Eastern Bankshares, Inc. Reports Fourth Quarter 2021 Financial Results

Company Announces a 25% Increase to 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 fourth quarter financial results and the declaration of a quarterly cash dividend. Net income for the fourth quarter of 2021 was $35.1 million, or $0.20 per diluted share, compared to net income of $37.1 million, or $0.22 per diluted share, reported for the third quarter of 2021. Operating net income* for the fourth quarter of 2021 was $44.9 million, or $0.26 per diluted share, compared to $37.4 million, or $0.22 per diluted share, reported for the prior quarter.

“Eastern finished 2021 with record financial results, capping off another milestone year for the Company,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “At Eastern, 2021 will be most remembered for the acquisition of Century Bancorp, by far our largest acquisition to date, which added approximately $7 billion in assets and 12 net new branch locations, and brought us approximately 56,000 new customers and 250 new colleagues. The successful integration of our two companies represented yet another landmark achievement amidst the ongoing COVID-19 pandemic, and we are tremendously grateful and thankful to all of our employees for their commitment to our customers, colleagues and communities we serve. As we look forward to 2022 and beyond, we expect the continued growth and success of our Company will open up new ways to deliver our offerings and services to our customers, expand our role as an employer of choice, and contribute positively to our local community, while delivering greater value to our shareholders.”

The Company also announced the declaration of a quarterly cash dividend of $0.10 per share, representing a $0.02, or 25%, increase from past quarterly dividends.

Rivers continued, “Our Board’s approval of a 25% increase to the quarterly dividend reflects our increased earnings capacity with the integration of Century. We remain committed to and confident in our ability to continue to drive earnings growth and effectively deploy capital while creating shareholder value.”

HIGHLIGHTS FOR THE FOURTH QUARTER OF 2021

• On November 12, 2021, the Company completed the merger with Century Bancorp, Inc. (“Century”), adding approximately $7 billion of total assets, $3 billion of total loans and $6 billion of total deposits. A full system conversion was successfully completed prior to the open of business on November 15, 2021.
• Organic loan growth, excluding Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, was $133.6 million, or 6% on an annualized basis. Organic commercial loan growth, excluding PPP loans, was $115.4 million, or 7% on an annualized basis.
• An improving economic outlook coupled with strong asset quality led to a $4.3 million release of allowance for loan losses.
• The Company recorded a tax benefit of $2.9 million in the fourth quarter, compared to expense of $11.3 million in the prior quarter, a decrease of $14.2 million primarily attributable to an $11.3 million release of the deferred tax valuation allowance recorded in connection with the Company’s fourth quarter 2020 donation of stock to the Eastern Bank Foundation (“EBF,” formerly known as the Eastern Bank Charitable Foundation) in connection with the Company’s initial public offering.
• The Company repurchased 1,135,878 shares of its common stock during the fourth quarter of 2021 at a weighted average price of $20.42 excluding commissions, representing a total market value of $23.2 million.

MERGER WITH CENTURY BANCORP, INC.

On November 12, 2021, the Company completed the merger with Century for $642 million in cash consideration. The merger extends Eastern’s presence in the Greater Boston and southern New Hampshire markets with the addition of approximately $7 billion of total assets, $3 billion of total loans and $6 billion in deposits, each at fair value. Please see Appendix G for more information on organic loan growth and the impact of the Century merger. Fourth quarter results for 2021 reflect inclusion of Century since November 12, 2021.

BALANCE SHEET

Total assets were $23.5 billion at December 31, 2021, representing an increase of $6.1 billion, or 35%, from September 30, 2021.

• Available for sale securities increased $2.8 billion, or 50%, on a consecutive quarter basis, to $8.5 billion, primarily due to the merger with Century. Cash and equivalents declined $20.0 million to $1.2 billion.
• Total loans were $12.3 billion, representing an increase of $2.8 billion, or 29% from the prior quarter. The growth was due to the addition of the Century loan portfolio, which totaled $2.9 billion at the time of merger and organic loan growth excluding PPP loans of $133.6 million, partially offset by a reduction in PPP loans of $276.3 million from the prior quarter.
• Deposits totaled $19.6 billion, representing an increase of $6.0 billion, or 44%, from the prior quarter. The Century merger added $6.1 billion in total deposits which was partially offset by declines of $121.5 million due to post-acquisition deposit attrition in higher rate categories and a seasonal decline in municipal deposit balances.
• Shareholders’ equity was $3.4 billion, representing a decrease of $22.9 million from the prior quarter. The increase in retained earnings of $21.4 million was more than offset by a decrease in accumulated other comprehensive income of $23.6 million, driven by a decrease in the market value of the available for sale investment portfolio as well as a decrease in additional paid-in capital of $21.9 million associated primarily with the Company’s share repurchase activity during the quarter. Tangible shareholders’ equity* declined $292.9 million primarily due to an increase in goodwill and other intangibles of $269.9 million resulting primarily from the Century merger. Please refer to Appendix I for a roll forward of tangible shareholders’ equity*.
• At December 31, 2021, book value per share was $18.28 and tangible book value per share* was $14.80.

NET INTEREST INCOME

Net interest income was $122.4 million for the fourth quarter, compared to $102.7 million in the prior quarter, representing an increase of $19.7 million on a consecutive quarter basis due primarily to increased average earning assets as a result of the Century merger, as well as higher PPP fee accretion.

• Included in net interest income was $10.8 million and $5.9 million of PPP fee accretion net of deferred cost amortization in the fourth quarter and prior quarter, respectively. During the fourth quarter, $276.3 million in PPP loans were forgiven by the SBA or otherwise paid down compared to $291.8 million in the prior quarter.
• The net interest margin on a fully tax equivalent (“FTE”) basis* was 2.54% for the fourth quarter, representing a one basis point increase from the prior quarter. The net interest margin benefited from higher PPP fee accretion compared to the prior quarter. The margin on a core basis continued 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 $49.0 million for the fourth quarter, compared to $43.2 million for the prior quarter, representing an increase of $5.8 million. Noninterest income on an operating basis* was $44.5 million for the fourth quarter, compared to $43.0 million for the prior quarter, an increase of $1.5 million.

• Insurance commissions decreased $1.0 million to $20.9 million in the fourth quarter, compared to $22.0 million in the prior quarter.
• Service charges on deposit accounts increased $1.3 million to $7.3 million in the fourth quarter, primarily due to higher account analysis fees.
• Trust and investment advisory fees increased $0.2 million on a consecutive quarter basis to $6.5 million.
• Loan-level interest rate swap income was $0.5 million in the fourth quarter, compared to $0.9 million in the prior quarter, representing a decrease of $0.4 million that was driven primarily by a decrease in the fair value of such interest rate swap transactions.
• Income from investments held in rabbi trust accounts were $4.4 million in the fourth quarter compared to losses of $0.3 million in the prior quarter, representing an increase of $4.7 million primarily due to stronger investment performance in the period as compared to the prior quarter.
• Other noninterest income increased $0.9 million in the fourth quarter, due primarily to an $0.8 million increase in gains on bank owned life insurance policies.

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

NONINTEREST EXPENSE

Noninterest expense was $143.6 million for the fourth quarter, compared to $99.0 million in the prior quarter, representing an increase of $44.6 million. The increase was primarily driven by Century-related merger and acquisition costs of $30.7 million. Noninterest expense on an operating basis* for the fourth quarter of 2021 was $110.3 million, compared to $97.2 million in the prior quarter, an increase of $13.1 million, primarily because of the Century merger.

• Salaries and employee benefits expense was $96.4 million in the fourth quarter, representing an increase of $30.1 million from the prior quarter. The increase in salaries was due primarily to expenses associated with the Century merger including severance payments, retention bonuses and the addition of colleagues. The increase in benefits expense was attributable to the increased market value of investments held in rabbi trust accounts by the Company’s defined contribution supplemental executive retirement plan (“DC SERP”) as well as a $1.0 million increase in payroll tax expense.
• Office occupancy and equipment expense was $16.2 million in the fourth quarter, an increase of $8.2 million from the prior quarter, primarily due to expenses of $7.1 million associated with the Century merger.
• Professional services expense was $9.9 million in the fourth quarter, an increase of $5.8 million from the prior quarter, primarily due to expenses of $5.7 million associated with the Century merger.

Please refer to Appendix B for a reconciliation of operating revenues and expenses* and Appendix H for a detailed listing of Century-related merger expenses.

ASSET QUALITY

The allowance for loan losses was $97.8 million at December 31, 2021, or 0.80% of total loans, compared to $103.4 million or 1.09% of total loans at September 30, 2021. The decline in the reserve ratio was primarily due to the increase in total loans resulting from the Century merger. Century loans were recorded at fair value at the time of acquisition and therefore no reserve was required. The Company released loan loss reserves totaling $4.3 million in the fourth quarter, compared to a release of $1.5 million in the prior quarter. The Company followed the incurred loss allowance GAAP accounting model at December 31, 2021 and for all preceding periods. The Company has adopted the current expected credit losses methodology, known as CECL, as of January 1, 2022.

Non-performing loans totaled $35.0 million at December 31, 2021 compared to $42.1 million at the end of the prior quarter. During the fourth quarter of 2021, the Company recorded total net charge-offs of $1.3 million, or 0.05% of average total loans on an annualized basis compared to $0.8 million and 0.03% in the prior quarter, respectively.

At December 31, 2021, approximately $106.7 million in COVID-19 modified loans remained under modified payment terms, down from $110.6 million at September 30, 2021. The commercial real estate portfolio contained $93.5 million of the remaining COVID-19 modifications at period end, of which $71.0 million or 76% were in the hotel segment.

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

DIVIDENDS AND SHARE REPURCHASES

The Company’s Board of Directors has declared a quarterly cash dividend of $0.10 per common share. The dividend represents a $0.02, or 25%, increase from the dividend declared in the past three quarters, and will be payable on March 15, 2022, to shareholders of record as of the close of business on March 3, 2022.

The Company repurchased 1,135,878 shares of its common stock during the fourth quarter of 2021 at a weighted average price of $20.42 excluding commissions representing a total market value of $23.2 million. At December 31, 2021, there were 8,202,022 shares available for repurchase under the Company’s current repurchase program, 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 fourth quarter 2021 earnings will be held on Friday, January 28, 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 7188051. 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 December 31, 2021, Eastern Bank had approximately $24 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 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 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 December 31, 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 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; that the Company is unable to successfully implement integration strategies; 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 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 our 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."