Eastern Bankshares(EBC) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 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 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 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 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] - 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] - 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][233] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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][262] 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][264] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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] Item 4. Controls and Procedures 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] - No material changes in internal controls over financial reporting occurred during the quarter ended June 30, 2020[381] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 6. Exhibits 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][393]