Eastern Bankshares Inc
For the period ended Jun 30, 2024. Filed Aug 7, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 7, 2024
EBC$22.84+0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-03.
0001628280-24-020157
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-07.
0001628280-24-035518
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 278 previous paragraphs and 315 current paragraphs.
189 unchanged; 81 reworded; 27 added; 6 removed; 2 previous and 18 current paragraphs rearranged.
Tables are not compared: 30 previous and 31 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (27)
Current report
Introductory Note
Current report
On July 12, 2024, the Company completed its previously announced stock-for stock merger with Cambridge Bancorp (“Cambridge”). Neither the unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q nor the sections of this Quarterly Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk” included in Items 2 and 3 of Part I, respectively, of this Quarterly Report reflect Cambridge’s financial condition at June 30, 2024 or Cambridge’s operating results or cash flows for the three and six months ended June 30, 2024 and 2023. Likewise, neither the shares of Company common stock issued in the merger nor any purchase accounting adjustment that the Company will make in connection with merger are reflected in the Company’s financial condition as of June 30, 2024 or the Company’s operating results or cash flows for the three and six months ended June 30, 2024 and 2023. For additional information regarding the Company’s merger with Cambridge, refer to “Outlook and Trends—Cambridge Bancorp Acquisition,” below, and Note 16, “Subsequent Events” to the Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
Current report
Cambridge Bancorp Acquisition
Current report
•Our commercial construction portfolio increased by $60.2 million, or 15.5%, from December 31, 2023 to June 30, 2024 which was primarily due to draws by borrowers on previously originated construction commitments and new construction loan originations during the six months ended June 30, 2024.
Current report
•Interest income on securities and other short-term investments decreased by $6.0 million, or 14.8%, to $34.9 million during the three months ended June 30, 2024 from $40.9 million during the three months ended June 30, 2023. The decrease was primarily driven by a decrease in the average balance of our securities and other short-term investments, which decreased $0.8 billion, or 12.0%, to $6.2 billion for the three months ended June 30, 2024 from $7.1 billion for the three months ended June 30, 2023, which was primarily due to our sales of AFS securities in May 2024 and maturities and principal paydowns on AFS and HTM securities. Also contributing to the decrease in interest income on securities and other short-term investments was a decrease in our combined yield on our securities and other short-term investments, which decreased 6 basis points during the three months ended June 30, 2024 in comparison to the three months ended June 30, 2023 due to a shift in investment mix primarily driven by a reduction in other short-term investments.
Current report
Interest and dividend income increased by $19.3 million, or 5.0%, to $410.0 million during the six months ended June 30, 2024 from $390.6 million during the six months ended June 30, 2023. The increase was primarily the result of an overall increase in the yield on average interest-earning assets which increased by 39 basis points compared to the six months ended June 30, 2023. Partially offsetting the impact of increased yields was a decrease in the average balance of securities and other short-term investments which decreased by $1.4 billion, or 18.6%, to $6.2 billion during the six months ended June 30, 2024 compared to $7.6 billion during the six months ended June 30, 2023.
Current report
Net interest income decreased by $12.9 million, or 9.1%, to $128.6 million during the three months ended June 30, 2024 from $141.6 million for the three months ended June 30, 2023. Net interest income decreased due to a decrease in our net interest margin, which decreased 16 basis points during the three months ended June 30, 2024 to 2.64% from 2.80% during the three months ended June 30, 2023.
Current report
Net interest margin decreased 16 basis points during the three months ended June 30, 2024 to 2.64% from 2.80% during the three months ended June 30, 2023. The decrease in net interest margin for the three months ended June 30, 2024 from the three months ended June 30, 2023 was primarily due to an increase in the average cost of our interest-earning liabilities which exceeded the increase in our average yield on interest-earning assets.
Current report
Net interest margin decreased 7 basis points to 2.66% during the six months ended June 30, 2024 from 2.73% during the six months ended June 30, 2023. The decrease in net interest margin for the six months ended June 30, 2024 from the six months ended June 30, 2023 was primarily due to an increase in the average cost of our interest-earning liabilities which exceeded the increase in our average yield on interest-earning assets.
Current report
(6)Represents net income, including net income from discontinued operations, divided by average total assets.
Current report
Noninterest income decreased $0.9 million, or 3.3%, to $25.3 million for the three months ended June 30, 2024 from $26.2 million for the three months ended June 30, 2023. This decrease was primarily due to a $7.6 million increase in losses on sales of securities available for sale and a $1.2 million decrease in income from investments held in rabbi trusts partially offset by a $7.2 million increase in other noninterest income.
Current report
•Other noninterest income increased primarily as a result of $7.8 million of fee income received as a result of the early withdrawal of an omnibus deposit contract which had a balance of $100.0 million, as described above.
Current report
Noninterest income increased $336.7 million, or 118.7%, to $53.0 million for the six months ended June 30, 2024 from a net loss of $283.6 million for the six months ended June 30, 2023. This increase was primarily due to a $325.6 million decrease in losses on sales of securities available for sale and a $7.1 million increase in other noninterest income.
Current report
•We recorded losses of $7.6 million and $333.2 million on sales of securities available for sale, net, for the six months ended June 30, 2024 and 2023, respectively. In May 2024, an early withdrawal of an omnibus deposit contract occurred which had a balance of $100.0 million at the time of the contract termination. Management made the decision to sell certain available for sale securities following the early termination in order to recoup liquidity. We recorded losses during the six months ended June 30, 2023 as management made the decision to sell certain available for sale securities in connection with a balance sheet repositioning in March 2023.
Current report
•Other noninterest income increased primarily as a result of $7.8 million of fee income received as a result of the early withdrawal of an omnibus deposit contract which had a balance of $100.0 million, as described above.
Current report
•Salaries and employee benefits expenses increased primarily due to an increase in salaries and wages expense, an increase in other compensation expense, and an increase in outside clerical expense.
Current report
◦Other compensation expense increased primarily due to an increase in severance pay for terminated employees and voluntary early retirements.
Current report
◦Outside clerical expense increased primarily due to the hiring of an outside vendor to assist with the conversion of our new online banking system which was launched in May 2024.
Current report
•FDIC insurance expense increased primarily due to an incremental increase to the FDIC’s special assessment, which we first accrued for during the fourth quarter of 2023. We received the FDIC's additional special assessment invoice in June 2024, which included an incremental assessment amount of $1.9 million, which we recorded during the three months ended June 30, 2024.
Current report
Noninterest expense increased by $15.2 million, or 7.8%, to $211.1 million during the six months ended June 30, 2024 from $195.8 million during the six months ended June 30, 2023. This increase was primarily due to a $9.4 million increase in data processing expenses, a $5.3 million increase in salary and employee benefits expenses, and a $1.6 million increase in professional services expense. These increases were partially offset by a $3.9 million decrease in other noninterest expenses.
Current report
◦Pension service costs increased primarily due to a change in the mix of employees which increased the present value of benefits based upon salary growth levels in comparison to the six months ended June 30, 2023.
Current report
◦Other compensation expense increased primarily due to an increase in severance pay and voluntary early retirements.
Current report
◦Outside clerical expense increased primarily due to the hiring of an outside vendor to assist with the conversion of our new online banking platform which was launched in May 2024.
Current report
◦Loan origination fee expense reductions increased primarily due to an increase in standard loan origination costs during the six months ended June 30, 2024.
Current report
•Professional services expenses increased primarily due to $1.7 million in merger and acquisition expenses incurred during the six months ended June 30, 2024 related to our merger with Cambridge, which closed in July 2024.
Current report
Income tax expense decreased by $4.3 million to $11.7 million for the three months ended June 30, 2024 from $15.9 million for the three months ended June 30, 2023. The decrease was primarily due to a decrease in net income for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.
Current report
(1)The ratio presented as of June 30, 2024 represents quarter-to-date average equity as a percentage of quarter-to-date average total assets.
Removed paragraphs (6)
Previous report
Acquisitions
Previous report
Proposed Acquisition
Previous report
•Our commercial real estate portfolio increased by $62.2 million from December 31, 2023 to March 31, 2024 which was primarily attributable to an increase of $89.1 million in commercial real estate investment loan balances. Such loans represent loans secured by commercial real estate that are non-owner-occupied. The increase in such loan balances was primarily due to management’s active focus on originating loans collateralized by industrial/warehouse and multi-family property types, which are included in the commercial real estate investment loan category, due to management’s belief that the credit performance of such loans has a stable outlook. The increase in commercial real estate investment loan balances was partially offset by a decrease in commercial real estate owner-occupied loans of $18.8 million which was due to net paydowns of such loans during the three months ended March 31, 2024.
Previous report
Noninterest income increased $337.5 million, or 108.9%, to $27.7 million for the three months ended March 31, 2024 from a net loss of $309.9 million for the three months ended March 31, 2023. This increase was primarily due to a $333.2 million decrease in losses on sales of securities available for sale, a $1.5 million increase in income from investments held in rabbi trusts, a $1.1 million increase in interest rate swap income, and a $1.0 million increase in service charges on deposit accounts.
Previous report
•Interest rate swap income increased primarily as a favorable mark-to-market adjustment during the three months ended March 31, 2024 compared to an unfavorable mark-to-market adjustment during the three months ended March 31, 2023.
Previous report
•Service charges on deposit accounts increased primarily as a result of increased corporate account analysis charges which was primarily due to higher customer deposit activity. Also contributing to the increase was an increase in overdraft charges, which increased primarily due to a larger volume of overdrafts for the three months ended March 31, 2024 compared to during the three months ended March 31, 2023.
Reworded paragraphs (81)
Previous wording
This section is intended to assist in the understanding of the financial performance of the Company and its subsidiaries through a discussion of our financial condition at March 31, 2024, and our results of operations for the three months ended March 31, 2024 and 2023. This section should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto of the Company appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Company’s 2022 Form 10-K.
Current wording
This section is intended to assist in the understanding of the financial performance of the Company and its subsidiaries through a discussion of our financial condition at June 30, 2024, and our results of operations for the three and six months ended June 30, 2024 and 2023. This section should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto of the Company appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Company’s 2023 Form 10-K.
Previous wording
•risks related to the implementation of acquisitions, dispositions, and restructurings, including the pending merger with Cambridge Bancorp and Cambridge Trust Company, such as the risk that acquisitions may not be timely completed or at all and may not produce results at levels or within time frames originally anticipated, including due to delays in obtaining regulatory approvals or to the conditions associated with such approvals;
Current wording
•risks related to the implementation of acquisitions, dispositions, and restructurings;
Previous wording
•risks related to the potential integration of Cambridge Bancorp and Cambridge Trust Company, including that revenue and expense synergies or other expected benefits may not materialize or in the time frame originally anticipated or may be more costly to achieve than anticipated and that the combined businesses may not perform as expected;
Current wording
•risks related to the integration of Cambridge Bancorp and Cambridge Trust Company, including that revenue and expense synergies or other expected benefits may not materialize or in the time frame originally anticipated or may be more costly to achieve than anticipated and that the combined businesses may not perform as expected;
Previous wording
In September 2023, following the approval of the sale of our insurance agency business by our board of directors, we reclassified our insurance agency business as held for sale in connection with a planned disposition of the business. Accordingly, the Consolidated Statements of Income and Consolidated Statements of Cash flows present discontinued operations as of March 31, 2023 and for the period then ended. For further discussion, refer to Note 15, “Discontinued Operations”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.
Current wording
In September 2023, following the approval of the sale of our insurance agency business by our board of directors, we reclassified our insurance agency business as held for sale in connection with a planned disposition of the business. Accordingly, the Consolidated Statements of Income for the three and six months ended June 30, 2023 and Consolidated Statements of Cash flows for the six months ended June 30, 2023 present discontinued operations. For further discussion, refer to Note 15, “Discontinued Operations”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.
Previous wording
There have been no other material changes in critical accounting policies during the three months ended March 31, 2024.
Current wording
There have been no other material changes in critical accounting policies during the three and six months ended June 30, 2024.
Previous wording
We are a bank holding company, and our principal subsidiary, Eastern Bank, is a Massachusetts-chartered bank that has served the banking needs of our customers since 1818. Our business philosophy is to operate as a diversified financial services enterprise providing a broad array of banking and other financial services primarily to retail, commercial and small business customers. We had total assets of $21.2 billion and $21.1 billion at March 31, 2024 and December 31, 2023, respectively. We are subject to comprehensive regulation and examination by the Massachusetts Commissioner of Banks, the FDIC, the Federal Reserve Board and the Consumer Financial Protection Bureau. Our business consists of a full range of banking, lending (commercial, residential and consumer), savings and small business offerings, including our wealth management and trust operations that we conduct through our Eastern Wealth Management division.
Current wording
We are a bank holding company, and our principal subsidiary, Eastern Bank, is a Massachusetts-chartered bank that has served the banking needs of our customers since 1818. Our business philosophy is to operate as a diversified financial services enterprise providing a broad array of banking and other financial services primarily to retail, commercial and small business customers. We had total assets of $21.0 billion and $21.1 billion at June 30, 2024 and December 31, 2023, respectively. We are subject to comprehensive regulation and examination by the Massachusetts Commissioner of Banks, the FDIC, the Federal Reserve Board and the Consumer Financial Protection Bureau. Our business consists of a full range of banking, lending (commercial, residential and consumer), savings and small business offerings, including our wealth management and trust operations that we conduct through our Eastern Wealth Management division.
Previous wording
In recent years, we managed our business under two business segments: our banking business and our insurance agency business. On October 31, 2023, we sold substantially all of the assets and transferred certain liabilities of our insurance agency business. In the third quarter of 2023, following management’s decision to sell our insurance agency business, we reclassified the related assets and liabilities to assets and liabilities of discontinued operations, respectively, on our Consolidated Balance Sheets. Accordingly, the results of discontinued operations were reclassified to “net income from discontinued operations” on our Consolidated Statements of Income. For additional discussion of discontinued operations, refer to Note 15, “Discontinued Operations” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q. The following discussion excludes amounts reported as discontinued operations.
Current wording
In recent years, we managed our business under two business segments: our banking business and our insurance agency business. On October 31, 2023, we sold substantially all of the assets and transferred certain liabilities of our insurance agency business. In the third quarter of 2023, following management’s decision to sell our insurance agency business, we reclassified the related assets and liabilities to assets and liabilities of discontinued operations, respectively, on our Consolidated Balance Sheets. Accordingly, the results of discontinued operations were reclassified to “net income from discontinued operations” on our Consolidated Statements of Income. For additional discussion of discontinued operations, refer to Note 15,
Previous wording
Net income from continuing operations for the three months ended March 31, 2024 computed in accordance with GAAP was $38.6 million as compared to a net loss from continuing operations of $202.1 million for the three months ended March 31, 2023. The increase to net income from continuing operations for the three months ended March 31, 2024 compared to a net loss from continuing operations for the three months ended March 31, 2023 was primarily due to the sale of available for sale securities at a loss in connection with our balance sheet repositioning completed in March 2023 which did not recur during the three months ended March 31, 2024. Refer to the later sections titled“Results of Operations”within this Item 2 for additional discussion.
Current wording
Net income from continuing operations for the three and six months ended June 30, 2024 computed in accordance with GAAP was $26.3 million and $65.0 million, respectively, as compared to net income and net loss from continuing operations of $44.4 million and $157.7 million for the three and six months ended June 30, 2023, respectively, representing a decrease of 40.7% and an increase of 141.2%, respectively. The decrease in net income from continuing operations for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to lower net interest income for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and higher noninterest expense for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Refer to the later sections titled“Results of Operations”within this Item 2 for additional discussion. The increase in net income from continuing operations for the six months ended June 30, 2024 from a net loss from continuing operations for the six months ended June 30, 2023 was primarily due to the sale of available for sale securities at a loss in connection with our balance sheet repositioning completed in March 2023 which resulted in a net loss for the six months ended June 30, 2023. Refer to the later section titled“Results of Operations” within this Item 2 for additional discussion.
Previous wording
Net income from continuing operations for the three months ended March 31, 2024 and net loss from continuing operations for the three months ended March 31, 2023 included items that our management considers non-core, which management excludes for purposes of assessing our operating net income, a non-GAAP financial measure. Operating net income for the three months ended March 31, 2024 was $38.1 million compared to operating net income for the three months ended March 31, 2023 of $53.1 million representing a decrease of 28.3%. This decrease was primarily due to decreased net interest income and an increase in the provision for allowance for loan losses for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. See“Non-GAAP Financial Measures”and“Results of Operations” within this Item 2 for a reconciliation of operating net income to net income from continuing operations on a GAAP basis and further discussion of net interest income and the provision for allowance for loan losses.
Current wording
Net income from continuing operations for the three and six months ended June 30, 2024 and net income and net loss from continuing operations for the three and six months ended June 30, 2023, respectively, included items that our management considers non-core, which management excludes for purposes of assessing our operating net income, a non-GAAP financial measure. Operating net income for the three and six months ended June 30, 2024 was $36.5 million and $74.6 million, respectively, compared to operating net income for the three and six months ended June 30, 2023 of $41.1 million and $94.2 million, respectively, representing decreases of 11.1% and 20.8%, respectively. These decreases were primarily due to lower net interest income and higher noninterest expense on an operating basis for both the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. See“Non-GAAP Financial Measures”and“Results of Operations” within this Item 2 for a reconciliation of operating net income to net income on a GAAP basis and further discussion of noninterest income and noninterest expense.
Previous wording
Our banking business offers a range of commercial, retail, wealth management and banking services, and consists primarily of attracting deposits from the general public, including municipalities, and investing those deposits, together with borrowings and funds generated from operations, to originate loans in a variety of sectors and to invest in securities. Our financial condition and results of operations depend primarily on (i) attracting and retaining relatively low cost, stable deposits, (ii) using those deposits to originate and acquire loans and earn net interest income and (iii) operating expenses incurred.
Current wording
Our banking business offers a range of commercial, retail, wealth management and banking service, and consists primarily of attracting deposits from the general public, including municipalities, and investing those deposits, together with borrowings and funds generated from operations, to originate loans in a variety of sectors and to invest in securities. Our financial condition and results of operations depend primarily on (i) attracting and retaining relatively low cost, stable deposits, (ii) using those deposits to originate and acquire loans and earn net interest income and (iii) operating expenses incurred.
Previous wording
•Commercial and industrial: Loans in this category consist of revolving and term loans extended to businesses and corporate enterprises for the purpose of financing working capital, facilitating equipment purchases and facilitating acquisitions. As of March 31, 2024 and December 31, 2023, we had total commercial and industrial loans of $3.1 billion and $3.0 billion, respectively, representing 21.9% and 21.8%, respectively, of our total loans. The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. Our primary focus for commercial and industrial loans is middle-market companies located in the markets we serve. In addition, we participate in the syndicated loan market and the SNC Program. As of March 31, 2024 and December 31, 2023, commercial and industrial loans in our SNC Program portfolio totaled $623.1 million and $606.2 million, respectively, or 20.2% and 20.1%, respectively, of our commercial and industrial portfolio, and 51.0% and 45.1%, respectively, of our commercial and industrial SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial and industrial portfolio also includes our Asset Based Lending Portfolio (“ABL Portfolio”) and industrial revenue bonds (“IRBs”), the balances of which are detailed below:
Current wording
•Commercial and industrial: Loans in this category consist of revolving and term loans extended to businesses and corporate enterprises for the purpose of financing working capital, facilitating equipment purchases and facilitating acquisitions. As of June 30, 2024 and December 31, 2023, we had total commercial and industrial loans of $3.1 billion and $3.0 billion, respectively, representing 21.9% and 21.8%, respectively, of our total loans. The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. Our primary focus for commercial and industrial loans is middle-market companies located in the markets we serve. In addition, we participate in the syndicated loan market and the SNC Program. As of June 30, 2024 and December 31, 2023, commercial and industrial loans in our SNC Program portfolio totaled $653.5 million and $606.2 million, respectively, or 21.2% and 20.1%, respectively, of our commercial and industrial portfolio, and 47.6% and 45.1%, respectively, of our commercial and industrial SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial and industrial portfolio also includes our Asset Based Lending Portfolio (“ABL Portfolio”) and industrial revenue bonds (“IRBs”), the balances of which are detailed below:
Previous wording
◦As of March 31, 2024 and December 31, 2023, our ABL Portfolio totaled $187.2 million and $203.1 million, respectively, or 6.1% and 6.7%, respectively, of our commercial and industrial portfolio.
Current wording
◦As of June 30, 2024 and December 31, 2023, our ABL Portfolio totaled $195.2 million and $203.1 million, respectively, or 6.3% and 6.7%, respectively, of our commercial and industrial portfolio.
Previous wording
◦As of both March 31, 2024 and December 31, 2023, our commercial and industrial IRB portfolio, which is comprised of municipal bonds issued to finance major capital projects, totaled $0.9 billion, or 30.2% and 30.8%, respectively, of our commercial and industrial portfolio at each period end.
Current wording
◦As of June 30, 2024 and December 31, 2023, our commercial and industrial IRB portfolio, which is comprised of municipal bonds issued to finance major capital projects, totaled $930.3 million and
Previous wording
•Commercial real estate: Loans in this category include mortgage loans and lines of credit on commercial real estate, both investment and owner occupied. Property types financed include office, industrial, multi-family, affordable housing, retail, hotel, and other type properties. As of both March 31, 2024 and December 31, 2023, we had total commercial real estate loans of $5.5 billion, representing 39.3% and 39.1%, respectively, of our total loans as of each period end. As of both March 31, 2024, and December 31, 2023, owner occupied commercial real estate loans totaled $1.0 billion, representing 17.6% and 18.2%, respectively, of our commercial real estate loans. Collateral values are established by independent third-party appraisals and evaluations. The primary repayment sources include operating income generated by the real estate, permanent debt refinancing and/or the sale of the real estate. Our commercial real estate loan portfolio also includes loans included in our SNC Program portfolio described above. As of March 31, 2024 and December 31, 2023, commercial real estate loans in our SNC Program portfolio totaled $86.2 million and $86.3 million, respectively, or 1.6% of our commercial real estate loan portfolio, as of both March 31, 2024 and December 31, 2023, and 100.0% of our commercial real estate SNC Program portfolio were loans to borrowers headquartered in our primary lending market, as of both March 31, 2024 and December 31, 2023. Our commercial real estate loan portfolio also included IRB loans of $587.5 million and $591.0 million as of March 31, 2024 and December 31, 2023, respectively, representing 10.6% and 10.8%, respectively, of our commercial real estate portfolio.
Current wording
•Commercial real estate: Loans in this category include mortgage loans and lines of credit on commercial real estate, both investment and owner occupied. Property types financed include office, industrial, multi-family, affordable housing, retail, hotel, and other type properties. As of June 30, 2024 and December 31, 2023, we had total commercial real estate loans of $5.4 billion and $5.5 billion, representing 38.6% and 39.1%, respectively, of our total loans as of each period end. As of June 30, 2024 and December 31, 2023, owner occupied loans totaled $0.9 billion and $1.0 billion, respectively, representing 17.2% and 18.2%, respectively, of our commercial real estate loans. Collateral values are established by independent third-party appraisals and evaluations. The primary repayment sources include operating income generated by the real estate, permanent debt refinancing and/or the sale of the real estate. Our commercial real estate loan portfolio also includes loans included in our SNC Program portfolio described above. As of June 30, 2024 and December 31, 2023, commercial real estate loans in our SNC Program portfolio totaled $92.0 million and $86.3 million, respectively, or 1.7% and 1.6%, respectively, of our commercial real estate loan portfolio. As of June 30, 2024 and December 31, 2023, 93.5% and 100.0%, respectively, of our commercial real estate SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial real estate loan portfolio also included IRB loans of $598.3 million and $591.0 million as of June 30, 2024 and December 31, 2023, respectively, representing 11.0% and 10.8%, respectively, of our commercial real estate portfolio.
Previous wording
•Commercial construction: Loans in this category include construction project financing and are comprised of commercial real estate, business banking and residential loans for the purpose of constructing and developing real estate. As of March 31, 2024 and December 31, 2023, we had total commercial construction loans of $388.0 million and $387.0 million, respectively, representing 2.8% and 2.8%, respectively, of our total loans. Our commercial construction loan portfolio also includes loans included in our SNC Program portfolio described above. As of March 31, 2024 and December 31, 2023, commercial construction loans in our SNC Program portfolio totaled $14.7 million and $10.2 million, respectively, or 3.8% and 2.6%, respectively, of our commercial construction loan portfolio, and 100.0% of our commercial construction SNC Program portfolio were loans to borrowers headquartered in our primary lending market as of both March 31, 2024 and December 31, 2023. Our commercial construction loan portfolio also included IRB loans as of $81.2 million and $63.8 million as of March 31, 2024 and December 31, 2023, respectively, representing 20.9% and 16.5% respectively, of our commercial construction portfolio.
Current wording
•Commercial construction: Loans in this category include construction project financing and are comprised of commercial real estate, business banking and residential loans for the purpose of constructing and developing real estate. As of June 30, 2024 and December 31, 2023, we had total commercial construction loans of $447.2 million and $387.0 million, respectively, representing 3.2% and 2.8%, respectively, of our total loans. Our commercial construction loan portfolio also includes loans included in our SNC Program portfolio described above. As of June 30, 2024 and December 31, 2023, commercial construction loans in our SNC Program portfolio totaled $37.6 million and $10.2 million, respectively, or 8.4% and 2.6% respectively, of our commercial construction loan portfolio. As of both June 30, 2024 and December 31, 2023, 100.0% of our commercial construction SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial construction loan portfolio also included IRB loans of $101.1 million and $63.8 million as of June 30, 2024 and December 31, 2023, respectively, representing 22.6% and 16.5% respectively, of our commercial construction portfolio.
Previous wording
•Business banking: Loans in this category are comprised of loans to small businesses with exposures of under $1.0 million and small investment real estate projects with exposures of under $3.0 million. These loans are separate and distinct from our commercial and industrial and commercial real estate portfolios described above due to the size of the loans. As of both March 31, 2024 and December 31, 2023, we had total business banking loans of $1.1 billion, representing 7.8% of our total loans as of both March 31, 2024 and December 31, 2023. In this category, commercial and industrial loans and commercial real estate loans totaled $196.8 million and $903.8 million, respectively, as of March 31, 2024, and $186.9 million and $898.9 million, respectively, as of December 31, 2023.
Current wording
•Business banking: Loans in this category are comprised of loans to small businesses with exposures of under $1.0 million and small investment real estate projects with exposures of under $3.0 million. These loans are separate and distinct from our commercial and industrial and commercial real estate portfolios described above due to the size of the loans. As of both June 30, 2024 and December 31, 2023, we had total business banking loans of $1.1 billion, representing 7.9% and 7.8% of our total loans for each period end, respectively. In this category, commercial and industrial loans and commercial real estate loans totaled $204.8 million and $903.4 million, respectively, as of June 30, 2024, and $186.9 million and $898.9 million, respectively, as of December 31, 2023.
Previous wording
•Residential real estate: Loans in this category consist of mortgage loans on residential real estate. As of March 31, 2024 and December 31, 2023, we had total residential real estate loans of $2.5 billion and $2.6 billion, respectively, representing 18.1% and 18.4%, respectively, of our total loans. 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. We maintain policy standards for minimum credit scores and cash reserves and maximum loan-to-value consistent with a “prime” portfolio. Collateral consists of mortgage liens on residential dwellings. We do not originate or purchase sub-prime or other high-risk loans. Residential real estate loans are originated either for sale to investors or to retain in our loan portfolio. Decisions about whether to sell or retain residential real estate loans are made based on the interest rate characteristics, pricing for loans in the secondary mortgage market, competitive factors and our capital needs. During the three months ended March 31, 2024, residential real estate mortgage loan originations were $38.3 million, of which $19.9 million were sold on the secondary markets. Comparatively, during the three months ended March 31, 2023, residential real estate mortgage loan originations were $57.2 million, of which $9.1 million were sold on the secondary markets.
Current wording
•Residential real estate: Loans in this category consist of mortgage loans on residential real estate. As of both June 30, 2024 and December 31, 2023, we had total residential real estate loans of $2.6 billion, representing 18.2% and 18.4%, respectively, of our total loans. 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. We maintain policy standards for minimum credit scores and cash reserves and maximum loan-to-value consistent with a “prime” portfolio. Collateral consists of mortgage liens on residential dwellings. We do not originate or purchase sub-prime or other high-risk loans. Residential real estate loans are originated either for sale to investors or to retain in our loan portfolio. Decisions about whether to sell or retain residential real estate loans are made based on the interest rate characteristics, pricing for loans in the secondary mortgage market, competitive factors and our capital needs. During the three and six months ended June 30, 2024, residential real estate mortgage loan originations were $89.3 million and $127.6 million, respectively, of which $14.8 million and $34.7 million, respectively, were sold on the secondary markets. Comparatively, during the three and six months ended June 30, 2023, residential real estate mortgage loan originations were $80.5 million and $137.7 million, respectively, of which $12.8 million and $21.8 million, respectively, were sold on the secondary markets.
Previous wording
•Consumer home equity: Loans in this category consist of home equity lines of credit and home equity loans. As of both March 31, 2024 and December 31, 2023, we had total consumer home equity loans of $1.2 billion, representing 8.7% of our total loans as of both March 31, 2024 and December 31, 2023. 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 lines of credit can be converted to term loans that are fully amortized. Underwriting considerations are materially consistent with those utilized in the residential real estate category. Collateral consists of a senior or subordinate lien on owner-occupied residential property.
Current wording
•Consumer home equity: Loans in this category consist of home equity lines of credit and home equity loans. As of June 30, 2024 and December 31, 2023, we had total consumer home equity loans of $1.3 billion and $1.2 billion, respectively, representing 8.9% and 8.7%, respectively, of our total loans. 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 lines of credit can be converted to term loans that are fully amortized. Underwriting considerations are materially consistent with those utilized in the residential real estate category. Collateral consists of a senior or subordinate lien on owner-occupied residential property.
Previous wording
•Other consumer: Loans in this category consist of unsecured personal lines of credit, overdraft protection, automobile and aircraft loans, home improvement loans and other personal loans. As of March 31, 2024 and December 31, 2023, we had total other consumer loans of $234.4 million and $235.5 million, respectively, representing 1.7% of our total loans as of both March 31, 2024 and December 31, 2023. Our policy and underwriting in this category include the following factors, among others: income sources and reliability, credit histories, term of repayment and collateral value, as applicable.
Current wording
•Other consumer: Loans in this category consist of unsecured personal lines of credit, overdraft protection, automobile and aircraft loans, home improvement loans and other personal loans. As of June 30, 2024 and December 31, 2023, we had total other consumer loans of $248.7 million and $235.5 million, respectively, representing 1.8% and 1.7%, respectively, of our total loans. Our policy and underwriting in this category include the following factors, among others: income sources and reliability, credit histories, term of repayment and collateral value, as applicable.
Previous wording
•Through our Eastern Wealth Management division, we provide a wide range of trust services, including (i) managing customer investments, (ii) serving as custodian for customer assets, and (iii) providing other fiduciary services, including serving as the trustee and personal representative of estates. As of March 31, 2024 and December 31, 2023, we held $3.5 billion and $3.3 billion, respectively, of assets in a fiduciary, custodial or agency capacity for customers, which are not our assets and therefore not included on the Consolidated Balance Sheets included in this Quarterly Report on Form 10-Q. For the three months ended March 31, 2024, we had noninterest income of $6.5 million from providing these services compared to $5.8 million for the three months ended March 31, 2023.
Current wording
•Through our Eastern Wealth Management division, we provide a wide range of trust services, including (i) managing customer investments, (ii) serving as custodian for customer assets, and (iii) providing other fiduciary services, including serving as the trustee and personal representative of estates. As of June 30, 2024 and December 31, 2023, we held $3.5 billion and $3.3 billion, respectively, of assets in a fiduciary, custodial or agency capacity for customers, which are not our assets and therefore not included on the Consolidated Balance Sheets included in this Quarterly Report on Form 10-Q. For the three and six months ended June 30, 2024, we had noninterest income of $6.7 million and $13.3 million, respectively, from providing these services compared to $6.1 million and $11.9 million for the three and six months ended June 30, 2023, respectively.
Previous wording
On September 19, 2023, we entered into a definitive merger agreement with Cambridge Bancorp (“Cambridge”) and Cambridge Trust Company (“Cambridge Trust”) pursuant to which we have agreed to acquire Cambridge through a merger, with the Company as the surviving entity (the “Merger Agreement”). Under the Merger Agreement, each share of Cambridge common stock will be exchanged for 4.956 shares of our common stock. The transaction is intended to qualify as a tax-free reorganization for federal income tax purposes and will provide Cambridge shareholders with a tax-free exchange of their shares of Cambridge common stock in exchange for our common stock as the consideration they will receive in the merger. We anticipate issuing approximately 39.4 million shares of our common stock in the merger. Based upon the closing price of our common stock on September 18, 2023 of $13.41 per share, the transaction is valued at approximately $528.1 million. The closing of the Cambridge acquisition remains subject to required regulatory approvals and satisfaction of other customary closing conditions set forth in the Merger Agreement. On February 28, 2024, our shareholders authorized the issuance of shares of our common stock to Cambridge shareholders in connection with the merger. There can be no assurances as to whether, or when, we and Cambridge will obtain the remaining required approvals or complete the merger. However, we anticipate the merger will close early in the third quarter of 2024.
Current wording
On July 12, 2024, we consummated our previously announced merger with Cambridge Bancorp (“Cambridge”) and Cambridge Trust Company (“Cambridge Trust”). In accordance with the terms of the definitive merger agreement, through which we agreed to acquire Cambridge through a merger with the Company as the surviving entity, each share of Cambridge common stock was exchanged for 4.956 shares of our common stock. The transaction was intended to qualify as a tax-free reorganization for federal income tax purposes and provided Cambridge shareholders with a tax-free exchange of their shares of Cambridge common stock in exchange for our common stock as the consideration they received in the merger. We issued 38.9 million shares of our common stock in the exchange which resulted in a transaction value of approximately $580.6 million based upon the closing price of our common stock on July 12, 2024 of $14.87 per share.
Previous wording
Cambridge, a Massachusetts corporation, is a federally registered bank holding company headquartered in Cambridge, Massachusetts. Cambridge Trust, a Massachusetts-chartered trust company formed in 1890, is a wholly-owned subsidiary of Cambridge that operates through a network of 22 full-service banking offices in eastern Massachusetts and New Hampshire with $5.4 billion in total assets and $4.2 billion in deposits as of March 31, 2024. Cambridge’s core services also include wealth management. Through its wealth management group, which has offices in Massachusetts and New Hampshire, it offers comprehensive investment management, as well as trust administration, estate settlement, and financial planning services. Cambridge had assets under management and administration of approximately $4.8 billion as of March 31, 2024.
Current wording
Cambridge, a Massachusetts corporation, was a federally registered bank holding company headquartered in Cambridge, Massachusetts. Cambridge Trust, a Massachusetts-chartered trust company formed in 1890, was a wholly-owned subsidiary of Cambridge that operated through a network of 19 full-service banking offices in eastern Massachusetts and New Hampshire with $5.3 billion in total assets and $3.9 billion in deposits as of July 12, 2024. Cambridge’s core services also included wealth management. Through its wealth management group, which had offices in Massachusetts and New Hampshire, it offered comprehensive investment management, as well as trust administration, estate settlement, and financial planning services. Cambridge had assets under management and administration of approximately $5.0 billion as of July 12, 2024.
Previous wording
During the three months ended March 31, 2024, we incurred and recorded merger and acquisition costs related to our proposed acquisition of Cambridge of $1.8 million. The following table presents Cambridge-related merger and acquisition costs by financial statement line item on the Consolidated Statements of Income for the three months ended March 31, 2024:
Current wording
During the three and six months ended June 30, 2024, we incurred and recorded merger and acquisition costs related to our acquisition of Cambridge of $3.7 million and $5.5 million, respectively. The following table presents Cambridge-related merger and acquisition costs by financial statement line item on the Consolidated Statements of Income for the three and six months ended June 30, 2024:
Previous wording
No merger and acquisition costs were incurred related to our proposed acquisition of Cambridge during the three months ended March 31, 2023.
Current wording
No merger and acquisition costs were incurred related to our acquisition of Cambridge during the six months ended June 30, 2023.
Previous wording
Inevitably, not all of our interest rate-sensitive assets and liabilities will re-price simultaneously and in equal volume in response to changes in the federal funds rate, and therefore the potential for interest rate exposure exists. Management believes that several factors will affect the actual impact of interest rate changes on our balance sheet and operating results, including, but not limited to, actual changes in interest rates or expectations of future changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve. We attempt to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging our exposure. Approximately 35% of the outstanding principal balance of our loans, gross of outstanding interest rate swaps as described further below, as of March 31, 2024 was indexed to a market rate that is expected to reprice with similar magnitude and direction as the federal funds rate. A portion of these loans have been hedged using interest rate swaps to convert the floating rate interest receipts to a fixed rate. The notional amount of floating rate loans swapped totaled $2.4 billion on March 31, 2024, representing approximately 17.0% of the outstanding principal balance of our loans at that date. For more detail regarding such hedging financial instruments, refer to Note 10, “Derivative Financial Instruments”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q. Refer to the section titled“Management of Market Risk” within this Item 2 for additional discussion including the estimated change to our net interest income under interest rate risk measurement methodologies that use a variety of hypothetical scenarios assuming immediate and parallel changes in interest rates that may not reflect the manner in which actual yields and costs respond to changes in market interest rates.
Current wording
Inevitably, not all of our interest rate-sensitive assets and liabilities will re-price simultaneously and in equal volume in response to changes in the federal funds rate, and therefore the potential for interest rate exposure exists. Management believes that several factors will affect the actual impact of interest rate changes on our balance sheet and operating results, including, but not limited to, actual changes in interest rates or expectations of future changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve. We attempt to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging our exposure. Approximately 36% of the outstanding principal balance of our loans, gross of outstanding interest rate swaps as described further below, as of June 30, 2024 was indexed to a market rate that is expected to reprice with similar magnitude and direction as the federal funds rate. A portion of these loans have been hedged using interest rate swaps to convert the floating rate interest receipts to a fixed rate. The notional amount of floating rate loans swapped totaled $2.4 billion on June 30, 2024, representing approximately 17.0% of the outstanding principal balance of our loans at that date. For more detail regarding such hedging financial instruments, refer to Note 10, “Derivative Financial Instruments”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q. Refer to the section titled“Management of Market Risk” within this Item 2 for additional discussion including the estimated change to our net interest income under interest rate risk measurement methodologies that use a variety of hypothetical scenarios assuming immediate and parallel changes in interest rates that may not reflect the manner in which actual yields and costs respond to changes in market interest rates.
Previous wording
We present certain non-GAAP financial measures, which management uses to evaluate our performance, and which exclude the effects of certain transactions, non-cash items and GAAP adjustments that we believe are unrelated to our core business and are therefore not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into our core businesses as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding GAAP financial measures. Except as otherwise indicated, the information presented for the three months ended March 31, 2023 within this section excludes discontinued operations. Refer to Note 15, “Discontinued Operations” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q for further discussion regarding discontinued operations.
Current wording
We present certain non-GAAP financial measures, which management uses to evaluate our performance, and which exclude the effects of certain transactions, non-cash items and GAAP adjustments that we believe are unrelated to our core business and are therefore not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into our core business as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding GAAP financial measures. Except as otherwise indicated, the information presented for the three and six months ended June 30, 2023 within this section excludes discontinued operations. Refer to Note 15, “Discontinued Operations” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q for further discussion regarding discontinued operations.
Previous wording
There are items in our financial statements that impact our results but which we believe are unrelated to our core business. Accordingly, we present operating net income, noninterest income on an operating basis, noninterest expense on an operating basis, total operating revenue, operating earnings per share, operating net income to average tangible shareholders’ equity, tangible book value per share, and the operating efficiency ratio, each of which excludes the impact of such items because we believe such exclusion can provide greater visibility into our core business and underlying trends. Such items that we do not consider to be core to our business include (i) income and expenses from investments held in rabbi trusts, (ii) gains and losses on sales of securities available for sale, net, (iii) gains and losses on the sale of other assets, (iv) rabbi trust employee benefits, (v) impairment charges on tax credit investments and associated tax credit benefits, (vi) OREO gains and losses, (vii) merger and acquisition expenses, and (viii) certain discrete tax items. There were no gains or losses on sales of other assets, expenses indirectly associated with OREO gains or losses, or impairment charges on tax credit investments and associated tax credit benefits during the periods presented in this Quarterly Report on Form 10-Q.
Current wording
There are items in our financial statements that impact our results but which we believe are unrelated to our core business. Accordingly, we present operating net income, noninterest income on an operating basis, noninterest expense on an operating basis, total operating revenue, operating earnings per share, operating net income to average tangible shareholders’ equity, tangible book value per share, and the operating efficiency ratio, each of which excludes the impact of such items because we believe such exclusion can provide greater visibility into our core business and underlying trends. Such items that we do not consider to be core to our business include (i) income and expenses from investments held in rabbi trusts, (ii) gains and losses on sales of securities available for sale, net, (iii) gains and losses on the sale of other assets, (iv) rabbi trust employee benefits expense, (v) impairment charges on tax credit investments and associated tax credit benefits, (vi) OREO gains and losses, (vii) merger and acquisition expenses, and (viii) certain discrete tax items. There were no expenses indirectly associated with OREO gains or losses, or impairment charges on tax credit investments and associated tax credit benefits during the periods presented in this Quarterly Report on Form 10-Q.
Previous wording
(1)The net tax (expense) benefit associated with these items is generally determined by assessing whether each item is included or excluded from net taxable income and applying our combined statutory tax rate only to those items included in net taxable income. The net tax benefit amount for thethree months ended March 31, 2023 primarily resulted from the sale of securities classified as available for sale in the first quarter of 2023 and a $23.7 million tax benefit resulting from the transfer of certain securities from Market Street Securities Corp(“MSSC”), a wholly owned subsidiary which was liquidated during the first quarter of 2023, to Eastern Bank. In addition, upon the sale of securities in the first quarter of 2023, we established a valuation allowance of $17.4 million, which is included in the net tax benefit amount, as it was determined at that time that it was not more-likely-than-not that the entirety of the deferred tax asset related to the loss on such securities would be realized.
Current wording
(1)The net tax benefit associated with these items is generally determined by assessing whether each item is included or excluded from net taxable income and applying our combined statutory tax rate only to those items included in net taxable income. The net tax benefit for the three months ended June 30, 2023 was primarily the net effect of changes in management’s estimate of the Company’s annual taxable income. The net tax benefit amount for the six months ended June 30, 2023 primarily resulted from the sale of securities classified as available for sale in the first quarter of 2023 and a $23.7 million tax benefit resulting from the transfer of certain securities from Market Street Securities Corp(“MSSC”), a wholly owned subsidiary which was liquidated during the first quarter of 2023, to Eastern Bank. In addition, upon the sale of securities in the first quarter of 2023, we established a valuation allowance of $17.4 million, which is included in the net tax benefit amount, as it was determined at that time that it was not more-likely-than-not that the entirety of the deferred tax asset related to the loss on such securities would be realized.
Previous wording
(2)Includes goodwill and other intangibles included in assets of discontinued operations within the Company’s Consolidated Balance Sheets for thethree months ended March 31, 2023.
Current wording
(2)Includes goodwill and other intangibles included in assets of discontinued operations within the Company’s Consolidated Balance Sheets for the three and six months ended June 30, 2023.
Previous wording
Total cash and cash equivalents increased by $45.9 million, or 6.6%, to $739.0 million at March 31, 2024 from $693.1 million at December 31, 2023. This increase was primarily due to proceeds from maturities and principal paydowns of AFS and HTM securities of $87.6 million and an increase in deposits of $70.5 million. Partially offsetting this increase was an increase in gross loans of $115.3 million during the three months ended March 31, 2024. For further discussion of the change in securities, deposits, and loans, refer to the later“Securities,” ”Deposits,” and ”Loans,” sections in this Item 2.
Current wording
Total cash and cash equivalents increased by $57.8 million, or 8.3%, to $750.8 million at June 30, 2024 from $693.1 million at December 31, 2023. This increase was primarily due to proceeds from maturities and principal paydowns of AFS and HTM securities of $186.8 million and proceeds from the sale of AFS securities of $85.2 million. Partially offsetting this increase was an increase in gross loans of $172.1 million during the six months ended June 30, 2024 and a net decrease in deposits of $58.4 million during the six months ended June 30, 2024. For further discussion of the change in securities, deposits, and loans, refer to the later“Securities,” “Loans,” and “Deposits,” sections in this Item 2.
Previous wording
Our securities portfolio has decreased approximately $125.8 million, or 2.6%, to $4.7 billion at March 31, 2024 from $4.9 billion at December 31, 2023. This decrease was primarily due to maturities and principal paydowns of AFS and HTM securities of $87.6 million.
Current wording
Our securities portfolio decreased $0.3 billion, or 6.6%, to $4.5 billion at June 30, 2024 from $4.9 billion at December 31, 2023. This decrease was primarily due to maturities and principal paydowns of AFS and HTM securities of $186.8 million and sales of AFS securities of $85.2 million.
Previous wording
A portion of our securities portfolio continues to be tax-exempt. Investments in federally tax-exempt securities totaled $186.6 million at March 31, 2024 compared to $191.1 million at December 31, 2023.
Current wording
A portion of our securities portfolio continues to be tax-exempt. Investments in federally tax-exempt securities totaled $183.4 million at June 30, 2024 compared to $191.1 million at December 31, 2023.
Previous wording
We consider our loan portfolio to be relatively diversified by borrower and industry. Our gross loans increased $115.3 million, or 0.8%, to $14.1 billion at March 31, 2024 from $14.0 billion at December 31, 2023. The increase was primarily due to increases in our commercial real estate and commercial and industrial portfolio balances.
Current wording
We consider our loan portfolio to be relatively diversified by borrower and industry. Our gross loans increased $172.1 million, or 1.2%, to $14.1 billion at June 30, 2024 from $14.0 billion at December 31, 2023. The increase was primarily due to increases in our commercial construction and commercial and industrial portfolio balances.
Previous wording
•Our commercial and industrial portfolio increased by $50.5 million from December 31, 2023 to March 31, 2024 which was primarily due to new loan originations within the commercial and industrial portfolio during the three months ended March 31, 2024.
Current wording
•Our commercial and industrial portfolio increased by $50.1 million, or 1.7%, from December 31, 2023 to June 30, 2024 which was primarily due to new loan originations within the commercial and industrial portfolio during the six months ended June 30, 2024.
Previous wording
We believe that our commercial loan portfolio composition is relatively diversified in terms of industry sectors, property types and various lending specialties, and it is concentrated in the New England geographical area, with 83.3% of our commercial loans in Massachusetts and New Hampshire as of March 31, 2024.
Current wording
We believe that our commercial loan portfolio composition is relatively diversified in terms of industry sectors, property types and various lending specialties, and it is concentrated in the New England geographical area, with 82.8% of our commercial loans in Massachusetts and New Hampshire as of June 30, 2024.
Previous wording
Special mention, substandard and doubtful loans totaled 5.4% and 4.1% of total commercial loans outstanding at March 31, 2024 and December 31, 2023, respectively. This increase was driven by several risk rating downgrades of loans in the commercial real estate and commercial and industrial portfolio.
Current wording
Special mention, substandard and doubtful loans totaled 6.4% and 4.1% of total commercial loans outstanding at June 30, 2024 and December 31, 2023, respectively. This increase was driven by several risk rating downgrades of loans in the commercial real estate and commercial and industrial portfolios.
Previous wording
The delinquency rate of our total loan portfolio decreased to 0.32% at March 31, 2024, compared to 0.41% at December 31, 2023.
Current wording
The delinquency rate of our total loan portfolio decreased to 0.35% at June 30, 2024, compared to 0.41% at December 31, 2023.
Previous wording
NPLs increased $4.6 million, or 8.8%, to $57.2 million at March 31, 2024 from $52.6 million at December 31, 2023. NPLs as a percentage of total loans increased to 0.41% at March 31, 2024 from 0.38% at December 31, 2023. Refer to the later“Allowance for Loan Losses” section in this Item 2 for a discussion of the change in non-accrual loans which comprise our NPLs as of March 31, 2024 and December 31, 2023.
Current wording
NPLs decreased $12.8 million, or 24.3%, to $39.8 million at June 30, 2024 from $52.6 million at December 31, 2023. NPLs as a percentage of total loans decreased to 0.28% at June 30, 2024 from 0.38% at December 31, 2023. Refer to the later“Allowance for Loan Losses” section in this Item 2 for a discussion of the change in non-accrual loans which comprise our NPLs as of June 30, 2024 and December 31, 2023.
Previous wording
The total amount of interest recorded on NPLs during both the three months ended March 31, 2024 and 2023 was not significant. The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $1.5 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively.
Current wording
The total amount of interest recorded on NPLs during both the six months ended June 30, 2024 and 2023 was not significant. The gross interest income that would have been recorded under the original terms of those loans if they had been performing amounted to $1.6 million and $2.7 million for the six months ended June 30, 2024 and 2023, respectively.
Previous wording
In the course of resolving NPLs, we may choose to restructure the contractual terms of certain loans. We attempt to work-out alternative payment schedules with the borrowers in order to avoid foreclosure actions. The aggregate amortized cost balance as of March 31, 2024 and 2023 of loans modified during the three months ended March 31, 2024 and 2023, respectively, which were determined to be modifications to borrowers experiencing financial difficulty was $1.1 million and $2.3 million, respectively. As of March 31, 2024, there were no loans that had been modified to borrowers experiencing financial difficulty during the during the twelve-month period then ended which had subsequently defaulted during the three months ended March 31, 2024. As of March 31, 2023, there were no loans that had been modified to borrowers experiencing financial difficulty during the during the three-month period then ended which had subsequently defaulted during the during the three months ended March 31, 2023.
Current wording
In the course of resolving NPLs, we may choose to restructure the contractual terms of certain loans. We attempt to work-out alternative payment schedules with the borrowers in order to avoid foreclosure actions. The aggregate amortized cost balance as of June 30, 2024 of loans modified during the three and six months ended June 30, 2024 which were determined to be modifications to borrowers experiencing financial difficulty was $22.8 million and $23.7 million, respectively, which included three commercial real estate loans collateralized by properties in our office risk segment. The aggregate amortized cost balance as of June 30, 2023 of loans modified during the three and six months ended June 30, 2023 which were determined to be modifications to borrowers experiencing financial difficulty was $2.4 million and $4.6 million, respectively.
Showing the first 40 of 81 pairs. Open the source sections for the rest.
Rearranged current paragraphs (18)
Current report — wording carried from elsewhere
“Discontinued Operations” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q. The following discussion excludes amounts reported as discontinued operations.
Current report — wording carried from elsewhere
$934.5 million, respectively, or 30.2% and 30.8%, respectively, of our commercial and industrial portfolio.
Current report — wording carried from elsewhere
As of June 30, 2024, there were two loans with an aggregate balance of $0.1 million that had been modified to borrowers experiencing financial difficulty during the during the twelve-month period then ended which had subsequently defaulted during the six months ended June 30, 2024. As of June 30, 2023, there were no loans that had been modified to borrowers experiencing financial difficulty during the six-month period then ended which had subsequently defaulted during the six months ended June 30, 2023.
Current report — wording carried from elsewhere
•Interest income on loans increased $28.1 million, or 8.9%, to $342.5 million during the six months ended June 30, 2024 from $314.4 million during the six months ended June 30, 2023. The increase in interest income on our loans was due to an increase in our yields and an increase in the average balance of our loan portfolio. The overall yield on our loans increased 29 basis points during the six months ended June 30, 2024 in comparison to the six months ended June 30, 2023. The increase in yield was primarily due to increases in market rates of interest which resulted in increased yields on variable rate loans which repriced and new loans originated at higher rates of interest.
Current report — wording carried from elsewhere
During the six months ended June 30, 2024, interest expense on our interest-bearing deposits increased by $51.9 million to $150.9 million from $99.1 million during the six months ended June 30, 2023. This increase was due to an increase in the rates paid on deposits. Rates paid on deposits increased by 86 basis points to 2.38% during the six months ended June 30, 2024 from 1.52% during the six months ended June 30, 2023. This was primarily due to our increasing overall deposit rates paid in response to an increase in market rates of interest and heightened industry-wide competition for deposits. Partially offsetting the impact of the increase in rates paid on deposits was a decrease in the average balance of interest-bearing deposits for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. During the six months ended June 30, 2024, the average balance of our interest-bearing deposits decreased by $0.4 billion to $12.7 billion from $13.1 billion during the six months ended June 30, 2023 primarily as a result of a decrease in the average balance of brokered deposits. The average balance of brokered certificates of deposit decreased to $4.1 million during the six months ended June 30, 2024 from $773.6 million during the six months ended June 30, 2023.
Current report — wording carried from elsewhere
Interest expense related to our borrowings decreased by $11.2 million to $0.5 million during the six months ended June 30, 2024 from $11.7 million during the six months ended June 30, 2023. The decrease in borrowings interest expense during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due to a decrease in our utilization of our FHLB borrowing capacity. Our utilization of FHLBB borrowings was greater during the six months ended June 30, 2023 compared to the six months ended June 30, 2024 as we had bolstered our on-balance sheet liquidity in response to the bank failures in the first quarter of 2023. In addition, during the four quarter of 2023, we paid down our FHLB advances primarily with the proceeds from the sale of our insurance agency business, which occurred in the fourth quarter of 2023. Both of these factors resulted in a reduced average balance of borrowings during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
Current report — wording carried from elsewhere
(7)Represents net income, including net income from discontinued operations, divided by average equity.
Current report — wording carried from elsewhere
(1)Non-accrual loans are included in loans.
Current report — wording carried from elsewhere
(2)Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
Current report — wording carried from elsewhere
(3)Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
Current report — wording carried from elsewhere
(4)Net interest margin - FTE represents fully-taxable equivalent net interest income divided by average total interest-earning assets. Refer to the earlier “Non-GAAP Financial Measures” section within this Item 2 for additional information.
Current report — wording carried from elsewhere
(5)Presented on an annualized basis.
Current report — wording carried from elsewhere
(8)Includes noninterest expenses included in results of discontinued operations. Refer to Note 15, “Discontinued Operations”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q for such amounts.
Current report — wording carried from elsewhere
Our periodic evaluation of the appropriate allowance for loan losses considers the risk characteristics of the loan portfolio, current economic conditions, and trends in loan delinquencies and charge-offs.
Current report — wording carried from elsewhere
•Other noninterest expenses decreased primarily due to a $2.7 million decrease in the provision for credit losses on off-balance sheet exposures, which was primarily due to a reduction in the reserve rate for commercial construction unfunded commitments. For further discussion of the change in the provision for credit losses on off-balance sheet exposures, refer to the earlier discussion under “Allowance for Credit Losses,” included in the“Financial Position” section within this Item 2. Partially offsetting this decrease was a $0.7 million increase in post retirement bank owned life insurance expense which was primarily caused by a decrease in the discount rate used to determine the liability related to our split-dollar life insurance policies. This decrease in the discount rate resulted in an increase in the expense associated with such liabilities.
Current report — wording carried from elsewhere
•Data processing expenses increased during the six months ended June 30, 2024 compared to during the six months ended June 30, 2023, which were primarily due to an increase in software expenses, which were primarily driven by increases in customer relationship management and cybersecurity software expenses. The increase in these expenses was driven by efforts to improve our customer relationship management with current and potential customers, as well as improve our cybersecurity technology to better protect against cybersecurity threats. Also contributing to the increase in data processing expenses were $3.1 million in merger and acquisition expenses incurred during the six months ended June 30, 2024 related to our merger with Cambridge, which closed in July 2024.
Current report — wording carried from elsewhere
•Salaries and employee benefits expenses increased primarily due to an increase in salaries and wages expense, an increase in the pension service cost, an increase in other compensation expense, and an increase in outside clerical expense. Partially offsetting these increases was an increase in loan origination fee expense reductions.
Current report — wording carried from elsewhere
◦Salaries and wages expense increased $2.4 million primarily due to cost of living salary and wage increases and the addition of new employees.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
The following table sets forth information concerning balances on our borrowings as of the dates and for the periods indicated:
Previous report — wording carried elsewhere
In addition, during the first quarter of 2023, the Company liquidated MSSC, a wholly owned subsidiary, and transferred all of MSSC’s assets to Eastern Bank. In connection with the liquidation and subsequent transfer of securities previously held by MSSC to Eastern Bank, the Company recognized an additional deferred income tax benefit of $23.7 million during the first quarter of 2023. This deferred income tax benefit resulted from a state tax rate change applied to the deferred tax asset related to the securities transferred to Eastern Bank.