EBC - Eastern Bankshares Inc. Reports Second Quarter 2021 Financial Results and Declares Quarterly 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 2021 second quarter financial results and the declaration of a quarterly cash dividend of $0.08 per share. Net income for the second quarter of 2021 was $34.8 million, or $0.20 per share, compared to net income of $47.7 million, or $0.28 per share, reported for the first quarter of 2021.

Financial results for the second quarter of 2021 include $3.5 million in merger and acquisition expenses, primarily related to the pending merger with Century Bancorp, Inc. (“Century”) announced on April 7, 2021 and $3.3 million in expenses related to the anticipated settlement of overdraft litigation. Excluding these, and certain other non-operating expenses, operating net income* for the second quarter of 2021 was $37.1 million, or $0.22 per share, compared to $46.5 million, or $0.27 per share, reported for the prior quarter.

“Our second quarter financial results continue to demonstrate our organic growth, strong fee income generation, sound asset quality, and focus on our long-term profitability,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “COVID-19 vaccination rates in our core markets are among the highest in the country, and we’re seeing significant progress in our local economy as businesses were able to reopen their doors and look to the future. Excluding PPP loans, we saw loan growth of $117 million this quarter, or growth of over 5% on an annualized basis, which provides further evidence of confidence and business expansion. We are optimistic about our continued growth as our colleagues work diligently on the integration of Century. We’re pleased that Century shareholders approved the transaction earlier this month and are working towards a smooth integration later this year.”

HIGHLIGHTS FOR THE SECOND QUARTER OF 2021

• Total loans excluding Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans grew $116.9 million, or 5% on an annualized basis from the prior quarter. Residential and commercial loans excluding PPP loans grew 15% and 5%, respectively, on an annualized basis from the prior quarter.
• Net interest income increased $4.5 million from the prior quarter due to growth in the Company’s securities portfolio and higher loan income, primarily attributable to higher PPP fee recognition.
• An improving economic outlook coupled with strong asset quality led to a $3.3 million release of loan loss reserves. Nonperforming loans were $41.6 million, or 0.43% of total loans at the end of the second quarter.
• The second quarter saw solid fee generation with insurance, wealth management and debit card revenues up 4%, 17% and 36%, respectively, from the prior year quarter.

BALANCE SHEET

Total assets were $17.0 billion at June 30, 2021, representing an increase of $320.7 million, or 2%, from March 31, 2021.

• Available for sale securities increased $862.5 million, or 22%, on a consecutive quarter basis, to $4.8 billion, as excess liquidity was deployed into U.S. Agency securities. Cash and equivalents declined $296.1 million to $1.6 billion.
• Total loans were $9.6 billion, representing a decrease of $295.4 million, or 3%, from the prior quarter as the pace of forgiveness of PPP loans accelerated in the second quarter. Excluding PPP loans, total loans grew $116.9 million, or 1%, from the prior quarter, driven by growth in commercial loans excluding PPP loans of $80.7 million and residential loans of $51.0 million.
• Deposits totaled $13.3 billion, representing an increase of $269.6 million, or 2%, from March 31, 2021.
• Shareholders’ equity was $3.4 billion, representing an increase of $43.6 million, or 1%, from the prior quarter. The increase is driven by higher retained earnings of $21.0 million as well as an increase in the after-tax market value of the available for sale investment portfolio, which drove the increase in accumulated other comprehensive income of $19.9 million.
• At June 30, 2021, book value per share was $18.37 and tangible book value per share* was $16.33.

NET INTEREST INCOME

Net interest income was $104.6 million for the second quarter, compared to $100.1 million in the prior quarter, representing an increase of $4.5 million on a consecutive quarter basis.

• Included in net interest income was $9.3 million and $8.3 million of SBA PPP fee accretion net of deferred cost amortization in the second quarter and prior quarter, respectively. Between March 31, 2021 and June 30, 2021, $502.9 million in PPP loans were forgiven through the SBA or otherwise paid down compared to $240.7 million in the prior quarter. In the second quarter, PPP loan forgiveness was concentrated in higher balance loans where the Company received a lower percentage loan processing fee from the SBA relative to the prior quarter. Loans forgiven in the second quarter had lower unaccreted fee income at the time of forgiveness relative to the first quarter.
• Interest income on available for sale securities increased $2.3 million to $14.3 million in the second quarter as excess cash continues to be deployed into securities. Investment securities averaged $4.3 billion for the second quarter compared to $3.6 billion for the prior quarter, an increase of $713.2 million.
• The net interest margin on a fully tax equivalent (“FTE”) basis* was 2.69% for the second quarter, representing a 2 basis points decrease from the prior quarter. The net interest margin continues to be pressured by the low interest rate environment and excess liquidity. The core net interest margin* in Appendix E demonstrates the impact of excess cash and the PPP program.

NONINTEREST INCOME

Noninterest income was $45.7 million for the second quarter, compared to $55.2 million for the prior quarter, representing a decrease of $9.5 million. The decline was primarily driven by lower insurance revenues from the seasonally high prior quarter and lower loan-level interest rate swap revenue due to lower market interest rates.

• Insurance commissions decreased $4.5 million to $23.7 million in the second quarter, compared to $28.1 million in the prior quarter, driven by seasonality. Compared to the prior year quarter, insurance commissions increased $1.0 million, or 4%.
• Trust and investment advisory fees increased $0.4 million on a consecutive quarter basis to $6.1 million primarily due to higher equity values.
• Loan-level interest rate swap losses were $1.2 million in the second quarter, compared to $5.4 million in revenue in the prior quarter, representing a decrease of $6.6 million that was primarily driven by a $6.4 million decrease in the fair value of such interest rate swap transactions due to lower market interest rates.
• Income on securities held in rabbi trust accounts was $4.2 million in the second quarter compared to $1.8 million in the prior quarter, representing an increase of $2.4 million primarily due to higher equity market gains in the second quarter of 2021 as compared to the prior quarter.
• Mortgage origination activity was lower in the second quarter as compared to the prior quarter with the gain on sale of loans held for sale totaling $0.8 million, down $0.6 million from the prior quarter.

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

NONINTEREST EXPENSE

Noninterest expense was $107.3 million for the second quarter representing an increase of $13.3 million, or 14%, from $94.0 million the prior quarter. The increase was primarily driven by higher salaries and employee benefits expense, expenses related to the pending merger with Century, and expenses related to the anticipated settlement of overdraft fee and nonsufficient funds fee lawsuits. Noninterest expense on an operating basis* for the second quarter of 2021 was $99.9 million, compared to $92.5 million in the prior quarter.

• Salaries and employee benefits expense was $69.3 million in the second quarter, representing an increase of $5.2 million from the prior quarter. The increase was primarily driven by higher incentive compensation expense of $3.4 million and an increase in the defined contribution supplemental executive retirement plan (“DC SERP”) expense of $1.1 million associated with the increase in the market value of investments held in rabbi trust accounts.
• Data processing expense was $13.6 million in the second quarter, an increase of $1.4 million from the prior quarter. Professional services expense was $6.4 million, an increase of $2.3 million from the prior quarter. These increases can be primarily attributed to costs associated with the pending acquisition of Century.
• Marketing expenses were $3.5 million in the second quarter, representing an increase of $1.8 million from the prior quarter.
• Other noninterest expense increased $2.5 million in the second quarter to $3.0 million. In the second quarter, the Company recorded expenses of $3.3 million related to the anticipated settlement of overdraft fee and nonsufficient fund fee suits brought against the Company that were the subject of mediation during the quarter. Partially offsetting this increased expense in the second quarter was the reversal of an impairment charge on tax credit investments of $1.4 million.

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

ASSET QUALITY

The allowance for loan losses was $105.6 million at June 30, 2021, or 1.10% of total loans, compared to $111.1 million or 1.12% of total loans at March 31, 2021. The Company released loan loss reserves totaling $3.3 million in the second quarter, compared to a release of $0.6 million in the prior quarter. The Company followed the incurred loss allowance GAAP accounting model at June 30, 2021 and all preceding periods.

Non-performing loans totaled $41.6 million at June 30, 2021 compared to $44.0 million at the end of the prior quarter. During the second quarter of 2021, the Company recorded total net charge-offs of $2.1 million, or 0.09% of average total loans on an annualized basis compared to $1.4 million and 0.06% in the prior quarter, respectively.

At June 30, 2021, approximately $149.8 million in COVID-19 modified loans remained under modified payment terms, down from $178.4 million at March 31, 2021. The commercial real estate portfolio contained $113.3 million of the remaining COVID-19 modifications at period end, of which $89.3 million or 79% were in the hotel segment.

Please refer to Appendix F for a detailed breakout on COVID-19 related loan modifications.

CONFERENCE CALL INFORMATION

A conference call and webcast covering Eastern’s second quarter 2021 earnings will be held on Friday, July 30, 2021 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 7899073. 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.

Following the webcast, Eastern will post its general investor presentation incorporating the second quarter results on its website at investor.easternbank.com under the “Events & Presentations” section.

DIVIDEND DECLARED

The Company’s Board of Directors declared a quarterly cash dividend of $0.08 per common share, payable on September 15, 2021, to shareholders of record as of the close of business on September 3, 2021.

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 110 locations serving communities in eastern Massachusetts, southern and coastal New Hampshire, and Rhode Island. As of June 30, 2021, Eastern Bank had approximately $17 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 1,900 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”, formerly known as the Eastern Bank Charitable Foundation) 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 expense because it contains expense components, such as expense associated with rabbi trust accounts, which is market-driven, over which the Company cannot exercise control. Accordingly, a reconciliation of the Company’s outlook for its noninterest expense on an operating basis to an outlook for total noninterest expense cannot be made available without unreasonable effort.

Management also presents the Company’s core net interest margin which excludes the impact of items management determines as being one-time in nature or not indicative of its core operating results. Such items include the impact of excess liquidity in the form of excess cash volume, PPP loans originated in response to the COVID-19 pandemic, and material purchase accounting adjustments. Similarly, management presents certain asset quality metrics excluding PPP loans which it does not consider to be part of the Company’s core portfolios. 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 June 30, 2021 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 associated with its proposed merger with Century, including the possibility that revenue or expense synergies or the other expected benefits of the transaction may not materialize for the Company in the timeframe expected or at all, or may be more costly to achieve; that the transaction may not be timely completed, if at all; that prior to the completion of the transaction or thereafter, the Company’s or Century’s businesses may not perform as expected due to transaction-related uncertainty or other factors; that the Company is unable to successfully implement integration strategies; that required regulatory or other approvals are not obtained or other closing conditions are not satisfied in a timely manner or at all; that the timing of completion of the proposed merger is dependent on various factors that cannot be predicted with precision at this point; reputational risks and the reaction of the companies’ customers to the transaction; the inability to implement onboarding plans and other consequences associated with mergers; and diversion of management time on merger-related issues, as well as general economic conditions or conditions within the securities markets, and legislative and regulatory changes 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; and credit quality, including adverse developments in local or regional real estate markets that decrease collateral values associated with existing loans. 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; 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.