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Eastern Bankshares, Inc. - Quarter Report: 2022 September (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 September 30, 2022
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
176,678,504 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of November 2, 2022.


Table of Contents

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
(In thousands, except per share data)September 30, 2022December 31, 2021
ASSETS
Cash and due from banks$102,776 $144,634 
Short-term investments55,661 1,087,158 
Cash and cash equivalents158,437 1,231,792 
Securities:
Available for sale (amortized cost $8,029,283 and $8,587,179, respectively)
6,844,615 8,511,224 
Held to maturity (fair value $431,477 and $0, respectively)
481,963 — 
Total securities7,326,578 8,511,224 
Loans held for sale951 1,206 
Loans:
Commercial and industrial3,023,729 2,960,527 
Commercial real estate4,985,654 4,522,513 
Commercial construction314,193 222,328 
Business banking1,096,436 1,334,694 
Residential real estate2,118,852 1,926,810 
Consumer home equity1,168,476 1,100,153 
Other consumer196,614 214,485 
Total loans12,903,954 12,281,510 
Allowance for loan losses(131,663)(97,787)
Unamortized premiums, net of unearned discounts and deferred fees(19,349)(26,442)
Net loans12,752,942 12,157,281 
Federal Home Loan Bank stock, at cost18,714 10,904 
Premises and equipment63,261 80,984 
Bank-owned life insurance159,838 157,091 
Goodwill and other intangibles, net662,222 649,703 
Deferred income taxes, net342,550 76,535 
Prepaid expenses180,742 179,330 
Other assets376,698 456,078 
Total assets$22,042,933 $23,512,128 
LIABILITIES AND EQUITY
Deposits:
Demand$6,582,122 $7,020,864 
Interest checking accounts5,047,018 4,478,566 
Savings accounts1,990,188 2,077,495 
Money market investment4,757,477 5,525,005 
Certificates of deposit356,576 526,381 
Total deposits18,733,381 19,628,311 
Borrowed funds:
Federal Home Loan Bank advances384,215 14,020 
Escrow deposits of borrowers21,853 20,258 
Interest rate swap collateral funds16,650 — 
Total borrowed funds422,718 34,278 
Other liabilities470,671 443,187 
Total liabilities19,626,770 20,105,776 
Commitments and contingencies (see footnote 12)
Shareholders’ equity
Common shares, $0.01 par value, 1,000,000,000 shares authorized, 177,772,553 and 186,305,332 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
1,778 1,863 
Additional paid in capital1,676,396 1,835,241 
Unallocated common shares held by the Employee Stock Ownership Plan(138,950)(142,709)
Retained earnings1,855,757 1,768,653 
Accumulated other comprehensive income, net of tax(978,818)(56,696)
Total shareholders’ equity2,416,163 3,406,352 
Total liabilities and shareholders’ equity$22,042,933 $23,512,128 
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 September 30,Nine Months Ended September 30,
2022202120222021
(In thousands, except per share data)
Interest and dividend income:
Interest and fees on loans$124,992 $86,735 $333,595 $266,310 
Taxable interest and dividends on securities29,280 14,314 88,277 36,977 
Non-taxable interest and dividends on securities1,917 1,848 5,585 5,561 
Interest on federal funds sold and other short-term investments1,638 571 2,726 1,434 
Total interest and dividend income157,827 103,468 430,183 310,282 
Interest expense:
Interest on deposits4,781 736 11,164 2,769 
Interest on borrowings867 41 959 123 
Total interest expense5,648 777 12,123 2,892 
Net interest income152,179 102,691 418,060 307,390 
Provision for (release of) allowance for loan losses6,480 (1,488)7,045 (5,368)
Net interest income after provision for loan losses145,699 104,179 411,015 312,758 
Noninterest income:
Insurance commissions23,788 21,956 77,183 73,767 
Service charges on deposit accounts6,708 5,935 23,558 17,010 
Trust and investment advisory fees5,832 6,310 17,967 18,047 
Debit card processing fees3,249 3,030 9,417 8,949 
Interest rate swap income1,562 881 6,087 5,122 
(Losses) income from investments held in rabbi trusts(2,248)(289)(13,997)5,773 
Gains on sales of mortgage loans held for sale, net22 717 240 3,044 
(Losses) gains on sales of securities available for sale, net(198)(2,474)1,166 
Other4,638 4,668 13,664 11,276 
Total noninterest income43,353 43,209 131,645 144,154 
Noninterest expense:
Salaries and employee benefits78,060 66,238 220,582 199,554 
Office occupancy and equipment9,703 7,960 31,205 24,271 
Data processing13,294 12,191 42,959 37,892 
Professional services5,826 4,024 14,561 14,611 
Marketing expenses2,219 1,598 6,444 6,786 
Loan expenses1,152 1,586 3,444 5,287 
FDIC insurance1,578 1,056 4,710 2,989 
Amortization of intangible assets1,033 629 2,767 1,786 
Other3,975 3,688 10,173 7,178 
Total noninterest expense116,840 98,970 336,845 300,354 
Income before income tax expense72,212 48,418 205,815 156,558 
Income tax expense17,435 11,312 48,350 36,980 
Net income$54,777 $37,106 $157,465 $119,578 
Basic earnings per share$0.33 $0.22 $0.94 $0.69 
Diluted earnings per share$0.33 $0.22 $0.94 $0.69 
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 September 30,Nine Months Ended September 30,
2022202120222021
(In thousands)
Net income$54,777 $37,106 $157,465 $119,578 
Other comprehensive (loss) income, net of tax:
Net change in fair value of securities available for sale(261,469)(21,610)(860,269)(71,086)
Net change in fair value of cash flow hedges(56,062)(5,644)(61,482)(17,501)
Net change in other comprehensive income for defined benefit postretirement plans
(124)426 (371)1,278 
Total other comprehensive (loss) income(317,655)(26,828)(922,122)(87,309)
Total comprehensive (loss) income$(262,878)$10,278 $(764,657)$32,269 
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 September 30, 2022 and 2021

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 June 30, 2021186,758,154 $1,868 $1,856,241 $1,723,979 $(6,247)$(145,219)$3,430,622 
Dividends to common shareholders— — — (13,785)— — (13,785)
Net income— — — 37,106 — — 37,106 
Other comprehensive income, net of tax— — — — (26,828)— (26,828)
ESOP shares committed to be released— — 924 — — 1,253 2,177 
Balance at September 30, 2021186,758,154 $1,868 $1,857,165 $1,747,300 $(33,075)$(143,966)$3,429,292 
Balance at June 30, 2022179,253,801 $1,793 $1,700,495 $1,817,474 $(661,163)$(140,203)$2,718,396 
Dividends to common shareholders— — — (16,494)— — (16,494)
Repurchased common stock(1,481,248)(15)(28,935)— — — (28,950)
Share-based compensation— — 3,561 — — — 3,561 
Net income— — — 54,777 — — 54,777 
Other comprehensive income, net of tax— — — — (317,655)— (317,655)
ESOP shares committed to be released— — 1,275 — — 1,253 2,528 
Balance at September 30, 2022177,772,553 $1,778 $1,676,396 $1,855,757 $(978,818)$(138,950)$2,416,163 
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
Nine Months Ended September 30, 2022 and 2021

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, 2020186,758,154 $1,868 $1,854,068 $1,665,607 $54,234 $(147,725)$3,428,052 
Dividends to common shareholders— — — (37,885)— — (37,885)
Net income— — — 119,578 — — 119,578 
Other comprehensive income, net of tax— — — — (87,309)— (87,309)
ESOP shares committed to be released— — 3,097 — — 3,759 6,856 
Balance at September 30, 2021186,758,154 $1,868 $1,857,165 $1,747,300 $(33,075)$(143,966)$3,429,292 
Balance at December 31, 2021186,305,332 $1,863 $1,835,241 $1,768,653 $(56,696)$(142,709)$3,406,352 
Cumulative effect of accounting adjustment (1)— — — (20,098)— — (20,098)
Dividends to common shareholders— — — (50,263)— — (50,263)
Repurchased common stock(8,564,338)(86)(170,685)— — — (170,771)
Issuance of restricted stock awards31,559 (1)— — — — 
Share-based compensation— — 8,092 — — — 8,092 
Net income— — — 157,465 — — 157,465 
Other comprehensive loss, net of tax— — — — (922,122)— (922,122)
ESOP shares committed to be released— — 3,749 — — 3,759 7,508 
Balance at September 30, 2022177,772,553 $1,778 $1,676,396 $1,855,757 $(978,818)$(138,950)$2,416,163 
(1)Represents gross transition adjustment amount of $28.0 million, net of taxes of $7.9 million, to reflect the cumulative impact on retained earnings pursuant to the Company’s adoption of Accounting Standards Update 2016-13. Refer to Note 4, “Loans and Allowance for Credit Losses” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q for additional discussion.
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
Nine Months Ended September 30,
(In thousands)20222021
Operating activities
Net income$157,465 $119,578 
Adjustments to reconcile net income to net cash provided by operating activities
Provision for (release of) allowance for loan losses7,045 (5,368)
Depreciation and amortization11,021 9,932 
Accretion of deferred loan fees and premiums, net(3,499)(19,126)
Deferred income tax expense12,929 5,606 
Amortization of investment security premiums and discounts15,251 11,084 
Right-of-use asset amortization9,822 9,172 
Share-based compensation8,092 — 
Increase in cash surrender value of bank-owned life insurance(2,747)(1,598)
Loss (gain) on sale of securities available for sale, net2,474 (1,166)
Net (gain) loss on sale of premises and equipment(1,423)259 
Amortization of gains from terminated interest rate swaps(9,653)(24,344)
Employee Stock Ownership Plan expense7,508 6,856 
Other1,266 (1,014)
Change in:
Loans held for sale245 (610)
Prepaid pension expense(8,599)2,515 
Other assets70,088 34,227 
Other liabilities(50,781)(18,904)
Net cash provided by operating activities226,504 127,099 
Investing activities
Proceeds from sales of securities available for sale400,543 23,237 
Proceeds from maturities and principal paydowns of securities available for sale880,145 573,135 
Purchases of securities available for sale(740,770)(3,202,995)
Proceeds from maturities and principal paydowns of securities held to maturity11,968 — 
Purchases of securities held to maturity(493,678)— 
Proceeds from sale of Federal Home Loan Bank stock16,214 — 
Purchases of Federal Home Loan Bank stock(24,024)(1,796)
Contributions to low income housing tax credit investments(14,967)(10,168)
Contributions to other equity investments(450)(2,294)
Distributions from other equity investments762 258 
Net (increase) decrease in outstanding loans, excluding loan purchases(546,296)240,354 
Purchases of loans(79,880)— 
Proceeds from life insurance policies20,446 — 
Acquisitions, net of cash and cash equivalents acquired(13,400)(4,354)
Purchased banking premises and equipment, net(6,381)(3,791)
Proceeds from sale of premises held for sale17,313 736 
Proceeds from sale of other real estate owned— 125 
Net cash used in investing activities(572,455)(2,387,553)
Financing activities
Net (decrease) increase in demand, savings, interest checking, and money market investment deposit accounts(725,125)1,527,724 
Net decrease in time deposits(169,805)(33,544)
Net increase in borrowed funds388,440 2,023 
Contingent consideration paid(384)(173)
Payments for repurchases of common stock(170,771)— 
Dividends declared and paid to common shareholders(49,759)(37,885)
Net cash (used in) provided by financing activities(727,404)1,458,145 
Net decrease in cash, cash equivalents, and restricted cash(1,073,355)(802,309)
Cash, cash equivalents, and restricted cash at beginning of period1,231,792 2,054,070 
Cash, cash equivalents, and restricted cash at end of period$158,437 $1,251,761 
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Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest paid$12,036 $2,943 
Income taxes24,540 42,432 
Non-cash activities
Net increase in capital commitments relating to low income housing tax credit projects$30,378 $28,291 
Net decrease in operating lease right-of-use assets and operating lease liabilities relating to lease remeasurements (see footnote 6 in the Notes to the Unaudited Consolidated Financial Statements)14,082 — 
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 services, trust and investment services, and insurance services, through its full-service bank branches and insurance offices, located primarily in eastern Massachusetts, southern and coastal New Hampshire and Rhode Island. Eastern Insurance Group LLC is a wholly-owned subsidiary of the Bank.
The activities of the Company are subject to the regulatory supervision of the Board of Governors of the Federal Reserve System (“Federal Reserve”). The activities of the Bank are subject to the regulatory supervision of the Massachusetts Commissioner of Banks, the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau. The Company and the activities of the Bank and its subsidiaries are also subject to various Massachusetts, New Hampshire and Rhode Island business, banking and insurance 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 U.S. 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 September 30, 2022, the consolidated statements of income and comprehensive income and of changes in shareholders’ equity for the three and nine months ended September 30, 2022 and 2021 and statements of cash flows for the nine months ended September 30, 2022 and 2021 are unaudited. The consolidated balance sheet as of December 31, 2021 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, 2021 (“2021 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 nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, 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 September 30, 2022 and those that were adopted during the nine months ended September 30, 2022. For a full discussion of significant accounting policies, refer to the Notes to the Consolidated Financial Statements included within the Company’s 2021 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 credit losses, valuation and fair value measurements, 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
Relevant standards that were recently issued but not yet adopted as of September 30, 2022:
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). This update modifies how an acquiring entity measures contract assets and contract liabilities of an acquiree in a business combination in accordance with Topic 606. The amendments in this update require the acquiring entity in a business combination to account for revenue contracts as if they had originated the contract and assess how the acquiree accounted for the contract under Topic 606. ASU 2021-08 improves comparability of recognition and measurement of revenue contracts with customers both before and after a business combination. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2022. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. The amendments in this update should be applied prospectively to business combinations occurring on or after the effective date of the amendments with early adoption permitted. The Company expects the adoption of this standard will not have a material impact on its consolidated financial statements.
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. 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 nine months ended September 30, 2022:
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 then-current GAAP method of calculating credit losses. Specifically, the standard replaced the previous 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 previous impairment guidance for available for sale securities, in which credit losses are recorded as an allowance versus a write-down of the amortized cost basis of the security. It also allows 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.
On January 1, 2022, the Company adopted ASUs 2016-13, 2018-19 and 2019-11 (codified in ASC 326, “Financial Instruments-Credit Losses”), which replaced the incurred loss methodology (codified in ASC 450, “Contingencies,” ASC 310, “Receivables” and ASC 320, “Debt Securities”) with an expected loss methodology that is referred to as current expected credit losses methodology (“CECL methodology”). The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures by means of a cumulative-effect adjustment to the opening retained earnings balance on the Company’s consolidated balance sheet as of the Company’s date of adoption of January 1, 2022. Accordingly, results for reporting periods beginning after December
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31, 2021 are presented under ASU 2016-13, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $20.1 million, net of deferred taxes of $7.9 million, as of January 1, 2022, for the cumulative effect of adopting ASU 2016-13. The Company adopted ASU 2016-13 using the prospective transition approach for purchased credit-deteriorated (“PCD”) financial assets that were previously classified as purchased credit-impaired (“PCI”) financial assets and accounted for under ASC 310-30. In accordance with ASU 2016-13, the Company did not reassess whether its assets previously classified as PCI assets met the criteria of PCD assets as of the date of adoption. Rather, loans previously determined to be PCI loans are considered to be PCD loans as of January 1, 2022. On January 1, 2022, the amortized cost basis of the PCD assets was adjusted to reflect the addition of the allowance for loan losses on PCD loans. The remaining noncredit discount will be accreted into the Company’s interest income at the then-effective interest rate as of January 1, 2022. The amount of the adjustment for PCD assets was not material to the Company.
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 that exist as of December 31, 2022, for which 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 performed a review its contracts and existing processes to assess the risks and potential impact of the transition away from LIBOR and noted no material impact to the Company’s consolidated financial statements as of September 30, 2022.
Significant Accounting Policies
The adoption of the ASUs 2016-13, 2018-19 and 2019-11 resulted in changes in the Company’s accounting policies and estimates as it relates to available for sale securities, held to maturity securities, loans receivable and off-balance sheet commitments to lend. The following describes the changes to the Company’s significant accounting policies from December 31, 2021, that resulted from the adoption of the ASUs described above:
Allowance for Credit Losses - Available for Sale Securities
ASU 2016-13 made targeted changes to ASC 320 to eliminate the concept of “other than temporary” from the impairment loss estimation model for available for sale (“AFS”) securities. A summary of the changes made by the Company to the existing impairment model (previously referred to as the “OTTI” model) as a result of adoption of ASU 2016-13 is as follows:
The use of an allowance approach, rather than a permanent write-down of a security’s cost basis upon determination of an impairment loss.
The amount of the allowance is limited to the amount at which the security’s fair value is less than its amortized cost basis.
The Company may not consider the length of time a security’s fair value has been less than amortized cost.
The Company may not consider recoveries in fair value after the balance sheet date when assessing whether a credit loss exists.
The Company’s AFS securities are carried at fair value. For AFS securities in an unrealized loss position, management will first evaluate whether there is intent to sell a security, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis. If either of these criteria are met, the Company will record a write-down of the security’s amortized cost basis to fair value through income. For those AFS securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S. federal government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings.
Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the security is determined to be uncollectible, or when either of the aforementioned criteria surrounding intent or requirement to sell have been met. On January 1, 2022, the date on which the Company adopted ASU 2016-13, no allowance for credit losses was recorded for AFS securities.
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Refer to Note 3, “Securities” for additional information regarding the measurement of impairment losses on AFS securities.
Allowance for Credit Losses - Held to Maturity Securities
The Company measures expected credit losses on held to maturity (“HTM”) securities on a collective basis by major security type which, as of September 30, 2022, includes government-sponsored residential and commercial mortgage-backed securities. Securities in the Company’s held to maturity portfolio are guaranteed by either the U.S. federal government or other government sponsored agencies with a long history of no credit losses. As a result, management has determined that these securities have a zero loss expectation and therefore does not estimate an allowance for credit losses on these securities. The Company held no securities classified as held to maturity at December 31, 2021. Refer to Note 3, “Securities” for additional information regarding the measurement of credit losses on HTM securities.
Allowance for Loan Losses - Loans Held for Investment
Loans Individually Assessed for Impairment
ASU 2016-13 indicates that a loan should be measured for impairment individually if that loan shares no similar risk characteristics with other loans. For the Company, loans which have been identified as those to be individually assessed for impairment under CECL include loans that do not share similar risk characteristics with other loans in the corresponding reserve segment. Characteristics of loans meeting this definition may include, but are not limited to:
Loans previously restructured and determined to be TDR loans;
Loans on non-accrual status; and
Loans with a risk rating of 12 under the Company’s risk rating scale, substandard (well-defined weakness) or worse.
Collateral-Dependent Loans
Management considers a loan to be collateral-dependent when foreclosure of the underlying collateral is probable. In addition, in accordance with ASU 2016-13, the Company elected to apply the collateral-dependent practical expedient whereby the Company measures expected credit losses using the fair value of the collateral, less any estimated costs to sell, when foreclosure is not probable but repayment of the loan is expected to be provided substantially through the operation or sale of the collateral, and the borrower is experiencing financial difficulty.
Troubled Debt Restructured Loans
In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a TDR. Modifications may include adjustments to interest rates, extensions of maturity, consumer loans where the borrower’s obligations have been effectively discharged through Chapter 7 bankruptcy and the borrower has not reaffirmed the debt to the Company, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. Prior to the Company’s adoption of ASU 2016-13, all TDR loans were subject to a specific review for impairment loss each period beginning in the period in which the modification was executed. Subsequent to the adoption of ASU 2016-13, management identifies loans as TDR loans when it has a reasonable expectation that it will execute a TDR modification with a borrower. In addition, subsequent to adoption of ASU 2016-13, management estimates expected credit losses on a collective basis if a group of TDR loans share similar risk characteristics. If a TDR loan’s risk characteristics are not similar to those of any of the Company’s other TDR loans, expected credit losses on the TDR loan are measured individually. 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 credit loss, if any, is recorded as a specific loss allocation to each individual loan or as a loss allocation to the pool of loans, for those loans for which credit loss is measured on a collective basis, in the allowance for credit losses. Any commercial (commercial and industrial, commercial real estate, commercial construction, and business banking loans) or residential loan that has been classified as a TDR and which subsequently defaults is reviewed to determine if the loan should be deemed collateral-dependent. In such an instance, any shortfall between the value of the collateral and the book value of the loan is determined by measuring the recorded investment in the loan against the fair value of the collateral less costs to sell.
The Company’s policy is to retain any restructured loan, which is on non-accrual status prior to being modified, on non-accrual status for approximately six months subsequent to being modified before the Company considers its return to accrual status. If the restructured loan is on accrual status prior to being modified, the Company reviews it to determine if the modified loan should remain on accrual status.
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Purchased Credit-Deteriorated Loans
As described above, the Company applied the prospective transition approach with respect to PCD assets upon adoption of ASU 2016-13. Under this approach, loans previously determined to be PCI loans are considered to be PCD loans as of January 1, 2022. PCD loans are acquired individual loans (or acquired groups of loans with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. A PCD loan is recorded at its purchase price plus the allowance for loan losses expected at the time of acquisition, or “gross up” of the amortized cost basis, if any. Changes in the current estimate of the allowance for loan losses subsequent to acquisition from the estimated allowance previously recorded are recognized in the income statement as provision for credit losses or reversal of provision for credit losses in subsequent periods as they arise. A purchased loan that does not qualify as a PCD asset is accounted for similar to the Company’s method of accounting for originated assets, whereby an allowance for loan losses is recognized with a corresponding increase to the income statement provision for loan losses. Evidence that purchased loans, measured at amortized cost, have more-than-insignificant deterioration in credit quality since origination and, therefore meet the PCD definition, may include past-due status, non-accrual status, risk rating and other standard indicators (i.e., TDRs, charge-offs, bankruptcy).
Allowance for Credit Losses
Through December 31, 2021, the allowance for loan losses represented management’s best estimate of incurred probable losses in the Company’s loan portfolios based upon management’s assessment of various factors, including the risk characteristics of its loan portfolio, current economic conditions, and trends in loan delinquencies and charge-offs. The Company’s 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, the Company changed its 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 the Company’s 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. Credit losses are charged directly to the ACL. Subsequent recoveries, if any, are credited to the ACL. Commercial and residential loans are charged-off in the period in which they are deemed uncollectible. Delinquent loans in these product types are subject to ongoing review and analysis to determine if a charge-off in the current period is appropriate. For consumer finance loans, policies and procedures exist that require charge-off consideration upon a certain triggering event depending on the product type. Charge-off triggers include: 120 days delinquent for automobile, home equity, and other consumer loans with the exception of cash reserve loans for which the trigger is 150 days delinquent; death of the borrower; or Chapter 7 bankruptcy. In addition to those events, the charge-off determination includes other loan quality indicators, such as collateral position and adequacy or the presence of other repayment sources.
The ACL is evaluated on a regular basis by management. Management uses a methodology to systematically estimate the amount of expected lifetime losses in the portfolio. 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 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, the Company’s 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 are incorporated into the estimate over a reasonable and supportable forecast period, beyond which is a reversion to the Company’s historical loss average. Management has determined that a reasonable and supportable forecast period of eight quarters, and a straight-line reversion period of four quarters, are appropriate forecast periods for purposes of estimating expected credit losses. As described above, quantitative model results are adjusted for risk factors not considered within the model but which are relevant in estimating the expected credit losses within the loan portfolio. The qualitative risk factors impacting the expected risk of loss within the loan portfolio include the following:
Lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices;
Nature and volume of the portfolio;
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Volume and severity of past-due, non-accrual and classified loans;
The value of the underlying collateral for loans that are not collateral dependent;
Concentrations of credit risk;
Model and data limitations; and
Other external factors, such as changes in legal, regulatory or competitive environments.
Loans that do not share similar risk characteristics with any pools of assets are subject to individual evaluation and are removed from the collectively assessed pools. For loans that are individually evaluated, the Company uses either a discounted cash flow (“DCF”) approach or, for loans deemed to be collateral dependent or when foreclosure is probable, a fair value of collateral approach.
Accrued interest receivable amounts are excluded from balances of loans held at amortized cost and are included within other assets on the consolidated balance sheet. Management has elected not to measure an allowance for credit losses on these amounts as the Company employs a timely write-off policy. Consistent with the Company's policy for non-accrual loans, accrued interest receivable is typically written off when loans reach 90 days past due and are placed on non-accrual status.
In the ordinary course of business, the Company enters into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the reserving method for loans receivable previously described. The reserve for unfunded lending commitments is included in other liabilities in the balance sheet.
Additionally, various regulatory agencies, as an integral part of the Company’s examination process, periodically assess the appropriateness of the allowance for credit losses and may require the Company to increase its allowance for loan losses or recognize further loan charge-offs, in accordance with GAAP.
Refer to Note 4, “Loans and Allowance for Credit Losses” for additional information regarding the Company’s measurement of credit losses on loans receivable and off-balance sheet commitments to lend as of September 30, 2022. For comparative allowance for loan loss information for which ASC 450, “Contingencies” and ASC 310, “Receivables” were applied (i.e., prior to the Company’s adoption of the CECL methodology previously described), refer to Note 5, “Loans and Allowance for Loan Losses.”
3. Securities
Available for Sale Securities
The amortized cost, gross unrealized gains and losses, and fair value of AFS securities as of September 30, 2022 and December 31, 2021 were as follows:
As of September 30, 2022
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Allowance for Credit LossesFair
Value
(In thousands)
Debt securities:
Government-sponsored residential mortgage-backed securities$4,995,267 $— $(786,178)$— $4,209,089 
Government-sponsored commercial mortgage-backed securities1,603,046 — (205,819)— 1,397,227 
U.S. Agency bonds1,100,565 — (158,968)— 941,597 
U.S. Treasury securities99,267 — (6,807)— 92,460 
State and municipal bonds and obligations229,539 58 (26,933)— 202,664 
Other debt securities1,599 — (21)— 1,578 
$8,029,283 $58 $(1,184,726)$— $6,844,615 
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As of December 31, 2021
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
(In thousands)
Debt securities:
Government-sponsored residential mortgage-backed securities$5,577,292 $17,918 $(70,502)$5,524,708 
Government-sponsored commercial mortgage-backed securities1,420,748 760 (12,640)1,408,868 
U.S. Agency bonds1,202,377 1,067 (28,430)1,175,014 
U.S. Treasury securities89,434 (834)88,605 
State and municipal bonds and obligations263,910 16,460 (41)280,329 
Small business administration pooled securities31,821 282 — 32,103 
Other debt securities1,597 — — 1,597 
$8,587,179 $36,492 $(112,447)$8,511,224 
The Company did not record a provision for credit losses on any AFS securities for the three and nine months ended September 30, 2022. Accrued interest receivable on AFS securities totaled $13.6 million and $14.3 million as of September 30, 2022 and December 31, 2021, respectively, and is included within other assets on the consolidated balance sheets. The Company did not record any write-offs of accrued interest income on AFS securities during the three and nine months ended September 30, 2022. No securities held by the Company were delinquent on contractual payments as of September 30, 2022, nor were any securities placed on non-accrual status for the period then ended.
The following table summarizes gross realized gains and losses from sales of AFS securities for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(In thousands)
Gross realized gains from sales of AFS securities$725 $$1,770 $1,166 
Gross realized losses from sales of AFS securities923 — 4,244 — 
Net (losses) gains from sales of AFS securities$(198)$$(2,474)$1,166 
Prior to the Company’s adoption of ASU 2016-13, management prepared an estimate of the Company’s expected cash flows for AFS investment securities that potentially may be deemed to have been an OTTI. This estimate began with the contractual cash flows of the security which was then reduced by an estimate of probable credit losses associated with the security. When estimating the extent of probable losses on the securities, management considered the credit quality and the ability to pay of the underlying issuers. Indicators of diminished credit quality of the issuers included defaults, interest deferrals, or “payments in kind.” Management also considered 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 expected cash flows after considering credit was 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 expected cash flows was less than the current amortized cost basis, an OTTI was considered to have occurred and the security was written down to the fair value indicated by the cash flow analysis. As part of the analysis, management considered whether it intended to sell the security or whether it was more than likely that it would be required to sell the security before the expected recovery of its amortized cost basis.
There was no OTTI recorded during the three and nine months ended September 30, 2021.
Information pertaining to AFS securities with gross unrealized losses as of September 30, 2022, for which the Company did not recognize a provision for credit losses under CECL, and as of December 31, 2021, for which the Company did not deem to be OTTI under its prior methodology, aggregated by investment category and length of time that individual securities had been in a continuous loss position, follows:
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As of September 30, 2022
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 securities322$278,329 $1,541,349 $507,849 $2,667,740 $786,178 $4,209,089 
Government-sponsored commercial mortgage-backed securities200145,210 1,050,544 60,609 346,683 205,819 1,397,227 
U.S. Agency bonds3729,820 210,070 129,148 731,527 158,968 941,597 
U.S. Treasury securities55,399 44,127 1,408 48,333 6,807 92,460 
State and municipal bonds and obligations28326,933 200,184 — — 26,933 200,184 
Other debt securities321 1,578 — — 21 1,578 
850$485,712 $3,047,852 $699,014 $3,794,283 $1,184,726 $6,842,135 
As of December 31, 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 securities264$70,502 $4,615,457 $— $— $70,502 $4,615,457 
Government-sponsored commercial mortgage-backed securities16512,218 1,102,444 422 15,682 12,640 1,118,126 
U.S. Agency bonds272,169 191,222 26,261 794,353 28,430 985,575 
U.S. Treasury securities3834 78,588 — — 834 78,588 
State and municipal bonds and obligations1141 5,436 — — 41 5,436 
470$85,764 $5,993,147 $26,683 $810,035 $112,447 $6,803,182 
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 did not recognize an ACL on these investments as of September 30, 2022. As it relates to AFS securities with gross unrealized losses as of December 31, 2021, the Company did not consider these investments to be OTTI under its prior methodology. 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 September 30, 2022 and December 31, 2021:
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
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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.
State and municipal bonds and obligations – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality.
Other debt securities – This securities portfolio consists of three foreign debt securities which are performing in accordance with the terms of the respective contractual agreements. The decline in market value of these securities is attributable to changes in interest rates and not credit quality.
Held to Maturity Securities
The amortized cost, gross unrealized gains and losses, and fair value of HTM securities as of September 30, 2022 were as follows:
As of September 30, 2022
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Allowance for Credit LossesFair
Value
(In thousands)
Debt securities:
Government-sponsored residential mortgage-backed securities$281,253 $— $(30,972)$— $250,281 
Government-sponsored commercial mortgage-backed securities200,710 — (19,514)— 181,196 
$481,963 $— $(50,486)$— $431,477 
The Company held no HTM securities as of December 31, 2021.
The Company did not record a provision for estimated credit losses on any HTM securities for the three and nine months ended September 30, 2022. The accrued interest receivable on HTM securities totaled $1.0 million as of September 30, 2022 and is included within other assets on the consolidated balance sheets. The Company did not record any write-offs of accrued interest receivable on HTM securities during the three and nine months ended September 30, 2022. No securities held by the Company were delinquent on contractual payments as of September 30, 2022, nor were any securities placed on non-accrual status for the period then ended.
Available for Sale and Held to Maturity Securities Contractual Maturity
The amortized cost and estimated fair value of AFS securities by contractual maturities as of September 30, 2022 and December 31, 2021 and amortized cost and estimated fair value of HTM securities by contractual maturities as of
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September 30, 2022 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.
The scheduled contractual maturities of AFS and HTM securities as of the dates indicated were as follows:
As of September 30, 2022
Due in one year or lessDue after one year to five yearsDue after five to ten yearsDue after ten yearsTotal
Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
(In thousands)
AFS securities
Government-sponsored residential mortgage-backed securities$— $— $17,984 $17,288 $760,135 $677,552 $4,217,148 $3,514,249 $4,995,267 $4,209,089 
Government-sponsored commercial mortgage-backed securities— — 185,582 168,760 664,204 575,694 753,260 652,773 1,603,046 1,397,227 
U.S. Agency bonds— — 727,838 631,834 372,727 309,763 — — 1,100,565 941,597 
U.S. Treasury securities— — 99,267 92,460 — — — — 99,267 92,460 
State and municipal bonds and obligations80 80 27,379 25,738 54,859 50,773 147,221 126,073 229,539 202,664 
Other debt securities1,599 1,578 — — — — — — 1,599 1,578 
Total available for sale securities1,679 1,658 1,058,050 936,080 1,851,925 1,613,782 5,117,629 4,293,095 8,029,283 6,844,615 
HTM securities
Government-sponsored residential mortgage-backed securities— — — — — — 281,253 250,281 281,253 250,281 
Government-sponsored commercial mortgage-backed securities— — — — 200,710 181,196 — — 200,710 181,196 
Total held to maturity securities— — — — 200,710 181,196 281,253 250,281 481,963 431,477 
Total$1,679 $1,658 $1,058,050 $936,080 $2,052,635 $1,794,978 $5,398,882 $4,543,376 $8,511,246 $7,276,092 
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As of December 31, 2021
Due in one year or lessDue after one year to five yearsDue after five to ten yearsDue after ten yearsTotal
Amortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair ValueAmortized CostFair Value
(In thousands)
AFS securities
Government-sponsored residential mortgage-backed securities$— $— $24,935 $25,962 $899,169 $892,029 $4,653,188 $4,606,717 $5,577,292 $5,524,708 
Government-sponsored commercial mortgage-backed securities— — 139,095 137,755 387,177 378,414 894,476 892,699 1,420,748 1,408,868 
U.S. Agency bonds5,508 5,515 531,821 520,935 665,048 648,564 — — 1,202,377 1,175,014 
U.S. Treasury securities40,010 40,001 49,424 48,604 — — — — 89,434 88,605 
State and municipal bonds and obligations6,137 6,116 33,692 34,704 72,226 75,416 151,855 164,093 263,910 280,329 
Small Business Administration pooled securities— — 4,062 4,092 — — 27,759 28,011 31,821 32,103 
Other debt securities300 300 1,297 1,297 — — — — 1,597 1,597 
Total$51,955 $51,932 $784,326 $773,349 $2,023,620 $1,994,423 $5,727,278 $5,691,520 $8,587,179 $8,511,224 

Securities Pledged as Collateral
As of September 30, 2022 and December 31, 2021, securities with a carrying value of $438.8 million and $2.2 billion, respectively, were pledged to secure public deposits and for other purposes required by law. As of September 30, 2022 and December 31, 2021, deposits with associated pledged collateral included cash accounts from the Company’s wealth management division (“Eastern Wealth Management”) and municipal deposit accounts. At September 30, 2022 and December 31, 2021, the carrying value of securities pledged as collateral with respect to municipal deposit accounts acquired from Century Bancorp, Inc. (“Century”) was approximately $422.3 million and $2.1 billion, respectively. During the first and second quarter of 2022, the Company eliminated certain pledging arrangements acquired from Century which resulted in the decrease in securities pledged at September 30, 2022 compared to December 31, 2021.
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4. Loans and Allowance for Credit Losses
Loans
The following table provides a summary of the Company’s loan portfolio as of the dates indicated:
September 30, 2022December 31, 2021
(In thousands)
Commercial and industrial$3,023,729 $2,960,527 
Commercial real estate4,985,654 4,522,513 
Commercial construction314,193 222,328 
Business banking1,096,436 1,334,694 
Residential real estate2,118,852 1,926,810 
Consumer home equity1,168,476 1,100,153 
Other consumer (2)196,614 214,485 
Gross loans before unamortized premiums, unearned discounts and deferred fees12,903,954 12,281,510 
Allowance for loan losses (1)(131,663)(97,787)
Unamortized premiums, net of unearned discounts and deferred fees(19,349)(26,442)
Loans after the allowance for loan losses, unamortized premiums, unearned discounts and deferred fees$12,752,942 $12,157,281 
(1)The Company adopted ASU 2016-13 on January 1, 2022 with a modified retrospective approach. Accordingly, at September 30, 2022 the allowance for loan losses was determined in accordance with ASC 326, “Financial Instruments-Credit Losses” and ASC 310, “Receivables,” as amended. At December 31, 2021 the allowance for loan losses was determined in accordance with ASC 450, “Contingencies” and ASC 310, “Receivables.”
(2)Automobile loans are included in the other consumer portfolio and amounted to $24.0 million and $53.3 million at September 30, 2022 and December 31, 2021, respectively.
There are no other loan categories that exceed 10% of total loans not already reflected in the preceding table.
The Company’s lending activities are conducted principally in the New England area with the exception of its Shared National Credit Program (“SNC Program”) portfolio. The Company participates in the SNC Program in an effort to improve its industry and geographical diversification. The SNC Program portfolio is included in the Company’s commercial and industrial portfolio. The SNC Program portfolio is defined as loan syndications with exposure over $100 million and with three or more lenders participating.
Most loans originated by the Company are either collateralized by real estate or other assets or guaranteed by federal and local governmental authorities. The ability and willingness of the single-family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the borrowers’ geographic areas and real estate values. The ability and willingness of commercial real estate, commercial and industrial, and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate economy in the borrowers’ geographic areas and the general economy.
Loans Pledged as Collateral
The carrying value of loans pledged to secure advances from the Federal Home Loan Bank (“FHLB”) of Boston (“FHLBB”) were $3.3 billion and $2.6 billion at September 30, 2022 and December 31, 2021, respectively. The balance of funds borrowed from the FHLBB were $384.2 million and $14.0 million at September 30, 2022 and December 31, 2021, respectively.
The carrying value of loans pledged to secure advances from the Federal Reserve Bank (“FRB”) were $1.1 billion and $784.0 million at September 30, 2022 and December 31, 2021, respectively. There were no funds borrowed from the FRB outstanding at September 30, 2022 and December 31, 2021.
Serviced Loans
At September 30, 2022 and December 31, 2021, mortgage loans partially or wholly-owned by others and serviced by the Company amounted to approximately $85.7 million and $95.8 million, respectively.
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Purchased Loans
The Company began purchasing jumbo mortgage loans during the three months ended September 30, 2022. Loans purchased were subject to the same underwriting criteria as those loans originated directly by the Company. During the three and nine months ended September 30, 2022, the Company purchased $79.9 million of residential real estate loans.
Allowance for Loan Losses
The allowance for loan losses is established to provide for management’s estimate of expected lifetime credit losses on loans measured at amortized cost 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 for loan losses. 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 September 30, 2022
Commercial
and
Industrial
Commercial
Real Estate
Commercial
Construction
Business
Banking
Residential
Real
Estate
Consumer
Home
Equity
Other
Consumer
Total
(In thousands)
Allowance for loan losses:
Beginning balance$25,852 $47,555 $5,474 $16,699 $21,663 $5,662 $2,626 $125,531 
Charge-offs(11)— — (369)— — (603)(983)
Recoveries126 — 286 56 158 635 
Provision (release)874 3,545 507 (354)1,288 174 446 6,480 
Ending balance (2)$26,841 $51,103 $5,981 $16,262 $23,007 $5,842 $2,627 $131,663 
For the Nine Months Ended September 30, 2022
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$18,018 $52,373 $2,585 $10,983 $6,556 $3,722 $3,308 $242 $97,787 
Cumulative effect of change in accounting principle (1)11,533 (6,655)1,485 6,160 13,489 1,857 (541)(242)27,086 
Charge-offs(13)— — (1,922)— — (1,754)— (3,689)
Recoveries1,074 53 — 1,678 80 16 533 — 3,434 
Provision (release)(3,771)5,332 1,911 (637)2,882 247 1,081 — 7,045 
Ending balance (2)$26,841 $51,103 $5,981 $16,262 $23,007 $5,842 $2,627 $— $131,663 
(1)Represents the adjustment needed to reflect the cumulative day one impact pursuant to the Company’s adoption of ASU 2016-13 (i.e., cumulative effect adjustment related to the adoption of ASU 2016-13 as of January 1, 2022). The adjustment represents a $27.1 million increase to the allowance attributable to the change in accounting methodology for estimating the allowance for loan losses resulting from the Company’s adoption of the standard. The adjustment also includes the adjustment needed to reflect the day one reclassification of the Company’s PCI loan balances to PCD and the associated gross-up of $0.1 million, pursuant to the Company’s adoption of ASU 2016-13.
(2)The balance of accrued interest receivable excluded from amortized cost and the calculation of the allowance for loan losses amounted to $35.9 million at September 30, 2022.
Reserve for Unfunded Commitments
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Management evaluates the need for a reserve on unfunded lending commitments in a manner consistent with loans held for investment. Upon adoption of ASU 2016-13 on January 1, 2022, the Company recorded a transition adjustment related to the reserve for unfunded lending commitments of $1.0 million, resulting in a total reserve for unfunded lending commitments of $11.1 million as of January 1, 2022. As of September 30, 2022, the Company’s reserve for unfunded lending commitments was $11.4 million which is recorded within other liabilities.
Portfolio Segmentation
Management uses a methodology to systematically estimate the amount of expected losses in each segment of loans in the Company’s portfolio. Commercial and industrial business banking, investment commercial real estate, and commercial and industrial loans are evaluated based upon loan-level risk characteristics, historical losses and other factors which form the basis for estimating expected losses. Other portfolios, including owner occupied commercial real estate, which includes commercial and industrial and business banking owner occupied commercial real estate, commercial construction, residential mortgages, home equity and consumer loans, are analyzed as groups taking into account delinquency ratios, and the Company’s and peer banks’ historical loss experience. For the purposes of estimating the allowance for loan losses, management segregates the loan portfolio into loan categories that share similar 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, aircraft and equipment. The primary repayment source is operating cash flow and, secondarily, the liquidation of assets. Under its lending guidelines, the Company generally requires a corporate or personal guarantee from individuals that hold material ownership in the borrowing entity when the loan-to-value of a commercial and industrial loan is in excess of a specified threshold.
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. Under its lending guidelines, the Company generally requires a corporate or personal guarantee from individuals that hold material ownership in the borrowing entity when the loan-to-value of a commercial real estate loan is in excess of a specified threshold.
Commercial construction: These loans are generally considered to present a higher degree of risk than other real estate loans and may be affected by a variety of factors, such as adverse changes in interest rates and the borrower’s ability to control costs and adhere to time schedules. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the completed project. Construction loan repayment is substantially dependent on the ability of the borrower to complete the project and obtain permanent financing.
Business banking: These loans are typically secured by all business assets or commercial real estate. Business banking originations include traditionally underwritten loans as well as partially automated scored loans. Business banking scored loans are determined by utilizing the Company’s proprietary decision matrix that has a number of quantitative factors including, but not limited to, a guarantor’s credit score, industry risk, and time in business. The Company also engages in Small Business Association (“SBA”) lending, both in the business banking and commercial banking divisions. The SBA guarantees reduce the Company’s loss due to default and are considered a credit enhancement to the loan structure.
Residential Lending
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 policy standards applied to loans originated by the Company are the same as those applied to purchased loans. 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.
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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, automobile and aircraft 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 aircraft and automobile loans.
Credit Quality
Commercial Lending Credit Quality
The credit quality of the Company’s 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. The Company maintains an independent credit risk review function that reports directly to the Risk Management Committee of the Board of Directors. Credits that demonstrate significant deterioration in credit quality are transferred to a specialized group of experienced officers for individual attention.
The 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. Under this point system, 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. Commercial loan risk ratings are (re)evaluated for each loan at least once-per-year. The risk-rating categories under the credit risk-rating system are defined as follows:
0 Risk Rating - Unrated
Certain segments of the portfolios are not rated. These segments include aircraft 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 which includes the review of the business score and loan and deposit account performance. 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 $1.5 million. Loans included in this category generally are not required to provide regular financial reporting or regular covenant monitoring.
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
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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, but because of reasonably 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.
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.
The following table details the amortized cost balances of the Company’s loan portfolios, presented by credit quality indicator and origination year as of September 30, 2022:
20222021202020192018PriorRevolving LoansRevolving Loans Converted to Term Loans (1)Total
(In thousands)
Commercial and industrial
Pass$602,715 $467,826 $439,013 $225,164 $115,237 $647,820 $463,873 $3,407 $2,965,055 
Special Mention— — — 185 3,667 12 900 — 4,764 
Substandard304 13,387 2,963 47 2,688 7,948 390 346 28,073 
Doubtful— 3,912 — — — 37 3,331 — 7,280 
Loss— — — — — — — — — 
Total commercial and industrial603,019 485,125 441,976 225,396 121,592 655,817 468,494 3,753 3,005,172 
Commercial real estate
Pass1,179,141 835,810 592,293 620,120 463,910 1,092,428 45,902 4,231 4,833,835 
Special Mention— — 16,144 703 35,360 9,986 — — 62,193 
Substandard3,520 50 2,683 19,877 15,837 36,532 8,000 — 86,499 
Doubtful— — — — — — — — — 
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Loss— — — — — — — — — 
Total commercial real estate1,182,661 835,860 611,120 640,700 515,107 1,138,946 53,902 4,231 4,982,527 
Commercial construction
Pass71,700 169,318 24,920 32,909 — — 11,524 — 310,371 
Special Mention— — 2,101 — — — — — 2,101 
Substandard— — — — — — — — — 
Doubtful— — — — — — — — — 
Loss— — — — — — — — — 
Total commercial construction71,700 169,318 27,021 32,909 — — 11,524 — 312,472 
Business banking
Pass139,053 224,855 175,102 130,091 62,448 246,849 78,458 3,908 1,060,764 
Special Mention— — 4,704 4,139 3,820 5,729 1,070 — 19,462 
Substandard— 2,160 1,679 4,072 769 10,418 652 770 20,520 
Doubtful— — — 191 — 82 — — 273 
Loss— — — — — — — — — 
Total business banking139,053 227,015 181,485 138,493 67,037 263,078 80,180 4,678 1,101,019 
Residential real estate
Current and accruing378,210 711,207 389,001 104,011 70,055 455,291 — — 2,107,775 
30-89 days past due and accruing723 2,671 707 1,574 1,281 7,453 — — 14,409 
Loans 90 days or more past due and still accruing— — — — — — — — — 
Non-accrual— — 202 293 1,016 7,002 — — 8,513 
Total residential real estate378,933 713,878 389,910 105,878 72,352 469,746 — — 2,130,697 
Consumer home equity
Current and accruing74,271 11,284 6,113 5,145 22,589 78,717 956,474 6,378 1,160,971 
30-89 days past due and accruing— — — 83 101 646 5,110 — 5,940 
Loans 90 days or more past due and still accruing— — — — — — — — — 
Non-accrual— — — — 382 1,148 3,390 160 5,080 
Total consumer home equity74,271 11,284 6,113 5,228 23,072 80,511 964,974 6,538 1,171,991 
Other consumer
Current and accruing42,452 34,736 19,085 20,170 23,645 20,694 18,490 10 179,282 
30-89 days past due and accruing77 114 94 59 354 220 52 — 970 
Loans 90 days or more past due and still accruing— — — — — — — — — 
Non-accrual41 25 56 74 80 107 92 — 475 
Total other consumer42,570 34,875 19,235 20,303 24,079 21,021 18,634 10 180,727 
Total$2,492,207 $2,477,355 $1,676,860 $1,168,907 $823,239 $2,629,119 $1,597,708 $19,210 $12,884,605 
(1)The amounts presented represent the amortized cost as of September 30, 2022 of revolving loans that were converted to term loans during the nine months ended September 30, 2022.
Paycheck Protection Program (“PPP”) loans are included within the unrated category of the commercial and industrial and business banking portfolios in the table above. Commercial and industrial PPP loans and business banking PPP loans amounted to $5.3 million and $17.8 million, respectively, at September 30, 2022 and $112.8 million and $218.6 million respectively, at December 31, 2021 on a recorded investment basis. The Company does not have an allowance for loan losses for PPP loans as they are 100% guaranteed by the SBA.
Asset Quality
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The Company manages its loan portfolio with careful monitoring. As a general rule, loans more than 90 days past due with respect to principal and interest are classified as non-accrual loans. Exceptions may be made if management believes that collateral held by the Company is clearly sufficient and in full satisfaction of both principal and interest. The Company may also use discretion regarding other loans over 90 days delinquent if the loan is well secured and in the process of collection. Non-accrual loans and loans that are more than 90 days past due but still accruing interest are considered non-performing loans.
Non-accrual loans may be returned to an accrual status when principal and interest payments are no longer delinquent, and the risk characteristics of the loan have improved to the extent that there no longer exists a concern as to the collectability of principal and interest. Loans are considered past due based upon the number of days delinquent according to their contractual terms.
A loan is expected to remain on non-accrual status until it becomes current with respect to principal and interest, the loan is liquidated, or the loan is determined to be uncollectible and is charged-off against the allowance for loan losses.
The following tables show the age analysis of past due loans as of the dates indicated:
As of September 30, 2022
30-59
Days Past
Due
60-89
Days Past
Due
90 or More
Days Past
Due
Total Past
Due
CurrentTotal
Loans
(In thousands)
Commercial and industrial$— $304 $1,994 $2,298 $3,002,874 $3,005,172 
Commercial real estate— — — — 4,982,527 4,982,527 
Commercial construction— — — — 312,472 312,472 
Business banking5,591 1,188 3,609 10,388 1,090,631 1,101,019 
Residential real estate12,572 1,905 6,588 21,065 2,109,632 2,130,697 
Consumer home equity4,560 1,752 4,485 10,797 1,161,194 1,171,991 
Other consumer720 286 439 1,445 179,282 180,727 
Total$23,443 $5,435 $17,115 $45,993 $12,838,612 $12,884,605 
As of December 31, 2021
30-59
Days Past
Due
60-89
Days Past
Due
90 or More
Days Past
Due
Total Past
Due
CurrentTotal
Loans
(In thousands)
Commercial and industrial$45 $31 $1,672 $1,748 $2,958,779 $2,960,527 
Commercial real estate25,931 — 1,196 27,127 4,495,386 4,522,513 
Commercial construction— — — — 222,328 222,328 
Business banking5,043 1,793 4,640 11,476 1,323,218 1,334,694 
Residential real estate17,523 3,511 5,543 26,577 1,900,233 1,926,810 
Consumer home equity3,774 1,510 4,571 9,855 1,090,298 1,100,153 
Other consumer1,194 548 889 2,631 211,854 214,485 
Total (1)$53,510 $7,393 $18,511 $79,414 $12,202,096 $12,281,510 
(1)The amounts presented in the table above represent the recorded investment balance of loans as of December 31, 2021.
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The following table presents information regarding non-accrual loans as of the dates indicated:
As of September 30, 2022As of December 31, 2021
Non-Accrual Loans With ACLNon-Accrual Loans Without ACL (3)Total Non-Accrual LoansAmortized Cost of Loans >90 DPD and Still Accruing (2)Total Non-Accrual Loans (1)Recorded Investment >90 DPD and Still Accruing
(In thousands)
Commercial and industrial$3,363 $8,910 $12,273 $— $12,400 $— 
Commercial real estate— — — — — 1,196 
Commercial construction— — — — — — 
Business banking6,934 679 7,613 — 8,230 — 
Residential real estate8,513 — 8,513 — 6,681 769 
Consumer home equity5,080 — 5,080 — 4,732 25 
Other consumer461 14 475 — 950 — 
Total non-accrual loans$24,351 $9,603 $33,954 $— $32,993 $1,990 
(1)The amounts presented represent the recorded investment balance of loans as of December 31, 2021.
(2)“DPD” indicated in the table above refers to “days past due.”
(3)The loans on non-accrual status and without an ACL as of September 30, 2022, were primarily comprised of collateral dependent loans for which the fair value of the underlying loan collateral exceeded the loan carrying value.
The amount of interest income recognized on non-accrual loans during the three and nine months ended September 30, 2022 was not significant.
It is the Company’s policy to reverse any accrued interest when a loan is put on non-accrual status and, generally, to record any payments received from a borrower related to a loan on non-accrual status as a reduction of the amortized cost basis of the loan. Accrued interest reversed against interest income for the three and nine months ended September 30, 2022 was insignificant.
For collateral values for residential mortgage and home equity loans, the Company relies primarily upon third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, or estimated auction or liquidation values less estimated costs to sell. As of both September 30, 2022 and December 31, 2021, the Company had collateral-dependent residential mortgage and home equity loans totaling $0.6 million.
For collateral-dependent commercial loans, the amount of the allowance for loan losses is individually assessed based upon the fair value of the collateral. Various types of collateral are used, including real estate, inventory, equipment, accounts receivable, securities and cash, among others. For commercial real estate loans, the Company relies primarily upon third-party valuation information from certified appraisers and values are generally based upon recent appraisals of the underlying collateral, brokers’ opinions based upon recent sales of comparable properties, estimated equipment auction or liquidation values, income capitalization, or a combination of income capitalization and comparable sales. As of September 30, 2022 and December 31, 2021, the Company had collateral-dependent commercial loans totaling $12.8 million and $13.1 million, respectively.
Appraisals for all loan types are obtained at the time of loan origination as part of the loan approval process and are updated at the time of a loan modification and/or refinance and as considered necessary by management for impairment review purposes. In addition, appraisals are updated as required by regulatory pronouncements.
As of both September 30, 2022 and December 31, 2021, the Company had no residential real estate held in other real estate owned (“OREO”). As of both September 30, 2022 and December 31, 2021, there were no mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in-process.
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In the normal course of business, the Company may become aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans, but which currently do not yet meet the criteria for classification as non-performing loans (which consist of non-accrual loans and loans that are more than 90 days past due but still accruing interest). Based upon the Company’s past experiences, some of the loans with potential weaknesses will ultimately be restructured or placed in non-accrual status. As of both September 30, 2022 and December 31, 2021, management is unable to reasonably estimate the amount of these loans that will be restructured or placed on non-accrual status.
Troubled Debt Restructurings (“TDR”)
As described previously in Note 2, “Summary of Significant Accounting Policies,” in cases where a borrower experiences financial difficulty and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a TDR. The process through which management identifies loans as TDR loans, the methodology employed to record any loan losses, and the calculation of any shortfall on collateral dependent loans, is also described within Note 2, “Summary of Significant Accounting Policies".
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 September 30, 2022 and December 31, 2021 was $17.7 million and $106.7 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 Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) or the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) at the time of such modification, and therefore are not deemed troubled debt restructurings, referred to as TDRs. Additionally, loans that are performing in accordance with the contractual terms of the modification are not reflected as being past due and therefore are not impacting non-accrual or delinquency totals as of September 30, 2022 and December 31, 2021. The Company continued to accrue interest on these COVID-19 modified loans and evaluated the deferred interest for collectability as of September 30, 2022 and December 31, 2021.
The Consolidated Appropriations Act, which was enacted on December 27, 2020, extended certain provisions related to the COVID-19 pandemic in the United States (which were due to expire) and provided additional emergency relief to individuals and businesses. Included within the provisions of the Consolidated Appropriations Act was the extension to January 1, 2022 of Section 4013 of the CARES Act, which provided relief from a requirement to evaluate loans that had received a COVID-19 modification to determine if the loans required TDR treatment, provided certain criteria were met. As such, the Company applied the TDR relief granted pursuant to such section to any qualifying loan modification executed during the allowable time period.
The Company’s policy is to have any TDR loan which is on non-accrual status prior to being modified remain on non-accrual status for approximately six months subsequent to being modified before management considers its return to 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.
TDR loan information as of December 31, 2021 and the period then ended was prepared in accordance with GAAP effective for the Company as of December 31, 2021, or prior to the Company's adoption of ASU 2016-13.
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The following tables show the TDR loans on accrual and non-accrual status as of the dates indicated:
As of September 30, 2022
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$7,087 10 $10,248 12 $17,335 
Commercial real estate3,520 — — 3,520 
Business banking3,729 20 998 27 4,727 
Residential real estate117 18,268 26 3,340 143 21,608 
Consumer home equity55 3,671 16 855 71 4,526 
Other consumer— — 14 14 
Total182 $36,275 73 $15,455 255 $51,730 
As of December 31, 2021
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$3,745 $9,983 $13,728 
Commercial real estate3,520 — — 3,520 
Business banking3,830 383 4,213 
Residential real estate121 19,119 27 3,015 148 22,134 
Consumer home equity67 3,104 16 818 83 3,922 
Other consumer18 — — 18 
Total (1)197 $33,336 52 $14,199 249 $47,535 
(1)The amounts presented in the table above represent the recorded investment balance of loans as of December 31, 2021.
The amount of allowance for loan losses associated with the TDR loans was $1.8 million and $3.4 million at September 30, 2022 and December 31, 2021, respectively. There were no additional commitments to lend to borrowers who have been party to a TDR as of both September 30, 2022 and December 31, 2021.
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 September 30, 2022For the Nine Months Ended September 30, 2022
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$2,997 $2,997 $5,415 $5,415 
Business banking284 284 20 854 862 
Residential real estate1,170 1,170 1,899 1,899 
Consumer home equity1,236 1,236 1,468 1,468 
Total21 $5,687 $5,687 38 $9,636 $9,644 
(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.
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For the Three Months Ended September 30, 2021For the Nine Months Ended September 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 
Residential real estate— — — 295 295 
Consumer home equity200 200 200 200 
Total$200 $200 $957 $957 
(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 September 30, 2022 and December 31, 2021, the outstanding recorded investment of loans that were new TDR loans during the nine months ended September 30, 2022 and the year ended December 31, 2021 was $9.2 million and $0.8 million, respectively. The difference between such balances reported on an amortized cost basis and recorded investment basis at both September 30, 2022 and December 31, 2021 was not significant.
The following table shows the Company’s post-modification balance of TDRs listed by type of modification during the periods indicated:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
(In thousands)
Extended maturity$— $200 $997 $200 
Adjusted interest rate and extended maturity123 — 535 — 
Interest only/principal deferred— — 130 — 
Covenant modification— — 2,418 — 
Court-ordered concession— — — 295 
Principal and interest deferred2,343 — 2,343 462 
Extended maturity and interest only/principal deferred2,997 — 2,997 — 
Other224 — 224 — 
Total$5,687 $200 $9,644 $957 
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 Three Months Ended September 30,For the Nine Months Ended September 30,
2022202120222021
Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
(Dollars in thousands)
Troubled debt restructurings that subsequently defaulted (1):
Business banking— $— — $— — $— $404 
Consumer home equity— — — — — — 56 
Total— $— — $— — $— $460 
(1)This table does not reflect any TDRs which were fully charged off, paid off, or otherwise settled during the period.
During both the three months ended September 30, 2022 and 2021, no amounts were charged-off on TDRs modified in the prior 12 months. During the nine months ended September 30, 2022 no amounts were charged-off on TDRs modified in the prior 12 months.
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Loan Participations
The Company occasionally purchases commercial loan participations, or participates in syndications through the SNC Program. These participations meet the same underwriting, credit and portfolio management standards as the Company’s other loans and are applied against the same criteria to determine the allowance for loan losses as other loans.
The following table summarizes the Company’s loan participations:
As of and for the Nine Months Ended September 30, 2022As of and for the Year Ended December 31, 2021
Balance (1)Non-performing
Loan Rate
(%)
Gross
Charge-offs
Balance (1)Non-performing
Loan Rate
(%)
Gross
Charge-offs
(Dollars in thousands)
Commercial and industrial$878,861 0.82 %$— $732,425 1.36 %$— 
Commercial real estate406,089 0.00 %— 362,898 0.00 %— 
Commercial construction76,913 0.00 %— 37,081 0.00 %— 
Business banking56 0.00 %98 0.00 %— 
Total loan participations$1,361,919 0.53 %$$1,132,502 0.88 %$— 
(1)The balance of loan participations as of September 30, 2022 represents the amortized cost basis and the balance as of December 31, 2021 represents the recorded investment balance. The difference between amortized cost basis and recorded investment basis as of September 30, 2022 is not material.
5. Loans and Allowance for Loan Losses
Allowance for Loan Losses
As disclosed in Note 2, “Summary of Significant Accounting Policies,” the Company adopted ASU 2016-13 effective January 1, 2022. As required by GAAP, the Company has included comparative prior period disclosures of its allowance for loan losses which were prepared in accordance with ASC 450, “Contingencies” and ASC 310, “Receivables” (i.e., prior to the Company’s adoption of ASU 2016-13). Refer to the Company’s 2021 Form 10-K for significant accounting policies related to the Company’s allowance for loan losses as of December 31, 2021. A discussion of the Company’s calculation of its allowance for loan losses for such prior periods follows.
The allowance for loan losses was established to provide for probable losses incurred in the Company’s loan portfolio at the balance sheet date and was established through a provision for loan losses charged to net income. Charge-offs, net of recoveries, were charged directly to the allowance. Commercial and residential loans were charged-off in the period in which they are deemed uncollectible. Delinquent loans in these product types were subject to ongoing review and analysis to determine if a charge-off in the current period was appropriate. For consumer loans, policies and procedures existed that required charge-off consideration upon a certain triggering event depending on the product type.
Management used 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 were evaluated using a loan rating system, historical losses and other factors which formed the basis for estimating incurred losses. Portfolios of more homogeneous populations of loans, including residential mortgages and consumer loans, were 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 segregated the loan portfolio into the categories noted in the credit quality tables presented in the “Credit Quality” section below. Each of these loan categories possesses unique risk characteristics such as the purpose of the loan, repayment source, and collateral. These characteristics were considered when determining the appropriate level of the allowance for each category. The Company’s historical approach to loan portfolio segmentation by risk characteristics and monitoring of credit quality for commercial loans under previous accounting guidance was consistent with that applied under the newly adopted CECL standard. See Note 4, “Loans and Allowance for Credit Losses” for further discussion regarding the Company’s policies for loan segmentation and credit monitoring.
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The following tables summarize the changes in the allowance for loan losses by loan category for the three and nine months ended September 30, 2021:
For the Three Months Ended September 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$22,596 $52,759 $3,446 $12,705 $6,478 $3,588 $3,626 $439 $105,637 
Charge-offs— (8)— (867)— — (742)— (1,617)
Recoveries40 — — 469 88 63 206 — 866 
(Release of) Provision(2,007)1,435 (44)