Eastern Bankshares(EBC) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Q1 2023 unaudited consolidated financial statements show a $194.1 million net loss, driven by a $333.2 million loss on securities sales, contrasting with $51.5 million net income in Q1 2022 Unaudited Consolidated Balance Sheets As of March 31, 2023, total assets remained stable at $22.72 billion, with a significant shift from securities to cash, while deposits decreased and borrowed funds increased Consolidated Balance Sheet Highlights (In thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $22,720,530 | $22,646,858 | | Cash and cash equivalents | $2,137,816 | $169,505 | | Total securities | $5,171,319 | $7,167,425 | | Net loans | $13,520,715 | $13,420,317 | | Goodwill and other intangibles, net | $660,165 | $661,126 | | Total Liabilities | $20,141,407 | $20,175,068 | | Total deposits | $18,541,580 | $18,974,359 | | Total borrowed funds | $1,138,403 | $740,828 | | Total Shareholders' Equity | $2,579,123 | $2,471,790 | Unaudited Consolidated Statements of Income Q1 2023 saw a net loss of $194.1 million, or ($1.20) per diluted share, primarily due to a $333.2 million loss on securities sales, despite increased net interest income Consolidated Income Statement Highlights (In thousands, except per share data) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net interest income | $138,309 | $128,124 | | Provision for (release of) allowance for loan losses | $25 | $(485) | | Total noninterest (loss) income | $(278,330) | $46,415 | | Losses on sales of securities available for sale, net | $(333,170) | $(2,172) | | Total noninterest expense | $116,294 | $108,866 | | (Loss) income before income tax | $(256,340) | $66,158 | | Net (loss) income | $(194,096) | $51,516 | | Diluted (loss) earnings per share | $(1.20) | $0.30 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policy changes, significant unrealized losses in securities, a $333.2 million realized loss from AFS sales, and stable loan portfolio credit quality - The company adopted ASU 2022-02 on January 1, 2023, which eliminated the accounting guidance for Troubled Debt Restructurings (TDRs) and enhanced disclosure requirements for loan modifications to borrowers experiencing financial difficulty[35][36][37] - In March 2023, the company pledged securities with a carrying value of $2.6 billion to the Federal Reserve's new Bank Term Funding Program (BTFP) to enhance liquidity[51] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 2023 net loss to a strategic balance sheet repositioning, improving liquidity and future earnings, while operating net income increased and capital ratios remained strong - The net loss of $194.1 million was primarily due to the sale of available-for-sale securities at a loss as part of a balance sheet repositioning completed in March 2023[256] - Operating net income (a non-GAAP measure) for Q1 2023 was $61.1 million, an increase of 10.9% from $55.1 million in Q1 2022, primarily due to higher net interest income[256] - The company enhanced its liquidity position by selling $1.9 billion of AFS securities. As of March 31, 2023, total liquidity sources of $7.1 billion provided 107% coverage of all customer uninsured and uncollateralized deposits[276][277] Financial Position Total assets remained stable at $22.7 billion, with a shift from securities to cash, modest loan growth, and a decrease in total deposits to $18.5 billion Loan Portfolio Composition (In thousands) | Loan Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Commercial and industrial | $3,169,438 | $3,150,946 | | Commercial real estate | $5,201,196 | $5,155,323 | | Residential real estate | $2,497,491 | $2,460,849 | | Consumer home equity | $1,180,824 | $1,187,547 | | Other Portfolios | $1,626,301 | $1,620,866 | | Total loans | $13,675,250 | $13,575,531 | - Non-performing loans (NPLs) decreased to $34.6 million (0.25% of total loans) at March 31, 2023, from $38.6 million (0.28% of total loans) at December 31, 2022[316] - Total deposits decreased by $432.8 million, or 2.3%, to $18.5 billion. The company's estimate of uninsured and uncollateralized deposits was $6.7 billion, or 36% of total deposits[350][351] Results of Operations Q1 2023 results show a $194.1 million net loss, primarily due to a $333.2 million loss on securities sales, despite a 7.9% increase in net interest income and expanded net interest margin Results of Operations Summary (In thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net interest income | $138,309 | $128,124 | | Provision for (release of) allowance for loan losses | $25 | $(485) | | Noninterest (loss) income | $(278,330) | $46,415 | | Noninterest expense | $116,294 | $108,866 | | Net (loss) income | $(194,096) | $51,516 | - Net interest margin (FTE) increased by 24 basis points to 2.66% in Q1 2023 from 2.42% in Q1 2022, driven by higher yields on interest-earning assets[367] - Noninterest income decreased by $324.7 million, primarily due to a $331.0 million increase in losses on sales of available-for-sale securities from the balance sheet repositioning[380] Management of Market Risk The company's interest rate sensitivity improved, with a +200 basis point shock now estimated to decrease net interest income by 0.9% over 12 months, down from 4.2% Net Interest Income Sensitivity Analysis (Year 1) | Change in Interest Rates (bps) | % Change from Level (as of Mar 31, 2023) | % Change from Level (as of Dec 31, 2022) | | :--- | :--- | :--- | | +400 | (1.8)% | (8.4)% | | +200 | (0.9)% | (4.2)% | | -100 | 0.0% | 1.6% | | -200 | (1.8)% | 1.8% | Liquidity, Capital Resources, Contractual Obligations, Commitments and Contingencies The company significantly bolstered liquidity to $7.1 billion, covering 107% of uninsured deposits, and remains well-capitalized despite capital ratio decreases from AFS sales - Total liquidity sources were $7.1 billion as of March 31, 2023, comprising $2.1 billion in cash and $5.0 billion in secured borrowing capacity[415] - The company's liquidity sources provided 107% coverage of all customer uninsured and uncollateralized deposits, which totaled $6.7 billion as of March 31, 2023[415] Regulatory Capital Ratios | Capital Ratio | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Common equity Tier 1 capital | 15.80% | 16.94% | | Tier 1 capital | 15.80% | 16.94% | | Total regulatory capital | 16.76% | 17.89% | | Tier 1 leverage | 11.09% | 12.03% | Quantitative and Qualitative Disclosures about Market Risk This section refers to the 'Management of Market Risk' discussion in Item 2, detailing the company's interest rate risk exposure and measurement models - The required disclosures about market risk are provided in Part I, Item 2 under the heading 'Management of Market Risk'[428] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report (March 31, 2023)[428] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[429] PART II. OTHER INFORMATION Legal Proceedings The company is not involved in any pending legal proceedings expected to materially affect its financial condition or operations - As of the report date, the company is not involved in any pending legal proceeding expected to be material to its financial condition or operations[432] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - The company's risk factors have not changed materially from those disclosed in its 2022 Form 10-K[434] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None reported[435] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and interactive data files - The report includes required certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and interactive data files (Exhibit 101)[442]