Eastern Bankshares, Inc. Reports Third Quarter 2021 Financial Results

Company Announces Intent to Adopt Share Repurchase Program and 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 2021 third quarter financial results, the declaration of a quarterly cash dividend of $0.08 per share, and the intent to adopt a share repurchase program. Net income for the third quarter of 2021 was $37.1 million, or $0.22 per share, compared to net income of $34.8 million, or $0.20 per share, reported for the second quarter of 2021. Operating net income* for the third quarter of 2021 was $37.4 million, or $0.22 per share, compared to $37.1 million, or $0.22 per share, reported for the prior quarter.

“Our third quarter financial results continue to demonstrate strong financial performance, and as the economy continues to recover from the pandemic, we remain optimistic about our future and long-term profitability,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “In the third quarter, we saw strong loan growth of $175 million excluding PPP loans, or a growth rate of over 8% on an annualized basis, while continuing to demonstrate strong asset quality. As we look to the future, there’s much to be excited about. We believe the combination with Century will solidify our position as the leading community bank here in Boston, and we look forward to continuing the high level of service that Century customers have come to expect. We are especially appreciative of the tremendous commitment our employees have demonstrated to our customers and the communities we serve, and thank them for their extraordinary efforts as our two organizations combine to become one.”

The Company also announced that its Board of Directors has approved a share repurchase program to purchase up to 9,337,900 shares, which represents 5% of the Company’s outstanding shares of common stock over a 12-month period. The authorization is contingent on receipt of approval or non-objection from the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Company’s request for non-objection is pending. Assuming receipt of approval or non-objection from the Federal Reserve, the Company does not expect the share repurchases to begin before December 2021.

Rivers continued, “We remain committed to a thoughtful and holistic capital management strategy to deliver value for our shareholders. Our Board’s approval of a share repurchase program, together with our regular quarterly dividends, demonstrates our ability to continue to drive growth and effectively deploy capital while creating shareholder value.”

HIGHLIGHTS FOR THE THIRD QUARTER OF 2021

• Operating net income* was $37.4 million in the third quarter, compared to $37.1 million in the prior quarter, and represented a 16% increase from the prior year quarter.
• Loans, excluding Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, grew $175.3 million, or 8% on an annualized basis from the prior quarter. Commercial loans, excluding PPP loans, and residential loans each grew 9% on an annualized basis from the prior quarter.
• An improving economic outlook coupled with strong asset quality led to a $1.5 million release of loan loss reserves. Nonperforming loans were $42.1 million, or 0.44% of total loans, at the end of the third quarter compared to $41.7 million, or 0.43% of total loans, at the end of the second quarter.

BALANCE SHEET

Total assets were $17.5 billion at September 30, 2021, representing an increase of $413.8 million, or 2%, from June 30, 2021.

• Available for sale securities increased $840.5 million, or 17%, on a consecutive quarter basis, to $5.7 billion, as excess liquidity was deployed into U.S. Agency securities. Cash and equivalents declined $312.5 million to $1.3 billion.
• Total loans were $9.5 billion, representing a decrease of $116.5 million, or 1%, as PPP loan forgiveness outpaced new loan originations in the third quarter. Excluding PPP loans, total loans grew $175.3 million, or 2%, from the prior quarter, driven by growth in commercial loans, excluding PPP loans, of $143.9 million and in residential loans of $33.8 million.
• Deposits totaled $13.6 billion, representing an increase of $399.5 million, or 3%, from June 30, 2021.
• Shareholders’ equity was $3.4 billion, representing a decrease of $1.3 million from the prior quarter. The increase in retained earnings of $23.3 million was more than offset by the decrease in accumulated other comprehensive income of $26.8 million driven by a decrease in the market value of the available for sale investment portfolio.
• At September 30, 2021, book value per share was $18.36 and tangible book value per share* was $16.33.

NET INTEREST INCOME

Net interest income was $102.7 million for the third quarter, compared to $104.6 million in the prior quarter, representing a decrease of $1.9 million on a consecutive quarter basis.

• Included in net interest income was $5.9 million and $9.3 million of SBA PPP fee accretion net of deferred cost amortization in the third quarter and prior quarter, respectively. During the third quarter, $291.8 million in PPP loans were forgiven by the SBA or otherwise paid down compared to $502.9 million in the prior quarter.
• Interest income on available for sale securities increased $1.8 million to $16.2 million in the third quarter as excess cash continued to be deployed into securities. Investment securities averaged $5.2 billion for the third quarter compared to $4.3 billion for the prior quarter, an increase of $905.1 million.
• The net interest margin on a fully tax equivalent (“FTE”) basis* was 2.53% for the third quarter, representing a 16 basis points decrease from the prior quarter. The net interest margin 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 $43.2 million for the third quarter, compared to $45.7 million for the prior quarter, representing a decrease of $2.5 million. Noninterest income on an operating basis* was $43.0 million for the third quarter, compared to $41.5 million for the prior quarter, an increase of $1.5 million.

• Insurance commissions decreased $1.7 million to $22.0 million in the third quarter, compared to $23.7 million in the prior quarter.
• Trust and investment advisory fees increased $0.2 million on a consecutive quarter basis to $6.3 million.
• Loan-level interest rate swap income was $0.9 million in the third quarter, compared to losses of $1.2 million in the prior quarter, representing an increase of $2.0 million that was driven by an increase in the fair value of such interest rate swap transactions due to higher market interest rates.
• Losses on securities held in rabbi trust accounts were $0.3 million in the third quarter compared to income of $4.2 million in the prior quarter, representing a decrease of $4.5 million primarily due to weaker investment performance in the period as compared to the prior quarter.
• The gain on sale of loans held for sale totaled $0.7 million, down $0.1 million from the prior quarter.
• Other noninterest income increased $1.5 million in the third quarter, in part due to a $0.5 million gain on a bank owned life insurance policy, combined with other higher miscellaneous income.

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

NONINTEREST EXPENSE

Noninterest expense was $99.0 million for the third quarter representing a decrease of $8.4 million, primarily driven by lower non-operating expenses* in the third quarter of $5.7 million. Noninterest expense on an operating basis* for the third quarter of 2021 was $97.2 million, compared to $99.9 million in the prior quarter.

• Salaries and employee benefits expense was $66.2 million in the third quarter, representing a decrease of $3.0 million from the prior quarter. The decrease was primarily driven by the Company’s lower benefits expense which was $4.5 million lower than the prior quarter. The decrease in benefits expense was attributable to the decreased market value of investments held in rabbi trust accounts by the Company’s defined contribution supplemental executive retirement plan (“DC SERP”).
• Data processing expense was $12.2 million in the third quarter, a decrease of $1.4 million from the prior quarter. Professional services expense was $4.0 million, a decrease of $2.4 million from the prior quarter. These decreases were primarily attributed to lower costs associated with the pending acquisition of Century compared with such expenses in the prior quarter.
• Marketing expenses were $1.6 million in the third quarter, representing a decrease of $1.9 million from the prior quarter primarily due to a decrease in advertising expense of $1.4 million.
• Other noninterest expense increased $0.7 million in the third quarter to $3.7 million.

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

ASSET QUALITY

The allowance for loan losses was $103.4 million at September 30, 2021, or 1.09% of total loans, compared to $105.6 million or 1.10% of total loans at June 30, 2021. The Company released loan loss reserves totaling $1.5 million in the third quarter, compared to a release of $3.3 million in the prior quarter. The Company followed the incurred loss allowance GAAP accounting model at September 30, 2021 and all preceding periods.

Non-performing loans totaled $42.1 million at September 30, 2021 compared to $41.6 million at the end of the prior quarter. During the third quarter of 2021, the Company recorded total net charge-offs of $0.8 million, or 0.03% of average total loans on an annualized basis compared to $2.1 million and 0.09% in the prior quarter, respectively.

At September 30, 2021, approximately $110.6 million in COVID-19 modified loans remained under modified payment terms, down from $149.8 million at June 30, 2021. The commercial real estate portfolio contained $92.4 million of the remaining COVID-19 modifications at period end, of which $71.5 million or 77% were in the hotel segment.

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

DIVIDENDS AND SHARE REPURCHASES

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

The Company also announced that its Board of Directors has approved a share repurchase program to purchase up to 9,337,900 shares, which represents 5% of the Company’s outstanding shares of common stock over a 12-month period. The authorization is contingent on receipt of approval or non-objection from the Federal Reserve. The Company’s request for non-objection is pending. The Company is unable to predict whether the Federal Reserve will permit the Company to implement the proposed repurchase program in whole or part, whether the Federal Reserve will impose one or more related conditions on the Company, or the timing of such non-objection, if granted. Assuming receipt of approval or non-objection from the Federal Reserve, the Company does not expect the share repurchases to begin before December 2021.

Under the authorization, share repurchases may occur in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Repurchases will be made at management’s discretion from time to time at prices management considers to be attractive and in the best interests of both the Company and its shareholders, subject to the availability of shares, general market conditions, the trading price of the shares, alternative uses for capital, and the Company’s financial performance. Repurchases under this authorization may be suspended, terminated or modified by the Company at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate by management in its discretion. There can be no assurance that the Company will receive the required approval or non-objection for its proposed share repurchase program. The Company is not obligated to repurchase any particular number of shares even if regulatory approval or non-objection is obtained. The proposed repurchase program would be authorized through November 30, 2022, although it may be modified or terminated by the Board of Directors at any time.

CONFERENCE CALL INFORMATION

A conference call and webcast covering Eastern’s third quarter 2021 earnings will be held on Friday, October 29, 2021 at 9:00 a.m. Eastern Time. To join by telephone, participants can call the toll-free dial-in number (833) 233-4460 from within the U.S. or (647) 689-4543 if outside the U.S. and reference conference ID 1389147. 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 110 locations serving communities in eastern Massachusetts, southern and coastal New Hampshire, and Rhode Island. As of September 30, 2021, Eastern Bank had approximately $17 billion in total assets. Eastern provides banking, investment and insurance products and services for consumers and businesses of all sizes, including through its Eastern Wealth Management division and its Eastern Insurance Group LLC subsidiary. Eastern takes pride in its outspoken advocacy and community support that includes $240 million in charitable giving since 1994. An inclusive company, Eastern employs approximately 1,900 deeply committed professionals who value relationships with their customers, colleagues, and communities. For investor information, visit investor.easternbank.com.

NON-GAAP FINANCIAL MEASURES

*Denotes a non-GAAP financial measure used in this press release.

A non-GAAP financial measure is defined as a numerical measure of the Company’s historical or future financial performance, financial position or cash flows that excludes (or includes) amounts, or is subject to adjustments that have the effect of excluding (or including) amounts that are included in the most directly comparable measure calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”) in the Company’s statement of income, balance sheet or statement of cash flows (or equivalent statements).

The Company presents non-GAAP financial measures, which management uses to evaluate the Company’s performance, and which exclude the effects of certain transactions that management believes are unrelated to its core business and are therefore not necessarily indicative of its current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into the Company’s core businesses as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding GAAP financial measures.

There are items in the Company’s financial statements that impact its financial results, but which management believes are unrelated to the Company’s core business. Accordingly, the Company presents noninterest income on an operating basis, total operating revenue, noninterest expense on an operating basis, operating net income, operating earnings per share, operating return on average assets, operating return on average shareholders’ equity, the operating efficiency ratio, and the ratio of noninterest income to total revenue on an operating basis. Each of these figures excludes the impact of such applicable items because management believes such exclusion can provide greater visibility into the Company’s core business and underlying trends. Such items that management does not consider to be core to the Company’s business include (i) income and expenses from investments held in rabbi trusts, (ii) gains and losses on sales of securities available for sale, net, (iii) gains and losses on the sale of other assets, (iv) rabbi trust employee benefits, (v) impairment charges on tax credit investments and associated tax credit benefits, (vi) expenses indirectly associated with the Company’s initial public offering (“IPO”), (vii) other real estate owned (“OREO”) gains, (viii) merger and acquisition expenses, (ix) the stock donation to the Eastern Bank Foundation (“EBF”, formerly known as the Eastern Bank Charitable Foundation) in connection with the Company’s mutual-to-stock conversion and IPO, and (x) settlement of putative consumer class action litigation matters related to overdraft and non-sufficient funds fees, and associated settlement expenses. The Company does not provide an outlook for its total noninterest 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 September 30, 2021 will be forgiven, and to the extent not forgiven, a PPP loan is intended to be 100% guaranteed by the SBA.

Management also presents tangible assets, tangible shareholders’ equity, tangible book value per share, and the ratio of tangible shareholders’ equity to tangible assets, each of which excludes the impact of goodwill and other intangible assets, as management believes these financial measures provide investors with the ability to further assess the Company’s performance, identify trends in its core business and provide a comparison of its capital adequacy to other companies. The Company included the tangible ratios because management believes that investors may find it useful to have access to the same analytical tools used by management to assess performance and identify trends.

These non-GAAP financial measures presented in this press release should not be considered an alternative or substitute for financial results or measures determined in accordance with GAAP or as an indication of the Company’s cash flows from operating activities, a measure of its liquidity position or an indication of funds available for its cash needs. An item which management considers to be non-core and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular period. In addition, management’s methodology for calculating non-GAAP financial measures may differ from the methodologies employed by other banking companies to calculate the same or similar performance measures, and accordingly, the Company’s reported non-GAAP financial measures may not be comparable to the same or similar performance measures reported by other banking companies. Please refer to Appendices A-E for reconciliations of the Company's GAAP financial measures to the non-GAAP financial measures in this press release.

FORWARD-LOOKING STATEMENTS

This press release contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding anticipated future events and can be identified by the fact that they do not relate strictly to historical or current facts. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. Forward-looking statements, by their nature, are subject to risks and uncertainties. There are many factors that could cause actual results to differ materially from expected results described in the forward-looking statements.

Certain factors that could cause actual results to differ materially from expected results include developments in the Company’s market relating to the COVID-19 pandemic, including the severity and duration of the associated economic slowdown, adverse developments in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses, increased competitive pressures, changes in the interest rate environment, risks associated with its pending merger with Century, including the possibility that revenue or expense synergies or the other expected benefits of the transaction may not materialize for the Company in the timeframe expected or at all, or may be more costly to achieve; that the transaction may not be timely completed, if at all; that prior to the completion of the transaction or thereafter, the Company’s or Century’s businesses may not perform as expected due to transaction-related uncertainty or other factors; that the Company is unable to successfully implement integration strategies; that closing conditions are not satisfied in a timely manner or at all; reputational risks and the reaction of the companies’ customers to the transaction; the inability to implement onboarding plans and other consequences associated with mergers; and diversion of management time on merger-related issues, as well as general economic conditions or conditions within the securities markets, and legislative and regulatory changes that could adversely affect the business in which the Company and its subsidiary Eastern Bank are engaged, including inflation, interest rates, interest rate sensitivity and liquidity, including the effect of, and changes in, monetary and fiscal policies and laws, such as the interest rate policies of the Board of Governors of the Federal Reserve System; market and monetary fluctuations, including fluctuations due to actual or anticipated changes to federal tax laws; credit quality, including adverse developments in local or regional real estate markets that decrease collateral values associated with existing loans; the failure to obtain the approval or non-objection of the Federal Reserve for the initiation of share repurchases, delays in obtaining such approval or non-objection, or adverse conditions imposed in connection with such approval or non-objection; and the failure of the Company to execute 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; 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.