Discontinued Operations

12 Months Ended

Dec. 31, 2023

Discontinued Operations and Disposal Groups [Abstract]

On September 19, 2023, the Company announced that it had entered into an asset purchase agreement (“the agreement”) with Arthur J. Gallagher & Co. (“Gallagher”) to sell substantially all of the assets of its insurance agency business for a gross purchase price of $515.0 million. The agreement also provided for the assumption of certain liabilities of the insurance agency business by Gallagher. Management made the decision to sell certain assets of its insurance agency business to recognize the valuation premium of the business, while allowing the Company to focus on growth and strategic initiatives of its core banking business.

In September 2023, following the approval of the sale by the Company’s board of directors, the Company reclassified substantially all of the assets and certain liabilities of its insurance agency business as held for sale in connection with a planned disposition of the business. A business is classified as held for sale when management, having the authority to approve the action, commits to a plan to sell the business, the sale is probable to occur during the next 12 months at a price that is reasonable in relation to its current fair value, and certain other criteria are met. In accordance with ASC 205, Presentation of Financial Statements, the Company classifies operations as discontinued when they meet all the criteria to be classified as held for sale and when the sale represents a strategic shift that will have a major impact on the Company’s financial condition and results of operations. Accordingly, the Consolidated Balance Sheets, Consolidated Statements of Income, and Consolidated Statements of Cash flows present discontinued operations for the current period and were adjusted on a retrospective basis for prior periods.

On October 31, 2023, the Company completed the sale of its insurance agency business for net cash consideration at closing of $498.1 million, subject to customary post-closing working capital adjustments. The net cash proceeds at closing included the gross purchase price pursuant to the agreement of $515.0 million and an estimated working capital adjustment of $4.2 million, which were reduced by transaction expenses of $17.0 million and the settlement of certain obligations of the Company primarily related to employee post-retirement liabilities that originated prior to closing of $4.1 million. In addition, the Company transferred $7.4 million in fiduciary cash to Gallagher upon closing which is included in the determination of the gain on sale as of December 31, 2023 but was not included in the amount of net cash consideration of $498.1 million. In connection with the sale, the Company recognized a gain on sale of $408.6 million, which is subject to certain post-closing

adjustments during the 120 day post-closing settlement period which ends on February 28, 2024. In addition, the Company recognized indirect noninterest expenses associated with the sale of approximately $22.3 million.

The following is a summary of the assets and liabilities of the discontinued insurance agency business as of December 31, 2022:


	December 31, 2022
	(In thousands)
Assets
Premises and equipment	$	163
Goodwill and intangibles, net	93,117
Deferred income taxes, net	(315)
Prepaid expenses	532
Other assets	34,722
Total assets	$	128,219
Liabilities
Other liabilities	$	34,930
Total liabilities	$	34,930

Certain assets and liabilities previously reported as assets and liabilities of the insurance agency business will not be disposed of and will be transferred into the Bank upon dissolution of Eastern Insurance Group following the asset sale. The following is a summary of such assets and liabilities as of December 31, 2022:


	December 31, 2022
	(In thousands)
Assets
Cash	$	66,507
Premises and equipment (1)	1,792
Bank-owned life insurance	2,066
Deferred income taxes	3,662
Other assets (2)	12,944
Total assets	$	86,971
Liabilities
Other liabilities (3)	$	14,013
Total liabilities	$	14,013

(1)Includes buildings and related improvements.

(2)Primarily includes assets held in rabbi trusts and the ROU asset associated with one lease which will be assumed by the Bank upon dissolution of Eastern Insurance Group.

(3)Primarily includes employee post-retirement liabilities and the lease liability associated with one lease which will be assumed by the Bank upon dissolution of Eastern Insurance Group.

The following presents operating results of the discontinued insurance agency business for the periods indicated:


	For the Years Ended December 31,
	2023		2022		2021
	(In thousands)
Noninterest income:
Insurance commissions	$	93,997	$	99,887	$	95,164
Other noninterest income	67		179		1,014
Total noninterest income	94,064		100,066		96,178
Noninterest expense:
Salaries and employee benefits	76,109		65,089		68,292
Office occupancy and equipment	4,420		3,319		3,204
Data processing	3,577		4,335		4,424
Professional services	1,176		1,009		596
Marketing expenses	179		246		241
Amortization of intangible assets	2,002		2,666		2,293
Other	5,304		4,944		4,411
Total noninterest expense	92,767		81,608		83,461
Income from discontinued operations before income tax expense	1,297		18,458		12,717
Gain on sale of discontinued operations before income tax expense	408,629		—		—
Total gain on discontinued operations before income tax expense	409,926		18,458		12,717
Income tax expense	115,060		5,210		3,583
Income from discontinued operations, net of taxes (1)	$	294,866	$	13,248	$	9,134

(1)Represents net income from discontinued operations that is presented in the Consolidated Statements of Income.

Certain income and expense amounts were excluded from discontinued operations as they relate to assets and liabilities which were not assumed by Gallagher. The following is a summary of such items and the corresponding income tax effect for the periods indicated:


	Years Ended December 31,
	2023		2022		2021
	(In thousands)
Noninterest income:
Income (losses) from investments held in rabbi trusts	$	697	$	(1,305)	$	937
Other noninterest income (1)	60		54		52
Total noninterest income (loss)	757		(1,251)		989
Noninterest expense:
Salaries and employee benefits (2)	721		(1,292)		967
Office occupancy and equipment (3)	433		499		501
Other (4)	1,608		2,396		(2,151)
Total noninterest expense	2,762		1,603		(683)
(Loss) income before income tax expense	(2,005)		(2,854)		1,672
Income tax (benefit) expense	(564)		(802)		470
Net (loss) income	(1,441)		(2,052)		1,202

(1)Includes income on Company-owned life insurance policies which were not disposed of and will be transferred into the Bank upon dissolution of Eastern Insurance Group.

(2)Includes expenses, which were a net credit for the year ended December 31, 2022, associated with certain employee post-retirement benefit plan expenses.

(3)Includes depreciation expense associated with buildings and related improvements and ROU asset amortization related to one lease which were not disposed of and will be transferred into the Bank upon dissolution of Eastern Insurance Group.

(4)Includes intercompany expenses and other credits associated with the Defined Benefit Plan and the BEP. Components of net periodic benefit cost associated with the Defined Benefit Plan and the BEP and included in other noninterest expense above were a net credit for the periods presented.

Continuing Involvement

Pursuant to a transition services agreement, the Company will perform certain transitional services to Gallagher for up to six months following the closing of the sale. Such services include the provision of certain information technology support and human resources support. The Company will be compensated for such services on a monthly basis and estimates the total compensation to be approximately $1.0 million over the six-month period plus reimbursement of any amounts paid by the Company in connection with its performance of the transitional services.

Leases

During the year ended December 31, 2023, upon reclassification of the above assets and liabilities to assets and liabilities of discontinued operations, the Company re-assessed the ROU assets of certain leases, which were assumed by Gallagher upon closing, and made the decision to abandon certain leases which were not assumed by Gallagher and for which Eastern Insurance Group is the lessee. The amounts of ROU asset and lease liability of leases included in assets and liabilities of discontinued operations and which were either assumed by Gallagher or terminated by the Company were $8.7 million and $9.2 million, respectively, at December 31, 2022. The Company retained one lease for which Eastern Insurance Group was lessee at the time of closing. Following the sale, the lease was partially sublet to Gallagher and Eastern Insurance Group’s obligation will be transferred to the Bank upon dissolution of Eastern Insurance Group which is expected to occur in 2024. As of December 31, 2023, the ROU asset and lease liability for such lease was $0.5 million and $0.3 million, respectively. As of December 31, 2022, the ROU asset and lease liability for such lease was $1.9 million and $2.2 million, respectively.

During the year ended December 31, 2023, the Company remeasured the present value of the future lease payments related to each lease for which Eastern Insurance Group was the lessee which resulted in a net reduction of the lease liabilities and a corresponding net reduction of the lease ROU assets of $6.4 million. The Company recorded an impairment charge of $2.0 million related to leases which were terminated early following the closing of the asset sale. The impairment charge was included in net income from discontinued operations for the year ended December 31, 2023.

Revenue Recognition - Insurance Commissions

The Company acted as an agent in offering property, casualty, and life and health insurance to both commercial and consumer customers though Eastern Insurance Group. The Company also earned additional commissions from the insurers based upon meeting certain criteria, such as premium levels, growth rates, new business volume and loss experience. The Company recognized commission revenues when earned based upon the effective date of the policy or when services were rendered. Certain revenues were deferred to reflect delivery of services over the contract period. Upon the transfer of Eastern Insurance Group’s assets to Arthur J. Gallagher & Co., which occurred on October 31, 2023, the Company ceased to offer insurance products and services and thus no longer receives insurance-related commissions and revenues. The Company earned a fixed commission rate on the sales of these products and services.

Commissions were earned on the contract effective date and generally were based upon a percentage of premiums for insurance coverage. Commission rates depended upon a large number of factors, including the type of risk being placed, the particular underwriting enterprise’s demand, the expected loss experience of the particular risk coverage, and historical benchmarks surrounding the level of effort necessary for the Company to place and service the insurance contract. The vast majority of the Company’s services and revenues were associated with the placement of an insurance contract.

The Company also earned profit-sharing revenues, also referred to as contingency revenue, from the insurers with whom the Company placed business. These profit-sharing revenues were performance bonuses from the insurers based upon certain performance metrics such as floors on written premiums, loss rates, and growth rates. These amounts were in excess of the commission revenues discussed above, and not all business placed with underwriting enterprises was eligible for contingent revenues. Contingent revenues were variable and generally based upon the Company’s expectation of the ultimate profit-sharing revenue amounts to be earned and varied from period to period. The Company’s contracts were generally calendar year contracts whereby revenues from underwriting enterprises were received in the calendar year following placement, generally the first and second quarters, after verification of the performance indicators outlined in the contracts. Accordingly, during each reporting period, management made its best estimate of the amounts that had been earned using historical averages and other factors to project revenues. The Company based its estimates each period on a contract-by-contract basis. As estimates could have changed significantly from period to period, the Company did not recognize this revenue until it had concluded that, based upon all the facts and information available, it was probable that a significant revenue reversal would not occur in a future period.