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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-25 · 531 added, 505 removed, 762 unchanged (58% of the section changed)

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We manage our business under two business segments:

our banking business, which contributed $531.1 million, which is 84.5%, of our total income for the year ended December 31, 2021, and our insurance agency business, which contributed $97.2 million, which is 15.5%, of our total income for the year ended December 31, 2021.

our banking business, which contributed revenue of $645.4 million, or 86.7% of our total revenue for the year ended December 31, 2022, and our insurance agency business, which contributed revenue of $98.8 million, or 13.3% of our total revenue for the year ended December 31, 2022.

Our banking business consists of a full range of banking, lending (commercial, residential and consumer), savings and small business offerings, including our wealth management and trust operations that we conduct through our Eastern Wealth Management division.

Our insurance agency business consists of insurance-related activities, acting as an independent agent in offering commercial, personal and employee benefits insurance products to individual and commercial clients.

See the section of this Annual Report on Form 10-K titled “Business” for further discussion of our banking business and insurance agency business.

Net income for the year ended December 31, 2021 computed in accordance with GAAP was $154.7 million, as compared to $22.7 million for the year ended December 31, 2020.

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

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

This increase was largely driven by a decrease in the provision for allowance for loan losses which is attributable to greater prior period provisions that resulted from the impact of the COVID-19 pandemic on the Bank’s borrowers during such periods, and current period releases of allowance for loan losses totaling $9.7 million.

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

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

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

Refer to the section of this Annual Report on Form 10-K titled “Business” within Item 1 for further discussion of our banking business and insurance agency business.

Net income for the year ended December 31, 2022, computed in accordance with GAAP, was $199.8 million, as compared to $154.7 million for the year ended December 31, 2021, representing an increase of 29.2%.

This increase was primarily due to an increase in net interest income.

Our net interest income increased primarily due to an increase in our average interest-earning assets, which was primarily the result of our 2021 acquisition of Century.

Refer to the “Results of Operations” section below for further discussion.

Net income for the year ended December 31, 2022 and 2021 included items that our management considers non-core, which management excludes for purposes of assessing our operating net income, a non-GAAP financial measure.

Operating net income for the year ended December 31, 2022 was $213.3 million compared to $165.9 million for the year ended December 31, 2021.

This increase was largely driven by the aforementioned change in average interest-earning assets.

Refer to the “Outlook and Trends” section below for further discussion.

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

The following chart shows our basic earnings per share on a GAAP and operating (non-GAAP) basis over the past three years (refer to the “Non-GAAP Financial Measures” section below for a reconciliation of GAAP earnings to operating earnings):

Earnings per share, on a GAAP basis, increased from $0.90 for the year ended December 31, 2021 to $1.21 for the year ended December 31, 2022 a 34.4% increase.

The increase was primarily due to an increase in net interest income and a decrease in the average number of common shares outstanding.

The decrease in the average number of common shares outstanding was attributable to share repurchases in connection with our previously announced share repurchase programs.

The following chart shows our efficiency ratio on a GAAP and operating (non-GAAP) basis over the past five years (refer to the “Non-GAAP Financial Measures” section below for additional information on the determination of each measure):

The GAAP efficiency ratio and non-GAAP operating efficiency ratio for the year ended December 31, 2022 decreased compared to the ratios for the year ended December 31, 2021.

The decreases were primarily attributable to increased net interest income, which resulted in a margin of increase in total revenue that exceeded the rates at which noninterest expense increased and noninterest income decreased for the same periods.

Refer to the “Results of Operations” section below for additional discussion of the changes in net interest income, noninterest income and noninterest expense.

Outlook and Trends

Interest Rates

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

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

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

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

Treasury yield curve.

CECL Adoption

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

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

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

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

for loans acquired from Century;

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

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

We believe that increases in the federal funds rate we expect to occur in the first half of 2023 will reduce our net interest income in 2023 as the increases in interest-bearing liability costs are anticipated to exceed the increase in yield on interest-earning assets.

Beginning in March 2022, the FOMC voted to increase the federal funds rate multiple times from a range of 0.00% to 0.25% to a range of 4.50% to 4.75% on February 1, 2023, when the FOMC stated that it “anticipates that ongoing increases in the target range [for the federal funds rate] will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

Inevitably, not all of our interest rate-sensitive assets and liabilities will re-price simultaneously and in equal volume in response to changes in the federal funds rate, and therefore the potential for interest rate exposure exists.

Management believes that several factors will affect the actual impact of interest rate changes on our balance sheet and operating results, including, but not limited to, actual changes in interest rates or expectations of future changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve.

We attempt to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging our exposure.

Approximately 34% of the outstanding principal balance of our loans as of December 31, 2022 was indexed to a market rate that is expected to reprice along with the federal funds rate.

As rates have risen and the shape of the yield curve changed during the year ended December 31, 2022, a portion of these loans have been hedged using interest rate swaps to convert the floating rate interest receipts to a fixed rate.

The notional amount of floating rate loans swapped totaled $2.4 billion as of December 31, 2022, representing approximately 18% of the outstanding principal balance of our loans at that date.

For more detail regarding such hedging financial instruments, refer to Note 19, “Derivative Financial Instruments” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

We anticipate that an increase in market interest rates, whether due to an increase in the federal funds rate or otherwise, will decrease the fair value of those interest rate swaps

and consequently reduce the positive impact on our net interest income that an interest rate increase would otherwise have.

Refer to the section titled “Management of Market Risk” within this Item 7 for additional discussion including the estimated change to our net interest income under interest rate risk measurement methodologies that use a variety of hypothetical scenarios assuming immediate and parallel changes in interest rates that may not reflect the manner in which actual yields and costs respond to changes in market interest rates.

Paycheck Protection Program Loans

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

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

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

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

• During the year ended December 31, 2021, we originated approximately 6,600 PPP loans totaling $543.2 million.

These loans have a maturity of five years.

Fees received from the SBA and direct loan origination costs are being deferred over the five-year loan term.

Through December 31, 2021, we had received $28.7 million in fees from the SBA and had deferred $4.0 million in direct loan origination costs related to 2021 originations.

• During the year ended year ended December 31, 2020, we originated approximately 8,900 PPP loans totaling $1.2 billion.

The majority of these loans have a maturity of two years.

Fees received from the SBA and direct loan origination costs are being deferred over the loan term, which is generally two years.

During the year ended December 31, 2020, we received $37.1 million in fees from the SBA and deferred $4.6 million in direct loan origination costs.

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

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

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

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

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

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

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

PPP Loans Originated During the Year Ended December 31, Total

(Dollars in thousands)

Number of loans originated 6,628 8,902 15,530

Original balance of loans originated $ 543,212 $ 1,167,137 $ 1,710,349

Current balance of loans originated in respective periods 254,725 12,746 267,471

Total SBA fees received (1)

28,699 37,249 65,948

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

18,227 37,166 55,393

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

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

(2) Reflects life-to-date accretion.

The following table shows certain data related to the remaining balance of our aggregate PPP loans (Eastern originations and Century originations) as of December 31, 2021:

Loan Size Loan Balance Number

(Dollars in thousands)

$0 to $50 thousand $ 37,513 2,234

$50 thousand to $150 thousand 45,097 512

$150 thousand to $1 million 165,346 500

$1 million to $2 million 45,851 32

$2 million to $5 million 37,578 15

Over $5 million — —

Total $ 331,385 3,293

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

Industry Loan Balance Number of Loans

(Dollars in thousands)

Accommodation & food services $ 84,739 469

Construction 44,021 449

Health care & social assistance 34,735 251

Professional, scientific & technical services 28,368 426

Other services 35,964 480

Manufacturing 17,659 117

Retail trade 13,191 291

Administrative & support 17,368 180

Wholesale trade 9,626 74

Transportation & warehousing 12,912 169

Arts, entertainment & recreation 9,912 104

All other 22,890 283

Total $ 331,385 3,293

As of December 31, 2022 and 2021, the remaining balance of our PPP loans was $9.8 million and $331.4 million, respectively.

Net PPP loan fee accretion (fee accretion less cost amortization) for all PPP loans decreased by $25.3 million, or 73.8%, to $9.0 million for the year ended December 31, 2022 from $34.3 million for the year ended December 31, 2021.

Our net interest margin was adversely affected as a result of the decline in net fee accretion, which is associated with the decreased volume of PPP loan payoffs.

The impact to our net interest margin resulting from the decline in net PPP loan fee accretion during the year ended December 31, 2022 compared to the year ended December 31, 2021 was 0.25% (change computed based upon average total loans for the year ended December 31, 2021).

Non-GAAP Financial Measures

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

Accordingly, we present operating net income, noninterest income on an operating basis, noninterest expense on an operating basis, total operating revenue, operating earnings per share, and the operating efficiency ratio, each of which excludes the impact of such items because we believe such exclusion can provide greater visibility into our core business and underlying trends.

Such items that we do not consider to be core to our business include (i) income and expenses from investments held in rabbi trusts, (ii) gains and losses on sales of securities available for sale, net, (iii) gains and losses on the sale of other assets, (iv) rabbi trust employee benefits, (v) impairment charges on tax credit investments and associated tax credit benefits, (vi) expenses indirectly associated with our IPO, (vii) other real estate owned (“OREO”) gains, (viii) merger and acquisition expenses, (ix) the stock donation to the Eastern Bank Foundation (formerly known as the Eastern Bank Charitable Foundation, or the “Foundation”) in connection with our mutual-to-stock conversion and IPO, and (x) settlement of putative consumer class action litigation matters related to overdraft and non-sufficient fund fees, and associated settlement expenses.

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

Accordingly, we present operating net income, noninterest income on an operating basis, noninterest expense on an operating basis, total operating revenue, operating earnings per share, operating net income to average tangible shareholders’ equity, tangible book value per share, and the operating efficiency ratio, each of which excludes the impact of such items because we believe such exclusion can provide greater visibility into our core business and underlying trends.

Such items that we do not consider to be core to our business include (i) income and expenses from investments held in rabbi trusts, (ii) gains and losses on sales of securities available for sale, net, (iii) gains and losses on the sale of other assets, (iv) rabbi trust employee benefits, (v) impairment charges on tax credit investments and associated tax credit benefits, (vi) expenses indirectly associated with our IPO, (vii) other real estate owned (“OREO”) gains, (viii) merger and acquisition expenses, (ix) the stock donation to the Eastern Bank Foundation (the “Foundation”) in connection with our mutual-to-stock conversion and IPO, (x) settlement of putative consumer class action litigation matters related to overdraft and non-sufficient fund fees, and associated settlement expenses, and (xi) the non-cash pension settlement charge recognized related to our Defined Benefit Plan.

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

We have included the tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends.

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Noninterest income components:

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

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

Losses (income) from investments held in rabbi trusts 10,762 (10,217) (10,337)

Losses (gains) on sales of securities available for sale, net 3,157 (1,166) (288)

(Gains) losses on sales of other assets (1,492) (571) 20

Noninterest expense components:

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

Rabbi trust employee benefit (income) expense (5,161) 5,515 4,789

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

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

Defined Benefit Plan settlement loss (2) 12,045 — —

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

Total impact of non-GAAP adjustments 19,616 32,089 96,933

Less net tax benefit (expense) associated with non-GAAP adjustment (2)

Less net tax benefit associated with non-GAAP adjustment (3)

6,096 20,869 17,537

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Diluted 165,648,571 172,252,057 171,812,535

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

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

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

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

Earnings per share, basic $ 1.21 $ 0.90 $ 0.13

Earnings per share, diluted $ 1.21 $ 0.90 $ 0.13

Operating earnings per share, basic (non-GAAP) $ 1.29 $ 0.96 $ 0.59

Operating earnings per share, diluted (non-GAAP) $ 1.29 $ 0.96 $ 0.59

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

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

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

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

(2) Represents a non-cash settlement charge related to the Defined Benefit Plan.

For additional information regarding this charge, refer to Note 17, “Employee Benefits” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

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

The net tax benefit amount for the years ended December 31, 2022 and 2021 reflects the impact of the reversal of a $12.0 million valuation allowance associated with the stock donation to the Eastern Bank Foundation in the amounts of $0.7 million and $11.3 million, respectively.

The reversal of the valuation allowance in each period was considered appropriate based upon our determination of the realizability of such deductions for tax purposes at that time.

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

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2022 2021 2020 2019 2018

(Dollars in thousands)

Net interest income (GAAP) $ 568,054 $ 429,827 $ 401,251 $ 411,264 $ 390,044

Tax-equivalent adjustment (non-GAAP)(2) 12,736 6,093 5,472 5,254 5,696

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

Fully-taxable equivalent net interest income (non-GAAP) 580,790 435,920 406,723 416,518 395,740

Noninterest income (GAAP) 176,161 193,155 178,373 182,299 180,595

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

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

(Losses) income from investments held in rabbi trusts (10,762) 10,217 10,337 9,866 (1,542)

(Losses) gains on sales of securities available for sale, net (3,157) 1,166 288 2,016 50

Gains (losses) on sales of other assets 1,492 571 (20) (15) 1,989

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Noninterest expense (GAAP) $ 469,602 $ 443,956 $ 504,923 $ 412,684 $ 397,928

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

Rabbi trust employee benefit (income) expense (5,161) 5,515 4,789 4,604 (847)

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

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

Defined Benefit Plan settlement loss 12,045 — — — —

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

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

(2) Interest income on tax-exempt loans and investment securities has been adjusted to an FTE basis using a marginal tax rate of 21.6% for the year ended December 31, 2022, 21.0% for the year ended December 31, 2021, 21.8% for the year ended December 31, 2020, 21.8% for the year ended December 31, 2019, and 21.7% for the year ended December 31, 2018.

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

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2022 2021 2020 2019 2018

(In thousands, except per share data)

(Dollars in thousands, except per share data)

Tangible shareholders’ equity:

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Tangible book value per share (non-GAAP) $ 10.28 $ 14.80 $ 16.34 $ — $ —

The following table summarizes the calculation of our average tangible shareholders’ equity and ratio of net income and operating net income to average tangible shareholders’ equity (“operating return on average tangible shareholders’ equity”), which reconciles to the most directly comparable GAAP measure, for the periods indicated:

As of December 31,

2022 2021 2020 2019 2018

(Dollars in thousands)

Net income (GAAP) $ 199,759 $ 154,665 $ 22,738 $ 135,098 $ 122,727

Operating net income (non-GAAP) (1) 213,279 165,885 102,134 129,696 121,796

Average tangible shareholders’ equity:

Average total shareholders’ equity (GAAP) $ 2,831,533 $ 3,424,570 $ 2,040,156 $ 1,543,191 $ 1,360,562

Average goodwill and other intangibles 655,653 414,441 376,706 379,615 380,304

Average tangible shareholders’ equity (non-GAAP) $ 2,175,880 $ 3,010,129 $ 1,663,450 $ 1,163,576 $ 980,258

Return on average total shareholders’ equity (GAAP) 7.05 % 4.52 % 1.11 % 8.75 % 9.02 %

Return on average tangible shareholders’ equity (non-GAAP) 9.18 % 5.14 % 1.37 % 11.61 % 12.52 %

Operating return on average tangible shareholders’ equity (non-GAAP) 9.80 % 5.51 % 6.14 % 11.15 % 12.42 %

(1) Refer to the table above within this “Non-GAAP Financial Measures” section for a reconciliation of operating net income to net income.

Financial Position

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Securities available for sale 6,690,778 8,511,224 (1,820,446) (21.4) %

Securities held to maturity 476,647 — 476,647 100.0 %

Loans, net of allowance for loan losses 13,420,317 12,157,281 1,263,036 10.4 %

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Cash and cash equivalents

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

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

Total cash and cash equivalents decreased by $1.1 billion, or 86.2%, to $169.5 million at December 31, 2022 from $1.2 billion at December 31, 2021.

This decrease was primarily due to an increase in gross loans of $1.3 billion, a decrease in total customer deposits of $654.0 million, net of purchases of brokered certificates of deposit, and share repurchases of $201.6 million.

These items were partially offset by net cash inflows related to increased borrowed funds of $706.6 million and net cash inflows related to AFS and HTM securities of $263.7 million during the year ended December 31, 2022.

For further discussion of the change in deposits, refer to the later “Deposits” section in this Item 7.

For further discussion of the change in loans, refer to the later “Loans” section in this Item 7.

For more information regarding our share repurchase programs, refer to Note 15, “Shareholders’ Equity” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.

For further discussion of the change in securities, refer to the later “Securities” section in this Item 7.

For further discussion of the change in borrowed funds, refer to the later “Borrowed Funds” section in this Item 7.

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

Treasury obligations, securities of government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, corporate notes, asset-backed securities and municipal securities.

The Risk Management Committee of our Board of Directors is responsible for approving and overseeing our investment policy, which it reviews at least annually.

This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns and market risk considerations.

We do not engage in any investment hedging activities or trading activities, nor do we purchase any high-risk investment products.

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government securities:

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

At December 31, 2022 our U.S.

government securities consisted of U.S.

Agency bonds and U.S.

Treasury securities.

At December 31, 2021, our U.S.

government securities consisted of U.S.

Agency bonds, U.S.

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We maintain these investments, to the extent appropriate, for liquidity purposes, at zero risk weighting for capital purposes, and as collateral for interest rate derivative positions.

Agency bonds include securities issued by Fannie Mae, Freddie Mac, the Federal Home Loan Bank, and the Federal Farm Credit Bureau.

Agency bonds include securities issued by Fannie Mae, Freddie Mac, the FHLB, and the Federal Farm Credit Bureau.

Mortgage-backed securities:

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

We invest in mortgage-backed securities to achieve a positive interest rate spread with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac or Fannie Mae.

Investments in residential mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities.

We periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.

Investments in residential mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of any discount relating to such interests, thereby affecting the net yield on our securities.

We periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or

accretion adjustments.

There is also reinvestment risk associated with the cash flows from such securities.

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The market value of these securities may be affected by call options, long dated maturities, general market liquidity and credit factors.

The Risk Management Committee of our Board of Directors is responsible for approving and overseeing our investment policy, which it reviews at least annually.

This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns and market risk considerations.

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

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(In thousands)

Available for sale securities:

Available for sale securities, at fair value:

Government-sponsored residential mortgage-backed securities $ 4,111,908 $ 5,524,708

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Other debt securities 1,285 1,597

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

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

Acquired Securities at Fair Value

As of November 12, 2021

(Dollars in thousands)

Available for sale securities:

Total available for sale securities, at fair value 6,690,778 8,511,224

Held to maturity securities, at amortized cost:

Government-sponsored residential mortgage-backed securities 276,493 —

Government-sponsored commercial mortgage-backed securities 200,154 —

Agency bonds 346,538

State and municipal bonds and obligations 6,532

Small Business Administration pooled securities 31,827

Other debt securities 1,895

Total held to maturity securities, at amortized cost 476,647 —

Total $ 7,167,425 $ 8,511,224

Our securities portfolio has increased year-to-date.

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

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

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

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

This change is primarily driven by a steepening yield curve.

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

Our securities portfolio has decreased $1.3 billion, or 15.8%, to $7.2 billion at December 31, 2022 from $8.5 billion at December 31, 2021.

This decrease was primarily due to a decrease in the fair value of AFS securities, sales of AFS securities, and maturities and principal paydowns of our AFS and held to maturity (“HTM”) securities.

Partially offsetting this activity were AFS and HTM security purchases during the year ended December 31, 2022:

• At December 31, 2022, the unrealized loss on AFS securities was $1.1 billion compared to an unrealized loss of $0.1 billion at December 31, 2021, representing a $1.1 billion decrease in the fair value of such securities.

The change from December 31, 2021 to December 31, 2022 is primarily driven by rising market rates of interest.

• AFS securities sales totaled $431.2 million during the year ended December 31, 2022.

AFS and HTM security maturities and principal paydowns totaled $1.0 billion and $17.4 million, respectively, during the year ended December 31, 2022.

• Partially offsetting the decrease in the securities portfolio from December 31, 2021 to December 31, 2022 were purchases of AFS and HTM securities of $740.8 million and $493.7 million, respectively, during the year ended December 31, 2022.

We did not have trading investments at December 31, 2022 and 2021.

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

Investments in federally tax-exempt securities totaled $182.9 million at December 31, 2022 compared to $279.8 million at December 31, 2021.

Our available for sale securities are carried at fair value and are categorized within the fair value hierarchy based on the observability of model inputs.

Our AFS securities are carried at fair value and are categorized within the fair value hierarchy based on the observability of model inputs.

Securities which require inputs that are both significant to the fair value measurement and unobservable are classified as Level 3 within the fair value hierarchy.

As of both December 31, 2022 and 2021, we had no securities categorized as Level 3 within the fair value hierarchy.

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

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

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

The following tables show contractual maturities of our AFS and HTM securities and weighted average yields at and for the period ended December 31, 2022 and contractual maturities of our AFS securities and weighted average yields at and for the period ended December 31, 2021.

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

Securities Portfolio, Weighted-Average Yield

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State and municipal bonds and obligations 1.22 2.26 3.17 4.05 3.66

Other debt securities 0.84 — — — 0.84

Total available for sale securities 0.89 1.02 1.25 1.66 1.47

Held to maturity securities:

Government-sponsored residential mortgage-backed securities — — — 2.86 2.86

Government-sponsored commercial mortgage-backed securities — — 2.23 — 2.23

Total held to maturity securities — — 2.23 2.86 2.59

Total 0.89 % 1.02 % 1.36 % 1.72 % 1.54 %

Securities Maturing as of December 31, 2021 (1)

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

Available for sale securities:

Government-sponsored residential mortgage-backed securities — % 2.64 % 1.01 % 1.44 % 1.38 %

Government-sponsored commercial mortgage-backed securities — 1.14 1.20 1.95 1.67

Agency bonds 1.11 0.73 1.00 — 0.88

Treasury securities 0.15 0.78 — — 0.50

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

Small business administration pooled securities — 1.72 — 1.93 1.90

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

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

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

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

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

(In thousands)

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

The following table shows the composition of our loan portfolio, by category, as of the dates indicated and net PPP loan activity for the year ended December 31, 2022:

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

2022 2021 Change ($) PPP Loan Activity, net Change ($) Percentage (%)

(Dollars in thousands)

Commercial and industrial $ 3,150,946 $ 2,960,527 $ 190,419 $ (109,213) $ 299,632 10.1 %

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Total gross loans (1) $ 13,575,531 $ 12,281,510 $ 1,294,021 $ (321,544) $ 1,615,565 13.2 %

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

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

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

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

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

Our loans increased $1.3 billion, or 10.5%, to $13.6 billion at December 31, 2022 from $12.3 billion at December 31, 2021.

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

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

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

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

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

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

The increase as of December 31, 2022 was primarily due to increases in our commercial real estate, residential real estate, and commercial and industrial portfolio balances, partially offset by a decrease in our business banking portfolio, as further noted below:

• Our commercial real estate portfolio increased by $632.8 million from December 31, 2021 to December 31, 2022 which was primarily attributable to an increase of $622.0 million in commercial real estate investment loan balances.

Such loans represent loans secured by commercial real estate that are non-owner-occupied.

The increase in such loan balances was primarily due to management’s active focus on originating loans collateralized by industrial/warehouse and multi-family property types, which are included in the commercial real estate investment loan category, due to management’s stable outlook as it relates to the credit performance of such loans.

• Our residential real estate portfolio increased by 534.0 million from December 31, 2021 to December 31, 2022 primarily due to the purchase of $380.2 million residential real estate loans from a third party during the year ended December 31, 2022.

Also contributing to the overall increase in the balance of our residential real estate loans was a reduction in the volume of loan sales, which was precipitated by rising market rates of interest, and led to us retaining more of our residential real estate mortgage loan originations.

• Our commercial and industrial portfolio, excluding PPP loan balances, increased by $299.6 million, which was primarily attributable to an increase of $291.7 million in commercial and industrial participation loans during the year ended December 31, 2022.

The majority of the increase in participation loans was in our SNC portfolio, which increased $205.0 million during the year ended December 31, 2022.

The increase in such loan balances was primarily due to management’s active focus in increasing our exposures related to such arrangements due to strong historical credit performance and management’s stable outlook as it relates to the future credit performance of such loans.

Partially offsetting this increase was a $109.2 million decrease in commercial and industrial PPP loan balances during the year ended December 31, 2022 as such loans were paid off or forgiven by the SBA resulting in a net portfolio increase of $190.4 million.

• Our business banking portfolio decreased by $244.2 million primarily as a result of a $212.4 million decrease in business banking PPP loan balances during the year ended December 31, 2022 as such loans were paid off or forgiven by the SBA.

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

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

As of December 31, 2022, the amortized cost balances of concentrations in our commercial loan portfolios were as follows:

Commercial and Industrial

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Professional, scientific, and technical services 324,681 10.4 %

Wholesale trade 264,988 9.0 %

Finance and insurance 303,024 9.7 %

Transportation and warehousing 171,976 5.8 %

Healthcare and social assistance 171,316 5.8 %

Wholesale trade 278,944 8.9 %

Accomodation 199,353 6.4 %

Healthcare 197,684 6.3 %

Transportation 185,925 5.9 %

Manufacturing 176,993 5.7 %

Accommodation and food services 153,683 5.2 %

Administrative and support 148,979 5.0 %

Real estate, rental and leasing 124,239 4.2 %

Admin support 159,967 5.1 %

Real estate 113,947 3.6 %

Other industries 418,330 13.3 %

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Multi-family $ 1,212,944 23.5 %

Office 492,669 10.9 %

Industrial/warehouse 546,660 10.6 %

Retail 509,651 9.9 %

School 365,706 8.1 %

Office 441,910 8.6 %

Mixed use - retail/office 428,650 8.3 %

Mixed use - retail/multi-family 357,127 6.9 %

School 351,581 6.8 %

Affordable housing 319,681 6.2 %

Hotel/motel/hospitality 178,561 3.9 %

Self storage 186,253 3.6 %

Other property types 796,906 15.6 %

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Affordable housing $ 85,802 25.7 %

For sale housing 39,852 17.9 %

Multi-family 82,875 24.8 %

Industrial/warehouse 54,772 16.4 %

Assisted living 13,364 6.0 %

Mixed use - retail/multi-family 26,150 7.8 %

For sale housing 20,646 6.2 %

Assisted living 14,767 4.4 %

Office 10,255 3.1 %

Retail 9,082 2.7 %

1-4 family 7,575 2.3 %

Self storage 1,832 0.8 %

Service station 6,375 1.9 %

Other property types 15,960 4.7 %

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

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

The following tables show the distribution of loan balances, on an amortized cost basis, by LTV

and year of origination for each of our portfolios of loans, including those acquired from Century, secured by real estate as of December 31, 2022:

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

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

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

The following table shows the maturity distribution of our loans, on a gross basis, as of December 31, 2022:

Scheduled Contractual Loan Maturity

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

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

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

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

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We continually monitor the asset quality of our loan portfolio utilizing portfolio scorecards and various credit quality indicators.

Based on this process, loans meeting certain criteria are categorized as delinquent, impaired, or non-performing and further assessed to determine if non-accrual status is appropriate.

Based on this process, loans meeting certain criteria are categorized as delinquent or non-performing and further assessed to determine if non-accrual status is appropriate.

For the commercial portfolio, which includes our commercial and industrial, commercial real estate, commercial construction and business banking loans, we monitor credit quality using a risk rating scale, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction.

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industry and market conditions, position within the industry, earnings trends, operating cash flow, asset/liability values, debt capacity, guarantor strength, management and controls, financial reporting, collateral and other considerations.

The new risk rating methodology, inclusive of the expanded grade levels and the scorecard tools, has increased, and is expected to continue to increase granularity and distribution of risk rating assignment with more precision and effectiveness;

provide customized and enhanced templates to incorporate more risk factors and attributes applicable to loan and collateral types;

increase precision and effectiveness of credit risk identification;

and provide a foundation for enhanced reporting, including migration of risk rating analysis.

Special mention, substandard and doubtful loans totaled 2.2% and 5.8% of total commercial loans outstanding at December 31, 2022 and 2021, respectively.

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As of December 31, 2022, 72.3% of retail borrowers, based on loan balance, have a FICO score of 740 or greater.

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

The following table shows the balances by borrowers' current FICO scores as of the dates indicated:

As of December 31, 2022 As of December 31, 2021

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(1) Borrower FICO scores are updated on a semi-annual basis, and the most recent update occurred in August 2022.

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

(2) Insufficient data available to report.

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

The delinquency rate of our total loan portfolio decreased to 0.50% at December 31, 2022 from 0.65% at December 31, 2021.

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

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Total 0.50 % 0.65 %

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

(1) In the calculation of the delinquency rate as of December 31, 2022 and 2021, the total amount of loans outstanding includes $9.8 million and $331.4 million, respectively, of PPP loans.

(2) Delinquency rates as of December 31, 2022 were computed based upon amortized cost balances while delinquency rates as of December 31, 2021 were computed based upon recorded investment balances.

The effect on the above delinquency rates of the difference in methodology is not significant.

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

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

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

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

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

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

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

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

The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $3.2 million for the year ended December 31, 2021.

The total amount of interest recorded on NPLs was $1.0 million for the year ended December 31, 2020.

The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $3.4 million for the year ended December 31, 2020.

Any write-downs to the

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

NPLs increased $3.6 million, or 10%, to $38.6 million at December 31, 2022 from $35.0 million at December 31, 2021.

NPLs as a percentage of total loans decreased to 0.28% at December 31, 2022 from 0.29% at December 31, 2021.

Refer to the later “Allowance for Credit Losses” section in this Item 7 for a discussion of the change in non-accrual loans which comprise our NPLs as of December 31, 2022.

As of December 31, 2021, NPLs included loans that were past due 90 days or more and still accruing which were comprised solely of purchased credit impaired (“PCI”) loans.

PCI loans were not subject to classification as non-accrual in the same manner as originated loans as their interest income related to the accretable yield recognized and not to contractual interest payments at the loan level.

In connection with our adoption of ASU 2016-13 on January 1, 2022, all PCI loans are now considered purchased credit deteriorated (“PCD”) loans.

Interest income recognition for PCD loans is consistent with originated loans and, therefore, PCD loans cease accruing interest at 90 days past due unless management believes that the applicable collateral held by the Company is clearly sufficient and in full satisfaction of both principal and interest.

There were no PCD or originated loans at December 31, 2022 that were past due 90 days or more and still accruing.

The total amount of interest recorded on NPLs was not significant for both the years ended December 31, 2022 and 2021.

The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $3.9 million and $3.2 million for the years ended December 31, 2022 and 2021, respectively.

In the course of resolving NPLs, we may choose to restructure the contractual terms of certain loans.

We attempt to work-out alternative payment schedules with the borrowers in order to avoid foreclosure actions.

We review any loans that are modified to identify whether a TDR has occurred.

We review each loan that is modified to identify whether a TDR has occurred.

TDRs involve situations in which, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider.

As described further below, loan modifications made in response to the COVID-19 pandemic met the criteria of either Section 4013 of the CARES Act or the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) and therefore are not deemed TDRs.

All TDR loans are considered impaired and therefore are subject to a specific review for impairment loss.

The impairment analysis discounts the present value of the anticipated cash flows by the loan’s contractual rate of interest in effect prior to the loan’s modification or the fair value of collateral if the loan is collateral dependent.

The amount of impairment loss, if any, is recorded as a specific reserve to each individual loan in the allowance for loan losses.

Commercial loans (commercial and industrial, commercial real estate, commercial construction, and business banking) and residential loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent.

TDR loans modified during the years ended December 31, 2021 and 2020 were $0.8 million and $4.2 million, respectively (post modification balance).

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

As noted within Note 5, “Loans and Allowance for Credit Losses” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K, loan modifications made in response to the COVID-19 pandemic that 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) are not deemed TDRs.

This election afforded by the CARES Act and Interagency guidance expired on January 1, 2022.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a TDR.

Loans modified during the year ended December 31, 2022 and 2021 which were determined to be TDRs were $12.6 million (post modification balance) and $0.8 million (post modification balance), respectively.

The Company executed 51 and 5 TDRs during the years ended December 31, 2022 and 2021, respectively.

As discussed further in the “COVID-19 Modifications” section below, we elected to apply the treatment of modifications to borrowers impacted by the COVID-19 pandemic afforded by the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) which resulted in such loans not being deemed TDRs.

This election, which expired on January 1, 2022, contributed to a significant decline in new TDRs during the years ended December 31, 2021 and 2020.

Consequently, modifications designated as TDRs increased during the year ended December 31, 2022 as we are no longer executing COVID-19 modifications.

The overall increase in TDR loans modified during the aforementioned periods consisted of an increase of $8.2 million and $3.6 million in commercial and consumer loan TDR modifications, respectively.

One loan totaling $1.0 million that was modified during the preceding 12 months subsequently defaulted during the year ended December 31, 2022.

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

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

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

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

We consider factors such as payment history, collateral values and accrual status when determining whether there was evidence of deterioration at the acquisition date.

The carrying value and prospective income recognition of PCI loans are predicated on future cash flows expected to be collected.

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

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

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

These modifications met the criteria of either Section 4013 of the CARES Act or the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) and therefore are not deemed TDRs.

As of December 31, 2022, the carrying amount of PCD loans was $56.6 million.

As discussed further below, we adopted ASU 2016-13, commonly referred to as CECL, on January 1, 2022.

Prior to such adoption, our acquired loans that exhibited evidence of deterioration of credit quality since origination were designated as PCI loans.

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

COVID-19 Modifications.

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

These modifications met the criteria of either Section 4013 of the CARES Act or the Interagency Statement on Loan Modifications

and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) and therefore are not deemed TDRs.

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

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

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

As such, we applied CARES Act TDR relief to qualifying loan modifications executed during the allowable time period.

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

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

As such, we applied CARES Act TDR relief to any qualifying loan modifications executed during the allowable time period.

The following table presents the balance of loans that received a COVID-19 modification and have not yet resumed repayment as of December 31, 2022 and 2021 and excludes loans acquired from Century:

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Balance % of Total Portfolio Balance % of Total Portfolio

(In thousands)

(Dollars in thousands)

Commercial and industrial $ — 0.0 % $ 4,548 0.2 %

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Other consumer — 0.0 % 706 0.3 %

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

$ 13,088 0.1 % $ 106,657 0.9 %

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

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

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

COVID-19 Pandemic-Impacted Industries.

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

As of December 31, 2021, we believe loans to our borrowers in office, retail, restaurant, and hotel industry categories represent those which have experienced and will likely continue to experience the most adverse effects of the COVID-19 pandemic.

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

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

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

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

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

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

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

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

(2) As of December 31, 2022 and 2021, remaining COVID-19 modifications included $12.8 million and $71.0 million, respectively, of loans to borrowers in the hotel industry.

As of December 31, 2022 and 2021, the aggregate amount of loans that received a COVID-19 modification and have become a non-performing loan after the respective deferral period was $4.4 million and $4.7 million, respectively.

Potential Problem Loans.

In the normal course of business, we become aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans, but which currently do not yet meet the criteria for classification as NPLs.

In response to the COVID-19 pandemic, we reviewed all of our credit exposures in industries that were expected to experience significant problems due to the pandemic and resulting economic contraction.

As part of that review, we downgraded our hotel loans, restaurant loans and other loans that we expected to have associated challenges as a result of the economic impact of the COVID-19 pandemic.

These loans were neither delinquent nor on non-accrual status.

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

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

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

At December 31, 2021 and 2020, our potential problem loans (including these COVID-19 pandemic-impacted loans), or loans with potential weaknesses that were not included in the non-accrual loans or in the loans 90 days or more past due categories, totaled $470.9 million and $563.3 million, respectively.

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

Allowance for loan losses.

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

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

At December 31, 2022 and 2021, our potential problem loans, or loans with potential weaknesses that were not included in the non-accrual loans or in the loans 90 days or more past due categories, totaled $187.0 million and $470.9 million, respectively.

Allowance for credit losses.

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

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

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

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

See “Risk Factors—Our loan loss allowance at December 31, 2021 may be difficult to evaluate in comparison to our peers” in Part I, Item 1A of this Annual Report on Form 10-K.

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

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

Loans that do not share similar risk characteristics with other loans are evaluated individually.

While we use available information to recognize losses on loans, future additions or subtractions to/from the allowance for loan losses may be necessary based on changes in NPLs, changes in economic conditions, or other reasons.

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

• estimated future loss in all impaired loans in each category;

• known increases in concentrations within each category;

• known increases within each category;

• certain higher risk classes of loans, or pledged collateral;

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• corporate goals and objectives;

• expertise of our lending staff;

• lending policy and practices;

• current and forecasted banking industry conditions, as well as regulatory environment.

Loans are periodically evaluated using changes in asset quality, historical losses, and other loss allocation factors, which form our basis for estimating incurred losses.

For risk rated loans, our risk-rating system takes into consideration a number of quantitative and qualitative factors, such as the borrower’s financial capacity, cash flow, liquidity, leverage, adequacy of collateral, tangible net worth, management team, industry, sales and supplier concentration, credit history,

additional support and the impact of outside factors on repayment ability.

Homogenous populations of loans that are not risk rated loans, are analyzed by loan category, taking into account delinquency ratios and historical loss experience.

• lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices;

• current and forecasted banking industry conditions, as well as the regulatory and competitive environment.

Loans are evaluated on a regular basis by management.

Expected lifetime losses are estimated on a collective basis for loans sharing similar risk characteristics and are determined using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output.

For commercial and industrial, commercial real estate, commercial construction and business banking portfolios, the quantitative model uses a loan rating system which is comprised of management’s determination of probability of default, or “PD,” loss given default, or “LGD” and exposure at default, or “EAD,” which are derived from historical loss experience and other factors.

For residential real estate, consumer home equity and other consumer portfolios, our quantitative model uses historical loss experience.

The allowance for loan losses is allocated to loan categories using both a formula-based approach and an analysis of certain individual loans for impairment.

We use a methodology to systematically estimate the amount of credit loss incurred in the loan portfolio.

Under our current methodology, the allowance for loan losses contains specific, general and other components.

The specific component consists of reserves for impaired loans (defined as those where we determine it is probable we will not collect all payments when due, typically classified as either doubtful or substandard).

All commercial, residential and consumer loan portfolios are periodically reviewed to identify the loans with deteriorating performance.

The reports used to identify those loans include, but are not limited to, delinquency reports, risk rating migration (for risk rated loans), asset quality reports, watch loan list and other credit risk management reports.

When a loan is determined to be impaired, the measurement will be based on the present value of expected future cash flows, except for collateral-dependent loans, where the impairment is based on the fair value of the collateral.

The general loss reserves methodology, which is applied to categories of loans with similar characteristics, covers all non-impaired loans and is based on our portfolio’s segment historical loss experience adjusted for qualitative factors.

The general loss reserve methodology considers multiple qualitative factors that may impact the loss experience during the incurred loss horizon period, including internal infrastructure factors, external macroeconomic factors, internal credit quality factors and external industry data, tailored to the specific loan category.

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

We use a methodology to systematically estimate the amount of expected credit loss in the loan portfolio.

Under our current methodology, the allowance for loan losses contains reserves related to loans for which the related allowance for loan losses is determined on individual loan basis and on a collective basis, and other qualitative components.

In the ordinary course of business, we enter 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 reserving method for loans receivable previously described.

The reserve for unfunded lending commitments is included in other liabilities in the Consolidated Balance Sheets.

The allowance for loan losses increased by $44.4 million, or 45.4%, to $142.2 million, or 1.05% of total loans, at December 31, 2022 from $97.8 million, or 0.80% of total loans at December 31, 2021.

The increase in the allowance for loan losses was primarily a result of our adoption of CECL, as previously described above, and increased loan balances, as previously described above.

The additional reserves required as a result of our adoption of CECL were primarily attributable to the loans we acquired in connection with our acquisition of Century which were recorded at fair value at the time of acquisition.

Under ASU 2016-13, the credit mark that is a component of the day-one fair value adjustment on acquired loans cannot be considered in the allowance computation, whereas under the incurred loss model, the credit mark could be considered for reserve determination purposes.

In connection with our adoption of this standard, we recorded an increase to the allowance for loan losses of $27.1 million which represented the one-time cumulative-effect adjustment.

For additional discussion of our allowance for credit losses measurement methodology, see Note 2, “Summary of Significant Accounting Policies” and Note 5, “Loans and Allowance for Loan Losses” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.

For additional discussion of the change in allowance for loan losses, refer to the later “ Provision for Loan Losses ,” included in the “Results of Operations” section within this Item 7.

For discussion of our previous methodology for estimating the allowance for loan losses, refer to Note 6, “Loans and Allowance for Loan Losses” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K and Note 2, “Summary of Significant Accounting Policies” included in Part II, Item 8 of the 2021 Form 10-K.

The following table summarizes credit ratios for the periods presented:

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Average total loans (1) $ 12,538,149 $ 10,021,862 $ 9,649,273 $ 8,947,876 $ 8,564,890

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

Total net charge-offs (recoveries) to average total loans outstanding during the period

Commercial and industrial (0.04) % 0.03 % 0.05 % (0.18) % 0.08 %

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

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

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

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

The economic environment during the year ended December 31, 2021 was assisted by government stimulus, the impacts of loan deferral programs, reductions in unemployment and reductions in COVID-19 related restrictions.

These, along with other factors, resulted in a release of allowance for loan losses of $9.7 million for the year ended December 31, 2021, as compared to a provision for allowance for loan losses of $38.8 million for the year ended December 31, 2020.

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

Non-accrual loans increased $5.6 million, or 17%, to $38.6 million at December 31, 2022 from $33.0 million at December 31, 2021, primarily due to increases in non-accrual loans in our residential real estate and consumer home equity portfolios of $3.1 million and $2.3 million, respectively.

Non-accrual residential real estate and consumer home equity loans increased primarily due to several loans moving to non-accrual status which had been acquired in connection with our acquisition of Century.

The following tables sets forth the allocation of the allowance for loan losses by loan categories listed in loan portfolio composition and the related loan balances as a percentage of total loans as of the dates indicated:

Summary of Allocation of Allowance for Loan Losses

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Total $ 142,211 100.00 % 100.00 % $ 97,787 100.00 % 100.00 %

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

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

As of December 31,

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Total $ 113,031 100.00 % 100.00 % $ 82,297 100.00 % 100.00 % $ 80,655 100.00 % 100.00 %

(1) PPP loans are included within these portfolios as of December 31, 2022, December 31, 2021, and December 31, 2020;

however, as of each such date, no allowance for loan losses was recorded on these loans due to the SBA guarantee of 100% of the loans.

To determine if a loan should be charged-off, all possible sources of repayment are analyzed.

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For troubled, collateral-dependent loans, loss confirming events may include an appraisal or other valuation that reflects a shortfall between the value of the collateral and the carrying value of the loan or receivable, or a deficiency balance following the sale of the collateral.

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

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

For information about risks associated with our adoption of the CECL standard, see “Risk Factors—“We increased our allowance for loan losses as a result of our adoption as of January 1, 2022 of the new accounting standard for determining the amount of the allowance for loan losses and may be required to do so again in the future.” in Part I, Item 1A of this Annual Report on Form 10-K.

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

Federal Home Loan Bank stock

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We held an investment in the FHLBB of $41.4 million and $10.9 million at December 31, 2022 and 2021, respectively.

The amount of stock we are required to purchase is in proportional to our FHLB borrowings and level of total assets.

Accordingly, the increase in the FHLB stock is due to increased borrowing.

Goodwill and other intangible assets

Goodwill and other intangible assets were $661.1 million and $649.7 million at December 31, 2022 and 2021, respectively.

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

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

The increase in goodwill and other intangibles assets was due to the purchase of two insurance agencies during the year ended December 31, 2022.

The aggregate amount of goodwill that was added as a result of these acquisitions was $8.7 million.

For more information regarding our insurance agency acquisitions, refer to Note 3,“Mergers and Acquisitions” and Note 9,“Goodwill and Other Intangibles” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.

We did not record any impairment to our goodwill or other intangible assets during the years ended December 31, 2022 and 2021.

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

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

Deposits and other interest-bearing liabilities

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

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

In addition, we may occasionally raise funds through the use of brokered deposits.

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

Components of Deposits

As of December 31, Change

2021 2020 Amount ($) Percentage (%)

As of December 31, Change Change

2022 2021 Amount ($) Amount (%)

(Dollars in thousands)

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(1) The Bank’s estimate of total uninsured deposits was $9.0 billion and $11.0 billion at December 31, 2022 and December 31, 2021, respectively.

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

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

Acquired Deposits at Fair Value

As of November 12, 2021

(Dollars in thousands)

Demand $ 1,744,600

Interest checking 1,406,039

Savings 1,011,569

Money market investments 1,611,947

Certificates of deposit 325,666

Total deposits $ 6,099,821

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

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

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

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

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

(2) Brokered deposits are included in certificates of deposits and amounted to $928.6 million at December 31, 2022.

As of December 31, 2021, we had purchased no brokered certificates of deposit.

Deposits decreased by $0.7 billion, or 3.3%, to $19.0 billion at December 31, 2022 from $19.6 billion at December 31, 2021.

This decrease was primarily the result of a decrease in money market investments of $0.8 billion, a decrease in demand deposits of $0.8 billion, and a decrease in savings deposits of $0.2 billion.

These decreases were partially offset by an increase of $1.1 billion in certificates of deposit.

The overall decrease is primarily due to a runoff of higher cost deposits acquired in connection with our acquisition of Century, the runoff of government stimulus funds which had been deposited by our customers, higher market rates resulting in greater industry-wide competition for deposits, and a transfer of deposits during the second quarter of 2022.

On January 14, 2022, we announced we had entered into an asset purchase agreement for the transfer of our cannabis-related and money service business deposits relationships, which we acquired from Century, to Needham Bank.

On April 1, 2022, we completed the transfer of such deposits, which was subject to a post-transfer settlement period of 60 days.

The total amount transferred, which includes amounts transferred during the post-transfer settlement period, was $278.0 million.

Partially offsetting these decreases was an increase of $1.1 billion in certificates of deposit which was primarily attributable to the purchase of $928.6 million of brokered certificates of deposit during the year ended December 31, 2022.

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

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Money market investments 5,057,445 0.27 % 3,870,712 0.06 % 3,212,752 0.23 %

Time accounts 280,141 0.21 % 300,381 0.52 % 392,035 1.02 %

Certificates of deposit 463,261 0.70 % 280,141 0.21 % 300,381 0.52 %

Total deposits $ 19,074,584 0.15 % $ 14,047,830 0.04 % $ 11,398,968 0.10 %

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Maintaining available borrowing capacity provides us with a contingent source of liquidity.

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

Our total borrowings increased by $706.6 million to $740.8 million at December 31, 2022 compared to $34.3 million at December 31, 2021.

The increase was primarily due to an increase in FHLB advances, which we borrowed primarily to fund loan originations.

The increase was also due, in part, to an increase in interest rate swap collateral funds, which represents collateral posted to us by our financial institution counterparties for over-the-counter interest rate swaps.

At December 31, 2021, our financial institution counterparties were not required to post collateral to us due to the low level of market interest rates.

Conversely, at December 31, 2022, following increases in market interest rates during the year ended December 31, 2022, our financial institution counterparties were required to post collateral to us of $14.4 million.

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

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As of December 31, Change

2021 2020 Amount ($) Percentage (%)

(Dollars in thousands)

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

2022 2021 Amount ($)

(In thousands)

Federal Home Loan Bank short-term advances $ 691,297 $ 17 $ 691,280

Escrow deposits of borrowers 22,314 20,258 2,056

Interest rate swap collateral funds 14,430 — 14,430

Federal Home Loan Bank long-term advances 12,787 14,003 (1,216)

Total $ 740,828 $ 34,278 $ 706,550

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Net interest income 568,054 429,827 138,227 32.2 %

Provision for loan losses (9,686) 38,800 (48,486) (125.0) %

Provision for (release of) allowance for loan losses 17,925 (9,686) 27,611 (285.1) %

Noninterest income 176,161 193,155 (16,994) (8.8) %

Noninterest expense 469,602 443,956 25,646 5.8 %

Income taxes 34,047 13,163 20,884 158.7 %

Income tax expense 56,929 34,047 22,882 67.2 %

Net income $ 199,759 $ 154,665 $ 45,094 29.2 %

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

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

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

Overall, the average balance of our interest-earning assets increased $4.9 billion, or 29.6%, to $21.6 billion as of December 31, 2022 compared to $16.7 billion as of December 31, 2021, reflecting the addition of Century assets.

Also contributing to the increase in interest and dividend income was an increase in the yield on average interest-earning assets which increased by 22 basis points to 2.86% during the year ended December 31, 2022.

Our yields on loans and securities are generally presented on an FTE basis where the embedded tax benefit on loans or securities are calculated and added to the yield.

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

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

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

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

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

The decrease in interest income on our

loans was primarily due to the decrease in yield on average loans which was driven by the downward adjustment of the interest rates on our existing adjustable-rate loans as a result of lower interest rates.

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

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

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

• Interest income on securities and other short-term investments increased $61.6 million, or 91.1%, to $129.1 million for the year ended December 31, 2022 compared to $67.6 million for the year ended December 31, 2021.

The increase in interest income on securities was primarily due to an increase in the average balance and yield of such securities.

The average balance of our securities increased $2.4 billion, or 36.3%, to $9.1 billion as of December 31, 2022 compared to $6.7 billion as of December 31, 2021, which was primarily due to securities acquired in connection with our acquisition of Century of $3.1 billion partially offset by a net reduction in the balance of securities as a result of security sales, maturities and principal paydowns in excess of security purchases during the year ended December 31, 2022.

The yield on our securities increased 40 basis points during the year ended December 31, 2022 in comparison to the year ended December 31, 2021.

This increase is due primarily to HTM securities purchased at higher interest rates as well as an increase in yields on other short-term investments, the latter of which is due to increases in the rate received on reserve balances held at the Federal Reserve Bank of Boston, commensurate with increases in the federal funds rate.

• Interest income on loans increased by $108.5 million, or 29.5%, to $476.0 million during the year ended December 31, 2022 from $367.6 million during the year ended December 31, 2021.

The increase in interest

income on our loans was primarily due to an increase in the average balance of loans and an increase in the yield on loans partially offset by a decrease in net accretion of PPP loan deferred fees and costs.

The average balance of our loans increased $2.5 billion, or 25.1%, to $12.5 billion during the year ended December 31, 2022 from $10.0 billion during the year ended December 31, 2021, which was primarily due to loans acquired in connection with our acquisition of Century of $2.9 billion.

The FTE yield on average loans increased 17 basis points to 3.88% during the year ended December 31, 2022.

The slight increase in loan yields was primarily due to increases in market rates of interest and was partially offset by a decrease in net accretion of PPP loan deferred fees and costs which decreased $25.3 million to $9.0 million during year ended December 31, 2022 from $34.3 million during the year ended December 31, 2021.

Interest Expense

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

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

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

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

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

The increase in deposit costs associated with the increase in average deposits was more than offset by the reduction in rates paid on deposits during the year ended December 31, 2021 compared to the year ended December 31, 2020.

Interest expense increased $31.8 million, or 596.3%, to $37.1 million during the year ended December 31, 2022 from $5.3 million during the year ended December 31, 2021.

The increase was attributable to increases in both deposit interest expense and borrowings interest expense.

• Interest expense on our interest-bearing deposits increased by $23.5 million, or 453.9%, to $28.6 million during the year ended December 31, 2022 from $5.2 million during the year ended December 31, 2021.

This increase was due to an increase in rates paid on deposits and due to an increase in average interest-bearing deposits.

Rates paid on interest-bearing deposits increased by 17 basis points to 0.23% during the year ended December 31, 2022 from 0.06% during the year ended December 31, 2021, which were increased in response to an increase in market rates of interest.

Average interest-bearing deposits increased $3.9 billion, or 46.2%, to $12.4 billion for the year ended December 31, 2022 from $8.5 billion for the year ended December 31, 2021 which was primarily due to our acquisition of Century which added approximately $4.4 billion in interest-bearing deposits.

• Interest expense on borrowed funds increased by $8.3 million to $8.5 million during the year ended December 31, 2022 from $0.2 million during the year ended December 31, 2021 which was primarily attributable to an increase in the average balance.

Average borrowed funds increased by $230.1 million, or 868.6%, to $256.6 million for the year ended December 31, 2022 from $26.5 million for the year ended December 31, 2021, due to an increase in FHLB advances, which we borrowed to fund loan originations.

Net Interest Income

Net interest income increased by $138.2 million, or 32.2%, to $568.1 million during the year ended December 31, 2022, from $429.8 million during the year ended December 31, 2021.

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

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

Net interest income increased due to an increase in yields on interest-earning assets which exceeded the increase in the costs of interest-bearing liabilities.

Also contributing to the increase in net interest income was an increase in net interest-earning assets of $0.8 billion, or 9.6%, to $8.9 billion during the year ended December 31, 2022 from $8.2 billion during the year ended December 31, 2021.

The following chart shows our net interest margin over the past five annual periods including and excluding net PPP loan fee accretion:

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

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

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

For purposes of the following discussion, income from tax-exempt loans and investment securities has been adjusted to an FTE basis, using a marginal tax rate of 21.6% for the year ended December 31, 2022, 21.0% for the year ended December 31, 2021 and 21.8% for the year ended December 31, 2020.

Net interest margin, including PPP loan interest income, increased 8 basis points to 2.69% during the year ended December 31, 2022, from 2.61% during the year ended December 31, 2021.

The increase in net interest margin for the year ended December 31, 2022 was primarily due to an increase in market rates of interest and was partially offset by a decline in PPP net fee accretion of $25.3 million in comparison to the year ended December 31, 2021.

For additional discussion of the decline in the PPP loan net fee accretion and increased interest rates, refer to the earlier “Outlook and Trends” section within this Item 7.

The following tables set forth average balance sheet items, average yields and costs, and certain other information for the periods indicated.

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The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

Average Balances, Interest Earned/Paid, & Average Yields

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

As of and for the Year Ended December 31,

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Taxable investment securities 8,413,217 118,690 1.41 % 4,890,737 58,312 1.19 % 1,560,610 31,831 2.04 %

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

Other short-term investments 420,834 3,271 0.78 % 1,514,351 1,886 0.12 % 1,288,714 1,758 0.14 %

Total interest-earning assets 21,627,268 617,917 2.86 % 16,689,256 441,252 2.64 % 12,766,679 418,800 3.28 %

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Total interest-bearing deposits 12,427,066 28,621 0.23 % 8,500,215 5,167 0.06 % 6,863,902 11,315 0.16 %

Borrowings 26,495 165 0.62 % 72,101 762 1.06 % 291,413 6,452 2.21 %

Federal funds purchased (7) 964 24 2.49 % — — — % 45,204 570 1.26 %

Other borrowings 255,668 8,482 3.32 % 26,495 165 0.62 % 26,897 192 0.71 %

Total interest-bearing liabilities 12,683,698 37,127 0.29 % 8,526,710 5,332 0.06 % 6,936,003 12,077 0.17 %

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Total liabilities 19,782,600 14,438,516 11,823,587

Total net worth 3,424,570 2,040,156 1,543,191

Total liabilities and retained earnings $ 17,863,086 $ 13,863,743 $ 11,404,110

Shareholders’ equity 2,831,533 3,424,570 2,040,156

Total liabilities and shareholders’ equity $ 22,614,133 $ 17,863,086 $ 13,863,743

Net interest income - FTE $ 580,790 $ 435,920 $ 406,723

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

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

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

Refer to the earlier “ Non-GAAP Financial Measures” section within this Item 7 for additional information.

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

(6) Represents net income divided by average equity.

(7) Federal funds purchased and the related interest expense for the 2020 period primarily related to federal funds purchased for correspondent bank customers.

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

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Taxable investment securities 12,245 48,133 60,378 (17,822) 44,303 26,481

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

Other short-term investments 3,611 (2,226) 1,385 (162) 290 128

Total interest-earning assets $ 36,308 $ 140,357 $ 176,665 $ (36,741) $ 59,193 $ 22,452

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Total interest-bearing deposits 19,694 3,760 23,454 (7,912) 1,764 (6,148)

Borrowings (235) (362) (597) (2,332) (3,358) (5,690)

Federal funds purchased — 24 24 — (570) (570)

Other borrowings 2,773 5,544 8,317 (24) (3) (27)

Total interest-bearing liabilities 22,467 9,328 31,795 (7,936) 1,191 (6,745)

Change in net interest income $ 13,841 $ 131,029 $ 144,870 $ (28,805) $ 58,002 $ 29,197

The following chart shows the composition of our quarterly average interest-earning assets for the past five quarters:

Provision for Loan Losses

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

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

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

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

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

During the year ended December 31, 2021, management determined the allowance for loan losses in accordance with ASC 450, “Contingencies” and ASC 310, “Receivables” (i.e., prior to our adoption of ASU 2016-13).

We recorded a provision for loan losses of $17.9 million for the year ended December 31, 2022, compared to a release of $9.7 million for the year ended December 31, 2021.

Management determined a provision to be necessary primarily due to increased loan balances.

Also contributing to the provision for the year ended December 31, 2022 was an increase in the overall reserve rate.

The reserve rate increased by 25 basis points to 1.05% at December 31, 2022 from 0.80% at December 31, 2021.

We recorded a transition adjustment in connection with our adoption of ASU 2016-13 on January 1, 2022 of $27.1 million which resulted in an increase in the reserve rate to 1.02% at that time based upon loan balances as of December 31, 2021.

Subsequently, the reserve rate further increased by 3 basis points to 1.05% as of December 31, 2022 which was the result of changes in macroeconomic conditions.

To determine our allowance for loan losses as of December 31, 2022 and the provision for loan losses for the year ended December 31, 2022, we used the Oxford Economics December 31, 2022 Baseline forecast (“the forecast”) to generate our modeled expected losses by loan portfolio in order to reflect management’s reasonable expectations of current and future economic conditions.

The forecast assumed the U.S.

economy will enter a recession in the second quarter of 2023, reflecting the combination of persistently high inflation, aggressive Federal Reserve monetary policy tightening, slower global gross domestic product (“GDP”) activity, and weaker corporate earnings, all of which are expected to adversely impact consumers’ and businesses’ willingness to spend.

Primary macroeconomic assumptions included in management’s evaluation of the adequacy of the allowance for loan losses included continued low, but rising, unemployment rates which are expected to continue to rise until their peak in early 2024, and a peak-to-trough decline in GDP of 1.2%.

Further, the forecast assumed that the FOMC will continue to raise interest rates into early 2023 following its most recent December 2022 increase but then remain flat into early 2024.

For discussion of our previous methodology for estimating the allowance for loan losses, refer to Note 6, “Loans and Allowance for Loan Losses” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K and Note 2, “Summary of Significant Accounting Policies” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”).

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

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Debit card processing fees 12,644 12,118 526 4.3 %

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

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

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

Interest rate swap income 6,009 5,634 375 6.7 %

(Losses) income from investments held in rabbi trusts (10,762) 10,217 (20,979) (205.3) %

Gains on sales of mortgage loans held for sale, net 248 3,605 (3,357) (93.1) %

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

(Losses) gains on sales of securities available for sale, net (3,157) 1,166 (4,323) (370.8) %

Other 17,962 16,852 1,110 6.6 %

Total noninterest income $ 176,161 $ 193,155 $ (16,994) (8.8) %

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

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

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

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

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

Noninterest income decreased by $17.0 million, or 8.8%, to $176.2 million for the year ended December 31, 2022 from $193.2 million for the year ended December 31, 2021.

The decrease was primarily due to a $21.0 million decrease in income from investments held in rabbi trusts which resulted from a current period net loss from such investments, a $4.3 million decrease in gains on sales of securities available for sale which resulted from a current period net loss from such sales compared to a net gain in the comparative prior period, and a $3.4 million decrease in net gains on sales of mortgage loans.

These decreases were partially offset by a $6.1 million increase in service charges on deposit accounts and an $4.5 million increase in insurance commissions.

• Income from investments held in rabbi trusts decreased to a net loss primarily as a result of an unfavorable mark-to-market adjustment on equity securities held in these accounts resulting from a decline in the market value of equity securities held in rabbi trusts.

• Gains on sales of securities available for sale, net, decreased to a net loss due to the decision by management to sell certain available for sale securities during the year ended December 31, 2022, a portion of which were acquired in connection with our acquisition of Century and were in a net unrealized loss position at the time of sale.

• Net gains resulting from the sale of mortgage loans held for sale decreased due to a reduction in the volume of our mortgage loan sales on the secondary market which was primarily due to rising market rates of interest.

• Service charges on deposit accounts increased primarily as a result of increased corporate account analysis charges as a result of greater commercial deposit customer activity.

The increased customer deposit activity is primarily attributable to our acquisition of Century.

• Insurance commissions increased due to an increase in recurring commission income which was attributable to recent insurance agency acquisitions.

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

Noninterest Expense

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Noninterest Expense

For the Year Ended December 31, Change

For the Year Ended December 31, Change Century Merger & Acquisition Expenses (1) Change Excluding Merger & Acquisition Expenses (1)

2022 2021 Amount %

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Professional services 16,814 21,879 (5,065) (23.2) % 9,223 4,158

Charitable contributions — 95,272 (95,272) (100.0) %

Marketing 9,540 8,741 799 9.1 % — 799

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

Loan expenses 6,384 9,114 (2,730) (30.0) % — (2,730)

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Total noninterest expense $ 469,602 $ 443,956 $ 25,646 5.8 % $ 35,456 $ 61,102

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

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

Century Merger & Acquisition Expenses

For the Year Ended December 31, 2021

(In thousands)

Salaries and employee benefits $ 15,947

Office occupancy and equipment 7,198

Data processing 1,286

Professional services 9,223

Total merger and acquisition expenses $ 35,456

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) We recorded merger and acquisition expenses of $35.5 million during the year ended December 31, 2021 related to our acquisition of Century.

These merger and acquisition expenses were deducted from the corresponding financial statement line items in the above table to compute the related change excluding such expenses for purposes of the below discussion.

Noninterest expense increased by $25.6 million, or 5.8%, to $469.6 million during the year ended December 31, 2022 from $444.0 million during the year ended December 31, 2021.

The increase was primarily due to the following financial statement line items (changes excluding merger and acquisition expenses included in such financial statement line items):

an $18.2 million increase in salaries and employee benefits, a $22.1 million increase in other noninterest expenses, a $7.7 million increase in data processing, and a $7.5 million increase in office occupancy and equipment.

Partially offsetting these increases was a decrease in merger and acquisition expenses of $35.2 million to $0.3 million during the year ended December 31, 2022 from $35.5 million during the year ended December 31, 2021.

• Salaries and employee benefits, excluding merger and acquisition expenses, increased primarily due to salaries and wages for newly hired employees and former employees of Century who were retained following the acquisition.

In addition, share-based compensation, which is related to restricted stock awards (“RSAs”) granted in the fourth quarter of 2021 and second quarter of 2022 and awards of restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted in the first quarter of 2022, increased $10.3 million.

The increase is due to a full year of expense recognized during the year ended December 31, 2022 related to RSAs granted in 2021 and a partial year of expense during the year ended December 31, 2022 related to RSAs, RSUs and PSUs granted in 2022.

During the year ended December 31, 2021, we recognized expense related to RSAs for approximately one month as such awards were granted on November 30, 2021.

As of December 31, 2021, we had not granted any awards of RSUs or PSUs.

Lastly, our deferrals of loan origination-related costs decreased by $9.9 million, resulting in a corresponding increase in salaries and employee benefits expenses.

These increases were partially offset by a decrease of $10.7 million in benefit expense related to our defined contribution supplemental executive retirement plan (“DC SERP”).

Participant benefits are adjusted based upon deemed investment performance.

Accordingly, such investments experienced a decline in value during the year ended December 31, 2022 resulting in a corresponding decrease in the related benefit expense.

• Other noninterest expenses, excluding merger and acquisition expenses, increased primarily due to a pension settlement-related expense recorded during the year ended December 31, 2022 of $12.0 million related to the Defined Benefit Plan.

Also contributing to the overall increase was an $2.2 million increase in liability insurance expense, which was primarily due to regular insurance rate premium increases and our acquisition of Century, which increased the number of our properties and, therefore, the scope of our required insurance coverage, a $1.9 million increase in customer bad check losses during the year ended December 31, 2022 compared to the year ended December 31,

2021, consistent with a nationwide increase in mail-based check fraud, and a $1.5 million increase in our provision for off-balance sheet credit exposures which was primarily due to an increase in unfunded loan commitments.

Partially offsetting these items was a decrease of $3.3 million in legal expenses associated with the settlement of two putative consumer class action litigation matters related to overdraft and non-sufficient funds fees.

The accrual for such expenses was initially recorded during the second quarter of 2021 and final settlement of the legal matters occurred during the first quarter of 2022.

For additional information, refer to Note 18, “Commitments and Contingencies” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

• Data processing expenses, excluding merger and acquisition expenses, are primarily comprised of costs associated with the processing of customer transactions including loans and deposits and are partially impacted by fluctuations in related transaction volume.

Such expenses increased during the year ended December 31, 2022 from the year ended December 31, 2021 primarily due to our acquisition of Century in the fourth quarter of 2021 which resulted in the acquisition of additional loan and deposit customers.

• Office occupancy and equipment, excluding merger and acquisition expenses, increased during the year ended December 31, 2022 as compared to the year ended December 31, 2021 primarily due to the addition of properties resulting from our acquisition of Century and which included a $2.1 million increase in depreciation expense, and lease impairment charges of $0.6 million, which were due to an early termination of a lease acquired from Century.

• Merger and acquisition expenses decreased $35.2 million to $0.3 million during the year ended December 31, 2022 from $35.5 million during the year ended December 31, 2021.

In connection with our acquisition of Century, which we completed on November 12, 2021, we incurred merger and acquisition costs of $35.5 million during the year ended December 31, 2021.

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

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

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

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

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

We recognize the tax effect of all income and expense transactions in each year’s consolidated statements of income, regardless of the year in which the transactions are reported for income tax purposes.

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Income tax expense increased by $22.9 million to $56.9 million in the year ended December 31, 2022 from $34.0 million in the year ended December 31, 2021.

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

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

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

The increase in income tax expense was due primarily to higher pre-tax income during the year ended December 31, 2022 compared to the year ended December 31, 2021 and an increase in our effective income tax rate.

The increase in our effective income tax rate was due primarily to a partial release of $11.3 million during the year ended December 31, 2021 related to a valuation allowance established as of December 31, 2020 against our charitable contribution carryover deferred tax asset in connection with our 2020 charitable contribution to the Eastern Bank Foundation compared to a release of $0.7 million during the year ended December 31, 2022.

For additional information related to our income taxes see Note 12, “Income Taxes” and Note 14, “Low Income Housing Tax Credits and Other Tax Credit Investments” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Financial Position and Results of Operations of our Business Segments

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Net interest income $ 568,054 $ — $ — $ 568,054 $ 429,827 $ — $ — $ 429,827

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

Provision for (release of) allowance for loan losses 17,925 — — 17,925 (9,686) — — (9,686)

Net interest income after provision for loan losses 550,129 — — 550,129 439,513 — — 439,513

1 unchanged sentence

Noninterest expense 390,880 83,208 (4,486) 469,602 365,410 82,780 (4,234) 443,956

Income before provision for income taxes 170,479 14,388 3,845 188,712 13,080 18,933 3,888 35,901

Income tax provision 29,994 4,053 — 34,047 7,870 5,293 — 13,163

Income before income tax expense 237,251 15,606 3,831 256,688 170,479 14,388 3,845 188,712

Income tax expense 52,521 4,408 — 56,929 29,994 4,053 — 34,047

Net income $ 184,730 $ 11,198 $ 3,831 $ 199,759 $ 140,485 $ 10,335 $ 3,845 $ 154,665

2 unchanged sentences

Banking Segment

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

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

The increase in average interest-earning assets resulted in an increase in interest income and was partially offset by a decline in market rates of interest.

• Interest and dividend income increased by $170.0 million, or 39.1%, to $605.2 million during the year ended December 31, 2022 from $435.2 million during the year ended December 31, 2021 which was primarily due to an increase in average interest-earning assets.

Average interest-earning assets increased $4.9 billion, or 29.6%, to $21.6 billion for the year ended December 31, 2022 from $16.7 billion for the year ended December 31, 2021.

The increase was primarily due to the acquisition of Century, which closed on November 12, 2021 and added approximately $6.6 billion in interest-earning assets.

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

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

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

• Interest expense increased $31.8 million, or 596.3%, to $37.1 million during the year ended December 31, 2022 from $5.3 million during the year ended December 31, 2021 which was primarily due to increased rates paid on deposits which increased 17 basis points during the year ended December 31, 2022 compared to the year ended December 31, 2021.

The overall change in average interest-bearing liabilities also contributed to the increase in interest expense and increased $4.2 billion, or 48.8%, to $12.7 billion for the year ended December 31, 2022 from $8.5 billion for the year ended December 31, 2021, with average total interest-bearing deposits, our largest category of average interest-bearing liabilities, growing $3.9 billion, or 46.2%, to $12.4 billion as of December 31, 2022 compared to $8.5 billion as of December 31, 2021.

Average interest-bearing deposits increased primarily due to our acquisition of Century, which added $4.4 billion in interest-bearing deposits.

Also contributing to the increase in average interest-bearing liabilities was average borrowings which increased $230.1 million to $256.6 million for the year ended December 31, 2022 from $26.5 million for the year ended December 31, 2021.

The increase in borrowings was primarily to provide additional liquidity for the funding of loan growth.

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

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

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

• We recorded a provision for allowance for loan losses of $17.9 million for the year ended December 31, 2022, compared to a release of allowance for loan losses of $9.7 million for the year ended December 31, 2021.

We determined a provision to be appropriate primarily due to overall increased loan balances during the year ended December 31, 2022.

Comparatively, during the year ended December 31, 2021, following continued improvement in economic and credit conditions, we had determined that a release of the provision was necessary.

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

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

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

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

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

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

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

• Losses from investments held in rabbi trust accounts were $9.5 million for the year ended December 31, 2022 which represents a decrease of $18.7 million, or 201.9%, from income of $9.3 million for the year ended December 31, 2021.

The decrease was primarily the result of an unfavorable mark-to-market adjustment on equity securities held in these accounts during the year ended December 31, 2022.

• Losses on sales of securities available for sale, net, were $3.2 million during the year ended December 31, 2022 which represents a decrease of $4.3 million from the year ended December 31, 2021, a period during which we recognized a net gain of $1.2 million.

The net loss on sale was due to the decision by management to sell certain

AFS securities during the year ended December 31, 2022, the majority of which were acquired in connection with our acquisition of Century and were in a net unrealized loss position at the time of sale.

• Gains on sales of mortgage loans held for sale, net, were $0.2 million during the year ended December 31, 2022 which represents a decrease of $3.4 million from gains of $3.6 million during the year ended December 31, 2021.

The decrease was primarily due to a reduction in the volume of our mortgage loan sales on the secondary market which was primarily due to rising market rates of interest.

• Partially offsetting the losses from investments held in rabbi trust accounts and losses on sales of securities available for sale during the year ended December 31, 2022 were service charges on deposit accounts which increased $6.1 million during the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily as a result of increased corporate account analysis charges as a result of greater commercial deposit customer activity during the year ended December 31, 2022.

• Noninterest expense increased $25.5 million, or 7.0%, to $390.9 million during the year ended December 31, 2022 from $365.4 million during the year ended December 31, 2021.

This increase was primarily due to an increase of $22.1 million in salaries and wages expense, a $10.4 million pension settlement-related expense during the year ended December 31, 2022 (representing the banking segment-only portion of the total settlement-related expense recognized), an increase of $10.3 million in share-based compensation, and an increase of $6.4 million in data processing expenses.

Partially offsetting these increases was a decrease of $19.0 million in other compensation which was primarily attributable to decreased merger and acquisition-related expenses.

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

Insurance Agency Segment

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

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

• Noninterest income related to our insurance agency business increased by $1.6 million, or 1.7%, to $98.8 million during the year ended December 31, 2022 from $97.2 million during the year ended December 31, 2021 primarily due to increased commission income.

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

• Noninterest expense related to our insurance agency business remained relatively consistent during the year ended December 31, 2021 compared to the year ended December 31, 2021 with a slight increase of $0.4 million, or 0.5%, to $83.2 million during the year ended December 31, 2022 from $82.8 million during the year ended December 31, 2021.

The slight increase is primarily due to the previously mentioned pension settlement-related expense, of which $1.6 million related to the insurance agency segment.

Critical Accounting Policies and Estimates

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Allowance for Loan Losses .

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

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

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

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

The allowance for loan losses is evaluated at least quarterly.

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

We use a methodology to systematically estimate the amount of credit loss incurred in the portfolio.

Commercial real estate, commercial construction, commercial and industrial, 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 using delinquency ratios, historical loss experience and charge-offs.

The allowance consists of specific and general components.

The specific component relates to loans that are deemed to be impaired.

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 historical loss experience adjusted for qualitative factors.

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

We adopted the CECL standard effective January 1, 2022.

Through December 31, 2021, the allowance for loan losses represented management’s best estimate of incurred probable losses in our loan portfolios based upon management’s assessment of various factors, including the risk characteristics of our loan portfolio, current economic conditions, and trends in loan delinquencies and charge-offs.

Our methodology for determining the qualitative component through December 31, 2021 included an assessment of factors affecting the determination of incurred losses in the loan portfolio.

Such factors included trends in economic conditions, loan growth, credit underwriting policy exceptions, regulatory and audit findings, and peer comparisons, among others.

Upon adoption of ASU 2016-13, effective January 1, 2022, we changed our reserve methodology to estimate expected credit losses over the contractual life of loans and leases.

The allowance for credit losses, or ACL, is established to provide for our current estimate of expected lifetime credit losses on loans measured at amortized cost and unfunded lending commitments at the balance sheet date and is established through a provision for credit losses charged to net income.

Management uses a methodology to systematically estimate the amount of expected lifetime losses in the portfolio.

risk and model risk inherent in the quantitative model output.

For commercial and industrial, commercial real estate, commercial construction and business banking portfolios, the quantitative model uses a loan rating system which is comprised of management’s determination of a financial asset’s probability of default (“PD”), loss given default (“LGD”) and exposure at default (“EAD”), which are derived from historical loss experience and other factors.

For residential real estate, consumer home equity and other consumer portfolios, our quantitative model uses historical loss experience.

The quantitative model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments.

Economic forecasts, one of the most significant judgments influencing the ACL, are incorporated into the estimate over a reasonable and supportable forecast period of eight quarters, beyond which is a reversion to our historical loss average which occurs over a period of four quarters.

Management’s estimate of the ACL as of December 31, 2022 was supported, in part, by Oxford Economic’s, December 2022 Baseline forecast (“the forecast”).

The forecast assumed the U.S.

economy will enter a recession in the second quarter of 2023, reflecting the combination of persistently high inflation, aggressive Federal Reserve monetary policy tightening, slower GDP activity, and weaker corporate earnings, all of which are expected to adversely impact consumers’ and businesses’ willingness to spend.

Further, the forecast assumed that the FOMC will continue to raise interest rates into early 2023 following its December 2022 increase but then remain flat into early 2024.

Changes in the economic forecast could significantly affect the estimated credit losses which could potentially lead to materially different reserve amounts from one reporting period to the next.

To illustrate the sensitivity of the modeled result to the impact of a hypothetical change in the economic forecast, management calculated the allowance for loan losses assuming the downside economic forecast scenario and, separately, the upside economic forecast scenario were used.

The downside scenario assumed the US economy will enter a recession in the first quarter of 2023 and experience a decline in GDP of 3.2% peak-to-trough.

Use of the downside scenario would have resulted in an incremental increase in the allowance for loan losses of approximately $10.4 million as of December 31, 2022.

The upside scenario assumed GDP growth of 1.4% in 2023, 1.9% in 2024 and sustained recovery.

Use of the upside scenario would have resulted in an incremental decrease in the allowance for loan losses of approximately $3.1 million as of December 31, 2022.

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

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

Goodwill and Other Intangibles .

We evaluate goodwill for impairment at least annually, or more often if warranted, using a quantitative impairment approach.

The quantitative impairment testing compares book value to fair value of the reporting unit.

If book value exceeds fair value, an impairment is charged to earnings and allocated to the appropriate reporting unit.

We evaluate other intangible assets, all of which are definite-lived, for impairment whenever there is an indication of impairment, and we evaluate annually the remaining useful lives of those intangible assets.

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

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

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

We evaluate 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, our intent to sell the security or whether it is more likely than not that we will be required to sell the debt security before its anticipated recovery, as well as other qualitative factors.

The term other-than-temporary impairment is not intended to indicate that the decline is permanent.

It indicates that the prospects for near-term recovery are not necessarily favorable or that there is a lack of evidence to support fair values greater than or equal to the carrying value of the investment.

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.

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

Pension and other Post Retirement Benefit Plans .

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

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

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.

Our employees become eligible after attaining age 21 and 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 cash balance plan design, benefits become fully vested after three years of eligible service.

Our 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.

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

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

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

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

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

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

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

Derivative Financial Instruments.

Derivative instruments are carried at fair value in our financial statements.

The accounting for 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.

Our derivative instruments that 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).

Our 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.

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

Fair Value Measurements .

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

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

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

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

When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data, may be used, if available, to determine fair value.

When observable market prices do not exist, we estimate fair value.

These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of revenue or loss recorded.

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 we exercise in determining fair value is greatest for instruments categorized in Level 3.

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

For information regarding our pension and other postretirement benefit plans including our pension contributions, investment strategies, assumptions, the change in benefit obligation and related plan assets, pension funding requirements and future net benefit payments, refer to Note 2, “Summary of Significant Accounting Policies” and Note 17, “Employee Benefits” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

Our defined benefit pension plans are accounted for on an actuarial basis, which requires the selection of various assumptions, including an expected long-term rate of return on plan assets for our Qualified Defined Benefit Pension Plan (“Defined Benefit Plan”), a discount rate, lump sum conversion rates, compensation and benefit limitation increase assumptions, mortality rates of participants and expectation of mortality improvement.

The expected long-term rate of return on plan assets that is utilized in determining Defined Benefit Plan pension expense is derived from periodic studies, which include a review of asset allocation strategies, investment policy, amount and types of expenses that will be paid from the Defined Benefit Plan, and the expected long-term return for the Defined Benefit Plan using recent forward looking capital market assumptions published by leading financial organizations.

While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return.

An investment policy study was completed for the Defined Benefit Pension Plan as of December 31, 2022.

As a result of the study, it was determined that the weighted-average long-term rate of return on assets in effect at December 31, 2021 of 7.00%, should be increased to 7.50% at December 31, 2022.

Another key assumption in determining net pension expense is the assumed discount rate used to discount plan obligations.

We estimate the assumed discount rate for all pension plans using a cash flow matching approach, which uses projected cash flows matched to spot rates along the Financial Times Stock Exchange (“FTSE”) above-median yield curve to determine the weighted-average discount rate for the calculation of the present value of cash flows.

We apply the individual annual yield curve rates instead of the assumed discount rate to determine the service cost and interest cost, which more specifically links the cash flows related to service cost and interest cost to bonds maturing in their year of payment.

For our Defined Benefit Plan and the Non-Qualified Benefit Equalization Plan, the interest rates used to convert annuities to the actuarial equivalent lump sum amounts were selected based on the applicable segment rates under Internal Revenue Code Section 417(e) for the plan year beginning on November 1, 2022.

The Society of Actuaries (“SOA”) most recently issued mortality improvement tables during the year ended December 31, 2021.

We reviewed our recent mortality experience and we determined our current mortality assumptions were appropriate to measure our pension plan obligations as of December 31, 2022.

Significant differences in actual experience or significant changes in assumptions may materially affect the pension obligations.

The effects of actual results differing from assumptions and the changing of assumptions are included in unamortized net actuarial gains and losses that are subject to amortization to pension expense over future periods.

The unamortized pre-tax actuarial loss on all of our pension plans was $99.0 million and $128.4 million at December 31, 2022 and December 31, 2021, respectively.

The year-over-year change was primarily due to an increase in discount rate assumptions used for determining the benefit obligation and lump sum conversion rates.

The overfunded status of all of our pension plans improved during the year ended December 31, 2022 to $56.8 million from $44.5 million primarily due to:

(i) the favorable effect of an increase in discount rates of $97.6 million;

(ii) the favorable effect of an increase in lump sum conversion rates of $39.3 million;

and (iii) changes in other actuarial assumptions and demographic data updates;

partially offset by (iv) the unfavorable effect of increased service and interest costs of $4.6 million;

and (v) actual pension plan investment returns less than expected of $127.0 million.

The following table illustrates the sensitivity to a change in certain assumptions for the pension plans, holding all other assumptions constant:

Effect on 2023 Pension Expense Effect on December 31, 2022 Pension Benefit Obligation

(in thousands)

25 basis point decrease in discount rate $ 539 $ 7,786

25 basis point increase in discount rate (519) (7,472)

25 basis point decrease in expected rate of return on plan assets 1,005 N/A

25 basis point increase in expected rate of return on plan assets (1,005) N/A

25 basis point decrease in lump sum conversion rates 494 3,558

25 basis point increase in lump sum conversion rates (472) (3,404)

Recent Accounting Pronouncements

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 (“ASU 2018-19”).

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

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

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

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

account for purchased financial assets with credit deterioration.

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 December 31, 2020.

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

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

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

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.

We expect the adoption of this standard will not have a material impact on our Consolidated Financial Statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments–Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”).

The amendments in this update eliminate the accounting guidance

on troubled debt restructurings (“TDRs”) for creditors in ASC 310-40 and amends the guidance on vintage disclosures, referenced in ASC 326-20-50, to require disclosure of current-period gross write-offs by year of origination.

This update supersedes the existing accounting guidance for TDRs in ASC 310-40 in its entirety and requires entities to evaluate all receivable modifications under existing accounting guidance in ASC 310-20 to determine whether a modification made to a borrower results in a new loan or a continuation of an existing loan.

In addition to the elimination of TDR accounting guidance, entities that adopt this update will no longer consider renewals, modifications and extensions that result from reasonably expected TDRs in their calculation of the allowance for credit losses.

Further, if an entity employs a discounted cash flow method to calculate the allowance for credit losses, it will be required to use a post-modification-derived effective interest rate as part of its calculation.

The update also requires new disclosures for receivables for which there has been a modification in their contractual cash flows resulting from borrowers experiencing financial difficulties.

For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Entities may elect to apply the updated guidance on TDR recognition and measurement by using a modified retrospective transition method.

The amendments on TDR disclosures and vintage disclosures should be adopted prospectively.

On January 1, 2023, we adopted this standard using the modified retrospective method with respect to the updated guidance on TDR recognition and measurement and the prospective approach with regard to the TDR and vintage disclosures.

The adoption of this standard did not have a material impact on our Consolidated Financial Statements.

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

Management of Market Risk

Market risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices.

Market risk is the sensitivity of the net present value of assets and liabilities and/or income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices.

Interest rate sensitivity is the most significant market risk to which we are exposed.

Interest rate risk is the sensitivity of income to changes in interest rates.

Interest rate risk is the sensitivity of the net present value of assets and liabilities and/or income to changes in interest rates.

Changes in interest rates, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, our primary source of income.

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These limits reflect our tolerance for interest rate risk over both short-term and long-term horizons.

We attempt to manage interest rate risk by identifying, quantifying, and where appropriate, hedging its exposure.

We attempt to manage interest rate risk by identifying, quantifying, and where appropriate, hedging our exposure.

If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists.

Our objective is to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary and within limits that management determines to be prudent, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors and caps.

Net Interest Income.

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We estimate what our net interest income would be for a 12-month period assuming no changes in interest rates.

We then calculate what the net interest income would be for the same period under the assumption that the U.S.

Treasury yield curve increases or decreases instantaneously by +200, +300, +400 and -100 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

We then estimate what the net interest income would be for the same period under the assumption that market rates increase or decrease instantaneously by +200, +300, +400, -100 and -200 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

A basis point equals one-hundredth of one percent, and 100 basis points equals one percent.

An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Changes in Interest Rates” column in the table below.

An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Changes in Interest Rates” column below.

The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates.

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

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

We do not model negative interest rate scenarios.

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

Treasury yield curve.

The tables below set forth, as of December 31, 2022 and 2021, the calculation of the estimated changes in our net interest income on an FTE basis that would result from the designated immediate changes in market interest rates:

Interest Rate Sensitivity

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Interest Rates

(basis points) (1)

(basis points) Net Interest

Income Year 1

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(100) 585,728 1.6%

(200) 586,771 1.8%

As of December 31, 2021

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

The tables above indicate that at December 31, 2021 and 2020, in the event of an instantaneous parallel 200 basis points increase in rates, we would have experienced a 15.1% and 25.5% increase, respectively, in net interest income on an FTE basis, and in the event of an instantaneous 100 basis points decrease in interest rates, we would have experienced a 5.9% and a 5.0% decrease at December 31, 2021 and 2020, respectively, in net interest income, on an FTE basis.

Management may use interest rate derivative financial instruments, within internal policy guidelines, to manage interest rate risk as part of our asset/liability strategy.

As of December 31, 2022, our models, as indicated above, show a decline in our net interest income in rising rate scenarios and an increase in our net interest income in falling rate scenarios.

In the rising rate scenarios, interest expense is expected to rise at a faster rate than interest income due, in part, to the extension of asset duration from our interest rate swap portfolio designated as cash flow hedges and the reduction of liability duration due to the increase in short term certificates of deposit and borrowings.

Conversely, in the declining rate scenarios, the reduction in interest expense exceeds the reduction in interest income.

The tables above indicate that at December 31, 2022 and December 31, 2021, in the event of an instantaneous parallel 200 basis points increase in rates, we would have experienced a 4.2% decrease and a 15.1% increase, respectively, in net interest income on an FTE basis, and in the event of an instantaneous 100 basis points decrease in interest rates, we would have experienced a 1.6% increase and a 5.9% decrease at December 31, 2022 and December 31, 2021, respectively, in net interest income, on an FTE basis.

We also modeled an instantaneous 200 basis point decrease in interest rates at December 31, 2022, the results of which showed we would have experienced a 1.8% increase in net interest income, on an FTE basis.

We did not model an instantaneous 200 basis points decrease in interest rates at December 31, 2021 given the relatively low level of interest rates.

Management may use investment strategy, loan and deposit pricing, non-core funding strategies, and interest rate derivative financial instruments, within internal policy guidelines, to manage interest rate risk as part of our asset/liability strategy.

These derivatives provide significant protection against falling interest rates.

For additional information related to our interest rate derivative financial instruments, see Note 19, “Derivative Financial Instruments” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K

Economic Value of Equity Analysis.

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This analysis calculates the difference between the present value of expected cash flows from assets and liabilities assuming various changes in current interest rates.

The table below represents an analysis of our interest rate risk (excluding the effect of our pension plans) as measured by the estimated changes in our EVE model, resulting from an instantaneous and sustained parallel shift in the yield curve (+200, +300, +400 basis points and -100 basis points) at December 31, 2021 and 2020.

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

The table below represents an analysis of our interest rate risk as measured by the estimated changes in our EVE, resulting from an instantaneous and sustained parallel shift in the yield curve (+200, +300, +400 basis points and -100, -200 basis points) at December 31, 2022 and (+200, +300, +400 basis points and -100 basis points) December 31, 2021.

The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the

modeling of certain falling rate scenarios during periods of lower market interest rates.

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

Our earnings are not directly or materially impacted by movements in foreign currency rates or commodity prices.

Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines.

Movements in equity prices may have a modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines and by affecting the amount of unrealized gains and losses from securities held in rabbi trusts which are partially offset by a corresponding but opposite impact to the amount of employee benefit expense associated with the change in value of plan assets.

EVE Interest Rate Sensitivity

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(100) 4,527,743 144,084 3.3 % 19.74 %

(200) 4,620,994 237,335 5.4 % 19.61 %

Change in Interest

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

Certain shortcomings are inherent in the interest rate risk measurement methodologies underlying the data presented in the tables in this section.

Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.

For example, the models assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities.

Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ.

Liquidity, Capital Resources, Contractual Obligations, Commitments and Contingencies

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We seek to maintain sources of liquidity that are deep and diversified and that may be used during the normal course of business as well as on a contingency basis.

The net proceeds from our IPO significantly increased our liquidity and capital resources at both Eastern Bankshares, Inc.

and Eastern Bank.

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

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

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

Although, the transaction reduced the net proceeds from the IPO, we continue to expect that, due to the increase in equity resulting from the net proceeds raised in our IPO, our return on equity has been and will continue to be adversely affected until we can effectively deploy the remaining proceeds of the IPO.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from calls, maturities and sales of securities.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.

Our most liquid assets are cash and due from banks and securities classified as available for sale.

In the future, our liquidity position will be affected by the level of customer deposits and payments, as well as acquisitions, dividends, and stock repurchases in which we may engage.

We believe that our existing resources will be sufficient to meet the liquidity and capital requirements of our operations for the foreseeable future.

We participate in the IntraFi Network (formerly “Promontory”), which allows us to provide access to multi-million dollar FDIC deposit insurance protection on customer deposits for consumers, businesses and public entities.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from calls, maturities and sales of securities, subject to market conditions.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan and securities prepayments are greatly influenced by general interest rates, economic conditions, and competition.

Our most liquid assets are unencumbered cash and due from banks and securities classified as available for sale, which could be liquidated, subject to market conditions.

In the future, our liquidity position will be affected by the level of customer deposits and payments, as well as acquisitions, dividends, and share

repurchases in which we may engage.

For the next twelve months, we believe that our existing resources, including our capacity to use brokered deposits and wholesale borrowings, will be sufficient to meet the liquidity and capital requirements of our operations.

We may elect to raise additional capital through the sale of additional equity or debt financing to fund business activities such as strategic acquisitions, share repurchases, or other purposes beyond the next twelve months.

At December 31, 2022, we had $169.5 million of cash and cash equivalents, a decrease of $1.1 billion from $1.2 billion at December 31, 2021.

The reduction in cash levels was due primarily to a $1.3 billion increase in total loans, on a gross basis, and a $654.0 million decrease in total deposits.

Advances from the FHLBB were used to support ongoing operations and totaled $704.1 million at December 31, 2022.

We participate in the IntraFi Network, which allows us to provide access to multi-million dollar FDIC deposit insurance protection on customer deposits for consumers, businesses and public entities.

We can elect to sell or repurchase this funding as reciprocal deposits from other IntraFi Network banks depending on our funding needs.

At December 31, 2021 and 2020, we had a total of $520.5 million and $364.8 million of IntraFi Network one-way sell deposits, respectively.

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

The additional capacity of $520.5 million and $364.8 million at December 31, 2021 and 2020, respectively, should be considered a source of liquidity.

Although customer deposits remain our preferred source of funds, maintaining additional back up sources of liquidity is part of our prudent liquidity risk management practices.

At December 31, 2022, we had no IntraFi Network one-way sell deposits.

At December 31, 2021, we had $520.5 million of IntraFi Network one-way sell deposits.

At December 31, 2022, we had repurchased $665.0 million of previously sold reciprocal deposits.

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

The additional capacity of $520.5 million at December 31, 2021 was considered a source of liquidity.

Although customer deposits remain our preferred source of funds, maintaining additional sources of liquidity is part of our prudent liquidity risk management practices.

We have the ability to borrow from the FHLBB.

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At December 31, 2022, we had a $538.9 million collateralized line of credit from the Federal Reserve Bank of Boston with no outstanding balance.

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

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

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

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

In addition, we are able to acquire brokered deposits at our discretion to raise additional funds.

At December 31, 2022, we had $928.6 million in brokered certificates of deposit of which $40.5 million were IntraFi Network deposits and which are excluded from the Intrafi Network reciprocal deposits shown in the table below.

Sources of Liquidity

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(In thousands)

IntraFi Network deposits $ — $ 520,461 $ — $ 364,794

IntraFi Network reciprocal deposits $ 664,971 $ — $ — $ 520,461

Brokered certificates of deposit (1) 928,648 — — —

Federal Home Loan Bank (2) 704,084 1,976,166 14,020 1,839,540

Federal Reserve Bank of Boston (3) — 538,894 — 456,148

Federal Reserve Paycheck Protection Program Liquidity Facility — — — 1,026,117

Unsecured lines of credit — 790,000 — 620,000

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

Total $ 2,297,703 $ 2,515,060 $ 14,020 $ 2,816,149

(1) The additional borrowing capacity has not been assessed for this category.

(2) As of December 31, 2022 and December 31, 2021, loans have been pledged to the FHLBB with a carrying value of $3.9 billion and $2.6 billion, respectively, to secure our total borrowing capacity.

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In the ordinary course of our operations, we enter into certain contractual obligations.

Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis