Eastern Bankshares, Inc. Reports Fourth Quarter 2023 Financial Results

~ Earnings, Capital, and Liquidity Enhancements Resulting from Eastern Insurance Group LLC Asset Sale ~
~ Growth in Core Deposits and Reduction in Wholesale Funding ~

Eastern Bankshares, Inc. (the “Company,” or together with its subsidiaries, “Eastern”) (NASDAQ Global Select Market: EBC), the stock holding company of Eastern Bank, today announced its 2023 fourth quarter financial results and the declaration of a quarterly cash dividend.

On October 31, 2023, the Company completed the sale of the insurance operations of Eastern Insurance Group, LLC (“Eastern Insurance”), to Arthur J. Gallagher & Co. (“Gallagher”) for gross consideration of $515 million (“the insurance transaction”). The company recorded an after-tax gain of $294.5 million which is included in the fourth quarter results. The insurance transaction significantly improved the capital and funding position of the Company and will allow the Company to focus on the growth and strategic initiatives of its core banking business, including its pending merger with Cambridge Bancorp (“Cambridge”) (“the merger”), which was previously announced on September 19, 2023. The merger is expected to close early in the second quarter of 2024, subject to regulatory and shareholder approvals as previously disclosed.

"2023 was a year of strategic repositioning for Eastern,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “We realized early in 2023 that all banks were going to face significant challenges due to higher interest rates, changing customer deposit preferences and a very difficult macroeconomic environment. We responded by repositioning our securities portfolio in the first quarter, which allowed us to improve both our liquidity and earnings outlook, and followed with the sale of Eastern Insurance in the second half of the year to capitalize on the valuation premium it commanded. The insurance transaction provided us additional liquidity and capital, and positioned us to announce our merger with Cambridge Bancorp, a highly attractive in-market merger partner with a valuable wealth management business. We are very confident that these transactions provide us with a greater financial foundation, stronger earnings for our shareholders, and a leading market share in our footprint. The upcoming merger is the next step in our journey and we all look forward to welcoming the colleagues and customers of Cambridge Trust to Eastern.”

FINANCIAL HIGHLIGHTS FOR THE FOURTH QUARTER OF 2023

• Completed the sale of Eastern Insurance to Gallagher for cash consideration of $515 million and for an after-tax gain of $294.5 million.
• Net income of $318.5 million, or $1.95 per diluted share, compared to net income of $59.1 million, or $0.36 per diluted share, for the prior quarter.
• Operating net income*, which excludes the revenues, expenses, and tax provision of discontinued operations, of $16.9 million, or $0.10 per diluted share. Operating net income* includes a $10.8 million special assessment from the Federal Deposit Insurance Corporation (“FDIC”).
• Total deposits increased $172.0 million from the prior quarter, to $17.6 billion. Core deposits, which exclude brokered deposits, increased $516.2 million or 3.0% from the prior quarter.
• Total loans increased $54.2 million from the prior quarter, to $14.0 billion.
• The net interest margin on a fully tax equivalent (“FTE”) basis* of 2.69% was 8 basis points lower than the prior quarter but trend is stabilizing.
• Borrowings and brokered deposits of less than 1% of total assets as of December 31, 2023.
• Annualized net charge-offs ("NCOs") of 0.32% in the fourth quarter and 0.09% for full year 2023 and nonperforming loans ("NPLs") of $52.6 million, or 0.38% of total loans as of December 31, 2023.

BALANCE SHEET

Total assets were $21.1 billion at December 31, 2023, essentially unchanged from September 30, 2023.

• Cash and equivalents increased $84.3 million from the prior quarter to $693.1 million.
• Total securities increased $139.8 million, or 3%, from the prior quarter, to $4.9 billion, due to an increase in the market value of available for sale securities, partially offset by principal runoff.
• Loans totaled $14.0 billion, representing an increase of $54.2 million, or 0.4%, from the prior quarter.
• Deposits totaled $17.6 billion, representing an increase of $172.0 million, or 1.0%, from the prior quarter, driven primarily by an increase of $516.2 million, or 3.0%, in core deposits. This was partially offset by a decrease of $344.1 million in brokered deposits.
• Borrowed funds decreased $667.2 million from the prior quarter to $48.2 million in the fourth quarter, as a combination of strong core deposit trends and the proceeds from the insurance transaction allowed for the paydown of Federal Home Loan Bank (“FHLB”) borrowings.
• Shareholders’ equity was $3.0 billion, representing an increase of $528.3 million from the prior quarter primarily driven by increases in retained earnings and accumulated other comprehensive income. The increase in retained earnings was primarily due to the net gain on sale resulting from the insurance transaction.
• At December 31, 2023, book value per share was $16.86 and tangible book value per share* was $13.65. Please refer to Appendix D to this press release for a roll-forward of tangible shareholders’ equity*.

NET INTEREST INCOME

Net interest income was $133.3 million for the fourth quarter of 2023, compared to $137.2 million in the prior quarter, representing a decrease of $3.9 million.

• The decrease in net interest income on a consecutive quarter basis was primarily due to a decrease in the net interest margin, as increases in earning asset yields were more than offset by increased funding costs.
• The net interest margin on a FTE basis* was 2.69% for the fourth quarter, representing an 8 basis point decrease from the prior quarter.
• Total interest-earning asset yields increased 1 basis point from the prior quarter to 4.06%, due to increased residential loan, consumer loan and short-term investment yields as a result of higher interest rates throughout the quarter, partially offset by decreased commercial loan yield. The prior quarter’s commercial loan yield benefited from $2.6 million in commercial loan interest recoveries.
• Total interest-bearing liabilities cost increased 20 basis points from the prior quarter to 2.19%, due primarily to higher deposit costs resulting from deposit pricing increases and deposit mix shifts.
• The net interest margin for thefourth quarter included a partial quarter benefit from the proceeds of the insurance transaction, which was completed on October 31, 2023. The proceeds, in part, allowed the Company to reduce brokered deposits and borrowings to less than 1% of total assets.

NONINTEREST INCOME

Noninterest income, which excludes revenues from discontinued operations, was $26.7 million for the fourth quarter of 2023, compared to $19.2 million for the prior quarter, representing an increase of $7.6 million. Noninterest income on an operating basis* was $21.8 million for the fourth quarter of 2023, compared to $20.7 million for the prior quarter, an increase of $1.1 million.

• Service charges on deposit accounts increased $0.1 million on a consecutive quarter basis to $7.5 million.
• Trust and investment advisory fees decreased $0.1 million on a consecutive quarter basis to $6.1 million.
• Debit card processing fees were unchanged at $3.4 million in the fourth quarter.
• Loan-level interest rate swap income decreased $2.3 million from the prior quarter to a loss of $0.6 million. The decrease was driven primarily by a decrease in the fair value of such transactions.
• Income from investments held in rabbi trust accounts was $5.0 million compared to losses of $1.5 million in the prior quarter due to an increase in the fair value of such investments.
• In the fourth quarter, losses on the sale of commercial and industrial loans totaled $0.1 million, compared to losses of $2.7 million from the prior quarter.
• Other noninterest income increased $0.8 million in the fourth quarter to $5.6 million.

NONINTEREST EXPENSE

Noninterest expense, which excludes expenses from discontinued operations, was $121.0 million for the fourth quarter of 2023, compared to $101.7 million in the prior quarter, representing an increase of $19.3 million. Noninterest expense on an operating basis* for the fourth quarter of 2023 was $117.4 million, compared to $98.7 million in the prior quarter, an increase of $18.7 million. The increase in operating noninterest expense* was driven primarily by the $10.8 million special assessment from the FDIC as well as a $4.5 million increase in the operating portion of salaries and employee benefits expense.

• Salaries and employee benefits expense was $67.8 million, representing an increase of $6.9 million from the prior quarter. The increase was driven primarily by increases in incentive compensation costs and increases in supplemental executive retirement plan benefits expense.
• Office occupancy and equipment expense was $9.2 million, an increase of $0.6 million from the prior quarter.
• Data processing expense was $16.8 million, an increase of $3.3 million from the prior quarter, due in part to an increase in M&A related data processing costs of $1.4 million.
• Professional services expense was $4.1 million in the fourth quarter, a decrease of $3.0 million from the prior quarter, primarily due to a decrease in M&A related professional services costs of $3.2 million.
• Marketing expense was $2.7 million, an increase of $0.9 million from the prior quarter.
• Loan expenses were $1.2 million, an increase of $0.1 million from the prior quarter.
• Federal Deposit Insurance Corporation (“FDIC”) insurance expense was $13.5 million, an increase of $10.7 million from the prior quarter due to the special assessment charged by the FDIC to recover the loss to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of certain banks in 2023.
• Other noninterest expense was $5.3 million, a decrease of $0.1 million from the prior quarter.

INCOME TAXES

The income tax expense for thefourth quarter was $2.3 million. The lower than expected tax expense in the fourth quarter of 2023 was primarily a result of a tax planning strategy to recognize a net state tax benefit of $9.2 million primarily due to capital losses resulting from the securities sale in the first quarter of 2023.

ASSET QUALITY

The allowance for loan losses was $149.0 million at December 31, 2023, or 1.07% of total loans, compared to $155.1 million, or 1.12% of total loans, at September 30, 2023. During the fourth quarter of 2023, the Company recorded total net charge-offs of $11.4 million, or 0.32% of average total loans on an annualized basis, compared to $0.1 million or less than 0.01% of average total loans in the prior quarter, respectively. The increase in total net charge-offs in the fourth quarter was primarily due to partial charge-offs of two credits secured by investor commercial real estate office properties, each of which had previously been placed on non-accrual and were reserved for during the third quarter. The Company recorded a provision for loan losses totaling $5.2 million in the fourth quarter of 2023 due primarily to increases in specific reserves on commercial loans.

Non-performing loans totaled $52.6 million at December 31, 2023 compared to $47.5 million at the end of the prior quarter.

Please refer to the investor presentation for a review of the Company’s office-related commercial real estate exposure.

DIVIDENDS AND SHARE REPURCHASES

The Company’s Board of Directors has declared a quarterly cash dividend of $0.11 per common share. The dividend will be payable on March 15, 2024 to shareholders of record as of the close of business on March 1, 2024.

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

CONFERENCE CALL AND PRESENTATION INFORMATION

A conference call and webcast covering Eastern’s fourth quarter 2023 earnings will be held on Friday, January 26, 2024 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 61093108. 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 December 31, 2023, Eastern Bank had approximately $21 billion in total assets. Eastern provides a full range of banking and wealth management solutions for consumers and businesses of all sizes, and takes pride in its outspoken advocacy and community support that includes $240 million in charitable giving since 1994. An inclusive company, Eastern is comprised of 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. Except as otherwise indicated, these non-GAAP financial measures presented in this press release exclude discontinued operations.

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, (ix) certain discrete tax items, and (x) net income from discontinued operations. 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”, “outlook” 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 associated with the Company’s completion and/or implementation of the merger with Cambridge, including risks that required regulatory, shareholder or other approvals for the merger are not obtained or other closing conditions are not satisfied in a timely manner or at all and that the merger fails to occur in the timeframe expected or at all; prior to the completion of the merger or thereafter, Cambridge or the Company may not perform as expected due to transaction-related uncertainty or other factors; and revenue or expense synergies 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; and operational risks such as cybersecurity incidents, natural disasters, and pandemics, including COVID-19. 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”), including the joint proxy statement/prospectus (as defined below), 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.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed merger transaction, on January 16, 2024, the Company filed with the SEC a Registration Statement on Form S-4 and a Joint Proxy Statement of the Company and Cambridge and a Prospectus of the Company (the “joint proxy statement/prospectus”), as well as other relevant documents concerning the proposed transaction. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. INVESTORS AND SHAREHOLDERS OF THE COMPANY AND CAMBRIDGE ARE URGED TO READ THE REGISTRATION STATEMENT AND THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE TRANSACTION AND EACH OTHER RELEVANT DOCUMENT FILED WITH THE SEC, AS WELL AS ANY AMENDMENT OR SUPPLEMENT TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. A copy of the definitive joint proxy statement/prospectus, as well as other filings containing information about the Company and Cambridge, can be obtained without charge, at the SEC’s website (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to the Company’s Investor Relations team via email at InvestorRelations@easternbank.com or by telephone at (781) 598-7920, or to Cambridge Investor Relations via email at InvestorRelations@cambridgetrust.com or by telephone at (617) 520-5520.

PARTICIPANTS IN THE SOLICITATION

The Company, Cambridge, and their respective directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the shareholders of the Company and/or Cambridge in connection with the proposed transaction under the rules of the SEC. Information regarding the Company’s directors and executive officers is available in its definitive proxy statement relating to its 2023 Annual Meeting of Shareholders, which was filed with the SEC on April 3, 2023, and its Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Commission on February 24, 2023, and other documents filed by the Company with the SEC. Information regarding Cambridge’s directors and executive officers is available in its definitive proxy statement relating to its 2023 Annual Meeting of Shareholders, which was filed with the SEC on March 16, 2023, the joint proxy statement/prospectus and other documents filed by Cambridge with the SEC. Information regarding the participants in the proxy solicitation and a description of their interests included in the joint proxy statement/prospectus and other relevant materials filed with the SEC may be obtained free of charge as described in the preceding paragraph.

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."