Eastern Bankshares(EBC) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 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 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 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 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] 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 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 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 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] - 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] - 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] 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 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] 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 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] - 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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] - 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][441] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period - None[445] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the period - None[445] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[446] Item 5. Other Information No other information was reported for the period - None[447] Item 6. Exhibits 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]