Eastern Bankshares, Inc. Reports First Quarter 2023 Financial Results

~ Strengthens Liquidity Through Balance Sheet Repositioning – Provides 107% Coverage of All Uninsured and Uncollateralized Deposits While Maintaining Strong Capital 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 first quarter financial results and the declaration of a quarterly cash dividend.

FINANCIAL HIGHLIGHTS FOR THE FIRST QUARTER OF 2023

• Net loss of $194.1 million, or $1.20 per diluted share, compared to net income of $42.3 million, or $0.26 per diluted share for the fourth quarter of 2022.
• Excluding the $280.0 million after-tax loss from the sale of $1.9 billion in available-for-sale (“AFS”) securities (see “Balance Sheet Repositioning, Liquidity and Capital Update” below), and certain other non-recurring items, operating net income* was a record $61.1 million, or $0.38 per diluted share, compared to $49.9 million, or $0.31 per diluted share, reported for the prior quarter.
• Total securities decreased $2.0 billion, or 28%, from the prior quarter, to $5.2 billion, primarily due to securities sales and principal runoff, partially offset by an increase in the market value of AFS securities.
• Deposits totaled $18.5 billion, representing a decrease of $432.8 million, or 2%, from the prior quarter. Excluding a reduction in brokered certificates of deposit of $319.0 million, total core deposits decreased $113.8 million or 0.6%.
• Customer uninsured and uncollateralized deposits totaled $6.7 billion, representing 36% of total deposits.
• Cash and cash equivalents were $2.1 billion and secured borrowing capacity at the Federal Reserve Bank and Federal Home Loan Bank totaled $5.0 billion, providing total liquidity sources of $7.1 billion, or 107% of customer uninsured and uncollateralized deposits.
• Total loans were $13.7 billion, representing an increase of $99.7 million, or 1%, from the prior quarter. The increase was driven primarily by an increase in commercial loans of $73.4 million and residential loans of $36.6 million, partially offset by a decrease in consumer loans of $10.3 million.
• Shareholders’ equity was $2.6 billion, representing an increase of $107.3 million from the prior quarter driven primarily by an increase in accumulated other comprehensive income of $313.3 million, partially offset by a decrease in retained earnings of $209.6 million both of which were primarily attributable to the sale of AFS securities.
• Over 90% of the securities portfolio is classified as available-for-sale. Adjusted to reflect the valuation of held-to-maturity (“HTM”) securities, the tangible common equity (“TCE”) ratio* was 8.56% at quarter end, an increase from the prior quarter, with all regulatory capital ratios greatly exceeding well-capitalized minimums as shown in Appendix F.
• At March 31, 2023, book value per share was $14.63 and tangible book value per share* was $10.88, an increase of 4% and 6% from the prior quarter, respectively.

“The first quarter marked a challenging time for our industry, and I’m grateful to our colleagues who have responded to the needs of our customers in a time of uncertainty,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “As a traditional, relationship-based community bank with a 200+ year history, we have worked through challenging economic environments before and know that serving our customers and earning their trust, every day, is the key to our long-term success.”

Regarding the sale of securities in the first quarter, Mr. Rivers continued, “We have taken important steps to further strengthen our already strong balance sheet to provide additional safety and security for our depositors while enhancing Eastern’s future earnings and long-term success. I encourage all of our stakeholders - our shareholders, customers, employees, and community partners - to review the earnings presentation on our investor relations website to learn more about the actions we have taken to better position Eastern for the future.”

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

BALANCE SHEET REPOSITIONING, LIQUIDITY AND CAPITAL UPDATE

During the first quarter of 2023, the Company completed a balance sheet repositioning by selling $1.9 billion in lower-yielding AFS investment securities creating a non-recurring, after-tax loss of $280 million (“the repositioning”). The proceeds from the sale have been used to increase cash levels, which ended the quarter at $2.1 billion. The repositioning is expected to improve the Company’s overall financial profile by enhancing liquidity and strengthening earnings, while maintaining strong capital ratios on a GAAP and regulatory basis.

“Eastern deployed excess liquidity into the purchase of U.S. government and government agency bonds during the COVID-19 pandemic, when interest rates were historically low,” commented Mr. Rivers. “While the bonds were of the highest credit quality, they declined in value due to the recent record rise in interest rates. After careful consideration of all our options, we made the decision in early March and prior to the recent bank failures to sell a portion of our bond portfolio to improve liquidity and future earnings while maintaining robust capital levels. Eastern remains committed to serving the needs of our customers and communities and growing our market share over the long term. We believe this repositioning will allow us to better execute on those strategic objectives.”

The Company also took additional steps in the first quarter of 2023 to strengthen backup sources of liquidity including the pledging of securities to the Federal Reserve’s Bank Term Funding Program (“BTFP”) totaling $2.6 billion. At March 31, 2023, cash and cash equivalents were $2.1 billion and secured borrowing capacity at the Federal Reserve Bank and Federal Home Loan Bank totaled $5.0 billion, providing total liquidity sources of $7.1 billion. These liquidity sources provide 107% coverage of all customer uninsured and uncollateralized deposits which totaled $6.7 billion, or 36% of total deposits, on March 31, 2023.

The Company’s TCE ratio* was 8.70% at March 31, 2023, an increase from 8.24% the prior quarter, and all regulatory capital ratios greatly exceeded well capitalized minimums. The Company’s TCE ratio adjusted to reflect the valuation of HTM securities* was 8.56% at quarter end.

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

NET INTEREST INCOME

Net interest income was $138.3 million for the first quarter of 2023, compared to $150.0 million in the prior quarter, representing a decrease of $11.7 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 for the first quarter of 2023 included a partial quarter impact of the repositioning, which occurred in mid-March. As of March 31, 2023, the fully taxable-equivalent (“FTE”) spot yield on the total securities portfolio was 1.81% compared to 1.61% average FTE yield for the first quarter.
• The net interest margin on a FTE basis* was 2.66% for the first quarter, representing a 15 basis point decrease from the prior quarter, as funding costs increased faster than asset yields.
• Total interest-earning asset yields increased 33 basis points from the prior quarter to 3.60%, due primarily to increased loan yields as a result of higher short-term interest rates during the quarter.
• Total interest-bearing liabilities cost increased 72 basis points from the prior quarter to 1.49%, due to core deposit pricing increases, deposit mix shifts into higher cost products, and higher non-core funding during the quarter.

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 $(278.3) million for the first quarter of 2023, compared to $44.5 million for the prior quarter, representing a decrease of $322.8 million primarily due to pre-tax losses on the sale of AFS securities of $333.2 million related to the repositioning. Noninterest income on an operating basis* was $52.0 million for the first quarter of 2023, compared to $42.0 million for the prior quarter, an increase of $10.0 million.

• Insurance commissions increased $9.5 million to $31.5 million in the first quarter, compared to $22.0 million in the prior quarter, driven primarily by seasonality. Compared to the comparable prior year quarter, insurance commissions increased $2.8 million, or 10%.
• Service charges on deposit accounts decreased $0.4 million on a consecutive quarter basis to $6.5 million.
• Trust and investment advisory fees increased $0.1 million on a consecutive quarter basis to $5.8 million.
• Debit card processing fees were unchanged from the prior quarter at $3.2 million.
• Loan-level interest rate swap income decreased $0.3 million to a loss of $0.4 million in the first quarter, compared to a loss of $0.1 million in the prior quarter. The decrease was driven primarily by a decrease in the fair value of such interest rate swap transactions.
• Gains on investments held in rabbi trust accounts were $2.9 million in the first quarter compared to $3.2 million in the prior quarter.
• Realized losses on sales of AFS securities were $333.2 million in the first quarter compared to $0.7 million in the prior quarter due to the repositioning.
• Other noninterest income increased $1.3 million in the first quarter to $5.6 million.

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 $116.3 million for the first quarter of 2023, compared to $132.8 million in the prior quarter, representing a decrease of $16.5 million. Noninterest expense on an operating basis* for the first quarter of 2023 was $115.0 million, compared to $119.6 million in the prior quarter, a decrease of $4.6 million.

• Salaries and employee benefits expense was $78.5 million in the first quarter, representing an increase of $0.9 million from the prior quarter.
• Office occupancy and equipment expense was $9.9 million in the first quarter, an increase of $0.3 million from the prior quarter.
• Data processing expense was $13.4 million in the first quarter, a decrease of $0.9 million from the prior quarter, due primarily to lower software service and support expense.
• Professional services expense was $3.4 million in the first quarter, a decrease of $1.1 million from the prior quarter.
• Marketing expense was $1.1 million in the first quarter, a decrease of $2.0 million from the prior quarter, due primarily to lower advertising expense.
• Loan expenses were $1.1 million in the first quarter, an increase of $0.5 million from the prior quarter.
• Federal Deposit Insurance Corporation (“FDIC”) insurance expense was $2.5 million in the first quarter, an increase of $1.0 million from the prior quarter primarily due to an increase in FDIC insurance premiums for 2023.
• Other noninterest expense was $5.4 million in the first quarter, a decrease of $15.0 million from the prior quarter, due primarily to the Defined Benefit Plan settlement accounting charge of $12.0 million in the prior quarter, as well as higher provision for credit losses on off-balance sheet credit exposure in the prior quarter.

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 $140.9 million at March 31, 2023, or 1.03% of total loans, compared to $142.2 million or 1.05% of total loans at December 31, 2022. The Company recorded a provision for loan losses totaling $25,000 in the first quarter of 2023. The remaining change in the allowance was due to the Company adopting ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02") on January 1, 2023 using a modified retrospective transition method with regard to the troubled debt restructuring ("TDR") recognition and measurement guidance. The adjustment needed to reflect the cumulative day one impact of the Company's adoption of ASU 2022-02 was a $1.1 million reduction in the allowance for loan losses and offset to retained earnings, net of taxes.

Non-performing loans totaled $34.6 million at March 31, 2023 compared to $38.6 million at the end of the prior quarter. During the first quarter of 2023, the Company recorded total net charge-offs of $0.2 million, or less than 0.01% of average total loans on an annualized basis, compared to $0.3 million or 0.01% of average total loans in the prior quarter, respectively.

Additional information regarding Eastern’s CRE portfolio is included in the first quarter earnings presentation available at investor.easternbank.com.

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 June 15, 2023 to shareholders of record as of the close of business on June 2, 2023.

The Company did not repurchase any shares of its common stock during the first 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 March 31, 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 first quarter 2023 earnings will be held on Friday, April 28, 2023 at 9:00 a.m. Eastern Time. To join by telephone, participants can call the toll-free dial-in number (888) 886-7786 from within the U.S. and reference conference ID 83330813. 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 March 31, 2023, Eastern Bank had approximately $23 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 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 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; 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."