EBC - Eastern Bankshares Inc. Reports First Quarter 2022 Financial Results

Company Declares Quarterly Cash Dividend

Eastern Bankshares, Inc. (the “Company,” or together with its affiliates and subsidiaries, “Eastern”) (NASDAQ Global Select Market: EBC), the stock holding company of Eastern Bank, today announced its 2022 first quarter financial results and the declaration of a quarterly cash dividend. Net income for the first quarter of 2022 was $51.5 million, or $0.30 per diluted share, compared to net income of $35.1 million, or $0.20 per diluted share, reported for the fourth quarter of 2021. Operating net income* for the first quarter of 2022 was $55.1 million, or $0.32 per diluted share, compared to $44.9 million, or $0.26 per diluted share, reported for the prior quarter.

“Our first quarter results were strong as we began to realize the benefits of the investments we’ve made to grow our business and solidify our position as the leading community bank in Greater Boston,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “We remain focused on delivering on our strategic priorities, which include developing new ways to deliver our offerings and services to customers, expanding our role as an employer of choice, and contributing positively to our local community while delivering greater value to our shareholders. Our operating earnings in the first quarter were 23% higher than the same period a year ago, and we believe we are well positioned to benefit from higher interest rates in the quarters ahead.”

HIGHLIGHTS FOR THE FIRST QUARTER OF 2022

• Operating net income* of $55.1 million for the first quarter of 2022 is 23% higher than the prior quarter and 18% higher than the prior year quarter.
• Loan growth excluding Paycheck Protection Program (“PPP”) loans was 3.1% on an annualized basis. Commercial loan growth excluding PPP loans was 4.4% on an annualized basis.
• The Company adopted Accounting Standards Update (“ASU”) 2016-13 (defined below) which included the current expected credit losses methodology ("CECL") as of January 1, 2022 and recorded a net decrease to retained earnings of $20.1 million in connection with such adoption. The Company recorded a $0.5 million release of allowance for loan losses for the first quarter.
• The Company repurchased 2,866,621 shares of its common stock during the first quarter of 2022 at a weighted average price of $21.12 excluding commissions, for an aggregate purchase price of $60.5 million.
• Subsequent to quarter end, on April 1, 2022, the Company completed the previously announced transfer of its cannabis banking and money service business to Needham Bank, marking the last Century Bancorp, Inc. (“Century”) integration milestone.

BALANCE SHEET

Total assets were $22.8 billion at March 31, 2022, representing a decrease of $676.1 million, or 3%, from December 31, 2021.

• Total securities decreased $198.5 million, or 2%, from the prior quarter, to $8.3 billion, due to a decline in the market value of available for sale securities, investment sales and paydowns partially offset by reinvestment. Cash and equivalents declined $401.3 million from the prior quarter to $830.5 million.
• Total loans were $12.2 billion, representing a decrease of $99.3 million, or 1%, from the prior quarter. The decrease was driven by PPP loan paydowns of $190.2 million, partially offset by loan growth excluding PPP loans of $90.9 million, or 3.1% on an annualized basis.
• Deposits totaled $19.4 billion, representing a decrease of $235.5 million, or 1%, from the prior quarter.
• Shareholders’ equity was $3.0 billion, representing a decrease of $398.0 million from the prior quarter. The decrease was driven primarily by a decline in the market value of the available for sale investment portfolio which drove a decrease in accumulated other comprehensive income of $356.0 million. Additional paid-in capital decreased $57.6 million in the first quarter associated primarily with the Company’s share repurchase activity. Retained earnings increased $14.3 million as net income was partially offset by a $20.1 million reduction related to the adoption of CECL and quarterly dividends. Please refer to the Asset Quality section of this press release for additional information on CECL and Appendix E to this press release for a roll forward of tangible shareholders’ equity*.
• At March 31, 2022, book value per share was $16.40 and tangible book value per share* was $12.83.

NET INTEREST INCOME

Net interest income was $128.1 million for the first quarter, compared to $122.4 million in the prior quarter, representing an increase of $5.7 million from the prior quarter.

• The increase in net interest income on a consecutive quarter basis was primarily due to an increase in average earning assets of $2.4 billion, a result of the full quarter impact of the Century merger. This was partially offset by a decline in the net interest margin.
• Included in net interest income was $5.8 million and $10.8 million of PPP fee accretion net of deferred cost amortization in the first quarter and prior quarter, respectively. During the first quarter of 2022, $190.2 million in PPP loans were forgiven by the U.S. Small Business Administration or otherwise paid down compared to $276.3 million in the prior quarter.
• The net interest margin on a fully tax equivalent (“FTE”) basis* was 2.42% for the first quarter, representing a 12 basis point decrease from the prior quarter. The prior quarter’s net interest margin benefited from higher PPP fee accretion compared to the first quarter.

NONINTEREST INCOME

Noninterest income was $46.4 million for the first quarter, compared to $49.0 million for the prior quarter, representing a decrease of $2.6 million. Noninterest income on an operating basis* was $53.3 million for the first quarter, compared to $44.5 million for the prior quarter, an increase of $8.8 million.

• Insurance commissions increased $7.8 million to $28.7 million in the first quarter, compared to $20.9 million in the prior quarter, driven by seasonality. Compared to the prior year quarter, insurance commissions increased $0.6 million, or 2%.
• Service charges on deposit accounts increased $1.3 million to $8.5 million in the first quarter, primarily due to higher account analysis fees.
• Trust and investment advisory fees decreased $0.4 million on a consecutive quarter basis to $6.1 million.
• Loan-level interest rate swap income was $2.9 million in the first quarter, compared to $0.5 million in the prior quarter, representing an increase of $2.4 million. The increase was driven by a $2.0 million increase in the fair value of such interest rate swap transactions and a $0.4 million increase in cash income due to higher swap transaction volume.
• Losses from investments held in rabbi trust accounts were $4.4 million in the first quarter compared to gains of $4.4 million in the prior quarter, representing a decrease of $8.9 million due to weaker investment performance in the period as compared to the prior quarter.
• Realized losses on available for sale securities totaled $2.2 million in the first quarter compared to no gain or loss in the prior quarter.
• Other noninterest income decreased $2.0 million in the first quarter, due primarily to decreased income on bank owned life insurance policies.

Please refer to Appendix B to this press release for a reconciliation of operating revenues and expenses*.

NONINTEREST EXPENSE

Noninterest expense was $108.9 million for the first quarter, compared to $143.6 million in the prior quarter, representing a decrease of $34.7 million. The decrease was primarily driven by a reduction in merger and acquisition costs of $30.7 million related to the merger with Century. Noninterest expense on an operating basis* for the first quarter was $110.9 million, compared to $110.3 million in the prior quarter, an increase of $0.6 million.

• Salaries and employee benefits expense was $69.5 million in the first quarter, representing a decrease of $26.8 million from the prior quarter, primarily due to a reduction in costs incurred in the prior quarter related to the Century merger as well as a decrease in benefits expense attributable to the lower market value of investments held in rabbi trust accounts associated with the Company’s defined contribution supplemental executive retirement plan.
• Office occupancy and equipment expense was $11.6 million in the first quarter, a decrease of $4.6 million from the prior quarter, primarily due to a reduction in expenses associated with the Century merger.
• Professional services expense was $4.7 million in the first quarter, a decrease of $5.2 million from the prior quarter, primarily due to a reduction in expenses associated with the Century merger.

Please refer to Appendix B to this press release for a reconciliation of operating revenues and expenses*.

ASSET QUALITY

The Company adopted ASU 2016-13, Financial Instruments-Credit Losses on Financial Instruments and relevant amendments (Topic 326) (“ASU 2016-13”) on January 1, 2022, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit losses methodology or CECL. Upon the January 1, 2022 adoption of CECL, the allowance for loan losses increased $27.1 million, and the reserve for unfunded commitments increased $1.0 million for a combined increase of $28.1 million for the allowance for credit losses. There was no material impact to other in-scope assets. The after-tax decrease to retained earnings of $20.1 million, or $0.11 per share, was recognized as a reduction to retained earnings and represented the cumulative effective adjustment from a change in accounting policies.

The allowance for loan losses was $124.2 million at March 31, 2022, or 1.02% of total loans, compared to $97.8 million or 0.80% of total loans at December 31, 2021. The increase in the reserve ratio was primarily due to the additional reserves required under CECL for loans acquired from Century which were recorded at fair value at the time of acquisition. Under CECL, the credit mark that is part of the day one fair value adjustment on acquired loans cannot be considered in the allowance computation, whereas, under the incurred loss model, the credit mark could be considered. The Company released loan loss reserves totaling $0.5 million in the first quarter, compared to a release of $4.3 million in the prior quarter.

Non-performing loans totaled $33.8 million at March 31, 2022 compared to $35.0 million at the end of the prior quarter. During the first quarter of 2022, the Company recorded total net charge-offs of $0.2 million, or 0.01% of average total loans on an annualized basis, compared to $1.3 million and 0.05% in the prior quarter, respectively.

At March 31, 2022, approximately $49.0 million in COVID-19 modified loans remained under modified payment terms, down from $106.7 million at December 31, 2021. The commercial real estate portfolio contained $39.4 million of the remaining COVID-19 modifications at period end, all of which were in the hotel segment.

DIVIDENDS AND SHARE REPURCHASES

The Company’s Board of Directors has declared a quarterly cash dividend of $0.10 per common share. The dividend will be payable on June 15, 2022, to shareholders of record as of the close of business on June 3, 2022.

The Company repurchased 2,866,621 shares of its common stock during the first quarter of 2022 at a weighted average price of $21.12 excluding commissions, for an aggregate purchase price of $60.5 million. Through March 31, 2022, the Company had repurchased 4,002,499 shares of its common stock in total under the Company’s current repurchase authorization at a weighted average price of $20.92 excluding commissions, for an aggregate purchase price of $83.7 million. At March 31, 2022, there were 5,335,401 shares available for repurchase and $141.3 million in total market value remaining under the Company’s current repurchase authorization, which expires on November 30, 2022 and is limited to $225.0 million in total market value.

CONFERENCE CALL INFORMATION

A conference call and webcast covering Eastern’s first quarter 2022 earnings will be held on Friday, April 29, 2022 at 9:00 a.m. Eastern Time. To join by telephone, participants can call the toll-free dial-in number (833) 233-4460 from within the U.S. or (647) 689-4543 if outside the U.S. and reference conference ID 5295184. The conference call will be simultaneously webcast. Participants may join the webcast on the Company’s Investor Relations website at investor.easternbank.com. A replay of the webcast will be made available on demand on this site.

ABOUT EASTERN BANKSHARES, INC.

Eastern Bankshares, Inc. is the stock holding company for Eastern Bank. Founded in 1818, Boston-based Eastern Bank has more than 120 locations serving communities in eastern Massachusetts, southern and coastal New Hampshire, and Rhode Island. As of March 31, 2022, Eastern Bank had approximately $23 billion in total assets. Eastern provides banking, investment and insurance products and services for consumers and businesses of all sizes, including through its Eastern Wealth Management division and its Eastern Insurance Group LLC subsidiary. Eastern takes pride in its outspoken advocacy and community support that includes $240 million in charitable giving since 1994. An inclusive company, Eastern employs approximately 2,100 deeply committed professionals who value relationships with their customers, colleagues, and communities. For investor information, visit investor.easternbank.com.

NON-GAAP FINANCIAL MEASURES

*Denotes a non-GAAP financial measure used in this press release.

A non-GAAP financial measure is defined as a numerical measure of the Company’s historical or future financial performance, financial position or cash flows that excludes (or includes) amounts, or is subject to adjustments that have the effect of excluding (or including) amounts that are included in the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”) in the Company’s statement of income, balance sheet or statement of cash flows (or equivalent statements).

The Company presents non-GAAP financial measures, which management uses to evaluate the Company’s performance, and which exclude the effects of certain transactions that management believes are unrelated to its core business and are therefore not necessarily indicative of its current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into the Company’s 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.

There are items in the Company’s financial statements that impact its financial results, but which management believes are unrelated to the Company’s core business. Accordingly, the Company presents noninterest income on an operating basis, total operating revenue, noninterest expense on an operating basis, operating net income, operating earnings per share, operating return on average assets, operating return on average shareholders’ equity, the operating efficiency ratio, and the ratio of noninterest income to total revenue on an operating basis. Each of these figures excludes the impact of such applicable items because management believes such exclusion can provide greater visibility into the Company’s core business and underlying trends. Such items that management does not consider to be core to the Company’s 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) expenses indirectly associated with the Company’s initial public offering (“IPO”), (vii) other real estate owned (“OREO”) gains, (viii) merger and acquisition expenses, (ix) the stock donation to the Eastern Bank Foundation (“EBF”) in connection with the Company’s mutual-to-stock conversion and IPO, and (x) settlement of putative consumer class action litigation matters related to overdraft and non-sufficient funds fees, and associated settlement expenses. The Company does not provide an outlook for its total noninterest income and total noninterest expense because each contains income or expense components, as applicable, such as income associated with rabbi trust accounts and rabbi trust employee benefit expense, which are market-driven, and over which the Company cannot exercise control. Accordingly, reconciliations of the Company’s outlook for its noninterest income on an operating basis and its noninterest expense on an operating basis to an outlook for total noninterest income and total noninterest expense, respectively, cannot be made available without unreasonable effort.

Management presents certain asset quality metrics excluding PPP loans which it does not consider to be part of the Company’s core portfolio. These metrics include the ratio of total nonperforming loans to total loans excluding PPP loans, the ratio of the allowance for loan losses to total loans excluding PPP loans, and the ratio of annualized net charge-offs to average total loans excluding PPP loans. The Company anticipates that the vast majority of its PPP loans outstanding at March 31, 2022 will be forgiven, and to the extent not forgiven, a PPP loan is intended to be 100% guaranteed by the SBA.

Management also presents tangible assets, tangible shareholders’ equity, tangible book value per share, and the ratio of tangible shareholders’ equity to tangible assets, each of which excludes the impact of goodwill and other intangible assets, as management believes these financial measures provide investors with the ability to further assess the Company’s performance, identify trends in its core business and provide a comparison of its capital adequacy to other companies. The Company included the tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends.

These non-GAAP financial measures presented in this press release should not be considered an alternative or substitute for financial results or measures determined in accordance with GAAP or as an indication of the Company’s cash flows from operating activities, a measure of its liquidity position or an indication of funds available for its cash needs. An item which management considers to be non-core and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. In addition, management’s methodology for calculating non-GAAP financial measures may differ from the methodologies employed by other banking companies to calculate the same or similar performance measures, and accordingly, the Company’s reported non-GAAP financial measures may not be comparable to the same or similar performance measures reported by other banking companies. Please refer to Appendices A-E for reconciliations of the Company's GAAP financial measures to the non-GAAP financial measures in this press release.

FORWARD-LOOKING STATEMENTS

This press release contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding anticipated future events and can be identified by the fact that they do not relate strictly to historical or current facts. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. Forward-looking statements, by their nature, are subject to risks and uncertainties. There are many factors that could cause actual results to differ materially from expected results described in the forward-looking statements.

Certain factors that could cause actual results to differ materially from expected results include developments in the Company’s market relating to the COVID-19 pandemic, including the severity and duration of the associated economic slowdown; adverse developments in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses; increased competitive pressures; changes in the interest rate environment; risks that revenue or expense synergies or the other expected benefits of the Company’s merger with Century (“Transaction”) may not fully materialize for the Company in the timeframe expected or at all, or may be more costly to achieve; risks that the Company is unable to successfully implement integration strategies for the transaction; reputational risks and the reaction of customers to the Transaction; and diversion of management time on Transaction-related issues; as well as general economic conditions or conditions within the securities markets; and legislative and regulatory changes and related compliance costs that could adversely affect the business in which the Company and its subsidiary Eastern Bank are engaged, including inflation, interest rates, interest rate sensitivity and liquidity, including the effect of, and changes in, monetary and fiscal policies and laws, such as the interest rate policies of the Board of Governors of the Federal Reserve System; market and monetary fluctuations, including fluctuations due to actual or anticipated changes to federal tax laws; credit quality, including adverse developments in local or regional real estate markets that decrease collateral values associated with existing loans; and the failure of the Company to execute all of its planned share repurchases. For further discussion of such factors, please see the Company’s most recent Annual Report on Form 10-K and subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”), which are available on the SEC’s website at www.sec.gov .

Further, given the ongoing and dynamic nature of the COVID-19 pandemic, it is difficult to predict what continued effects the COVID-19 pandemic will have on the Company's business and results of operations. The COVID-19 pandemic and the related local and national economic disruption may result in a continued decline in demand for the Company's products and services; increased levels of loan delinquencies, problem assets and foreclosures; an increase in the Company's allowance for loan losses; a decline in the value of loan collateral, including real estate; reduced demand for office space in the Company’s markets due to remote and/or hybrid work arrangements; a greater decline in the yield on the Company's interest-earning assets than the decline in the cost of the Company's interest-bearing liabilities; and increased cybersecurity risks, as employees continue to work remotely. You should not place undue reliance on forward-looking statements, which reflect the Company's expectations only as of the date of this press release. The Company does not undertake any obligation to update forward-looking statements.

EASTERN BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL HIGHLIGHTS

Certain information in this press release is presented as reviewed by the Company’s management and includes information derived from the Company’s Consolidated Statements of Income, non-GAAP financial measures, and operational and performance metrics. For information on non-GAAP financial measures, please see the section titled "Non-GAAP Financial Measures."