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Eastern Bankshares, Inc. - Quarter Report: 2021 June (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-Q
_____________________________________________
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-39610
___________________________
Eastern Bankshares, Inc.
(Exact name of the registrant as specified in its charter)
___________________________
Massachusetts84-4199750
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification Number)
265 Franklin Street, Boston, Massachusetts
02110
(Address of principal executive offices)(Zip Code)
(800) 327-8376
(Registrant’s telephone number, including area code)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common StockEBCNasdaq Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.      Yes      No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
(Do not check if a smaller reporting company)Emerging Growth Company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    Yes      No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No
186,758,154 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding as of August 12, 2021.


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Index
PAGE
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
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PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
June 30, 2021December 31, 2020
(In thousands, except share data)
ASSETS
Cash and due from banks$58,490 $116,591 
Short-term investments1,505,757 1,937,479 
Cash and cash equivalents1,564,247 2,054,070 
Available for sale securities4,848,781 3,183,861 
Loans held for sale2,734 1,140 
Loans:
Commercial and industrial1,740,679 1,995,016 
Commercial real estate3,775,771 3,573,630 
Commercial construction237,927 305,708 
Business banking1,339,852 1,339,164 
Residential real estate1,457,498 1,370,957 
Consumer home equity834,938 868,270 
Other consumer234,410 277,780 
Total loans9,621,075 9,730,525 
Less: allowance for loan losses(105,637)(113,031)
Less: unamortized premiums, net of unearned discounts and deferred fees(29,739)(23,536)
Net loans9,485,699 9,593,958 
Federal Home Loan Bank stock, at cost10,601 8,805 
Premises and equipment44,733 49,398 
Bank-owned life insurance79,634 78,561 
Goodwill and other intangibles, net380,402 376,534 
Deferred income taxes, net26,161 13,229 
Prepaid expenses145,941 148,680 
Other assets458,520 455,954 
Total assets$17,047,453 $15,964,190 
LIABILITIES AND EQUITY
Deposits:
Demand$5,399,297 $4,910,794 
Interest checking accounts2,656,610 2,380,497 
Savings accounts1,403,472 1,256,736 
Money market investment3,544,897 3,348,898 
Certificates of deposit246,157 258,859 
Total deposits13,250,433 12,155,784 
Borrowed funds:
Federal Home Loan Bank advances14,323 14,624 
Escrow deposits of borrowers14,119 13,425 
Total borrowed funds28,442 28,049 
Other liabilities337,956 352,305 
Total liabilities13,616,831 12,536,138 
Commitments and contingencies (see footnote 10)
Shareholders’ equity
Common shares, $0.01 par value, 1,000,000,000 shares authorized, 186,758,154 shares issued and outstanding at both June 30, 2021 and December 31, 2020
1,868 1,868 
Additional paid in capital1,856,241 1,854,068 
Unallocated common shares held by the Employee Stock Ownership Plan(145,219)(147,725)
Retained earnings1,723,979 1,665,607 
Accumulated other comprehensive income, net of tax(6,247)54,234 
Total shareholders’ equity3,430,622 3,428,052 
Total liabilities and shareholders’ equity$17,047,453 $15,964,190 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands, except per share data)
Interest and dividend income:
Interest and fees on loans$90,936 $92,143 $179,575 $187,681 
Taxable interest and dividends on available for sale securities12,457 7,600 22,663 15,778 
Non-taxable interest and dividends on available for sale securities1,857 1,905 3,713 3,826 
Interest on federal funds sold and other short-term investments431 284 863 801 
Interest and dividends on trading securities— — 
Total interest and dividend income105,681 101,933 206,814 208,092 
Interest expense:
Interest on deposits1,031 3,104 2,033 8,518 
Interest on borrowings42 74 82 673 
Total interest expense1,073 3,178 2,115 9,191 
Net interest income104,608 98,755 204,699 198,901 
(Release of) provision for allowance for loan losses(3,300)8,600 (3,880)37,200 
Net interest income after provision for loan losses107,908 90,155 208,579 161,701 
Noninterest income:
Insurance commissions23,664 22,697 51,811 50,174 
Service charges on deposit accounts5,708 4,364 11,075 10,462 
Trust and investment advisory fees6,074 5,194 11,737 10,289 
Debit card processing fees3,170 2,337 5,919 4,807 
Interest rate swap (losses) income(1,164)771 4,241 (5,238)
Income from investments held in rabbi trusts4,216 7,745 6,062 1,002 
Losses on trading securities, net— (1)— (3)
Gains on sales of mortgage loans held for sale, net848 1,420 2,327 1,513 
Gains on sales of securities available for sale, net163 1,165 285 
Other3,216 2,967 6,608 7,735 
Total noninterest income45,733 47,657 100,945 81,026 
Noninterest expense:
Salaries and employee benefits69,276 63,335 133,316 124,924 
Office occupancy and equipment8,094 8,615 16,311 17,304 
Data processing13,572 12,180 25,701 22,184 
Professional services6,439 4,396 10,587 8,085 
Charitable contributions— 2,797 — 3,984 
Marketing3,497 1,645 5,188 4,113 
Loan expenses1,854 2,036 3,701 3,148 
FDIC insurance985 944 1,933 1,850 
Amortization of intangible assets625 701 1,157 1,403 
Other2,993 4,116 3,490 8,942 
Total noninterest expense107,335 100,765 201,384 195,937 
Income before income tax expense46,306 37,047 108,140 46,790 
Income tax expense11,497 7,197 25,668 8,495 
Net income$34,809 $29,850 $82,472 $38,295 
Basic earnings per share$0.20 $— $0.48 $— 
Diluted earnings per share$0.20 $— $0.48 $— 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(In thousands)
Net income$34,809 $29,850 $82,472 $38,295 
Other comprehensive income (loss), net of tax:
Net change in fair value of securities available for sale25,428 287 (49,476)26,479 
Net change in fair value of cash flow hedges(5,909)(2,645)(11,857)26,430 
Net change in other comprehensive income for defined benefit postretirement plans
426 3,404 852 3,404 
Total other comprehensive income (loss)19,945 1,046 (60,481)56,313 
Total comprehensive income$54,754 $30,896 $21,991 $94,608 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended June 30, 2021 and 2020

Shares of Common Stock OutstandingCommon StockAdditional Paid in CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Unallocated Common Stock Held by ESOPTotal
(In thousands, except share data)
Balance at March 31, 2020— $— $— $1,651,314 $11,420 $— $1,662,734 
Net income— — — 29,850 — — 29,850 
Other comprehensive income, net of tax— — — — 1,046 — 1,046 
Balance at June 30, 2020— $— $— $1,681,164 $12,466 $— $1,693,630 
Balance at March 31, 2021186,758,154 $1,868 $1,854,895 $1,702,946 $(26,192)$(146,472)$3,387,045 
Dividends to common shareholders (1)— — — (13,776)— — (13,776)
Net income— — — 34,809 — — 34,809 
Other comprehensive income, net of tax— — — — 19,945 — 19,945 
ESOP shares committed to be released— — 1,346 — — 1,253 2,599 
Balance at June 30, 2021186,758,154 $1,868 $1,856,241 $1,723,979 $(6,247)$(145,219)$3,430,622 
(1)The Company declared and paid a quarterly cash dividend of $0.08 per share of common stock during the three months ended June 30, 2021.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
















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EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Six Months Ended June 30, 2021 and 2020

Shares of Common Stock OutstandingCommon StockAdditional Paid in CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Unallocated Common Stock Held by ESOPTotal
(In thousands, except share data)
Balance at December 31, 2019— $— $— $1,644,000 $(43,847)$— $1,600,153 
Cumulative effect accounting adjustment (1)— — — (1,131)— — (1,131)
Net income— — — 38,295 — — 38,295 
Other comprehensive income, net of tax— — — — 56,313 — 56,313 
Balance at June 30, 2020— $— $— $1,681,164 $12,466 $— $1,693,630 
Balance at December 31, 2020186,758,154 $1,868 $1,854,068 $1,665,607 $54,234 $(147,725)$3,428,052 
Dividends to common shareholders (2)— — — (24,100)— — (24,100)
Net income— — — 82,472 — — 82,472 
Other comprehensive loss, net of tax— — — — (60,481)— (60,481)
ESOP shares committed to be released— — 2,173 — — 2,506 4,679 
Balance at June 30, 2021186,758,154 $1,868 $1,856,241 $1,723,979 $(6,247)$(145,219)$3,430,622 
(1)Represents cumulative impact on retained earnings pursuant to the Company’s (as defined herein) adoption of Accounting Standards Update 2016-02 Leases. The transition adjustment to the opening balance of retained earnings on January 1, 2020 amounted to $1.1 million, net of tax, related to an incremental accrued rent adjustment calculated as a result of electing the hindsight practical expedient.
(2)The Company declared and paid quarterly cash dividends of $0.06 and $0.08 per share of common stock during the three months ended March 31, 2021 and June 30, 2021, respectively.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
(In thousands)20212020
Operating activities
Net income$82,472 $38,295 
Adjustments to reconcile net income to net cash provided by operating activities
(Release of) provision for loan losses(3,880)37,200 
Depreciation and amortization6,636 8,471 
Accretion of deferred loan fees and premiums, net(14,767)(3,155)
Deferred income tax expense5,407 1,773 
Amortization of investment security premiums and discounts6,397 1,656 
Right-of-use asset amortization6,130 6,042 
Increase in cash surrender value of bank-owned life insurance(1,073)(1,155)
Gain on sale of securities available for sale, net(1,165)(285)
Amortization of gains from terminated interest rate swaps(16,493)(373)
Employee Stock Ownership Plan expense4,679 — 
Other248 (128)
Change in:
Trading securities— 961 
Loans held for sale(1,583)(2,965)
Prepaid pension expense1,676 (28,432)
Other assets9,746 (133,413)
Other liabilities(24,794)77,509 
Net cash provided by operating activities59,636 2,001 
Investing activities
Proceeds from sales of securities available for sale23,237 9,098 
Proceeds from maturities and principal paydowns of securities available for sale381,123 153,542 
Purchases of securities available for sale(2,138,024)(171,226)
Proceeds from sale of Federal Home Loan Bank stock— 749 
Purchases of Federal Home Loan Bank stock(1,796)(527)
Contributions to low income housing tax credit investments(4,553)(7,435)
Contributions to other equity investments(1,920)(1,092)
Distributions from other equity investments170 54 
Net decrease (increase) in outstanding loans126,868 (997,881)
Acquisitions, net of cash and cash equivalents acquired(4,354)— 
Purchased banking premises and equipment, net(1,809)(2,146)
Proceeds from sale of premises held for sale736 — 
Net cash used in investing activities(1,620,322)(1,016,864)
Financing activities
Net increase in demand, savings, interest checking, and money market investment deposit accounts1,107,351 2,315,592 
Net decrease in time deposits(12,702)(20,219)
Net increase (decrease) in borrowed funds393 (206,240)
Contingent consideration paid(79)(158)
Payment of deferred offering costs— (4,153)
Dividends declared and paid to common shareholders(24,100)— 
Net cash provided by financing activities1,070,863 2,084,822 
Net (decrease) increase in cash, cash equivalents, and restricted cash(489,823)1,069,959 
Cash, cash equivalents, and restricted cash at beginning of period2,054,070 362,602 
Cash, cash equivalents, and restricted cash at end of period$1,564,247 $1,432,561 
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Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest paid$2,127 $10,533 
Income taxes$35,122 14,976 
Non-cash activities
Net increase in capital commitments relating to low income housing tax credit projects$14,446 $13,214 
Initial recognition of operating lease right-of-use assets upon adoption of Accounting Standards Update 2016-02$— $92,948 
Initial recognition of operating lease liabilities upon adoption of Accounting Standards Update 2016-02$— $96,426 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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EASTERN BANKSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Structure and Nature of Operations; Basis of Presentation
Corporate Structure and Nature of Operations
Eastern Bankshares, Inc., a Massachusetts corporation (the “Company”), is a bank holding company. Through its wholly-owned subsidiaries, Eastern Bank (the “Bank”) and Eastern Insurance Group LLC (“Eastern Insurance Group”), the Company provides a variety of banking, trust and investment, and insurance services, through its full-service bank branches and insurance offices, located primarily in Eastern Massachusetts, southern and coastal New Hampshire and Rhode Island. Eastern Insurance Group LLC is a wholly-owned subsidiary of the Bank.
The activities of the Company are subject to the regulatory supervision of the Board of Governors of the Federal Reserve System (“Federal Reserve”). The activities of the Bank are subject to the regulatory supervision of the Massachusetts Commissioner of Banks, the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau. The Company and the activities of the Bank and Eastern Insurance Group are also subject to various Massachusetts, New Hampshire and Rhode Island business and banking regulations.

Basis of Presentation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) as set forth by the Financial Accounting Standards Board (“FASB”) and its Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) as well as the rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under the authority of federal securities laws.
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and entities in which it holds a controlling financial interest through being the primary beneficiary or through holding a majority of the voting interest. All intercompany accounts and transactions have been eliminated in consolidation.
Certain previously reported amounts have been reclassified to conform to the current period’s presentation.
The accompanying consolidated balance sheet as of June 30, 2021, the consolidated statements of income and comprehensive income and of changes in equity for the three and six months ended June 30, 2021 and 2020 and statement of cash flows for the six months ended June 30, 2021 and 2020 are unaudited. The consolidated balance sheet as of December 31, 2020 was derived from the audited consolidated financial statements as of that date. The interim consolidated financial statements and the accompanying notes should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained within the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 Form 10-K”), as filed with the SEC. In the opinion of management, the Company’s consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.
2. Summary of Significant Accounting Policies
The following describes the Company’s use of estimates as well as relevant accounting pronouncements that were recently issued but not yet adopted as of June 30, 2021 and those that were adopted during the six months ended June 30, 2021. For a full discussion of significant accounting policies, refer to the notes included within the Company’s 2020 Form 10-K.
Use of Estimates
In preparing the Consolidated Financial Statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and income and expenses for the periods reported. Actual results could differ from those estimates based on changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, valuation and fair value measurements, other-than-temporary impairment on investment securities, the liabilities for benefit obligations (particularly pensions), the provision for income taxes and impairment of goodwill and other intangibles.
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Recent Accounting Pronouncements
The Company qualifies as an emerging growth company under the Jumpstart Our Business Act of 2012 (“JOBS Act”) and has elected to defer the adoption of new or revised accounting standards until the nonpublic company effective dates.
Relevant standards that were recently issued but not yet adopted as of June 30, 2021:
In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This update addresses optional expedients and exceptions for applying GAAP to certain contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The new guidance applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. For public and nonpublic entities, the guidance is effective as of March 12, 2020 through December 31, 2022 and does not apply to contract modifications made after December 31, 2022. The Company will adopt this standard on the nonpublic company effective date and is currently in the process of reviewing its contracts and existing processes in order to assess the risks and potential impact of the transition away from LIBOR.
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. The Company anticipates deferring adoption of this standard to January 1, 2022.
To address the impact of ASU 2016-13, the Company has formed a committee, which members include the Chief Credit Officer, the Chief Financial Officer, and Chief Information Officer, to assist in identifying, implementing, and evaluating the impact of the required changes to loan loss estimation models and processes. The Company is evaluating portfolio segmentation, methodologies and other assumptions and has initiated model validation efforts. Third parties have been engaged to assist the Company in project management, documentation, model governance, model validation and related internal controls implementation. The Company is currently assessing the impact of the new standard on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). This update modifies the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. The guidance eliminates requirements for certain disclosures that are no longer considered cost
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beneficial and requires new ones that the FASB considers pertinent. For public companies, ASU 2018-14 is effective for fiscal years ending after December 15, 2020. For nonpublic companies, ASU 2018-14 is effective for fiscal years ending after December 15, 2021. Early adoption is permitted. The Company will adopt this standard on the nonpublic company effective date. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements.
Relevant standards that were adopted during the six months ended June 30, 2021:
In August 2018, the FASB issued ASU 2018-15, Intangibles–Goodwill and Other–Internal-use software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). This update addresses accounting for fees paid by a customer for implementation, set-up and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). The new guidance aligns treatment for capitalization of implementation costs with guidance on internal-use software. For public entities, the guidance is effective for annual reporting periods beginning after December 15, 2019. For nonpublic entities, the guidance is effective for annual reporting periods beginning after December 15, 2020, and for all interim periods beginning after December 15, 2021. The adoption of this standard on January 1, 2021 did not have a material impact on the Company’s consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”) which expands the scope of guidance in ASC 848 so that companies can apply the optional expedients to derivative instruments affected by the clearing house changes. ASU 2021-01 also clarifies and updates several items in ASU 2020-04 as part of the Board’s monitoring of global reference rate reform activities. ASU 2021-01 permits entities to elect certain optional expedients and exceptions to modifications of interest rate indexes used for computing when accounting derivative contracts and certain hedging relationships impacted by changes in interest rates used for discounting, margining, or contract price alignment. ASU 2021-01 clarifies other aspects of the guidance in ASC 848 and provides new guidance on how to address the effects of the cash compensation adjustment that is provided as part of the above change on certain aspects of hedge accounting. The guidance was effective upon issuance and allows for retrospective or prospective application with certain conditions. The Company did not elect retrospective application. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.
3. Securities
Available for Sale Securities
The amortized cost, gross unrealized gains and losses, and fair value of available for sale securities as of June 30, 2021 and December 31, 2020 were as follows:
As of June 30, 2021
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
(In thousands)
Debt securities:
Government-sponsored residential mortgage-backed securities$3,480,643 $22,240 $(24,354)$3,478,529 
Government-sponsored commercial mortgage-backed securities183,062 66 (1,333)181,795 
U.S. Agency bonds860,575 — (19,570)841,005 
U.S. Treasury securities69,401 23 (93)69,331 
State and municipal bonds and obligations259,935 18,186 — 278,121 
$4,853,616 $40,515 $(45,350)$4,848,781 
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As of December 31, 2020
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
(In thousands)
Debt securities:
Government-sponsored residential mortgage-backed securities$2,106,658 $42,142 $— $2,148,800 
Government-sponsored commercial mortgage-backed securities17,054 27 — 17,081 
U.S. Agency bonds670,468 113 (3,872)666,709 
U.S. Treasury securities70,106 263 — 70,369 
State and municipal bonds and obligations260,898 20,004 — 280,902 
$3,125,184 $62,549 $(3,872)$3,183,861 
The amortized cost and estimated fair value of available for sale securities by contractual maturities as of June 30, 2021 and December 31, 2020 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
The scheduled contractual maturities of available for sale securities as of the dates indicated were as follows:
As of June 30, 2021
Due in one year or lessDue after one year to five yearsDue after five to ten yearsDue after ten yearsTotal
Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
(In thousands)
Government-sponsored residential mortgage-backed securities$— $— $18,156 $19,323 $593,853 $597,546 $2,868,634 $2,861,660 $3,480,643 $3,478,529 
Government-sponsored commercial mortgage-backed securities— — 24,038 23,781 159,024 158,014 — — 183,062 181,795 
U.S. Agency bonds— — 199,796 196,383 660,779 644,622 — — 860,575 841,005 
U.S. Treasury securities10,048 10,071 59,353 59,260 — — — — 69,401 69,331 
State and municipal bonds and obligations485 486 28,682 29,781 72,515 76,046 158,253 171,808 259,935 278,121 
Total$10,533 $10,557 $330,025 $328,528 $1,486,171 $1,476,228 $3,026,887 $3,033,468 $4,853,616 $4,848,781 
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As of December 31, 2020
Due in one year or lessDue after one year to five yearsDue after five to ten yearsDue after ten yearsTotal
Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
(In thousands)
Government-sponsored residential mortgage-backed securities$— $— $46,293 $48,925 $96,338 $100,278 $1,964,027 $1,999,597 $2,106,658 $2,148,800 
Government-sponsored commercial mortgage-backed securities— — — — 17,054 17,081 — — 17,054 17,081 
U.S. Agency bonds— — 99,772 99,834 570,696 566,875 — — 670,468 666,709 
U.S. Treasury securities50,023 50,251 20,083 20,118 — — — — 70,106 70,369 
State and municipal bonds and obligations406 408 20,511 21,431 74,980 79,635 165,001 179,428 260,898 280,902 
Total$50,429 $50,659 $186,659 $190,308 $759,068 $763,869 $2,129,028 $2,179,025 $3,125,184 $3,183,861 
Gross realized gains from sales of available for sale securities during the three months ended June 30, 2021 and 2020 were less than $0.1 million and $0.2 million, respectively, and $1.2 million and $0.3 million during the six months ended June 30, 2021 and 2020, respectively. The Company had no significant gross realized losses from sales of securities available for sale during both the six months ended June 30, 2021 and 2020. There was no other-than-temporary impairment (“OTTI”) recorded during the six months ended June 30, 2021 and 2020.
Management prepares an estimate of the expected cash flows for investment securities available for sale that potentially may be deemed to have been an OTTI. This estimate begins with the contractual cash flows of the security. This amount is then reduced by an estimate of probable credit losses associated with the security. When estimating the extent of probable losses on the securities, management considers the credit quality and the ability to pay of the underlying issuers. Indicators of diminished credit quality of the issuers include defaults, interest deferrals, or “payments in kind.” Management also considers those factors listed in the “Investments – Debt and Equity Securities” topic of the FASB ASC when estimating the ultimate realizability of the cash flows for each individual security.
The resulting estimate of cash flows after considering credit is then subject to a present value computation using a discount rate equal to the current yield used to accrete the beneficial interest or the effective interest rate implicit in the security at the date of acquisition. If the present value of the estimated cash flows is less than the current amortized cost basis, an OTTI is considered to have occurred and the security is written down to the fair value indicated by the cash flow analysis. As part of the analysis, management considers whether it intends to sell the security or whether it is more than likely that it would be required to sell the security before the expected recovery of its amortized cost basis.
Information pertaining to available for sale securities with gross unrealized losses as of June 30, 2021 and December 31, 2020, which the Company has not deemed to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
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As of June 30, 2021
Less than 12 Months12 Months or LongerTotal
# of
Holdings
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
Government-sponsored residential mortgage-backed securities20$24,354 $2,178,499 $— $— $24,354 $2,178,499 
Government-sponsored commercial mortgage-backed securities81,333 161,684 — — 1,333 161,684 
U.S. Agency bonds1319,570 841,005 — — 19,570 841,005 
U.S. Treasury securities293 59,262 — — 93 59,262 
43$45,350 $3,240,450 $— $— $45,350 $3,240,450 
As of December 31, 2020
Less than 12 Months12 Months or LongerTotal
# of
Holdings
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
U.S. Agency bonds6$3,872 $416,824 $— $— $3,872 $416,824 
6$3,872 $416,824 $— $— $3,872 $416,824 
The Company does not intend to sell these investments and has determined based upon available evidence that it is more likely than not that the Company will not be required to sell each security before the expected recovery of its amortized cost basis. As a result, the Company does not consider these investments with gross unrealized losses to be OTTI. The Company made this determination by reviewing various qualitative and quantitative factors regarding each investment category, such as current market conditions, extent and nature of changes in fair value, issuer rating changes and trends, and volatility of earnings.
As a result of the Company’s review of these qualitative and quantitative factors, the causes of the impairments listed in the tables above by category are as follows as of June 30, 2021 and December 31, 2020:
Government-sponsored residential mortgage-backed securities – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies.
Government-sponsored commercial mortgage-backed securities – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies.
U.S. Agency bonds – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies.
U.S. Treasury securities – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies.
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4. Loans and Allowance for Loan Losses
Loans
The following table provides a summary of the Company’s loan portfolio as of the dates indicated:
At June 30,At December 31,
20212020
(In thousands)
Commercial and industrial$1,740,679 $1,995,016 
Commercial real estate3,775,771 3,573,630 
Commercial construction237,927 305,708 
Business banking1,339,852 1,339,164 
Residential real estate1,457,498 1,370,957 
Consumer home equity834,938 868,270 
Other consumer (1)234,410 277,780 
Gross loans before unamortized premiums, unearned discounts and deferred fees9,621,075 9,730,525 
Allowance for loan losses(105,637)(113,031)
Unamortized premiums, net of unearned discounts and deferred fees(29,739)(23,536)
Loans after the allowance for credit losses, unamortized premiums, unearned discounts and deferred fees
$9,485,699 $9,593,958 
(1) Automobile loans are included in the other consumer portfolio above and amounted to $83.7 million and $126.7 million at June 30, 2021 and December 31, 2020, respectively.
There are no other loan categories that exceed 10% of total loans not already reflected in the preceding table.
The Company’s lending activities are conducted principally in the New England area with the exception of its Shared National Credit Program (“SNC Program”) portfolio. The Company participates in the SNC Program in an effort to improve its industry and geographical diversification. The SNC Program portfolio is included in the Company’s commercial and industrial, commercial real estate and commercial construction portfolios. The SNC Program portfolio is defined as loan syndications with exposure over $100 million and with three or more lenders participating.
Most loans originated by the Company are either collateralized by real estate or other assets or guaranteed by federal and local governmental authorities. The ability and willingness of the single-family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the borrowers’ geographic areas and real estate values. The ability and willingness of commercial real estate, commercial and industrial, and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate economy in the borrowers’ geographic areas and the general economy.
Loans Pledged as Collateral
The carrying value of loans pledged to secure advances from the Federal Home Loan Bank (“FHLB”) of Boston (“FHLBB”) were $2.3 billion and $2.4 billion at June 30, 2021 and December 31, 2020, respectively. The balance of funds borrowed from the FHLBB were $14.3 million and $14.6 million at June 30, 2021 and December 31, 2020, respectively.
The carrying value of loans pledged to secure advances from the Federal Reserve Bank (“FRB”) were $812.6 million and $884.1 million at June 30, 2021 and December 31, 2020, respectively. There were no funds borrowed from the FRB outstanding at June 30, 2021 and December 31, 2020.
Serviced Loans
At June 30, 2021 and December 31, 2020, mortgage loans partially or wholly-owned by others and serviced by the Company amounted to approximately $12.1 million and $13.5 million, respectively.
Allowance for Loan Losses
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The allowance for loan losses is established to provide for probable losses incurred in the Company’s loan portfolio at the balance sheet date and is established through a provision for loan losses charged to net income. Charge-offs, net of recoveries, are charged directly to the allowance. Commercial and residential loans are charged-off in the period in which they are deemed uncollectible. Delinquent loans in these product types are subject to ongoing review and analysis to determine if a charge-off in the current period is appropriate. For consumer loans, policies and procedures exist that require charge-off consideration upon a certain triggering event depending on the product type.
The following tables summarize the changes in the allowance for loan losses by loan category for the periods indicated:
For the Three Months Ended June 30, 2021
Commercial
and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Residential
Real
Estate
Consumer
Home
Equity
Other
Consumer
OtherTotal
(In thousands)
Allowance for loan losses:
Beginning balance$25,406 $55,138 $3,350 $13,504 $6,235 $3,576 $3,498 $373 $111,080 
Charge-offs(550)— — (1,838)— — (275)— (2,663)
Recoveries13 — 291 17 192 — 520 
(Release of) provision(2,273)(2,383)96 748 226 211 66 (3,300)
Ending balance
$22,596 $52,759 $3,446 $12,705 $6,478 $3,588 $3,626 $439 $105,637 
For the Three Months Ended June 30, 2020
Commercial
and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Residential
Real
Estate
Consumer
Home
Equity
Other
Consumer
OtherTotal
(In thousands)
Allowance for loan losses:
Beginning balance$30,531 $49,227 $4,712 $10,181 $6,228 $3,913 $4,019 $327 $109,138 
Charge-offs(27)(24)— (1,198)— — (15)— (1,264)
Recoveries58 — 27 13 51 — 162 
Provision (release of)2,667 5,020 104 795 328 (46)(293)25 8,600 
Ending balance
$33,229 $54,228 $4,816 $9,805 $6,569 $3,875 $3,762 $352 $116,636 
For the Six Months Ended June 30, 2021
Commercial
and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Residential
Real Estate
Consumer
Home Equity
Other
Consumer
OtherTotal
(In thousands)
Allowance for loan losses:
Beginning balance$26,617 $54,569 $4,553 $13,152 $6,435 $3,744 $3,467 $494 $113,031 
Charge-offs(550)(234)— (3,222)— — (639)— (4,645)
Recoveries22 — 656 27 74 348 — 1,131 
(Release of) provision(3,493)(1,580)(1,107)2,119 16 (230)450 (55)(3,880)
Ending balance
$22,596 $52,759 $3,446 $12,705 $6,478 $3,588 $3,626 $439 $105,637 
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For the Six Months Ended June 30, 2020
Commercial
and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Residential
Real Estate
Consumer
Home Equity
Other
Consumer
OtherTotal
(In thousands)
Allowance for loan losses:
Beginning balance$20,919 $34,730 $3,424 $8,260 $6,380 $4,027 $4,173 $384 $82,297 
Charge-offs(27)(24)— (2,535)— (473)(548)— (3,607)
Recoveries380 — 154 73 22 111 — 746 
Provision (release of)11,957 19,516 1,392 3,926 116 299 26 (32)37,200 
Ending balance
$33,229 $54,228 $4,816 $9,805 $6,569 $3,875 $3,762 $352 $116,636 

The following tables bifurcate the amount of loans and the allowance allocated to each loan category based on the type of impairment analysis as of the periods indicated:
As of June 30, 2021
Commercial
and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Residential
Real Estate
Consumer
Home Equity
Other
Consumer
OtherTotal
(In thousands)
Allowance for loan losses ending balance:
Individually evaluated for impairment$4,544 $— $— $937 $1,624 $263 $— $— $7,368 
Acquired with deteriorated credit quality— 249 — — 293 — — — 542 
Collectively evaluated for impairment18,052 52,510 3,446 11,768 4,561 3,325 3,626 439 97,727 
Total allowance for loan losses by group$22,596 $52,759 $3,446 $12,705 $6,478 $3,588 $3,626 $439 $105,637 
Loans ending balance:
Individually evaluated for impairment$20,266 $4,051 $— $18,179 $25,091 $3,954 $24 $— $71,565 
Acquired with deteriorated credit quality1,397 249 — — 2,880 — — — 4,526 
Collectively evaluated for impairment1,719,016 3,771,471 237,927 1,321,673 1,429,527 830,984 234,386 — 9,544,984 
Total loans by group$1,740,679 $3,775,771 $237,927 $1,339,852 $1,457,498 $834,938 $234,410 $— $9,621,075 
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As of December 31, 2020
Commercial
and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Residential
Real Estate
Consumer
Home Equity
Other
Consumer
OtherTotal
(In thousands)
Allowance for loan losses ending balance:
Individually evaluated for impairment$4,555 $210 $— $1,435 $1,565 $289 $— $— $8,054 
Acquired with deteriorated credit quality1,283 822 — — 327 — — — 2,432 
Collectively evaluated for impairment20,779 53,537 4,553 11,717 4,543 3,455 3,467 494 102,545 
Total allowance for loan losses by group$26,617 $54,569 $4,553 $13,152 $6,435 $3,744 $3,467 $494 $113,031 
Loans ending balance:
Individually evaluated for impairment$17,343 $4,435 $— $21,901 $27,056 $4,845 $29 $— $75,609 
Acquired with deteriorated credit quality3,432 2,749 — — 3,116 — — — 9,297 
Collectively evaluated for impairment1,974,241 3,566,446 305,708 1,317,263 1,340,785 863,425 277,751 — 9,645,619 
Total loans by group$1,995,016 $3,573,630 $305,708 $1,339,164 $1,370,957 $868,270 $277,780 $— $9,730,525 
Management uses a methodology to systematically estimate the amount of loss incurred in the portfolio. Commercial real estate, commercial and industrial, commercial construction and business banking loans are evaluated using a loan rating system, historical losses and other factors which form the basis for estimating incurred losses. Portfolios of more homogeneous populations of loans, including residential mortgages and consumer loans, are analyzed as groups taking into account delinquency ratios, historical loss experience and charge-offs. For the purpose of estimating the allowance for loan losses, management segregates the loan portfolio into the categories noted in the above tables. Each of these loan categories possesses unique risk characteristics such as the purpose of the loan, repayment source, and collateral. These characteristics are considered when determining the appropriate level of the allowance for each category. Some examples of these risk characteristics unique to each loan category include:
Commercial Lending
Commercial and industrial: The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. Collateral frequently consists of a first lien position on business assets including, but not limited to accounts receivable, inventory, airplanes and equipment. The primary repayment source is operating cash flow and, secondarily, the liquidation of assets. The Company often obtains personal guarantees from individuals holding material ownership in the borrowing entity.
Commercial real estate: Collateral values are established by independent third-party appraisals and evaluations. Primary repayment sources include operating income generated by the real estate, permanent debt refinancing, sale of the real estate and, secondarily, liquidation of the collateral. The Company often obtains personal guarantees from individuals holding material ownership in the borrowing entity.
Commercial construction: These loans are generally considered to present a higher degree of risk than other real estate loans and may be affected by a variety of factors, such as adverse changes in interest rates and the borrower’s ability to control costs and adhere to time schedules. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. Construction loan repayment is substantially dependent on the ability of the borrower to complete the project and obtain permanent financing.
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Business banking: These loans are typically secured by all business assets or commercial real estate. Business banking originations include traditionally underwritten loans as well as partially automated scored loans. Business banking scored loans are determined by utilizing the Company’s proprietary decision matrix that has a number of quantitative factors including, but not limited to, a guarantor’s credit score, industry risk, and time in business. The Company also engages in Small Business Association (“SBA”) lending, both in the business banking and commercial banking divisions. The SBA guarantees reduce the Company’s loss due to default and are considered a credit enhancement to the loan structure.
Residential Lending
Residential real estate: These loans are made to borrowers who demonstrate the ability to repay principal and interest on a monthly basis. Underwriting considerations include, among others, income sources and their reliability, willingness to repay as evidenced by credit repayment history, financial resources (including cash reserves) and the value of the collateral. The Company maintains policy standards for minimum credit score and cash reserves and maximum loan to value consistent with a “prime” portfolio. Collateral consists of mortgage liens on 1-4 family residential dwellings. The Company does not originate or purchase sub-prime or other high-risk loans. Residential loans are originated either for sale to investors or retained in the Company’s loan portfolio. Decisions about whether to sell or retain residential loans are made based on the interest rate characteristics, pricing for loans in the secondary mortgage market, competitive factors and the Company’s capital needs.
Consumer Lending
Consumer home equity: Home equity lines of credit are granted for ten years with monthly interest-only repayment requirements. Full principal repayment is required at the end of the ten-year draw period. Home equity loans are term loans that require the monthly payment of principal and interest such that the loan will be fully amortized at maturity. Underwriting considerations are materially consistent with those utilized in residential real estate. Collateral consists of a senior or subordinate lien on owner-occupied residential property.
Other consumer: The Company’s policy and underwriting in this category, which is comprised primarily of home improvement and automobile loans, include the following factors, among others: income sources and reliability, credit histories, term of repayment, and collateral value, as applicable. These are typically granted on an unsecured basis, with the exception of airplane and automobile loans.
Credit Quality
Commercial Lending Credit Quality
The Company monitors credit quality indicators and utilizes portfolio scorecards to assess the risk of its commercial portfolio. Specifically, the Company utilizes a 15-point credit risk-rating system to manage risk and identify potential problem loans.
Prior to December 31, 2020, the Company utilized a 12-point credit risk-rating system to manage risk and identify potential problem loans. In the fourth quarter of 2020, the Company realigned its credit risk-rating system, transitioning to a 15-point credit risk-rating system. The Company believes that the expansion from the prior 12-point scale provides more refinement in the pass grade categories; new pass grades are 0-10. There are no changes to non-pass categories, which continue to align with regulatory guidelines and are found in ratings: special mention (11), substandard (12), doubtful (13) and loss (14). The Company believes that increasing granularity of the risk rating system allows for more robust portfolio management and increased precision and effectiveness of credit risk identification.
Under both point systems, risk-rating assignments are based upon a number of quantitative and qualitative factors that are under continual review. Factors include cash flow, collateral coverage, liquidity, leverage, position within the industry, internal controls and management, financial reporting, and other considerations. The risk-rating categories under the new 15-point credit risk-rating system are defined as follows:
0 Risk Rating - Unrated
Certain segments of the portfolios are not rated. These segments include airplane loans, business banking scored loan products, and other commercial loans managed by exception. Loans within this unrated loan segment are monitored by delinquency status; and for lines of credit greater than $100,000 in exposure, an annual review is conducted. The Company supplements performance data with current business credit scores for the business banking portfolio on a quarterly basis. Unrated commercial and business banking loans are generally restricted to commercial exposure of less than $1 million. Loans
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included in this category have qualification requirements that include a risk rating of 10 or better at the time of recommendation for unrated status, acceptable management of deposit accounts, and no known negative changes in management, operations or financial performance.
For purposes of estimating the allowance for loan losses, unrated loans are considered in the same manner as pass rated loans.
1-10 Risk Rating – Pass
Loans with a risk rating of 1-10 are classified as “Pass” and are comprised of loans that range from “substantially risk free” which indicates borrowers of unquestioned credit standing, well-established national companies with a very strong financial condition, and loans fully secured by policy conforming cash levels, through “low pass” which indicates acceptable rated loans that may be experiencing weak cash flow, impending lease rollover or minor liquidity concerns.
11 Risk Rating – Special Mention (Potential Weakness)
Loans to borrowers in this category exhibit potential weaknesses or downward trends deserving management’s close attention. While potentially weak, no loss of principal or interest is envisioned. Included in this category are borrowers who are performing as agreed, are weak when compared to industry standards, may be experiencing an interim loss and may be in declining industries. An element of asset quality, financial flexibility or management is below average. The Company does not consider borrowers within this category as new business prospects. Borrowers rated special mention may find it difficult to obtain alternative financing from traditional bank sources.
12 Risk Rating – Substandard (Well-Defined Weakness)
Loans with a risk-rating of 12 exhibit well-defined weaknesses that, if not corrected, may jeopardize the orderly liquidation of the debt. A loan is classified as substandard if it is inadequately protected by the repayment capacity of the obligor or by the collateral pledged. Specifically, repayment under market rates and terms, or by the requirements under the existing loan documents, is in jeopardy, but no loss of principal or interest is envisioned. There is a possibility that a partial loss of principal and/or interest will occur in the future if the deficiencies are not corrected. Loss potential, while existing in the aggregate portfolio of substandard assets, does not have to exist in individual assets classified as substandard. Non-accrual is possible, but not mandatory, in this class.
13 Risk Rating – Doubtful (Loss Probable)
Loans classified as doubtful have comparable weaknesses as found in the loans classified as substandard, with the added provision that such weaknesses make collection of the debt in full (based on currently existing facts, conditions and values) highly questionable and improbable. Serious problems exist such that a partial loss of principal is likely. The probability of loss exists, however, because of reasonable specific pending factors that may work to strengthen the credit, estimated losses are deferred until a more exact status can be determined. Specific reserves will be the amount identified after specific review. Non-accrual is mandatory in this class.
14 Risk Rating – Loss
Loans to borrowers in this category are deemed incapable of repayment. Loans to such borrowers are considered uncollectible and of such little value that continuance as active assets of the Company is not warranted. This classification does not mean that the loans have no recovery or salvage value, but rather, it is not practical or desirable to defer writing off these assets even though partial recovery may occur in the future. Loans in this category have a recorded investment of $0 at the time of the downgrade.
The credit quality of the commercial loan portfolio is actively monitored and supported by a comprehensive credit approval process; and all large dollar transactions are sent for approval to a committee of seasoned business line and credit professionals. Risk ratings are periodically reviewed and the Company maintains an independent credit risk review function that reports directly to the Risk Management Committee of the Board of Directors. Credits that demonstrate significant deterioration in credit quality are transferred to a specialized group of experienced officers for individual attention.
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The following tables detail the internal risk-rating categories for the Company’s commercial and industrial, commercial real estate, commercial construction and business banking portfolios:
As of June 30, 2021
CategoryCommercial and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Total
(In thousands)
Unrated$434,766 $5,105 $61 $913,151 $1,353,083 
Pass1,201,952 3,492,582 218,073 346,198 5,258,805 
Special mention48,853 127,856 13,703 53,920 244,332 
Substandard39,751 150,177 6,090 25,299 221,317 
Doubtful15,357 51 — 1,284 16,692 
Loss— — — — — 
Total$1,740,679 $3,775,771 $237,927 $1,339,852 $7,094,229 
As of December 31, 2020
CategoryCommercial and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Total
(In thousands)
Unrated$655,346 $6,585 $— $918,921 $1,580,852 
Pass1,199,522 3,256,697 280,792 336,657 5,073,668 
Special mention78,117 134,562 10,330 57,092 280,101 
Substandard47,525 173,308 14,586 24,788 260,207 
Doubtful14,506 2,478 — 1,706 18,690 
Loss— — — — — 
Total$1,995,016 $3,573,630 $305,708 $1,339,164 $7,213,518 
Paycheck Protection Program (“PPP”) loans are included within the unrated category of the commercial and industrial and business banking portfolios in the tables above. Commercial and industrial PPP loans and business banking PPP loans amounted to $366.1 million and $459.7 million, respectively, at June 30, 2021 and $568.8 million and $457.4 million respectively, at December 31, 2020. The Company does not have an allowance for loan losses for PPP loans as they are 100% guaranteed by the SBA.
Residential and Consumer Lending Credit Quality
For the Company’s residential and consumer portfolios, the quality of the loan is best indicated by the repayment performance of an individual borrower. Updated appraisals, broker opinions of value and other collateral valuation methods are employed in the residential and consumer portfolios, typically for credits that are deteriorating. Delinquency status is determined using payment performance, while accrual status may be determined using a combination of payment performance, expected borrower viability and collateral value. Delinquent consumer loans are handled by a team of seasoned collection specialists.
Asset Quality
In response to the novel coronavirus (“COVID-19”) pandemic, the Company has granted loan modifications to allow deferral of payments for borrowers negatively impacted by the COVID-19 pandemic. Modifications granted to customers allowed for full payment deferrals (principal and interest) or deferral of only principal payments. The balance of loans which underwent a modification and have not yet resumed payment as of June 30, 2021 and December 31, 2020 was $149.8 million and $332.7 million, respectively. The Company defines a modified loan to have resumed payment if it is one month past the modification end date and not more than 30 days past due. These modifications with active deferrals met the criteria of either Section 4013 of the CARES Act or the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) and therefore are not deemed TDRs (as defined herein). Additionally, loans that are performing in accordance with the contractual terms of the modification are not reflected as being
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past due and therefore are not impacting non-accrual or delinquency totals as of June 30, 2021 and December 31, 2020. The Company continued to accrue interest on these COVID-19 modified loans and evaluated the deferred interest for collectability as of June 30, 2021 and December 31, 2020.
The Company manages its loan portfolio with careful monitoring. As a general rule, loans more than 90 days past due with respect to principal and interest are classified as non-accrual loans. Exceptions may be made if management believes that collateral held by the Company is clearly sufficient and in full satisfaction of both principal and interest, or the loan is accounted for as a purchased credit impaired (“PCI”) loan. Therefore, as permitted by banking regulations, certain consumer loans past due 90 days or more may continue to accrue interest. The Company may also use discretion regarding other loans over 90 days delinquent if the loan is well secured and in the process of collection. Non-accrual loans and loans that are more than 90 days past due but still accruing interest are considered non-performing loans.
Non-accrual loans may be returned to an accrual status when principal and interest payments are no longer delinquent, and the risk characteristics of the loan have improved to the extent that there no longer exists a concern as to the collectability of principal and interest. Loans are considered past due based upon the number of days delinquent according to their contractual terms.
A loan is expected to remain on non-accrual status until it becomes current with respect to principal and interest, the loan is liquidated, or the loan is determined to be uncollectible and is charged-off against the allowance for loan losses.
The following is a summary pertaining to the breakdown of the Company’s non-accrual loans:
As of June 30,As of December 31,
20212020
(In thousands)
Commercial and industrial$14,591 $11,714 
Commercial real estate531 915 
Business banking14,234 17,430 
Residential real estate6,445 6,815 
Consumer home equity3,592 3,602 
Other consumer514 529 
Total non-accrual loans$39,907 $41,005 
The following tables show the age analysis of past due loans as of the dates indicated:
As of June 30, 2021
30-59
Days Past
Due
60-89
Days Past
Due
90 or More
Days Past
Due
Total Past
Due
CurrentTotal
Loans
Recorded
Investment
> 90 Days
and Accruing
(In thousands)
Commercial and industrial$— $267 $647 $914 $1,739,765 $1,740,679 $275 
Commercial real estate1,896 — 1,414 3,310 3,772,461 3,775,771 1,164 
Commercial construction— — — — 237,927 237,927 — 
Business banking4,004 1,902 6,609 12,515 1,327,337 1,339,852 — 
Residential real estate11,706 1,330 4,631 17,667 1,439,831 1,457,498 277 
Consumer home equity610 403 3,408 4,421 830,517 834,938 
Other consumer1,074 438 513 2,025 232,385 234,410 — 
Total$19,290 $4,340 $17,222 $40,852 $9,580,223 $9,621,075 $1,725 
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As of December 31, 2020
30-59
Days Past
Due
60-89
Days Past
Due
90 or More
Days Past
Due
Total Past
Due
CurrentTotal
Loans
Recorded
Investment
>90 Days
and Accruing
(In thousands)
Commercial and industrial$$268 $1,924 $2,196 $1,992,820 $1,995,016 $848 
Commercial real estate— 556 1,545 2,101 3,571,529 3,573,630 1,111 
Commercial construction— — — — 305,708 305,708 — 
Business banking5,279 3,311 10,196 18,786 1,320,378 1,339,164 — 
Residential real estate9,184 2,517 4,904 16,605 1,354,352 1,370,957 279 
Consumer home equity1,806 364 3,035 5,205 863,065 868,270 
Other consumer1,978 234 517 2,729 275,051 277,780 — 
Total$18,251 $7,250 $22,121 $47,622 $9,682,903 $9,730,525 $2,247 
In the normal course of business, the Company may become aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans, but which currently do not yet meet the criteria for classification as non-performing loans. However, based upon the Company’s past experiences, some of these loans with potential weaknesses will ultimately be restructured or placed in non-accrual status.
Troubled Debt Restructurings (“TDR”)
In cases where a borrower experiences financial difficulty and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan. The objective is to aid in the resolution of non-performing loans by modifying the contractual obligation to avoid the possibility of foreclosure.
All TDR loans are considered impaired and therefore are subject to a specific review for impairment loss. The amount of impairment loss, if any, is recorded as a specific loss allocation to each individual loan in the allowance for loan losses. Commercial loans and residential loans that have been classified as TDRs and which subsequently default are reviewed to determine if the loan should be deemed collateral dependent. In such an instance, any shortfall between the value of the collateral and the book value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less costs to sell.
The Company’s policy is to have any TDR loans which are on non-accrual status prior to being modified remain on non-accrual status for approximately six months subsequent to being modified before management considers its return to accrual status. If the TDR loan is on accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on accrual status.
The following tables show the TDR loans on accrual and non-accrual status as of the dates indicated:
As of June 30, 2021
TDRs on Accrual StatusTDRs on Non-Accrual StatusTotal TDRs
Number of LoansBalance of
Loans
Number of
Loans
Balance of
Loans
Number of
Loans
Balance of
Loans
(Dollars in thousands)
Commercial and industrial$5,675 $9,607 $15,282 
Commercial real estate3,520 — — 3,520 
Business banking3,945 1,507 12 5,452 
Residential real estate135 21,677 26 3,129 161 24,806 
Consumer home equity77 3,494 12 460 89 3,954 
Other consumer19 24 
Total221 $38,316 52 $14,722 273 $53,038 
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As of December 31, 2020
TDRs on Accrual StatusTDRs on Non-Accrual StatusTotal TDRs
Number of LoansBalance of
Loans
Number of LoansBalance of
Loans
Number of LoansBalance of
Loans
(Dollars in thousands)
Commercial and industrial$5,628 $6,819 $12,447 
Commercial real estate3,521 480 4,001 
Business banking4,471 722 12 5,193 
Residential real estate146 23,416 27 3,273 173 26,689 
Consumer home equity91 4,030 12 815 103 4,845 
Other consumer29 — — 29 
Total248 $41,095 53 $12,109 301 $53,204 
The amount of specific reserve associated with the TDRs was $4.0 million and $3.5 million at June 30, 2021 and December 31, 2020, respectively. There were no additional commitments to lend to borrowers who have been a party to a TDR as of both June 30, 2021 and December 31, 2020.
The following tables show the modifications which occurred during the periods and the change in the recorded investment subsequent to the modifications occurring:
For the Three Months Ended June 30, 2021For the Six Months Ended June 30, 2021
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment (1)
Number
of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment (1)
(Dollars in thousands)
Business banking$462 $462 $462 $462 
Residential real estate— — — 295 295 
Total$462 $462 $757 $757 
(1)The post-modification balances represent the balance of the loan on the date of modification. These amounts may show an increase when modification includes capitalization of interest.
For the Three Months Ended June 30, 2020For the Six Months Ended June 30, 2020
Number
of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment (1)
Number
of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment (1)
(Dollars in thousands)
Commercial and industrial$141 $141 $141 $141 
Commercial real estate506 506 506 506 
Business banking1,165 1,165 1,165 1,165 
Residential real estate155 155 399 399 
Consumer home equity113 113 12 527 531 
Other consumer— — — 24 24 
Total12 $2,080 $2,080 22 $2,762 $2,766 
(1)The post-modification balances represent the balance of the loan on the date of modification. These amounts may show an increase when modification includes capitalization of interest.
At June 30, 2021 and December 31, 2020, the outstanding recorded investment of loans that were new TDR loans during the six months ended June 30, 2021 and the year ended December 31, 2020 was $0.8 million and $3.9 million, respectively.
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The following table shows the Company’s post-modification balance of TDRs listed by type of modification during the periods indicated:
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
(In thousands)
Interest only/principal deferred$— $1,305 $— $1,305 
Extended maturity— 35 — 35 
Extended maturity and interest only/principal deferred— 381 — 427 
Court-ordered concession— 359 295 999 
Principal and interest deferred462 — 462 — 
Total$462 $2,080 $757 $2,766 
The following table shows the number of loans and the recorded investment amount of those loans, as of the respective date, that have been modified during the prior 12 months which have subsequently defaulted during the periods indicated. The Company considers a loan to have defaulted when it reaches 90 days past due or is transferred to non-accrual:
For the Six Months Ended June 30,
20212020
Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
(Dollars in thousands)
Troubled debt restructurings that subsequently defaulted (1):
Business banking$411 — $— 
Consumer home equity57 1,317 
Total$468 $1,317 
(1)This table does not reflect any TDRs which were fully charged off, paid off, or otherwise settled during the period. In addition, there were no TDRs modified during the prior 12 months which subsequently defaulted during the three months ended June 30, 2021 and June 30, 2020.
During the three and six months ended June 30, 2021, no amounts were charged-off on TDRs modified in the prior 12 months. During the three and six months ended June 30, 2020, there were $0 and $0.4 million in charge-offs on TDRs modified in the prior 12 months.
Impaired Loans
Impaired loans consist of all loans for which management has determined it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreements. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.
The Company measures impairment of loans using a discounted cash flow method, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. The Company has defined the population of impaired loans to include certain non-accrual loans, TDR loans, and residential and home equity loans that have been partially charged off.
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The following table summarizes the Company’s impaired loans by loan portfolio as of the dates indicated:
As of June 30, 2021As of December 31, 2020
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
(In thousands)
With no related allowance recorded:
Commercial and industrial$12,433 $13,752 $— $9,182 $11,212 $— 
Commercial real estate4,051 4,101 — 3,955 3,974 — 
Business banking4,725 6,079 — 5,250 7,659 — 
Residential real estate13,676 15,186 — 14,730 17,010 — 
Consumer home equity2,105 2,105 — 2,571 2,571 — 
Other consumer24 24 — 29 29 — 
Sub-total37,014 41,247 — 35,717 42,455 — 
With an allowance recorded:
Commercial and industrial7,833 8,209 4,544 8,161 8,432 4,555 
Commercial real estate— — — 480 497 210 
Business banking13,454 19,172 937 16,651 21,146 1,435 
Residential real estate11,415 11,415 1,624 12,326 12,326 1,565 
Consumer home equity1,849 1,849 263 2,274 2,274 289 
Sub-total34,551 40,645 7,368 39,892 44,675 8,054 
Total$71,565 $81,892 $7,368 $75,609 $87,130 $8,054 
The following tables display information regarding interest income recognized on impaired loans, by portfolio, for the periods indicated:
For the Three Months EndedFor the Six Months Ended
June 30, 2021June 30, 2021
Average
Recorded
Investment
Total
Interest
Recognized
Average
Recorded
Investment
Total
Interest
Recognized
(In thousands)
With no related allowance recorded:
Commercial and industrial$11,800 $47 $10,849 $92 
Commercial real estate4,057 44 4,116 89 
Business banking4,748 25 4,886 51 
Residential real estate13,942 138 14,311 277 
Consumer home equity2,176 16 2,309 35 
Other consumer24 — 26 — 
Sub-total36,747 270 36,497 544 
With an allowance recorded:
Commercial and industrial7,774 — 7,870 — 
Commercial real estate155 — 405 — 
Business banking14,714 14 15,519 29 
Residential real estate11,638 121 11,927 243 
Consumer home equity1,910 14 2,028 31 
Sub-total36,191 149 37,749 303 
Total$72,938 $419 $74,246 $847 
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For the Three Months EndedFor the Six Months Ended
June 30, 2020June 30, 2020
Average
Recorded
Investment
Total
Interest
Recognized
Average
Recorded
Investment
Total
Interest
Recognized
(In thousands)
With no related allowance recorded:
Commercial and industrial$12,304 $49 $16,592 $119 
Commercial real estate4,401 44 5,946 89 
Business banking2,392 17 2,339 36 
Residential real estate11,678 125 11,728 252 
Consumer home equity3,315 16 3,155 37 
Other Consumer22 — 23 
Sub-total34,112 251 39,783 534 
With an allowance recorded:
Commercial and industrial6,545 — 9,138 — 
Commercial real estate510 — 429 — 
Commercial construction93 — 47 — 
Business banking12,955 15 10,869 30 
Residential real estate14,664 169 14,707 343 
Consumer home equity2,706 22 3,087 51 
Sub-total37,473 206 38,277 424 
Total$71,585 $457 $78,060 $958 
Purchased Credit Impaired Loans
The following table displays the outstanding and carrying amounts of PCI loans as of the dates indicated:
June 30,December 31,
20212020
(In thousands)
Outstanding balance$5,000 $9,982 
Carrying amount4,526 9,297 
The excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield,” is accreted into interest income over the life of the loans using the effective yield method. The following table summarizes activity in the accretable yield for the PCI loan portfolio:
For the Three Months Ended June 30,For the Six Months Ended June 30,
2021202020212020
(In thousands)
Balance at beginning of period$2,031 $3,346 $2,495 $3,923 
Accretion(416)(338)(632)(760)
Other change in expected cash flows39 (10)(209)(165)
Reclassification from (to) non-accretable difference for loans with improved (deteriorated) cash flows1,327 (4)1,327 (4)
Balance at end of period$2,981 $2,994 $2,981 $2,994 
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The estimate of cash flows expected to be collected is regularly re-assessed subsequent to acquisition. A decrease in expected cash flows in subsequent periods may indicate that the loan is impaired which would require the establishment of an allowance for loan losses by a charge to the provision for loan losses. An increase in expected cash flows in subsequent periods serves, first, to reduce any previously established allowance for loan losses by the increase in the present value of cash flows expected to be collected, and results in a recalculation of the amount of accretable yield for the loan. The adjustment of accretable yield due to an increase in expected cash flows is accounted for as a change in estimate. The additional cash flows expected to be collected are reclassified from the non-accretable difference to the accretable yield, and the amount of periodic accretion is adjusted accordingly over the remaining life of the loans.
Loan Participations
The Company occasionally purchases commercial loan participations, or participates in syndications through the SNC Program. These participations meet the same underwriting, credit and portfolio management standards as the Company’s other loans and are applied against the same criteria to determine the allowance for loan losses as other loans. As of both June 30, 2021 and December 31, 2020, the Company held commercial loan participation interests totaling $1.0 billion.
The following table summarizes the Company’s loan participations:
As of and for the six months ended June 30, 2021As of and for the year ended December 31, 2020
BalanceNon-performing
Loan Rate
(%)
Impaired
(%)
Gross
Charge-offs
BalanceNon-performing
Loan Rate
(%)
Impaired
(%)
Gross
Charge-offs
(Dollars in thousands)
Commercial and industrial
$584,540 1.64 %1.64 %$— $598,873 1.11 %1.11 %$— 
Commercial real estate358,558 0.00 %0.00 %— 306,202 0.00 %0.00 %— 
Commercial construction85,790 0.00 %0.00 %— 119,600 0.00 %0.00 %— 
Business banking28 0.00 %0.00 %— 34 0.00 %0.00 %15 
Total loan participations
$1,028,916 0.93 %0.93 %$— $1,024,709 0.65 %0.65 %$15 

5. Leases
The Company leases certain office space and equipment under various non-cancelable operating leases. These leases have original terms ranging from 1 year to 25 years. Operating lease liabilities and right-of-use (“ROU”) assets are recognized at the lease commencement date based upon the present value of the future minimum lease payments over the lease term. Operating lease liabilities are recorded within other liabilities and ROU assets are recorded within other assets in the Company’s consolidated balance sheet.
As of the dates indicated, the Company had the following related to operating leases:
As of June 30, 2021As of December 31, 2020
(In thousands)
Right-of-use assets$76,678 $81,596 
Lease liabilities$80,653 $85,330 
Finance leases are not material. Finance lease liabilities are recorded within other liabilities and finance ROU assets are recorded within other assets in the Company’s consolidated balance sheet.
The following tables are a summary of the Company’s components of net lease cost for the periods indicated:
Three Months Ended June 30, 2021Six Months Ended June 30, 2021
(In thousands)
Operating lease cost$3,521 $7,082 
Finance lease cost35 66 
Variable lease cost457 947 
Total lease cost$4,013 $8,095 
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Three Months Ended June 30, 2020Six Months Ended June 30, 2020
(In thousands)
Operating lease cost$3,601 $7,215 
Finance lease cost17 20 
Variable lease cost448 970 
Total lease cost$4,066 $8,205 
During the three and six months ended June 30, 2021 the Company made $3.5 million and $7.1 million respectively, in cash payments for operating and finance lease payments. During the three and six months ended June 30, 2020 the Company made $3.5 million and $7.1 million, respectively, in cash payments for operating and finance lease payments.
Supplemental balance sheet information related to operating leases are as follows:
As of June 30, 2021As of December 31, 2020
Weighted-average remaining lease term (in years)8.158.50
Weighted-average discount rate2.63 %2.65 %

6. Goodwill and Other Intangibles
The following tables set forth the carrying amount of goodwill and other intangible assets, net of accumulated amortization by reporting unit at the dates indicated below:
As of June 30, 2021
Banking
Business
Insurance
Agency Business
Net
Carrying
Amount
(In thousands)
Balances not subject to amortization
Goodwill$298,611 $73,861 $372,472 
Balances subject to amortization
Insurance agency— 7,833 7,833 
Core deposits97 — 97 
Total other intangible assets97 7,833 7,930 
Total goodwill and other intangible assets$298,708 $81,694