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Discontinued Operations
 9 Months Ended
Sep. 30, 2023
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations Discontinued Operations
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 provides for the assumption of certain liabilities of the insurance agency business by Gallagher. Management made the decision to sell certain assets and transfer certain liabilities 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. The sale closed on October 31, 2023. Refer to Note 20, “Subsequent Events” for additional discussion.
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. In addition, the assets and liabilities were remeasured at the lower of their respective carrying amount or fair value less costs to sell in accordance with ASC 360, Property, Plant, and Equipment.
The following is a summary of the assets and liabilities of the discontinued insurance agency business as of September 30, 2023 and December 31, 2022:
September 30, 2023December 31, 2022
(In thousands)
Assets
Premises and equipment$50 $163 
Goodwill and intangibles, net91,115 93,117 
Deferred income taxes, net(187)(315)
Prepaid expenses476 532 
Other assets33,264 34,722 
Total assets$124,718 $128,219 
Liabilities
Other liabilities$34,820 $34,930 
Total liabilities$34,820 $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 September 30, 2023 and December 31, 2022:
September 30, 2023December 31, 2022
(In thousands)
Assets
Cash$77,852 $66,507 
Premises and equipment (1)1,776 1,792 
Bank-owned life insurance2,109 2,066 
Deferred income taxes3,457 3,662 
Other assets (2)11,187 12,944 
Total assets$96,381 $86,971 
Liabilities
Other liabilities (3)$12,166 $14,013 
Total liabilities$12,166 $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 following the sale.
(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 following the sale.
The following presents operating results of the discontinued insurance agency business for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(In thousands)
Noninterest income:
Insurance commissions$25,897 $23,926 $85,177 $77,511 
Other noninterest income13 41 51 137 
Total noninterest income25,910 23,967 85,228 77,648 
Noninterest expense:
Salaries and employee benefits24,655 16,768 57,991 49,057 
Office occupancy and equipment2,755 823 4,279 2,401 
Data processing1,013 1,052 3,216 3,248 
Professional services1,291 549 2,615 738 
Marketing expenses53 101 152 182 
Amortization of intangible assets665 734 2,002 1,868 
Other1,514 1,186 3,976 3,613 
Total noninterest expense31,946 21,213 74,231 61,107 
(Loss) income from discontinued operations before income tax expense(6,036)2,754 10,997 16,541 
Income tax (benefit) expense(1,685)785 3,125 4,669 
(Loss) income from discontinued operations, net of taxes$(4,351)$1,969 $7,872 $11,872 
Certain income and expense amounts were excluded from discontinued operations as they relate to assets and liabilities which will not be assumed by Gallagher. The following is a summary of such items and the corresponding income tax effect for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(In thousands)
Noninterest income:
(Losses) income from investments held in rabbi trusts$(91)$(266)$489 $(1,634)
Other noninterest income (1)15 14 44 40 
Total noninterest (loss) income(76)(252)533 (1,594)
Noninterest expense:
Salaries and employee benefits (2)(96)(268)484 (1,616)
Office occupancy and equipment (3)102 125 343 375 
Other (4)474 129 1,468 320 
Total noninterest expense480 (14)2,295 (921)
Loss before income tax expense(556)(238)(1,762)(673)
Income tax benefit(156)(67)(495)(189)
Net loss(400)(171)(1,267)(484)
(1)Includes income on Company-owned life insurance policies which will not be disposed of and will be transferred into the Bank upon dissolution of Eastern Insurance Group following the sale.
(2)Includes expenses, which were a net credit, 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 will not be disposed of and will be transferred into the Bank upon dissolution of Eastern Insurance Group following the sale.
(4)Includes intercompany expenses and other expenses associated with the Defined Benefit Plan and BEP.
Continuing Involvement
Pursuant to the agreement, the Company will perform certain transitional services to Gallagher for up to 6 months following the closing of the sale. Such services include certain information and 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 $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 three and nine months ended September 30, 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 will be assumed by Gallagher at closing and made the decision to abandon certain leases which will not be assumed by Gallagher and for which Eastern Insurance Group is the lessee. The ROU asset and lease liability of leases included in assets and liabilities of discontinued operations and which will either be assumed by Gallagher or terminated by the Company was $1.0 million and $3.5 million, respectively, at September 30, 2023 and $8.7 million and $9.2 million, respectively, at December 31, 2022. The Company will retain one lease for which Eastern Insurance Group is the current lessee. The lease will be partially sublet to Gallagher and transferred to the Bank upon dissolution of Eastern Insurance Group following the sale. The ROU asset and lease liability for such lease was $0.4 million and $0.6 million, respectively, at September 30, 2023 and $1.9 million and $2.2 million, respectively, at December 31, 2022.
The Company remeasured the present value of the future lease payments related to each lease for which Eastern Insurance Group is 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 will be terminated early following the closing of the asset sale. The impairment charge was included in net (loss) income from discontinued operations for the three and nine months ended September 30, 2023.
Revenue Recognition - Insurance Commissions
The Company currently acts as an agent in offering property, casualty, and life and health insurance to both commercial and consumer customers though Eastern Insurance Group. The Company may also earn additional commissions from the insurers based upon meeting certain criteria, such as premium levels, growth rates, new business volume and loss experience. The Company recognizes commission revenues when earned based upon the effective date of the policy or when services are rendered. Certain revenues are 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 earns a fixed commission rate on the sales of these products and services.
Commissions are earned on the contract effective date and generally are based upon a percentage of premiums for insurance coverage. Commission rates depend 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 are associated with the placement of an insurance contract. Insurance commissions earned but not yet received amounted to $16.1 million and $15.1 million as of September 30, 2023 and December 31, 2022, respectively, and were included in assets of discontinued operations on the Consolidated Balance Sheets.
The Company also earns profit-sharing revenues, also referred to as contingency revenue, from the insurers with whom the Company places business. These profit-sharing revenues are performance bonuses from the insurers based upon certain performance metrics such as floors on written premiums, loss rates, and growth rates. These amounts are in excess of the commission revenues discussed above, and not all business placed with underwriting enterprises is eligible for contingent revenues. Contingent revenues are variable and generally based upon the Company’s expectation of the ultimate profit-sharing revenue amounts to be earned and can vary from period to period. The Company’s contracts are generally calendar year contracts whereby revenues from underwriting enterprises are 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 must make its best estimate of the amounts that have been earned using historical averages and other factors to project revenues. The Company bases its estimates each period on a contract-by-contract basis. As estimates may change significantly from period to period, the Company does not recognize this revenue until it has concluded that, based on all the facts and information available, it is probable that a significant revenue reversal will not occur in future periods.