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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The information presented within this Note excludes discontinued operations with respect to the years ended December 31, 2023 and 2022. Refer to Note 23, “Discontinued Operations” for further discussion regarding discontinued operations.
The following table sets forth information regarding the Company’s tax provision and applicable tax rates for the periods indicated:
For the Year Ended December 31,
202420232022
(Dollars in thousands)
Combined federal and state income tax provisions$36,205 $(63,309)$51,719 
Effective income tax rates23.2 %50.2 %21.7 %
The Company recorded net income tax expense of $36.2 million for the year ended December 31, 2024 compared to a net income tax benefit of $63.3 million and net income tax expense of $51.7 million for the years ended December 31, 2023 and 2022, respectively. Tax expense for the year ended December 31, 2024 includes a $7.4 million lost state tax benefit for Massachusetts as the Company was in a tax loss position for 2024 and loss carryover is not allowed by the state. The income tax benefit for the year ended December 31, 2023 was primarily due to pretax losses which largely resulted from losses on sales of available for sale securities in the first quarter of 2023. In addition, during the first quarter of 2023, the Company liquidated Market Street Securities Corporation (“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.
The provision for income taxes is comprised of the following components:
For the Year Ended December 31,
202420232022
(In thousands)
Current tax expense (benefit):
Federal$2,088 $(39,710)$36,436 
State(1,942)(5,332)10,021 
Total current tax expense (benefit)146 (45,042)46,457 
Deferred tax expense (benefit):
Federal19,204 1,219 (1,028)
State16,855 (19,486)6,290 
Total deferred tax expense (benefit)36,059 (18,267)5,262 
Total income tax expense (benefit)$36,205 $(63,309)$51,719 
A reconciliation of the U.S. federal statutory rate to the Company’s effective income tax rate is detailed below:
For the Year Ended December 31,
202420232022
(Dollars in thousands)
Income tax expense (benefit) at statutory rate$32,711 21.00 %$(26,458)21.00 %$50,029 21.00 %
Increase (decrease) resulting from:
State income tax, net of federal tax benefit (1)11,781 7.56 %(19,606)15.56 %12,885 5.41 %
Valuation allowance2,781 1.79 %— — %(700)(0.29)%
Amortization of qualified low-income housing investments16,452 10.56 %9,577(7.60)%7,503 3.15 %
Tax credits(16,456)(10.56)%(9,183)7.29 %(7,300)(3.06)%
Tax-exempt income(14,911)(9.57)%(14,161)11.24 %(10,298)(4.32)%
162(m) remuneration of services2,423 1.56 %1,684(1.34)%1,446 0.61 %
Other, net1,424 0.91 %(5,162)4.10 %(1,846)(0.77)%
Actual income tax expense (benefit)$36,205 23.24 %$(63,309)50.25 %$51,719 21.71 %
(1)Includes state tax benefit associated with MSSC liquidation of $23.7 million for the year ended December 31, 2023 described above.
Significant components of the Company’s deferred tax assets and deferred tax liabilities are presented below:
As of December 31,
20242023
(In thousands)
Deferred tax assets:
Unrealized loss on available for sale securities$194,324 $193,134 
Allowance for loan losses69,531 45,189 
Cash flow hedges10,347 12,302 
Leases22,946 15,664 
Charitable contribution limitation carryover5,214 4,844 
Investment losses5,843 7,339 
Accrued expenses9,952 10,042 
Fixed assets659 4,142 
Loan basis difference fair value adjustments75,301 3,455 
Tax attribute and NOL carryover24,120 — 
Other1,195 2,061 
Total deferred tax assets before valuation allowance419,432 298,172 
Valuation allowance(2,781)— 
Total deferred tax assets net of valuation allowance416,651 298,172 
Deferred tax liabilities:
Amortization of intangibles44,736 9,660 
Lease obligation19,199 14,284 
Partnerships3,417 1,971 
Trading securities5,203 3,405 
Employee benefits11,102 824 
Other866 1,843 
Total deferred tax liabilities84,523 31,987 
Net deferred income tax assets$332,128 $266,185 

The Company assesses the realizability of deferred tax assets and whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The Company considers projections of future taxable income during the
periods in which deferred tax assets and liabilities are scheduled to reverse. Additionally, in determining the availability of operating loss carrybacks and other tax attributes, both projected future taxable income and tax planning strategies are considered in making this assessment. Tax losses from the sale of investments acquired in the merger, which occurred in the third quarter of 2024, resulted in lower projections of 2025 taxable income. As a result of those losses, as of December 31, 2024, the Company believes that a portion of the associated charitable contribution carryforward will expire on December 31, 2025 unutilized and therefore has recorded a valuation allowance for $2.8 million. As of December 31, 2024, management believes it is more likely than not that the Company will realize the remainder of its net deferred tax assets.
Management performed an evaluation of the Company’s uncertain tax positions as of December 31, 2024 and 2023 and determined that liabilities for unrecognized tax benefits of $1.8 million and $3.8 million, respectively, was needed related to state tax positions. The decrease was primarily due to a reversal of $1.9 million recognized during the year ended December 31, 2024.
The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for the periods indicated:
For the Years Ended December 31,
202420232022
(In thousands)
Beginning$3,503 $5,782 $7,923 
Additions based on tax positions related to the current year— — — 
Additions for tax positions of prior years— — — 
Reductions related to settlements with taxing authorities— — — 
Reductions as a result of a lapse of the applicable statute of limitations(1,939)(2,279)(2,141)
Ending$1,564 $3,503 $5,782 
As of December 31, 2024, the amount that would reduce the effective tax rate, if recognized, is $1.8 million. The reduction in the effective tax rate is inclusive of the federal benefit for unrecognized state tax benefits, and accrued interest and penalties. The entire balance of unrecognized tax benefits, if recognized, would favorably affect the Company’s effective income tax rate. The Company recognizes penalties and accrued interest related to unrecognized tax benefits in tax expense. Accrued penalties and interest amounted to $0.5 million and $1.0 million at December 31, 2024 and 2023, respectively. The change in accrued penalties and interest for the current year impacted the Consolidated Statements of Income as a component of income tax expense by $0.5 million. During the year ended December 31, 2024, $1.9 million of unrecognized state tax benefits and $0.7 million of interest and penalties reversed upon expiration of the statute of limitations for the tax year to which the reserve was related. Management anticipates that approximately $1.6 million of unrecognized state tax benefits and $0.6 million of interest and penalties will reverse in 2025 upon expiration of the statute of limitations for the tax year to which the reserve is related.
The Company had $23.8 million in net operating loss carryforwards for federal or state income tax purposes at December 31, 2024. The Company had no net operating loss carryforwards for federal or state income tax purposes at December 31, 2023.
At December 31, 2024, the Bank’s federal pre-1988 reserve, for which no federal income tax provision has been made, was approximately $20.8 million. Under current federal law, these reserves are subject to recapture into taxable income, should the Company make non-dividend distributions, make distributions in excess of earnings and profits retained, as defined, or cease to maintain a banking type charter. A deferred tax liability is not recognized for the base year amount unless it becomes apparent that those temporary differences will reverse into taxable income in the foreseeable future. No deferred tax liability has been established as these two events are not expected to occur in the foreseeable future.
The Company’s primary banking activities are in the states of Massachusetts, New Hampshire and Rhode Island; however, the Company also files additional state corporate income and/or franchise tax returns in states in which the Company has a filing requirement. The methods of filing, and the methods for calculating taxable and apportionable income, vary depending upon the laws of the taxing jurisdiction.
The Company is subject to routine audits of its tax returns by the Internal Revenue Service and various state taxing authorities. The Company is no longer subject to federal and state income tax examinations by tax authorities for years before 2021.
The Company invests in low-income affordable housing and renewable energy projects which provide the Company with tax benefits, including tax credits, generally over a period of approximately 5-15 years. When permissible, the
Company accounts for its investments in Low Income Housing Tax Credit (“LIHTC”) projects using the proportional amortization method, under which it amortizes the initial cost of the investment in proportion to the amount of the tax credits and other tax benefits received and recognizes that amortization as a component of income tax expense. The net investment performance in the housing projects is included in other assets in the Consolidated Balance Sheets. The Company will continue to use the proportional amortization method on any new qualifying LIHTC investments. During the years ended December 31, 2024 and 2023, the Company generated federal tax credits primarily from LIHTC investments of $16.5 million and $9.2 million, respectively. During the years ended December 31, 2024 and 2023, the Company generated flow-through state tax credits from LIHTC investments of $0.3 million and $0.4 million, respectively. During the year ended December 31, 2024, the Company generated $3.2 million in directly purchased Massachusetts state tax credits associated LIHTC investments. The Company treats the investment tax credits received as a reduction of federal income taxes for the year in which the credit arises using the flow-through method (i.e., the credit flows directly through the statement of income in the year of purchase). For additional information on these investments, refer to Note 12, “Low Income Housing Tax Credits and Other Tax Credit Investments.”