or liability, or a forecasted transaction). As such, changes in the fair value of the designated hedging instrument that is included in the assessment of hedge effectiveness are recorded in other comprehensive income and reclassified into net income in the same period or periods during which the hedged forecasted transaction affects net income. Such reclassifications shall be presented in the same income statement line item as the net income effect of the hedged item. If the hedging instrument is not highly effective at achieving offsetting cash flows attributable to the revised contractually specified interest rate(s), hedge accounting will be discontinued. At that time, accumulated other comprehensive income would be frozen and amortized, as long as the forecasted transactions are still probable of occurring. If a cash flow hedge is terminated, hedge accounting treatment would be retained, and accumulated other comprehensive income would be frozen and amortized, as long as the forecasted transactions are still probable of occurring. 118 The Company’s derivative instruments not designated as hedging instruments are recorded at fair value and changes in fair value are recognized in other noninterest income. Derivative instruments not designated as hedging instruments include interest rate swaps, foreign exchange contracts offered to commercial customers to assist them in meeting their financing and investing objectives for their risk management purposes, and risk participation agreements entered into as financial guarantees of performance on customer-related interest rate swap derivatives. 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. All derivative financial instruments eligible for clearing are cleared through the Chicago Mercantile Exchange (“CME”). In accordance with its amended rulebook, CME legally characterizes variation margin payments made to and received from the CME as settlement of derivatives rather than as collateral against derivatives. Fair Value Measurements ASC 820 “ Fair Value Measurements and Disclosures ” (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, able and willing to transact. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements), and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 – Prices or valuations that require unobservable inputs that reflect the Company’s own assumptions that are significant to the fair value measurement. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Leases The Company leases certain office space and equipment under various non-cancelable operating leases, some of which have renewal options to extend lease terms. At lease inception, the Company evaluates the lease terms to determine if the lease should be classified as an operating lease or a finance lease and recognizes a right of use (“ROU”) asset and corresponding lease liability. The Company makes the decision on whether to renew an option to extend a lease by considering various factors. The Company will recognize an adjustment to its ROU asset and lease liability when lease agreements are amended and executed. The discount rate used in determining the present value of lease payments is based on the Company’s incremental borrowing rate for borrowings with terms similar to each lease at commencement date. The Company has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. The Company has elected the short-term lease recognition exemption for all leases that qualify. Common Share Repurchases Shares repurchased by the Company under our share repurchase program have been classified as authorized but unissued shares. The cost of shares repurchased by the Company has been accounted for as a reduction to common stock and additional paid in capital balances. Massachusetts state law calls for repurchased shares to be classified as authorized but unissued shares. U.S. GAAP states that the accounting for share repurchases shall conform to state law where applicable. Earnings Per Share Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. ESOP shares committed to be released are considered to be outstanding for purposes of the earnings per share computation. ESOP shares that have not been legally released, but that relate to employee services rendered during an 119 accounting period (interim or annual) ending before the related debt service payment is made, are considered committed to be released. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock awards and are determined using the treasury stock method. Segment Reporting An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and evaluate performance. The Company has determined that its CODM is its President and Chief Executive Officer. The Company has two reportable segments: its banking business, which consists of a full range of banking lending, savings, and small business offerings, and its wealth management and trust operations; and its insurance agency business, which consists of insurance-related activities. Recent Accounting Pronouncements Until December 31, 2021, the Company had qualified as an emerging growth company under the Jumpstart Our Business Act of 2012 (“JOBS Act”) and had elected to defer the adoption of new or revised accounting standards until the nonpublic company effective dates. Relevant standards that were recently issued but not yet adopted as of December 31, 2021: In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ( “ASU 2020-04”) . This update addresses optional expedients and exceptions for applying GAAP to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The new guidance applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. For public and nonpublic entities, the guidance is effective as of March 12, 2020 through December 31, 2022 and does not apply to contract modifications made after December 31, 2022. The Company will adopt this standard on the nonpublic company effective date and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact of the transition away from LIBOR. As of December 31, 2021, there has been no material impact from reference rate discontinuation. 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. Specifically, the standard replaces the existing incurred loss impairment guidance by requiring immediate recognition of expected credit losses. For financial assets carried at amortized cost that are held at the reporting date (including trade and other receivables, loans and commitments, held-to-maturity debt securities and other financial assets), credit losses are measured based on historical experience, current conditions and reasonable supportable forecasts. The standard also amends existing impairment guidance for available for sale securities, in which credit losses will be recorded as an allowance versus a write-down of the amortized cost basis of the security. It will also allow for a reversal of impairment loss when the credit of the issuer improves. 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 ( “Update 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. 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. 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 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. 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 120 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. The Company deferred adoption of this standard to January 1, 2022. On January 1, 2022, the Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. For purchased credit-deteriorated (“PCD”) financial assets that were previously classified as purchased-credit impaired (“PCI”) and accounted for under ASC 310-30, the Company adopted ASU 2016-13 using the prospective transition approach. Accordingly, the Company did not assess whether PCI assets met the criteria of PCD assets as of the date of adoption. To address the impact of ASU 2016-13, the Company formed a committee, including the Chief Credit Officer, the Chief Financial Officer, and Chief Information Officer, to assist in identifying, implementing, and evaluating the impact of the required changes to loan loss estimation models and processes. Additionally, a third party was engaged to assist the Company in project management, documentation, model governance and related internal controls implementation. As of December 31, 2021, the Company has evaluated portfolio segmentation and is finalizing model validation, model calibration, qualitative factors, new disclosures, formal policies and procedures, and other governance and control enhancements. For regulatory capital purposes, the Company has elected to delay certain effects of the adoption of ASU 2016-13 on regulatory capital for two years, followed by a three-year transition period during which it will phase-in, over a period of three years, the day-one regulatory capital effects of adoption of ASU 2016-13 in accordance with the federal banking agencies interim final rule issued in March 2020. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). This update modifies how an acquiring entity measures contract assets and contract liabilities of an acquiree in a business combination in accordance with Topic 606. The amendments in this update require the acquiring entity in a business combination to account for revenue contracts as if they had originated the contract and assess how the acquiree accounted for the contract under Topic 606. ASU 2021-08 improves comparability of recognition and measurement of revenue contracts with customers both before and after a business combination. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2022. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. The amendments in this update should be applied prospectively to business combinations occurring on or after the effective date of the amendments with early adoption permitted. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements. Relevant standards that were adopted during the year ended December 31, 2021: In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). This update modifies the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The guidance eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. For public companies, ASU 2018-14 is effective for fiscal years ending after December 15, 2020. For nonpublic companies, ASU 2018-14 is effective for fiscal years ending after December 15, 2021. The adoption of this standard on December 31, 2021 did not have a material impact on the Company's consolidated financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-use software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). This update addresses accounting for fees paid by a customer for implementation, set-up and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). The new guidance aligns treatment for capitalization of implementation costs with guidance on internal-use software. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2019. For nonpublic entities, the guidance is effective for annual reporting periods beginning after December 15, 2020, and for all interim periods beginning after December 15, 2021. The adoption of this standard on January 1, 2021 did not have a material impact on the Company's consolidated financial statements. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”) which expands the scope of guidance in ASC 848 so that companies can apply the optional expedients to derivative instruments affected by the clearing house changes. ASU 2021-01 also clarifies and updates several items in ASU 2020-04 as part of the FASB’s monitoring of global reference rate reform activities. ASU 2021-01 permits entities to elect certain optional expedients and exceptions to modifications of interest rate indexes used for computing when accounting derivative contracts and certain hedging relationships impacted by changes in interest rates used for discounting, margining, or contract price alignment. ASU 2021-01 clarifies other aspects of the guidance in ASC 848 and provides new guidance on how to address the effects of the cash 121 compensation adjustment that is provided as part of the above change on certain aspects of hedge accounting. The guidance was effective upon issuance and allows for retrospective or prospective application with certain conditions. The Company did not elect retrospective application. Changes made in connection with the adoption of this update did not have a material impact on the Company’s consolidated financial statements. 3. Mergers and Acquisitions Century Bancorp, Inc. Acquisition On November 12, 2021, the Company completed its acquisition of Century Bancorp, Inc. (“Century”). Under the terms of the Merger Agreement, each holder of Century Class A and B common stock received a cash payment of $ 115.28 per share. The total consideration paid in the acquisition of Century was $ 641.9 million in cash. In connection with the acquisition, Century Bank and Trust Company, a wholly owned subsidiary of Century, was merged with and into the Bank. The acquisition added $ 7.1 billion to total assets, including goodwill and intangible assets, $ 2.9 billion to total loans, which included PCI loans totaling $ 67.3 million, and $ 6.1 billion to total deposits, and added 29 full-service banking offices in Massachusetts, as of the date of closing. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations . Under this method of accounting, the respective assets acquired and liabilities assumed were recorded at their estimated fair values. The excess of consideration paid over the estimated fair value of the net assets acquired totaled $ 259.0 million and was recorded as goodwill. The results of Century’s operations were included in the Company’s consolidated financial statements subsequent to the acquisition date. The calculation of goodwill is subject to change for up to one year after the closing date of the transaction as additional information relative to closing date estimates and uncertainties becomes available. As the Company finalizes its analysis of these assets and liabilities, there may be adjustments to the recorded carrying values. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition from Century: Net Assets Acquired at Fair Value (In thousands) Assets Cash and due from banks $ 56,831 Short-term investments 575,953 Investment securities 3,117,022 Loans 2,906,491 FHLB stock 6,690 Premises and equipment 64,521 Bank owned life insurance 95,478 Goodwill 259,024 Core deposit intangible 11,633 Other assets 18,915 Total assets acquired 7,112,558 Liabilities Deposits 6,099,821 Securities sold under agreements to repurchase 274,982 Escrow deposits of borrowers 3,649 Other liabilities 92,237 Total liabilities assumed 6,470,689 Purchase price $ 641,869 Fair Value Measurement of Assets Assumed and Liabilities Assumed 122 The methods used to determine the fair value of the assets acquired and liabilities assumed in the Century acquisition were as follows: Investment Securities The estimated fair values of the available for sale debt securities and held-to-maturity debt securities, primarily comprised of U.S. Government agency mortgage-backed securities, U.S. government agencies, Small Business Administration (“SBA”) pooled securities, and municipal bonds carried on Century’s balance sheet, was confirmed using open market pricing provided by multiple independent securities brokers. Based upon management’s determination, a fair value adjustment of $( 37.3 ) million, reflecting a net discount, was recorded on acquired securities and reflects the net unrealized loss position of such securities at the date of acquisition. Securities acquired that were classified on Century’s balance sheet as held-to-maturity were reclassified as available for sale upon acquisition, reflecting management’s intent with respect to such securities. Loans Loans acquired in the Century acquisition were recorded at fair value, and there was no carryover of the allowance for loan losses. The fair value of the loans acquired from Century was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. Management retained a third-party valuation specialist to assist with the determination of future credit losses, prepayments and a market-based discount rate, the results of which were reviewed by management. A fair value adjustment of $ 13.3 million, reflecting a net discount, was recorded on the loans acquired in this transaction and was due primarily to anticipated credit loss, as well as considerations for liquidity and market interest rates. A portion of the acquired loans exhibited evidence of more-than-insignificant deterioration in credit quality since origination and thus were reviewed to determine if any loans would be deemed PCI. The following is a summary of the PCI loans identified as a result of the review performed as of the date acquired: As of November 12, 2021 (In thousands) Contractually required principal and interest at acquisition (1) $ 82,900 Contractual cash flows not expected to be collected 6,746 Expected cash flows at acquisition 76,154 Interest component of expected cash flows 8,896 Basis in PCI loans at acquisition - estimated fair value $ 67,258 (1) Contractually required principal and interest at acquisition includes interest not expected to be collected due to estimated prepayments. Premises and Equipment The Company acquired 29 branches from Century as of the date of closing, 13 of which were owned premises. The fair value of properties acquired was derived by valuations prepared by an independent third party utilizing a combination of the cost approach and the sales comparison approach to value the property as improved. Included in the acquired premises and equipment of $ 64.5 million was real estate previously owned by Century and located at 400 Mystic Avenue, Medford, Massachusetts (the “400 Mystic Parcel”). On September 30, 2021, the Company executed a definitive Purchase and Sale Agreement that provided for Eastern Bank to sell the 400 Mystic Parcel, where Century maintained its executive offices. The purchase price for the 400 Mystic Parcel was $ 20.5 million in cash payable at the closing of the sale which occurred in the mid-fourth quarter of 2021 after the Company completed the acquisition. The fair value of the property was initially recorded at an amount equal to the agreed upon purchase price. Accordingly, no gain or loss was recognized as a result of the sale. Leases As part of the Century acquisition the Company added 20 lease obligations. The Company recorded a $ 13.9 million right-of-use asset and lease liability for these lease obligations. Core Deposit Intangible The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate commensurate with market participants. To calculate cash flows, deposit account servicing costs (net of deposit 123 fee income) and interest expense on deposits were compared to the cost of alternative funding sources available through FHLBB borrowing rates and national brokered CD offering rates. The projected cash flows were developed using projected deposit attrition rates. Management retained a third-party valuation specialist to assist with the determination of projected cash flows, the results of which were reviewed by management. The core deposit intangible totaled $ 11.6 million and is being amortized on a straight-line basis over its estimated useful life of approximately 10 years. Goodwill The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. As the Company finalizes its review of the acquired assets and liabilities, certain adjustments to the recorded carrying values may be required. The goodwill will be evaluated annually for impairment. The goodwill is no t deductible for tax purposes. Bank Owned Life Insurance (“BOLI”) Century’s BOLI cash surrender value was $ 95.5 million with no fair value adjustment. Time Deposits The fair value adjustment for time deposits represents a discount from the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar-term time deposits. The time deposit discount of approximately $ 1.8 million is being amortized into income on a level yield amortization method over the contractual life of the deposits. Securities Sold Under Agreements to Repurchase Acquired securities sold under agreements to repurchase were $ 275.0 million with no fair value adjustment as the fair value approximates carrying value. Such agreements reached their maturity prior to December 31, 2021. Accordingly, the Company had no obligations related to securities sold under agreements to repurchase as of December 31, 2021. Securities sold under agreements to repurchase were customer-related and were converted to deposits upon maturity. Escrow Deposits of Borrowers Century’s escrow deposits of borrowers was $ 3.6 million with no fair value adjustment. Merger-Related Expenses 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: 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 Other 1,802 $ 35,456 The following table presents certain unaudited pro forma information for the years ended December 31, 2021 and 2020. This unaudited estimated pro forma financial information was calculated as if Century had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of Century with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for loan losses resulting from recording loan assets at fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented. 124 Unaudited Pro Forma Financial Information for the Years Ended December 31, 2021 2020 (In thousands) Net interest income $ 522,621 $ 502,853 Net income 174,603 61,858 Financial results of Century from the date of acquisition through December 31, 2021 are not presented as management considers the determination of such amounts to be impracticable. Insurance Agency Acquisitions During the year ended December 31, 2021, the Company completed acquisitions of two insurance agencies for aggregate total consideration of $ 4.4 million in cash which is comprised of cash consideration paid for each insurance agency of $ 3.9 million and $ 0.5 million, respectively. Both acquisitions were considered to be business combinations and were accounted for using the acquisition method. The following table summarizes the estimate fair value of the assets acquired and liabilities assumed for the business combinations described above: Balance (In thousands) Assets acquired: Customer list intangible $ 1,860 Non-compete intangible 170 Other 133 Total assets acquired 2,163 Consideration: Total cash paid ( 4,354 ) Contingent consideration ( 449 ) Other liabilities assumed ( 355 ) Total fair value of consideration ( 5,158 ) Goodwill $ 2,995 In connection with these acquisitions, the Company recorded a contingent consideration liability related to attainment of revenue targets over a period of time after the acquisition date. The amount of contingent consideration recorded was based upon management’s best estimate of possible outcomes as of the date of acquisition. The Company recorded a contingent consideration liability of $ 0.4 million, and per the purchase agreement, the payouts ranged from $ 0 to $ 0.5 million. During the year ended December 31, 2020 the Company did not have any material charges to expense or payments to adjust the acquisition-related contingent consideration liability recorded. For tax purposes, the acquisitions were considered asset acquisitions and as such, the amortization of goodwill and intangible assets is deductible for tax purposes. Acquisition-related legal and professional fee costs of less than $ 0.1 million were charged to expense during the year ended December 31, 2021, and was included in the professional services line item of the consolidated statements of income. These acquisitions were not considered significant to the Company’s Consolidated Financial Statements and, therefore, pro forma data and certain other disclosures have been excluded. During the year ended December 31, 2020, the Company completed an acquisition of an insurance agency for total consideration of $ 1.4 million in cash. This acquisition was considered to be a business combination and was accounted for using the acquisition method. 125 The following table summarizes the estimated fair value of the assets acquired and liabilities assumed for the business combination described above: Balance (In thousands) Assets acquired: Customer list intangible $ 1,130 Non-compete intangible 80 Total assets acquired 1,210 Consideration: Total cash paid ( 1,363 ) Contingent consideration ( 293 ) Total fair value of consideration ( 1,656 ) Goodwill $ 446 In connection with this acquisition, the Company recorded a contingent consideration liability related to attainment of revenue targets over a period of time after the acquisition date. The amount of contingent consideration recorded was based upon management’s best estimate of possible outcomes as of the date of acquisition. The Company recorded a contingent consideration liability of $ 0.3 million, and per the purchase agreement, the payouts ranged from $ 0 to $ 0.3 million. During the year ended December 31, 2020 the Company did not have any material charges to expense or payments to adjust the acquisition-related contingent consideration liability recorded. For tax purposes, the acquisition was considered an asset acquisitions and as such, the amortization of goodwill and intangible assets is deductible for tax purposes. Acquisition-related legal and professional fee costs of $ 0.1 million was charged to expense during the year ended December 31, 2020, and were included in the professional services line item of the consolidated statements of income. This acquisition was not considered significant to the Company’s Consolidated Financial Statements and, therefore, pro forma data and certain other disclosures have been excluded. 4. Securities Available for Sale Securities The amortized cost, gross unrealized gains and losses, and fair value of available for sale securities as of the dates indicated were as follows: As of December 31, 2021 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (In thousands) Debt securities: Government-sponsored residential mortgage-backed securities $ 5,577,292 $ 17,918 $ ( 70,502 ) $ 5,524,708 Government-sponsored commercial mortgage-backed securities 1,420,748 760 ( 12,640 ) 1,408,868 U.S. Agency bonds 1,202,377 1,067 ( 28,430 ) 1,175,014 U.S. Treasury securities 89,434 5 ( 834 ) 88,605 State and municipal bonds and obligations 263,910 16,460 ( 41 ) 280,329 Small Business Administration pooled securities 31,821 282 — 32,103 Other debt securities 1,597 — — 1,597 $ 8,587,179 $ 36,492 $ ( 112,447 ) $ 8,511,224 126 As of December 31, 2020 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (In thousands) Debt securities: Government-sponsored residential mortgage-backed securities $ 2,106,658 $ 42,142 $ — $ 2,148,800 Government-sponsored commercial mortgage-backed securities 17,054 27 — 17,081 U.S. Agency bonds 670,468 113 ( 3,872 ) 666,709 U.S. Treasury securities 70,106 263 — 70,369 State and municipal bonds and obligations 260,898 20,004 — 280,902 $ 3,125,184 $ 62,549 $ ( 3,872 ) $ 3,183,861 The amortized cost and estimated fair value of available for sale securities by contractual maturities as of December 31, 2021 and 2020 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. The scheduled contractual maturities of available for sale securities as of the dates indicated were as follows: As of December 31, 2021 Due in one year or less Due after one year to five years Due after five to ten years Due after ten years Total Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value (In thousands) Government-sponsored residential mortgage-backed securities $ — $ — $ 24,935 $ 25,962 $ 899,169 $ 892,029 $ 4,653,188 $ 4,606,717 $ 5,577,292 $ 5,524,708 Government-sponsored commercial mortgage-backed securities — — 139,095 137,755 387,177 378,414 894,476 892,699 1,420,748 1,408,868 U.S. Agency bonds 5,508 5,515 531,821 520,935 665,048 648,564 — — 1,202,377 1,175,014 U.S. Treasury securities 40,010 40,001 49,424 48,604 — — — — 89,434 88,605 State and municipal bonds and obligations 6,137 6,116 33,692 34,704 72,226 75,416 151,855 164,093 263,910 280,329 Small Business Administration pooled securities — — 4,062 4,092 — — 27,759 28,011 31,821 32,103 Other debt securities 300 300 1,297 1,297 — — — — 1,597 1,597 Total $ 51,955 $ 51,932 $ 784,326 $ 773,349 $ 2,023,620 $ 1,994,423 $ 5,727,278 $ 5,691,520 $ 8,587,179 $ 8,511,224 127 As of December 31, 2020 Due in one year or less Due after one year to five years Due after five to ten years Due after ten years Total Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value (In Thousands) Government-sponsored residential mortgage-backed securities $ — $ — $ 46,293 $ 48,925 $ 96,338 $ 100,278 $ 1,964,027 $ 1,999,597 $ 2,106,658 $ 2,148,800 Government-sponsored commercial mortgage-backed securities — — — — 17,054 17,081 — — 17,054 17,081 U.S. Agency bonds — — 99,772 99,834 570,696 566,875 — — 670,468 666,709 U.S. Treasury securities 50,023 50,251 20,083 20,118 — — — — 70,106 70,369 State and municipal bonds and obligations 406 408 20,511 21,431 74,980 79,635 165,001 179,428 260,898 280,902 Total $ 50,429 $ 50,659 $ 186,659 $ 190,308 $ 759,068 $ 763,869 $ 2,129,028 $ 2,179,025 $ 3,125,184 $ 3,183,861 Mortgage-backed securities include investments in securities that are insured or guaranteed by Freddie Mac, Ginnie Mae or Fannie Mae. Mortgage-backed securities are purchased to achieve positive interest rate spread with minimal administrative expense, and to lower the Company’s credit risk. Mortgage-backed securities and callable securities are shown at their contractual maturity dates. However, both are expected to have shorter average lives due to expected prepayments and callable features, respectively. Included in the available for sale securities as of December 31, 2021 and 2020 were $ 1.1 billion, and $ 0.7 billion, respectively, of callable securities at fair value. As of December 31, 2021 and 2020, the Company had no investments in obligations of individual states, counties, or municipalities which exceeded 10% of consolidated shareholders’ equity. Gross realized gains from sales of available for sale securities were $ 1.2 million, $ 0.3 million and $ 2.1 million during the years ended December 31, 2021, 2020, and 2019, respectively. The Company had no significant gross realized losses from sales of securities available for sale during the years ended December 31, 2021, 2020, and 2019. No other-than-temporary impairment (“OTTI”) was recorded during the years ended December 31, 2021, 2020, and 2019. Management prepares an estimate of the expected cash flows for investment securities available for sale that potentially may be deemed to have been an OTTI. This estimate begins with the contractual cash flows of the security. This amount is then reduced by an estimate of probable credit losses associated with the security. When estimating the extent of probable losses on the securities, management considers the credit quality and the ability to pay of the underlying issuers. Indicators of diminished credit quality of the issuers include defaults, interest deferrals, or “payments in kind.” Management also considers those factors listed in the Investments – Debt and Equity Securities topic of the FASB ASC when estimating the ultimate realizability of the cash flows for each individual security. The resulting estimate of cash flows after considering credit is then subject to a present value computation using a discount rate equal to the current yield used to accrete the beneficial interest or the effective interest rate implicit in the security at the date of acquisition. If the present value of the estimated cash flows is less than the current amortized cost basis, an OTTI is considered to have occurred and the security is written down to the fair value indicated by the cash flow analysis. As part of the analysis, management considers whether it intends to sell the security or whether it is more than likely that it would be required to sell the security before the expected recovery of its amortized cost basis. 128 Information pertaining to available for sale securities with gross unrealized losses as of December 31, 2021 and 2020, which the Company has not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows: December 31, 2021 Less than 12 Months 12 Months or Longer Total # of Holdings Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value (Dollars in thousands) Government-sponsored residential mortgage-backed securities 264 $ 70,502 $ 4,615,457 $ — $ — $ 70,502 $ 4,615,457 Government-sponsored commercial mortgage-backed securities 165 12,218 1,102,444 422 15,682 12,640 1,118,126 U.S. Agency bonds 27 2,169 191,222 26,261 794,353 28,430 985,575 U.S. Treasury securities 3 834 78,588 — — 834 78,588 State and municipal bonds and obligations 11 41 5,436 — — 41 5,436 470 $ 85,764 $ 5,993,147 $ 26,683 $ 810,035 $ 112,447 $ 6,803,182 December 31, 2020 Less than 12 Months 12 Months or Longer Total # of Holdings Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value (Dollars in thousands) U.S. Agency bonds 6 $ 3,872 $ 416,824 $ — $ — $ 3,872 $ 416,824 6 $ 3,872 $ 416,824 $ — $ — $ 3,872 $ 416,824 As of December 31, 2021, the Company does not intend to sell these investments and has determined based upon available evidence that it is more likely than not that the Company will not be required to sell each security before the expected recovery of its amortized cost basis. As a result, the Company does not consider these investments with gross unrealized losses to be OTTI. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, and volatility of earnings. As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the tables above by category are as follows as of December 31, 2021 and 2020: • Government-sponsored residential mortgage-backed securities – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies. • Government-sponsored commercial mortgage-backed securities – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies. • U.S. Agency bonds – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies. 129 • U.S. Treasury securities – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies. • State and municipal bonds and obligations – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. 5. Loans and Allowance for Loan Losses Loans The following table provides a summary of the Company’s loan portfolio as of the dates indicated: As of December 31, 2021 2020 (In thousands) Commercial and industrial $ 2,960,527 $ 1,995,016 Commercial real estate 4,522,513 3,573,630 Commercial construction 222,328 305,708 Business banking 1,334,694 1,339,164 Residential real estate 1,926,810 1,370,957 Consumer home equity 1,100,153 868,270 Other consumer (1) 214,485 277,780 Gross loans before unamortized premiums, unearned discounts and deferred fees 12,281,510 9,730,525 Allowance for loan losses ( 97,787 ) ( 113,031 ) Unamortized premiums, net of unearned discounts and deferred fees ( 26,442 ) ( 23,536 ) Loans after the allowance for loan losses, unamortized premiums, unearned discounts and deferred fees $ 12,157,281 $ 9,593,958 (1) Home improvement loans and automobile loans are included in the other consumer portfolio above and amounted to $ 104.4 million and $ 53.3 million at December 31, 2021, respectively, and $ 81.8 million and $ 126.7 million at December 31, 2020, respectively. There are no other loan categories that exceed 10% of total loans not already reflected in the preceding table. The Company’s lending activities are conducted principally in the New England area with the exception of its Shared National Credit Program (“SNC Program”) portfolio. The Company participates in the SNC Program in an effort to improve its industry and geographical diversification. The SNC Program portfolio is included in the Company’s commercial and industrial portfolio. The SNC Program portfolio is defined as loan syndications with exposure over $ 100 million and with three or more lenders participating. Most loans originated by the Company are either collateralized by real estate or other assets or guaranteed by federal and local governmental authorities. The ability and willingness of the single-family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the borrowers’ geographic areas and real estate values. The ability and willingness of commercial real estate, commercial and industrial, and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate economy in the borrowers’ geographic areas and the general economy. Loans Pledged as Collateral The carrying value of loans pledged to secure advances from the FHLBB were $ 2.6 billion and $ 2.4 billion at December 31, 2021 and 2020, respectively. The balance of funds borrowed from the FHLBB were $ 14.0 million and $ 14.6 million at December 31, 2021 and 2020, respectively. The carrying value of loans pledged to secure advances from the Federal Reserve Bank (“FRB”) were $ 784.0 million and $ 884.1 million at December 31, 2021 and 2020, respectively. There were no funds borrowed from the FRB outstanding at December 31, 2021 and 2020. 130 Serviced Loans At December 31, 2021 and 2020, mortgage loans partially or wholly-owned by others and serviced by the Company amounted to approximately $ 95.8 million and $ 13.5 million, respectively. The increase in serviced loans at December 31, 2021 compared to December 31, 2020 is primarily attributable to our acquisition of Century. Accordingly, we acquired mortgage servicing rights (“MSRs”) which amounted to $ 0.6 million at December 31, 2021. MSRs are included in other assets on the consolidated balance sheets. Allowance for Loan Losses The allowance for loan losses is established to provide for probable losses incurred in the Company’s loan portfolio at the balance sheet date and is established through a provision for loan losses charged to net income. Charge-offs, net of recoveries, are charged directly to the allowance. Commercial and residential loans are charged-off in the period in which they are deemed uncollectible. Delinquent loans in these product types are subject to ongoing review and analysis to determine if a charge-off in the current period is appropriate. For consumer loans, policies and procedures exist that require charge-off consideration upon a certain triggering event depending on the product type. The following tables summarize changes in the allowance for loan losses by loan category and bifurcates the amount of allowance allocated to each loan category based on collective impairment analysis and loans evaluated individually for impairment: For the Year Ended December 31, 2021 Commercial and Industrial Commercial Real Estate Commercial Construction Business Banking Residential Real Estate Consumer Home Equity Other Consumer Other Total (In thousands) Allowance for loan losses: Beginning balance $ 26,617 $ 54,569 $ 4,553 $ 13,152 $ 6,435 $ 3,744 $ 3,467 $ 494 $ 113,031 Charge-offs ( 1,558 ) ( 247 ) — ( 5,091 ) ( 35 ) ( 24 ) ( 2,047 ) — ( 9,002 ) Recoveries 935 4 — 1,524 122 185 674 — 3,444 (Release of) provision ( 7,976 ) ( 1,953 ) ( 1,968 ) 1,398 34 ( 183 ) 1,214 ( 252 ) ( 9,686 ) Ending balance $ 18,018 $ 52,373 $ 2,585 $ 10,983 $ 6,556 $ 3,722 $ 3,308 $ 242 $ 97,787 Ending balance: individually evaluated for impairment $ 1,540 $ — $ — $ 450 $ 1,549 $ 270 $ 161 $ — $ 3,970 Ending balance: acquired with deteriorated credit quality $ 5 $ 298 $ — $ — $ 243 $ — $ — $ — $ 546 Ending balance: collectively evaluated for impairment $ 16,473 $ 52,075 $ 2,585 $ 10,533 $ 4,764 $ 3,452 $ 3,147 $ 242 $ 93,271 Loans ending balance: Individually evaluated for impairment $ 16,145 $ 3,520 $ — $ 12,060 $ 22,378 $ 3,922 $ 179 $ — $ 58,204 Acquired with deteriorated credit quality 19,028 47,553 — — 3,058 — — — 69,639 Collectively evaluated for impairment 2,925,354 4,471,440 222,328 1,322,634 1,901,374 1,096,231 214,306 — 12,153,667 Total loans by group $ 2,960,527 $ 4,522,513 $ 222,328 $ 1,334,694 $ 1,926,810 $ 1,100,153 $ 214,485 $ — $ 12,281,510 131 For the Year Ended December 31, 2020 Commercial and Industrial Commercial Real Estate Commercial Construction Business Banking Residential Real Estate Consumer Home Equity Other Consumer Other Total (In thousands) Allowance for loan losses: Beginning balance $ 20,919 $ 34,730 $ 3,424 $ 8,260 $ 6,380 $ 4,027 $ 4,173 $ 384 $ 82,297 Charge-offs ( 1,770 ) ( 24 ) — ( 5,147 ) — ( 574 ) ( 2,338 ) — ( 9,853 ) Recoveries 778 230 — 292 125 153 209 — 1,787 Provision (release of) 6,690 19,633 1,129 9,747 ( 70 ) 138 1,423 110 38,800 Ending balance $ 26,617 $ 54,569 $ 4,553 $ 13,152 $ 6,435 $ 3,744 $ 3,467 $ 494 $ 113,031 Ending balance: individually evaluated for impairment $ 4,555 $ 210 $ — $ 1,435 $ 1,565 $ 289 $ — $ — $ 8,054 Ending balance: acquired with deteriorated credit quality $ 1,283 $ 822 $ — $ — $ 327 $ — $ — $ — $ 2,432 Ending balance: collectively evaluated for impairment $ 20,779 $ 53,537 $ 4,553 $ 11,717 $ 4,543 $ 3,455 $ 3,467 $ 494 $ 102,545 Loans ending balance: Individually evaluated for impairment $ 17,343 $ 4,435 $ — $ 21,901 $ 27,056 $ 4,845 $ 29 $ — $ 75,609 Acquired with deteriorated credit quality 3,432 2,749 — — 3,116 — — — 9,297 Collectively evaluated for impairment 1,974,241 3,566,446 305,708 1,317,263 1,340,785 863,425 277,751 — 9,645,619 Total loans by group $ 1,995,016 $ 3,573,630 $ 305,708 $ 1,339,164 $ 1,370,957 $ 868,270 $ 277,780 $ — $ 9,730,525 For the Year Ended December 31, 2019 Commercial and Industrial Commercial Real Estate Commercial Construction Business Banking Residential Real Estate Consumer Home Equity Other Consumer Other Total (In thousands) Allowance for loan losses: Beginning balance $ 19,321 $ 32,400 $ 4,606 $ 8,167 $ 7,059 $ 4,113 $ 4,600 $ 389 $ 80,655 Charge-offs ( 1,123 ) — — ( 5,974 ) ( 66 ) ( 205 ) ( 2,131 ) — ( 9,499 ) Recoveries 3,748 12 — 604 105 52 320 — 4,841 Provision (release of) ( 1,027 ) 2,318 ( 1,182 ) 5,463 ( 718 ) 67 1,384 ( 5 ) 6,300 Ending balance $ 20,919 $ 34,730 $ 3,424 $ 8,260 $ 6,380 $ 4,027 $ 4,173 $ 384 $ 82,297 Ending balance: individually evaluated for impairment $ 2,337 $ 40 $ — $ 571 $ 1,399 $ 322 $ — $ — $ 4,669 Ending balance: acquired with deteriorated credit quality $ 936 $ — $ — $ — $ 256 $ — $ — $ — $ 1,192 Ending balance: collectively evaluated for impairment $ 17,646 $ 34,690 $ 3,424 $ 7,689 $ 4,725 $ 3,705 $ 4,173 $ 384 $ 76,436 Loans ending balance: Individually evaluated for impairment $ 32,370 $ 7,641 $ — $ 11,658 $ 29,532 $ 6,555 $ — $ — $ 87,756 Acquired with deteriorated credit quality 3,571 6,459 — — 3,421 — — — 13,451 Collectively evaluated for impairment 1,606,243 3,521,341 273,774 759,840 1,395,677 926,533 402,431 — 8,885,839 Total loans by group $ 1,642,184 $ 3,535,441 $ 273,774 $ 771,498 $ 1,428,630 $ 933,088 $ 402,431 $ — $ 8,987,046 132 Management uses a methodology to systematically estimate the amount of loss incurred in the portfolio. Commercial real estate, commercial and industrial, commercial construction and business banking loans are evaluated using a loan rating system, historical losses and other factors which form the basis for estimating incurred losses. Portfolios of more homogeneous populations of loans, including residential mortgages and consumer loans, are analyzed as groups taking into account delinquency ratios, historical loss experience and charge-offs. For the purpose of estimating the allowance for loan losses, management segregates the loan portfolio into the categories noted in the above tables. Each of these loan categories possesses unique risk characteristics such as the purpose of the loan, repayment source, and collateral. These characteristics are considered when determining the appropriate level of the allowance for each category. Some examples of these risk characteristics unique to each loan category include: Commercial Lending Commercial and industrial : The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. Collateral frequently consists of a first lien position on business assets including, but not limited to accounts receivable, inventory, airplanes and equipment. The primary repayment source is operating cash flow and, secondarily, the liquidation of assets. The Company often obtains personal guarantees from individuals holding material ownership in the borrowing entity. Commercial real estate : Collateral values are established by independent third-party appraisals and evaluations. Primary repayment sources include operating income generated by the real estate, permanent debt refinancing, sale of the real estate and, secondarily, liquidation of the collateral. The Company often obtains personal guarantees from individuals holding material ownership in the borrowing entity. Commercial construction : These loans are generally considered to present a higher degree of risk than other real estate loans and may be affected by a variety of factors, such as adverse changes in interest rates and the borrower’s ability to control costs and adhere to time schedules. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. Construction loan repayment is substantially dependent on the ability of the borrower to complete the project and obtain permanent financing. Business banking : These loans are typically secured by all business assets or commercial real estate. Business banking originations include traditionally underwritten loans as well as partially automated scored loans. Business banking scored loans are determined by utilizing the Company’s proprietary decision matrix that has a number of quantitative factors including, but not limited to, a guarantor’s credit score, industry risk, and time in business. The Company also engages in Small Business Association (“SBA”) lending, both in the business banking and commercial banking divisions. The SBA guarantees reduce the Company’s loss due to default and are considered a credit enhancement to the loan structure. Residential Lending Residential real estate : These loans are made to borrowers who demonstrate the ability to repay principal and interest on a monthly basis. Underwriting considerations include, among others, income sources and their reliability, willingness to repay as evidenced by credit repayment history, financial resources (including cash reserves) and the value of the collateral. The Company maintains policy standards for minimum credit score and cash reserves and maximum loan to value consistent with a “prime” portfolio. Collateral consists of mortgage liens on 1-4 family residential dwellings. The Company does not originate or purchase sub-prime or other high-risk loans. Residential loans are originated either for sale to investors or retained in the Company’s loan portfolio. Decisions about whether to sell or retain residential loans are made based on the interest rate characteristics, pricing for loans in the secondary mortgage market, competitive factors and the Company’s capital needs. Consumer Lending Consumer home equity : Home equity lines of credit are granted for ten years with monthly interest-only repayment requirements. Full principal repayment is required at the end of the ten-year draw period. Home equity loans are term loans that require the monthly payment of principal and interest such that the loan will be fully amortized at maturity. Underwriting considerations are materially consistent with those utilized in residential real estate. Collateral consists of a senior or subordinate lien on owner-occupied residential property. Other consumer : The Company’s policy and underwriting in this category, which is comprised primarily of home improvement and automobile loans, include the following factors, among others: income sources and reliability, credit histories, term of repayment, and collateral value, as applicable. These are typically granted on an unsecured basis, with the exception of airplane and automobile loans. 133 Credit Quality Commercial Lending Credit Quality The Company monitors credit quality indicators and utilizes portfolio scorecards to assess the risk of its commercial portfolio. Specifically, the company utilizes a 15-point credit risk-rating system to manage risk and identify potential problem loans. 0 Risk Rating- Unrated Certain segments of the portfolios are not rated. These segments include airplane loans, business banking scored loan products, and other commercial loans managed by exception. Loans within this unrated loan segment are monitored by delinquency status; and for lines of credit greater than $ 100,000 in exposure, an annual review is conducted. The Company supplements performance data with current business credit scores for the business banking portfolio on a quarterly basis. Unrated commercial and business banking loans are generally restricted to commercial exposure less than $ 1 million. Loans included in this category have qualification requirements that include risk rating of 10 or better at time of recommendation for unrated status, acceptable management of deposit accounts, and no known negative changes in management, operations or financial performance. For purposes of estimating the allowance for loan losses, unrated loans are considered in the same manner as pass rated loans. 1-10 Risk Rating – Pass Loans with a risk rating of 1-10 are classified as “Pass” and are comprised of loans that range from “substantially risk free” which indicates borrowers of unquestioned credit standing, well-established national companies with a very strong financial condition, and loans fully secured by policy conforming cash levels, through “low pass” which indicates acceptable rated loans that may be experiencing weak cash flow, impending lease rollover or minor liquidity concerns. 11 Risk Rating – Special Mention (Potential Weakness) Loans to borrowers in this category exhibit potential weaknesses or downward trends deserving management’s close attention. While potentially weak, no loss of principal or interest is envisioned. Included in this category are borrowers who are performing as agreed, are weak when compared to industry standards, may be experiencing an interim loss and may be in declining industries. An element of asset quality, financial flexibility or management is below average. The Company does not consider borrowers within this category as new business prospects. Borrowers rated special mention may find it difficult to obtain alternative financing from traditional bank sources. 12 Risk Rating – Substandard (Well-Defined Weakness) Loans with a risk-rating of 12 exhibit well-defined weaknesses that, if not corrected, may jeopardize the orderly liquidation of the debt. A loan is classified as substandard if it is inadequately protected by the repayment capacity of the obligor or by the collateral pledged. Specifically, repayment under market rates and terms, or by the requirements under the existing loan documents, is in jeopardy, but no loss of principal or interest is envisioned. There is a possibility that a partial loss of principal and/or interest will occur in the future if the deficiencies are not corrected. Loss potential, while existing in the aggregate portfolio of substandard assets, does not have to exist in individual assets classified as substandard. Non-accrual is possible, but not mandatory, in this class. 13 Risk Rating – Doubtful (Loss Probable) Loans classified as doubtful have comparable weaknesses as found in the loans classified as substandard, with the added provision that such weaknesses make collection of the debt in full (based on currently existing facts, conditions and values) highly questionable and improbable. Serious problems exist such that a partial loss of principal is likely. The probability of loss exists, however, because of reasonable specific pending factors that may work to strengthen the credit, estimated losses are deferred until a more exact status can be determined. Specific reserves will be the amount identified after specific review. Non-accrual is mandatory in this class. 14 Risk Rating – Loss Loans to borrowers in this category are deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuance as active assets of the Company is not warranted. This classification does not mean that the loans have no recovery or salvage value, but rather, it is not practical or desirable to defer writing off these 134 assets even though partial recovery may occur in the future. Loans in this category have a recorded investment of $ 0 at the time of the downgrade. The credit quality of the commercial loan portfolio is actively monitored and supported by a comprehensive credit approval process; and all large dollar transactions are sent for approval to a committee of seasoned business line and credit professionals. Risk ratings are periodically reviewed and the Company maintains an independent credit risk review function that reports directly to the Risk Management Committee of the Board of Directors. Credits that demonstrate significant deterioration in credit quality are transferred to a specialized group of experienced officers for individual attention. The following tables detail the internal risk-rating categories for the Company’s commercial and industrial, commercial real estate, commercial construction and business banking portfolios: As of December 31, 2021 Category Commercial and Industrial Commercial Real Estate Commercial Construction Business Banking Total (In thousands) Unrated $ 171,537 $ 4,378 $ — $ 696,629 $ 872,544 Pass 2,656,873 4,199,803 213,744 569,956 7,640,376 Special mention 70,141 104,517 1,889 50,085 226,632 Substandard 50,339 213,815 6,695 17,814 288,663 Doubtful 11,637 — — 210 11,847 Loss — — — — — Total $ 2,960,527 $ 4,522,513 $ 222,328 $ 1,334,694 $ 9,040,062 As of December 31, 2020 Category Commercial and Industrial Commercial Real Estate Commercial Construction Business Banking Total (In thousands) Unrated $ 655,346 $ 6,585 $ — $ 918,921 $ 1,580,852 Pass 1,199,522 3,256,697 280,792 336,657 5,073,668 Special mention 78,117 134,562 10,330 57,092 280,101 Substandard 47,525 173,308 14,586 24,788 260,207 Doubtful 14,506 2,478 — 1,706 18,690 Loss — — — — — Total $ 1,995,016 $ 3,573,630 $ 305,708 $ 1,339,164 $ 7,213,518 Paycheck Protection Program (“PPP”) loans are included within the unrated category of the commercial and industrial and business banking portfolios in the table above. Commercial and industrial PPP and business banking PPP loans amounted to $ 112.8 million and $ 218.6 million, respectively, at December 31, 2021 and $ 568.8 million and $ 457.4 million, respectively, at December 31, 2020. The Company does not have an allowance for loan losses for PPP loans as they are 100% guaranteed by the SBA. Residential and Consumer Lending Credit Quality For the Company’s residential and consumer portfolios, the quality of the loan is best indicated by the repayment performance of an individual borrower. Updated appraisals, broker opinions of value and other collateral valuation methods are employed in the residential and consumer portfolios, typically for credits that are deteriorating. Delinquency status is determined using payment performance, while accrual status may be determined using a combination of payment performance, expected borrower viability and collateral value. Delinquent consumer loans are handled by a team of seasoned collection specialists. Asset Quality 135 The Company manages its loan portfolio with careful monitoring. As a general rule, loans more than 90 days past due with respect to principal and interest are classified as non-accrual loans. Exceptions may be made if management believes that collateral held by the Company is clearly sufficient and in full satisfaction of both principal and interest, or the loan is accounted for as a PCI loan. In addition, as permitted by banking regulations, certain consumer loans past due 90 days or more may continue to accrue interest. The Company may also use discretion regarding other loans over 90 days delinquent if the loan is well secured and in the process of collection. Non-accrual loans and loans that are more than 90 days past due but still accruing interest are considered non-performing loans. Non-accrual loans may be returned to an accrual status when principal and interest payments are no longer delinquent, and the risk characteristics of the loan have improved to the extent that there no longer exists a concern as to the collectability of principal and interest. Loans are considered past due based upon the number of days delinquent according to their contractual terms. 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. The following is a summary pertaining to the breakdown of the Company’s non-accrual loans: As of December 31, 2021 2020 (In thousands) Commercial and industrial $ 12,400 $ 11,714 Commercial real estate — 915 Commercial construction — — Business banking 8,230 17,430 Residential real estate 6,681 6,815 Consumer home equity 4,732 3,602 Other consumer 950 529 Total non-accrual loans $ 32,993 $ 41,005 The following tables show the age analysis of past due loans as of the dates indicated: As of December 31, 2021 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans Recorded Investment > 90 Days and Accruing (In thousands) Commercial and industrial $ 45 $ 31 $ 1,672 $ 1,748 $ 2,958,779 $ 2,960,527 $ — Commercial real estate 25,931 — 1,196 27,127 4,495,386 4,522,513 1,196 Commercial construction — — — — 222,328 222,328 — Business banking 5,043 1,793 4,640 11,476 1,323,218 1,334,694 — Residential real estate 17,523 3,511 5,543 26,577 1,900,233 1,926,810 769 Consumer home equity 3,774 1,510 4,571 9,855 1,090,298 1,100,153 25 Other consumer 1,194 548 889 2,631 211,854 214,485 — Total $ 53,510 $ 7,393 $ 18,511 $ 79,414 $ 12,202,096 $ 12,281,510 $ 1,990 136 As of December 31, 2020 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans Recorded Investment >90 Days and Accruing (In thousands) Commercial and industrial $ 4 $ 268 $ 1,924 $ 2,196 $ 1,992,820 $ 1,995,016 $ 848 Commercial real estate — 556 1,545 2,101 3,571,529 3,573,630 1,111 Commercial construction — — — — 305,708 305,708 — Business banking 5,279 3,311 10,196 18,786 1,320,378 1,339,164 — Residential real estate 9,184 2,517 4,904 16,605 1,354,352 1,370,957 279 Consumer home equity 1,806 364 3,035 5,205 863,065 868,270 9 Other consumer 1,978 234 517 2,729 275,051 277,780 — Total $ 18,251 $ 7,250 $ 22,121 $ 47,622 $ 9,682,903 $ 9,730,525 $ 2,247 In the normal course of business, the Company may 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 non-performing loans (which consist of non-accrual loans and loans that are more than 90 days past due but still accruing interest). Based upon the Company’s past experiences, some of these loans with potential weaknesses will ultimately be restructured or placed in non-accrual status. As of both December 31, 2021 and December 31, 2020, we are unable to reasonably estimate the amount of these loans that will be restructured or placed on non-accrual status. Troubled Debt Restructurings (“TDR”) In cases where a borrower experiences financial difficulty and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan. The objective is to aid in the resolution of non-performing loans by modifying the contractual obligation to avoid the possibility of foreclosure. All TDR loans are considered impaired and therefore are subject to a specific review for impairment loss. The amount of impairment loss, if any, is recorded as a specific loss allocation to each individual loan in the allowance for loan losses. Commercial loans and residential loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent. In such an instance, any shortfall between the value of the collateral and the book value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less costs to sell. In response to the novel coronavirus (“COVID-19”) pandemic, the Company has granted loan modifications to allow deferral of payments for borrowers negatively impacted by the COVID-19 pandemic. Modifications granted to customers allowed for full payment deferrals (principal and interest) or deferral of only principal payments. The balance of loans which underwent a modification and had not yet resumed payment as of December 31, 2021 and December 31, 2020 was $ 106.7 million and $ 332.7 million, respectively. The Company defines 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. These modifications with active deferrals 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. Additionally, loans that are performing in accordance with the contractual terms of the modification are not reflected as being past due and therefore are not impacting non-accrual or delinquency totals as of December 31, 2021 and December 31, 2020. The Company continued to accrue interest on these COVID-19 modified loans and evaluated the deferred interest for collectability as of December 31, 2021 and December 31, 2020. The Consolidated Appropriations Act, which was enacted on December 27, 2020, extended certain provisions related to the COVID-19 pandemic in the United States (which were due to expire) and provided additional emergency relief to individuals and businesses. Included within the provisions of the Consolidated Appropriations Act is the extension to January 1, 2022 of Section 4013 of the CARES Act, which provides relief from a requirement to evaluate loans that had received a COVID-19 modification to determine if the loans required TDR treatment, provided certain criteria were met. As such, the Company applied the TDR relief granted pursuant to such section to any qualifying loan modifications executed during the allowable time period. The Company’s policy is to have any TDR loan which is on non-accrual status prior to being modified remain on non-accrual status for approximately six months subsequent to being modified before management considers its return to 137 accrual status. If the TDR loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status. The following table shows the TDR loans on accrual and non-accrual status as of the dates indicated: As of December 31, 2021 TDRs on Accrual Status TDRs on Non-accrual Status Total TDRs Number of Loans Balance of Loans Number of Loans Balance of Loans Number of Loans Balance of Loans (Dollars in thousands) Commercial and industrial 1 $ 3,745 6 $ 9,983 7 $ 13,728 Commercial real estate 1 3,520 — — 1 3,520 Business banking 5 3,830 3 383 8 4,213 Residential real estate 121 19,119 27 3,015 148 22,134 Consumer home equity 67 3,104 16 818 83 3,922 Other consumer 2 18 — — 2 18 Total 197 $ 33,336 52 $ 14,199 249 $ 47,535 As of December 31, 2020 TDRs on Accrual Status TDRs on Non-accrual Status Total TDRs Number of Loans Balance of Loans Number of Loans Balance of Loans Number of Loans Balance of Loans (Dollars in thousands) Commercial and industrial 1 $ 5,628 7 $ 6,819 8 $ 12,447 Commercial real estate 1 3,521 1 480 2 4,001 Business banking 6 4,471 6 722 12 5,193 Residential real estate 146 23,416 27 3,273 173 26,689 Consumer home equity 91 4,030 12 815 103 4,845 Other consumer 3 29 — — 3 29 Total 248 $ 41,095 53 $ 12,109 301 $ 53,204 The amount of specific reserve associated with the TDRs was $ 3.4 million and $ 3.5 million at December 31, 2021 and 2020, respectively. There were no additional commitments to lend to borrowers who have been party to a TDR as of December 31, 2021 and 2020. The following tables show the modifications which occurred during the periods and the change in the recorded investment subsequent to the modifications occurring: For the Year Ended December 31, 2021 2020 2019 Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment (1) Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment (1) Number of Contracts Pre- Modification Outstanding Recorded Investment Post- Modification Outstanding Recorded Investment (1) (Dollars in thousands) Commercial and industrial — $ — $ — 1 $ 140 $ 140 16 $ 18,912 $ 19,212 Commercial real estate — — — 1 506 506 2 3,277 3,277 Business banking — — — 6 1,642 1,642 2 3,184 3,184 Residential real estate 2 498 498 6 920 920 11 2,659 2,696 Consumer home equity 3 300 300 22 969 973 9 2,053 2,392 Other consumer — — — 4 58 58 — — — Total 5 $ 798 $ 798 40 $ 4,235 $ 4,239 40 $ 30,085 $ 30,761 138 (1) The post-modification balances represent the balance of the loan on the date of modification. These amounts may show an increase when modification includes capitalization of interest. At December 31, 2021 and 2020, the outstanding recorded investment of loans that were new TDR loans during the period was $ 0.8 million and $ 3.9 million, respectively. The following table shows the Company’s post-modification balance of TDRs listed by type of modification during the periods indicated: For the Year Ended December 31, 2021 2020 2019 (In thousands) Adjusted interest rate and extended maturity $ — $ — $ 1,513 Adjusted interest rate and principal deferred — — 39 Adjusted interest rate — — 3,352 Interest only/principal deferred — 1,305 2,769 Extended maturity 200 35 — Extended maturity and interest only/principal deferred — 427 47 Additional underwriting- increased exposure — — 10,822 Principal and interest deferred — 422 — Court-ordered concession 396 1,995 355 Subordination — — 11,032 Other 202 55 832 Total $ 798 $ 4,239 $ 30,761 The following table shows the number of loans and the recorded investment amount of those loans, as of the respective date, that have been modified during the prior 12 months which have subsequently defaulted during the periods indicated. There were no TDRs that were modified during the prior 12 months which had subsequently defaulted during the year ended December 31, 2021. The Company considers a loan to have defaulted when it reaches 90 days past due or is transferred to non-accrual: For the Year Ended December 31, 2020 2019 Number of Contracts Recorded Investment Number of Contracts Recorded Investment (Dollars in thousands) Troubled debt restructurings that subsequently defaulted (1): Commercial and industrial — $ — 10 $ 18,808 Commercial real estate — — 2 3,125 Residential real estate — — — — Consumer home equity 1 40 — — Total 1 $ 40 12 $ 21,933 (1) This table does not reflect any TDRs which were fully charged off, paid off, or otherwise settled during the period. During the years ended December 31, 2021 and 2019, no amounts were charged-off on TDRs modified in the prior 12 months. During the year ended December 31, 2020, there were $ 0.2 million in charge-offs on TDRs modified in the prior 12 months. Impaired Loans Impaired loans consist of all loans for which management has determined it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreements. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. The Company measures impairment of loans using a discounted cash flow method, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. The Company has defined the population of impaired 139 loans to include certain non-accrual loans, TDR loans and residential and home equity loans that have been partially charged off. The following table summarizes the Company’s impaired loans by loan portfolio as of the dates indicated: As of December 31, 2021 2020 Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance (In thousands) With no related allowance recorded: Commercial and industrial $ 12,309 $ 13,212 $ — $ 9,182 $ 11,212 $ — Commercial real estate 3,520 3,520 — 3,955 3,974 — Business banking 4,199 5,069 — 5,250 7,659 — Residential real estate 11,217 12,587 — 14,730 17,010 — Consumer home equity 1,924 1,924 — 2,571 2,571 — Other consumer 18 18 — 29 29 — Sub-total 33,187 36,330 — 35,717 42,455 — With an allowance recorded: Commercial and industrial 3,836 4,226 1,540 8,161 8,432 4,555 Commercial real estate — — — 480 497 210 Business banking 7,861 11,240 450 16,651 21,146 1,435 Residential real estate 11,161 11,161 1,549 12,326 12,326 1,565 Consumer home equity 1,998 1,998 270 2,274 2,274 289 Other consumer 161 161 161 — — — Sub-total 25,017 28,786 3,970 39,892 44,675 8,054 Total $ 58,204 $ 65,116 $ 3,970 $ 75,609 $ 87,130 $ 8,054 140 The following tables display information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated: For the Year Ended December 31, 2021 2020 2019 Average Recorded Investment Total Interest Recognized Average Recorded Investment Total Interest Recognized Average Recorded Investment Total Interest Recognized (In thousands) With no allowance recorded: Commercial and industrial $ 11,813 $ 161 $ 12,941 $ 206 $ 17,695 $ 615 Commercial real estate 3,916 178 5,124 179 9,987 179 Business banking 4,352 99 3,008 92 2,072 70 Residential real estate 12,506 456 14,654 589 15,501 671 Consumer home equity 2,027 62 3,299 87 2,869 124 Other consumer 23 — 36 1 — — Sub-total 34,637 956 39,062 1,154 48,124 1,659 With an allowance recorded: Commercial and industrial 7,229 — 7,947 — 6,141 — Commercial real estate 926 — 644 — 391 — Business banking 13,027 57 13,663 62 7,730 86 Residential real estate 12,322 474 12,194 521 12,215 528 Consumer home equity 2,106 65 2,334 77 2,261 99 Other consumer 63 — — — — — Sub-total 35,673 596 36,782 660 28,738 713 Total $ 70,310 $ 1,552 $ 75,844 $ 1,814 $ 76,862 $ 2,372 Purchased Credit Impaired Loans The following table displays the outstanding and carrying amounts of PCI loans as of the dates indicated: As of December 31, 2021 2020 (In thousands) Outstanding balance $ 78,074 $ 9,982 Carrying amount 69,639 9,297 The excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield,” is accreted into interest income over the life of the loans using the effective yield method. The following table summarizes activity in the accretable yield for the PCI loan portfolio: For the Year Ended December 31, 2021 2020 2019 (In thousands) Balance at beginning of period $ 2,495 $ 3,923 $ 6,161 Acquisition 8,896 — — Accretion ( 1,194 ) ( 1,374 ) ( 2,132 ) Other change in expected cash flows ( 1,475 ) ( 185 ) ( 898 ) Reclassification from non-accretable difference for loans with improved cash flows 1,649 131 792 Balance at end of period $ 10,371 $ 2,495 $ 3,923 The estimate of cash flows expected to be collected is regularly re-assessed subsequent to acquisition. A decrease in expected cash flows in subsequent periods may indicate that the loan is impaired which would require the establishment of an allowance for loan losses by a charge to the provision for loan losses. An increase in expected cash flows in subsequent periods 141 serves, first, to reduce any previously established allowance for loan losses by the increase in the present value of cash flows expected to be collected, and results in a recalculation of the amount of accretable yield for the loan. The adjustment of accretable yield due to an increase in expected cash flows is accounted for as a change in estimate. The additional cash flows expected to be collected are reclassified from the non-accretable difference to the accretable yield, and the amount of periodic accretion is adjusted accordingly over the remaining life of the loans. Loan Participations The Company occasionally purchases commercial loan participations, or participates in syndications through the SNC Program. These participations meet the same underwriting, credit and portfolio management standards as the Company’s other loans and are applied against the same criteria to determine the allowance for loan losses as other loans. The following table summarizes the Company’s loan participations: As of and for the Year Ended December 31, 2021 2020 Balance Non-performing Loan Rate (%) Impaired (%) Gross Charge-offs Balance Non-performing Loan Rate (%) Impaired (%) Gross Charge-offs (Dollars in thousands) Commercial and industrial $ 732,425 1.36 % 1.36 % $ — $ 598,873 1.11 % 1.11 % $ — Commercial real estate 362,898 0.00 % 0.00 % — 306,202 0.00 % 0.00 % — Commercial construction 37,081 0.00 % 0.00 % — 119,600 0.00 % 0.00 % — Business banking 98 0.00 % 0.00 % — 34 0.00 % 0.00 % 15 Total loan participations $ 1,132,502 0.88 % 0.88 % $ — $ 1,024,709 0.65 % 0.65 % 15 6. Premises and Equipment The following table summarizes the Company’s premises and equipment: As of December 31, Estimated 2021 2020 Useful Life (In thousands) (In years) Premises and equipment used in operations: Land $ 12,814 $ 7,410 N/A Buildings 71,415 58,112 5 - 30 Equipment 48,035 55,919 3 - 5 Leasehold improvements 42,156 34,561 5 - 25 Total cost 174,420 156,002 Accumulated depreciation ( 108,564 ) ( 107,334 ) Premises and equipment used in operations, net 65,856 48,668 Premises and equipment held for sale 15,128 730 Net premises and equipment (1) $ 80,984 $ 49,398 (1) In connection with the Company’s acquisition of Century, the Company acquired $ 64.5 million in premises and equipment. The Company recorded depreciation expense related to premises and equipment of $ 12.0 million, $ 13.0 million, and $ 15.9 million during the years ended December 31, 2021, 2020, and 2019, respectively. Properties transferred to held for sale during the year ended December 31, 2021 amounted to $ 37.6 million and included five branch locations, of which four were acquired from Century. The company recorded a $ 1.2 million loss, representing estimated costs to sell, on properties transferred to held for sale during the year ended December 31, 2021. In addition, proceeds from sales of premises and equipment were $ 22.0 million during the year ended December 31, 2021, which included the premises held for sale as of December 31, 2020. In connection with these sales, the Company recognized no significant gain or loss. No premises and equipment was transferred to held for sale or sold during the year ended December 31, 2020. 142 7. Leases The Company leases certain office space and equipment under various non-cancelable operating leases. These leases have original terms ranging from 1 year to 25 years. Operating lease liabilities and ROU assets are recognized at the lease commencement date based upon the present value of the future minimum lease payments over the lease term. Operating lease liabilities are recorded within other liabilities and ROU assets are recorded within other assets in the Company’s consolidated balance sheets. As of the dates indicated, the Company had the following related to operating leases: As of December 31, 2021 As of December 31, 2020 (In thousands) Right-of-use assets $ 83,821 $ 81,596 Lease liabilities 89,296 85,330 Finance leases are not material. Finance lease liabilities are recorded within other liabilities and finance ROU assets are recorded within other assets in the Company’s consolidated balance sheets. The following table is a summary of the Company’s components of net lease cost for the periods indicated: For the Year Ended December 31, 2021 For the Year Ended December 31, 2020 (In thousands) Operating lease cost $ 14,526 $ 14,402 Finance lease cost 191 71 Variable lease cost 1,832 1,982 Total lease cost $ 16,549 $ 16,455 During the years ended December 31, 2021 and 2020, the Company made $ 15.6 million and $ 14.2 million in cash payments for operating and finance leases, respectively. The rent expense for operating leases for the year ended December 31, 2019 amounted to $ 16.2 million. The rent expense for equipment operating leases amounted to $ 0.7 million for the year ended December 31, 2019. Supplemental balance sheet information related to operating leases as of the dates indicated is as follows: As of December 31, 2021 As of December 31, 2020 Weighted-average remaining lease term (in years) 7.83 8.50 Weighted-average discount rate 2.52 % 2.65 % The following table sets forth the undiscounted cash flows of base rent related to operating leases outstanding as of December 31, 2021 with payments scheduled over the next five years and thereafter, including a reconciliation to the operating lease liability recognized in other liabilities in the Company’s consolidated balance sheets: As of December 31, 2021 Year (In thousands) 2022 $ 15,378 2023 14,838 2024 13,608 2025 12,564 2026 10,890 Thereafter 31,444 Total minimum lease payments 98,722 Less: amount representing interest 9,426 Present value of future minimum lease payments $ 89,296 Lease Terminations: 143 As of December 31, 2021, management made the decision to terminate four leases, one of which was acquired from Century. These leases are expected to be terminated in the first quarter of 2022. Management is currently in the process of negotiating modifications to these leases to allow for a buyout of the leases. Accordingly, the Company remeasured the ROU asset and lease liability which resulted in acceleration of the right of use asset amortization. The additional amortization recorded as a result of the acceleration was $ 1.7 million during the year ended December 31, 2021. Lease Abandonments: As of December 31, 2021, management made the decision to close three lease locations. Management performed an analysis pursuant to ASC 360 and determined that such closures represent lease abandonments. As a result of that analysis, the Company recognized an impairment charge on these leases of $ 0.3 million. Sub-leases: As of December 31, 2021, management made the decision to and is pursuing the sublet of five leases, two of which were acquired from Century. In connection with this decision, management performed a recoverability analysis pursuant to ASC 360. As a result of that analysis, the Company recorded an impairment charge of $ 0.5 million. 8. Goodwill and Other Intangibles The following tables set forth the carrying amount of goodwill and other intangible assets, net of accumulated amortization by reporting unit at the dates indicated below: As of December 31, 2021 Banking Business Insurance Agency Business Net Carrying Amount (In thousands) Balances not subject to amortization Goodwill $ 557,635 $ 73,861 $ 631,496 Balances subject to amortization Insurance agency (1) — 6,635 6,635 Core deposits 11,572 — 11,572 Total other intangible assets 11,572 6,635 18,207 Total goodwill and other intangible assets $ 569,207 $ 80,496 $ 649,703 (1) Insurance agency intangible assets include customer list, non-compete agreement and supplier relationship intangible assets. As of December 31, 2020 Banking Business Insurance Agency Business Net Carrying Amount (In thousands) Balances not subject to amortization Goodwill $ 298,611 $ 70,866 $ 369,477 Balances subject to amortization Insurance agency (1) — 6,899 6,899 Core deposits 158 — 158 Total other intangible assets 158 6,899 7,057 Total goodwill and other intangible assets $ 298,769 $ 77,765 $ 376,534 (1) Insurance agency intangible assets include customer list, non-compete agreement and supplier relationship intangible assets. 144 The changes in the carrying value of goodwill for the periods indicated were as follows: For the Year Ended December 31, 2021 Banking Business Insurance Agency Business Net Carrying Amount (In thousands) Balance at beginning of year $ 298,611 $ 70,866 $ 369,477 Goodwill recorded during the year (1) 259,024 2,995 262,019 Goodwill disposed of during the year — — — Balance at end of year $ 557,635 $ 73,861 $ 631,496 (1) The goodwill recorded during the year relates to the acquisition of Century and two insurance agencies. For additional information refer to Note 3, Mergers and Acquisitions . For the Year Ended December 31, 2020 Banking Business Insurance Agency Business Net Carrying Amount (In thousands) Balance at beginning of year $ 298,611 $ 70,420 $ 369,031 Goodwill recorded during the year — 446 446 Goodwill disposed of during the year — — — Balance at end of year $ 298,611 $ 70,866 $ 369,477 As of December 31, 2021 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (In thousands) Insurance agency (1) $ 30,545 $ ( 23,910 ) $ 6,635 $ 28,515 $ ( 21,616 ) $ 6,899 Core deposits 18,212 ( 6,640 ) 11,572 6,579 ( 6,421 ) 158 Total $ 48,757 $ ( 30,550 ) $ 18,207 $ 35,094 $ ( 28,037 ) $ 7,057 (1) Insurance agency intangible assets include customer list, non-compete agreement and supplier relationship intangible assets. The Company quantitatively assesses goodwill for impairment at the reporting unit level on an annual basis or sooner if an event occurs or circumstances change which might indicate that the fair value of a reporting unit is below its carrying amount. The Company has identified and assigned goodwill to two reporting units - the banking business and insurance agency business. The quantitative assessments for both the banking business and insurance agency business were most recently performed as of September 30, 2021. The assessment for the banking business included a market capitalization analysis, as well as a comparison of the banking business’s book value to the implied fair value using a pricing multiple of the Company’s tangible book value. The assessment for the insurance agency business included a price-to-earnings analysis, as well as an earnings before interest, taxes, depreciation, and amortization (“EBITDA”) multiplier valuation based upon recent and observed agency mergers and acquisitions. The Company considered the economic conditions for the period including the potential impact of the COVID-19 pandemic as it pertains to the goodwill above and determined that there was no indication of impairment related to goodwill during the year ended December 31, 2021. Additionally, the Company did not record any impairment charges during the years ended December 31, 2020 and 2019. The amortization expense of the Company’s intangible assets were $ 2.5 million, $ 2.9 million, and $ 3.5 million during the years ended December 31, 2021, 2020, and 2019, respectively. The total weighted-average original amortization period for intangible assets is ten years . The Company has estimated the remaining useful life of its insurance agency intangible assets, comprised primarily of customer lists and non-compete agreements, and its core deposit intangible assets to have a weighted-average life of seven years and ten years , respectively. 145 The estimated amortization expense for each of the five succeeding years and thereafter is as follows: Year (In thousands) 2022 $ 3,131 2023 2,653 2024 2,313 2025 1,993 2026 1,712 Thereafter 6,405 Total amortization expense $ 18,207 Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company considered the impact of the COVID-19 pandemic as it pertains to these intangible assets and determined that there was no indication of impairment related to other intangible assets during the year ended December 31, 2021. Additionally, the Company did not record any impairment charges during the years ended December 31, 2020 and 2019. 9. Deposits The Company has established overnight programs which sweep certain demand and interest checking accounts into money market investment accounts. Reported deposit balances do not reflect the impact of the overnight sweep programs. At December 31, 2021 and 2020, the Company swept $ 10.5 billion, and $ 6.6 billion, respectively, from demand deposit and interest checking balances into money market investments. At December 31, 2021 and 2020, the Company had a balance of $ 1.6 million and $ 1.3 million, respectively, in overdrafts. Overdrafts are included in loans in the consolidated balance sheets. The following table summarizes certificate of deposits by maturity at December 31, 2021: Balance Percentage of Total Year (Dollars in thousands) 2022 $ 441,473 83.9 % 2023 53,806 10.2 % 2024 20,600 3.9 % 2025 6,225 1.2 % 2026 4,153 0.8 % Thereafter 124 — % Total certificates of deposit $ 526,381 100.0 % At December 31, 2021 and 2020, securities with a carrying value of $ 2.2 billion and $ 31.3 million, respectively, were pledged to secure public deposits and for other purposes required by law. At December 31, 2021 and 2020, securities pledged as collateral for deposits included Eastern Wealth Management cash accounts and municipal accounts which, at December 31, 2021, included approximately $ 2.1 billion in securities pledged as collateral for municipal accounts acquired from Century. The FDIC offers insurance coverage on deposits up to the federally insured limit of $250,000. The amount of time deposits equal to or greater than $250,000, as of December 31, 2021 and 2020, was $ 224.0 million and $ 59.1 million, respectively. 146 10. Borrowed Funds Borrowed funds were comprised of the following: As of December 31, 2021 2020 (In thousands) FHLB advances $ 14,020 $ 14,624 Escrow deposits of borrowers 20,258 13,425 Total borrowed funds $ 34,278 $ 28,049 At December 31, 2021 and 2020, the Company had available and unused borrowing capacity of approximately $ 455.3 million and $ 503.5 million, respectively, at the Federal Reserve Discount Window. At December 31, 2020, we also had the ability to borrow from the Federal Reserve Paycheck Protection Program Liquidity Facility (“PPPLF”). As of December 31, 2020, the Company had $ 1.0 billion in PPP loans that could have been pledged to the PPPLF. The Federal Reserve ended the PPPLF as of July 30, 2021. Accordingly, at December 31, 2021, the Company no longer had additional capacity under the PPPLF. Interest expense on borrowed funds was as follows: For the Year Ended December 31, 2021 2020 2019 (In thousands) Federal funds purchased $ — $ 570 $ 3,976 Federal Home Loan Bank advances 163 190 2,406 Escrow deposits of borrowers 2 2 4 Interest rate swap collateral funds — — 66 Total interest expense on borrowed funds $ 165 $ 762 $ 6,452 A summary of FHLBB advances, by maturities were as follows: As of December 31, 2021 2020 Amount Weighted Average Interest Rate Amount Weighted Average Interest Rate (Dollars in thousands) Within one year $ 17 0.14 % $ — — % Over one year to three years 1,488 0.32 % 1,412 0.22 % Over three years to five years 2,854 1.10 % 2,309 1.31 % Over five years 9,661 1.24 % 10,903 1.22 % Total Federal Home Loan Bank advances $ 14,020 1.11 % $ 14,624 1.14 % At December 31, 2021 and 2020, advances from the FHLBB were secured by stock in FHLBB, residential real estate loans and commercial real estate loans. The collateral value of residential real estate and commercial real estate loans securing these advances was $ 1.0 billion and $ 888.3 million, respectively, at December 31, 2021, and $ 913.7 million and $ 741.5 million, respectively, at December 31, 2020. At December 31, 2021 and 2020, the Bank had available and unused borrowing capacity of approximately $ 1.8 billion and $ 1.6 billion, respectively, with the FHLBB. As a member of the FHLBB, the Company is required to hold FHLBB stock. At December 31, 2021 and 2020, the Company had investments in the FHLBB of $ 10.9 million and $ 8.8 million, respectively. At its discretion, the FHLBB may declare dividends on the stock. Included in other noninterest income in the consolidated statements of income are dividends received of $ 0.2 million, $ 0.4 million, and $ 0.8 million during the years ended December 31, 2021, 2020, and 2019, respectively. 147 11. Earnings Per Share ( “ EPS ” ) Basic EPS represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares (such as stock options) were exercised or converted into additional common shares that would then share in the earnings of the Company. Diluted EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the year, plus the effect of potential dilutive common share equivalents computed using the treasury stock method. Shares held by the ESOP that have not been allocated to employees in accordance with the terms of the ESOP, referred to as “unallocated ESOP shares,” are not deemed outstanding for earnings per share calculations. Earnings per share data is not applicable for the year ended December 31, 2019 as the Company had no shares outstanding. For the Year Ended December 31, 2021 December 31, 2020 (Dollars in thousands, except per share data) Net income applicable to common shares $ 154,665 $ 22,738 Average number of common shares outstanding 186,713,020 186,663,593 Less: Average unallocated ESOP shares ( 14,520,684 ) ( 14,851,058 ) Average number of common shares outstanding used to calculate basic earnings per common share 172,192,336 171,812,535 Common stock equivalents - restricted stock awards 59,721 — Average number of common shares outstanding used to calculate diluted earnings per common share 172,252,057 171,812,535 Earnings per common share Basic $ 0.90 $ 0.13 Diluted $ 0.90 $ 0.13 All unallocated ESOP shares have been excluded from the calculation of basic and diluted EPS. 148 12. Income Taxes The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated: For the Year Ended December 31, 2021 2020 2019 (Dollars in thousands) Combined federal and state income tax provisions $ 34,047 $ 13,163 $ 39,481 Effective income tax rates 18.0 % 36.7 % 22.6 % The Company’s provision for income taxes was $ 34.0 million, $ 13.2 million and $ 39.5 million for the years ended December 31, 2021, 2020, and 2019, respectively. The Company’s effective tax rate was 18.0 % and is lower than the effective tax rate of 36.7 % for the prior year ending December 31, 2020. The increase in income tax expense and the decrease in the effective tax rate during the year ended December 31, 2021 compared to the year ended December 31, 2020, was primarily due to higher income before income tax expense, decreasing the impact on the effective rate related to favorable permanent differences, including investment tax credits and tax-exempt income. The reduction in the effective tax rate during the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to a $ 11.3 million release of a $ 12.0 million valuation allowance against the Company’s 2020 charitable contribution carryover deferred tax asset which was established as of December 31, 2020. The provision for income taxes is comprised of the following components: For the Year Ended December 31, 2021 2020 2019 (In thousands) Current tax expense: Federal $ 26,114 $ 23,002 $ 26,365 State 13,246 10,520 11,740 Total current tax expense 39,360 33,522 38,105 Deferred tax expense (benefit): Federal ( 7,747 ) ( 13,736 ) 782 State 2,434 ( 6,623 ) 594 Total deferred tax (benefit) expense ( 5,313 ) ( 20,359 ) 1,376 Total income tax expense $ 34,047 $ 13,163 $ 39,481 A reconciliation of the U.S. federal statutory rate to the Company’s effective income tax rate is detailed below: For the Year Ended December 31, 2021 2020 2019 (Dollars in thousands) Income tax expense at statutory rate $ 39,630 21.00 % $ 7,539 21.00 % $ 36,662 21.00 % Increase (decrease) resulting from: State income tax, net of federal tax benefit 12,387 6.56 % 43 0.12 % 9,744 5.58 % Valuation allowance ( 11,300 ) ( 5.99 ) % 12,000 33.43 % — — % Amortization of qualified low-income housing investments 5,753 3.05 % 4,977 13.86 % 4,782 2.74 % Tax credits ( 6,539 ) ( 3.46 ) % ( 7,085 ) ( 19.73 ) % ( 7,570 ) ( 4.34 ) % Tax-exempt income ( 5,665 ) ( 3.00 ) % ( 4,091 ) ( 11.40 ) % ( 3,923 ) ( 2.25 ) % Other, net ( 219 ) ( 0.12 ) % ( 220 ) ( 0.61 ) % ( 214 ) ( 0.12 ) % Actual income tax expense $ 34,047 18.04 % $ 13,163 36.67 % $ 39,481 22.61 % 149 Significant components of the Company’s deferred tax assets and deferred tax liabilities are presented below: As of December 31, 2021 2020 (In thousands) Deferred tax assets: Allowance for loan losses $ 30,335 $ 34,397 Leases 25,389 24,098 Charitable contribution limitation carryover 18,278 22,942 Employee benefits 13,996 — Unrealized loss on available for sale securities 17,370 — Investment losses 10,680 — Accrued expenses 6,888 5,047 Fixed assets 3,799 4,183 Loan basis difference fair value adjustments 3,949 461 PPP loans fee income 2,967 5,969 Other 1,783 967 Total deferred tax assets before valuation allowance 135,434 98,064 Valuation allowance ( 700 ) ( 12,000 ) Total deferred tax assets 134,734 86,064 Deferred tax liabilities: Amortization of intangibles 17,339 13,585 Unrealized gain on available for sale securities — 13,005 Partnerships 3,324 1,448 Cash flow hedges 2,878 11,658 Trading securities 6,482 5,110 Lease obligation 23,849 23,048 Employee benefits — 1,613 Other 4,327 3,368 Total deferred tax liabilities 58,199 72,835 Net deferred income tax assets $ 76,535 $ 13,229 The Company assesses the realizability of deferred tax assets and whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The Company considers projections of future taxable income during the periods in which deferred tax assets and liabilities are scheduled to reverse. Additionally, in determining the availability of operating loss carrybacks and other tax attributes, both projected future taxable income and tax planning strategies are considered in making this assessment. As of December 31, 2020, the Company established a valuation allowance of $ 12.0 million related to the $ 91.3 million stock donation and the $ 3.7 million cash contribution to the Foundation. Based upon the level of available historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are realizable, a release of $ 11.3 million was recorded as of December 31, 2021. Management believes it is more likely than not that the Company will realize the remainder of the net deferred tax asset of $ 76.5 million at December 31, 2021. Management has performed an evaluation of the Company’s uncertain tax positions and determined that a liability for unrecognized tax benefits at December 31, 2021 of $ 8.2 million, which includes accrued interest and penalties, was needed related to state tax positions taken. Management performed a similar evaluation as of December 31, 2020 and determined that no ne was needed. The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits: 150 As of December 31, 2021 (In thousands) Beginning $ — Additions based on tax positions related to the current year — Additions for tax positions of prior years 7,923 Reductions related to settlements with taxing authorities — Reductions as a result of a lapse of the applicable statute of limitations — Ending $ 7,923 The amount that would reduce the effective tax rate, if recognized, is $ 8.2 million. The reduction in the effective tax rate is inclusive of the federal benefit for unrecognized state tax benefits, and accrued interest and penalties. The entire balance of unrecognized tax benefits, if recognized, would favorably affect the Company’s effective income tax rate. The Company recognizes penalties and accrued interest related to unrecognized tax benefits in tax expense. Accrued penalties and interest amounted to $ 2.0 million at December 31, 2021. There were no tax reserves recorded as of December 31, 2020. The change in accrued penalties and interest for the current year impacted goodwill by $ 1.9 million and the consolidated statements of income as a component of the provision for income taxes by less than $ 0.1 million. Management anticipates that approximately $ 2.1 million in unrecognized state tax benefits and $ 0.6 million of interest and penalties will reverse in 2022 upon expiration of the statute of limitations for the tax year to which the reserve is related. The Company had no net operating loss carryforwards for federal or state income tax purposes at December 31, 2021 and 2020, respectively. At December 31, 2021, the Bank’s federal pre-1988 reserve, for which no federal income tax provision has been made, was approximately $ 20.8 million. Under current federal law, these reserves are subject to recapture into taxable income, should the Company make non-dividend distributions, make distributions in excess of earnings and profits retained, as defined, or cease to maintain a banking type charter. A deferred tax liability is not recognized for the base year amount unless it becomes apparent that those temporary differences will reverse into taxable income in the foreseeable future. No deferred tax liability has been established as these two events are not expected to occur in the foreseeable future. The Company’s primary banking activities are in the states of Massachusetts, New Hampshire and Rhode Island; however, the Company also files additional state corporate income and/or franchise tax returns in states in which the Company has a filing requirement. The methods of filing, and the methods for calculating taxable and apportionable income, vary depending upon the laws of the taxing jurisdiction. The Company is subject to routine audits of its tax returns by the Internal Revenue Service and various state taxing authorities. The Company is no longer subject to federal and state income tax examinations by tax authorities for years before 2018. The Company invests in low-income affordable housing and renewable energy projects which provide the Company with tax benefits, including tax credits, generally over a period of approximately 5-15 years. When permissible, the Company accounts for its investments in Low Income Housing Tax Credit (“LIHTC”) projects using the proportional amortization method, under which it amortizes the initial cost of the investment in proportion to the amount of the tax credits and other tax benefits received and recognizes that amortization as a component of income tax expense. The net investment performance in the housing projects is included in other assets. The Company will continue to use the proportional amortization method on any new qualifying LIHTC investments. During the years ended December 31, 2021 and 2020, the Company generated federal tax credits primarily from LIHTC investments of $ 6.5 million and $ 7.1 million, respectively. During the year ended December 31, 2021, the Company generated no state tax credits from LIHTC investments and generated $ 0.3 million of state tax credits from LIHTC investments during the year ended December 31, 2020. The Company treats the investment tax credits received as a reduction of federal income taxes for the year in which the credit arises using the flow-through method (i.e., the credit flows directly through the statement of income in the year of purchase). For additional information on these investments, refer to Note 13, “Low Income Housing Tax Credits and Other Tax Credit Investments. ” 13. Low Income Housing Tax Credits and Other Tax Credit Investments The Community Reinvestment Act (“CRA”) encourages banks to meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate income. The Company has primarily invested in separate LIHTC projects, also referred to as qualified affordable housing projects, which provide the Company with tax credits and operating loss tax benefits over a period of approximately 15 years. The return on these investments is generally generated through tax credits and tax losses. In addition to LIHTC projects, the Company invests in new market tax credit 151 projects that qualify for CRA credits and eligible projects that qualify for renewable energy and historic tax credits. As of December 31, 2021 and 2020, the Company had $ 83.8 million and $ 59.8 million, respectively, in tax credit investments that were included in other assets in the consolidated balance sheets. When permissible, the Company accounts for its investments in LIHTC projects using the proportional amortization method, under which it amortizes the initial cost of the investment in proportion to the amount of the tax credits and other tax benefits received and recognizes that amortization as a component of income tax expense. The net investment in the housing projects is included in other assets in the consolidated balance sheets. The Company will continue to use the proportional amortization method on any new qualifying LIHTC investments. The following table presents the Company’s investments in LIHTC projects using the proportional amortization method as of the dates indicated: As of December 31, 2021 2020 (In thousands) Current recorded investment included in other assets $ 81,035 $ 58,504 Commitments to fund qualified affordable housing projects included in recorded investment noted above 48,399 31,487 The following table presents additional information related to the Company’s investments in LIHTC projects for the periods indicated: For the Year Ended December 31, 2021 2020 2019 (In thousands) Tax credits and other tax benefits recognized $ 6,484 $ 5,033 $ 5,962 Amortization expense included in income tax expense 5,753 4,977 4,782 The Company accounts for certain other investments in renewable energy projects using the equity method of accounting. These investments in renewable energy projects are included in other assets on the consolidated balance sheet and totaled $ 2.8 million and $ 1.2 million at December 31, 2021 and 2020, respectively. There were no outstanding commitments related to these investments as of December 31, 2021. There were $ 1.7 million in outstanding commitments relating to these investments as of December 31, 2020. During the year ended December 31, 2020, in reviewing its tax credit equity investments for impairment, the Company identified an immaterial correction to the investment balances related to prior periods. During the year ended December 31, 2020, the Company wrote off $ 7.6 million of the tax credit equity investment balances as a component of noninterest expense and other assets to reflect the remaining benefits from these investments. Management evaluated the correction in relation to the year ended December 31, 2020, which is when the correction was recorded, as well as the preceding periods in which it originated. Management believes this correction is immaterial to both the previous consolidated quarterly and annual financial statements. During the year ended December 31, 2021, the Company performed a similar review and, accordingly, recorded a net recovery of an impairment of $ 0.2 million. Management evaluated the correction in relation to the year ended December 31, 2021, which is when the correction was recorded, as well as the preceding periods in which it originated. Management believes this correction is immaterial to the previous consolidated quarterly and annual financial statements. 14. Shareholders’ Equity Share Repurchases On November 12, 2021, the Company announced receipt of a notice of non-objection from the Board of Governors of the Federal Reserve System to its previously announced share repurchase program which was approved by the Company’s Board of Directors on October 1, 2021. The program authorizes the purchase of up to 9,337,900 shares, or 5 % of the Company’s then outstanding shares of common stock over a 12-month period. Repurchases are made at management’s discretion from time to time at prices management considers to be attractive and in the best interests of both the Company and its shareholders, subject to the availability of shares, general market conditions, the trading price of the shares, alternative uses for capital, and the Company’s financial performance. Repurchases may be suspended, terminated or modified by the Company at any time for any reason. The program is limited to $ 225.0 million through November 30, 2022. 152 Information regarding the shares repurchased under the plan is presented in the following table: Period Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Repurchased as Part of the Share Repurchase Program Maximum Number of Shares That May Yet Be Purchased Under the Share Repurchase Program December 1, 2021 –  December 31, 2021 1,135,878 $ 20.42 1,135,878 8,202,022 Dividends During the year ended December 31, 2021, the Company declared and paid aggregate dividends of $ 51.6 million at a weighted average dividend per share of $ 0.07 . 15. Minimum Regulatory Capital Requirements The Company is subject to various regulatory capital requirements administered by federal banking agencies, including U.S. Basel III. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors. Quantitative measures established by the regulators to ensure capital adequacy require the Company to maintain minimum capital amounts and ratios. All banking companies are required to have core capital (“Tier 1”) of at least 6% of risk-weighted assets, total capital of at least 8% of risk-weighted assets and a minimum of Tier 1 leverage ratio of 4% of adjusted average assets. As of December 31, 2021 and 2020, the Company was categorized as “well-capitalized” based on the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Company must maintain (1) a minimum of total risk-based capital ratio of 10%; (2) a minimum of Tier 1 risk-based capital ratio of 8%; (3) a minimum of common equity Tier 1 capital ratio of 6.5%; and (4) a minimum of Tier 1 leverage ratio of 5%. Management believes that the Company met all capital adequacy requirements to which it is subject to as of December 31, 2021 and 2020. There have been no conditions or events that management believes would cause a change in the Company’s categorization. The Company’s actual capital amounts and ratios are presented in the following table: Actual For Capital Adequacy To Be Well- Capitalized Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of December 31, 2021 Total regulatory capital (to risk-weighted assets) $ 2,939,016 19.77 % $ 1,189,466 ≥8 % $ 1,486,832 ≥10 % Common equity Tier 1 capital (to risk-weighted assets) 2,831,102 19.04 892,099 4.5 1,189,466 6.5 Tier 1 capital (to risk-weighted assets) 2,831,102 19.04 669,075 6 966,441 8 Tier I capital (to average assets) 2,831,102 13.96 811,000 4 1,013,750 5 As of December 31, 2020 Total regulatory capital (to risk-weighted assets) $ 3,135,445 29.61 % $ 847,069 ≥8 % 1,058,836 ≥10 % Common equity Tier 1 capital (to risk-weighted assets) 3,013,079 28.46 476,476 4.5 688,243 6.5 Tier 1 capital (to risk-weighted assets) 3,013,079 28.46 635,302 6 847,069 8 Tier 1 capital (to average assets) 3,013,079 19.53 617,049 4 771,312 5 The Company is subject to various capital requirements in connection with seller/servicer agreements that have been entered into with secondary market investors. Failure to maintain minimum capital requirements could result in an inability to originate and service loans for the respective investor and, therefore, could have a direct material effect on the Company’s financial statements. Management believes that the Company met all capital requirements in connection with seller/servicer agreements as of December 31, 2021 and 2020. 153 16. Employee Benefits Conversion of Defined Benefit Pension Plan and Benefit Equalization Plan to Cash Balance Plan Design Effective November 1, 2020, each of the Qualified Defined Benefit Pension Plan (“Defined Benefit Plan”) and the Non-Qualified Benefit Equalization Plan, referred to as the BEP, sponsored by the Company were amended to convert the plans from a traditional final average earnings plan design to a cash balance plan design. Benefits earned under the final average earnings plan design were frozen at October 31, 2020. Starting November 1, 2020, future benefits are earned under the cash balance plan design. Under the cash balance plan design, hypothetical account balances are established for each participant and pension benefits are generally stated as the lump sum amount in that hypothetical account. Contribution credits equal to a percentage of a participant’s annual compensation (if the participant works at least 1,000 hours during the year) and interest credits equal to the greater of the 30 -Year Treasury rate for September preceding the current plan year or 3.5 % are added to a participant’s account each year. For employees hired prior to November 1, 2020, annual contribution credits generally increase as the participant remains employed with the Company. Employees hired on and after November 1, 2020 receive annual contribution credits equal 5 % of annual compensation, with no future increases. Notwithstanding the preceding sentence, since a cash balance plan is a defined benefit plan, the annual retirement benefit payable at normal retirement (age 65 ) is an annuity, which is the actuarial equivalent of the participant’s account balance under the cash balance plan design, plus their frozen benefit under the final average earnings plan design. However, under the Defined Benefit Plan, participants may elect, with the consent of their spouses if they are married, to have the benefits distributed as a lump sum rather than an annuity. The lump sum is equal to the sum of the actuarial equivalent of their frozen benefit under the final average earnings plan design, plus their cash balance account. Under the BEP, benefits are generally only payable as a lump sum, which is equal to the sum of the actuarial equivalent of their frozen benefit under the final average earnings plan design, plus their cash balance account. Pension Plans The Company provides pension benefits for its employees using a noncontributory, qualified defined benefit plan, through membership in the Savings Banks Employees Retirement Association (“SBERA”). The Company’s employees become eligible after attaining age 21 and completing one year of service. Under the final average earnings plan design, benefits became fully vested after three years of eligible service for individuals employed on or before October 31, 1989. For individuals employed subsequent to October 31, 1989 and who were already in the Defined Benefit Plan as of November 1, 2020, benefits became fully vested after five years of eligible service. Under the new cash balance plan design and for employees who were not already in the Defined Benefit Plan as of November 1, 2020, benefits become fully vested after three years of eligible service. The Company’s annual contribution to the plan is based upon standards established by the Pension Protection Act. The contribution is based on an actuarial method intended to provide not only for benefits attributable to service to date, but also for those expected to be earned in the future. SBERA offers a common and collective trust as the underlying investment structure for pension plans participating in the association. The target allocation mix for the common and collective trust portfolio calls for an equity-based investment deployment range of 47 % to 61 % of total common and collective trust portfolio assets. The remainder of the common and collective trust’s portfolio is allocated to fixed income securities with a target range of 24 % to 38 % and other investments, including global asset allocation and hedge funds, from 9 % to 21 %. The Trustees of SBERA, through the Association’s Investment Committee, select investment managers for the common and collective trust portfolio. A professional investment advisory firm is retained by the Investment Committee to provide allocation analysis, performance measurement and to assist with manager searches. The overall investment objective is to diversify investments across a spectrum of investment types to limit risks from large market swings. The Defined Benefit Plan has a plan year end of October 31. In connection with the Company’s acquisition of Century, the Company acquired Century’s Qualified Defined Benefit Pension Plan. At the time of the acquisition, the plan was frozen to new participants, which had occurred in 2006, and all participants in the plan were fully vested. Additionally, all Century employees retained following the acquisition were eligible to join the Company’s Defined Benefit Plan to the extent that eligibility requirements were satisfied based upon such employees’ prior service with Century. The Company has an unfunded Defined Benefit Supplemental Executive Retirement Plan (“DB SERP”) that provides certain retired and currently employed officers with defined pension benefits in excess of qualified plan limits imposed by U.S. federal tax law. The DB SERP has a plan year end of December 31. In connection with the Company’s acquisition of Century, the Company acquired Century’s Supplemental Executive Insurance/Retirement Plan (the “Supplemental Plan”). Upon completion of the acquisition, the Supplemental Plan was merged for accounting purposes only into the Company’s DB SERP, but it will continue to be administered according to its terms. Further, the plan document of the Century Supplemental Plan contained change in control provisions which became effective upon the Company’s acquisition of Century. Accordingly, all participants of the Century Supplemental Plan were deemed to be fully vested upon the closing of the acquisition. 154 The Company has an unfunded Benefit Equalization Plan (“BEP”) to provide retirement benefits to certain employees whose retirement benefits under the Defined Benefit Plan are limited per the Internal Revenue Code. The BEP has a plan year end of October 31. In connection with the Company’s acquisition of Century, any Century employee retained following the acquisition and whose retirement benefits under the Defined Benefit Plan are limited per the Internal Revenue Code were added to the BEP. Additionally, such Century employees were credited for prior service with Century for purposes of determining vesting and eligibility pursuant to the BEP. The Company also has an unfunded Outside Directors’ Retainer Continuance Plan (“ODRCP”) that provides pension benefits to outside directors who retire from service. The ODRCP has a plan year end of December 31. Effective December 31, 2020, the Company closed the ODRCP to new participants and froze benefit accruals for active participants. Obligations and Funded Status The funded status and amounts recognized in the Company’s Consolidated Financial Statements for the Defined Benefit Plan, the DB SERP, the BEP and the ODRCP are set forth in the following table: As of and for the Year Ended December 31, 2021 2020 2019 (In thousands) Change in benefit obligation: Benefit obligation at beginning of the year $ 361,147 $ 396,769 $ 302,317 Service cost 31,660 25,970 18,926 Interest cost 5,694 9,657 10,996 Amendments ( 1,106 ) ( 133,439 ) — Actuarial (gain) loss ( 1,697 ) 78,095 74,828 Acquisitions 125,854 — — Benefits paid ( 20,045 ) ( 15,905 ) ( 10,298 ) Benefit obligation at end of the year $ 501,507 $ 361,147 $ 396,769 Change in plan assets: Fair value of plan assets at beginning of year $ 449,643 $ 378,879 $ 305,154 Actual return on plan assets 50,879 48,895 60,723 Acquisitions 63,468 — — Employer contribution 2,111 37,773 23,300 Benefits paid ( 20,045 ) ( 15,904 ) ( 10,298 ) Fair value of plan assets at end of year 546,056 449,643 378,879 Overfunded (underfunded) status $ 44,549 $ 88,496 $ ( 17,890 ) Reconciliation of funding status: Past service credit (cost) $ 120,792 $ 131,482 $ ( 25 ) Unrecognized net loss ( 128,402 ) ( 161,045 ) ( 113,022 ) Prepaid benefit cost 52,159 118,059 95,157 Overfunded (underfunded) status $ 44,549 $ 88,496 $ ( 17,890 ) Accumulated benefit obligation $ 501,507 $ 361,147 $ 290,429 Amounts recognized in accumulated other comprehensive income (“AOCI”), net of tax: Unrecognized past service credit (cost) $ 86,837 $ 94,522 $ ( 18 ) Unrecognized net loss ( 92,308 ) ( 115,775 ) ( 81,251 ) Net amount $ ( 5,471 ) $ ( 21,253 ) $ ( 81,269 ) In accordance with the Pension Protection Act, the Company was not required to make any contributions to the Defined Benefit Plan for the plan year beginning November 1, 2021; however, the Company expects to make a contribution of 155 $ 7.2 million during such plan year. During the year ended December 31, 2020, the Company made contributions to the Defined Benefit Plan of $ 32.5 million. The net actuarial gain of $ 1.7 million during the year ended December 31, 2021 was primarily attributable to higher returns on plan assets than initially assumed and an increase in the discount rate assumption which was partially offset by changes in demographic assumptions and in the participant mortality rate assumption, which were revised to reflect management’s best estimate as of December 31, 2021, used for determining the benefit obligation. The net actuarial loss of $ 78.1 million and $ 74.8 million during the years ended December 31, 2020 and 2019, was primarily attributable to a decrease in the discount rate assumption used for determining the benefit obligation in both years from the corresponding prior year. Actuarial Assumptions The assumptions used in determining the benefit obligations at December 31, 2021 and 2020 were as follows: DB Plan BEP DB SERP ODRCP As of December 31, As of December 31, As of December 31, As of December 31, 2021 2020 2021 2020 2021 2020 2021 2020 Discount rate 2.65 % 2.26 % 2.32 % 1.77 % 2.68 % 1.63 % 2.32 % 1.81 % Rate of increase in compensation levels 4.50 % 5.25 % 4.50 % 5.25 % — % — % — % — % Interest rate credit for determining projected cash balance 3.50 % 3.50 % 3.50 % 3.50 % N/A N/A N/A N/A The assumptions used in determining the net periodic benefit cost for the years ended December 31, 2021, 2020, and 2019 were as follows: DB Plan For the Year Ended December 31, 2021 2020 2019 Discount rate - benefit cost 2.26 % 3.16 % 4.25 % Rate of compensation increase 5.25 % 5.25 % 5.25 % Expected rate of return on plan assets 7.50 % 7.50 % 7.50 % BEP For the Year Ended December 31, 2021 2020 2019 Discount rate - benefit cost 1.77 % 3.15 % 4.25 % Rate of compensation increase 5.25 % 5.25 % 5.25 % Expected rate of return on plan assets — % — % — % DB SERP For the Year Ended December 31, 2021 2020 2019 Discount rate - benefit cost 1.63 % 2.72 % 4.25 % Rate of compensation increase — % — % — % Expected rate of return on plan assets — % — % — % ODRCP For the Year Ended December 31, 2021 2020 2019 Discount rate - benefit cost 1.81 % 2.86 % 4.25 % Rate of compensation increase — % 3.00 % 3.00 % Expected rate of return on plan assets — % — % — % In general, the Company has selected its assumptions with respect to the expected long-term rate of return based on prevailing yields on high quality fixed income investments increased by a premium for equity return expectations. 156 To determine the discount rate used in calculating the benefit obligation and the benefit cost for all of its defined benefit plans, the Company uses the spot rate approach whereby the individual spot rates on the FTSE above-median yield curve are applied to each corresponding year’s projected cash flow used to measure the respective plan’s service cost and interest cost. The Company owns a percentage of the SBERA defined benefit common collective trust. Based upon this ownership percentage, plan assets managed by SBERA on behalf of the Company amounted to $ 546.1 million and $ 449.6 million at December 31, 2021 and 2020, respectively. Investments held by the common collective trust include Level 1, 2 and 3 assets such as: collective funds, equity securities, mutual funds, hedge funds and short-term investments. The Fair Value Measurements and Disclosures Topic of the FASB ASC stipulates that an asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. As such, the Company classifies its interest in the common collective trust as a Level 3 asset. The table below presents a reconciliation of the Company’s interest in the SBERA common collective trust during the years indicated: For the Year Ended December 31, 2021 2020 (In thousands) Balance at beginning of year $ 449,643 $ 378,879 Net realized and unrealized gains and (losses) 50,878 48,895 Contributions — 32,515 Benefits paid ( 17,934 ) ( 10,646 ) Acquisition 63,469 — Balance at end of year $ 546,056 $ 449,643 Components of Net Periodic Benefit Cost The components of net pension expense for the plans for the periods indicated are as follows: For the Year Ended December 31, 2021 2020 2019 (In thousands) Components of net periodic benefit cost: Service cost $ 31,660 $ 25,970 $ 18,926 Interest cost 5,694 9,657 10,996 Expected return on plan assets ( 33,333 ) ( 29,610 ) ( 23,617 ) Past service (credit) cost ( 11,796 ) ( 1,931 ) 44 Recognized net actuarial loss 13,400 10,787 7,242 Net periodic benefit cost $ 5,625 $ 14,873 $ 13,591 Service costs for the Defined Benefit Plan, the BEP, and the DB SERP are recognized within salaries and employee benefits in the statement of income. Service costs for the ODRCP are recognized within professional services in the statement of income. The remaining components of net periodic benefit cost are recognized in other noninterest expense in the statement of income. 157 Benefits expected to be paid The following table summarizes estimated benefits to be paid from the Defined Benefit Plan and BEP for the plan years beginning on November 1, and the DB SERP and ODRCP for the plan years beginning January 1: Year (In thousands) 2022 $ 54,475 2023 42,176 2024 40,411 2025 43,103 2026 43,438 In aggregate for 2027-2030 216,891 Employee Tax Deferred Incentive Plan The Company has an employee tax deferred incentive plan, otherwise known as a 401(k) plan, under which the Company makes voluntary contributions within certain limitations. All employees who meet specified age and length of service requirements are eligible to participate in the 401(k) plan. The amount contributed by the Company is included in salaries and employee benefits expense. The amounts contributed to the plan for the years ended December 31, 2021, 2020, and 2019, were $ 4.6 million, $ 4.4 million and $ 4.2 million, respectively. Employee Stock Ownership Plan As part of the IPO completed on October 14, 2020, the Company established a tax-qualified Employee Stock Ownership Plan to provide eligible employees the opportunity to own Company shares. The ESOP borrowed $ 149.4 million from the Company to purchase 14,940,652 common shares during the IPO and in the open market. The loan is payable in annual installments over 30 years at an interest rate equal to the Prime rate as published in the The Wall Street Journal . As the loan is repaid to the Company, shares are released and allocated proportionally to eligible participants on the basis of each participant’s proportional share of compensation relative to the compensation of all participants. The unallocated ESOP shares are pledged as collateral on the loan. The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation . Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares in the accompanying consolidated balance sheets. The Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference will be credited or debited to equity. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s consolidated balance sheets. Dividends on unallocated shares are used to pay the ESOP debt. Total compensation expense recognized in connection with the ESOP was $ 9.4 million for the year ended December 31, 2021, compared with a $ 2.4 million expense recognized during the year ended December 31, 2020. The ESOP made an upfront principal payment of $ 1.0 million on the loan during year ended December 31, 2020 which resulted in the release and allocation of 63,690 shares and compensation expense of $ 0.9 million. The Company recorded additional compensation expense of $ 1.5 million related to the accrual of the loan payment during year ended December 31, 2020. The ESOP made a loan payment during the year ended December 31, 2021 of $ 7.9 million, of which $ 3.0 million was allocated to the principal portion of the payment, while $ 4.9 million was allocated to the interest portion of the payment. During the year ended December 31, 2021, the Company committed 501,444 shares to be allocated. The number of shares committed to be released per year is 501,426 through 2049 and 231,124 in the year 2050. The following table presents share information held by the ESOP: As of December 31, 2021 2020 (Dollars in thousands) Allocated shares 63,690 63,690 Shares committed to be allocated 605,908 104,464 Unallocated shares 14,271,054 14,772,498 Total shares 14,940,652 14,940,652 Fair value of unallocated shares (in thousands) $ 287,847 $ 240,939 158 Defined Contribution Supplemental Executive Retirement Plan The Company’s DC SERP, a defined contribution supplemental executive retirement plan, allows certain senior officers to earn benefits calculated as a percentage of their compensation. The participant benefits are adjusted based upon a deemed investment performance of measurement funds selected by the participant. These measurement funds are for tracking purposes and are used only to track the performance of a mutual fund, market index, savings instrument, or other designated investment or portfolio of investments. The Company recorded expense related to the DC SERP of $ 0.9 million, $ 0.9 million and $ 1.3 million in the years ended December 31, 2021, 2020, and 2019, respectively. The total amount due to participants under this plan was included in other liabilities on the Company’s balance sheets and amounted to $ 33.4 million and $ 27.6 million at December 31, 2021 and 2020, respectively. Effective December 31, 2021, the Company closed the DC SERP to new participants and froze benefit accruals for active participants. Deferred Compensation Plans The Company sponsors three plans which allow for elective compensation deferrals by directors, former trustees, and certain senior-level employees. Each plan allows its participants to designate deemed investments for deferred amounts from certain options which include diversified choices, such as exchange traded funds and mutual funds. Portfolios with various risk profiles are available to participants with the approval of the Compensation Committee of the Board of Directors. The Company purchases and sells investments which track the deemed investment choices, so that it has available funds to meet its payment liabilities. Deferred amounts, adjusted for deemed investment performance, are paid at the time of a participant designated date or event, such as separation from service, death, or disability. The total amounts due to participants under the three plans were included in other liabilities on the Company’s balance sheets and amounted to $ 31.5 million and $ 28.9 million at December 31, 2021 and 2020, respectively. Rabbi Trust Variable Interest Entity The Company established a rabbi trust to meet its obligations under certain executive non-qualified retirement benefits and deferred compensation plans and to mitigate the expense volatility of the aforementioned retirement plans. The rabbi trust is considered a VIE as the equity investment at risk is insufficient to permit the trust to finance its activities without additional subordinated financial support from the Company. The Company is considered the primary beneficiary of the rabbi trust as it has the power to direct the activities of the rabbi trust that significantly affect the rabbi trust’s economic performance and it has the obligation to absorb losses of the rabbi trust that could potentially be significant to the rabbi trust by virtue of its contingent call options on the rabbi trust’s assets in the event of the Company’s bankruptcy. As the primary beneficiary of this VIE, the Company consolidates the rabbi trust investments. In general, the rabbi trust investments and any earnings received thereon are accumulated, reinvested and used exclusively for trust purposes. These rabbi trust investments consist primarily of cash and cash equivalents, U.S. government agency obligations, equity securities, mutual funds and other exchange-traded funds, and are recorded at fair value in other assets in the Company's consolidated balance sheets. Changes in fair value are recorded in noninterest income. Assets held in rabbi trust accounts by plan type, at fair value, were as follows: As of December 31, 2021 2020 (In thousands) DB SERP $ 20,810 $ 22,616 BEP 13,202 7,198 ODRCP 4,316 4,251 DC SERP 32,041 28,134 Deferred compensation plans 34,002 29,484 Total rabbi trust assets $ 104,371 $ 91,683 159 Investments in rabbi trust accounts are recorded at fair value within the Company’s consolidated balance sheets with changes in fair value recorded through noninterest income. The following tables present the book value, net unrealized gain or loss, and market value of assets held in rabbi trust accounts by asset type for each of the plans included in the rabbi trust: DB SERP As of December 31, 2021 As of December 31, 2020 Book Value Unrealized Gain/(Loss) Fair Value Book Value Unrealized Gain/(Loss) Fair Value Asset Type (In thousands) Cash and cash equivalents $ 831 $ — $ 831 $ 1,208 $ — $ 1,208 Equities (1) 9,993 5,788 15,781 10,822 5,508 16,330 Fixed income 4,174 24 4,198 4,854 224 5,078 Total assets $ 14,998 $ 5,812 $ 20,810 $ 16,884 $ 5,732 $ 22,616 (1) Equities include mutual funds and other exchange-traded funds. BEP As of December 31, 2021 As of December 31, 2020 Book Value Unrealized Gain/(Loss) Fair Value Book Value Unrealized Gain/(Loss) Fair Value Asset Type (In thousands) Cash and cash equivalents $ 567 $ — $ 567 $ 320 $ — $ 320 Equities (1) 6,207 3,412 9,619 3,504 1,730 5,234 Fixed income 2,993 23 3,016 1,565 79 1,644 Total assets $ 9,767 $ 3,435 $ 13,202 $ 5,389 $ 1,809 $ 7,198 (1) Equities include mutual funds and other exchange-traded funds. ODRCP As of December 31, 2021 As of December 31, 2020 Book Value Unrealized Gain/(Loss) Fair Value Book Value Unrealized Gain/(Loss) Fair Value Asset Type (In thousands) Cash and cash equivalents $ 123 $ — $ 123 $ 230 $ — $ 230 Equities (1) 2,093 1,132 3,225 1,985 959 2,944 Fixed income 959 9 968 1,022 55 1,077 Total assets $ 3,175 $ 1,141 $ 4,316 $ 3,237 $ 1,014 $ 4,251 (1) Equities include mutual funds and other exchange-traded funds. DC SERP As of December 31, 2021 As of December 31, 2020 Book Value Unrealized Gain/(Loss) Fair Value Book Value Unrealized Gain/(Loss) Fair Value Asset Type (In thousands) Cash and cash equivalents $ 229 $ — $ 229 $ 240 $ — $ 240 Equities (1) 24,837 8,936 33,773 20,966 6,928 27,894 Fixed income — — — — — — Total assets $ 25,066 $ 8,936 $ 34,002 $ 21,206 $ 6,928 $ 28,134 (1) Equities include mutual funds and other exchange-traded funds. 160 Deferred Compensation Plans As of December 31, 2021 As of December 31, 2020 Book Value Unrealized Gain/(Loss) Fair Value Book Value Unrealized Gain/(Loss) Fair Value Asset Type (In thousands) Cash and cash equivalents $ 2,744 $ — $ 2,744 $ 3,159 $ — $ 3,159 Equities (1) 24,271 5,027 29,298 21,958 4,367 26,325 Fixed income — — — — — — Total assets $ 27,015 $ 5,027 $ 32,042 $ 25,117 $ 4,367 $ 29,484 (1) Equities include mutual funds and other exchange-traded funds. The Company had equity securities held in rabbi trust accounts of $ 91.7 million and $ 78.7 million as of December 31, 2021 and 2020, respectively. Included in the equity securities presented in the tables above are exchange-traded mutual funds which had a net asset value of $ 58.1 million and $ 53.9 million as of December 31, 2021 and 2020, respectively. Share-Based Compensation Plan On November 29, 2021, the shareholders of the Company approved the Eastern Bankshares, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the issuance of up to 26,146,141 shares of common stock pursuant to grants of restricted stock, restricted stock units (“RSUs”), non-qualified stock options and incentive stock options, any or all of which can be granted with performance-based vesting conditions. Under the 2021 Plan, 7,470,326 shares may be issued as restricted stock or RSUs and 18,675,815 shares may be issued upon the exercise of stock options. These shares may be awarded from the Company’s authorized but unissued shares. However, the 2021 Plan permits the grant of additional awards of restricted stock or RSUs above the aforementioned limit, provided that, for each additional share of restricted stock or RSU awarded in excess of such limit, the pool of shares available to be issued upon the exercise of stock options will be reduced by three shares. Pursuant to the terms of the 2021 Plan, each of the Company’s non-employee directors were automatically granted awards of restricted stock on November 30, 2021. Such restricted stock awards vest pro-rata on an annual basis over a five-year period. The maximum term for stock options is ten years . As of December 31, 2021, there were 6,787,270 shares available for issuance as restricted stock awards and 18,675,815 shares that remain available for issuance upon the exercise of stock options. As of December 31, 2021, no stock options had been awarded under to the 2021 Plan. The following table summarizes the Company’s restricted stock activity for the year ended December 31, 2021: Number of Shares Weighted-Average Grant Price Per Share Non-vested restricted stock at beginning of year — $ — Granted 683,056 20.13 Non-vested restricted stock at end of year 683,056 20.13 As of December 31, 2021, no restricted stock associated with the non-employee director stock awards was vested. For the year ended December 31, 2021, share-based compensation expense under the 2021 Plan and the related tax benefit totaled $ 0.2 million and less than $ 0.1 million, respectively. As of December 31, 2021, there was $ 13.5 million of total unrecognized compensation expense related to non-vested restricted stock granted and issued under the 2021 Plan. This cost is expected to be recognized over a weighted average remaining period of approximately 4.9 years. 161 17. Commitments and Contingencies Financial Instruments with Off-Balance Sheet Risk In order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates, the Company is party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments include commitments to extend credit, standby letters of credit, and forward commitments to sell loans, all of which involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in each particular class of financial instruments. Substantially all of the Company’s commitments to extend credit, which normally have fixed expiration dates or termination clauses, are contingent upon customers maintaining specific credit standards at the time of loan funding. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event the customer does not perform in accordance with terms of agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. For forward loan sale commitments, the contract or notional amount does not represent exposure to credit loss. The Company does not sell loans with recourse. The following table summarizes the above financial instruments as of the dates indicated: As of December 31, 2021 2020 (In Thousands) Commitments to extend credit $ 5,175,521 $ 3,818,952 Standby letters of credit 65,602 60,221 Forward commitments to sell loans 24,440 41,160 Other Contingencies The Company has been named a defendant in various legal proceedings arising in the normal course of business. Set out below are descriptions of significant legal matters involving the Company and its subsidiaries. In the opinion of management, and taking into account the advice of legal counsel, the ultimate resolution of these proceedings will not have a material effect on the Company’s consolidated financial statements. In the second quarter of 2021, the Company entered into a preliminary settlement of two purported class action matters concerning overdraft and nonsufficient funds fees. The matters were filed in the Massachusetts Superior Court in November 2019 and April 2021, respectively, and are expected to be consolidated into one matter for final settlement purposes. As of December 31, 2021, the Company estimated the settlement expense, including related costs, to be $ 3.3 million. In addition, the Company’s regulators have been conducting inquiries and reviewing data related to one of these class action matters. In February 2022, the Company's regulators made an additional request for data and notified management that they may require additional restitution for certain matters associated with the nonsufficient funds fees matter. Based on this discussion, management believes a loss contingency for this restitution is probable but is not currently able to determine a reasonable estimate for the loss. As a member of the Federal Reserve System, the Bank is required to maintain certain reserves of vault cash and/or deposits with the Federal Reserve Bank of Boston. However, in response to the COVID-19 pandemic, the Federal Reserve temporarily eliminated reserve requirements and therefore there was no minimum reserve requirement as of December 31, 2021 and 2020. 18. Derivative Financial Instruments The Company uses derivative financial instruments to manage its interest rate risk resulting from the differences in the amount, timing, and duration of known or expected cash receipts and known or expected cash payments. Additionally, the Company enters into interest rate derivatives and foreign exchange contracts to accommodate the business requirements of its customers (“customer-related positions”) and risk participation agreements entered into as financial guarantees of performance on customer-related interest rate swap derivatives. Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not the instrument qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship. 162 By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty plus any initial margin collateral posted. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote. Interest Rate Positions An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. The Company may enter into interest rate swaps in which they pay floating and receive fixed interest in order to manage its interest rate risk exposure to the variability in interest cash flows on certain floating-rate commercial loans. For interest rate swaps that are accounted for as cash flow hedges, changes in fair value are included in other comprehensive income and reclassified into net income in the same period or periods during which the hedged forecasted transaction affects net income. As of December 31, 2021 and 2020, the Company does not have any active interest rate swaps which qualify as cash flow hedges for accounting purposes. Due to the phase-out, and eventual discontinuation, of the LIBOR, central clearinghouses have begun to transition to alternative rates for valuation purposes. As of October 16, 2020, the Company changed its valuation methodology to reflect changes made by the Chicago Mercantile Exchange (“CME”), through which the Company clears derivative financial instruments that are eligible for clearing. The changes from the CME changed the discounting methodology and interest calculation of cash margin from Overnight Index Swap to SOFR for U.S. dollar cleared interest rate swaps. The Company believes that it’s improvements to its valuation methodology will result in valuations for cleared interest rate swaps that better reflect prices obtainable in the markets in which the Company transacts. The changes in valuation methodology are applied prospectively as a change in accounting estimate and are immaterial to the Company’s financial statements. The following table presents the pre-tax impact of terminated cash flow hedges on AOCI for the years ended December 31, 2021 and 2020. Year Ended December 31, 2021 2020 (In thousands) Unrealized gains on terminated hedges included in AOCI — January 1 $ 41,473 $ — Unrealized gains on terminated hedges arising during the period — 57,362 Reclassification adjustments for amortization of unrealized (gains) into net interest income ( 31,234 ) ( 15,889 ) Unrealized gains on terminated hedges included in AOCI — December 31 $ 10,239 $ 41,473 The balance of terminated cash flow hedges in AOCI will be amortized into earnings through January 2023. The Company expects approximately $ 10.2 million to be reclassified into interest income from other comprehensive income related to the Company’s terminated cash flow hedges in the next 12 months as of December 31, 2021. Customer-Related Positions Interest rate swaps offered to commercial customers do not qualify as hedges for accounting purposes. These swaps allow the Company to retain variable rate commercial loans while allowing the commercial customer to synthetically fix the loan rate by entering into a variable-to-fixed rate interest rate swap. The Company believes that its exposure to commercial customer derivatives is limited to non-performance by either the customer or the dealer because these contracts are simultaneously matched at inception with an offsetting dealer transaction. Risk participation agreements are entered into as financial guarantees of performance on interest rate swap derivatives. The purchased (asset) or sold (liability) guarantee allow the Company to participate-out (fee paid) or participate-in (fee received) the risk associated with certain derivative positions executed with the borrower by the lead bank in a customer-related interest rate swap derivative. Foreign exchange contracts consist of those offered to commercial customers and those entered into to hedge the Company’s foreign currency risk associated with a foreign-currency loan. Neither qualifies as a hedge for accounting purposes. These commercial customer derivatives are offset with matching derivatives with correspondent-bank counterparties in order to minimize foreign exchange rate risk to the Company. Exposure with respect to these derivatives is largely limited to non-performance by either the customer or the other counterparty. Neither the Company nor the correspondent-bank counterparty 163 are required to post collateral but each has established foreign-currency transaction limits to manage the exposure risk. The Company requires its customers to post collateral to minimize risk exposure. The following tables present the Company’s customer-related derivative positions as of the dates indicated below for those derivatives not designated as hedging: As of December 31, 2021 Number of Positions Total Notional (Dollars in thousands) Interest rate swaps 494 $ 3,009,150 Risk participation agreements 64 238,772 Foreign exchange contracts: Matched commercial customer book 72 7,922 Foreign currency loan 6 10,830 As of December 31, 2020 Number of Positions Total Notional (Dollars in thousands) Interest rate swaps 576 $ 3,652,385 Risk participation agreements 70 287,732 Foreign exchange contracts: Matched commercial customer book 40 4,242 Foreign currency loan 3 10,798 The level of interest rate swaps, risk participation agreements and foreign currency exchange contracts at the end of each period noted above was commensurate with the activity throughout those periods. The table below presents the fair value of the Company’s derivative financial instruments, as well as their classification on the balance sheet for the periods indicated. There were no derivatives designated as hedging instruments at December 31, 2021 and 2020. Asset Derivatives Liability Derivatives Balance Sheet Location Fair Value at December 31, 2021 Fair Value at December 31, 2020 Balance Sheet Location Fair Value at December 31, 2021 Fair Value at December 31, 2020 (In thousands) Derivatives not designated as hedging instruments Customer-related positions: Interest rate swaps Other assets $ 64,338 $ 141,822 Other liabilities $ 17,880 $ 42,600 Risk participation agreements Other assets 315 722 Other liabilities 580 1,230 Foreign currency exchange contracts — matched customer book Other assets 61 90 Other liabilities 46 77 Foreign currency exchange contracts — foreign currency loan Other assets — 9 Other liabilities 87 69 Total $ 64,714 $ 142,643 $ 18,593 $ 43,976 164 The table below presents the net effect of the Company’s derivative financial instruments on the consolidated income statements as well as the effect of the Company’s derivative financial instruments included in other comprehensive income (“OCI”) as follows: For the Year Ended December 31, 2021 2020 2019 (In thousands) Derivatives designated as hedges: Gain in OCI on derivatives $ — $ 46,871 $ 20,275 Gain reclassified from OCI into interest income (effective portion) $ 31,234 $ 27,131 $ 2,698 Gain recognized in income on derivatives (ineffective portion and amount excluded from effectiveness test) Interest income $ — $ — $ — Other income — — — Total $ — $ — $ — Derivatives not designated as hedges: Customer-related positions: Gain (loss) recognized in interest rate swap income $ 4,962 $ ( 3,812 ) $ ( 2,833 ) Gain (loss) recognized in interest rate swap income for risk participation agreements 243 ( 384 ) ( 83 ) Gain (loss) recognized in other income for foreign currency exchange contracts: Matched commercial customer book 1 ( 28 ) ( 47 ) Foreign currency loan ( 27 ) 143 ( 203 ) Total gain (loss) for derivatives not designated as hedges $ 5,179 $ ( 4,081 ) $ ( 3,166 ) The Company has agreements with its customer-related interest rate swap derivative counterparties that contain a provision whereby if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain of its customer-related interest rate swap derivative correspondent-bank counterparties that contain a provision whereby if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. The Company’s exposure related to its customer-related interest rate swap derivative consists of exposure on cleared derivative transactions and exposure on non-cleared derivative transactions. Cleared derivative transactions are with CME and exposure is settled to market daily, with additional credit exposure related to initial-margin collateral pledged to CME at trade execution. At December 31, 2021 and 2020, the Company’s exposure to CME for settled variation margin in excess of the customer-related interest rate swap termination values was $ 0.4 million, and less than $ 0.1 million, respectively. In addition, at December 31, 2021 and 2020, the Company had posted initial-margin collateral in the form of U.S. Treasury notes amounting to $ 48.9 million and $ 60.4 million, respectively, to CME for these derivatives. The U.S. Treasury notes were considered restricted assets and were included in available for sale securities. At December 31, 2021 and 2020 the fair value of all customer-related interest rate swap derivatives with credit-risk related contingent features that were in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk, was $ 13.7 million and $ 42.6 million, respectively. The Company has minimum collateral posting thresholds with its customer-related interest rate swap derivative correspondent-bank counterparties to the extent that the Company has a liability position with the correspondent-bank counterparties. At December 31, 2021 and 2020, the Company had posted collateral in the form of cash amounting to $ 21.3 million and $ 49.2 million, respectively, which was considered to be a restricted asset and was included in other short-term investments. If the Company had breached any of these provisions at December 31, 2021 or 2020, it would have been required to settle its obligations under the agreements at the termination value. In addition, the Company had cross-default provisions with its commercial customer loan agreements which provide cross-collateralization with the customer loan collateral. 165 19. Balance Sheet Offsetting Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheets and/or subject to master netting arrangements or similar agreements. The Company’s derivative transactions with upstream financial institution counterparties are generally executed under International Swaps and Derivative Association master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts. However, the Company does not offset fair value amounts recognized for derivative instruments. The Company nets the amount recognized for the right to reclaim cash collateral against the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement. Collateral legally required to be maintained at dealer banks by the Company is monitored and adjusted as necessary. As of December 31, 2021 and 2020, it was determined that no additional collateral would have to be posted to immediately settle these instruments. The following tables present the Company’s asset and liability positions that were eligible for offset and the potential effect of netting arrangements on its financial position, as of the dates indicated: As of December 31, 2021 Gross Amounts Recognized Gross Amounts Offset in the Statement of Financial Position Net Amounts Presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position Net Amount Financial Instruments Collateral Pledged (Received) (In thousands) Derivative Assets Customer-related positions: Interest rate swaps $ 64,338 $ — $ 64,338 $ 1,440 $ — $ 62,898 Risk participation agreements 315 — 315 — — 315 Foreign currency exchange contracts – matched customer book 61 — 61 — — 61 Foreign currency exchange contracts – foreign currency loan — — — — — — $ 64,714 $ — $ 64,714 $ 1,440 $ — $ 63,274 Derivative Liabilities Customer-related positions: Interest rate swaps $ 17,880 $ — $ 17,880 $ 1,440 $ 16,440 $ — Risk participation agreements 580 — 580 — — 580 Foreign currency exchange contracts – matched customer book 46 — 46 — — 46 Foreign currency exchange contracts – foreign currency loan 87 — 87 — — 87 $ 18,593 $ — $ 18,593 $ 1,440 $ 16,440 $ 713 166 As of December 31, 2020 Gross Amounts Recognized Gross Amounts Offset in the Statement of Financial Position Net Amounts Presented in the Statement of Financial Position Gross Amounts Not Offset in the Statement of Financial Position Net Amount Financial Instruments Collateral Pledged (Received) (In thousands) Derivative Assets Customer-related positions: Interest rate swaps $ 141,822 $ — $ 141,822 $ 48 $ — $ 141,774 Risk participation agreements 722 — 722 — — 722 Foreign currency exchange contracts – matched customer book 90 — 90 — ( 1 ) 89 Foreign currency exchange contracts – foreign currency loan 9 — 9 — — 9 $ 142,643 $ — $ 142,643 $ 48 $ ( 1 ) $ 142,594 Derivative Liabilities Customer-related positions: Interest rate swaps $ 42,600 $ — $ 42,600 $ 48 $ 42,552 $ — Risk participation agreements 1,230 — 1,230 — — 1,230 Foreign currency exchange contracts – matched customer book 77 — 77 — — 77 Foreign currency exchange contracts – foreign currency loan 69 — 69 — — 69 $ 43,976 $ — $ 43,976 $ 48 $ 42,552 $ 1,376 20. Fair Value of Assets and Liabilities The Company uses fair value measurements to record adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of a financial instrument is 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. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that the Company believes market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no active market exists for a portion of the Company’s financial instruments, fair value estimates are based on judgements regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. 167 The following methods and assumptions were used by the Company in estimating fair value disclosures: Cash and Cash Equivalents For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the consolidated balance sheets approximate fair value. Available for Sale Securities Available for sale securities recorded at fair value consisted of U.S. Treasury securities, U.S. government-sponsored residential and commercial mortgage-backed securities, U.S. Agency bonds and state and municipal bonds. The Company’s U.S. Treasury securities are traded on active markets and therefore these securities were classified as Level 1. The fair value of U.S. Agency bonds, including Small Business Administration pooled securities, are evaluated using relevant trade data, benchmark quotes and spreads obtained from publicly available trade data, and generated on a price, yield or spread basis as determined by the observed market data. Therefore, these securities were categorized as Level 2 given the use of observable inputs. The fair value of U.S. government-sponsored residential and commercial mortgage-backed securities were estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Therefore, these securities were categorized as Level 2 given the use of observable inputs. The fair value of state and municipal bonds were estimated using a valuation matrix with inputs including observable bond interest rate tables, recent transactions, and yield relationships. Therefore, these securities were categorized as Level 2 given the use of observable inputs. The fair value of other debt securities were estimated using a valuation matrix with inputs including observable bond interest rate tables, recent transactions, and yield relationships. Therefore, these securities were categorized as Level 2 given the use of observable inputs. Fair value was based on the value of one unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, or estimated transaction costs. The estimated fair value of the Company’s securities available for sale, by type, is disclosed in Note 4, “Securities.” Loans Held for Sale Fair value of loans held for sale, whose carrying amounts approximate fair value, was estimated using the anticipated market price based upon pricing indications provided by investor banks. These assets were classified as Level 2 given the use of observable inputs. Loans The fair value of commercial construction, commercial and industrial lines of credit, and certain other consumer loans was estimated by discounting the contractual cash flows using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. For commercial, commercial real estate, residential real estate, automobile, and consumer home equity loans, fair value was estimated by discounting contractual cash flows adjusted for prepayment estimates using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The fair value of PPP loans, which are fully guaranteed by the SBA, approximates the carrying amount. Loans that are deemed to be impaired were recorded at the fair value of the underlying collateral, if the loan is collateral-dependent, or at a carrying value based upon expected cash flows discounted using the loan’s effective interest rate. Loans are classified as Level 3 since the valuation methodology utilizes significant unobservable inputs. FHLB Stock The fair value of FHLB stock approximates the carrying amount based on the redemption provisions of the FHLB. These assets were classified as Level 2. 168 Rabbi Trust Investments Rabbi trust investments consisted primarily of cash and cash equivalents, U.S. government agency obligations, equity securities, mutual funds and other exchange-traded funds, and were recorded at fair value and included in other assets. The purpose of these rabbi trust investments is to fund certain executive non-qualified retirement benefits and deferred compensation. The fair value of other U.S. government agency obligations was estimated using either a matrix or benchmarks. The inputs used include benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. These securities were categorized as Level 2 given the use of observable inputs. The equity securities, mutual funds and other exchange-traded funds were valued based on quoted prices from the market. The equities, mutual funds and exchange-traded funds traded in an active market were categorized as Level 1 as they were valued based upon quoted prices from the market. Mutual funds at net asset value amounted to $ 58.1 million and $ 53.9 million at December 31, 2021 and 2020, respectively. There were no redemption restrictions on these mutual funds at the end of any period presented. Bank-Owned Life Insurance The fair value of bank-owned life insurance was based upon quotations received from bank-owned life insurance dealers. These assets were classified as Level 2 given the use of observable inputs. Deposits The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and interest checking accounts, and money market accounts, was equal to their carrying amount. The fair value of time deposits was based on the discounted value of contractual cash flows using current market interest rates. Deposits were classified as Level 2 given the use of observable market inputs. The fair value estimates of deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the wholesale market (core deposit intangibles). FHLB Advances The fair value of FHLB advances was based on the discounted value of contractual cash flows. The discount rates used are representative of approximate rates currently offered on instruments with similar remaining maturities. FHLB advances were classified as Level 2. Escrow Deposits of Borrowers The fair value of escrow deposits of borrowers, which have no stated maturity, approximates the carrying amount. Escrow deposits of borrowers were classified as Level 2. Interest Rate Swaps The fair value of interest rate swaps was determined using discounted cash flow analysis on the expected cash flows of the interest rate swaps. This analysis reflects the contractual terms of the interest rate swaps, including the period of maturity, and uses observable market-based inputs, including interest rate curves and implied volatility. In addition, for customer-related interest rate swaps, the analysis reflects a credit valuation adjustment to reflect the Company’s own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. The majority of inputs used to value the Company's interest rate swaps fall within Level 2 of the fair value hierarchy, but the credit valuation adjustments associated with the interest rate swaps utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, at December 31, 2021 and 2020, the impact of the Level 3 inputs on the overall valuation of the interest rate swaps was deemed insignificant to the overall valuation. As a result, the interest rate swaps were categorized as Level 2 within the fair value hierarchy. Risk Participations The fair value of risk participations was determined based upon the total expected exposure of the derivative which considers the present value of cash flows discounted using market-based inputs and were therefore categorized as Level 2 within the fair value hierarchy. The fair value also included a credit valuation adjustment which evaluates the credit risk of its counterparties by considering factors such as the likelihood of default by the counterparties, its net exposures, the remaining contractual life, as well as the amount of collateral securing the position. The change in value of derivative assets and liabilities attributable to credit risk was not significant during the reported periods. 169 Foreign Currency Forward Contracts The fair values of foreign currency forward contracts were based upon the remaining expiration period of the contracts and bid quotations received from foreign exchange contract dealers and were categorized as Level 2 within the fair value hierarchy. Fair Value of Assets and Liabilities Measured on a Recurring Basis The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020: Fair Value Measurements at Reporting Date Using Balance as of December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Description (In thousands) Assets Securities available for sale Government-sponsored residential mortgage-backed securities $ 5,524,708 $ — $ 5,524,708 $ — Government-sponsored commercial mortgage-backed securities 1,408,868 — 1,408,868 — U.S. Agency bonds 1,175,014 — 1,175,014 — U.S. Treasury securities 88,605 88,605 — — State and municipal bonds and obligations 280,329 — 280,329 — Small Business Administration pooled securities 32,103 — 32,103 — Other debt securities 1,597 — 1,597 — Rabbi trust investments 104,372 96,190 8,182 — Loans held for sale 1,206 — 1,206 — Interest rate swap contracts Customer-related positions 64,338 — 64,338 — Risk participation agreements 315 — 315 — Foreign currency forward contracts Matched customer book 61 — 61 — Total $ 8,681,516 $ 184,795 $ 8,496,721 $ — Liabilities Interest rate swap contracts Customer-related positions $ 17,880 $ — $ 17,880 $ — Risk participation agreements 580 — 580 — Foreign currency forward contracts Matched customer book 46 — 46 — Foreign currency loan 87 — 87 — Total $ 18,593 $ — $ 18,593 $ — 170 Fair Value Measurements at Reporting Date Using Description Balance as of December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (In thousands) Assets Securities available for sale Government-sponsored residential mortgage-backed securities $ 2,148,800 $ — $ 2,148,800 $ — Government-sponsored commercial mortgage-backed securities 17,081 — 17,081 — U.S. Agency bonds 666,709 — 666,709 — U.S. Treasury securities 70,369 70,369 — — State and municipal bonds and obligations 280,902 — 280,902 — Rabbi trust investments 91,683 83,884 7,799 — Loans held for sale 1,140 — 1,140 — Interest rate swap contracts Customer-related positions 141,822 — 141,822 — Risk participation agreements 722 — 722 — Foreign currency forward contracts Matched customer book 90 — 90 — Foreign currency loan 9 — 9 — Total $ 3,419,327 $ 154,253 $ 3,265,074 $ — Liabilities Interest rate swap contracts Customer-related positions $ 42,600 $ — $ 42,600 $ — Risk participation agreements 1,230 — 1,230 — Foreign currency forward contracts Matched customer book 77 — 77 — Foreign currency loan 69 — 69 — Total $ 43,976 $ — $ 43,976 $ — There were no transfers to or from Level 1, 2 and 3 during the years ended December 31, 2021 and 2020. The Company held no assets or liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2021 or December 31, 2020. 171 Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis The Company may also be required, from time to time, to measure certain other assets on a nonrecurring basis in accordance with generally accepted accounting principles. The following tables summarize the fair value of assets and liabilities measured at fair value on a nonrecurring basis, as of December 31, 2021 and 2020. Fair Value Measurements at Reporting Date Using Description Balance as of December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (In thousands) Assets Collateral-dependent impaired loans whose fair value is based upon appraisals $ 12,068 $ — $ — $ 12,068 Fair Value Measurements at Reporting Date Using Description Balance as of December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (In thousands) Assets Collateral-dependent impaired loans whose fair value is based upon appraisals $ 11,036 $ — $ — $ 11,036 For the valuation of collateral-dependent impaired loans, the Company relies primarily upon third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, estimated equipment auction or liquidation values, income capitalization, or a combination of income capitalization and comparable sales. Depending on the type of underlying collateral, valuations may be adjusted by management for qualitative factors such as economic factors and estimated liquidation expenses. The range of these possible adjustments may vary. Impaired loans in which a reserve was established based upon expected cash flows discounted at the loan’s effective interest rate are not deemed to be measured at fair value. Disclosures about Fair Value of Financial Instruments The estimated fair values and related carrying amounts for assets and liabilities for which fair value is only disclosed are shown below as of the dates indicated: Fair Value Measurements at Reporting Date Using Carrying Value as of December 31, 2021 Fair Value as of December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (Dollars in thousands) Assets Loans, net of allowance for loan losses $ 12,157,281 $ 12,282,323 $ — $ — $ 12,282,323 FHLB stock 10,904 10,904 — 10,904 — Bank-owned life insurance 157,091 157,091 — 157,091 — Liabilities Deposits $ 19,628,311 $ 19,626,376 $ — $ 19,626,376 $ — FHLB advances 14,020 13,558 — 13,558 — Escrow deposits from borrowers 20,258 20,258 — 20,258 — 172 Fair Value Measurements at Reporting Date Using Carrying Value as of December 31, 2020 Fair Value as of December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (Dollars in thousands) Assets Loans, net of allowance for loan losses $ 9,593,958 $ 9,779,195 $ — $ — $ 9,779,195 FHLB stock 8,805 8,805 — 8,805 — Bank-owned life insurance 78,561 78,561 — 78,561 — Liabilities Deposits $ 12,155,784 $ 12,155,843 $ — $ 12,155,843 $ — FHLB advances 14,624 14,434 — 14,434 — Escrow deposits from borrowers 13,425 13,425 — 13,425 — This summary excludes certain financial assets and liabilities for which the carrying value approximates fair value. For financial assets, these may include cash and due from banks, federal funds sold and short-term investments. For financial liabilities, these may include federal funds purchased. These instruments would all be considered to be classified as Level 1 within the fair value hierarchy. Also excluded from the summary are financial instruments measured at fair value on a recurring and nonrecurring basis, as previously described. 21. Revenue from Contracts with Customers The Company adopted the new revenue recognition standard under ASC 606 on January 1, 2019 using the modified retrospective approach. Revenue recognition remained substantially unchanged following adoption of ASC 606 and, therefore, there were no material changes to the Company’s Consolidated Financial Statements as of or for the year ended December 31, 2019, as a result of adopting the new guidance. Revenue from contracts with customers within the scope of ASC 606, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) is recognized when control of goods or services is transferred to the customer, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The Company considers the terms of the contract and all relevant facts and circumstances when applying this guidance. The Company measures revenue and timing of recognition by applying the following five steps: 1. Identify the contract(s) with the customers. 2. Identify the performance obligations. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Performance obligations The Company’s performance obligations are generally satisfied either at a point in time or over time, as services are rendered. Unsatisfied performance obligations at the report date are not material to the Company’s consolidated financial statements. 173 A portion of the Company's noninterest income is derived from contracts with customers within the scope of ASC 606. The Company has disaggregated such revenues by type of service, as presented in the table below. These categories reflect how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. For the Year Ended December 31, 2021 2020 2019 (In thousands) Insurance commissions $ 94,704 $ 94,495 $ 90,587 Service charges on deposit accounts 24,271 21,560 27,043 Trust and investment advisory fees 24,588 21,102 19,653 Debit card processing fees 12,118 10,277 10,452 Other non-interest income 8,515 7,311 8,483 Total noninterest income in-scope of ASC 606 164,196 154,745 156,218 Total noninterest income out-of-scope of ASC 606 28,959 23,628 26,081 Total noninterest income $ 193,155 $ 178,373 $ 182,299 Additional information related to each of the revenue streams is further noted below. Insurance Commissions The Company acts as an agent in offering property, casualty, and life and health insurance to both commercial and consumer customers though Eastern Insurance Group. The Company earns a fixed commission on the sales of these products and services. The Company may also earn bonus commissions based upon meeting certain volume thresholds. In general, the Company recognizes commission revenues when earned based upon the effective date of the policy. For certain insurance products, the Company may also earn and recognize annual residual commissions commensurate with annual premiums being paid. The Company also earns profit-sharing, or contingency revenues from the insurers with whom the Company places business. These profit-sharing revenues are performance bonuses from the insurers based upon certain performance metrics such as floors on written premiums, loss rates, and growth rates. Because the Company’s expectation of the ultimate profit-sharing revenue amounts to be earned can vary from period to period, the Company does not recognize this revenue until it has concluded that, based on all the facts and information available, it is probable that a significant revenue reversal will not occur in future periods. Insurance commissions earned but not yet received amounted to $ 15.6 million and $ 15.8 million as of December 31, 2021, and 2020 respectively, and were included in other assets. Deposit Service Charges The Company offers various deposit account products to its customers governed by specific deposit agreements applicable to either personal customers or business customers. These agreements identify the general conditions and obligations of both parties and include standard information regarding deposit account-related fees. Deposit account services include providing access to deposit accounts as well as access to the various deposit transactional services of the Company. These transactional services are primarily those that are identified in the standard fee schedule, and include, but are not limited to, services such as overdraft protection, wire transfer, and check collection. The Company charges monthly fixed service fees associated with the customer having access to the deposit account as well as separate fixed fees associated with and at the time specific transactions are entered into by the customer. As such, the Company considers that its performance obligations are fulfilled when customers are provided deposit account access or when the requested deposit transaction is completed. Cash management services are a subset of the deposit service charges revenue stream. These services include automated clearing house, or ACH, transaction processing, positive pay, lockbox, and remote deposit services. These services are also governed by separate agreements entered into by the customer. The fee arrangement for these services is structured as a fixed fee per transaction which may be offset by earnings credits. An earnings credit is a discount that a customer receives based upon the investable balance in the applicable covered deposit account(s) for a given month. Earnings credits are only good for the given month. That is, if cash management fees for a given month are less than the month’s earnings credit, the remainder of the credit does not carry over to the following month. Cash management fees are recognized as revenue in the month that the services are provided. Cash management fees earned but not yet received amounted to $ 1.8 million and $ 1.0 million as of December 31, 2021 and 2020 respectively, and were included in other assets. 174 Trust and Investment Advisory Fees The Company offers investment management and trust services to individuals, institutions, small businesses and charitable institutions. Each investment management product is governed by its own contract along with a separate identifiable fee schedule unique to that product. The Company also offers additional services, such as estate settlement, financial planning, tax services, and other special services quoted at the customer’s request. The asset management and/or custody fees are primarily based upon a percentage of the monthly valuation of the principal assets in the customer’s account. Customers are also charged a base fee which is prorated over a twelve-month period. Fees for additional or special services are generally fixed in nature and are charged as services are rendered. All revenue is recognized in correlation to the monthly management fee determinations or as transactional services are provided. Debit Card Processing Fees The Company provides debit cards to its customers which are authorized and settled through various card payment networks, and in exchange, the Company earns revenue as determined by each payment network’s interchange program. Regardless of the network that is utilized to authorize and settle the payment, the merchant that provides the product or service to the debit card holder is ultimately responsible for the interchange payment to the Company. Debit card processing fees are recognized as card transactions are settled within each network. Debit card processing fees earned but not yet received amounted to $ 0.3 million as of both December 31, 2021 and 2020 and were included in other assets. Other Noninterest Income The Company earns various types of other noninterest income that have been aggregated into one general revenue stream in the table noted above. Noninterest income includes, but is not limited to, the following types of revenue with customers: safe deposit rent, ATM surcharge fees and customer checkbook fees. Individually, these sources of noninterest income are immaterial. 22. Other Comprehensive Income The following tables present a reconciliation of the changes in the components of other comprehensive income (loss) for the dates indicated including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss): For the Year Ended December 31, 2021 Pre Tax Amount Tax (Expense) Benefit After Tax Amount (In thousands) Unrealized (losses) gains on securities available for sale: Change in fair value of securities available for sale $ ( 133,466 ) $ 30,117 $ ( 103,349 ) Less: reclassification adjustment for gains included in net income 1,166 ( 257 ) 909 Net change in fair value of securities available for sale ( 134,632 ) 30,374 ( 104,258 ) Unrealized (losses) gains on cash flow hedges: Change in fair value of cash flow hedges (1) — — — Less: net cash flow hedge gains reclassified into interest income (1) 31,234 ( 8,780 ) 22,454 Net change in fair value of cash flow hedges ( 31,234 ) 8,780 ( 22,454 ) Defined benefit pension plans: Change in actuarial net gain (loss) 19,243 ( 5,409 ) 13,834 Less: amortization of actuarial net loss ( 13,400 ) 3,767 ( 9,633 ) Plan amendment – Century acquisition lump sum distribution option 1,106 ( 311 ) 795 Less: net accretion of prior service credit 11,796 ( 3,316 ) 8,480 Net change in other comprehensive income for defined benefit postretirement plans 21,953 ( 6,171 ) 15,782 Total other comprehensive income $ ( 143,913 ) $ 32,983 $ ( 110,930 ) 175 For the Year Ended December 31, 2020 Pre Tax Amount Tax (Expense) Benefit After Tax Amount (In thousands) Unrealized gains (losses) on securities available for sale: Change in fair value of securities available for sale $ 30,926 $ ( 6,828 ) $ 24,098 Less: reclassification adjustment for gains included in net income 288 ( 64 ) 224 Net change in fair value of securities available for sale 30,638 ( 6,764 ) 23,874 Unrealized gains (losses) on cash flow hedges: Change in fair value of cash flow hedges (1) 46,871 ( 13,175 ) 33,696 Less: net cash flow hedge gains reclassified into interest income (1) 27,131 ( 7,626 ) 19,505 Net change in fair value of cash flow hedges 19,740 ( 5,549 ) 14,191 Defined benefit pension plans: Change in actuarial net loss ( 58,811 ) 16,532 ( 42,279 ) Less: amortization of actuarial net loss ( 10,787 ) 3,033 ( 7,754 ) Plan amendment - prior service credit 133,439 ( 37,510 ) 95,929 Less: net accretion of prior service cost 1,931 ( 543 ) 1,388 Net change in other comprehensive income for defined benefit postretirement plans 83,484 ( 23,468 ) 60,016 Total other comprehensive income $ 133,862 $ ( 35,781 ) $ 98,081 For the Year Ended December 31, 2019 Pre Tax Amount Tax (Expense) Benefit After Tax Amount (Dollars in thousands) Unrealized gains (losses) on securities available for sale: Change in fair value of securities available for sale $ 54,881 $ ( 12,166 ) $ 42,715 Less: reclassification adjustment for gains included in net income 2,016 ( 459 ) 1,557 Net change in fair value of securities available for sale 52,865 ( 11,707 ) 41,158 Unrealized gains (losses) on cash flow hedges: Change in fair value of cash flow hedges 20,275 ( 5,699 ) 14,576 Less: net cash flow hedge gains reclassified into interest income 2,698 ( 758 ) 1,940 Net change in fair value of cash flow hedges 17,577 ( 4,941 ) 12,636 Defined benefit pension plans: Change in actuarial net loss ( 37,722 ) 10,603 ( 27,119 ) Less: amortization of actuarial net loss ( 7,242 ) 2,036 ( 5,206 ) Less: amortization of prior service cost ( 44 ) 11 ( 33 ) Net change in other comprehensive income for defined benefit postretirement plans ( 30,436 ) 8,556 ( 21,880 ) Total other comprehensive income $ 40,006 $ ( 8,092 ) $ 31,914 (1) Includes amortization of $ 22.5 million and $ 11.4 million for the years ended December 31, 2021 and 2020, respectively, of the remaining balance of realized but unrecognized gains, net of tax, from the termination of interest rate swaps. The total realized gain of $ 41.2 million, net of tax, will be recognized in earnings through January 2023. The balance of this gain had amortized to $ 7.4 million and $ 29.8 million, net of tax, at December 31, 2021 and December 31, 2020, respectively. 176 The following table illustrates the changes in the balances of each component of accumulated other comprehensive income (loss), net of tax: Unrealized (Losses) and Gains on Available for Sale Securities Unrealized Gains and (Losses) on Cash Flow Hedges Defined Benefit Pension Plans Total (In thousands) Beginning balance: January 1, 2019 $ ( 19,360 ) $ 2,988 $ ( 59,389 ) $ ( 75,761 ) Other comprehensive income (loss) before reclassifications 42,715 14,576 ( 27,119 ) 30,172 Less: Amounts reclassified from accumulated other comprehensive income 1,557 1,940 ( 5,239 ) ( 1,742 ) Net current-period other comprehensive income 41,158 12,636 ( 21,880 ) 31,914 Ending balance: December 31, 2019 $ 21,798 $ 15,624 $ ( 81,269 ) $ ( 43,847 ) Other comprehensive income (loss) before reclassifications 24,098 33,696 53,650 111,444 Less: Amounts reclassified from accumulated other comprehensive income 224 19,505 ( 6,366 ) 13,363 Net current-period other comprehensive income 23,874 14,191 60,016 98,081 Ending balance: December 31, 2020 $ 45,672 $ 29,815 $ ( 21,253 ) $ 54,234 Other comprehensive income (loss) before reclassifications ( 103,349 ) — 14,629 ( 88,720 ) Less: Amounts reclassified from accumulated other comprehensive income 909 22,454 ( 1,153 ) 22,210 Net current-period other comprehensive income ( 104,258 ) ( 22,454 ) 15,782 ( 110,930 ) Ending balance: December 31, 2021 $ ( 58,586 ) $ 7,361 $ ( 5,471 ) $ ( 56,696 ) 177 The following table illustrates the significant amounts reclassified out of each component of accumulated other comprehensive income, net of tax: Year Ended December 31, Details about Accumulated Other Comprehensive Income Components 2021 2020 2019 Affected Line Item in the Statement Where Net Income is Presented (In thousands) Unrealized gains and losses on available-for-sale securities $ 1,166 $ 288 $ 2,016 Gain/(loss) on sale of securities 1,166 288 2,016 Total before tax ( 257 ) ( 64 ) ( 459 ) Tax (expense) or benefit $ 909 $ 224 $ 1,557 Net of tax Unrealized gains and losses on cash flow hedges $ 31,234 $ 27,131 $ 2,698 Interest income 31,234 27,131 2,698 Total before tax ( 8,780 ) ( 7,626 ) ( 758 ) Tax (expense) or benefit $ 22,454 $ 19,505 $ 1,940 Net of tax Amortization of defined benefit pension items $ ( 13,400 ) $ ( 10,787 ) $ ( 7,242 ) Net periodic pension cost Accretion (amortization) of prior service credit (cost) 11,796 1,931 ( 44 ) Employee Benefits footnote ( 1,604 ) ( 8,856 ) ( 7,286 ) Total before tax 451 2,490 2,047 Tax benefit or (expense) $ ( 1,153 ) $ ( 6,366 ) $ ( 5,239 ) Net of tax Total reclassifications for the period $ 22,210 $ 13,363 $ ( 1,742 ) 23. Segment Reporting The Company’s primary reportable segment is its banking business, which offers a range of commercial, retail, wealth management and banking services, and consists primarily of attracting deposits from the general public and investing those deposits, together with borrowings and funds generated from operations, to originate loans in a variety of sectors and to invest in securities. Revenue from the banking business consists primarily of interest earned on loans and investment securities. In addition to its banking business reportable segment, the Company has an insurance agency business reportable segment, which consists of insurance-related activities, acting as an independent agent in offering commercial, personal and employee benefits insurance products to individual and commercial clients. Revenue from the insurance agency business consists primarily of commissions on sales of insurance products and services. 178 Results of operations and selected financial information by segment and reconciliation to the consolidated financial statements as of and for the years ended December 31, 2021, 2020, and 2019 were as follows: As of and for the year ended December 31, 2021 Banking Business Insurance Agency Business Other / Eliminations Total (In thousands) Net interest income $ 429,827 $ — $ — $ 429,827 Release of allowance for loan losses ( 9,686 ) — — ( 9,686 ) Net interest income after provision for loan losses 439,513 — — 439,513 Noninterest income 96,376 97,168 ( 389 ) 193,155 Noninterest expense 365,410 82,780 ( 4,234 ) 443,956 Income before provision for income taxes 170,479 14,388 3,845 188,712 Income tax provision 29,994 4,053 — 34,047 Net income $ 140,485 $ 10,335 $ 3,845 $ 154,665 Total assets $ 23,376,521 $ 204,768 $ ( 69,161 ) $ 23,512,128 Total liabilities $ 20,125,218 $ 49,719 $ ( 69,161 ) $ 20,105,776 As of and for the year ended December 31, 2020 Banking Business Insurance Agency Business Other / Eliminations Total (In thousands) Net interest income $ 401,251 $ — $ — $ 401,251 Provision for loan losses 38,800 — — 38,800 Net interest income after provision for loan losses 362,451 — — 362,451 Noninterest income 82,334 96,739 ( 700 ) 178,373 Noninterest expense 431,705 77,806 ( 4,588 ) 504,923 Income before provision for income taxes 13,080 18,933 3,888 35,901 Income tax provision 7,870 5,293 — 13,163 Net income $ 5,210 $ 13,640 $ 3,888 $ 22,738 Total assets $ 15,831,175 $ 200,216 $ ( 67,201 ) $ 15,964,190 Total liabilities $ 12,547,838 $ 55,501 $ ( 67,201 ) $ 12,536,138 As of and for the year ended December 31, 2019 Banking Business Insurance Agency Business Other / Eliminations Total (In thousands) Net interest income $ 411,264 $ — $ — $ 411,264 Provision for loan losses 6,300 — — 6,300 Net interest income after provision for loan losses 404,964 — — 404,964 Noninterest income 89,840 92,705 ( 246 ) 182,299 Noninterest expense 337,323 79,043 ( 3,682 ) 412,684 Income before provision for income taxes 157,481 13,662 3,436 174,579 Income tax provision 35,542 3,939 — 39,481 Net income $ 121,939 $ 9,723 $ 3,436 $ 135,098 Total assets $ 11,515,117 $ 165,965 $ ( 52,307 ) $ 11,628,775 Total liabilities $ 10,046,189 $ 34,740 $ ( 52,307 ) $ 10,028,622 179 24. Parent Company Financial Statements Condensed financial information relative to Eastern Bankshares Inc.'s (“the parent company”) balance sheets at December 31, 2021 and 2020 and the related statements of income and cash flows for the years ended December 31, 2021, 2020 and 2019 are presented below. The statement of shareholders’ equity is not presented below as the parent company’s shareholders’ equity is that of the consolidated Company. BALANCE SHEETS As of December 31, 2021 2020 (In thousands) Assets Cash and cash equivalents (1) $ 134,671 $ 741,034 Goodwill and other intangibles, net 744 744 Deferred income taxes, net 17,974 10,817 Investment in subsidiaries 3,250,133 2,674,133 Other assets 3,080 1,324 Total assets $ 3,406,602 $ 3,428,052 Liabilities and shareholders’ equity Other liabilities $ 250 $ — Total liabilities 250 — Shareholders’ equity 3,406,352 3,428,052 Total liabilities and shareholders’ equity $ 3,406,602 $ 3,428,052 (1) Includes $ 133.5 million that is eliminated in consolidation as of December 31, 2021. The entire balance as of December 31, 2020 is eliminated in consolidation. STATEMENTS OF INCOME For the Year Ended December 31, 2021 2020 2019 (In thousands) Expenses Professional services $ 7,393 $ 1,485 $ 360 Charitable contributions — 91,287 — Other 222 151 105 Total expenses 7,615 92,923 465 Loss before income taxes and equity in undistributed income of subsidiaries ( 7,615 ) ( 92,923 ) ( 465 ) Income tax benefit ( 11,344 ) ( 13,933 ) ( 131 ) Income (loss) before equity in undistributed income of subsidiaries 3,729 ( 78,990 ) ( 334 ) Equity in undistributed income of subsidiaries 150,936 101,728 135,432 Net income $ 154,665 $ 22,738 $ 135,098 180 STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2021 2020 2019 (In thousands) Cash flows provided by (used in) operating activities Net income $ 154,665 $ 22,738 $ 135,098 Adjustments to reconcile net income to cash provided by operating activities Equity in undistributed income of subsidiaries ( 150,936 ) ( 101,728 ) ( 135,432 ) Issuance of common shares donated to the Eastern Bank Foundation — 91,287 — ESOP expense 9,408 2,351 — Change in: Deferred income taxes, net ( 7,157 ) ( 10,817 ) — Other, net ( 388 ) ( 350 ) 25 Net cash provided by operating activities 5,592 3,481 ( 309 ) Cash flows used in investing activities Investment in Eastern Bank — ( 882,096 ) — Cash paid for acquisition, net of cash acquired ( 640,890 ) — — Return of investments in subsidiary 140,000 — — Net cash used in investing activities ( 500,890 ) ( 882,096 ) — Cash flows provided by (used in) financing activities Proceeds from issuance of common shares — 1,792,878 — Purchase of shares by ESOP — ( 149,407 ) — Payments for deferred offering costs — ( 28,552 ) ( 346 ) Payment of subordinated debentures assumed in business combination (1) ( 36,277 ) — — Payments for shares repurchased under share repurchase plan ( 23,224 ) — — Dividends declared and paid to common shareholders ( 51,564 ) — — Net cash (used in) provided by financing activities ( 111,065 ) 1,614,919 ( 346 ) Net increase in cash and cash equivalents ( 606,363 ) 736,304 ( 655 ) Cash and cash equivalents at beginning of year 741,034 4,730 5,385 Cash and cash equivalents at end of year $ 134,671 $ 741,034 $ 4,730 (1) The Company deposited funds into escrow prior to the Century acquisition date to pay the balance of subordinated debentures assumed in the Century acquisition which was considered to be defeasance of the debt. Accordingly, Century recorded a payable to the Company in the amount of the escrow deposit and the Company recorded a receivable from Century in the same amount. The payable was reclassified to other assets upon acquisition and is reflected as such balance in the summary of net assets acquired included in Note 3 to the consolidated financial statements. Subsequent to the closing of the acquisition and prior to December 31, 2021, the amounts placed in escrow were disbursed to the holders of the subordinated debentures resulting in a full pay-off of the outstanding balance of the debt. 25. Related Parties The Company has, and expects to have in the future, related party transactions in the ordinary course of business. The transactions include, but are not limited to, lending activities and deposits services with directors and executive officers of the Company and their affiliates. Based on the Company’s assessment, such transactions are consistent with prudent banking practices and are within applicable banking regulations. Further details relating to certain party transactions are outlined below: At December 31, 2021 and 2020, the amount of deposits from related parties held by the Company totaled $ 25.9 million and $ 10.4 million, respectively. The amount of loans with related parties at December 31, 2021 and 2020 were $ 51.5 million and $ 21.0 million, respectively. The increase in related party loans is primarily attributable to loans acquired from Century for which related party relationships exist. In addition, the Company had commitments to lend to related parties of $ 35.0 million and $ 17.3 million at December 31, 2021 and 2020, respectively. 26. Subsequent Events On January 14, 2022, the Company announced it had entered into an asset purchase agreement for the transfer of the Company’s cannabis-related and money service business deposits relationships, which were acquired from Century, to Needham Bank. The transaction is expected to close in the first half of 2022, subject to regulatory approval and other customary 181 closing conditions. As of December 31, 2021, the aggregate deposit balance of the accounts which are expected to be transferred to Needham Bank was $ 472.3 million. The Company does not expect to recognize a material gain or loss in connection with this transaction. 182 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.