Eastern Bankshares, Inc. Reports Third Quarter 2024 Financial Results

Eastern Bankshares, Inc. (the “Company”) (NASDAQ: EBC), the holding company of Eastern Bank, today announced its 2024 third quarter financial results.

FINANCIAL HIGHLIGHTS

• Net loss of $6.2 million included the initial provision on non-purchased credit deteriorated (“non-PCD”) loans of $40.9 million and merger-related charges of $30.5 million. Operating net income of $49.7 million, or 0.25 per diluted share.
• Merger EPS accretion and cost saves on track to exceed original estimates.
• Net interest margin on a fully tax equivalent (“FTE”) basis of 2.97%, an increase of 0.33%, including net discount accretion from the Cambridge merger of 0.18%.
• Trust and investment advisory fees increased $8.2 million, or 122%, from the prior quarter to $14.9 million, due primarily to increased assets under management (“AUM”) as a result of the merger.
• Book value per share and tangible book value per share ended the quarter at $17.09 and $12.17, respectively.
• Non-performing loans ("NPLs") increased by $84.7 million to $124.5 million, or 0.70% of total loans, due primarily to purchased credit deteriorated (“PCD”) loans acquired from Cambridge that were thoroughly assessed by the Credit teams and adequately reserved.
• The Board declared a 9% increase in the quarterly cash dividend to $0.12 per share.

On July 12, 2024, the Company completed its merger (“the merger”) with Cambridge Bancorp (“Cambridge”), the parent company of Cambridge Trust Company, and therefore the third quarter financial results reflect the partial quarter impact of the merger. The merger added approximately $3.7 billion in loans, $3.9 billion in deposits, each at fair value, and $4.7 billion in AUM.

“This quarter marked a transformational moment in Eastern’s history, as we closed on our merger with Cambridge Trust,” said Bob Rivers, Executive Chair and Chair of the Board of Directors of the Company and Eastern Bank. “This combination represents a powerful step forward in achieving our strategic vision, positioning us as a stronger, more competitive institution and Greater Boston’s leading local bank. I want to acknowledge the hard work and dedication of our entire team.”

Denis Sheahan, Chief Executive Officer, added, “While we’ve grown, our focus remains deeply rooted in the Greater Boston community. Our expanded capabilities allow us to better serve the consumers and businesses that drive this region’s economy, by providing comprehensive, one-stop banking and wealth management solutions, ensuring that we remain a committed resource in their success.”

“Following successful bank and wealth system conversions, we are on track to achieve the merger-related financial targets that were set forth at the time of our announcement just over a year ago,” said David Rosato, Chief Financial Officer. “This accomplishment underscores the strength of our integration strategy and our commitment to deliver shareholder value.”

BALANCE SHEET

Total assets were $25.5 billion at September 30, 2024, representing an increase of $4.5 billion, or 21.2% from June 30, 2024.

• Cash and equivalents increased $138.6 million to $889.5 million.
• Securities increased $56.3 million, or 1.2%, to $4.6 billion, due to an increase in the market value of available for sale securities (“AFS securities”) driven by lower interest rates, partially offset by principal runoff. Acquired securities totaling $883.0 million were sold following completion of the merger.
• Loans totaled $18.1 billion, representing an increase of $3.9 billion, or 27.7%, due to the addition of Cambridge. Eastern-originated loans declined modestly by $16.1 million, or 0.1%, in the quarter.
• Deposits totaled $21.2 billion, representing an increase of $3.7 billion, or 21.0%. The merger added $3.9 billion of deposits. Legacy Eastern deposits decreased $195 million, or 0.9%, due primarily to a seasonal decline in municipal deposits, partially offset by an increase in time deposits.
• FHLB advances decreased $0.1 million to $17.3 million. Proceeds from the securities sale were used to pay off FHLB advances of $782.0 million that the Company assumed through the merger.
• Shareholders’ equity was $3.7 billion, representing an increase of $703.7 million, due primarily to the common shares issued in the merger, as well as an increase in AOCI, partially offset by a decrease in retained earnings.

Please refer to Appendix E for more information on organic loan and deposit growth and the impact of the Cambridge merger, and Appendix F for a roll-forward of tangible shareholders’ equity.

NET INTEREST INCOME

Net interest income was $169.9 million for the third quarter, compared to $128.6 million, representing an increase of $41.2 million, due to an increase in the net interest margin and increased average earning assets.

• Net interest income included net accretion income of $10.8 million from purchase accounting adjustments in connection with the merger.
• The net interest margin on a FTE basis was 2.97%, representing a 33 basis point increase and included net discount accretion of 18 basis points from the Cambridge merger.
• Total interest-earning assets yield increased 41 basis points from the prior quarter to 4.60%, due primarily to an increase in loan yields of 39 basis points, as well as higher other short-term investment balances.
• Total interest-bearing liabilities cost increased 6 basis points to 2.50%.

NONINTEREST INCOME

Noninterest income was $33.5 million for the third quarter, compared to $25.3 million, representing an increase of $8.2 million. Operating noninterest income was $32.9 million, compared to $31.1 million, representing an increase of $1.8 million.

• Trust and investment advisory fees increased $8.2 million to $14.9 million, due primarily to increased AUM as a result of the merger.
• Service charges on deposit accounts increased $0.2 million to $8.1 million.
• Debit card processing fees increased $0.3 million to $3.8 million.
• Customer swap income increased $0.1 million to $0.6 million.
• Income from investments held in rabbi trust accounts increased $1.8 million to $3.6 million.
• Losses on sales of mortgage loans held for sale were $0.4 million, compared to losses of $0.2 million in the prior quarter.
• There were no losses on sales of AFS securities in the third quarter, compared to losses of $7.6 million in the prior quarter.
• Other noninterest income decreased $9.8 million to $2.9 million, due in part to the merger-related disposal of fixed assets totaling $3.0 million. The prior quarter included an early termination payment of $7.8 million received from the early withdrawal of a $100 million deposit contract.

NONINTEREST EXPENSE

Noninterest expense was $159.8 million, compared to $109.9 million, an increase of $49.9 million. The increase was primarily driven by the increase in merger-related expenses of $23.9 million. Operating noninterest expense was $130.9 million, compared to $105.3 million, representing an increase of $25.6 million.

• Salaries and employee benefits expense was $93.8 million, an increase of $28.5 million. The increase in salaries expense of $24.6 million was due primarily to the addition of colleagues, and an increase in merger-related expenses of $11.8 million, including retention bonuses and severance payments. The increase in employee benefits expense of $3.9 million was attributable to an increase in federal payroll tax expense of $1.4 million, as well as the addition of colleagues and the increased market value of investments held in rabbi trust accounts by the Company’s defined contribution supplemental executive retirement plan (“DC SERP”).
• Office occupancy and equipment expense was $14.5 million, an increase of $4.4 million, due primarily to merger-related expenses of $2.6 million, as well as the addition of leases and equipment from the merger.
• Data processing expense was $19.5 million, an increase of $1.5 million.
• Professional services expense was $9.0 million, an increase of $4.7 million, due primarily to merger-related expenses of $4.5 million.
• Marketing expense was $1.6 million, a decrease of $0.3 million.
• Federal Deposit Insurance Corporation (“FDIC”) insurance expense was $3.2 million, a decrease of $1.3 million. The prior quarter included a FDIC special assessment of $1.9 million.
• Amortization of intangible assets was $6.2 million, an increase of $5.7 million, driven primarily by the amortization of core deposit intangibles and wealth management intangibles in connection with the merger.
• Other noninterest expense was $12.1 million, an increase of $6.7 million, due primarily to an increase in provision for off balance sheet credit exposures of $2.9 million, including a $1.9 million initial provision on off balance sheet credit exposures acquired from Cambridge, as well as merger-related contract termination fees of $2.6 million.

Please refer to Appendix D for additional detail on merger-related charges.

ASSET QUALITY

Non-performing loans (“NPLs”) totaled $124.5 million, or 0.70% of total loans, at September 30, 2024 compared to $39.8 million, or 0.28% of total loans, at the end of the prior quarter. The increase in NPLs was driven primarily by purchased credit deteriorated (“PCD”) loans acquired from Cambridge that were on non-accrual status at September 30, 2024.

During the third quarter of 2024, the Company recorded total net charge-offs of $5.1 million, or 0.12% of average total loans on an annualized basis, compared to total net recoveries of $0.8 million, or 0.02% of average total loans on an annualized basis, in the prior quarter, respectively.

The Company recorded a provision for loan losses totaling $47.0 million, including a $40.9 million initial provision on non-PCD loans acquired from Cambridge. The remaining provision was primarily associated with individual reserves on commercial real estate loans during the quarter.

The allowance for loan losses was $253.8 million at September 30, 2024, or 1.43% of total loans, compared to $156.1 million, or 1.11% of total loans, at June 30, 2024. The allowance in the third quarter included a $55.8 million initial allowance on PCD loans and a $40.9 million allowance established via the aforementioned initial provision on non-PCD loans, both related to the merger.

DIVIDENDS AND SHARE REPURCHASES

The Company’s Board of Directors declared a quarterly cash dividend of $0.12 per common share, representing a $0.01, or 9%, increase. The dividend will be payable on December 16, 2024 to shareholders of record as of the close of business on December 3, 2024.

The Company repurchased 836,399 shares of common stock during the third quarter at a weighted average price of $15.08, for an aggregate purchase price of $12.6 million.

CONFERENCE CALL AND PRESENTATION INFORMATION

A conference call and webcast covering Eastern’s third quarter 2024 earnings will be held on Friday, October 25, 2024 at 9:00 a.m. Eastern Time. To join by telephone, participants can call the toll-free dial-in number (800) 549-8228 from within the U.S. and reference conference ID 35193. 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 available on this site.

ABOUT EASTERN BANKSHARES, INC.

Eastern Bankshares, Inc. is the holding company for Eastern Bank. Founded in 1818, Eastern Bank is Greater Boston’s leading local bank with more than 110 locations serving communities in eastern Massachusetts, southern and coastal New Hampshire, Rhode Island and Connecticut. As of September 30, 2024, Eastern Bank had approximately $25.5 billion in assets. Eastern provides a full range of banking and wealth management solutions for consumers and businesses of all sizes including through its Cambridge Trust Wealth Management division, the largest bank-owned investment advisor in Massachusetts with approximately $8.4 billion in assets under management, and takes pride in its outspoken advocacy and community support that includes more than $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 the 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. Return on average tangible shareholders’ equity, operating return on average tangible shareholders’ equity as well as the operating efficiency ratio also further exclude the effect of amortization of intangible assets. 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 are not provided.

Management also presents tangible assets, tangible shareholders’ equity, average tangible shareholders’ equity, tangible book value per share, the ratio of tangible shareholders’ equity to tangible assets, return on average tangible shareholders’ equity, and operating return on average shareholders’ equity (discussed further above), each of which excludes the impact of goodwill and other intangible assets and in the case of tangible net income (loss), return on average tangible shareholders’ equity and operating return on average tangible shareholders’ equity excludes the after-tax impact of amortization of 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 includes 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 implementation of the merger, including that 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; that following completion of the merger, Eastern’s business may not perform as expected due to transaction-related uncertainty or other factors; that Eastern is unable to successfully implement integration strategies; that Eastern’s expansion of services or capabilities resulting from the merger may be more challenging than anticipated; reputational risks and the reaction of customers to the transaction; the inability to implement onboarding plans and other consequences associated with mergers; the diversion of management time and Company resources on merger-related issues; and disruptions arising from transitions in management personnel; 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 subsidiaries, including 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 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.

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."