Eastern Bankshares, Inc. Reports Third 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 third quarter financial results and the declaration of a quarterly cash dividend. Net income for the third quarter of 2022 was $54.8 million, or $0.33 per diluted share, compared to net income of $51.2 million, or $0.31 per diluted share, reported for the second quarter of 2022. Operating net income* for the third quarter of 2022 was $55.7 million, or $0.34 per diluted share, compared to $52.5 million, or $0.32 per diluted share, reported for the prior quarter.

“Our financial results for the third quarter were strong, led by 16 percent loan growth on an annualized basis, while maintaining our high credit quality and underwriting standards,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “Additionally, our net interest margin expanded by twenty-four basis points from the prior quarter, driving a ten percent increase in net interest income. We remain focused on achieving our strategic priorities while continuing to deliver for our shareholders, customers, colleagues, and the communities we serve."

HIGHLIGHTS FOR THE THIRD QUARTER OF 2022

• Operating net income* of $55.7 million, or $0.34 per diluted share, for the third quarter of 2022 was 49% higher than the comparable prior year quarter.
• Net interest income of $152.2 million for the third quarter of 2022 was 10% higher than the prior quarter.
• The net interest margin on a fully tax equivalent (“FTE”) basis* of 2.87% for the third quarter was 24 basis points higher than the prior quarter.
• The cost of total deposits was 10 basis points in the third quarter, an increase of 4 basis points from the prior quarter.
• Loan growth was 16% on an annualized basis, driven by double-digit annualized growth in commercial and residential lending.
• The Company repurchased 1,481,248 shares of its common stock during the third quarter of 2022 at a weighted average price of $19.52 excluding commissions, for an aggregate purchase price of $28.9 million.

The results for the comparable prior year quarter do not reflect the Company’s acquisition of Century Bancorp, Inc. (“Century”), which was completed on November 12, 2021.

BALANCE SHEET

Total assets were $22.0 billion at September 30, 2022, representing a decrease of $307.9 million, or 1%, from June 30, 2022.

• Total securities decreased $698.9 million, or 9%, from the prior quarter, to $7.3 billion, primarily due to a decline in the market value of available for sale securities driven by higher interest rates, net security sales, and principal runoff.
• Cash and equivalents declined $210.5 million from the prior quarter to $158.4 million.
• Total loans were $12.9 billion, representing an increase of $505.3 million, or 4%, from the prior quarter. The increase was driven by strong loan growth in all major categories. Commercial loans grew $356.6 million, residential loans grew $129.2 million and consumer loans grew $19.4 million, reflecting growth of 16%, 26%, and 6%, respectively, on an annualized basis. Residential loans at September 30, 2022 included purchased loans from Embrace Home Loans totaling $77.7 million excluding purchase premiums.
• Deposits totaled $18.7 billion, representing a decrease of $430.4 million, or 2%, from the prior quarter. On a quarterly average basis, deposits were down $24.7 million from the prior quarter.
• Borrowed funds increased $379.6 million from the prior quarter to provide funding for strong loan growth in the third quarter.
• Shareholders’ equity was $2.4 billion, representing a decrease of $302.2 million from the prior quarter driven primarily by a decrease in accumulated other comprehensive income of $317.7 million. Please refer to Appendix D to this press release for a roll forward of tangible shareholders’ equity*.
• At September 30, 2022, book value per share was $13.59 and tangible book value per share* was $9.87.

Please refer to Appendix C to this press release for a reconciliation of book value per share and tangible book value per share*.

NET INTEREST INCOME

Net interest income was $152.2 million for the third quarter of 2022, compared to $137.8 million in the prior quarter, representing an increase of $14.4 million.

• The increase in net interest income on a consecutive quarter basis was primarily due to an increase in the net interest margin, which benefited primarily from higher short-term interest rates, as well as an increase in average interest-earning asset balances of $77.5 million from the prior quarter, attributable to loan growth.
• The net interest margin on a FTE basis* was 2.87% for the third quarter, representing a 24 basis point increase from the prior quarter, as asset yields benefited from higher interest rates in the period, partially offset by lower net Paycheck Protection Program (“PPP”) fee accretion compared to the prior quarter. Interest-bearing funding costs increased 8 basis points from the prior quarter to 18 basis points, due to deposit pricing increases and an increase in borrowings during the quarter.
• Included in net interest income in the third quarter and prior quarter, respectively, was $0.5 million and $2.5 million of PPP fee accretion net of deferred cost amortization. During the third quarter, $19.3 million in PPP loans were forgiven by the U.S. Small Business Administration or otherwise paid down, compared to $98.7 million in the prior quarter.

NONINTEREST INCOME

Noninterest income was $43.4 million for the third quarter of 2022, compared to $41.9 million for the prior quarter, representing an increase of $1.5 million. Noninterest income on an operating basis* was $45.3 million for the third quarter of 2022, compared to $48.0 million for the prior quarter, a decrease of $2.7 million.

• Insurance commissions decreased $0.9 million to $23.8 million in the third quarter, compared to $24.7 million in the prior quarter. Compared to the comparable prior year quarter, insurance commissions increased $1.8 million, or 8%.
• Service charges on deposit accounts decreased $1.6 million on a consecutive quarter basis to $6.7 million primarily due to lower overdraft fees driven by a change in overdraft charging practices as well as lower account analysis fees.
• Trust and investment advisory fees decreased $0.2 million on a consecutive quarter basis to $5.8 million.
• Loan-level interest rate swap income was $1.6 million in the third quarter, in line with the prior quarter.
• Market performance drove losses on investments held in rabbi trust accounts totaling $2.2 million in the third quarter compared to losses of $7.3 million in the prior quarter.
• Realized losses on available for sale securities were $0.2 million in the third quarter compared to $0.1 million in the prior quarter.
• Other noninterest income decreased $0.8 million in the third quarter to $4.6 million.

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

NONINTEREST EXPENSE

Noninterest expense was $116.8 million for the third quarter of 2022, compared to $111.1 million in the prior quarter, representing an increase of $5.7 million. Noninterest expense on an operating basis* for the third quarter of 2022 was $117.4 million, compared to $114.4 million in the prior quarter, an increase of $3.0 million.

• Salaries and employee benefits expense was $78.1 million in the third quarter, representing an increase of $5.1 million from the prior quarter, driven in part by an increase in incentive compensation expense of $3.3 million as well as an increase in benefits expense of $1.0 million primarily attributable to the lower losses on investments held in rabbi trust accounts associated with the Company’s defined contribution supplemental executive retirement plan.
• Office occupancy and equipment expense was $9.7 million in the third quarter, a decrease of $0.2 million from the prior quarter.
• Data processing expenses were $13.3 million in the third quarter, a decrease of $1.1 million from the prior quarter.
• Professional services expense was $5.8 million in the third quarter, an increase of $1.8 million from the prior quarter due primarily to an increase in legal fees and an increase in other professional fees.
• Marketing expense was $2.2 million in the third quarter, a decrease of $0.4 million from the prior quarter, primarily due to lower advertising expenses in the period.

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

ASSET QUALITY

The allowance for loan losses was $131.7 million at September 30, 2022, or 1.02% of total loans, compared to $125.5 million or 1.01% of total loans at June 30, 2022. The Company recorded a provision for the allowance for loan losses totaling $6.5 million in the third quarter of 2022 primarily due to loan growth.

Non-performing loans totaled $34.0 million at September 30, 2022 compared to $59.9 million at the end of the prior quarter. The decrease from the prior quarter was primarily attributable to the full payoff of one syndicated credit facility that migrated to nonaccrual status in the prior quarter. During the third quarter of 2022, the Company recorded total net charge-offs of $0.3 million, or 0.01% of average total loans on an annualized basis, compared to net recoveries of $0.3 million or 0.01% of average total loans in the prior quarter, respectively.

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 December 15, 2022 to shareholders of record as of the close of business on December 2, 2022.

The Company repurchased 1,481,248 shares of its common stock during the third quarter of 2022 at a weighted average price of $19.52 excluding commissions, for an aggregate purchase price of $28.9 million.

As announced in September of 2022, the Company received regulatory non-objection for its second share repurchase program of up to 8,900,000 shares, representing approximately 5% of its shares of common stock then outstanding. The repurchase program, which is limited to $200 million through August 31, 2023, may be modified or terminated by the Board of Directors of the Company at any time. At September 30, 2022, there were 8,537,684 shares available for repurchase and $192.6 million in total market value remaining under the repurchase authorization.

As announced in November of 2021, the Company received regulatory non-objection for its inaugural share repurchase program, under which it was authorized to purchase up to 9,337,900 shares for up to $225 million over a 12-month period. The Company completed the program in September of 2022, having repurchased all 9,337,900 shares for an aggregate purchase price of $186.4 million, excluding commissions.

CONFERENCE CALL INFORMATION

A conference call and webcast covering Eastern’s third quarter 2022 earnings will be held on Friday, October 28, 2022 at 9:00 a.m. Eastern Time. To join by telephone, participants can call the toll-free dial-in number (888) 396-8049 from within the U.S. and reference conference ID 09796048. 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 September 30, 2022, Eastern Bank had approximately $22 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 business 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, operating return on average tangible shareholders’ equity (discussed further below), 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) other real estate owned (“OREO”) gains, and (vii) merger and acquisition 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 tangible assets, tangible shareholders’ equity, average tangible shareholders’ equity, tangible book value per share, the ratio of tangible shareholders’ equity to tangible assets, return on average tangible shareholders’ equity, and operating return on average shareholders’ equity (discussed further above), 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-D 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."