Eastern Bankshares, Inc. Reports Second Quarter 2023 Financial Results

~ Strong Margin Expansion the Result of the Prior Quarter’s Balance Sheet Repositioning ~

~ Cash Raised in the Securities Sale Will Continue to Enhance the Company’s Financial Position ~

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 2023 second quarter financial results and the declaration of a quarterly cash dividend.

FINANCIAL HIGHLIGHTS FOR THE SECOND QUARTER OF 2023

• Total revenue of $195.4 million. Total operating revenue* of $196.3 million, an increase of $1.5 million from the prior quarter.
• Net income of $48.7 million, or $0.30 per diluted share, compared to net loss of $194.1 million, or $1.20 per diluted share, for the prior quarter.
• Operating net income* of $45.3 million, or $0.28 per diluted share, compared to $61.1 million, or $0.38 per diluted share, for the prior quarter.
• The effective tax rate of 27% in the second quarter was higher than expected due in part to impacts of the repositioning in the prior quarter.
• Total loans increased $286.6 million, or 2.1%, to $14.0 billion, as compared to the prior quarter.
• The net interest margin on a fully tax equivalent (“FTE”) basis* expanded 14 basis points to 2.80%.
• Continued strong asset quality, with annualized net charge-offs ("NCOs") of 0.01% of average total loans and non-performing loans of $30.6 million, or 0.22% of total loans. Provision for allowance for loan losses was $7.5 million, up from $25 thousand in the prior quarter and contributing to an increase in the allowance of $7.0 million.
• Healthy balance sheet with 11.7% shareholders’ equity to assets, 8.9% tangible shareholders’ equity to tangible assets* and 15.7% common equity tier 1 capital ratio1. Total borrowings and brokered deposits of less than 5% of total assets.

During the first quarter, the Company completed a balance sheet repositioning by selling $1.9 billion in lower-yielding available-for-sale (“AFS”) investment securities creating a non-recurring, after-tax loss of $280 million (“the repositioning”). Proceeds from the sale were primarily used in the second quarter to reduce Federal Home Loan Bank advances, support customer deposit activity and fund loan growth.

“Our second quarter results show the tangible benefits of the balance sheet repositioning completed in the first quarter,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “As anticipated, our net interest margin expanded 14 basis points in the quarter, and the cash raised from the sale was used to enhance our overall financial positioning. Our wholesale funding was less than 5% of total assets at the end of the quarter and operating revenues were up $1.5 million. Our highest priority is to be available for our customers and meet their banking and borrowing needs. Our strong balance sheet and core earnings position us well to do just that even in an uncertain economic environment.”

Please refer to Appendices A-E to this press release for reconciliations of non-GAAP financial metrics denoted by an asterisk.

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1 Regulatory capital ratios are preliminary estimates.

NET INTEREST INCOME

Net interest income was $141.6 million for the second quarter of 2023, compared to $138.3 million in the prior quarter, representing an increase of $3.3 million.

• The net interest margin on a FTE basis* was 2.80% for the second quarter, representing a 14 basis point increase from the first quarter, as asset yields increased faster than funding costs.
• The net interest margin for the first quarter of 2023 included a partial quarter impact of the repositioning, which occurred in mid-March.
• Total interest-earning asset yields increased 35 basis points from the prior quarter to 3.95%, due to increased loan and short-term investment yields as a result of higher short-term interest rates during the quarter as well as the sale of lower yielding AFS securities in the prior quarter and higher average short-term investment balances.
• Total interest-bearing liabilities cost increased 30 basis points from the prior quarter to 1.79%, due to core deposit pricing increases and deposit mix shifts, partially offset by lower borrowing costs due to the reduction in borrowings as a result of the repositioning.

Please refer to Appendices A-E to this press release for reconciliations of non-GAAP financial metrics denoted by an asterisk.

NONINTEREST INCOME

Noninterest income was $53.8 million for the second quarter of 2023, compared to a loss of $278.3 million for the prior quarter, representing an increase of $332.2 million. The loss in the prior quarter was due to the sale of $1.9 billion in AFS investment securities as part of the repositioning. Noninterest income on an operating basis* was $50.8 million for the second quarter of 2023, compared to $52.0 million for the prior quarter, a decrease of $1.2 million.

• Insurance commissions decreased $3.9 million to $27.6 million in the second quarter, compared to $31.5 million in the prior quarter, driven primarily by seasonality. Compared to the comparable prior year quarter, insurance commissions increased $2.9 million, or 12%.
• Service charges on deposit accounts decreased $0.8 million on a consecutive quarter basis to $7.2 million.
• Trust and investment advisory fees increased $0.4 million on a consecutive quarter basis to $6.1 million.
• Debit card processing fees increased $0.3 million from the prior quarter to $3.5 million.
• Income from investments held in rabbi trust accounts was $3.0 million in the second quarter compared to $2.9 million in the prior quarter.
• There were no realized gains or losses on sales of AFS securities in the second quarter compared to realized losses of $333.2 million in the prior quarter due to the repositioning.

Please refer to Appendices A-E to this press release for reconciliations of non-GAAP financial metrics denoted by an asterisk.

NONINTEREST EXPENSE

Noninterest expense was $121.6 million for the second quarter of 2023, compared to $116.3 million in the prior quarter, representing an increase of $5.4 million. Noninterest expense on an operating basis* for the second quarter of 2023 was $120.3 million, compared to $115.0 million in the prior quarter, an increase of $5.3 million.

• Salaries and employee benefits expense was $79.2 million in the second quarter, representing an increase of $0.7 million from the prior quarter.
• Office occupancy and equipment expense was $9.8 million in the second quarter, a decrease of $0.1 million from the prior quarter.
• Data processing expense was $13.9 million in the second quarter, an increase of $0.4 million from the prior quarter.
• Professional services expense was $4.1 million in the second quarter, an increase of $0.6 million from the prior quarter.
• Marketing expense was $2.1 million in the second quarter, an increase of $1.0 million from the prior quarter.
• Loan expenses were unchanged at $1.1 million in the second quarter.
• Federal Deposit Insurance Corporation (“FDIC”) insurance expense was $3.0 million in the second quarter, an increase of $0.5 million from the prior quarter.
• Other noninterest expense was $7.2 million in the second quarter, an increase of $1.9 million from the prior quarter, due primarily to an increase of $1.5 million in provision for credit losses on off-balance sheet credit exposure.

Please refer to Appendices A-E to this press release for reconciliations of non-GAAP financial metrics denoted by an asterisk.

ASSET QUALITY

The allowance for loan losses was $148.0 million at June 30, 2023, or 1.06% of total loans, compared to $140.9 million, or 1.03% of total loans, at March 31, 2023. The Company recorded a provision for loan losses totaling $7.5 million in the second quarter of 2023 due to a combination of loan growth and higher reserve rates.

Non-performing loans totaled $30.6 million at June 30, 2023 compared to $34.6 million at the end of the prior quarter. During the second quarter of 2023, the Company recorded total net charge-offs of $0.5 million, or 0.01% of average total loans on an annualized basis, compared to $0.2 million or less than 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 September 15, 2023 to shareholders of record as of the close of business on September 1, 2023.

The Company did not repurchase any shares of its common stock during the second quarter of 2023.

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 June 30, 2023, there were 6,989,750 shares available for repurchase and $161.8 million in total market value remaining under the repurchase authorization.

CONFERENCE CALL AND PRESENTATION INFORMATION

A conference call and webcast covering Eastern’s second quarter 2023 earnings will be held on Friday, July 28, 2023 at 9:00 a.m. Eastern Time. To join by telephone, participants can call the toll-free dial-in number (888) 259-6580 from within the U.S. and reference conference ID 19006231. The conference call will be simultaneously webcast. Participants may join the webcast on the Company’s Investor Relations website at investor.easternbank.com. A presentation providing additional information for the quarter is also available 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 June 30, 2023, 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), and the operating efficiency ratio. 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, (vii) merger and acquisition expenses, (viii) the non-cash pension settlement charge recognized related to the Defined Benefit Plan, and (ix) certain discrete tax items. 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 including the impact of mark-to-market adjustments on held-to-maturity securities, 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-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; 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 interest rates and resulting changes in competitor or customer behavior, mix or costs of sources of funding, and deposit amounts and composition; risks that revenue or expense synergies or the other expected benefits of the Company’s merger with Century Bank in November 2021 may not fully materialize for the Company in the timeframe expected or at all, or may be more costly to achieve; adverse national or regional economic conditions or conditions within the securities markets or banking sector; 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 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 inflationary or recessionary pressures, interest rate sensitivity, liquidity constraints, increased borrowing and funding costs, and fluctuations due to actual or anticipated changes to federal tax laws; the realizability of deferred tax assets; the Company’s ability to successfully implement its risk mitigation strategies; asset and credit quality deterioration, including adverse developments in local or regional real estate markets that decrease collateral values associated with existing loans; operational risks such as cybersecurity incidents, natural disasters, and pandemics, including COVID-19; 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.

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."