Eastern Bankshares, Inc. - Quarter Report: 2023 March (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 March 31, 2023
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)
___________________________
| Massachusetts | 84-4199750 | |||||||
| (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 class | Trading Symbol | Name of exchange on which registered | ||||||
| Common Stock | EBC | Nasdaq 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 filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller 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
176,328,426 shares of the Registrant’s common stock, par value $0.01 per share, were outstanding as of May 4, 2023.
Index
2
| Page | |||||
3
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
| (In thousands, except per share data) | March 31, 2023 | December 31, 2022 | |||||||||
| ASSETS | |||||||||||
| Cash and due from banks | $ | 98,377 | $ | 106,040 | |||||||
| Short-term investments | 2,039,439 | 63,465 | |||||||||
| Cash and cash equivalents | 2,137,816 | 169,505 | |||||||||
| Securities: | |||||||||||
Available for sale (amortized cost $5,459,320 and $7,825,435, respectively) | 4,700,134 | 6,690,778 | |||||||||
Held to maturity (fair value $425,427 and $423,226, respectively) | 471,185 | 476,647 | |||||||||
| Total securities | 5,171,319 | 7,167,425 | |||||||||
| Loans held for sale | 3,068 | 4,543 | |||||||||
| Loans: | |||||||||||
| Commercial and industrial | 3,169,438 | 3,150,946 | |||||||||
| Commercial real estate | 5,201,196 | 5,155,323 | |||||||||
| Commercial construction | 357,117 | 336,276 | |||||||||
| Business banking | 1,078,678 | 1,090,492 | |||||||||
| Residential real estate | 2,497,491 | 2,460,849 | |||||||||
| Consumer home equity | 1,180,824 | 1,187,547 | |||||||||
| Other consumer | 190,506 | 194,098 | |||||||||
| Total loans | 13,675,250 | 13,575,531 | |||||||||
| Allowance for loan losses | (140,938) | (142,211) | |||||||||
| Unamortized premiums, net of unearned discounts and deferred fees | (13,597) | (13,003) | |||||||||
| Net loans | 13,520,715 | 13,420,317 | |||||||||
| Federal Home Loan Bank stock, at cost | 45,168 | 41,363 | |||||||||
| Premises and equipment | 61,110 | 62,656 | |||||||||
| Bank-owned life insurance | 161,755 | 160,790 | |||||||||
| Goodwill and other intangibles, net | 660,165 | 661,126 | |||||||||
| Deferred income taxes, net | 314,139 | 331,648 | |||||||||
| Prepaid expenses | 163,018 | 165,900 | |||||||||
| Other assets | 482,257 | 461,585 | |||||||||
| Total assets | $ | 22,720,530 | $ | 22,646,858 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Deposits: | |||||||||||
| Demand | $ | 5,564,016 | $ | 6,240,637 | |||||||
| Interest checking accounts | 4,240,780 | 4,568,122 | |||||||||
| Savings accounts | 1,633,790 | 1,831,123 | |||||||||
| Money market investment | 5,135,590 | 4,710,095 | |||||||||
| Certificates of deposit | 1,967,404 | 1,624,382 | |||||||||
| Total deposits | 18,541,580 | 18,974,359 | |||||||||
| Borrowed funds: | |||||||||||
| Short-term Federal Home Loan Bank advances | 1,088,296 | 691,297 | |||||||||
| Escrow deposits of borrowers | 25,671 | 22,314 | |||||||||
| Interest rate swap collateral funds | 11,780 | 14,430 | |||||||||
| Long-term Federal Home Loan Bank advances | 12,656 | 12,787 | |||||||||
| Total borrowed funds | 1,138,403 | 740,828 | |||||||||
| Other liabilities | 461,424 | 459,881 | |||||||||
| Total liabilities | 20,141,407 | 20,175,068 | |||||||||
| Commitments and contingencies (see footnote 13) | |||||||||||
| Shareholders’ equity | |||||||||||
Common shares, $0.01 par value, 1,000,000,000 shares authorized, 176,328,426 and 176,172,073 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | 1,764 | 1,762 | |||||||||
| Additional paid in capital | 1,651,524 | 1,649,141 | |||||||||
| Unallocated common shares held by the Employee Stock Ownership Plan | (136,470) | (137,696) | |||||||||
| Retained earnings | 1,672,169 | 1,881,775 | |||||||||
| Accumulated other comprehensive income, net of tax | (609,864) | (923,192) | |||||||||
| Total shareholders’ equity | 2,579,123 | 2,471,790 | |||||||||
| Total liabilities and shareholders’ equity | $ | 22,720,530 | $ | 22,646,858 | |||||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
4
EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands, except per share data) | |||||||||||
| Interest and dividend income: | |||||||||||
| Interest and fees on loans | $ | 153,540 | $ | 101,367 | |||||||
| Taxable interest and dividends on securities | 28,642 | 27,876 | |||||||||
| Non-taxable interest and dividends on securities | 1,434 | 1,806 | |||||||||
| Interest on federal funds sold and other short-term investments | 5,264 | 436 | |||||||||
| Total interest and dividend income | 188,880 | 131,485 | |||||||||
| Interest expense: | |||||||||||
| Interest on deposits | 42,933 | 3,322 | |||||||||
| Interest on borrowings | 7,638 | 39 | |||||||||
| Total interest expense | 50,571 | 3,361 | |||||||||
| Net interest income | 138,309 | 128,124 | |||||||||
| Provision for (release of) allowance for loan losses | 25 | (485) | |||||||||
| Net interest income after provision for (release of) allowance for loan losses | 138,284 | 128,609 | |||||||||
| Noninterest (loss) income: | |||||||||||
| Insurance commissions | 31,503 | 28,713 | |||||||||
| Service charges on deposit accounts | 6,472 | 8,537 | |||||||||
| Trust and investment advisory fees | 5,770 | 6,141 | |||||||||
| Debit card processing fees | 3,170 | 2,945 | |||||||||
| Interest rate swap (losses) income | (408) | 2,932 | |||||||||
| Income (losses) from investments held in rabbi trusts | 2,857 | (4,433) | |||||||||
| (Losses) gains on sales of mortgage loans held for sale, net | (74) | 169 | |||||||||
| Losses on sales of securities available for sale, net | (333,170) | (2,172) | |||||||||
| Other | 5,550 | 3,583 | |||||||||
| Total noninterest (loss) income | (278,330) | 46,415 | |||||||||
| Noninterest expense: | |||||||||||
| Salaries and employee benefits | 78,478 | 69,526 | |||||||||
| Office occupancy and equipment | 9,878 | 11,614 | |||||||||
| Data processing | 13,441 | 15,320 | |||||||||
| Professional services | 3,420 | 3,950 | |||||||||
| Marketing expenses | 1,097 | 1,574 | |||||||||
| Loan expenses | 1,095 | 1,919 | |||||||||
| FDIC insurance | 2,546 | 1,412 | |||||||||
| Amortization of intangible assets | 960 | 827 | |||||||||
| Other | 5,379 | 2,724 | |||||||||
| Total noninterest expense | 116,294 | 108,866 | |||||||||
| (Loss) income before income tax (benefit) expense | (256,340) | 66,158 | |||||||||
| Income tax (benefit) expense | (62,244) | 14,642 | |||||||||
| Net (loss) income | $ | (194,096) | $ | 51,516 | |||||||
| Basic (loss) earnings per share | $ | (1.20) | $ | 0.30 | |||||||
| Diluted (loss) earnings per share | $ | (1.20) | $ | 0.30 | |||||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
5
EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Net (loss) income | $ | (194,096) | $ | 51,516 | |||||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Net change in fair value of securities available for sale | 292,031 | (352,025) | |||||||||
| Net change in fair value of cash flow hedges | 21,678 | (3,809) | |||||||||
Net change in other comprehensive income for defined benefit postretirement plans | (381) | (124) | |||||||||
| Total other comprehensive income (loss) | 313,328 | (355,958) | |||||||||
| Total comprehensive income (loss) | $ | 119,232 | $ | (304,442) | |||||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
6
EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three Months Ended March 31, 2023 and 2022
| Shares of Common Stock Outstanding | Common Stock | Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Unallocated Common Stock Held by ESOP | Total | |||||||||||||||||||||||||||||||||||
| (In thousands, except share data) | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 186,305,332 | $ | 1,863 | $ | 1,835,241 | $ | 1,768,653 | $ | (56,696) | $ | (142,709) | $ | 3,406,352 | ||||||||||||||||||||||||||||
| — | — | — | (20,098) | — | — | (20,098) | |||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | (17,074) | — | — | (17,074) | ||||||||||||||||||||||||||||||||||
| Repurchased common stock | (2,866,621) | (29) | (60,566) | — | — | — | (60,595) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 1,623 | — | — | — | 1,623 | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 51,516 | — | — | 51,516 | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (355,958) | — | (355,958) | ||||||||||||||||||||||||||||||||||
| ESOP shares committed to be released | — | — | 1,372 | — | — | 1,254 | 2,626 | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 183,438,711 | $ | 1,834 | $ | 1,777,670 | $ | 1,782,997 | $ | (412,654) | $ | (141,455) | $ | 3,008,392 | ||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 176,172,073 | $ | 1,762 | $ | 1,649,141 | $ | 1,881,775 | $ | (923,192) | $ | (137,696) | $ | 2,471,790 | ||||||||||||||||||||||||||||
| — | — | — | 822 | — | — | 822 | |||||||||||||||||||||||||||||||||||
| Dividends to common shareholders | — | — | — | (16,332) | — | — | (16,332) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock under share-based compensation arrangements (3) | 156,353 | 2 | (1,165) | — | — | — | (1,163) | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | 3,044 | — | — | — | 3,044 | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (194,096) | — | — | (194,096) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 313,328 | — | 313,328 | ||||||||||||||||||||||||||||||||||
| ESOP shares committed to be released | — | — | 504 | — | — | 1,226 | 1,730 | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 176,328,426 | $ | 1,764 | $ | 1,651,524 | $ | 1,672,169 | $ | (609,864) | $ | (136,470) | $ | 2,579,123 | ||||||||||||||||||||||||||||
(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.
(2)Represents gross transition adjustment amount of $1.1 million, net of taxes of $0.3 million, to reflect the cumulative impact on retained earnings pursuant to the Company’s adoption of Accounting Standards Update 2022-02. 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.
(3)Represents shares issued, net of employee tax withheld, during the three months ended March 31, 2023 upon the vesting of restricted stock units. Refer to Note 11, “Share-Based Compensation” 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.
7
EASTERN BANKSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, | |||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Operating activities | |||||||||||
| Net (loss) income | $ | (194,096) | $ | 51,516 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Provision for (release of) allowance for loan losses | 25 | (485) | |||||||||
| Depreciation and amortization | 3,719 | 3,803 | |||||||||
| Amortization (accretion) of deferred loan fees and premiums, net | 742 | (2,653) | |||||||||
| Deferred income tax (benefit) expense | (73,106) | 14,129 | |||||||||
| Amortization of investment security premiums and discounts, net | 2,559 | 4,669 | |||||||||
| Right-of-use asset amortization | 3,139 | 3,272 | |||||||||
| Share-based compensation | 3,044 | 1,623 | |||||||||
| Increase in cash surrender value of bank-owned life insurance | (965) | (863) | |||||||||
| Loss on sale of securities available for sale, net | 333,170 | 2,172 | |||||||||
| Accretion of gains from terminated interest rate swaps | (46) | (5,298) | |||||||||
| Employee Stock Ownership Plan expense | 1,730 | 2,626 | |||||||||
| Other | 34 | 1,013 | |||||||||
| Change in: | |||||||||||
| Loans held for sale | 1,446 | 40 | |||||||||
| Prepaid pension expense | 1,202 | (7,680) | |||||||||
| Other assets | (8,768) | 40,300 | |||||||||
| Other liabilities | 26,691 | (39,806) | |||||||||
| Net cash provided by operating activities | 100,520 | 68,378 | |||||||||
| Investing activities | |||||||||||
| Proceeds from sales of securities available for sale | 1,899,724 | 232,561 | |||||||||
| Proceeds from maturities and principal paydowns of securities available for sale | 130,553 | 362,680 | |||||||||
| Purchases of securities available for sale | — | (471,543) | |||||||||
| Proceeds from maturities and principal paydowns of securities held to maturity | 5,571 | 421 | |||||||||
| Purchases of securities held to maturity | — | (395,835) | |||||||||
| Proceeds from sale of Federal Home Loan Bank stock | 105,704 | — | |||||||||
| Purchases of Federal Home Loan Bank stock | (109,509) | — | |||||||||
| Contributions to low income housing tax credit investments | (10,932) | (5,642) | |||||||||
| Contributions to other equity investments | (405) | — | |||||||||
| Distributions from other equity investments | 90 | 606 | |||||||||
| Net (increase) decrease in outstanding loans, excluding loan purchases | (68,042) | 99,847 | |||||||||
| Purchases of loans | (31,980) | — | |||||||||
| Proceeds from life insurance policies | — | 19,736 | |||||||||
| Acquisitions, net of cash and cash equivalents acquired | — | (5,200) | |||||||||
| Purchased banking premises and equipment, net | (1,217) | (3,280) | |||||||||
| Proceeds from sale of premises held for sale | — | 8,390 | |||||||||
| Net cash provided by (used in) investing activities | 1,919,557 | (157,259) | |||||||||
| Financing activities | |||||||||||
| Net decrease in demand, savings, interest checking, and money market investment deposit accounts | (775,801) | (155,429) | |||||||||
| Net increase (decrease) in time deposits | 343,022 | (80,066) | |||||||||
| Net increase in borrowed funds | 397,575 | 644 | |||||||||
| Contingent consideration paid | (369) | (63) | |||||||||
| Payments for repurchases of common stock | — | (60,595) | |||||||||
| Dividends declared and paid to common shareholders | (16,193) | (16,908) | |||||||||
| Net cash used in financing activities | (51,766) | (312,417) | |||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 1,968,311 | (401,298) | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 169,505 | 1,231,792 | |||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 2,137,816 | $ | 830,494 | |||||||
8
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest paid on deposits and borrowings | $ | 46,708 | $ | 3,343 | |||||||
| Income taxes | 5,862 | 5,505 | |||||||||
| Non-cash activities | |||||||||||
| Net increase in capital commitments relating to low income housing tax credit projects | $ | 51,525 | $ | 530 | |||||||
| Net increase in operating lease right of use assets and operating lease liabilities relating to lease remeasurements/modifications | $ | 1,523 | $ | — | |||||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
9
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 which included certain loan servicing-related costs which have been reclassified from professional services to loan expense.
The accompanying Consolidated Balance Sheet as of March 31, 2023, the Consolidated Statements of Income and Comprehensive Income and of Changes in Shareholders’ Equity for the three months ended March 31, 2023 and 2022 and Statements of Cash Flows for the three months ended March 31, 2023 and 2022 are unaudited. The Consolidated Balance Sheet as of December 31, 2022 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, 2022 (“2022 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 months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, 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 March 31, 2023 and those that were adopted during the three months ended March 31, 2023. For a full discussion of significant accounting policies, refer to the Notes to the Consolidated Financial Statements included within the Company’s 2022 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.
10
Recent Accounting Pronouncements
Relevant standards that were recently issued but not yet adopted as of March 31, 2023:
In March 2023, the FASB issued ASU 2023-02, Investments–Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (“ASU 2023-02”). This update permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if the following conditions are met:
1.It is probable that the income tax credits allocable to the tax equity investor will be available.
2.The tax equity investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project.
3.Substantially all of the projected benefits are from income tax credits and other income tax benefits. Projected benefits include income tax credits, other income tax benefits, and other non-income-tax-related benefits. The projected benefits are determined on a discounted basis, using a discount rate that is consistent with the cash flow assumptions used by the tax equity investor in making its decision to invest in the project.
4.The tax equity investor’s projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive.
5.The tax equity investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the tax equity investor’s liability is limited to its capital investment.
Under existing accounting standards, the proportional amortization method is allowable only for equity investments in low-income-housing tax credit structures. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit). Updates made by ASU 2023-02 allow a reporting entity to make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis. The Company had previously made an accounting policy election to account for its investments in low-income-housing tax credit investments using the proportional amortization method. This election was made upon the Company’s adoption of ASU 2014-01, Investments–Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, which introduced the option to apply proportional amortization to low-income-housing tax credit investments. For public business entities, the amendments in ASU 2023-02 are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in an interim period. The Company is currently assessing the impact of the new standard on its Consolidated Financial Statements.
Relevant standards that were adopted during the three months ended March 31, 2023:
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 were 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 adoption of this standard on January 1, 2023 did not have a material impact on the Company’s 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
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amendments in this update were effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Entities may elect to apply the updated guidance on TDR recognition and measurement by using a modified retrospective transition method. The amendments on TDR disclosures and vintage disclosures should be adopted prospectively. On January 1, 2023, the Company adopted this standard by using the modified retrospective transition method, except with regard to amendments on TDR and vintage disclosures which were adopted prospectively. Accordingly, the Company recorded a cumulative-effect adjustment to retained earnings as of January 1, 2023. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.
Significant Accounting Policies
The adoption of ASU 2022-02 resulted in changes in the Company’s accounting policies and estimates as it relates to loans receivable and the allowance for loan losses. The following describes the changes to the Company’s significant accounting policies from December 31, 2022, that resulted from the adoption of ASU 2022-02:
Allowance for Loan Losses - Loans Held for Investment
Troubled Debt Restructured Loans
The amendments in ASU 2022-02 eliminated the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Thus, as a result of adoption of this standard on January 1, 2023, rather than applying the recognition and measurement guidance for TDRs, the Company now applies the loan refinancing and restructuring guidance codified in paragraphs 310-20-35-9 through 35-11 of the Accounting Standards Codification to determine whether a modification results in a new loan or a continuation of an existing loan. As previously indicated, the Company adopted ASU 2022-02 using the modified retrospective transition method. Accordingly, upon adoption, commercial loan TDRs existing at that time which were measured using a discounted cash flow methodology and all residential real estate and consumer home equity loan TDRs were transitioned to the applicable segment of loans collectively evaluated for impairment based upon their risk characteristics. Commercial loan TDRs determined to be collateral dependent continue to be assessed for impairment on an individual basis.
Prior to the Company’s adoption of ASU 2022-02, in cases where a borrower was experiencing financial difficulties and the Company made certain concessionary modifications to contractual terms, the loan was classified as a TDR. Modifications included adjustments to interest rates, extensions of maturity, consumer loans where the borrower’s obligations had been effectively discharged through Chapter 7 bankruptcy and the borrower had not reaffirmed the debt to the Company, and other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. Management identified loans as TDR loans when it had a reasonable expectation that it would execute a TDR modification with a borrower. In addition, management estimated expected credit losses on a collective basis if a group of TDR loans shared similar risk characteristics. If a TDR loan’s risk characteristics were not similar to those of any of the Company’s other TDR loans, expected credit losses on the TDR loan were measured individually. The impairment analysis discounted 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 was collateral dependent. The amount of credit loss, if any, was 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 was 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 had been classified as a TDR and which subsequently defaulted was 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 was determined by measuring the recorded investment in the loan against the fair value of the collateral less costs to sell.
Refer to Note 4, “Loans and Allowance for Credit Losses” for additional information regarding the Company’s measurement of the allowance for loan losses as of March 31, 2023 and information regarding the Company’s TDR loans as of December 31, 2022 and for the three months ended March 31, 2022.
3. Securities
Available for Sale Securities
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The amortized cost, gross unrealized gains and losses, allowance for credit losses (“ACL”) and fair value of AFS securities as of March 31, 2023 and December 31, 2022, respectively, were as follows:
| As of March 31, 2023 | |||||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Allowance for Credit Losses | Fair Value | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | $ | 3,557,844 | $ | — | $ | (533,284) | $ | — | $ | 3,024,560 | |||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | 1,367,239 | — | (187,199) | — | 1,180,040 | ||||||||||||||||||||||||
| U.S. Agency bonds | 235,540 | — | (23,733) | — | 211,807 | ||||||||||||||||||||||||
| U.S. Treasury securities | 99,380 | 1 | (5,098) | — | 94,283 | ||||||||||||||||||||||||
| State and municipal bonds and obligations | 198,017 | 118 | (9,986) | — | 188,149 | ||||||||||||||||||||||||
| Other debt securities | 1,300 | — | (5) | — | 1,295 | ||||||||||||||||||||||||
| $ | 5,459,320 | $ | 119 | $ | (759,305) | $ | — | $ | 4,700,134 | ||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Allowance for Credit Losses | Fair Value | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Debt securities: | ||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | $ | 4,855,763 | $ | — | $ | (743,855) | $ | — | $ | 4,111,908 | ||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | 1,570,119 | — | (221,165) | — | 1,348,954 | |||||||||||||||||||||
| U.S. Agency bonds | 1,100,891 | — | (148,409) | — | 952,482 | |||||||||||||||||||||
| U.S. Treasury securities | 99,324 | — | (6,267) | — | 93,057 | |||||||||||||||||||||
| State and municipal bonds and obligations | 198,039 | 9 | (14,956) | — | 183,092 | |||||||||||||||||||||
| Other debt securities | 1,299 | — | (14) | — | 1,285 | |||||||||||||||||||||
| $ | 7,825,435 | $ | 9 | $ | (1,134,666) | $ | — | $ | 6,690,778 | |||||||||||||||||
The Company did not record a provision for credit losses on any AFS securities for either the three months ended March 31, 2023 or 2022. Accrued interest receivable on AFS securities totaled $12.3 million and $12.9 million as of March 31, 2023 and December 31, 2022, 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 either the three months ended March 31, 2023 or 2022. No securities held by the Company were delinquent on contractual payments as of March 31, 2023 and December 31, 2022, nor were any securities placed on non-accrual status for the three and twelve month periods then ended, respectively.
The following table summarizes gross realized gains and losses from sales of AFS securities for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Gross realized gains from sales of AFS securities | $ | — | $ | 1,045 | |||||||
| Gross realized losses from sales of AFS securities | (333,170) | (3,217) | |||||||||
| Losses from sales of AFS securities, net | $ | (333,170) | $ | (2,172) | |||||||
Information pertaining to AFS securities with gross unrealized losses as of March 31, 2023 and December 31, 2022, for which the Company did not recognize a provision for credit losses under the current expected credit loss methodology (“CECL”), aggregated by investment category and length of time that individual securities had been in a continuous loss position, is as follows:
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| As of March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||||||||
| # of Holdings | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | 324 | $ | 4,106 | $ | 84,144 | $ | 529,178 | $ | 2,940,416 | $ | 533,284 | $ | 3,024,560 | ||||||||||||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | 189 | 2,277 | 38,532 | 184,922 | 1,141,508 | 187,199 | 1,180,040 | ||||||||||||||||||||||||||||||||||
| U.S. Agency bonds | 23 | — | — | 23,733 | 211,807 | 23,733 | 211,807 | ||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | 5 | 913 | 43,924 | 4,185 | 45,410 | 5,098 | 89,334 | ||||||||||||||||||||||||||||||||||
| State and municipal bonds and obligations | 197 | 2,015 | 62,057 | 7,971 | 97,811 | 9,986 | 159,868 | ||||||||||||||||||||||||||||||||||
| Other debt securities | 2 | — | — | 5 | 1,295 | 5 | 1,295 | ||||||||||||||||||||||||||||||||||
| 740 | $ | 9,311 | $ | 228,657 | $ | 749,994 | $ | 4,438,247 | $ | 759,305 | $ | 4,666,904 | |||||||||||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||||||||
| # of Holdings | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | 322 | $ | 42,196 | $ | 435,690 | $ | 701,659 | $ | 3,676,218 | $ | 743,855 | $ | 4,111,908 | ||||||||||||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | 199 | 38,944 | 300,476 | 182,221 | 1,048,478 | 221,165 | 1,348,954 | ||||||||||||||||||||||||||||||||||
| U.S. Agency bonds | 37 | 645 | 4,145 | 147,764 | 948,337 | 148,409 | 952,482 | ||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | 5 | 1,311 | 48,451 | 4,956 | 44,606 | 6,267 | 93,057 | ||||||||||||||||||||||||||||||||||
| State and municipal bonds and obligations | 237 | 14,942 | 179,614 | 14 | 225 | 14,956 | 179,839 | ||||||||||||||||||||||||||||||||||
| Other debt securities | 2 | — | — | 14 | 1,285 | 14 | 1,285 | ||||||||||||||||||||||||||||||||||
| 802 | $ | 98,038 | $ | 968,376 | $ | 1,036,628 | $ | 5,719,149 | $ | 1,134,666 | $ | 6,687,525 | |||||||||||||||||||||||||||||
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 both March 31, 2023 and December 31, 2022.
The causes of the impairments listed in the tables above by category are as follows as of March 31, 2023 and December 31, 2022:
•Government-sponsored residential mortgage-backed securities – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies.
•Government-sponsored commercial mortgage-backed securities – The securities with unrealized losses in this portfolio have contractual terms that generally do not permit the issuer to settle the security at a price less than the current par value of the investment. The decline in market value of these securities is attributable to changes in interest rates and not credit quality. Additionally, these securities are implicitly guaranteed by the U.S. government or one of its agencies.
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•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 two 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 the dates indicated were as follows:
| As of March 31, 2023 | |||||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Allowance for Credit Losses | Fair Value | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | $ | 271,655 | $ | — | $ | (24,829) | $ | — | $ | 246,826 | |||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | 199,530 | — | (20,929) | — | 178,601 | ||||||||||||||||||||||||
| $ | 471,185 | $ | — | $ | (45,758) | $ | — | $ | 425,427 | ||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Allowance for Credit Losses | Fair Value | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | $ | 276,493 | $ | — | $ | (30,150) | $ | — | $ | 246,343 | |||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | 200,154 | — | (23,271) | — | 176,883 | ||||||||||||||||||||||||
| $ | 476,647 | $ | — | $ | (53,421) | $ | — | $ | 423,226 | ||||||||||||||||||||
The Company did not record a provision for estimated credit losses on any HTM securities for either the three months ended March 31, 2023 or 2022. The accrued interest receivable on HTM securities totaled $1.0 million as of both March 31, 2023 and December 31, 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 either the three months ended March 31, 2023 or 2022. No securities held by the Company were delinquent on contractual payments as of March 31, 2023 and December 31, 2022 nor were any securities placed on non-accrual status for the periods then ended.
Available for Sale and Held to Maturity Securities Contractual Maturity
The amortized cost and estimated fair value of AFS and HTM securities by contractual maturities as of March 31, 2023 and December 31, 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.
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The scheduled contractual maturities of AFS and HTM securities as of the dates indicated were as follows:
| As of March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Due in one year or less | Due after one year to five years | Due after five to ten years | Due after ten years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | $ | — | $ | — | $ | 19,044 | $ | 18,333 | $ | 42,405 | $ | 40,021 | $ | 3,496,395 | $ | 2,966,206 | $ | 3,557,844 | $ | 3,024,560 | |||||||||||||||||||||||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | — | — | 105,580 | 96,920 | 540,677 | 472,689 | 720,982 | 610,431 | 1,367,239 | 1,180,040 | |||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Agency bonds | — | — | 201,660 | 181,969 | 33,880 | 29,838 | — | — | 235,540 | 211,807 | |||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | — | — | 99,380 | 94,283 | — | — | — | — | 99,380 | 94,283 | |||||||||||||||||||||||||||||||||||||||||||||||||
| State and municipal bonds and obligations | 212 | 209 | 24,605 | 24,093 | 41,409 | 40,921 | 131,791 | 122,926 | 198,017 | 188,149 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | 1,300 | 1,295 | — | — | — | — | — | — | 1,300 | 1,295 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total available for sale securities | 1,512 | 1,504 | 450,269 | 415,598 | 658,371 | 583,469 | 4,349,168 | 3,699,563 | 5,459,320 | 4,700,134 | |||||||||||||||||||||||||||||||||||||||||||||||||
| HTM securities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | — | — | — | — | — | — | 271,655 | 246,826 | 271,655 | 246,826 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | — | — | — | — | 199,530 | 178,601 | — | — | 199,530 | 178,601 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total held to maturity securities | — | — | — | — | 199,530 | 178,601 | 271,655 | 246,826 | 471,185 | 425,427 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,512 | $ | 1,504 | $ | 450,269 | $ | 415,598 | $ | 857,901 | $ | 762,070 | $ | 4,620,823 | $ | 3,946,389 | $ | 5,930,505 | $ | 5,125,561 | |||||||||||||||||||||||||||||||||||||||
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| As of December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Due in one year or less | Due after one year to five years | Due after five to ten years | Due after ten years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | $ | — | $ | — | $ | 21,221 | $ | 20,284 | $ | 727,908 | $ | 648,132 | $ | 4,106,634 | $ | 3,443,492 | $ | 4,855,763 | $ | 4,111,908 | |||||||||||||||||||||||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | — | — | 191,762 | 171,992 | 649,659 | 556,641 | 728,698 | 620,321 | 1,570,119 | 1,348,954 | |||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Agency bonds | — | — | 877,371 | 767,464 | 223,520 | 185,018 | — | — | 1,100,891 | 952,482 | |||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | — | — | 99,324 | 93,057 | — | — | — | — | 99,324 | 93,057 | |||||||||||||||||||||||||||||||||||||||||||||||||
| State and municipal bonds and obligations | 213 | 209 | 22,100 | 21,283 | 42,554 | 40,970 | 133,172 | 120,630 | 198,039 | 183,092 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | 1,299 | 1,285 | — | — | — | — | — | — | 1,299 | 1,285 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total available for sale securities | 1,512 | 1,494 | 1,211,778 | 1,074,080 | 1,643,641 | 1,430,761 | 4,968,504 | 4,184,443 | 7,825,435 | 6,690,778 | |||||||||||||||||||||||||||||||||||||||||||||||||
| HTM securities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored residential mortgage-backed securities | — | — | — | — | — | — | 276,493 | 246,343 | 276,493 | 246,343 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Government-sponsored commercial mortgage-backed securities | — | — | — | — | 200,154 | 176,883 | 0 | — | — | 200,154 | 176,883 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total held to maturity securities | — | — | — | — | 200,154 | 176,883 | 276,493 | 246,343 | 476,647 | 423,226 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,512 | $ | 1,494 | $ | 1,211,778 | $ | 1,074,080 | $ | 1,843,795 | $ | 1,607,644 | $ | 5,244,997 | $ | 4,430,786 | $ | 8,302,082 | $ | 7,114,004 | |||||||||||||||||||||||||||||||||||||||
Securities Pledged as Collateral
As of both March 31, 2023 and December 31, 2022, securities with a carrying value of $440.3 million and $437.9 million, respectively, were pledged to secure public deposits and for other purposes required by law. As of March 31, 2023 and December 31, 2022, deposits with associated pledged collateral included cash accounts from the Company’s wealth management division (“Eastern Wealth Management”) and municipal deposit accounts.
In March 2023 the Federal Reserve created the Bank Term Funding Program (the “Program”) in order to support American businesses and households. The Program helps make available additional funding to eligible depository institutions in order to help assure banks have the ability to meet the needs of their depositors. The Program offers loans up to one year in length to banks in return for any collateral eligible for purchase by the Federal Reserve Banks in open market operations, such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. As of March 31, 2023, securities with a carrying value of $2.6 billion were pledged as collateral through the Program. In addition, the Company pledged securities with a carrying value of $376.8 million to the Federal Reserve Discount Window (the “Discount Window”) as of March 31, 2023. No securities were pledged to the Program or the Discount Window as of December 31, 2022.
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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:
| March 31, 2023 | December 31, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Commercial and industrial | $ | 3,169,438 | $ | 3,150,946 | |||||||
| Commercial real estate | 5,201,196 | 5,155,323 | |||||||||
| Commercial construction | 357,117 | 336,276 | |||||||||
| Business banking | 1,078,678 | 1,090,492 | |||||||||
| Residential real estate | 2,497,491 | 2,460,849 | |||||||||
| Consumer home equity | 1,180,824 | 1,187,547 | |||||||||
| Other consumer (2) | 190,506 | 194,098 | |||||||||
| Gross loans before unamortized premiums, unearned discounts and deferred fees | 13,675,250 | 13,575,531 | |||||||||
| Allowance for loan losses (1) | (140,938) | (142,211) | |||||||||
| Unamortized premiums, net of unearned discounts and deferred fees | (13,597) | (13,003) | |||||||||
| Loans after the allowance for loan losses, unamortized premiums, unearned discounts and deferred fees | $ | 13,520,715 | $ | 13,420,317 | |||||||
(1)The balance of accrued interest receivable excluded from amortized cost and the calculation of the allowance for loan losses amounted to $46.2 million and $45.2 million as of March 31, 2023 and December 31, 2022, respectively, and is included within other assets on the Consolidated Balance Sheets.
(2)Automobile loans are included in the other consumer portfolio and amounted to $13.3 million and $18.1 million at March 31, 2023 and December 31, 2022, 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 $4.1 billion and $3.9 billion at March 31, 2023 and December 31, 2022, respectively. The balance of funds borrowed from the FHLBB were $1.1 billion and $704.1 million at March 31, 2023 and December 31, 2022, respectively.
The carrying value of loans pledged to secure advances from the Federal Reserve Bank (“FRB”) were $1.1 billion at both March 31, 2023 and December 31, 2022. There were no funds borrowed from the FRB outstanding at March 31, 2023 and December 31, 2022.
Serviced Loans
At March 31, 2023 and December 31, 2022, mortgage loans partially or wholly-owned by others and serviced by the Company amounted to approximately $82.5 million and $84.0 million, respectively.
Purchased Loans
The Company began purchasing residential real estate mortgage loans during the third quarter of 2022. Loans purchased were subject to the same underwriting criteria as those loans originated directly by the Company. During the three months ended March 31, 2023, the Company purchased $32.0 million of residential real estate mortgage loans. No residential
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real estate mortgage loans were purchased during the three months ended March 31, 2022. As of March 31, 2023 and December 31, 2022, the amortized cost balance of loans purchased was $399.9 million and $376.1 million, respectively. As of March 31, 2023, the Company had ceased purchases of residential real estate mortgage 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 March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 26,859 | $ | 54,730 | $ | 7,085 | $ | 16,189 | $ | 28,129 | $ | 6,454 | $ | 2,765 | $ | 142,211 | |||||||||||||||||||||||||||||||
| Cumulative effect of change in accounting principle (1) | 47 | — | — | (140) | (849) | (201) | — | (1,143) | |||||||||||||||||||||||||||||||||||||||
| Charge-offs | — | — | — | (343) | — | (7) | (561) | (911) | |||||||||||||||||||||||||||||||||||||||
| Recoveries | 139 | 4 | — | 481 | 15 | 1 | 116 | 756 | |||||||||||||||||||||||||||||||||||||||
| Provision (release) | (116) | 459 | 493 | (1,102) | (165) | (65) | 521 | 25 | |||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 26,929 | $ | 55,193 | $ | 7,578 | $ | 15,085 | $ | 27,130 | $ | 6,182 | $ | 2,841 | $ | 140,938 | |||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and Industrial | Commercial Real Estate | Commercial Construction | Business Banking | Residential Real Estate | Consumer Home Equity | Other Consumer | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for loan losses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | 18,018 | $ | 52,373 | $ | 2,585 | $ | 10,983 | $ | 6,556 | $ | 3,722 | $ | 3,308 | $ | 242 | $ | 97,787 | |||||||||||||||||||||||||||||||||||
| Cumulative effect of change in accounting principle (2) | 11,533 | (6,655) | 1,485 | 6,160 | 13,489 | 1,857 | (541) | (242) | 27,086 | ||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | (1) | — | — | (945) | — | — | (661) | — | (1,607) | ||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | 250 | 14 | — | 928 | 10 | 4 | 179 | — | 1,385 | ||||||||||||||||||||||||||||||||||||||||||||
| Provision (release) | (2,959) | (1,120) | 344 | 143 | 2,188 | 435 | 484 | — | (485) | ||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 26,841 | $ | 44,612 | $ | 4,414 | $ | 17,269 | $ | 22,243 | $ | 6,018 | $ | 2,769 | $ | — | $ | 124,166 | |||||||||||||||||||||||||||||||||||
(1)Represents the adjustment needed to reflect the cumulative day one impact pursuant to the Company’s adoption of ASU 2022-02 (i.e., cumulative effect adjustment related to the adoption of ASU 2022-02 as of January 1, 2023). The adjustment represents a $1.1 million decrease 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.
(2)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.
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. The Company’s adoption of ASU 2022-02 on January 1, 2023 did not impact the reserve for unfunded lending commitments. 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 March 31, 2023 and December 31, 2022, the Company’s reserve for unfunded lending commitments was $13.9 million and $13.2 million, respectively, which is recorded within other liabilities in the Company's Consolidated Balance Sheets.
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 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. 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. 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.
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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. Unrated loans are included with “Pass” rated loans for disclosure purposes.
1-10 Risk Rating – Pass
Loans with a risk rating of 1-10 are classified as “Pass” and are comprised of loans that range from “substantially risk free” which indicates borrowers of unquestioned credit standing, well-established national companies with a very strong financial condition, and loans fully secured by policy conforming cash levels, through “low pass” which indicates acceptable rated loans that may be experiencing weak cash flow, impending lease rollover or minor liquidity concerns.
11 Risk Rating – Special Mention (Potential Weakness)
Loans to borrowers in this category exhibit potential weaknesses or downward trends deserving management’s close attention. While potentially weak, no loss of principal or interest is envisioned. Included in this category are borrowers who are performing as agreed, are weak when compared to industry standards, may be experiencing an interim loss and may be in declining industries. An element of asset quality, financial flexibility or management is below average. The Company does not consider borrowers within this category as new business prospects. Borrowers rated special mention may find it difficult to obtain alternative financing from traditional bank sources.
12 Risk Rating – Substandard (Well-Defined Weakness)
Loans with a risk-rating of 12 exhibit well-defined weaknesses that, if not corrected, may jeopardize the orderly liquidation of the debt. A loan is classified as substandard if it is inadequately protected by the repayment capacity of the
21
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 March 31, 2023, and gross charge-offs for the three month period then ended:
| 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans (1) | Total | |||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | 189,328 | $ | 692,186 | $ | 448,560 | $ | 361,146 | $ | 196,510 | $ | 682,862 | $ | 481,097 | $ | 86 | $ | 3,051,775 | |||||||||||||||||||||||||||||||||||
| Special Mention | — | 27,526 | 17,902 | 15,934 | 4,749 | 812 | 9,127 | 448 | 76,498 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | 202 | 8,973 | 2,311 | 42 | 8,751 | 3,787 | — | 24,066 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | 8 | — | — | 8 | ||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and industrial | 189,328 | 719,914 | 475,435 | 379,391 | 201,301 | 692,433 | 494,011 | 534 | 3,152,347 | ||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | 153,788 | 1,473,014 | 832,060 | 567,662 | 542,707 | 1,420,263 | 48,963 | 2,604 | 5,041,061 | ||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | — | 8,598 | 760 | 12,683 | 23,470 | — | — | 45,511 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | — | 3,896 | 4,988 | 19,716 | 74,041 | 8,012 | — | 110,653 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate | 153,788 | 1,473,014 | 844,554 | 573,410 | 575,106 | 1,517,774 | 56,975 | 2,604 | 5,197,225 | ||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | 15,881 | 108,260 | 176,497 | 29,946 | 20,643 | — | 979 | — | 352,206 | ||||||||||||||||||||||||||||||||||||||||||||
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| Special Mention | 3,118 | — | — | — | — | — | — | — | 3,118 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial construction | 18,999 | 108,260 | 176,497 | 29,946 | 20,643 | — | 979 | — | 355,324 | ||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Business banking | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | 31,314 | 171,278 | 195,911 | 162,752 | 126,140 | 281,499 | 75,251 | 1,989 | 1,046,134 | ||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | 375 | 984 | 3,888 | 3,781 | 10,787 | 139 | — | 19,954 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | 261 | 1,354 | 3,804 | 1,158 | 992 | 7,481 | 927 | — | 15,977 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | 22 | 1,132 | 59 | — | — | 1,213 | ||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total business banking | 31,575 | 173,007 | 200,699 | 167,820 | 132,045 | 299,826 | 76,317 | 1,989 | 1,083,278 | ||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | — | 13 | 23 | 7 | 36 | 169 | — | 95 | 343 | ||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current and accruing | 62,874 | 761,978 | 693,767 | 375,434 | 100,129 | 495,727 | — | — | 2,489,909 | ||||||||||||||||||||||||||||||||||||||||||||
| 30-89 days past due and accruing | 2,529 | 1,662 | 1,771 | 2,288 | 1,064 | 7,919 | — | — | 17,233 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans 90 days or more past due and still accruing | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual | — | 470 | — | 279 | 860 | 7,994 | — | — | 9,603 | ||||||||||||||||||||||||||||||||||||||||||||
| Total residential real estate | 65,403 | 764,110 | 695,538 | 378,001 | 102,053 | 511,640 | — | — | 2,516,745 | ||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer home equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current and accruing | 10,241 | 94,319 | 10,484 | 5,570 | 4,874 | 96,340 | 943,832 | 2,786 | 1,168,446 | ||||||||||||||||||||||||||||||||||||||||||||
| 30-89 days past due and accruing | — | 142 | — | — | — | 458 | 7,837 | — | 8,437 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans 90 days or more past due and still accruing | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual | — | 50 | — | — | — | 2,185 | 5,192 | — | 7,427 | ||||||||||||||||||||||||||||||||||||||||||||
| Total consumer home equity | 10,241 | 94,511 | 10,484 | 5,570 | 4,874 | 98,983 | 956,861 | 2,786 | 1,184,310 | ||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | — | — | — | — | — | — | 7 | — | 7 | ||||||||||||||||||||||||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current and accruing | 21,022 | 45,668 | 30,172 | 16,159 | 16,360 | 27,606 | 14,593 | — | 171,580 | ||||||||||||||||||||||||||||||||||||||||||||
| 30-89 days past due and accruing | — | 97 | 85 | 42 | 76 | 239 | 33 | — | 572 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans 90 days or more past due and still accruing | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual | — | 57 | 71 | 18 | 40 | 31 | 55 | — | 272 | ||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer | 21,022 | 45,822 | 30,328 | 16,219 | 16,476 | 27,876 | 14,681 | — | 172,424 | ||||||||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | 238 | 83 | 63 | 39 | 6 | 104 | 28 | — | 561 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 490,356 | $ | 3,378,638 | $ | 2,433,535 | $ | 1,550,357 | $ | 1,052,498 | $ | 3,148,532 | $ | 1,599,824 | $ | 7,913 | $ | 13,661,653 | |||||||||||||||||||||||||||||||||||
(1)The amounts presented represent the amortized cost as of March 31, 2023 of revolving loans that were converted to term loans during the three months ended March 31, 2023.
The following table details the amortized cost balances of the Company’s loan portfolios, presented by credit quality indicator and origination year as of December 31, 2022:
| 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Revolving Loans | Revolving Loans Converted to Term Loans (1) | Total | |||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||||||||
23
| Pass | $ | 778,144 | $ | 479,317 | $ | 415,990 | $ | 199,865 | $ | 100,716 | $ | 639,825 | $ | 473,148 | $ | 50 | $ | 3,087,055 | |||||||||||||||||||||||||||||||||||
| Special Mention | 2,298 | 1,307 | 7,267 | 4,841 | 147 | — | 1,196 | 670 | 17,726 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | 294 | 4,954 | 2,644 | 46 | 2,598 | 7,854 | 485 | 346 | 19,221 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | 5,249 | — | — | — | 23 | 3,254 | — | 8,526 | ||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial and industrial | 780,736 | 490,827 | 425,901 | 204,752 | 103,461 | 647,702 | 478,083 | 1,066 | 3,132,528 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | 1,510,675 | 825,620 | 586,567 | 581,840 | 461,296 | 1,006,160 | 52,590 | 4,187 | 5,028,935 | ||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | — | 771 | 4,204 | 15,366 | 12,255 | — | — | 32,596 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | — | 2,621 | 19,796 | 24,532 | 34,883 | 8,000 | — | 89,832 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial real estate | 1,510,675 | 825,620 | 589,959 | 605,840 | 501,194 | 1,053,298 | 60,590 | 4,187 | 5,151,363 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | 91,397 | 178,648 | 28,956 | 20,767 | — | — | 12,130 | — | 331,898 | ||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | — | 2,361 | — | — | — | — | — | 2,361 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total commercial construction | 91,397 | 178,648 | 31,317 | 20,767 | — | — | 12,130 | — | 334,259 | ||||||||||||||||||||||||||||||||||||||||||||
| Business banking | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | 178,806 | 202,230 | 170,088 | 128,282 | 59,452 | 233,484 | 78,080 | 4,770 | 1,055,192 | ||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | 991 | 4,635 | 4,605 | 3,740 | 7,584 | 145 | — | 21,700 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | 3,482 | 1,424 | 2,663 | 570 | 7,505 | 2,230 | 221 | 18,095 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | 181 | — | 70 | — | — | 251 | ||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total business banking | 178,806 | 206,703 | 176,147 | 135,731 | 63,762 | 248,643 | 80,455 | 4,991 | 1,095,238 | ||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current and accruing | 761,442 | 696,959 | 382,262 | 99,494 | 66,702 | 434,720 | — | — | 2,441,579 | ||||||||||||||||||||||||||||||||||||||||||||
| 30-89 days past due and accruing | 4,652 | 5,470 | 1,245 | 2,762 | 2,951 | 11,646 | — | — | 28,726 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans 90 days or more past due and still accruing | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual | — | — | 144 | 1,491 | 1,015 | 7,100 | — | — | 9,750 | ||||||||||||||||||||||||||||||||||||||||||||
| Total residential real estate | 766,094 | 702,429 | 383,651 | 103,747 | 70,668 | 453,466 | — | — | 2,480,055 | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer home equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current and accruing | 97,395 | 10,774 | 5,840 | 5,015 | 21,092 | 73,927 | 953,829 | 7,320 | 1,175,192 | ||||||||||||||||||||||||||||||||||||||||||||
| 30-89 days past due and accruing | 559 | — | — | — | 72 | 944 | 7,239 | 247 | 9,061 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans 90 days or more past due and still accruing | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual | — | — | — | 61 | 274 | 1,303 | 5,120 | 296 | 7,054 | ||||||||||||||||||||||||||||||||||||||||||||
| Total consumer home equity | 97,954 | 10,774 | 5,840 | 5,076 | 21,438 | 76,174 | 966,188 | 7,863 | 1,191,307 | ||||||||||||||||||||||||||||||||||||||||||||
| Other consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current and accruing | 55,414 | 32,390 | 17,641 | 18,298 | 18,832 | 16,603 | 17,476 | — | 176,654 | ||||||||||||||||||||||||||||||||||||||||||||
| 30-89 days past due and accruing | 143 | 68 | 43 | 61 | 240 | 178 | 58 | 7 | 798 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans 90 days or more past due and still accruing | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Non-accrual | 31 | 93 | 39 | 2 | 92 | 44 | 15 | 10 | 326 | ||||||||||||||||||||||||||||||||||||||||||||
| Total other consumer | 55,588 | 32,551 | 17,723 | 18,361 | 19,164 | 16,825 | 17,549 | 17 | 177,778 | ||||||||||||||||||||||||||||||||||||||||||||
24
| Total | $ | 3,481,250 | $ | 2,447,552 | $ | 1,630,538 | $ | 1,094,274 | $ | 779,687 | $ | 2,496,108 | $ | 1,614,995 | $ | 18,124 | $ | 13,562,528 | |||||||||||||||||||||||||||||||||||
(1)The amounts presented represent the amortized cost as of December 31, 2022 of revolving loans that were converted to term loans during the year ended December 31, 2022.
Asset Quality
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 March 31, 2023 | |||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 or More Days Past Due | Total Past Due | Current | Total Loans | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 300 | $ | — | $ | 468 | $ | 768 | $ | 3,151,579 | $ | 3,152,347 | |||||||||||||||||||||||
| Commercial real estate | — | — | — | — | 5,197,225 | 5,197,225 | |||||||||||||||||||||||||||||
| Commercial construction | — | — | — | — | 355,324 | 355,324 | |||||||||||||||||||||||||||||
| Business banking | 5,771 | 755 | 2,544 | 9,070 | 1,074,208 | 1,083,278 | |||||||||||||||||||||||||||||
| Residential real estate | 12,885 | 4,755 | 7,180 | 24,820 | 2,491,925 | 2,516,745 | |||||||||||||||||||||||||||||
| Consumer home equity | 7,377 | 1,061 | 7,241 | 15,679 | 1,168,631 | 1,184,310 | |||||||||||||||||||||||||||||
| Other consumer | 403 | 184 | 257 | 844 | 171,580 | 172,424 | |||||||||||||||||||||||||||||
| Total | $ | 26,736 | $ | 6,755 | $ | 17,690 | $ | 51,181 | $ | 13,610,472 | $ | 13,661,653 | |||||||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 or More Days Past Due | Total Past Due | Current | Total Loans | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 1,300 | $ | 385 | $ | 2,074 | $ | 3,759 | $ | 3,128,769 | $ | 3,132,528 | |||||||||||||||||||||||
| Commercial real estate | — | — | — | — | 5,151,363 | 5,151,363 | |||||||||||||||||||||||||||||
| Commercial construction | — | — | — | — | 334,259 | 334,259 | |||||||||||||||||||||||||||||
| Business banking | 6,642 | 845 | 3,517 | 11,004 | 1,084,234 | 1,095,238 | |||||||||||||||||||||||||||||
| Residential real estate | 25,877 | 3,852 | 6,456 | 36,185 | 2,443,870 | 2,480,055 | |||||||||||||||||||||||||||||
| Consumer home equity | 8,262 | 1,108 | 6,525 | 15,895 | 1,175,412 | 1,191,307 | |||||||||||||||||||||||||||||
| Other consumer | 634 | 170 | 320 | 1,124 | 176,654 | 177,778 | |||||||||||||||||||||||||||||
| Total | $ | 42,715 | $ | 6,360 | $ | 18,892 | $ | 67,967 | $ | 13,494,561 | $ | 13,562,528 | |||||||||||||||||||||||
25
The following table presents information regarding non-accrual loans as of the dates indicated:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Non-Accrual Loans With ACL | Non-Accrual Loans Without ACL (1) | Total Non-Accrual Loans | Non-Accrual Loans With ACL | Non-Accrual Loans Without ACL (1) | Total Non-Accrual Loans | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 10 | $ | 10,741 | $ | 10,751 | $ | 3,270 | $ | 10,707 | $ | 13,977 | |||||||||||||||||||||||
| Commercial real estate | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Commercial construction | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Business banking | 5,350 | 1,170 | 6,520 | 5,844 | 1,653 | 7,497 | |||||||||||||||||||||||||||||
| Residential real estate | 9,603 | — | 9,603 | 9,750 | — | 9,750 | |||||||||||||||||||||||||||||
| Consumer home equity | 7,427 | — | 7,427 | 7,054 | — | 7,054 | |||||||||||||||||||||||||||||
| Other consumer | 272 | — | 272 | 326 | — | 326 | |||||||||||||||||||||||||||||
| Total non-accrual loans | $ | 22,662 | $ | 11,911 | $ | 34,573 | $ | 26,244 | $ | 12,360 | $ | 38,604 | |||||||||||||||||||||||
(1)The loans on non-accrual status and without an ACL as of both March 31, 2023 and December 31, 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 months ended March 31, 2023 and 2022 was not significant. As of both March 31, 2023 and December 31, 2022, there were no loans greater than 90 days past due and still accruing.
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 months ended March 31, 2023 and 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 March 31, 2023 and December 31, 2022, the Company had collateral-dependent residential mortgage and home equity loans totaling $0.5 million and $0.6 million, respectively.
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 March 31, 2023 and December 31, 2022, the Company had collateral-dependent commercial loans totaling $12.3 million and $16.2 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 March 31, 2023 and December 31, 2022, the Company had no residential real estate held in other real estate owned (“OREO”). As of both March 31, 2023 and December 31, 2022, there were no mortgage loans collateralized by residential real estate property for which formal foreclosure proceedings were in-process.
26
Loan Modifications to Borrowers Experiencing Financial Difficulty
The following tables show the amortized cost balance as of March 31, 2023 of loans modified during the three months ended March 31, 2023 to borrowers experiencing financial difficulty by the type of concession granted:
| Interest Rate Reduction | Other-than-Insignificant Delay in Repayment | Combination—Interest Rate Reduction & Other-than-Insignificant Delay in Repayment | |||||||||||||||||||||||||||||||||
| Amortized Cost Balance | % of Total Portfolio | Amortized Cost Balance | % of Total Portfolio | Amortized Cost Balance | % of Total Portfolio | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Business banking | $ | 47 | 0.00 | % | $ | — | — | % | $ | 64 | 0.01 | % | |||||||||||||||||||||||
| Residential real estate | — | — | 327 | 0.01 | — | — | |||||||||||||||||||||||||||||
| Consumer home equity | 813 | 0.07 | 23 | 0.00 | 175 | 0.01 | |||||||||||||||||||||||||||||
| Total | $ | 860 | 0.01 | % | $ | 350 | 0.00 | % | $ | 239 | 0.00 | % | |||||||||||||||||||||||
| Combination—Interest Rate Reduction & Term Extension | Combination—Term Extension & Other-than-Insignificant Delay in Repayment | Combination—Interest Rate Reduction, Term Extension & Other-than-Insignificant Delay in Repayment | |||||||||||||||||||||||||||||||||
| Amortized Cost Balance | % of Total Portfolio | Amortized Cost Balance | % of Total Portfolio | Amortized Cost Balance | % of Total Portfolio | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Business banking | $ | 460 | 0.04 | % | $ | 29 | 0.00 | % | $ | 131 | 0.01 | % | |||||||||||||||||||||||
| Residential real estate | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Consumer home equity | 220 | 0.02 | — | — | — | — | |||||||||||||||||||||||||||||
| Total | $ | 680 | 0.00 | % | $ | 29 | 0.00 | % | $ | 131 | 0.00 | % | |||||||||||||||||||||||
| Total | |||||||||||
| Amortized Cost Balance | % of Total Portfolio | ||||||||||
| (Dollars in thousands) | |||||||||||
| Business banking | $ | 731 | 0.07 | % | |||||||
| Residential real estate | 327 | 0.01 | |||||||||
| Consumer home equity | 1,231 | 0.10 | |||||||||
| Total | $ | 2,289 | 0.02 | % | |||||||
27
The following table describes the financial effect of the modifications made during the three months ended March 31, 2023 to borrowers experiencing financial difficulty:
| Loan Type | Financial Effect (1) | ||||||||||||||||||||||||||||||||||
| Interest Rate Reduction | |||||||||||||||||||||||||||||||||||
| Business banking | Reduced weighted-average contractual interest rate from 9.5% to 6.9%. | ||||||||||||||||||||||||||||||||||
| Consumer home equity | Reduced weighted-average contractual interest rate from 7.0% to 4.4%. | ||||||||||||||||||||||||||||||||||
| Other-than-Insignificant Delay in Repayment | |||||||||||||||||||||||||||||||||||
| Business banking | Deferred a weighted average of twelve payments. For principal and interest deferrals, the loans were re-amortized over an extended payment period resulting in reduced monthly payment amounts for the borrowers. For interest-only deferrals, interest accrued at the time of the modification was added to the end of the loan life. | ||||||||||||||||||||||||||||||||||
| Residential real estate | Deferred a weighted average of nine principal and interest payments which were added to the end of the loan life. | ||||||||||||||||||||||||||||||||||
| Consumer home equity | Deferred a weighted average of six principal and interest payments which were added to the end of the loan life. | ||||||||||||||||||||||||||||||||||
| Term Extension | |||||||||||||||||||||||||||||||||||
| Business banking | Added a weighted-average 4.2 years to the life of loans, which reduced monthly payment amounts for the borrowers. | ||||||||||||||||||||||||||||||||||
| Consumer home equity | Added a weighted-average 0.6 years to the life of loans, which reduced monthly payment amounts for the borrowers. | ||||||||||||||||||||||||||||||||||
(1)Loans that were modified in more than one manner are included in each modification type corresponding to the type of modifications performed.
As of March 31, 2023, no loans to borrowers experiencing financial difficulty modified during the three months ended March 31, 2023 had a payment default during the three months ended March 31, 2023.
Management closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the age analysis of past due loans to borrowers experiencing financial difficulty as of March 31, 2023 that were modified during the three months ended March 31, 2023:
| As of March 31, 2023 | |||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 or More Days Past Due | Total Past Due | Current | Total | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Business banking | $ | 28 | $ | — | $ | — | $ | 28 | $ | 703 | $ | 731 | |||||||||||||||||||||||
| Residential real estate | — | — | — | — | 327 | 327 | |||||||||||||||||||||||||||||
| Consumer home equity | — | — | — | — | 1,231 | 1,231 | |||||||||||||||||||||||||||||
| Total | $ | 28 | $ | — | $ | — | $ | 28 | $ | 2,261 | $ | 2,289 | |||||||||||||||||||||||
As of March 31, 2023, there were no additional commitments to lend to borrowers experiencing financial difficulty and which were modified during the three months ended March 31, 2023 in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant delay in repayment, or a term extension.
Troubled Debt Restructurings (“TDR”)
As described previously in Note 2, “Summary of Significant Accounting Policies,” the Company adopted ASU 2022-02 on January 1, 2023 which eliminated TDR accounting. Previously, in cases where a borrower experienced financial difficulty and the Company made certain concessionary modifications to contractual terms, the loan was classified as a TDR. The process through which management identified loans as TDR loans, the methodology employed to record any loan losses, and the calculation of any shortfall on collateral dependent loans is described within Note 2, “Summary of Significant Accounting Policies” within the Notes to the Consolidated Financial Statements included within the Company’s 2022 Form 10-K. The below disclosures regarding TDRs relate to prior periods and were included for comparative purposes.
The Company’s policy was to have any TDR loan which was on non-accrual status prior to being modified remain on non-accrual status for approximately six months subsequent to being modified before management considered its return to accrual status. If the TDR loan was on accrual status prior to being modified, it was reviewed to determine if the modified loan should remain on accrual status.
28
TDR loan information as of December 31, 2022 and the three months ended March 31, 2022 was prepared in accordance with GAAP effective for the Company as of December 31, 2022, or prior to the Company’s adoption of ASU 2022-02.
The following table shows the TDR loans on accrual and non-accrual status as of December 31, 2022:
| TDRs on Accrual Status | TDRs on Non-Accrual Status | Total TDRs | |||||||||||||||||||||||||||||||||
| Number of Loans | Balance of Loans | Number of Loans | |||||||||||||||||||||||||||||||||