Eastern Bankshares Inc. (NASDAQ:EBC) Q4 2021 Earnings Conference Call January 28, 2022 9:00 AM ET Company Participants Bob Rivers - Chief Executive Officer Jim Fitzgerald - Chief Financial Officer Conference Call Participants David Bishop - Seaport Research Damon DelMonte - KBW Laurie Hunsicker - Compass Point Janet Lee - JP Morgan Operator Hello and welcome to Eastern Bankshares Inc. fourth quarter 2021 earnings conference call. Today’s call will include forward-looking statements, including statements ab ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________________ FORM 10-Q _____________________________________________ (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-39610 ___________________________ Eastern Bankshares, Inc. (Exact ...

Eastern Bankshares, Inc. (NASDAQ:EBC) Q3 2021 Earnings Conference Call October 29, 2021 9:00 AM ET Company Participants Bob Rivers - CEO and Chairman Jim Fitzgerald - Chief Administrative Officer, CFO and Treasurer Conference Call Participants Damon DelMonte - KBW Laurie Hunsicker - Compass Point David Bishop - Seaport Research Operator Hello, and welcome to the Eastern Bankshares, Inc. Third Quarter 2021 Earnings Conference Call. Today's call will include forward-looking statements, including statements ab ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________________ FORM 10-Q _____________________________________________ (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-39610 ___________________________ Eastern Bankshares, Inc. (Exact name ...

Eastern Bankshares, Inc. (NASDAQ:EBC) Q2 2021 Earnings Conference Call July 30, 2021 9:00 AM ET Company Participants Bob Rivers - Chief Executive Officer and Chair Jim Fitzgerald - Chief Administrative Officer, Chief Financial Officer and Treasurer Conference Call Participants Damon DelMonte - KBW Laurie Hunsicker - Compass Point David Bishop - Seaport Research Operator Hello and welcome to the Eastern Bankshares, Inc. Second Quarter 2021 earnings conference call. Today's call will include forward-looking s ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Eastern Bankshares, Inc. as of March 31, 2021, and for the three months ended March 31, 2021 and 2020 [Unaudited Consolidated Balance Sheets](index=6&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) Total assets increased to **$16.73 billion** from **$15.96 billion**, driven by securities and loans, while liabilities grew to **$13.34 billion** from **$12.54 billion** due to deposits Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$16,726,795** | **$15,964,190** | | Cash and cash equivalents | $1,860,332 | $2,054,070 | | Available for sale securities | $3,986,253 | $3,183,861 | | Net loans | $9,772,722 | $9,593,958 | | **Total Liabilities** | **$13,339,750** | **$12,536,138** | | Total deposits | $12,980,875 | $12,155,784 | | **Total Shareholders' Equity** | **$3,387,045** | **$3,428,052** | [Unaudited Consolidated Statements of Income](index=7&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Income) Net income increased to **$47.7 million** from **$8.4 million**, driven by reduced loan loss provision and higher noninterest income Consolidated Statements of Income (in thousands, except per share data) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net interest income | $100,091 | $100,146 | | (Release of) provision for allowance for loan losses | ($580) | $28,600 | | Noninterest income | $55,212 | $33,369 | | Noninterest expense | $94,049 | $95,172 | | Income before income tax expense | $61,834 | $9,743 | | **Net income** | **$47,663** | **$8,445** | | **Diluted earnings per share** | **$0.28** | **N/A** | [Unaudited Consolidated Statements of Comprehensive Income](index=8&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive loss was **$32.8 million**, a decline from **$63.7 million** income, due to **$80.4 million** unrealized losses on AFS securities Consolidated Statements of Comprehensive Income (in thousands) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net income | $47,663 | $8,445 | | Total other comprehensive (loss) income | ($80,426) | $55,267 | | **Total comprehensive (loss) income** | **($32,763)** | **$63,712** | [Unaudited Consolidated Statements of Changes in Equity](index=9&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Shareholders' equity decreased from **$3.43 billion** to **$3.39 billion**, primarily due to **$80.4 million** other comprehensive loss and **$10.3 million** dividends - The Company declared and paid a quarterly cash dividend of **$0.06** per share of common stock during the three months ended March 31, 2021, totaling **$10.3 million**[14](index=14&type=chunk) Changes in Shareholders' Equity (in thousands) | Account | Three Months Ended March 31, 2021 | | :--- | :--- | | Balance at December 31, 2020 | $3,428,052 | | Net income | $47,663 | | Other comprehensive loss, net of tax | ($80,426) | | Dividends to common shareholders | ($10,324) | | ESOP shares committed to be released | $2,080 | | **Balance at March 31, 2021** | **$3,387,045** | [Unaudited Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash decreased by **$193.7 million**, driven by **$1.07 billion** used in investing activities, partially offset by financing and operating cash flows Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $64,910 | ($31,551) | | Net cash used in investing activities | ($1,074,676) | ($116,644) | | Net cash provided by financing activities | $816,028 | $552,042 | | **Net (decrease) increase in cash and cash equivalents** | **($193,738)** | **$403,847** | [Notes to Unaudited Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on accounting policies, financial items, and a significant subsequent merger event [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=58&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 financial performance, highlighting a **464.4%** net income increase to **$47.7 million** due to reduced loan loss provision and higher noninterest income - Net income increased **464.4%** to **$47.7 million** in Q1 2021 from **$8.4 million** in Q1 2020, largely due to a **$29.2 million** decrease in the provision for loan losses and increased income from interest rate swaps and rabbi trust investments[250](index=250&type=chunk) - The company manages its business through two segments: the banking business, contributing **81.8%** of total income, and the insurance agency business, contributing **18.2%** of total income for Q1 2021[249](index=249&type=chunk) - As of March 31, 2021, out of **$985.7 million** in loans that had received a COVID-19 modification since 2020, **$807.3 million (82%)** had resumed payments and were not more than 30 days past due[273](index=273&type=chunk) Paycheck Protection Program (PPP) Loan Summary | Metric | Q1 2021 Originations | FY 2020 Originations | Total | | :--- | :--- | :--- | :--- | | Number of loans originated | 4,693 | 8,902 | 13,595 | | Original balance (in thousands) | $452,596 | $1,167,137 | $1,619,733 | | Current balance (in thousands) | $452,619 | $785,434 | $1,238,053 | | Net PPP fee accretion in Q1 2021 | $8.3 million | | | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=95&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Primary market risk is interest rate risk, with models indicating a **+200 bps** shift increases net interest income by **22.1%**, and a **-100 bps** shift decreases it by **4.8%** - The information required for this item is included in Part I, Item 2 under the heading 'Management of Market Risk'[430](index=430&type=chunk) Net Interest Income Sensitivity Analysis (as of March 31, 2021) | Change in Interest Rates (bps) | Estimated Change from Flat Scenario | | :--- | :--- | | +400 | +44.1% | | +300 | +33.0% | | +200 | +22.1% | | (100) | -4.8% | [Item 4. Controls and Procedures](index=96&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2021[430](index=430&type=chunk) - No changes occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting[431](index=431&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=97&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any material pending legal proceedings beyond routine litigation in the ordinary course of business - The Company is not involved in any pending legal proceeding, other than routine legal proceedings in the ordinary course of business, that would be considered material to its financial condition[435](index=435&type=chunk) [Item 1A. Risk Factors](index=97&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, focusing on the pending Century Bancorp acquisition, including integration challenges and managing new business lines - On April 7, 2021, the company entered into a definitive merger agreement to acquire Century Bancorp, Inc. for **$641.9 million** in cash, which is expected to close in Q4 2021[439](index=439&type=chunk) - The acquisition of Century presents new risks, as Century's business includes depository services for marijuana-related businesses and money services businesses, which will require enhanced compliance and risk management resources[439](index=439&type=chunk) - Risks associated with the Century merger include failure to obtain regulatory approvals, difficulties integrating operations and technologies, potential loss of key personnel and customers, and failure to realize anticipated synergies and cost savings[437](index=437&type=chunk)[441](index=441&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=100&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during the period - None[445](index=445&type=chunk) [Item 3. Defaults Upon Senior Securities](index=100&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities occurred during the period - None[445](index=445&type=chunk) [Item 4. Mine Safety Disclosures](index=100&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[446](index=446&type=chunk) [Item 5. Other Information](index=100&type=section&id=Item%205.%20Other%20Information) No other information was reported for the period - None[447](index=447&type=chunk) [Item 6. Exhibits](index=101&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including the Century Bancorp merger agreement and CEO/CFO certifications - The exhibits filed with the report include the Agreement and Plan of Merger with Century Bancorp, Inc., CEO and CFO certifications (Rule 13a-14(a) and Section 1350), and interactive data files (XBRL)[451](index=451&type=chunk)

PART I [Business](index=5&type=section&id=Item%201.%20Business) Eastern Bankshares, Inc. operates banking and insurance segments, managing **$16.0 billion** in assets with a focus on strategic growth and conservative risk management [General Corporate Overview](index=5&type=section&id=General%20Corporate%20Overview) Eastern Bankshares, Inc. is a Massachusetts-based bank holding company operating banking and insurance segments, with **$16.0 billion** in assets and **$3.4 billion** in equity as of year-end 2020 Key Financial Metrics as of December 31, 2020 | Metric | Value (Billions) | | :--- | :--- | | Total Consolidated Assets | $16.0 | | Total Gross Loans | $9.7 | | Total Deposits | $12.2 | | Total Shareholders' Equity | $3.4 | - The company operates through two primary business segments: a banking business and an insurance agency business (Eastern Insurance Group LLC)[14](index=14&type=chunk) - Eastern Bank controls four active subsidiaries engaged in securities, real estate services, and tax credit investments[13](index=13&type=chunk) [Market Area and Competition](index=5&type=section&id=Market%20Area%20and%20Competition) The company's primary market is the Boston-Worcester-Providence CSA, a competitive financial services hub where Eastern Bank holds a **2.5%** deposit share - The primary market is the Boston-Worcester-Providence CSA, which has a population of **8.3 million** and a median household income of approximately **$85,000**, significantly higher than the U.S. average of **$66,000**[15](index=15&type=chunk) - As of June 30, 2020, the company held a **2.5%** deposit market share in the Boston market, ranking sixth among competitors[17](index=17&type=chunk) - Competition is intense from both traditional banks and non-bank institutions, particularly those using technology-driven platforms that offer higher deposit rates due to lower cost structures[17](index=17&type=chunk) [Business Strategy](index=6&type=section&id=Business%20Strategy) The company's strategy focuses on deepening customer relationships, opportunistic acquisitions, technology investment, and conservative risk management - A key strategy is to pursue opportunistic acquisitions of banks and insurance agencies, leveraging the financial strength from its recent IPO to act as a consolidator[21](index=21&type=chunk) - The company is committed to significant investments in technology, including upgrades to its mobile banking platform and commercial lending systems, to enhance customer experience and drive operating efficiencies[21](index=21&type=chunk) - During 2020, the company disbursed **$1.2 billion** in Paycheck Protection Program (PPP) loans to approximately **8,900** borrowers, demonstrating its commitment to supporting small business and non-profit customers[19](index=19&type=chunk) [Lending Activities](index=7&type=section&id=Lending%20Activities) The company's **$9.7 billion** loan portfolio is diversified across commercial real estate, commercial and industrial, residential, and small business segments Loan Portfolio Composition as of December 31, 2020 | Loan Category | Amount (Billions) | % of Total Loans | | :--- | :--- | :--- | | Commercial Real Estate | $3.6 | 36.8% | | Commercial and Industrial | $2.0 | 20.6% | | Residential Real Estate | $1.4 | 14.1% | | Small Business | $1.3 | 13.8% | | Home Equity | $0.87 | 8.9% | | Commercial Construction | $0.31 | 3.1% | | Other Consumer | $0.28 | 2.9% | - The company's regulatory limit on loans-to-one borrower was **$685.6 million**, while its more conservative internal limits were **$75.0 million** for commercial real estate relationships and **$40.0 million** for commercial and industrial relationships[31](index=31&type=chunk)[33](index=33&type=chunk) - The company held loan participation interests, including Shared National Credits (SNCs), totaling **$1.0 billion** as of December 31, 2020[29](index=29&type=chunk) [Sources of Funds](index=11&type=section&id=Sources%20of%20Funds) Deposits totaling **$12.2 billion** are the primary source of funds, supplemented by borrowings and significant contingent liquidity from FHLB Sources of Funds as of December 31, 2020 | Source | Amount (Billions) | | :--- | :--- | | Total Deposits | $12.2 | | Total Borrowings | $0.028 | - The company had **$1.6 billion** of remaining borrowing capacity with the FHLB of Boston as of December 31, 2020, providing a contingent source of liquidity[35](index=35&type=chunk) [Eastern Wealth Management](index=11&type=section&id=Eastern%20Wealth%20Management) Eastern Wealth Management provides trust, investment, and financial planning services, managing **$2.9 billion** in assets and generating **$21.1 million** in 2020 revenue - As of December 31, 2020, Eastern Wealth Management held **$2.9 billion** of assets in a fiduciary, custodial, or agency capacity for customers[36](index=36&type=chunk) - The division generated revenue of **$21.1 million** in 2020, which represented **11.8%** of the company's total noninterest income[38](index=38&type=chunk) [Eastern Insurance Group LLC](index=12&type=section&id=Eastern%20Insurance%20Group%20LLC) Eastern Insurance Group LLC, a key noninterest income contributor, generated **$94.5 million** in 2020 commissions and is the third largest agency in Massachusetts - The insurance agency generated **$94.5 million** in commission income, accounting for **53.0%** of the company's total noninterest income for the year ended December 31, 2020[39](index=39&type=chunk) - Eastern Insurance Group is the third largest insurance agency in Massachusetts and the third largest owned by a banking company in the United States, based on revenue[39](index=39&type=chunk) - The agency pursues a growth strategy through acquisitions, having acquired **11** smaller agencies in the five-year period ending December 31, 2020[39](index=39&type=chunk) [Regulation](index=12&type=section&id=Regulation) The company is subject to extensive state and federal banking regulations, including capital requirements and consumer protection, and qualifies as an emerging growth company - Eastern Bank is a Massachusetts-chartered non-member bank regulated by the Massachusetts Commissioner of Banks and the FDIC. Eastern Bankshares, Inc. is a bank holding company regulated by the Federal Reserve Board[41](index=41&type=chunk) - Federal regulations require FDIC-insured institutions to meet minimum capital standards, including a common equity Tier 1 ratio of **4.5%** and a total capital ratio of **8.0%**. As of December 31, 2020, Eastern Bank was classified as a **well capitalized** institution[48](index=48&type=chunk)[50](index=50&type=chunk) - With assets exceeding **$10 billion**, Eastern Bank is subject to direct supervision and examination by the Consumer Financial Protection Bureau (CFPB) for compliance with federal consumer financial laws[54](index=54&type=chunk) - The company qualifies as an **emerging growth company** under the JOBS Act, which permits it to use an extended transition period for complying with new or revised accounting standards[66](index=66&type=chunk)[68](index=68&type=chunk) [Human Capital Management](index=23&type=section&id=Human%20Capital%20Management) The company prioritizes Diversity, Equity & Inclusion, offering competitive benefits, and adapted to COVID-19 with remote work and frontline support, maintaining high employee engagement - The company has a strong focus on DE&I, with **50%** of its Board of Directors and **40%** of its Management Committee comprised of women and people of color[74](index=74&type=chunk) 2020 Workforce Demographics | Group | % Female | % People of Color | | :--- | :--- | :--- | | Board of Directors | 25.0% | 33.3% | | Management Committee | 25.0% | 16.7% | | Total Workforce | 67.4% | 22.8% | | New Hires (2020) | 64.9% | 38.8% | - In response to the COVID-19 pandemic, the company securely set up two-thirds of its employees to work from home and provided premium pay to frontline colleagues[81](index=81&type=chunk)[83](index=83&type=chunk) - The company maintains strong employee engagement, with a **92%** response rate to its 2020 annual survey, where **93%** of respondents reported being proud to work for the company[84](index=84&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from the COVID-19 pandemic, interest rate fluctuations, geographic loan concentration, acquisition challenges, cybersecurity threats, and extensive regulatory oversight - The COVID-19 pandemic is identified as a major risk, expected to have a material adverse effect on business through reduced demand and higher credit losses, particularly in sectors like hotels, restaurants, and retail[89](index=89&type=chunk) - Changes in interest rates pose a significant risk to profitability. The low-rate environment established by the Federal Reserve to mitigate pandemic effects has adversely affected and is expected to continue to adversely affect operating results[95](index=95&type=chunk)[110](index=110&type=chunk) - The geographic concentration of the loan portfolio in eastern Massachusetts and southern New Hampshire makes the company vulnerable to local economic downturns[95](index=95&type=chunk)[128](index=128&type=chunk) - The company faces risks from its acquisition strategy, including competition for targets and difficulties in integrating operations, technologies, and employees of acquired businesses[93](index=93&type=chunk)[118](index=118&type=chunk) - Cybersecurity threats, operational risks from system failures or fraud, and extensive, evolving state and federal regulations are highlighted as inherent business risks[95](index=95&type=chunk)[131](index=131&type=chunk)[197](index=197&type=chunk) [Unresolved Staff Comments](index=55&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - **None reported**[229](index=229&type=chunk) [Properties](index=55&type=section&id=Item%202.%20Properties) As of December 31, 2020, the company operates **89** bank branches and **27** insurance offices, with the majority being leased properties - The company operates **89** bank branch offices and **27** insurance offices, with the majority (**98**) being leased properties[230](index=230&type=chunk) - The net book value of all land, buildings, furniture, fixtures, and equipment was **$49.4 million** as of December 31, 2020[230](index=230&type=chunk) [Legal Proceedings](index=55&type=section&id=Item%203.%20Legal%20Proceedings) The company is not involved in any material legal proceedings beyond routine litigation in the ordinary course of business - The company is not involved in any material legal proceedings outside of the ordinary course of business[231](index=231&type=chunk) [Mine Safety Disclosures](index=56&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Not applicable**[233](index=233&type=chunk) PART II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=57&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Eastern Bankshares, Inc.'s common stock began trading on Nasdaq in October 2020, raising **$1.76 billion** in IPO proceeds and initiating a quarterly cash dividend - The company's common stock trades on the Nasdaq Global Select Market under the symbol **EBC**[236](index=236&type=chunk) - The company completed its IPO on October 14, 2020, raising net proceeds of **$1.76 billion** after expenses. **$882.0 million** was contributed to Eastern Bank and **$149.4 million** was loaned to the company's ESOP[244](index=244&type=chunk) - A quarterly cash dividend of **$0.06** per share was initiated on January 28, 2021[243](index=243&type=chunk) - The company is prohibited from repurchasing its common stock through October 14, 2021, due to applicable regulations[242](index=242&type=chunk) [Selected Financial Data](index=59&type=section&id=Item%206.%20Selected%20Financial%20Data) Selected financial data shows significant asset and deposit growth post-IPO, with 2020 net income impacted by IPO expenses and increased loan loss provisions Selected Financial Data (2018-2020) | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Financial Position** | | | | | Total assets | $15,964,190 | $11,628,775 | $11,378,287 | | Loans, net | $9,593,958 | $8,899,184 | $8,774,913 | | Total deposits | $12,155,784 | $9,551,392 | $9,399,493 | | Total equity | $3,428,052 | $1,600,153 | $1,433,141 | | **Operating Data** | | | | | Net interest income | $401,251 | $411,264 | $390,044 | | Provision for loan losses | $38,800 | $6,300 | $15,100 | | Net income | $22,738 | $135,098 | $122,727 | Selected Performance & Capital Ratios (2018-2020) | Ratio | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Return on average assets | 0.16% | 1.18% | 1.10% | | Return on average equity | 1.11% | 8.75% | 9.02% | | Net interest margin (FTE) | 3.19% | 3.96% | 3.84% | | Efficiency ratio | 87.11% | 69.53% | 69.73% | | Tier 1 capital to risk weighted assets | 28.46% | 12.66% | 11.51% | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The 2020 IPO significantly boosted assets and equity, while net income decreased due to a charitable stock donation and increased loan loss provisions related to COVID-19 [Overview](index=61&type=section&id=Overview) The company operates banking and insurance segments, with 2020 GAAP net income significantly lower due to higher credit loss provisions and reduced net interest income Net Income Comparison (GAAP vs. Non-GAAP) | (In millions) | 2020 | 2019 | | :--- | :--- | :--- | | Net Income (GAAP) | $22.7 | $135.1 | | Net Operating Earnings (Non-GAAP) | $102.1 | $129.7 | [Outlook and Trends](index=61&type=section&id=Outlook%20and%20Trends) The COVID-19 pandemic led to **$1.0 billion** in loan modifications and **$1.2 billion** in PPP originations, increasing loan loss provisions to **$38.8 million** in 2020 - The company originated **$1.2 billion** in PPP loans during 2020, with **$1.0 billion** outstanding at year-end. It received **$37.1 million** in origination fees from the SBA[256](index=256&type=chunk)[261](index=261&type=chunk) COVID-19 Loan Modifications as of Dec 31, 2020 | Status | Amount (Billions) | | :--- | :--- | | Total Modifications Executed | $1.0 | | Remaining in Modified Status | $0.33 | - High-risk industries, including retail, restaurants, and hotels, represented **11.5%** (**$1.13 billion**) of the total loan portfolio. The hotel sector had the highest percentage of modified loans at **51.4%**[261](index=261&type=chunk) - The loan loss provision increased significantly to **$38.8 million** in 2020 from **$6.3 million** in 2019, driven by the economic distress caused by the pandemic[263](index=263&type=chunk) [Financial Position](index=67&type=section&id=Financial%20Position) The company's financial position strengthened significantly in 2020 due to its IPO, increasing assets to **$16.0 billion** and deposits to **$12.2 billion** Year-over-Year Changes in Key Balance Sheet Items (2019-2020) | Account | 2020 Value | Change from 2019 | % Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $2.1B | +$1.7B | +466.5% | | Securities available for sale | $3.2B | +$1.7B | +111.1% | | Loans, net | $9.6B | +$0.7B | +7.8% | | Deposits | $12.2B | +$2.6B | +27.3% | | Borrowed funds | $28.0M | -$207.3M | -88.1% | - The allowance for loan losses increased by **$30.7 million** to **$113.0 million**, representing **1.16%** of total loans (or **1.30%** excluding PPP loans), up from **0.92%** in 2019[309](index=309&type=chunk)[123](index=123&type=chunk) - Non-performing loans as a percentage of total loans decreased slightly to **0.45%** at year-end 2020 from **0.49%** in 2019, partly due to the increase in total loan balances from PPP lending[302](index=302&type=chunk) [Results of Operations](index=84&type=section&id=Results%20of%20Operations) Net income decreased **83.2%** in 2020 to **$22.7 million**, primarily due to a **$91.3 million** stock donation and a **$32.5 million** increase in loan loss provisions Summary of Results of Operations (2020 vs. 2019) | (In millions) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $401.3 | $411.3 | (2.4)% | | Provision for Loan Losses | $38.8 | $6.3 | +515.9% | | Noninterest Income | $178.4 | $182.3 | (2.2)% | | Noninterest Expense | $504.9 | $412.7 | +22.4% | | **Net Income** | **$22.7** | **$135.1** | **(83.2)%** | - The net interest margin (FTE) decreased by **77** basis points to **3.19%** in 2020 from **3.96%** in 2019, reflecting the impact of the lower interest rate environment[332](index=332&type=chunk) - Noninterest expense was significantly impacted by a one-time **$91.3 million** stock contribution to the Eastern Bank Charitable Foundation in connection with the IPO[345](index=345&type=chunk) - Noninterest income was supported by a **$6.3 million** increase in gains on sales of mortgage loans and a **$3.9 million** increase in insurance commissions, but was offset by a **$5.7 million** decrease in interest rate swap income[342](index=342&type=chunk) [Liquidity and Capital Resources](index=96&type=section&id=Liquidity%20and%20Capital%20Resources) The 2020 IPO significantly enhanced liquidity and capital, with regulatory capital ratios far exceeding well-capitalized minimums and substantial contingent FHLB borrowing capacity - The net proceeds from the IPO significantly increased liquidity and capital resources at both the holding company and the bank level[369](index=369&type=chunk) Regulatory Capital Ratios as of December 31, 2020 | Ratio | Actual | Well-Capitalized Minimum | | :--- | :--- | :--- | | Total risk-based capital | 29.61% | ≥10.0% | | Common equity Tier 1 capital | 28.46% | ≥6.5% | | Tier 1 risk-based capital | 28.46% | ≥8.0% | | Tier 1 leverage | 19.53% | ≥5.0% | [Quantitative and Qualitative Disclosures About Market Risk](index=98&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with NII and EVE analyses showing positive sensitivity to rising rates as of December 31, 2020 Net Interest Income Sensitivity as of December 31, 2020 | Change in Interest Rates (bps) | % Change in Net Interest Income | | :--- | :--- | | +400 | +50.0% | | +300 | +37.7% | | +200 | +25.5% | | -100 | (5.0)% | Economic Value of Equity (EVE) Sensitivity as of December 31, 2020 | Change in Interest Rates (bps) | % Change in EVE | | :--- | :--- | | +400 | +11.5% | | +300 | +9.3% | | +200 | +6.9% | | -100 | (6.9)% | [Financial Statements](index=99&type=section&id=Item%208.%20Financial%20Statements) This section presents the company's audited consolidated financial statements for the three years ended December 31, 2020, reflecting significant asset and equity growth post-IPO Consolidated Balance Sheet Highlights (as of Dec 31) | (In thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | $15,964,190 | $11,628,775 | | Net Loans | $9,593,958 | $8,899,184 | | Total Deposits | $12,155,784 | $9,551,392 | | Total Liabilities | $12,536,138 | $10,028,622 | | Total Shareholders' Equity | $3,428,052 | $1,600,153 | Consolidated Income Statement Highlights (Year Ended Dec 31) | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Interest Income | $401,251 | $411,264 | $390,044 | | Provision for Credit Losses | $38,800 | $6,300 | $15,100 | | Noninterest Income | $178,373 | $182,299 | $180,595 | | Noninterest Expense | $504,923 | $412,684 | $397,928 | | **Net Income** | **$22,738** | **$135,098** | **$122,727** | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=174&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles, financial disclosure, or auditing scope - **None reported**[644](index=644&type=chunk) [Controls and Procedures](index=174&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, despite the shift to remote work - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[644](index=644&type=chunk) - Management's report on internal control over financial reporting concluded that the company maintained effective internal controls as of December 31, 2020, based on the COSO framework[646](index=646&type=chunk) [Other Information](index=174&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - **None**[647](index=647&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership](index=175&type=section&id=Items%2010-14) Information for Items 10 through 14 is incorporated by reference from the company's 2021 Annual Meeting of Stockholders proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's 2021 Proxy Statement[650](index=650&type=chunk)[651](index=651&type=chunk)[652](index=652&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=176&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists documents filed as part of the Form 10-K, including Consolidated Financial Statements and an index of key corporate governance exhibits - The Consolidated Financial Statements are filed as part of this report[655](index=655&type=chunk) - An index of exhibits filed with the report is provided, including key corporate governance and compensation documents[658](index=658&type=chunk)[663](index=663&type=chunk) [Form 10–K Summary](index=177&type=section&id=Item%2016.%20Form%2010%E2%80%93K%20Summary) The company reports no summary for this item - **None**[664](index=664&type=chunk)

Eastern Bankshares, Inc. (NASDAQ:EBC) Q4 2020 Earnings Conference Call January 29, 2021 9:00 AM ET Company Participants Bob Rivers – Chief Executive Officer and Chair Jim Fitzgerald – Chief Administrative Officer, Chief Financial Officer and Treasurer Dan Sullivan – Chief Credit Officer Conference Call Participants Damon DelMonte – KBW Janet Lee – JPMorgan Laurie Hunsicker – Compass Point Jake Civiello – Janney Operator Good morning. My name is Amy and I will be your conference operator today. I would like ...

Financial Performance - Net income for the nine months ended September 30, 2020, was $66.8 million, a decrease of 35.7% compared to $103.9 million for the same period in 2019[267]. - Return on average assets decreased to 0.68% for the nine months ended September 30, 2020, down from 1.22% for the same period in 2019[271]. - The efficiency ratio increased to 71.71% for the nine months ended September 30, 2020, compared to 68.95% for the same period in 2019, indicating higher operational costs relative to income[271]. - Net interest income for the three months ended September 30, 2020, was $98.742 million, down from $104.148 million in the same period of 2019[315]. - Net interest income decreased by $12.7 million, or 4.1%, to $297.6 million during the nine months ended September 30, 2020, from $310.3 million during the same period in 2019[400]. - Net income for the three months ended September 30, 2020, was $28.5 million, compared to $35.8 million for the same period in 2019[424]. Asset and Liability Growth - Total assets increased to $15.46 billion as of September 30, 2020, from $11.63 billion as of December 31, 2019, representing a growth of approximately 32%[267]. - Total liabilities increased to $11.5 billion as of September 30, 2020, from $9.8 billion as of September 30, 2019[408]. - Total deposits rose to $13.33 billion as of September 30, 2020, up from $9.55 billion as of December 31, 2019, reflecting a growth of approximately 39%[267]. - Total cash and cash equivalents rose by $2.0 billion, or 542.0%, to $2.3 billion as of September 30, 2020, compared to $362.6 million at December 31, 2019[320]. - Total outstanding loans amounted to $9.94 billion as of September 30, 2020, with a nonperforming loans (NPLs) ratio of 0.45%[364]. Loan Performance and Provisions - Provision for loan losses increased significantly to $37.9 million for the nine months ended September 30, 2020, compared to $4.5 million for the same period in 2019, indicating a heightened risk environment[267]. - The allowance for loan losses rose to $115,432 thousand, compared to $82,297 thousand at the end of 2019, indicating a significant increase in provisions[344]. - Nonperforming loans (NPLs) increased by $1.1 million, or 2.4%, to $44.8 million at September 30, 2020, while NPLs as a percentage of total loans decreased to 0.45% from 0.49%[358]. - The provision for loan losses was $0.7 million for the three months ended September 30, 2020, and $37.9 million for the nine months ended September 30, 2020[366]. - Potential problem loans related to COVID-19 totaled $615.4 million as of September 30, 2020, compared to $157.3 million as of December 31, 2019[364]. Income and Expense Analysis - Noninterest income from wealth management services was $5.3 million for the three months ended September 30, 2020, compared to $19.7 million for the year ended December 31, 2019[291]. - Noninterest income (GAAP) for the three months ended September 30, 2020, was $47.709 million, compared to $41.590 million in the same period of 2019[315]. - Noninterest income decreased by $6.3 million, or 4.7%, to $128.7 million for the nine months ended September 30, 2020, from $135.0 million for the same period in 2019[413]. - Noninterest expense increased by $9.2 million, or 9.1%, to $109.8 million for the three months ended September 30, 2020, primarily due to a $5.3 million increase in salaries and employee benefits[418]. Capital and Equity - Total equity increased to $1.71 billion as of September 30, 2020, from $1.60 billion as of December 31, 2019, representing a growth of approximately 6.5%[267]. - The company’s Tier 1 capital to risk-weighted assets ratio improved to 12.91% as of September 30, 2020, compared to 12.36% as of September 30, 2019[271]. - Tangible equity increased to $1.34 billion in 2020, up from $1.22 billion in 2019, representing a growth of 9.4%[316]. Loan Modifications and COVID-19 Impact - As of September 30, 2020, loans that received a COVID-19 modification totaled $974.0 million, with 51% for full payment deferrals and 49% for deferral of only principal payments[296]. - The total balance of loans modified due to COVID-19 represented approximately 9.5% of total loan balances as of September 30, 2020[298]. - High-risk industries, including retail and restaurants, had significant loan balances of $481.4 million and $205.3 million, respectively, with modification rates of 20.6% and 41.9%[300]. Interest Income and Expense - Interest and dividend income decreased by $12.2 million, or 10.8%, to $100.5 million during the three months ended September 30, 2020, compared to $112.7 million for the same period in 2019[385]. - Interest expense decreased by $6.8 million, or 79.3%, to $1.8 million during the three months ended September 30, 2020, from $8.6 million in the same period of 2019[393]. - The average cost of interest-bearing deposits decreased 27 basis points to 0.20% in the nine months ended September 30, 2020[396]. Market and Economic Conditions - The company anticipates that the majority of its PPP exposure will be forgiven in the fourth quarter of 2020 or in the year ending December 31, 2021[302]. - The company expects elevated loan loss provisions until the economy recovers from the COVID-19 pandemic[306]. - The estimated economic value of equity (EVE) at September 30, 2020 was $4.4 billion, with a 14.1% increase in EVE from a 400 basis points increase in interest rates[451].

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for the period ended June 30, 2020, show total assets increased to $14.0 billion, driven by loan growth and increased cash from strong deposit inflows, while net income decreased to $38.3 million due to a higher provision for credit losses [Unaudited Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) As of June 30, 2020, total assets increased to $14.0 billion from $11.6 billion at year-end 2019, primarily fueled by a $1.0 billion increase in net loans and a $1.1 billion increase in cash and cash equivalents, with total deposits growing by $2.3 billion to $11.8 billion Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$13,996,523** | **$11,628,775** | | Cash and cash equivalents | $1,432,561 | $362,602 | | Net Loans | $9,862,980 | $8,899,184 | | **Total Liabilities** | **$12,302,893** | **$10,028,622** | | Total deposits | $11,846,765 | $9,551,392 | | Borrowed funds | $29,155 | $235,395 | | **Total Equity** | **$1,693,630** | **$1,600,153** | [Unaudited Consolidated Statements of Income](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Income) For the six months ended June 30, 2020, net income was $38.3 million, down 43.7% from $68.0 million in the prior year, primarily due to a $32.7 million increase in the provision for credit losses, which rose to $37.2 million Consolidated Income Statement Summary (in thousands) | Account | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net interest income | $198,901 | $206,195 | | Provision for credit losses | $37,200 | $4,500 | | Noninterest income | $81,026 | $93,432 | | Noninterest expense | $195,937 | $206,399 | | **Net Income** | **$38,295** | **$68,018** | [Unaudited Consolidated Statements of Cash Flows](index=10&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2020, cash and cash equivalents increased by $1.07 billion, primarily due to $2.08 billion in net cash provided by financing activities from increased deposits, largely offset by $1.02 billion in net cash used in investing activities from a net increase in loans Net Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,001 | $84,654 | | Net cash used in investing activities | $(1,016,864) | $(79,203) | | Net cash provided by financing activities | $2,084,822 | $26,450 | | **Net increase in cash** | **$1,069,959** | **$31,901** | [Notes to Unaudited Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies and financial statement line items, including the composition of securities and loan portfolios, a significant increase in the allowance for loan losses due to COVID-19, derivative instruments, segment reporting, and subsequent events related to the company's reorganization plan and public stock offering - The allowance for loan losses increased to **$116.6 million** at June 30, 2020, from **$82.3 million** at year-end 2019, with the provision for the first six months of 2020 surging to **$37.2 million** from **$4.5 million** in the prior year period, reflecting the economic impact of COVID-19[61](index=61&type=chunk) - The company originated **$1.1 billion** in Paycheck Protection Program (PPP) loans to approximately **8,100 borrowers** during the quarter ended June 30, 2020, which are 100% guaranteed by the SBA and do not have an associated allowance for loan losses[83](index=83&type=chunk) - Subsequent to the quarter-end, the company's corporators approved a Plan of Conversion to reorganize from a mutual holding company into a publicly traded stock corporation, with the subscription offering commencing on August 18, 2020[231](index=231&type=chunk)[233](index=233&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 43.7% year-over-year decline in six-month net income primarily to the economic fallout from the COVID-19 pandemic, leading to a $32.7 million increase in the provision for loan losses, active participation in the Paycheck Protection Program (PPP) with $1.1 billion in originations, and a compressed net interest margin of 3.49% from 4.03% a year ago, while total assets grew 20.4% to $14.0 billion, funded by a 24.0% increase in deposits - The COVID-19 pandemic is highlighted as the primary driver of financial results, leading to a significant increase in the provision for loan losses, loan modifications for affected customers, and participation in the PPP[260](index=260&type=chunk)[262](index=262&type=chunk) Key Performance Ratios (Six months ended June 30) | Ratio | 2020 | 2019 | | :--- | :--- | :--- | | Return on average assets (annualized) | 0.61% | 1.21% | | Return on average equity (annualized) | 4.64% | 9.20% | | Net interest margin (FTE, annualized) | 3.49% | 4.03% | | Efficiency ratio | 70.00% | 68.89% | | Allowance for loan losses to total loans | 1.17% | 0.92% | - The company originated **$1.1 billion** in PPP loans for **8,103 borrowers**, collecting **$35.8 million** in fees, which significantly increased the commercial and industrial and business banking loan portfolios[263](index=263&type=chunk)[264](index=264&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=87&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section refers the reader to the 'Management of Market Risk' discussion within Item 2 (MD&A) for information on the company's exposure to market risk, particularly interest rate risk - Disclosures regarding market risk are provided in the Management's Discussion and Analysis section of the report[380](index=380&type=chunk) [Item 4. Controls and Procedures](index=87&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of June 30, 2020, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter despite the transition to remote work due to the COVID-19 pandemic - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[380](index=380&type=chunk) - No material changes in internal controls over financial reporting occurred during the quarter ended June 30, 2020[381](index=381&type=chunk) [PART II. OTHER INFORMATION](index=88&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=88&type=section&id=Item%201.%20Legal%20Proceedings) The company states that it is not involved in any pending legal proceedings that would be material to its financial condition or results of operations, aside from routine legal matters arising in the ordinary course of business - The company is not involved in any material pending legal proceedings outside of the ordinary course of business[385](index=385&type=chunk) [Item 1A. Risk Factors](index=88&type=section&id=Item%201A.%20Risk%20Factors) The company reports no material changes to its risk factors from those disclosed in its prospectus filed with the SEC on August 18, 2020 - There have been no material changes to the company's risk factors since its prospectus was filed on August 18, 2020[386](index=386&type=chunk) [Item 6. Exhibits](index=88&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with or incorporated by reference into the Form 10-Q, including the Plan of Conversion, corporate bylaws, and CEO/CFO certifications - The report includes an index of exhibits, such as the Plan of Conversion, bylaws, and required CEO/CFO certifications under Sarbanes-Oxley[391](index=391&type=chunk)[393](index=393&type=chunk)