S-1 1 d846554ds1.htm S-1 S-1
Table of Contents

As filed with the Securities and Exchange Commission on June 18, 2020

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Eastern Bankshares, Inc.

Eastern Bank 401(k) Plan

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Massachusetts   6712   84-4199750

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code)

 

(I.R.S. Employer

Identification Number)

265 Franklin Street

Boston, MA 02110

(800) 327-8376

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Mr. Robert F. Rivers

Chief Executive Officer and

Chair of the Board of Directors

265 Franklin Street

Boston, MA 02110

(800) 327-8376

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Michael K. Krebs, Esq.

Nutter, McClennen & Fish, LLP

155 Seaport Boulevard

Boston, MA 02210

(617) 439-2000

 

Kathleen C. Henry, Esq.

Executive Vice President, General Counsel and Corporate Secretary

265 Franklin Street

Boston, MA 02110

(800) 327-8376

 

Lee A. Meyerson, Esq.

Lesley Peng, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

(212) 455-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of these securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ☐

If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement of the earlier effective registration statement for the same offering:  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of
securities to be registered
  Amount
to be
registered
  Proposed maximum
offering price
per share
  Proposed maximum
aggregate
offering price
  Amount of
registration fee

Common stock, $0.01 par value per share

  210,084,636   $10.00   $2,100,846,360(1)   $272,689.86

Participation interests(2)

  11,141,591            

 

 

(1)

Estimated solely for the purpose of calculating the registration fee.

(2)

The securities of Eastern Bankshares, Inc. to be purchased by the Eastern Bank 401(k) Plan are included in the amount shown for common stock. Accordingly, in accordance with Rule 457(h)(2), no separate fee is required for the participation interests.

 

 

The registrant hereby amends the registration on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JUNE 18, 2020

SUBSCRIPTION AND COMMUNITY

OFFERING PROSPECTUS

 

 

LOGO

(Proposed holding company for Eastern Bank)

Up to 175,375,000 shares of common stock

(Subject to increase to up to 201,681,250 shares)

Eastern Bankshares, Inc., a Massachusetts corporation, is offering shares of common stock for sale in connection with the conversion of Eastern Bank Corporation, a mutual holding company, from the mutual to the stock form of organization. Eastern Bankshares, Inc. has never offered common stock for sale to the public, and consequently, there is no trading market for our common stock. We expect to list our common stock on the Nasdaq Global Select Market under the symbol “EBC.” We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.

We are offering up to 175,375,000 shares of common stock for sale at $10.00 per share on a best efforts basis. We may sell up to 201,681,250 shares of common stock because of demand for the shares or changes in market conditions, without resoliciting subscribers. We must sell a minimum of 129,625,000 shares in order to complete the offering.

Upon the completion of the offering, we intend to donate to our charitable foundation, the Eastern Bank Charitable Foundation, a number of shares of our common stock equal to 4% of the shares that will be outstanding immediately after that donation.

The shares of common stock are first being offered in a “subscription offering” to eligible depositors and tax-qualified employee benefit plans of Eastern Bank, as well as employees, officers, trustees, directors and corporators of Eastern Bank, Eastern Insurance Group LLC, Eastern Bankshares, Inc. and Eastern Bank Corporation. Shares not purchased in the subscription offering may be offered for sale to the general public in a “community offering,” with a preference given to residents of the communities served by Eastern Bank. Any shares of common stock not purchased in the subscription or community offerings may be offered to the public through a syndicate of broker-dealers, referred to in this prospectus as the “syndicated offering.” The syndicated offering may commence before the subscription and community offerings (including any extensions) have expired. However, no shares purchased in the subscription offering or the community offering will be issued until the completion of any syndicated offering. In this prospectus, we refer to the subscription, community and syndicated offerings collectively as the “offering.”

The minimum order is 25 shares. Generally, no individual may purchase more than 200,000 shares. The subscription and community offerings are expected to expire at 2:00 p.m., Eastern Time, on [EXPIRATION DATE]. We may extend this expiration date without notice to you until [EXTENSION DATE]. Once submitted, orders are irrevocable unless the subscription and community offerings are terminated or extended, with regulatory approval, beyond [EXTENSION DATE], or the number of shares of common stock to be sold is increased to more than 201,681,250 shares or decreased to less than 129,625,000 shares. If the subscription and community offerings are extended past [EXTENSION DATE], all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest or cancel your deposit account withdrawal authorization. If the number of shares to be sold in the offering is increased to more than 201,681,250 shares or decreased to less than 129,625,000 shares, we will resolicit subscribers, and all funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest. Funds received in the subscription and the community offerings will be held in a segregated account at Eastern Bank and will earn interest at 0.02% per annum until completion or termination of the offering.

We have engaged Keefe, Bruyette & Woods, Inc. to be our selling agent, assisting us in selling the shares on a best efforts basis in the subscription and community offerings. J.P. Morgan Securities LLC is serving generally as our capital markets advisor. J.P. Morgan Securities LLC and Keefe, Bruyette & Woods, Inc. will serve as joint book-running managers for any syndicated offering. Neither Keefe, Bruyette & Woods, Inc. nor J.P. Morgan Securities LLC is required to purchase any shares of common stock that are sold in the offering.

OFFERING SUMMARY

Price: $10.00 per Share

 

 

     Minimum      Midpoint      Maximum      Adjusted
Maximum
 

Number of shares

     129,625,000        152,500,000        175,375,000        201,681,250  

Gross offering proceeds

   $ 1,296,250,000      $ 1,525,000,000      $ 1,753,750,000      $ 2,016,812,500  

Estimated offering expenses, excluding selling agent fees and expenses

   $ 10,577,000      $ 10,577,000      $ 10,577,000      $ 10,577,000  

Estimated selling agent fees and expenses and underwriters’ compensation (1)

   $ 23,364,979      $ 27,349,042      $ 31,333,104      $ 35,914,776  
  

 

 

    

 

 

    

 

 

    

 

 

 

Estimated net proceeds

   $ 1,262,308,021      $ 1,487,073,958      $ 1,711,839,896      $ 1,970,320,724  
  

 

 

    

 

 

    

 

 

    

 

 

 

Estimated net proceeds per share

   $ 9.74      $ 9.75      $ 9.76      $ 9.77  

 

(1)

Assumes 80% of shares are sold in the subscription and community offerings and 20% of shares are sold in the syndicated offering, and includes reimbursement of selling agent’s expenses. See the section of this prospectus titled “Pro Forma Data” and “The Conversion and Offering—Plan of Distribution; Selling Agent and Underwriter Compensation” for information regarding compensation to be received by Keefe, Bruyette & Woods, Inc. and J.P. Morgan Securities LLC in the subscription and community offerings and the compensation to be received by J.P. Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., and other participating broker-dealers in the syndicated offering. If all shares are sold in the syndicated offering, excluding those purchased by our insiders and by our employee stock ownership plan and donated to our charitable foundation, for which no selling agent fee will be paid, the selling agent fees and expenses would be approximately $64.7 million, $77.3 million, $88.8 million and $102.1 million at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively.

 

 

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors ” beginning on page 19.

Shares of our common stock are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation, or any other government agency. None of the Securities and Exchange Commission, the Board of Governors of the Federal Reserve System, the Massachusetts Commissioner of Banks, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

 

LOGO

For assistance, please contact the Stock Information Center at [stock center number].

The date of this prospectus is [prospectus date].


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

SUMMARY

     1  

RISK FACTORS

     19  

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     47  

FORWARD-LOOKING STATEMENTS

     49  

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

     51  

OUR DIVIDEND POLICY

     53  

MARKET FOR THE COMMON STOCK

     54  

HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

     55  

CAPITALIZATION

     56  

PRO FORMA DATA

     58  

COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT THE STOCK DONATION TO THE CHARITABLE FOUNDATION

     64  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     65  

BUSINESS

     106  

SUPERVISION AND REGULATION

     117  

TAXATION

     128  

MANAGEMENT

     130  

TRANSACTIONS WITH RELATED PERSONS

     137  

EXECUTIVE AND DIRECTOR COMPENSATION

     138  

SUBSCRIPTIONS BY DIRECTORS AND OFFICERS

     146  

THE CONVERSION AND OFFERING

     147  

EASTERN BANK CHARITABLE FOUNDATION

     165  

RESTRICTIONS ON ACQUISITION OF EASTERN BANKSHARES, INC.

     168  

DESCRIPTION OF CAPITAL STOCK OF EASTERN BANKSHARES, INC.

     172  

TRANSFER AGENT

     173  

EXPERTS

     173  

LEGAL MATTERS

     173  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     174  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

 

i


Table of Contents

SUMMARY

The following summary explains material information in this prospectus. It may not contain all of the information that is important to you. Before making an investment decision, you should read this entire document carefully, including the consolidated financial statements and the notes thereto, and the section titled “Risk Factors.”

In this prospectus, the terms “we,” “our,” “us,” “Eastern” and “company” refer collectively to Eastern Bank Corporation, Eastern Bankshares, Inc., Eastern Bank and Eastern Insurance Group LLC unless the context indicates another meaning. Any reference in this prospectus to the term the “Bank” refers to Eastern Bank, and any reference to the “Foundation” refers to the Eastern Bank Charitable Foundation. Any reference in this prospectus to the term “offering” refers to the offering of Eastern Bankshares, Inc. common stock in the subscription, community and syndicated offerings described in this prospectus.

The Companies; Our Business

Eastern Bankshares, Inc. is a Massachusetts corporation formed in 2020 to conduct the offering. Upon completion of the offering, Eastern Bankshares, Inc. will own all of Eastern Bank’s capital stock, and through Eastern Bank and its wholly owned subsidiary Eastern Insurance Group LLC, Eastern Bankshares, Inc. will provide a variety of banking, trust and investment, and insurance services. Eastern Bankshares, Inc. currently does not intend to engage in any material business activity other than those relating to owning all of the capital stock of Eastern Bank. (Please refer to the section of this prospectus titled “The Conversion and Offering—Reorganization of Eastern Immediately Prior to Completion of Offering” for a description of the reorganization of Eastern that will occur simultaneously with the completion of the offering.)

Eastern Bankshares, Inc.’s executive offices are located at 265 Franklin Street, Boston, MA 02110, and its telephone number is 1.800.EASTERN (1.800.327.8376).

The historical financial data presented in this prospectus are derived from the financial statements of Eastern Bank Corporation, including Eastern Bank Corporation’s audited consolidated financial statements as of and for the years ended December 31, 2019 and 2018 and Eastern Bank Corporation’s unaudited consolidated financial statements as of and for the three months ended March 31, 2020 and 2019.

Eastern Bank is a Massachusetts-chartered bank headquartered in Boston that has served our community for over 200 years. Founded in 1818 as a local savings bank, we have evolved over the years into a diversified commercial bank, providing a broad array of products and services to retail, commercial and small business customers. We operate primarily in the greater Boston market with 89 banking offices located in eastern Massachusetts and southern and coastal New Hampshire. We have two business segments: banking and insurance agency operations. As of March 31, 2020, we had consolidated total assets of $12.3 billion, total gross loans of $9.1 billion, total deposits of $10.3 billion and total stockholders’ equity of $1.7 billion.

Our mission is to invest in our customers, communities and colleagues to help them prosper and grow. We pride ourselves on understanding our customers’ financial needs and delivering a diverse suite of tailored, high-quality solutions through a consultative approach that fosters long-term relationships. We have stayed true to our communities since 1818, especially over the last few decades through the generosity of the Eastern Bank Charitable Foundation and the robust volunteerism of our talented employees. We consistently invest in our colleagues and believe our diverse and inclusive workforce is crucial to our success. Overall, we like to think of ourselves as good people, doing good things to help people prosper.

We believe that, as a result of our differentiated approach to banking, we have established a distinctive brand and reputation in the market, contributing to Eastern having the greatest share of deposits in the Boston market for any full-service bank headquartered in Boston. (Based upon the most currently available FDIC data as of June 30, 2019, our total deposits of $8.7 billion represented 2.4% of the Boston market.) We believe our focus on long-term client relationships contributes to our stable, low-cost deposit base, and that our long-term presence in the market enables us to prudently underwrite and originate high-quality assets and deliver more stable returns. In addition, we believe these benefits from our focus on long-term client relationships position us well for times of stress and allow us to successfully manage through the full range of economic cycles.



 

1


Table of Contents

For the quarter ended March 31, 2020 our annualized return on average assets was 0.29% driven by a net interest margin of 0.94%, cost of total deposits of 0.23% and fee income as a percent of revenue of 29.49%. At March 31, 2020, our ratio of common equity tier 1 capital to total assets, which we refer to as our “CET1 ratio,” was 12.42%, and our ratio of net loans to deposits was 87.03%. We are committed to expanding our business in a disciplined manner with a long-term perspective. We believe that we have prudently grown our business over the past five years, with a focus on transaction deposits and loans to commercial clients. For the five-year period from January 1, 2015 through December 31, 2019, our checking accounts (our primary relationship deposit product) grew from $4.2 billion to $5.3 billion, representing a compounded annual growth rate of 5.2%, and our commercial loans (our primary strategic focus for loan growth) grew from $4.1 billion to $6.2 billion, representing a compounded annual growth rate of 8.6%.

Our diversified products and services include lending, deposit, wealth and insurance products. Deposits obtained through our branch banking network have traditionally been the principal source of funds for use in lending and for other general business purposes. We offer a range of demand deposits, interest checking, money market accounts, savings accounts, and time certificates of deposit. Our lending focuses on the following loan categories: commercial and industrial (including our Asset Based Lending Portfolio), commercial real estate, commercial construction, small business banking, residential real estate, and home equity loans. Through Eastern Bank’s wealth management offering, we provide a wide range of trust services. Eastern Insurance Group LLC, a wholly owned subsidiary of Eastern Bank, acts as an agent in offering insurance solutions for clients with personal, commercial or employee benefits-related insurance needs. Eastern Insurance Group LLC operates through 22 non-branch offices located primarily in eastern Massachusetts.

Our website address is www.easternbank.com. Information on this website is not and should not be considered a part of this prospectus.

Eastern Insurance Group LLC, a wholly owned subsidiary of Eastern Bank, acts as an agent in offering property and casualty as well as life and health insurance to both personal and commercial customers. Personal lines insurance products include life, accident and health, automobile, and property and liability insurance including fire, condominium, home and tenants, among others. Commercial insurance products include group life and health, commercial property and liability, surety, and workers compensation insurance, among others. Eastern Insurance Group LLC operates through 22 non-branch offices in Eastern Massachusetts, one office in Keene, New Hampshire, and one office in Providence, Rhode Island. From 2004 through 2018, we expanded Eastern Insurance Group LLC by acquiring 31 independent insurance agencies, having average revenue of $1.4 million.

Regulation and Supervision

Upon the completion of the offering, Eastern Bankshares, Inc. will be subject to regulation and supervision by the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board. The activities of Eastern Bank are subject to regulation and supervision by the Federal Deposit Insurance Corporation, which we refer to as the FDIC, and the Consumer Financial Protection Bureau, which we refer to as the CFPB. Eastern Bank is also subject to various Massachusetts and New Hampshire business and banking regulations, and supervision by the Massachusetts Commissioner of Banks. In addition, Eastern Bankshares, Inc. will be subject to various Massachusetts business and banking regulations. Our insurance agency, Eastern Insurance Group LLC, is subject to regulation and supervision by the Massachusetts Division of Insurance, and various state insurance regulatory authorities in other states that license, regulate and supervise insurance producers, brokers and agents. Upon the completion of the offering, we expect that Eastern Bankshares, Inc. common stock will be listed for trading on the Nasdaq Global Select Market (“Nasdaq”) and will be subject to the rules thereof for listed companies.



 

2


Table of Contents

Our Organizational Structure and the Proposed Offering

The following diagram shows our current organizational structure.

 

 

LOGO

The following diagram shows our organizational structure immediately following the offering and our donation of shares of our common stock to the Eastern Bank Charitable Foundation.

 

 

LOGO

Our Competitive Strengths

Abiding commitment to long-term, customer-centric relationships. We pride ourselves on understanding our customers’ financial needs and delivering a diverse suite of tailored, high-quality solutions through a consultative approach that fosters long-term relationships. We have served our communities for over 200 years, evolving from a traditional mutual savings bank serving a relatively narrow geographic region northeast of Boston to a full-service commercial bank with a presence across eastern Massachusetts and southern New Hampshire. We believe that over time we have developed long-standing customer relationships and established a distinctive brand, which emphasizes our commitment to our community and social activism.

Well-positioned in attractive greater Boston market. The Boston Metropolitan Statistical Area is one of the largest banking markets in the country with a high concentration of affluent, highly-educated individuals and successful businesses. It has a diverse and vibrant business community supported by world class higher education



 

3


Table of Contents

institutions. We believe we have distinguished ourselves in the market through our distinctive approach to banking, notably our focus on customers, commitment to community and diversity of our workforce. Our strong brand, reputation and client relationships have become key drivers of our performance in the market.

Stable, low-cost deposit base. We believe our business model of fostering deep client relationships and our long-standing position in our communities allows us to attract deposit customers that are focused on more than just price. As a result, we have a stable, low-cost deposit base. Our average cost of total deposits for the quarter ended March 31, 2020 was 0.23% compared to 0.84% for the peer group used by RP Financial, LC for purposes of its independent valuation discussed elsewhere in this prospectus. Our funding advantage and deep client relationships enable us to prudently deploy our liquidity into high-quality loans and generate attractive returns. Generally, we do not take brokered deposits.

Strong capital and liquidity position. At March 31, 2020, our CET1 ratio was 12.42%, and our cash and securities as a percentage of assets was 18.77%. On a pro forma basis, giving effect to the offering and the proposed use of proceeds discussed elsewhere in this prospectus, we will be the most well-capitalized and most liquid bank in the peer group used by RP Financial, LC in its appraisal. Assuming an offering at the mid-point of the valuation range, our pro forma CET1 ratio of 24.52% will be 263 bps above the next most well-capitalized bank in that peer group as of March 31, 2020. We believe our strong capital position will serve as a strong foundation in a period of significant economic uncertainty like we are experiencing today, providing us the financial flexibility to continue to invest in our businesses and execute on our strategic initiatives. A large proportion of our balance sheet will be comprised of highly liquid assets, which will allow us to continue to meet customer liquidity and funding needs in times of stress.

Disciplined underwriting and risk management. We focus on originating high-quality loans for our clients, which we believe generate stable returns. We believe our experienced credit risk professionals and conservative credit culture, combined with centralized processes and consistent underwriting standards, have generally allowed us to maintain high asset quality. We believe we have positioned the company to successfully navigate a wide range of credit and interest rate environments, including the current uncertain economic environment due to the Covid-19 pandemic and current low interest rates. We have long maintained a diversified loan portfolio with limited industry or property type concentrations. Our loans to borrowers engaged in various wholesale trade businesses, including household appliances, alcoholic beverage wholesalers, and grocery wholesalers, represent the largest concentration among our commercial borrowers, constituting 12% of our commercial portfolio at March 31, 2020. Our largest property type concentration in our commercial real estate portfolio as of March 31, 2020 is multi-family at 19%.

Culture of technological innovation. We believe our ability to innovate and integrate new products, services and technology distinguishes us from many of our similarly-sized peers. Important to our development and refinement of technology-driven products and services in recent years has been customizing the interface between our customers and our outsourced core data processing systems. By customizing the software that connects our digital platforms to our core system, we believe we are able to develop, test and deploy new features and products more quickly than many of our peers. In addition, during the Covid-19 global pandemic, we were able to quickly transition more than half our workforce to work remotely, with our technology team working closely with senior management to ensure that systems and applications were in place to support a secure remote work environment while meeting an unprecedented surge in customer needs.

Experienced management team supported by a high-performing and diverse workforce. We believe that we have a highly experienced leadership team with deep roots in our markets, which on average has 30.9 years of experience working in banking or the financial services sector, has successfully operated through the full range of economic cycles. Complementing their experience at Eastern, most of our executive officers have had prior management experience at other leading companies and institutions, including publicly-traded banking companies. Our leadership team is supported by a high quality, highly motivated, diverse set of managers and employees committed to delivering a strong customer value proposition. We are recognized as an employer of choice by providing employees with opportunities for advancement and growth in an attractive business environment.

Commitment to communities. We believe our strong commitment to our communities provides a competitive advantage by strengthening customer relationships and increasing loyalty. The communities in our footprint are one of our three core constituencies (along with our colleagues and customers). We support our communities in a number of ways, including: through extensive employee volunteer efforts; through our donations to the Eastern Bank Charitable Foundation, a private foundation we formed in 1994; through executives providing board leadership to community



 

4


Table of Contents

organizations; and through the Bank’s social justice advocacy work. The Eastern Bank Charitable Foundation, which had total assets of $111.8 million as of March 31, 2020, funds a range of non-profit organizations serving our communities and creates partnerships with other organizations to “scale up” key initiatives (such as enhancing early childhood education). For the three-year period ended December 31, 2019, the Eastern Bank Charitable Foundation’s annual charitable donations averaged approximately $7.6 million. Our stock donation to the Foundation upon completion of the offering will allow the Foundation, and indirectly the communities that we serve, both now and in the future, to share in our long-term growth.

Our commitment to our community also is reflected in Eastern Bank’s latest FDIC CRA rating, which was “Outstanding.”

Business Strategy

Our goal is to enhance our position as one of the leading community banking institutions in our market, providing a broad array of banking and other financial services to retail, commercial and small business customers. In recent years, we have focused significant effort on and invested heavily in our infrastructure to create sophisticated and competitive products and services, a strong, experienced work force and awareness of our banking brand.

As a result, we believe we are well positioned to capitalize on the opportunities available in our market by focusing on the following core strategies.

Develop new customer relationships and deepen existing relationships. We seek to expand our market share in existing and contiguous markets across our businesses by leveraging our distinctive brand and delivering a diverse suite of tailored, high-quality solutions through a consultative, relationship-based approach reinforced by superior customer service. We believe this will result in disciplined growth of low-cost deposits, loans with attractive risk-adjusted returns and a steady stream of fee income. Our relationship-based approach has enabled us to achieve disciplined organic growth over time, and we expect this trend to continue. We believe our support of our small business and non-profit customers in obtaining funding in April and May 2020 under the Paycheck Protection Program, also known as “PPP,” demonstrates both our commitment and capacity to meet our customers’ needs, even in the most challenging circumstances. The Small Business Administration, or “SBA,” approved all applications for PPP funding across the nation on a “first come, first served” basis. We believe that our experience as the largest SBA lender in New England made us effective in helping a large number of our customers avail themselves of the very attractive PPP terms. Through May 31, 2020, we originated approximately 7,900 PPP loans, representing $1.1 billion of aggregate PPP loans. The vast majority of our PPP borrowers are existing commercial and small business borrowers, non-profit customers, retail banking customers and clients of Eastern Wealth Management and Eastern Insurance Group LLC.

Pursue opportunistic acquisitions. We intend to prudently pursue opportunities to acquire banks in our existing and contiguous markets that create attractive financial returns. Our focus will primarily be on franchises that enhance our funding profile, product capabilities or geographic density, while maintaining an acceptable risk profile. We believe the vital need to make increasingly significant technological investments has greatly amplified the importance of scale in banking. In addition, we believe that the current economic recession will increase the rate of consolidation in the banking industry. We believe that after the offering we will be well-positioned as a consolidator in the banking market because of our financial strength, reputation and culture. In addition, we intend to continue to pursue opportunistic acquisitions of additional insurance agencies in existing and contiguous markets.

Leverage technology to enhance customer experience and drive operating efficiencies. We have made significant investments in our technology to ensure we can deliver high-quality, innovative products and services to our customers. For example, we have recently upgraded our Mobile Banking platform for both consumer and commercial customers. In addition, we have continued investing in our new commercial lending origination system and platform, and we intend to progressively improve our consumer lending origination platform as well. We are committed to regularly investing in technology and data analytics, as we are positioning our franchise for the future. We believe these investments will differentiate us with our target customers and provide a scalable platform, which will generate significant operating leverage as we grow over time.



 

5


Table of Contents

Maintain and grow our experienced, diverse and customer focused employee base. We have an established corporate culture based on personal accountability, high ethical standards and a commitment to training and career development. We will look to opportunistically hire talented bankers and employees with a continued emphasis on recruiting highly motivated, diverse managers and employees who can establish and maintain long-term customer relationships that are key to our business, brand and culture.

Manage risk to navigate a range of economic environments, including the current Covid-19 pandemic recession. We believe that our conservative credit culture, strong capital and liquidity position and our deep client relationships are key to our long-term financial success. We believe that stable long-term growth and profitability are the result of building strong customer relationships one at a time while maintaining superior credit discipline. We supplement our conservative risk culture with a rigorous and continuous enterprise risk management program. The current Covid-19 pandemic recession is resulting in material uncertainty in the near- and medium-term future. In addition, a sustained period of low interest rates will put pressure on our net interest margin. We believe we are entering this period of stress from a position of strength, which allows us to maintain a strong balance sheet while still supporting our customers and communities in need.

Recent Developments—Our Response to the Covid-19 Pandemic

We believe that Eastern Bank plays an important role in the economic strength of our market area, and we have taken a broad range of steps to help our customers, colleagues and communities during the Covid-19 pandemic.

Our Customers. In light of the Covid-19 pandemic, we have temporarily modified our practices with respect to collection of delinquent loans to assist our customers during this difficult economic time. For our retail customers, we suspended all collection of overdue payments beginning March 16, 2020, including residential property foreclosure and related property sales, and from January 1, 2020 through May 31, 2020, we have modified $508 million of commercial real estate loans, including construction loans, $151 million of commercial and industrial loans, $96 million of business banking loans, $87 million of residential real estate loans and $25 million of consumer loans. As discussed above, through May 31, 2020, we originated approximately 7,900 PPP loans, representing $1.1 billion of aggregate PPP loans.

Our Colleagues. For our colleagues, we have enabled more than half of our employees to work remotely and we are providing premium pay for those colleagues who travel to our workplaces to serve in customer-facing positions or other positions that require them to work on-site. We have taken significant measures to ensure the health of our colleagues who must work in our branches, including promoting online and mobile banking and automatic teller machines/interactive teller machines transactions in an effort to limit in-branch transactions and limiting access to lobbies in branches with drive-through banking.

Our Communities. To continue providing critical banking services in underbanked inner-city communities served by branches without drive-through banking capabilities, we have committed to remaining open in these communities to ensure our customers continue to have a place to bank. To further support our communities, the Eastern Bank Charitable Foundation has directed approximately $8 million through May 31, 2020 in charitable donations to help address food, shelter, small business and housing stability, particularly for vulnerable populations, as well as providing help to public health organizations fighting to contain the spread of Covid-19.

Reasons for the Offering

Our strategic objective for many years has been to evolve over time into one of the leading banking institutions in our market by concentrating on achieving disciplined, profitable growth in our core business lines while maintaining an abiding commitment to our customers, colleagues and communities. Profitable growth provides us with the flexibility to pursue strategic acquisitions as opportunities arise and to make additional technological, risk management and talent investments.

We believe the additional capital provided by the offering will, when added to our existing well-capitalized balance sheet, give us a strong foundation that in the near-term will help us to remain resilient while the regional,



 

6


Table of Contents

national and global economies recover from the recession caused by Covid-19 pandemic and over the longer-term allow us to accelerate our growth—principally by:

Enhancing our capital and liquidity position to increase our resiliency in the short-term and to provide a foundation for long-term future growth. By substantially increasing our regulatory capital and liquidity, the offering will enhance our capacity to build and maintain credit reserves in the near term while maintaining the financial flexibility to support all of our stakeholders, including by continuing to work constructively with our borrowers adversely affected by the Covid-19 recession, offering payment deferrals, loan modifications and, where prudent, additional lines of credit to our business customers with proven track records. Over the longer-term, the substantial increase in our regulatory capital and liquidity will provide a foundation for us to renew our focus on pursuing profitable loan and deposit growth through disciplined organic growth in our core business lines consistent with our overarching goal of serving more people, businesses and communities for many more generations.

Enhancing our ability to make investments in new technologies to meet the ever-increasing customer demands for “ease of use” of banking and financial services. As we anticipate the competitive landscape that will emerge after our economy recovers from the negative impacts of the Covid-19 pandemic, we believe the most significant systemic challenge we will face is the accelerating pace of technological change driven by ubiquitous digital adoption by both consumer and commercial banking customers. We believe this trend has greatly amplified the importance of scale in banking, and the increasing benefit of scale exacerbates the challenge of competing with significantly larger banks and large information technology and e-commerce companies. The capital raised in the offering will allow us to increase our investments in new technologies to develop and implement an increasingly sophisticated array of banking and other financial services for retail, small business and commercial customers to meet the ever-increasing customer expectations for “ease of use” of banking and financial services and products.

Better positioning us to pursue opportunistic strategic transactions within our existing and contiguous markets and through digital delivery channels. We believe the additional capital raised in the offering, coupled with our structure as a publicly-traded company, will make us a more attractive and competitive bidder for mergers and acquisitions of other financial institutions or business lines as opportunities arise. We will be able to structure business combinations using stock, cash or a combination of both. We believe that the current economic recession will increase the rate of consolidation in the banking industry. We have completed seven bank acquisitions or mergers since 1999, the most recent of which was our 2014 acquisition of New Hampshire-based Centrix Bank. We also expect that a portion of the proceeds of the offering will be used to fund acquisitions of independent insurance agencies by Eastern Insurance Group LLC. From 2004 through 2018, we expanded Eastern Insurance Group LLC by acquiring 31 independent insurance agencies for an aggregate price of $124.9 million. We expect to maintain a disciplined approach to strategic transactions, focusing on opportunities in or contiguous to our market that create value for our shareholders and that we believe will likely materially enhance the strength of our franchise, while maintaining an acceptable risk profile. We do not currently have any agreement or understanding regarding any specific transaction.

Expanding and retaining a talented and diverse workforce. By increasing our capital through the offering, we believe that we will be better positioned to expand and retain a talented and diverse workforce dedicated to providing superior service to our customers and to fostering a culture of compliance and accountability. In addition, we believe the offering will enhance our ability to attract and retain qualified officers and employees by allowing us to implement various stock benefit plans, including an employee stock ownership plan concurrently with the offering and one or more equity incentive plans after the offering. Through continued investments in human capital and effective technology, we can continue to advance our mission to do good things to help people prosper.

Supporting our local communities through an additional significant and immediate donation to the Eastern Bank Charitable Foundation. We intend to donate to the Eastern Bank Charitable Foundation, upon the completion of the offering, a number of shares of our authorized but previously unissued common stock that will represent 4% of the shares of Eastern Bankshares, Inc. common stock that will be outstanding immediately after that donation. The opportunity to have an outsized philanthropic impact on the Foundation and the community-orientated non-profit organizations that it supports is viewed by our Board and senior management as an important benefit of the offering. Eastern Bank formed the Eastern Bank Charitable Foundation in 1994, and to date, Eastern Bank has been the sole source of the Foundation’s funding. The Eastern Bank Charitable Foundation had total assets of approximately



 

7


Table of Contents

$111.8 million at March 31, 2020, and for the three-year period ended December 31, 2019, the Foundation’s annual charitable donations averaged approximately $7.6 million. Our stock donation to the Foundation upon completion of the offering will complement our historical charitable giving and allow the Foundation, and indirectly the communities that we serve, both now and in the future, to share in our long-term growth. Although we expect that our annual charitable contributions after the offering and excluding the stock donation will be a small percentage of our net income, we believe the impact of that reduction will be offset by our stock donation.

Enhancing our ability to positively impact local communities through expanded volunteerism and enhanced advocacy influence. We believe that with increased scale through both organic growth and opportunistic strategic acquisitions—coupled with our culture of supporting community volunteerism, where we already are a market leader—we will be able to have a broader and deeper positive impact on our local communities. We also expect that with increased scale, we will be able to have a more impactful “voice” on social justice issues. Eastern takes pride in its public advocacy regarding social justice issues that affect the communities we serve. In recent years, we have advocated in support of immigrants and their families, pay equality and the LGBTQ+ community.

Offering our depositors, employees, officers, directors, trustees and corporators an equity ownership interest in our future growth and profitability. We believe that offering stock to our depositors, employees, officers, directors, trustees and corporators will provide those constituencies with an economic interest in our future success, should they decide to invest. We believe that an ownership interest in Eastern will help to align the interests of our employees with our overall profitability, complementing our organizational focus on continuing to improve Eastern so that it remains competitive in our markets for generations to come.

Terms of the Offering

We are offering between 129,625,000 and 175,375,000 shares of common stock in a subscription offering to eligible depositors of Eastern Bank, our tax-qualified employee benefit plans, and our employees, officers, trustees, directors and corporators, and, to the extent shares remain available, to the general public in a community offering. If necessary, we will also offer shares to the general public in a syndicated offering. The number of shares of common stock to be sold may be increased to up to 201,681,250 shares as a result of demand for the shares of common stock in the offering or changes in market conditions. Unless the number of shares of common stock to be offered is increased to more than 201,681,250 shares or decreased to fewer than 129,625,000 shares, or the subscription and community offerings are extended beyond [EXPIRATION DATE], subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the subscription and community offerings are extended past [EXPIRATION DATE], all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to that notice, your order will be cancelled and we will promptly return your funds with interest at 0.02% per annum or cancel your deposit account withdrawal authorization. If the number of shares to be sold is increased to more than 201,681,250 shares or decreased to less than 129,625,000 shares, all subscribers’ stock orders will be canceled, all withdrawal authorizations will be canceled and funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest at 0.02% per annum. We will then resolicit subscribers, giving them an opportunity to place new orders for a period of time. No shares purchased in the subscription offering and community offering will be issued until the completion of any syndicated offering.

The purchase price of each share of common stock offered for sale in the offering is $10.00. All investors will pay the same purchase price per share, regardless of whether the shares are purchased in the subscription offering, the community offering or a syndicated offering. Investors will not be charged a commission to purchase shares of common stock in the offering. Our marketing agent in the subscription and community offerings, Keefe, Bruyette & Woods, Inc., will use its best efforts to assist us in selling shares of our common stock in the subscription and community offerings but is not obligated to purchase any shares of common stock in the subscription and community offerings.

How We Determined the Offering Range and the $10.00 Per Share Stock Price

The amount of common stock we are offering for sale is based on an independent appraisal of the estimated market value of Eastern Bankshares, Inc., assuming the offering has been completed. RP Financial, LC, our



 

8


Table of Contents

independent appraiser, has estimated that, as of May 21, 2020, this market value, including the shares to be issued to Eastern Bank Charitable Foundation, was $1.6 billion. Based on applicable regulations, this market value forms the midpoint of a valuation range with a minimum of $1.4 billion and a maximum of $1.8 billion. Based on this valuation range, and the $10.00 per share price, the number of shares of common stock being offered for sale by Eastern Bankshares, Inc. ranges from 129,625,000 shares to 175,375,000 shares. The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions. If demand for shares or market conditions warrant, the appraisal can be increased, without resoliciting subscribers, by up to 15%, which would result in an appraised value of up to $2.1 billion and an offering of up to 201,681,250 shares of common stock.

The appraisal is based in part on Eastern Bankshares, Inc.’s financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of eleven publicly traded bank holding companies and savings and loan holding companies that RP Financial, LC considers comparable to Eastern Bankshares, Inc. The appraisal peer group consists of the following companies, all of which are traded on the Nasdaq Stock Market or the New York Stock Exchange.

 

Company Name

  

Ticker Symbol

  

Headquarters

   Total Assets (1)  
               (in millions)  

Brookline Bancorp, Inc.

   BRKL    Boston, MA    $ 8,462  

Independent Bancorp, Inc.

   INDB    Rockland, MA    $ 11,980  

Meridian Bancorp, Inc.

   EBSB    Peabody, MA    $ 6,349  

Eagle Bancorp, Inc.

   EGBN    Bethesda, MD    $ 9,992  

Kearny Financial Corp.

   KRNY    Fairfield, NJ    $ 6,774  

Northwest Bancshares, Inc.

   NWBI    Warren, PA    $ 10,681  

OceanFirst Financial Corp.

   OCFC    Toms River, NJ    $ 10,489  

Provident Financial Services, Inc.

   PFS    Jersey City, NJ    $ 10,085  

S&T Bancorp, Inc.

   STBA    Indiana, PA    $ 9,005  

First Commonwealth Financial Corporation

   FCF    Indiana, PA    $ 8,515  

WSFS Financial Corporation

   WSFS    Wilmington, DE    $ 12,279  

 

(1)

Asset size for all companies is as of March 31, 2020 or the most recent date available.

The following table presents a summary of selected pricing ratios for Eastern Bankshares, Inc. (on a pro forma basis assuming completion of the offering) as of and for the 12 months ended March 31, 2020, and for the peer group companies based on earnings and other information as of and for the 12 months ended March 31, 2020, with stock prices as of May 21, 2020, as reflected in the appraisal report. Compared to the average pricing of the peer group, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 31.55% on a price-to-book value basis, a discount of 41.88% on a price-to-tangible book value basis and a premium of 71.70% relative to the peer group’s average core price-to-earnings multiple.

 

Eastern Bankshares, Inc. (on a pro forma basis,

assuming completion of the offering)

   Price-to-
earnings
multiple (1)
     Price-to-
book value
ratio
    Price-to-
tangible
book value
ratio
 

Adjusted maximum

     23.91x        61.77     69.44

Maximum

     20.14x        57.57     65.32

Midpoint

     17.05x        53.39     61.12

Minimum

     14.12x        48.64     56.27

Valuation of peer group companies, all of which

are fully converted (on a historical basis)

                   

Averages

     9.93x        78.00     105.16

Medians

     8.20x        73.88     104.34

 

(1)

Price-to-earnings multiples calculated by RP Financial, LC in the independent appraisal are based on an estimate of “core” or recurring earnings. These ratios are different than those presented in “Pro Forma Data.”



 

9


Table of Contents

The independent appraisal does not indicate trading market value. Do not assume or expect that our valuation as indicated in the appraisal means that after the offering the shares of our common stock will trade at or above the $10.00 per share purchase price. Furthermore, the pricing ratios presented in the appraisal were used by RP Financial, LC to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.

For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, please see the section of this prospectus titled “The Conversion and Offering—Stock Pricing and Number of Shares to be Issued.”

How We Intend to Use the Proceeds From the Offering

We intend to contribute 50% of the net proceeds from the offering to Eastern Bank’s capital. The remaining net proceeds from the offering will be used in part to fund a loan to the employee stock ownership plan to finance its purchase of shares in the offering (or possibly, after the offering, in open market purchases) and the balance will be retained by Eastern Bankshares, Inc.

Assuming we sell 152,500,000 shares of common stock in the offering at the midpoint of the offering range, and we have net proceeds of $1.5 billion, we intend to contribute $747.3 million to Eastern Bank as common equity, loan to our employee stock ownership plan $127.1 million to fund its purchase of shares of common stock and retain the remaining $620.2 million of the net proceeds at Eastern Bankshares, Inc.

Eastern Bankshares, Inc. may use the funds it retains for investment, to repurchase shares of common stock, to acquire other financial institutions or financial services companies, to pay cash dividends and for other general corporate purposes. Eastern Bank expects to use the proceeds it receives primarily to support increased lending, enhance existing, or support the development of new, products and services, enhance the development of our employees and to pursue strategic growth opportunities primarily by acquiring other banking and insurance agency businesses as opportunities arise. We do not currently have any agreement or understanding regarding any acquisition transaction.

Please see the section of this prospectus titled “How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the proceeds from the offering.

Persons Who May Order Shares of Common Stock in the Offering

We are offering the shares of common stock in a subscription offering in the following descending order of priority:

 

  (i)

To depositors with accounts at Eastern Bank with aggregate balances of at least $50 at the close of business on March 29, 2019.

 

  (ii)

To depositors with accounts at Eastern Bank with aggregate balances of at least $50 at the close of business on March 31, 2020.

 

  (iii)

To our tax-qualified employee benefit plans (including Eastern Bank’s employee stock ownership plan and Eastern Bank’s 401(k) plan which may subscribe for, in the aggregate, up to 10% of the shares of common stock sold in the offering). We expect our employee stock ownership plan to purchase 8% of the shares of our common stock outstanding immediately after the offering (including the shares we donate to the Eastern Bank Charitable Foundation).

 

  (iv)

To employees, officers, directors, trustees and corporators of Eastern Bank, Eastern Bank Corporation or Eastern Insurance Group LLC who are not eligible in the first or second priority.



 

10


Table of Contents

Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural persons, and trusts of natural persons, residing in the following cities and towns:

Massachusetts

Abington, Acton, Acushnet, Amesbury, Andover, Arlington, Avon, Barnstable, Bedford, Belmont, Berkley, Beverly, Billerica, Boston, Bourne, Boxford, Braintree, Bridgewater, Brockton, Brookline, Burlington, Cambridge, Canton, Carlisle, Carver, Chelmsford, Chelsea, Cohasset, Danvers, Dedham, Dighton, Dover, Dracut, Dunstable, Duxbury, East Bridgewater, Easton, Essex, Everett, Fairhaven, Falmouth, Foxborough, Framingham, Freetown, Georgetown, Gloucester, Groton, Groveland, Halifax, Hamilton, Hanover, Hanson, Haverhill, Hingham, Holbrook, Hull, Ipswich, Kingston, Lakeville, Lawrence, Lexington, Lincoln, Littleton, Lowell, Lynn, Lynnfield, Malden, Manchester-by-the-Sea, Mansfield, Marblehead, Marion, Marshfield, Mashpee, Mattapoisett, Medford, Melrose, Merrimac, Methuen, Middleborough, Middleton, Milton, Nahant, Natick, Needham, Newbury, Newburyport, Newton, North Andover, North Reading, Norton, Norwell, Norwood, Peabody, Pembroke, Pepperell, Plymouth, Plympton, Quincy, Randolph, Raynham, Reading, Rehoboth, Revere, Rochester, Rockland, Rockport, Rowley, Salem, Salisbury, Sandwich, Saugus, Scituate, Sharon, Sherborn, Somerville, Stoneham, Stoughton, Swampscott, Taunton, Tewksbury, Topsfield, Tyngsborough, Wakefield, Walpole, Waltham, Wareham, Watertown, Wayland, Wellesley, Wenham, West Bridgewater, West Newbury, Westford, Weston, Westwood, Weymouth, Whitman, Wilmington, Winchester, Winthrop, Woburn and Yarmouth.

New Hampshire

Amherst, Atkinson, Auburn, Barrington, Bedford, Boscawen, Bow, Brentwood, Candia, Canterbury, Chester, Chichester, Concord, Danville, Derry, Dover, Durham, East Kingston, Epping, Exeter, Fremont, Goffstown, Hampstead, Hampton, Hampton Falls, Hollis, Hooksett, Hopkinton, Hudson, Kensington, Kingston, Lee, Litchfield, Londonderry, Loudon, Madbury, Manchester, Merrimack, Nashua, New Boston, New Castle, Newfields, Newington, Newmarket, Newton, North Hampton, Pelham, Pembroke, Plaistow, Portsmouth, Raymond, Rochester, Rollinsford, Rye, Salem, Sandown, Seabrook, Somersworth, South Hampton, Stratham, Webster, Warner and Windham.

The community offering may occur either concurrently with or after the subscription offering.

We also may offer for sale shares of common stock not purchased in the subscription offering and the community offering through a syndicated offering. J.P. Morgan Securities LLC and Keefe, Bruyette & Woods, Inc. will act as joint book-running managers for the syndicated offering, if any.

We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated offering, and our interpretation of the terms and conditions of the Plan of Conversion will be final. Any determination to accept or reject stock orders in the community offering or syndicated offering will be based on the facts and circumstances available to management at the time of the determination.

If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order. A detailed description of the subscription offering, the community offering and the syndicated offering, as well as a discussion regarding allocation procedures, can be found in the section of this prospectus titled “The Conversion and Offering.”

Limits on How Much Common Stock You May Purchase

The minimum number of shares of common stock that may be purchased is 25 shares.

Generally, no individual with one or more qualifying accounts or individual exercising subscription rights through a single account held jointly may purchase more than 200,000 shares ($2,000,000) of common stock. If any of the following persons purchase shares of common stock, their purchases, in all categories of the offering, when combined with your purchases, cannot exceed 200,000 shares ($2,000,000) of common stock:

 

   

most companies, trusts or other entities in which you are a senior officer, partner, trustee or have a substantial beneficial interest; or



 

11


Table of Contents
   

your spouse or any relative of you or your spouse living in your house or who is a director, trustee, or officer of Eastern Bank Corporation, Eastern Bankshares, Inc. or Eastern Bank; or

 

   

other persons who may be your “associates” (as defined below) or persons acting in concert with you.

Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying deposit accounts registered to the same address will be subject to the overall purchase limitation of 200,000 shares ($2,000,000).

The following relatives of directors, trustees and officers will be considered “associates” of these individuals regardless of whether they share a household with the director, trustee or officer: any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law. This also includes adoptive relationships.

Subject to regulatory approval, we may increase or decrease the purchase limitations at any time. See the detailed description of the purchase limitations in the section of this prospectus titled “The Conversion and Offering—Additional Limitations on Common Stock Purchases.”

How You May Purchase Shares of Common Stock in the Subscription Offering and the Community Offering

In the subscription offering and community offering, you may pay for your shares only by:

 

  (i)

personal check, bank check or money order made payable directly to Eastern Bankshares, Inc.; or

 

  (ii)

authorizing us to withdraw available funds from the types of Eastern Bank deposit account(s) designated on the stock order form.

Eastern Bank is not permitted to lend funds to anyone to purchase shares of common stock in the offering. Additionally, you may not use a line of credit check from Eastern Bank or any type of third party check (such as a check payable to you and endorsed over to Eastern Bankshares, Inc.) to pay for shares of common stock. Please do not submit cash. You may not designate withdrawal from Eastern Bank’s accounts with check-writing privileges; instead, please submit a check. You may not authorize direct withdrawal from an individual retirement account, or IRA, held at Eastern Bank. See the section of this prospectus titled “—Using Individual Retirement Account Funds to Purchase Shares of Common Stock.”

You may subscribe for shares of common stock in the subscription and community offerings by delivering a signed and completed original stock order form, together with full payment payable to Eastern Bankshares, Inc. or authorization to withdraw funds from one or more of your deposit accounts at Eastern Bank, provided that the stock order form is received before 2:00 p.m., Eastern Time, on [SUBSCRIPTION DEADLINE], 2020, which is the end of the subscription offering period. You may submit your stock order form and payment by mail using the stock order reply envelope provided or by overnight delivery to the address indicated on the stock order form. You may also hand-deliver stock order forms to the following location: [                    ]. Hand-delivered stock order forms will only be accepted at this location. We will not accept stock order forms at our banking offices. Please do not mail stock order forms to Eastern Bank’s offices.

Please see the section of this prospectus titled “The Conversion and Offering—Procedure for Purchasing Shares in Subscription and Community Offerings—Payment for Shares” for a complete description of how to purchase shares in the subscription and community offerings.

Using Individual Retirement Account Funds to Purchase Shares of Common Stock

You may be able to subscribe for shares of common stock using funds in your individual retirement account (“IRA”) or other retirement account. If you wish to use some or all of the funds in your IRA or other retirement account held at Eastern Bank, the applicable funds must be transferred to an IRA or other retirement account that can hold common stock and that is maintained by an independent custodian or trustee, such as a brokerage firm, before you place your stock order. If you do not have such an account, you will need to establish one. A one-time and/or annual administrative fee may be payable to the independent custodian or trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the [EXPIRATION DATE] offering deadline, for assistance with



 

12


Table of Contents

purchases using funds in your IRA or other retirement account held at Eastern Bank or elsewhere. Whether you may use such funds for the purchase of shares in the offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.

Please see the sections of this prospectus titled “The Conversion and Offering—Procedure for Purchasing Shares in Subscription and Community Offerings—Payment for Shares” and “—Using Individual Retirement Account Funds” for a complete description of how to use IRA funds to purchase shares of common stock in the offering.

Market for Common Stock

We expect that our common stock will be listed for trading on the Nasdaq Global Select Market under the symbol “EBC.” J.P. Morgan Securities LLC and Keefe, Bruyette & Woods, Inc. have advised us that they intend to make a market in our common stock following the offering, but neither is under any obligation to do so.

Our Dividend Policy

Following completion of the offering, our Board of Directors will have the authority to declare dividends on our common stock, subject to our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions.

Eastern Bankshares, Inc. may not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its net worth to be reduced below (i) the amount required for the Liquidation Account or (ii) the regulatory capital requirements of Eastern Bankshares, Inc. (to the extent applicable).

For more information regarding our proposed dividend policy, please see the section of this prospectus titled “Our Dividend Policy.”

Purchases by Directors and Executive Officers

We expect our directors and named executive officers, together with their associates, will subscribe for 1,337,500 shares of common stock in the offering, representing 1.0% of shares to be outstanding at the minimum of the offering range and 0.7% of shares to be sold in the offering at the maximum of the offering range. The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares of common stock in the offering.

For more information on the proposed purchases of shares of common stock by our directors and executive officers, please see the section of this prospectus titled “Subscriptions by Directors and Executive Officers.”

Deadline for Orders of Shares of Common Stock in the Subscription and Community Offerings

The deadline for purchasing shares of common stock in the subscription and community offerings is 2:00 p.m., Eastern Time, on [SUBSCRIPTION DEADLINE], 2020, unless we extend this deadline. If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment, must be received (not postmarked) by this time.

For a complete description of the deadline for purchasing shares in the offering, please see the section of this prospectus titled “The Conversion and Offering—Procedure for Purchasing Shares in Subscription and Community Offerings—Expiration Date.”

You May Not Sell or Transfer Your Subscription Rights

Applicable regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to certify that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights or the shares that you are purchasing. We intend to take legal action, including reporting persons to federal or state agencies, against anyone who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have reason to



 

13


Table of Contents

believe you have sold or transferred your subscription rights. On the order form, you cannot add the names of others for joint stock registration who do not have subscription rights or who qualify only in a lower purchase priority than you do. Doing so may jeopardize your subscription rights. In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation if there is an oversubscription.

Delivery of Shares of Common Stock

All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. As soon as practicable following consummation of the offering, a statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order form. We expect trading in the stock to begin on the day of completion of the offering or the next business day. The offering is expected to be completed as soon as practicable following satisfaction of the conditions described below in “—Conditions to Completion of the Offering.” Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.

Conditions to Completion of the Offering

We cannot complete the offering unless:

 

   

We sell at least the minimum number of shares of common stock offered in the offering;

 

   

We receive approval from the Federal Reserve Board; and

 

   

We receive approval of the Massachusetts Commissioner of Banks to complete the offering.

Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares

If we do not receive orders for at least 129,625,000 shares of common stock (not counting shares to be donated to the Eastern Bank Charitable Foundation), we may take several steps in order to sell the minimum number of shares of common stock in the offering range. Specifically, we may:

 

  (i)

increase the purchase and ownership limitations; and/or

 

  (ii)

seek regulatory approval to extend the offering beyond [SUBSCRIPTION DEADLINE], 2020, so long as we resolicit subscribers who previously submitted subscriptions in the offering.

If we extend the offering past [SUBSCRIPTION DEADLINE], 2020, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to that notice, we will cancel your stock order and promptly return your funds with interest at 0.02% per annum for funds received in the subscription and community offering or cancel your deposit account withdrawal authorization. If one or more purchase limitations are increased, only those subscribers in the subscription offering who ordered the maximum amount will be given the opportunity to increase their subscriptions up to the then-applicable limit.

Possible Change in the Offering Range

RP Financial, LC will update its appraisal before we complete the offering. If, as a result of demand for the shares or changes in market conditions or both, RP Financial, LC determines that our pro forma market value has increased, we may sell up to 201,681,250 shares in the offering without further notice to you. If our pro forma market value at that time is either below $1.4 billion or above $2.1 billion, then, after consulting with the Federal Reserve Board and the Massachusetts Commissioner of Banks, we may:

 

   

terminate the offering and promptly return all funds (with interest paid on funds received in the subscription and community offerings);



 

14


Table of Contents
   

set a new offering range; or

 

   

take such other actions as may be permitted by the Federal Reserve Board, the Massachusetts Commissioner of Banks and the Securities and Exchange Commission.

If we set a new offering range, we will promptly return funds, with interest at 0.02% per annum for funds received for purchases in the subscription and community offerings, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit subscribers, allowing them time to place a new stock order.

Possible Termination of the Offering

We may terminate the offering at any time with regulatory approval. If we terminate the offering, we will promptly return your funds with interest at 0.02% per annum, and we will cancel deposit account withdrawal authorizations.

Delivery of Prospectus

To ensure that each person receives a prospectus at least 48 hours before the deadline for orders for common stock, we may not mail prospectuses any later than five days before such date or hand-deliver prospectuses later than two days before that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or stock order form by means other than U.S. mail.

We will make reasonable attempts to provide a prospectus and offering materials to holders of subscription rights. The subscription offering and all subscription rights will expire at 2:00 p.m., Eastern Time, on [EXPIRATION DATE], whether or not we have been able to locate each person entitled to subscription rights.

Our Donation of Shares of Common Stock to Eastern Bank Charitable Foundation

To further our commitment to our local community, and assuming we receive final approval from the Massachusetts Commissioner of Banks and the Federal Reserve Board, Eastern Bankshares, Inc. intends to donate to Eastern Bank Charitable Foundation a number of shares of our common stock equal to 4% of the total number of shares of common stock that will be outstanding immediately following the completion of the offering and our donation of shares to the Eastern Bank Charitable Foundation. At the minimum, midpoint, maximum and adjusted maximum of the offering range, we would donate to Eastern Bank Charitable Foundation 5,401,042, 6,354,167, 7,307,292 and 8,403,386 shares of common stock, respectively. As a result of the stock donation, we expect to record an after-tax expense of approximately $62.2 million during the quarter in which the offering is completed, assuming we sell 201,681,250 shares of common stock in the offering.

Eastern Bank Charitable Foundation is dedicated exclusively to supporting charitable and community-based organizations dedicated to social justice and otherwise serving in the communities in which we operate. The stock donation to Eastern Bank Charitable Foundation will:

 

   

dilute the voting interests of purchasers of shares of our common stock in the offering; and

 

   

result in an expense, and a reduction in capital, during the quarter in which the donation is made, equal to the full amount of the donation to Eastern Bank Charitable Foundation, offset in part by a corresponding tax benefit.

The amount of common stock that we would offer for sale would be greater if Eastern Bankshares, Inc. was not donating shares to the Eastern Bank Charitable Foundation. For a further discussion of the financial impact of the stock donation to the Eastern Bank Charitable Foundation, including its effect on those who purchase shares in the offering, please see the sections of this prospectus titled “Risk Factors—Risks Related to the Offering—The donation to the Eastern Bank Charitable Foundation will dilute your ownership interest and adversely affect net income in 2020,” “Risk Factors—Risks Related to the Offering—Our donation to the Eastern Bank Charitable Foundation may not be tax deductible, which could reduce our profits,” “Comparison of Valuation and Pro Forma Information With and Without Stock Donation to Charitable Foundation,” and “Eastern Bank Charitable Foundation.”



 

15


Table of Contents

Benefits to Management and Potential Dilution to Shareholders Resulting from the Offering

We expect our employee stock ownership plan, which is a tax-qualified retirement plan for the benefit of all eligible employees of Eastern Bank and Eastern Insurance Group LLC to purchase up to 8% of the sum of the shares of common stock that are issued in the offering plus the number of shares we donate to the Eastern Bank Charitable Foundation upon completion of the offering, although the ultimate decision of whether and to what extent the employee stock ownership plan will purchase shares in the offering will be made by its trustee (initially a committee comprised of Eastern Bank executives) acting in its fiduciary capacity with respect to the employee stock ownership plan. In the event the amount purchased by the employee stock ownership plan in the offering does not equal such 8%, then if market conditions warrant, in the judgment of its trustees, the employee stock ownership plan may elect to purchase shares in the open market following the completion of the offering, subject to the approval of the Federal Reserve Board and the Massachusetts Commissioner of Banks.

We intend to implement one or more new stock-based benefit plans no earlier than six months after completion of the offering. Shareholder approval of these plans would be required. We have not determined whether we would adopt the plans within 12 months following the completion of the offering or more than 12 months following the completion of the offering. If we implement stock-based benefit plans within 12 months following the completion of the offering, the stock-based benefit plans would reserve a number of shares (i) up to 4% of the shares of common stock sold in the offering (including shares we donate to Eastern Bank Charitable Foundation) for awards of restricted stock to key employees and directors, at no cost to the recipients, and (ii) up to 10% of the shares of common stock sold in the offering (including shares we donated to Eastern Bank Charitable Foundation), for issuance pursuant to the exercise of stock options by key employees and directors. These percentage limitations are set forth in Federal Reserve Board regulations and Massachusetts regulations. If the stock-based benefit plan is adopted more than 12 months after the completion of the offering, it would not be subject to the percentage limitations set forth above. We have not yet determined the number of shares that would be reserved for issuance under these plans.

The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are available under one or more stock-based benefit plans if such plans reserve for restricted stock awards and stock options, respectively, a number of shares of common stock equal to 4% and 10% of the shares sold in the offering and donated to Eastern Bank Charitable Foundation. The table shows the dilution to shareholders if all such shares are issued from authorized but unissued shares, instead of such shares being purchased in the open market. A portion of the stock grants shown in the table below may be made to non-management employees. The table also sets forth the number of shares of common stock to be acquired by the employee stock ownership plan for allocation to all qualifying employees.

 

    Number of Shares to be Granted or Purchased           Value of Grants (In
Thousands)
 
    At
Minimum
of
Offering
Range
    At
Adjusted
Maximum
of Offering
Range
    As a
Percentage
of Common
Stock to be

Sold in the
Offering and

Contributed
to the
Foundation
    As a
Percentage
of Common
Stock to be
Outstanding
    Dilution
Resulting
From
Issuance
of Shares
for Stock-
Based
Benefit
Plans
    At
Minimum
of
Offering
Range
    At
Adjusted
Maximum
of Offering
Range
 

Employee stock ownership plan

    10,802,083       16,806,771       8.00     8.00     0.00   $ 108,021     $ 168,068  

Restricted stock awards

    5,401,042       8,403,385       4.00     4.00     3.85     54,010       84,034  

Options granted under stock-based benefit plans

    13,502,604       21,008,464       10.00     10.00     9.09     34,162       53,151  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    29,705,729       46,218,620       22.00     22.00     12.28   $ 196,193     $ 305,253  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The actual value of restricted stock awards will be determined based on their fair value as of the date grants are made. For purposes of this table, fair value for stock awards is assumed to be the same as the offering price of $10.00 per share. The fair value of stock options has been estimated at $2.53 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; an expected option term of 10 years; no dividend yield; a risk-free rate of return of 0.70%; and expected volatility of 18.08%. The actual value of option grants will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted.



 

16


Table of Contents
(2)

No dilution is reflected for the employee stock ownership plan because such shares are assumed to be purchased in the offering.

Tax Consequences

Eastern Bank has received an opinion of counsel, Nutter, McClennen & Fish, LLP, regarding the material U.S. federal income tax consequences of the offering. As a general matter, Eastern Bankshares, Inc. will not realize gain or loss for U.S. federal income tax purposes as a result of the offering and concurrent donation of stock to Eastern Bank Charitable Foundation.

Emerging Growth Company Status

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as we are an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including the following:

 

   

a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis;

 

   

an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;

 

   

an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

reduced disclosure about the company’s executive compensation arrangements; and

 

   

exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or shareholder approval of any golden parachute arrangements.

See the section of this prospectus titled “Risk Factors—Risks Related to the Offering—We are an emerging growth company, and because we elect to comply only with the reduced reporting and disclosure requirements applicable to emerging growth companies, our common stock may be less attractive to investors” and “Supervision and Regulation—Emerging Growth Company Status.”

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. Pursuant to the JOBS Act, we have elected to take advantage of the benefits of this extended transition period for complying with new or revised accounting standards as required when they are adopted for private companies. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards.

We will cease to be an emerging growth company upon the earliest of: (1) the end of the fiscal year following the fifth anniversary of the offering; (2) the first fiscal year after our annual gross revenues are $1.07 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; and (4) as of December 31 in any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of June 30 of that fiscal year. In light of the minimum offering expected under the appraisal, we expect that we will cease to be an emerging growth company as of December 31, 2021. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.



 

17


Table of Contents

How You Can Obtain Additional Information—Stock Information Center

Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the offering, please call our Stock Information Center. The telephone number is [(SSS) SSS-SSSS]. The Stock Information Center is open Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern Time. The Stock Information Center will be closed on bank holidays.



 

18


Table of Contents

RISK FACTORS

We are subject to a number of risks potentially affecting our business, financial condition, results of operations and cash flows. As a company offering banking and other financial services, certain elements of risk are inherent in our transactions and operations and are present in the business decisions we make. We, therefore, encounter risk as part of the normal course of our business, and we design risk management processes to help manage these risks. Our success is dependent on our ability to identify, understand and manage the risks presented by our business activities so that we can appropriately balance revenue generation and profitability. These risks include, but are not limited to, credit risk, market risks, liquidity risks, operational risks, model risks, technology, regulatory and legal risks, and strategic and reputational risks. We discuss our principal risk management processes and, in appropriate places, related historical performance in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

You should carefully consider the following risk factors that may affect our business, future operating results and financial condition, as well as the other information set forth in this prospectus, before making a decision to invest in our common stock. If any of the following risks actually occur, our business, financial condition or results of operations would likely be materially adversely affected. In such case, the trading price of our common stock would likely decline due to any of these risks, and you may lose all or part of your investment. The following risks are not the only risks we face. Additional risks that are not presently known or that we presently deem to be immaterial also could have a material adverse effect on our financial condition, results of operations and business.

Risks Related to Covid-19 Pandemic and Associated Economic Slowdown

On March 11, 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, Covid-19, a global pandemic. Our market area is concentrated in eastern Massachusetts. On a per capita basis, Massachusetts currently is ranked third among the states in the number of reported Covid-19 cases and fourth in the number of related deaths. This subsection summarizes a number of risks to our business, financial condition, results of operations and cash flows relating to the ongoing economic recession caused primarily by governmental and private sector actions to reduce the spread of Covid-19. In this prospectus, we sometimes refer to the ongoing recession as the “Covid-19 recession.”

Many of the risks related to the Covid-19 recession may have implications for Eastern Bank that are similar to those presented by risks described in further detail below in this subsection that are not specific to Covid-19, including “Our business may be adversely affected by conditions in the financial markets and by economic conditions generally,” “The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the local economy,” “Commercial loans, including those secured by commercial real estate, are generally riskier than other types of loans and constitute a significant portion of our loan and lease portfolio,” “Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results,” “Climate change, natural disasters, public health crises, geopolitical developments, acts of terrorism and other external events could harm our business,” “The financial weakness of other financial institutions could adversely affect us,” and “Our business strategy includes projected growth in our core businesses, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.”

The Covid-19 pandemic and governmental and private sector action in response to the Covid-19 pandemic are having a material adverse effect on the global, national and local economies, and on our business, financial condition, results of operations and cash flows, and it is premature to predict if or when economic activity will revert to the level that existed before the spread of Covid-19 in our region.

Governmental action ordering the closure of workplaces and facilities of non-essential businesses to workers, customers and the public has had a material adverse effect on the global, national and local economies.

Massachusetts Governor Charles D. Baker issued an emergency order requiring all businesses and organizations that do not provide “Covid-19 essential services” to close their workplaces and facilities to workers, customers and the public, beginning March 24, 2020. On April 21, 2020, Governor Baker extended the closure of all public and private schools through the end of the 2019-2020 school year, and the closure of all non-emergency child care programs with limited exception.

The closure in Massachusetts of many workplaces and facilities to workers, customers and the public resulted in an unprecedented increase in the number of unemployment claims in Massachusetts since mid-March 2020. For the

 

19


Table of Contents

twelve-week period ended June 3, 2020, the number of Massachusetts residents who submitted initial unemployment claims averaged approximately 81,320 per week, compared to 7,449 claims in the week ended March 7, 2020. The greatest concentration of new claims occurred during the four-week period ended April 11th, 2020, when an average of 143,334 claims were filed per week. The unemployment rate reported by the Department of Labor’s Bureau of Labor Statistics for Massachusetts as of the end of May 2020 was 16.8%. We believe the increase in unemployment claims is an indicator that we will experience a sharp increase during the next several months in delinquent consumer and small business loans.

We expect our local economy will largely track the national economy and will be influenced by global economic conditions. The Federal Reserve indicated on June 10, 2020 that it expects the unemployment rate in the United States to average between 9% and 10% during the last three months of 2020, compared to 3.5% in February, and that the level of economic activity in the United States in late 2020, as measured by gross domestic product (“GDP”), would be between 4% and 10% less than during the comparable period of 2019. An assessment of the impact of the Covid-19 pandemic on global economic activity was released by the Organization for Economic Cooperation and Development (“OECD”), also on June 10, 2020. The OECD presented what it characterized as two equally likely scenarios – one scenario in which a so-called “second wave” of the Covid-19 pandemic occurs in all economies towards the end of 2020 and an alternative scenario where the second wave is avoided. The OECD projected global GDP will decline by 7.6% in 2020 in the second wave scenario, as compared to a 6% decline in the other scenario.

The Covid-19 recession is having a material adverse effect on our business, financial condition, results of operations and cash flows, as discussed below.

It is premature to assess whether the Massachusetts plan to permit the gradual reopening of “brick-and-mortar premises” of businesses and organizations will create conditions likely lead to a rapid and meaningful increase in economic activity while avoiding a second wave of Covid-19 cases.

On May 18, 2020, Governor Baker announced a four-part phased plan to reopen the physical locations of businesses and organizations in Massachusetts. The stated goal is to methodically allow businesses, services and activities to resume, while avoiding a resurgence of Covid-19 that could overwhelm the Massachusetts healthcare system. According to the plan, each phase will last a minimum of three weeks (and could last longer) before moving to the next phase. The plan states that if public health data trends are negative, specific industries, regions, and/or the entire state may be required to revert to an earlier phase.

We anticipate that many workers will not be able to, or will choose not to, return full-time to the workplace unless they perceive that safe childcare or elementary school options are available. Massachusetts has not announced plans to allow child care facilities to reopen nor has it provided a framework for K-12 education to resume in the 2020-2021 school year.

We are unable to predict if or when economic activity will revert to the level that existed before the spread of Covid-19 in our region with respect to our commercial and small business borrowers that operate businesses such as hotels, inns, restaurants and retail stores that depend primarily upon customers patronizing their businesses in person. For example, although restaurants were permitted to open beginning June 8, 2020 (outdoor seating only), restaurants in the City of Boston that subscribe to the OpenTable reservation service experienced a daily decline in reservations of 87.21%, on average, for the seven-day period ended June 15, 2020 as compared to the same period in 2019.

Customary means to collect nonperforming assets may be prohibited or impractical during the Covid-19 pandemic, and there is a risk that collateral securing a nonperforming asset may deteriorate if we choose not to, or are unable to, foreclose on collateral on a timely basis.

We suspended all collection of overdue payments, including residential property foreclosure sales, beginning in March 2020. Separately, governments have adopted or may adopt in the future regulations or promulgate executive orders that restrict or limit our ability to take certain actions with respect to delinquent borrowers that we would otherwise take in the ordinary course, such as customary collection and foreclosure procedures. Massachusetts, for example, enacted a law effective April 20, 2020 that imposes a moratorium on evictions and foreclosures during the Covid-19 emergency. The law prohibits landlords and lenders from initiating or completing evictions and foreclosures during the current state of emergency. The law also requires lenders to provide forbearance to mortgage borrowers who submit a request affirming that they have experienced a financial impact from Covid-19. There is a risk that the collateral securing a nonaccrual loan may deteriorate if we choose not to, or are unable to, foreclose on the collateral on a timely basis during the Covid-19 recession.

 

20


Table of Contents

As a result of the dramatic decline in cash flow that many of our commercial and commercial real estate borrowers have experienced as a result of the Covid-19 recession, many of those borrowers have been and will likely continue to seek payment deferments on their indebtedness.

The effects of the Covid-19 recession in our market area have significantly reduced the cash flow for many of our commercial and commercial real estate borrowers. As a consequence, many of those borrowers have been seeking payment deferments on their indebtedness.

Consistent with the public encouragement provided generally by federal and state financial institution regulators after the spread of Covid-19 in the United States, Eastern Bank has attempted to work constructively with borrowers to negotiate loan modifications or forbearance arrangements that reduce or defer the monthly payments due to Eastern Bank. Through May 31, 2020, these modifications have totaled $508 million of commercial real estate loans, including construction loans, $151 million of commercial and industrial loans, $96 million of business banking loans, $87 million of residential real estate loans and $25 million of consumer loans. Generally, these modifications are for three to six months and allow customers to temporarily cease making either interest payments, or interest and principal payments. To date, we have not deferred our recognition of interest income with respect to loans subject to modifications or forbearance arrangements. We expect that the number of loan modifications or forbearance arrangements will increase in June 2020.

We expect a significant increase in credit costs in 2020 due to the Covid-19 recession.

Our loan loss provision for the quarter ended March 31, 2020 was $28.6 million, as compared to our loan loss provision of $6.3 million for the year ended December 31, 2019. The increase in our provision was driven primarily by our perception of the economic distress being experienced by many of our borrowers due to the Covid-19 recession.

Beginning in late March, when we realized the impact of the pandemic and economic shut down would have an immediate impact on selected segments of our customers, we identified the following categories of borrowers likely to experience the most adverse effects of the Covid-19 recession, listed in descending order of our exposure to outstanding commercial and industrial loan commitments as of March 31, 2020 to borrowers in those categories: construction contractors; restaurants; non-essential retail (excluding grocery, liquor and health stores); educational services and child care services; entertainment and recreation (including gyms and other fitness facilities); private medical and dental offices; water and air passenger transportation; and auto and other vehicle dealers. The aggregate exposure as of March 31, 2020 was $710.7 million. The two categories with the largest exposures are construction contractors ($284.3 million) and restaurants ($150.7 million). The average exposure for the other categories was $39.4 million. We also have exposure for both commercial real estate loans secured by hotel properties ($191.0 million) and commercial loans to hotel operators ($600,000). We do not have any exposure to the oil or gas sectors.

We have downgraded the risk ratings of our entire loan portfolio of hotel and restaurant loans, and also downgraded the risk ratings for all commercial loans, including loans to construction contractors, that we expected to be significantly impacted by the Covid-19 recession. The total amount of loans impacted by these downgraded risk ratings was $1.6 billion. Our planning anticipates that nonperforming assets will be greater at June 30, 2020 than at March 31, 2020, and that our loan loss provision for the quarter ending June 30, 2020 will be greater than our provision for the comparable period of 2019.

Our loan loss allowance may be difficult to evaluate in comparison to our peers. As we are permitted to do as an emerging growth company, we have elected to postpone the adoption of Financial Accounting Standards Board Accounting Standards Update No. 2016–13 (“Measurement of Credit Losses on Financial Instruments”), commonly referred to as the “CECL model.” The new standard will be effective for us for reporting beginning as of December 31, 2021. We are adopting this standard later than our peers, and therefore, our loan loss allowance may be difficult to evaluate in comparison to many of our peers that are publicly traded.

The Federal Open Market Committee’s reduction in the target range for the federal funds rate to between 0.0% and 0.25% in March 2020 to help mitigate the effects of the Covid-19 recession will likely have an adverse effect on our 2020 operating results.

Anticipating the Covid-19 recession, the Federal Open Market Committee of the Federal Reserve in March 2020 reduced the target range for the federal funds rate to between 0.0% and 0.25%, compared to the previous target of between 1.00% and 1.25%. The outlook for the remainder of 2020 is uncertain, and there is a possibility that the Federal Open Market Committee may keep interest rates low or even use negative interest rates if economic conditions warrant.

 

21


Table of Contents

Changes in interest rates can have a material effect on many areas of our business, including our net interest and net interest margin. When interest rates on our interest-earning assets decline at a faster pace than interest rates on our interest-bearing liabilities, our net interest income is adversely affected. Our planning for 2020 assumes that the current interest rate environment will remain in effect through December 31, 2020; interest rates on our interest-earning assets will decline in 2020 at a faster pace than interest rates on our interest-bearing liabilities; and our net interest income for 2020 will likely be materially less than our net interest income for 2019.

We anticipate the Covid-19 recession will have other adverse effects on our operating results for the year ending December 31, 2020 and possibly beyond.

Other factors likely to have an adverse effect on our operating results include:

 

   

reduced fees as we waive certain fees for our customers impacted by the Covid-19 pandemic,

 

   

possible constraints on liquidity and capital, due to supporting client activities or regulatory actions,

 

   

potential losses in our investment securities portfolio due to volatility in the financial markets, and

 

   

higher operating costs, increased cybersecurity risks and a potential loss of productivity while we work remotely and must address a higher level of loan modifications, distressed credit management and PPP loan originations.

In addition, because both the Covid-19 pandemic and the associated recession are unprecedented, it may be challenging for management to make certain judgments and estimates that are material to our consolidated financial statements while the Covid-19 pandemic continues, given the inherently uncertain operating environment.

We may experience additional expense and reputational risk arising out of our origination of PPP loans if one or more companies, individuals or public officials allege that we acted unfairly in connection with PPP lending, including by choosing not to process certain PPP applications or in favoring our customers over other eligible PPP borrowers.

Through May 31, 2020, we originated approximately 7,900 loans to PPP borrowers, representing in the aggregate $1.1 billion of PPP loans. The vast majority of our PPP borrowers are existing commercial and small business borrowers, non-profit customers, retail banking customers and clients of Eastern Wealth Management and Eastern Insurance Group LLC.

As of the date of this prospectus, federal and state officials, including the Massachusetts Attorney General, are investigating how participating PPP lenders process applications and whether certain PPP lenders may have inappropriately or unfairly prioritized certain customers to the detriment of other eligible borrowers. Similarly, there are pending lawsuits brought by eligible PPP borrowers seeking to prevent various PPP lenders from prioritizing existing customers when approving PPP loans. We are proud of our efforts to provide PPP funding to small businesses and non-profits in our community, but there can be no assurance that we will not be the target of government scrutiny or that private parties will not bring claims challenging our procedures for accepting and approving applications for PPP loans.

An important element of our business strategy is to pursue growth in our core businesses, and it may be challenging for us to grow our core business while the Covid-19 pandemic and associated recession continue or if the recovery from the Covid-19 recession is slow or unpredictable.

The Covid-19 pandemic and the associated recession are unprecedented. We are unable to predict if or when economic activity will revert to the level that existed before the spread of Covid-19 in our region. We also are unable to predict whether our existing and prospective customers will have confidence in assessing when the Covid-19 pandemic will likely abate and the likely pace of any economic recovery. It may be challenging for us to grow our core business while the Covid-19 pandemic continues or if the recovery from the Covid-19 recession is slow or unpredictable. If the continuing effects of the Covid-19 recession impede our ability to grow our core business, our return on equity may be less than our peer companies, and the market price of our stock may be adversely affected.

 

22


Table of Contents

Risks Related to Our Business and Our Industry Generally

Changes in interest rates may have an adverse effect on our profitability.

Net interest income historically has been, and we anticipate that it will remain, a significant component of our total revenue. This is due to the fact that a high percentage of our assets and liabilities have been and will continue to be in the form of interest-bearing or interest-related instruments. Changes in interest rates can have a material effect on many areas of our business, including net interest income, deposit costs, and loan volume and delinquency. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Open Market Committee. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect our ability to originate loans and obtain deposits and the fair value of our financial assets and liabilities. If the interest rates on our interest-bearing liabilities increase at a faster pace than the interest rates on our interest earning assets, our net interest income may decline and, with it, a decline in our earnings may occur. Our net interest income and our earnings would be similarly affected if the interest rates on our interest earning assets declined at a faster pace than the interest rates on our interest-bearing liabilities. The Federal Open Market Committee twice reduced interest rates in March 2020 in response to the disruption of global economic activity due to actions taken to mitigate the spread of Covid-19. On March 3, 2020, the Federal Open Market Committee reduced the target range for the federal funds rate by 50 basis points, to 1.00% to 1.25%, and on March 15, 2020, the Federal Open Market Committee further reduced the target range for the federal funds rate to 0.00% to 0.25%.

The current interest rate changes may impact our ability to attract deposits and to generate attractive earnings through our investment portfolio and we are unable to control or predict with certainty changes in market interest rates. Global, national, regional and local economic conditions, the effects of a widespread outbreak of disease pandemics such as Covid-19, competitive pressures and the policies of regulatory authorities, including monetary policies of the Federal Reserve Board, affect interest income and interest expense. Although we have policies and procedures designed to manage the risks associated with changes in market interest rates, changes in interest rates still may have an adverse effect on our profitability.

If our ongoing assumptions regarding borrower or depositor behavior or overall economic conditions are significantly different than we anticipate, then our risk mitigation may be insufficient to protect against interest rate risk and our net income would be adversely affected.

If our allowance for loan losses is insufficient to cover actual loan losses, our earnings and capital could decrease.

At March 31, 2020, our allowance for loan losses was $109.1 million, or 1.20% of total loans. At December 31, 2019, our allowance for loan losses was $82.3 million, or 0.92% of total loans, compared to $80.7 million, or 0.91% of total loans, at December 31, 2018. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for many of our loans. In determining the amount of the allowance for loan losses, we review our loans, loss and delinquency experience, and commercial and commercial real estate peer data and we evaluate other factors including, among other things, current economic conditions. If our assumptions are incorrect, or if delinquencies or non-performing loans increase, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance, which could materially decrease our net income.

In addition, our federal and state regulators, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to increase the allowance for loan losses by recognizing additional provisions for loan losses charged to income, or to charge-off loans, which, net of any recoveries, would decrease the allowance for loan losses. Any such additional provisions for loan losses or charge-offs could have a material adverse effect on our financial condition and results of operations.

The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the local economy.

We primarily serve individuals, businesses and municipalities located in eastern and central Massachusetts, including the greater Boston metropolitan area, southern New Hampshire, including its coastal region, and northern Rhode Island. At March 31, 2020, approximately $6.4 billion, or 71% of our total loans, was primarily secured by real estate in this market area. Therefore, our success is largely dependent on the economic conditions, including employment levels, population

 

23


Table of Contents

growth, income levels, savings trends and government policies, in this market area. Weaker economic conditions caused by recessions, unemployment, inflation, a decline in real estate values or other factors beyond our control may adversely affect the ability of our borrowers to service their debt obligations and could result in higher loan and lease losses and lower net income for us.

Although there is not a single employer or industry in our market area on which a significant number of our customers are dependent, a substantial portion of our loan portfolio is composed of loans secured by property located in the greater Boston metropolitan area. This makes us vulnerable to a downturn in the local economy and real estate markets. Decreases in local real estate values caused by economic conditions or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure.

A worsening of business and economic conditions generally or specifically in the principal markets in which we conduct business could have adverse effects on our business, including the following:

 

   

A decrease in the demand for, or the availability of, loans and other products and services offered by us;

 

   

A decrease in the value of our loans held for sale or other assets secured by residential or commercial real estate;

 

   

An impairment of certain intangible assets, such as goodwill;

 

   

A decrease in interest income from variable rate loans due to declines in interest rates; and

 

   

An increase in the number of clients and counterparties who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us, which could result in a higher level of nonperforming assets, net charge-offs, provisions for loan losses, and valuation adjustments on loans held for sale.

Moreover, a significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, an outbreak of hostilities or other international or domestic calamities, unemployment, public health crises or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance. In the event of severely adverse business and economic conditions generally or specifically in the principal markets in which we conduct business, there can be no assurance that the federal government and the Federal Reserve Board would intervene. If economic conditions worsen or volatility increases, our business, financial condition and results of operations could be materially adversely affected. For more information about our market area, please see the section of this prospectus titled “Business—Eastern Bank—Market Area.”

We are a community bank and our ability to manage reputational risk is critical to attracting and maintaining customers, investors and employees and to the success of our business, and the failure to do so may materially adversely affect our performance.

We are a community bank and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area. As a community bank, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or by events beyond our control, our business and operating results may be adversely affected.

Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, the perception of unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, cybersecurity breaches and questionable or fraudulent activities of our customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective. Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers and employees, costly litigation and increased governmental regulation, all of which could adversely affect our operating results.

 

24


Table of Contents

We face continuing and growing security risks to our information base, including the information we maintain relating to our customers.

We are subject to certain operational risks, including, but not limited to, data processing system failures and errors, inadequate or failed internal processes, customer or employee fraud and catastrophic failures resulting from terrorist acts or natural disasters. In the ordinary course of business, we rely on electronic communications and information systems to conduct our business and to store sensitive data, including financial information regarding customers. Our electronic communications and information systems infrastructure, as well as the systems infrastructures of the vendors we use to meet our data processing and communication needs, could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Financial services institutions and companies engaged in data processing have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. Denial of service attacks have been launched against a number of large financial services institutions. Hacking and identity theft risks, in particular, could cause serious reputational harm. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks. Although to date we have not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. No matter how well designed or implemented our controls are, we will not be able to anticipate all security breaches of these types, and we may not be able to implement effective preventive measures against such security breaches in a timely manner. A failure or circumvention of our security systems could have a material adverse effect on our business operations and financial condition.

We regularly assess and test our security systems and disaster preparedness, including back-up systems, but the risks are substantially escalating. As a result, cybersecurity and the continued enhancement of our controls and processes to protect our systems, data and networks from attacks, unauthorized access or significant damage remain a priority. Accordingly, we may be required to expend additional resources to enhance our protective measures or to investigate and remediate any information security vulnerabilities or exposures. Any breach of our system security could result in disruption of our operations, unauthorized access to confidential customer information, significant regulatory costs, litigation exposure and other possible damages, loss or liability. Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect our earnings. Also, any failure to prevent a security breach or to quickly and effectively deal with such a breach could negatively impact customer confidence, damaging our reputation and undermining our ability to attract and keep customers.

We rely on third party vendors, which could expose Eastern Bank to additional cybersecurity risks.

Third party vendors provide key components of our business infrastructure, including certain data processing and information services. On Eastern Bank’s behalf, third parties may transmit confidential, propriety information. Although we require third party providers to maintain certain levels of information security, such providers may remain vulnerable to breaches, unauthorized access, misuse, computer viruses, or other malicious attacks that could ultimately compromise sensitive information. Although Eastern Bank may contractually limit liability in connection with attacks against third party providers, we remain exposed to the risk of loss associated with such vendors. In addition, a number of Eastern Bank’s vendors are large national entities with dominant market presence in their respective fields. Their services could prove difficult to replace in a timely manner if a failure or other service interruption were to occur. Failures of certain vendors to provide contracted services could adversely affect our ability to deliver products and services to customers and cause us to incur significant expenses.

Industry competition may adversely affect our degree of success.

Our profitability depends on our ability to compete successfully. We operate in a highly competitive industry that could become even more competitive as a result of legislative, regulatory and technological changes, as well as continued industry consolidation. This consolidation may produce larger, better-capitalized and more geographically diverse companies that are capable of offering a wider array of financial products and services at more competitive prices. For example, there have been a number of recently completed or announced mergers of financial institutions within our market areas. These mergers will, if completed, allow the merged financial institutions to benefit from cost savings and shared resources.

In our market areas, we face competition from other commercial banks, savings and loan associations, tax-exempt credit unions, financial technology companies (“fintechs”), internet banks, finance companies, mutual funds, insurance companies,

 

25


Table of Contents

brokerage and investment banking firms, mortgage companies and other financial intermediaries that offer similar services. Some of our non-bank competitors are not subject to the same extensive regulations we are and, therefore, may have greater flexibility in competing for business.

In addition, technology has lowered barriers to entry and made it possible for non-banks to offer products and services, such as loans and payment services, that traditionally were banking products, and made it possible for technology companies to compete with financial institutions in providing electronic, internet-based, and mobile phone-based financial solutions. Competition with non-banks, including technology companies, to provide financial products and services is intensifying. In particular, the activity of fintechs has grown significantly over recent years and is expected to continue to grow. Fintechs have and may continue to offer bank or bank-like products. For example, a number of fintechs have applied for commercial bank or industrial loan company charters or are actively seeking to acquire commercial banks or industrial loan companies. Recently, a fintech announced its proposed acquisition of a commercial bank in our market area. Additionally, the FDIC recently approved two federal deposit insurance applications by two proposed industrial loan companies, the first time the FDIC has done so since 2008. The federal and state bank regulatory agencies have demonstrated a willingness to charter non-traditional bank charter applicants, such as fintechs, which increases competition in the industry. In addition, other fintechs have partnered with existing banks to allow them to offer deposit products to their customers. Regulatory changes, such as the recently proposed revisions to the FDIC’s rules on brokered deposits intended to reflect recent technological changes and innovations, may also make it easier for fintechs to partner with banks and offer deposit products. In addition to fintechs, the large technology companies have begun to make efforts toward providing financial services directly to their customers and are expected to continue to explore new ways to do so. Many of these companies, including our competitors, have fewer regulatory constraints, and some have lower cost structures, in part due to lack of physical locations. Some of these companies also have greater resources to invest in technological improvements than we currently have.

Our ability to compete successfully depends on a number of additional factors, including customer convenience, quality of service, personal contacts, pricing and range of products. If we are unable to successfully compete for new customers and to retain our current customers, our business, financial condition or results of operations may be adversely affected, perhaps materially. In particular, if we experience an outflow of deposits as a result of our customers seeking investments with higher yields or greater financial stability, we may be forced to rely more heavily on borrowings and other sources of funding to operate our business and meet withdrawal demands, thereby adversely affecting our net interest margin and financial performance. In addition, we may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. As a result, our ability to effectively compete to retain or acquire new business may be impaired, and our business, financial condition or results of operations may be adversely affected.

In addition to external competition, the financial services industry, including the banking sector, is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. In addition, new, unexpected technological changes could have a disruptive effect on the way banks offer products and services. We believe our success depends, to a great extent, on our ability to use technology to offer products and services that provide convenience to customers and to create additional efficiencies in our operations. However, we may not be able to, among other things, keep up with the rapid pace of technological changes, effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. As a result, our ability to compete effectively to attract or retain new business may be impaired, and our business, financial condition or results of operations may be adversely affected.

In addition, changes in the legal and regulatory framework under which we operate require us to update our information systems to ensure compliance. Our need to review and evaluate the impact of ongoing rule proposals, final rules and implementation guidance from regulators further complicates the development and implementation of new information systems for our business. Also, our regulators expect us to perform increased due diligence and ongoing monitoring of third party vendor relationships, thus increasing the scope of management involvement and decreasing the efficiency otherwise resulting from our relationships with third-party technology providers.

We may not be able to successfully execute our strategic plan or achieve our performance targets.

An important goal of our strategic plan is expanding profitable loan and deposit market share through both organic growth and opportunistic strategic transactions. (For a more complete discussion of our strategic plan, please see the section

 

26


Table of Contents

of this prospectus titled “Business—Eastern Bank—Business Strategy.”) It is possible that one or more factors, including factors outside of our control, may hinder or prevent us from achieving our growth objectives. Our key assumptions include:

 

   

that we will be able to attract and retain the requisite number of skilled and qualified personnel required to increase our loan origination volume, especially in our commercial banking portfolios. The marketplace for skilled personnel is competitive, which means hiring, training and retaining skilled personnel is costly and challenging and we may not be able to increase the number of our loan professionals sufficiently to achieve our loan origination targets successfully;

 

   

that we will be able to fund asset growth by growing deposits with our overall cost of funds at a rate consistent with our expectations;

 

   

that we will be able to successfully identify and purchase high-quality interest-earning assets that perform over time in accordance with our expectations; and

 

   

that there will be no material change in competitive dynamics, including as a result of our seeking to increase market share. As discussed above, we operate in a highly competitive industry and any change in our ability to retain deposits or attract new customers in line with our current expectations would adversely affect our ability to grow our revenue.

If one or more of our assumptions prove incorrect, we may not be able to successfully execute our strategic plan, we may never achieve our indicative performance targets and any shortfall may be material.

Our business strategy includes projected growth in our core businesses, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We expect to continue to experience growth in the amount of our assets, the level of our deposits and the scale of our operations. Achieving our growth targets requires us to attract customers that currently bank at other financial institutions in our market, thereby increasing our share of the market. Our ability to successfully grow will depend on a variety of factors, including our customers’ ability to meet their obligations to us, our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas and our ability to manage our growth. Growth opportunities may not be available or we may not be able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could be negatively affected.

We could fail to attract, retain or motivate highly skilled and qualified personnel, including our senior management, other key employees or members of our Board, which could impair our ability to successfully execute our strategic plan and otherwise adversely affect our business.

A cornerstone of our strategic plan involves retaining as well as hiring highly skilled and qualified personnel. Accordingly, our ability to implement our strategic plan and our future success depends on our ability to attract, retain and motivate highly skilled and qualified personnel, including our senior management and other key employees and directors. Until the Covid-19 recession, the marketplace for skilled personnel was becoming more competitive, which meant the cost of hiring, incentivizing and retaining skilled personnel was likely to increase. The rapid unemployment caused by Covid-19 has created additional uncertainty with respect to our current and future workforce. The failure to attract or retain, including as a result of an untimely death or illness of key personnel, or ability to replace a sufficient number of appropriately skilled and key personnel could place us at a significant competitive disadvantage and prevent us from successfully implementing our strategy, which could impair our ability to implement our strategic plan successfully, achieve our performance targets and otherwise have a material adverse effect on our business, financial condition and results of operations.

Limitations on the manner in which regulated financial institutions, such as us, can compensate their officers and employees, including those contained in pending rule proposals implementing requirements of Section 956 of the Dodd-Frank Act, may make it more difficult for such institutions to compete for talent with financial institutions and other companies not subject to these or similar limitations. If we are unable to compete effectively, our business, financial condition and results of operations could be adversely affected, perhaps materially.

 

27


Table of Contents

To the extent that we acquire other companies, our business may be negatively impacted by certain risks inherent with such acquisitions.

We have acquired and will continue to consider the acquisition of other financial services companies. To the extent that we acquire other companies in the future, our business may be negatively impacted by certain risks inherent with such acquisitions. Some of these risks include the following:

 

   

The risk that the acquired business will not perform in accordance with management’s expectations;

 

   

The risk that difficulties will arise in connection with the integration of the operations of the acquired business with the operations of our businesses;

 

   

The risk that management will divert its attention from other aspects of our business;

 

   

The risk that we may lose key employees of the combined business; and

 

   

The risks associated with entering into geographic and product markets in which we have limited or no direct prior experience.

The fair value of Eastern Bank’s investments could decline.

Most of Eastern Bank’s investment securities portfolio is designated as available-for-sale. Accordingly, unrealized gains and losses, net of tax, in the estimated fair value of the available-for-sale portfolio is recorded as other comprehensive income, a separate component of shareholders’ equity. The fair value of Eastern Bank’s investment portfolio may decline, causing a corresponding decline in shareholders’ equity. Management believes that several factors will affect the fair values of the investment portfolio, including, but not limited to, changes in interest rates or expectations of changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation and the slope of the interest rate yield curve. These and other factors may impact specific categories of the portfolio differently and the effect any of these factors may have on any specific category of the portfolio cannot be predicted.

Many state and local governmental authorities have experienced deterioration of financial condition in recent years due to declining tax revenues, increased demand for services and various other factors. To the extent Eastern Bank has any municipal securities in its portfolio from issuers who are experiencing deterioration of financial condition or who may experience future deterioration of financial condition, the value of such securities may decline and could result in other-than-temporary impairment charges, which could have an adverse effect on Eastern Bank’s financial condition and results of operations. Additionally, a general, industry-wide decline in the fair value of municipal securities could significantly affect Eastern Bank’s financial condition and results of operations.

In addition to the potential decline in fair value due to volatility in the fair value of Eastern Bank’s investments, unrealized losses on investment securities result from changes in credit spreads and liquidity issues in the marketplace, along with changes in the credit profile of individual securities issuers. Under GAAP, we are required to review our investment portfolio periodically for the presence of other-than-temporary impairment of our securities, taking into consideration current market conditions, the extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, our ability and intent to hold investments until a recovery of fair value, as well as other factors. Adverse developments with respect to one or more of the foregoing factors may require us to deem particular securities to be other-than-temporarily impaired, with the credit-related portion of the reduction in the value recognized as a charge to our earnings. Subsequent valuations, in light of factors prevailing at that time, may result in significant changes in the values of these securities in future periods. Any of these factors could require us to recognize further impairments in the value of our securities portfolio, which may have an adverse effect on our results of operations in future periods.

Commercial loans, including those secured by commercial real estate, are generally riskier than other types of loans and constitute a significant portion of our loan and lease portfolio.

Our commercial loan and lease portfolio, including those secured by commercial real estate, comprised $6.4 billion, or 70% of our total loans at March 31, 2020. Commercial loans generally carry larger balances and involve a higher risk of nonpayment or late payment than residential mortgage loans. Most of the commercial loans are secured by borrower business assets such as accounts receivable, inventory, equipment and other fixed assets. Compared to real estate, these types of collateral are more difficult to monitor, harder to value, may depreciate more rapidly and may not be as readily saleable if repossessed. Repayment of commercial and industrial loans is largely dependent on the business and financial condition of borrowers. Business cash flows are dependent on the demand for the products and services offered by the borrower’s

 

28


Table of Contents

business. Such demand may be reduced when economic conditions are weak or when the products and services offered are viewed as less valuable than those offered by competitors. In addition, some of our commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity. These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment, which may increase the risk of default or non-payment. In addition, as a result of Covid-19, we have put in place a loan modification program which has resulted in a number of commercial customers deferring their loans with us. Even with deferrals, some customers may be unable to repay their loans as agreed. Because of the risks associated with commercial loans, and especially as a result of the current economic downturn, we may experience higher rates of default than if the portfolio were more heavily weighted toward residential mortgage loans. Higher rates of default could have an adverse effect on our financial condition and results of operations. Further, if we foreclose on commercial collateral, our holding period for the collateral may be longer than for one- to four-family residential real estate loans because there are fewer potential purchasers of the collateral, which can result in substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability.

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real estate and we could become subject to environmental liabilities with respect to one or more of these properties. At March 31, 2020, $6.7 billion, or 75% of our total loans, comprised of loans secured by real estate. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If so, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected the property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability, and we may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Our business may be adversely affected by credit risks associated with residential property.

At March 31, 2020, one- to four-family residential real estate loans were $2.5 billion, or 27% of total loans. One- to four-family residential real estate loans include residential real estate mortgages, home equity loans and lines and investment real estate loans secured by one- to four-family residential properties. At March 31, 2020, $138 million of one- to four-family residential real estate loans were part of the commercial loan portfolio. One- to four-family residential mortgage lending, whether owner occupied or non-owner occupied, is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations. As a result of Covid-19, some states, cities and towns, as well as Fannie Mae and Freddie Mac, have required banks to put in place real estate mortgage deferral programs. Our modification program includes real estate mortgages, home equity loans and lines. Deferrals alone may not be sufficient relief for real estate owners, who may default in greater numbers than anticipated. In addition, the risk of tenant rent strikes or inability to pay rent on time or at all has greatly increased with the sudden and sharp increase in the unemployment rate. Declines in real estate values could cause some of our residential mortgages to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral. Residential loans with combined higher loan-to-value ratios are more sensitive to declining property values than those with lower combined loan-to-value ratios and, therefore, may experience a higher incidence of default and severity of losses. In addition, if the borrowers sell their homes, they may be unable to repay their loans in full from the sale proceeds. For those home equity loans and lines of credit secured by a second mortgage, it is unlikely that we will be successful in recovering all or a portion of our loan proceeds in the event of default unless we are prepared to repay the first mortgage loan and such repayment and the costs associated with a foreclosure are justified by the value of the property. For these reasons, we may experience higher rates of delinquencies, default and losses on our home equity loans, which could have a material adverse effect on our financial condition and results of operations.

 

29


Table of Contents

A portion of our loan portfolio consists of loan participations, which may have a higher risk of loss than loans we originate because we are not the lead lender and we have limited control over credit monitoring.

We occasionally purchase loan participations. Although we underwrite these loan participations consistent with our general underwriting criteria, loan participations may have a higher risk of loss than loans we originate because we rely on the lead lender to disclose relevant financial information on a timely basis. Moreover, our decision regarding the classification of a loan participation and loan loss provisions associated with a loan participation is made in part based upon information provided by the lead lender. A lead lender also may not monitor a participation loan in the same manner as we would for loans that we originate. At March 31, 2020, we held loan participation interests in commercial and industrial, commercial real estate, commercial construction and business banking loans totaling $1.05 billion.

Hedging against interest rate exposure may adversely affect our earnings.

We employ techniques that limit, or “hedge,” the adverse effects of rising interest rates on our loan portfolios. We also engage in hedging strategies with respect to arrangements where our customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa. Our hedging activity varies based on the level and volatility of interest rates and other changing market conditions. These techniques may include purchasing or selling futures contracts, purchasing put and call options on securities or securities underlying futures contracts, or entering into other mortgage-backed derivatives. There are, however, no perfect hedging strategies, and interest rate hedging may fail to protect us from loss. Moreover, hedging activities could result in losses if the event against which we hedge does not occur. Additionally, interest rate hedging could fail to protect us or adversely affect us because, among other things:

 

   

Available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;

 

   

The duration of the hedge may not match the duration of the related liability;

 

   

The party owing money in the hedging transaction may default on its obligation to pay;

 

   

The credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;

 

   

The value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value; and/or

 

   

Downward adjustments, or “mark-to-market” losses, would reduce our stockholders’ equity.

New lines of business or new products and services may subject us to additional risks.

From time to time, we may implement new lines of business or offer new products and services within existing lines of business. In addition, we will continue to make investments in research, development, and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and resources. Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. Furthermore, if customers do not perceive our new offerings as providing significant value, they may fail to accept our new products and services. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and our information technology of introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.

We may be required to write down goodwill and other acquisition-related identifiable intangible assets.

When we acquire a business, a portion of the purchase price of the acquisition may be allocated to goodwill and other identifiable intangible assets. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill acquired. As of March 31, 2020, goodwill and other identifiable intangible assets were $377.0 million. Under current accounting guidance, if

 

30


Table of Contents

we determine that goodwill or intangible assets are impaired, we would be required to write down the value of these assets. We conduct an annual review to determine whether goodwill and other identifiable intangible assets are impaired. We conduct a quarterly review for indicators of impairment of goodwill and other identifiable intangible assets. Our management recently completed these reviews and concluded that no impairment charge was necessary for the quarter ended March 31, 2020. We cannot provide assurance whether we will be required to take an impairment charge in the future. Any impairment charge would have a negative effect on stockholders’ equity and financial results and may cause a decline in our stock price.

We may need to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high.

We are required by our regulators to maintain adequate levels of capital to support our operations, which may result in our need to raise additional capital to support continued growth. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we may not be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, if we are unable to raise additional capital when required by the Massachusetts Commissioner of Banks, FDIC and/or the Federal Reserve Board, we may be subject to adverse regulatory action.

If we raise capital through the issuance of additional of common stock or other securities, it would dilute the ownership interests of existing shareholders and may dilute the per share value of our common stock. New investors may also have rights, preferences and privileges senior to our current shareholders.

We face significant legal risks, both from regulatory investigations and proceedings and from private actions brought against us.

From time to time we are named as a defendant or are otherwise involved in various legal proceedings, including class actions and other litigation or disputes with third parties. There is no assurance that litigation with private parties will not increase in the future. Actions against us may result in judgments, settlements, fines, penalties or other results adverse to us, which could materially adversely affect our business, financial condition or results of operations, or cause serious reputational harm to us. As a participant in the financial services industry, it is likely that we could continue to experience a high level of litigation related to our businesses and operations. There could be substantial cost and management diversion in such litigation and proceedings, and any adverse determination could have a materially adverse effect on our business, brand or image, or our financial condition and results of our operations.

Our businesses and operations are also subject to increasing regulatory oversight and scrutiny, which may lead to additional regulatory investigations or enforcement actions. These and other initiatives from federal and state officials may subject us to further judgments, settlements, fines or penalties, or cause us to be required to restructure our operations and activities, all of which could lead to reputational issues, or higher operational costs, thereby reducing our revenue.

The loss of deposits or a change in deposit mix could increase our cost of funding and our funding sources may prove insufficient to replace deposits at maturity and support our future growth.

Our deposits are a low cost and stable source of funding. We compete with banks and other financial institutions for deposits. Funding costs may increase if we lose deposits and are forced to replace them with more expensive sources of funding, if clients shift their deposits into higher cost products, or if we need to raise interest rates to avoid losing deposits. A reduction in our overall level of deposits would increase the extent to which we may need to rely in the future on other, more expensive sources for funding, including Federal Home Loan Bank advances, which would reduce our net income.

In order for Eastern Bank to maintain sufficient cash flow, we must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. These additional sources consist primarily of Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased and brokered deposits. As we continue to grow, we are likely to become more dependent on these sources. Adverse operating results or changes in industry conditions could lead to difficulty or an inability in accessing these additional funding sources. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to

 

31


Table of Contents

accommodate future growth at acceptable interest rates. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and results of operations would be adversely affected.

Deterioration in the performance or financial position of the Federal Home Loan Bank of Boston might restrict the Federal Home Loan Bank of Boston’s ability to meet the funding needs of its members, cause a suspension of its dividend and cause its stock to be determined to be impaired.

Significant components of Eastern Bank’s liquidity needs are met through its access to funding pursuant to its membership in the Federal Home Loan Bank of Boston. The Federal Home Loan Bank of Boston is a cooperative that provides services to its member banking institutions. The primary reason for joining the Federal Home Loan Bank of Boston is to obtain funding. The purchase of stock in the Federal Home Loan Bank of Boston is a requirement for a member to gain access to funding. Any deterioration in the Federal Home Loan Bank of Boston’s performance or financial condition may affect our ability to access funding and/or require us to deem the required investment in Federal Home Loan Bank of Boston stock to be impaired. If we are not able to access funding, we may not be able to meet our liquidity needs, which could have an adverse effect on the results of operations or financial condition. Similarly, if we deem all or part of our investment in Federal Home Loan Bank of Boston stock impaired, such action could have a material adverse effect on our results of operations or financial condition.

We may not be able to successfully implement future information technology system enhancements, which could adversely affect our business operations and profitability.

We invest significant resources in information technology system enhancements in order to provide functionality and security at an appropriate level. We may not be able to successfully implement and integrate future system enhancements, which could adversely impact the ability to provide timely and accurate financial information in compliance with legal and regulatory requirements, which could result in sanctions from regulatory authorities. Such sanctions could include fines and suspension of trading in our stock, among others. In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations.

Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components. In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time.

We rely on other companies to provide key components of our business infrastructure.

Third party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively. Replacing these third party vendors could also entail significant delay and expense.

Operational risks are inherent in our businesses.

Our enterprise risk management framework seeks to achieve an appropriate balance between risk and return, which is critical to optimizing stockholder value. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including credit, liquidity, operational, regulatory compliance and reputational. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. If our risk management framework proves ineffective, we could suffer unexpected losses and our business and results of operations could be materially adversely affected.

In addition to the necessity of maintaining our enterprise risk management framework, our operations depend on our ability to process a very large number of transactions efficiently and accurately while complying with applicable laws and

 

32


Table of Contents

regulations. Operational risk and losses can result from internal and external fraud; errors by employees or third parties; failure to document transactions properly or to obtain proper authorization; failure to comply with applicable regulatory requirements and conduct of business rules; equipment failures, including those caused by natural disasters or by electrical, telecommunications or other essential utility outages; business continuity and data security system failures, including those caused by computer viruses, cyber-attacks or unforeseen problems encountered while implementing major new computer systems or upgrades to existing systems; or the inadequacy or failure of systems and controls, including those of our suppliers or counterparties. Although we have implemented risk controls and loss mitigation actions, and substantial resources are devoted to developing efficient procedures, identifying and rectifying weaknesses in existing procedures and training staff, it is not possible to be certain that such actions have been or will be effective in controlling each of the operational risks we face. Any weakness in these systems or controls, or any violation or alleged violation of such laws or regulations, could result in increased regulatory supervision, enforcement actions and other disciplinary action, and have an adverse impact on our business, results of operations, reputation and ability to obtain future regulatory approvals, including those necessary to complete mergers or other acquisitions.

Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results.

In preparing our consolidated financial statements included in this prospectus, and those that will be included in periodic reports that we will file under the Securities Exchange Act of 1934, our management is required to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our valuation of our stock-based compensation plans and pension benefits, our determination of our income tax provision, our evaluation of the adequacy of our allowance for loan losses, our evaluation of our goodwill and other intangibles for impairment, our evaluation of our securities portfolio, our accounting for our derivative instruments, and our estimation of our fair value measurements. Please see the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” for more information.

Our internal controls, procedures and policies may fail or be circumvented.

Management regularly reviews and updates our internal controls and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Our recent shift to a remote working model due to Covid-19 has required us to modify some of these controls, which are approved in advance by management and reviewed by the financial reporting internal controls manager and through internal audits. Similar to our other systems of controls, these new modifications can provide only reasonable assurances that the objectives of the system are being met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.

Rising sea levels projected for the coastal regions of Massachusetts and New Hampshire could adversely affect our business.

We believe that progressively rising sea levels will be an area of risk over time for the coastal regions of Massachusetts and New Hampshire in our market, both as the frequency and severity of extreme weather events increase and as currently inhabited property and land parcels are exposed to episodic flooding and routinely higher tides. For example, according to a 2016 report sponsored in part by the City of Boston, sea levels in Boston, which rose approximately nine inches relative to land during the twentieth century, may rise another eight inches by 2030, and by 2050, the sea level in Boston may be as much as 1.5 feet higher than it was in 2000. The increase in the relative sea level in Boston is expected to result in higher coastal surges during storm events and, when considered with projected increases in precipitation intensities, an increase in stormwater flooding. These effects in Boston and similar conditions elsewhere in our market area may adversely affect the value of commercial and residential properties that secure some of our loans and may adversely affect economic develop in portions of our market area.

Societal responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.

Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns. Eastern Bank and its customers will need to respond to new laws and regulations as well as

 

33


Table of Contents

consumer and business preferences resulting from climate change concerns. We and our customers may face cost increases, asset value reductions, operating process changes, and the like. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to Eastern Bank could be a drop in demand for our products and services, particularly in certain sectors. In addition, we could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

We maintain a significant investment in projects that generate tax credits, which we may not be able to fully utilize, or, if utilized, may be subject to recapture or restructuring.

As part of its community reinvestment initiatives, Eastern Bank invests in qualified affordable housing projects and other tax credit investment projects. Eastern Bank receives low-income housing tax credits, investment tax credits, rehabilitation tax credits and other tax credits as a result of its investments in these limited partnership investments. At March 31, 2020, we maintained an investment of approximately $49.9 million in entities for which we receive allocations of tax credits, excluding investments of approximately $10.1 million in qualified zone academy bond investments, which we utilize to offset our income tax liability. We recorded the benefit of $1.4 million in credits for both the quarter ended March 31, 2020 and the quarter ended March 31, 2019. We intend to utilize all tax credits, as of March 31, 2020, to offset income tax liability. Substantially all of these tax credits are related to development projects that are subject to ongoing compliance requirements over certain periods of time to fully realize their value. If these projects are not operated in full compliance with the required terms, the tax credits could be subject to recapture or restructuring. Further, we may not be able to utilize any future tax credits. If we are unable to utilize our tax credits or, if our tax credits are subject to recapture or restructuring, it could have a material adverse effect on our business, financial condition and results of operations.

We depend on the accuracy and completeness of information about clients and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we rely on information furnished by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. If any of such information is incorrect, then the creditworthiness of our customers and counterparties may be misrepresented, which would increase our credit risk and expose us to possible write-downs and losses.

We may not be able to successfully manage our intellectual property and may be subject to infringement claims.

We rely on a combination of owned and licensed trademarks, service marks, trade names, logos and other intellectual property rights. Third parties may challenge, invalidate, infringe or misappropriate our intellectual property, or such intellectual property may not be sufficient to provide us with competitive advantages, which could result in costly redesign efforts, discontinuance of certain services or other competitive harm. In addition, certain aspects of our business and our services rely on technologies licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all. The loss or diminution of our intellectual property protection or the inability to obtain third party intellectual property could harm our business and ability to compete.

We may also be subject to costly litigation in the event our services infringe upon or otherwise violate a third party’s proprietary rights. Third parties may have, or may eventually be granted, intellectual property rights, including trademarks, that could be infringed by our services or other aspects of our business. Third parties have made, and may make, claims of infringement against us with respect to our services or business. Any claim from third parties may result in a limitation on our ability to use the intellectual property subject to these claims. Even if we believe that intellectual property related claims are without merit, defending against such claims is time consuming and expensive and could result in the diversion of the time and attention of our management and employees. Claims of intellectual property infringement also might require us to redesign affected services, enter into costly settlement or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our services. Any intellectual property related dispute or litigation could have a material adverse effect on our business, financial condition and results of operations.

 

34


Table of Contents

Our business may be adversely affected by conditions in the financial markets and by economic conditions generally.

Weakness in the U.S. economy may adversely affect our business. Although the U.S. economy has been relatively strong in recent years, a deterioration of business and economic conditions could adversely affect the credit quality of our loans, results of operations and financial condition. Increases in loan delinquencies and default rates could adversely impact our loan charge-offs and provision for loan and lease losses. Deterioration or defaults made by issuers of the underlying collateral of our investment securities may cause additional credit-related other-than-temporary impairment charges to our income statement. Our ability to borrow from other financial institutions or to access the debt or equity capital markets on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events, including actions by rating agencies and deteriorating investor expectations.

In addition to these specific effects, widespread adverse economic conditions that could affect us include:

 

   

Reduced consumer spending;

 

   

Increased unemployment;

 

   

Lower wage income levels;

 

   

Declines in the market value of residential and commercial real estate;

 

   

Inflation or deflation;

 

   

Fluctuations in the value of the U.S. dollar;

 

   

Volatility in short-term and long-term interest rates (for more information regarding the potential effect of fluctuating interest rates, see “Changes in interest rates may have an adverse effect on our profitability.”); and

 

   

Higher bankruptcy filings.

Climate change, natural disasters, public health crises, geopolitical developments, acts of terrorism and other external events could harm our business.

Natural disasters can disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate, which could have a material adverse effect on our results of operations and financial condition. A significant natural disaster, such as a hurricane, earthquake, fire or flood, could have a material adverse impact on our local market area and ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur. Public health crises, such as pandemics and epidemics, such as the global outbreak of the coronavirus, geopolitical crises, such as terrorism, war or the perception that hostilities may be imminent, political instability or other conflict, human error or other events outside of our control, could cause disruptions to our business or the United States economy as a whole, and our business and operating results could suffer. The occurrence of any such event could have a material adverse effect on our business, operations and financial condition.

Climate change may worsen the severity and impact of future hurricanes, earthquakes, fires, floods and other extreme weather-related events that could cause disruption to our business and operations. Chronic results of climate change such as shifting weather patterns could also cause disruption to our business and operations.

In addition, recent developments and reports relating to the coronavirus have coincided with heightened volatility in financial markets in the United States. If the coronavirus adversely affects the ability of our borrowers to satisfy their obligations, the demand for our loans or our business operations, or leads to a significant or prolonged impact on global markets or economic growth, our financial conditions and results of operations could be adversely affected.

Changes in accounting standards can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board changes the financial accounting and reporting principles that govern the preparation of our financial statements. These changes can be hard to anticipate and implement and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be

 

35


Table of Contents

required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements. Additionally, significant changes to accounting standards may require costly technology changes, additional training and personnel, and other expense that will negatively impact our operating results.

We may be required to increase our allowance for credit losses as a result of changes to an accounting standard.

In 2016, the Financial Accounting Standards Board (“FASB”) released a new standard for determining the amount of the allowance for credit losses. The new standard will be effective for us for reporting periods beginning December 31, 2021. We are adopting this standard later than our peers, and as a result, our loan loss allowance will be difficult to evaluate in comparison to our peers. The new credit loss model will be a significant change from the standard in place today, because it requires the allowance for loan losses to be calculated based on current expected credit losses (commonly referred to as the “CECL model”) rather than losses inherent in the portfolio as of a point in time. When adopted, the CECL model may increase our allowance for credit losses, which could materially affect our financial condition and results of operations. The extent of the increase and its impact to our financial condition is under evaluation but will ultimately depend upon the nature and characteristics of our portfolio at the adoption date and the macroeconomic conditions and forecasts at that date; therefore, the potential financial impact is currently unknown.

Changes to and replacement of the LIBOR Benchmark Interest Rate may adversely affect our business, financial condition, and results of operations.

We have certain loans and investment securities indexed to the London Interbank Offered Rate (“LIBOR”) to calculate the loan interest rate. We also enter into interest rate swap arrangements with customers that are indexed to LIBOR. In 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), a regulator of financial services firms and financial markets in the United Kingdom, stated that it will plan for a phase out of regulatory oversight of LIBOR interest rate indices. The FCA has indicated that they will support the LIBOR indices through 2021 to allow for an orderly transition to alternative reference rates. However, this announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. In June 2017, the Alternative Reference Rates Committee (the “ARRC”) convened by the Federal Reserve Board and Federal Reserve Bank of New York announced the Secured Overnight Financing Rate (“SOFR”) as its recommended alternative to LIBOR for U.S. dollar obligations. However, because the SOFR is a broad U.S. Treasury repo financing rate that represents overnight secured funding transactions, it differs fundamentally from LIBOR.

Regulators, industry groups and certain committees (e.g., the ARRC) have published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the SOFR as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. However, at this time, it is not possible to predict whether these recommendations and proposals will be broadly accepted, whether they will continue to evolve and what the effect of their implementation may be on the markets for floating-rate financial instruments. The language in our LIBOR-based contracts and financial instruments has developed over time and may have various events that trigger when a successor rate to the designated rate would be selected. If a trigger is satisfied, contracts and financial instruments may give the calculation agent discretion over the substitute index or indices for the calculation of interest rates to be selected. The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers may result in our incurring significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations. In addition, uncertainty as to the nature of such changes may adversely affect the market for or value of LIBOR-based loans, derivatives, investment securities and other financial obligations held by or due to Eastern Bank and could adversely impact our financial condition or results of operations.

The financial weakness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial financial weakness of other financial institutions. Financial services institutions are interconnected as a result of trading,

 

36


Table of Contents

clearing, counterparty and other relationships. We have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, other commercial banks, investment banks, mutual and hedge funds, and other financial institutions. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by us or by other institutions and organizations. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us. There is no assurance that any such losses would not materially and adversely affect our results of operations.

Market changes may adversely affect demand for our services and impact results of operations.

Channels for servicing our customers are evolving rapidly, with less reliance on traditional branch facilities, more use of online and mobile banking, and increased demand for universal bankers and other relationship managers who can service multiples product lines. We compete with larger providers who are rapidly evolving their service channels and escalating the costs of evolving the service process. We have a process for evaluating the profitability of our branch system and other office and operational facilities. The identification of unprofitable operations and facilities can lead to restructuring charges and introduce the risk of disruptions to revenues and customer relationships.

Changes in the equity markets could materially affect the level of assets under management and the demand for fee-based services.

Economic downturns could affect the volume of revenue from and demand for fee-based services. Revenue from Eastern Bank’s wealth management division depends in large part on the level of assets under management and administration. Market volatility and the potential to lead customers to liquidate investments, as well as lower asset values, can reduce the level of assets under management and administration and thereby decrease our investment management revenue.

Conditions in the insurance market could adversely affect our earnings.

Revenue from insurance fees and commissions could be adversely affected by fluctuating premiums in the insurance markets or other factors beyond our control. Other factors that affect insurance revenue are the profitability and growth of our clients, the renewal rate of the current insurance policies, continued development of new product and services as well as access to new markets. Our insurance revenues and profitability may also be adversely affected by new laws and regulatory developments impacting the healthcare and insurance markets.

Eastern Insurance Group LLC’s business model could become outdated as insurance carriers offer products directly to consumers.

Technological advances in the insurance market have increased the likelihood that insurance carriers would work directly with consumers to generate insurance policies. Since Eastern Insurance Group LLC acts solely as an insurance agent and does not originate insurance policies, this shift in business model could result in decreased revenue and could eventually result in the eradication of the insurance agent model altogether. As such, an increase in direct-to-consumer insurance products could result in decreased profitability for Eastern Insurance Group LLC.

Risks Related to Regulations

Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the monetary and related policies of the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

 

37


Table of Contents

The monetary and related policies of the Federal Reserve Board have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond Eastern Bank’s control and the effects of such policies upon our business, financial condition and results of operations cannot be predicted.

Our business is highly regulated, which could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business.

Eastern Bank is and Eastern Bankshares, Inc. will be subject to extensive regulation, supervision and examination by the Massachusetts Commissioner of Banks, the FDIC, the Federal Reserve Board and the Consumer Financial Protection Bureau. Federal and state laws and regulations govern numerous matters affecting us, including changes in the ownership or control of banks and bank holding companies, maintenance of adequate capital and the financial condition of a financial institution, permissible types, amounts and terms of extensions of credit and investments, permissible non-banking activities, the level of reserves against deposits and restrictions on stock repurchases and dividend payments. The FDIC and the Massachusetts Commissioner of Banks have the power to issue cease and desist orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the Federal Reserve Board possesses similar powers with respect to bank holding companies and their subsidiary banks. These and other restrictions limit the manner in which we and Eastern Bank may conduct business and obtain financing.

Because our business is highly regulated, the laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change. Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or reputation damage, which could have a material adverse effect on our business, financial condition, and results of operations. See the section of prospectus entitled “Supervision and Regulation” for a discussion of the regulations to which we are subject.

Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. These regulations, along with the currently existing tax, accounting, securities, insurance, monetary laws, rules, standards, policies and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of our operations as could our interpretation of those changes.

We are subject to capital and liquidity standards that require banks and bank holding companies to maintain more and higher quality capital and greater liquidity than has historically been the case.

We became subject to new capital requirements in 2015. These new standards, which now apply and are fully phased-in as of January 1, 2019, force bank holding companies and their bank subsidiaries to maintain substantially higher levels of capital as a percentage of their assets, with a greater emphasis on common equity as opposed to other components of capital. The need to maintain more and higher quality capital, as well as greater liquidity, and generally increased regulatory scrutiny with respect to capital levels, may at some point limit our business activities, including lending, and our ability to expand. It could also result in our being required to take steps to increase our regulatory capital and may dilute shareholder value or limit our ability to pay dividends or otherwise return capital to our investors through stock repurchases.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations impose community investment and nondiscriminatory lending requirements on financial institutions. The

 

38


Table of Contents

Consumer Financial Protection Bureau, the Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act or other fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on expansion and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.

On January 9, 2020, the FDIC and the Office of the Comptroller of the Currency published a Notice of Proposed Rulemaking that would substantially amend their respective Community Reinvestment Act regulations. The Federal Reserve Board did not join in the Community Reinvestment Act Notice of Proposed Rulemaking. It is unclear whether a final rule will be promulgated or how it will modify the current rules. It is also unclear whether the Massachusetts Commissioner of Banks will adopt corresponding changes to its Community Reinvestment Act regulations, which apply to all Massachusetts-chartered banks, including Eastern Bank.

We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.

The financial services industry is subject to intense scrutiny from bank supervisors in the examination process and aggressive enforcement of federal and state regulations, particularly with respect to mortgage-related practices and other consumer compliance matters, and compliance with anti-money laundering, Bank Secrecy Act and Office of Foreign Assets Control regulations, and economic sanctions against certain foreign countries and nationals. Enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations; however, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there were in place at the time systems and procedures designed to ensure compliance. Failure to comply with these and other regulations, and supervisory expectations related thereto, may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage or restrictions on our business.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act or other laws and regulations could result in fines or sanctions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. Although we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations.

An increase in FDIC insurance assessments could significantly increase our expenses.

The Dodd-Frank Act eliminated the maximum Deposit Insurance Fund ratio of 1.5% of estimated deposits, and the FDIC has established a long-term ratio of 2.0%. On September 30, 2018, the Deposit Insurance Fund reserve ratio reached 1.36%, exceeding the statutorily required minimum reserve ratio of 1.35%. The FDIC has the authority to increase assessments in order to maintain the Deposit Insurance Fund ratio at particular levels. In addition, if our regulators issue downgraded ratings of Eastern Bank in connection with their examinations, the FDIC could impose significant additional fees and assessments on us.

Laws and regulations regarding privacy and data protection could have a material impact on our results of operations.

We currently are subject to state and federal rules regarding privacy and data protection, such as the Massachusetts data security law (Standards for The Protection of Personal Information of Residents of the Commonwealth). Our growth and expansion into a variety of new fields may potentially involve new U.S.-based regulatory issues/requirements, for example,

 

39


Table of Contents

the New York Department of Financial Services Cybersecurity Regulation or the California Consumer Privacy Act (“CCPA”). In addition, one or more members of the European Union may take the position that we are subject to the EU General Data Protection Regulation (“GDPR”) because some of our customers could or may become residents of EU states while maintaining account relationships with us. The potential costs of compliance with or imposed by new or existing laws and regulations and policies that are applicable to us may affect the use of our products and services and could have a material adverse impact on our results of operations.

Changes in tax laws and regulations and differences in interpretation of tax laws and regulations may adversely affect our financial statements and our operating results.

From time to time, local, state or federal tax authorities change tax laws and regulations, which may result in a decrease or increase to our deferred tax asset. Local, state or federal tax authorities may interpret laws and regulations differently than we do and challenge tax positions that we have taken on tax returns. This may result in differences in the treatment of revenues, deductions, credits and/or differences in the timing of these items. The differences in treatment may result in payment of additional taxes, interest, penalties or litigation costs that could have a material adverse effect on our operating results.

We may be unable to disclose some restrictions or limitations on our operations imposed by our regulators.

Bank regulatory agencies have the authority to take supervisory actions that restrict or limit a financial institution’s activities. In some instances, we are not permitted to publicly disclose these actions. In addition, as part of our regular examination process, our and our banking subsidiary’s respective regulators may advise us to operate under various restrictions as a prudential matter. Any such actions or restrictions, if and in whatever manner imposed, could adversely affect our costs and revenues. Moreover, efforts to comply with any such nonpublic supervisory actions or restrictions may require material investments in additional resources and systems, as well as a significant commitment of managerial time and attention. As a result, such supervisory actions or restrictions, if and in whatever manner imposed, could have a material adverse effect on our business and results of operations; and, in certain instances, we may not be able to publicly disclose these matters.

We could be required to act as a “source of strength” to our banking subsidiaries, which would have a material adverse effect on our business, financial condition and results of operations.

Federal Reserve Board policy historically required bank holding companies such as Eastern Bank Corporation and Eastern Bankshares, Inc. to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. This support may be required by the Federal Reserve Board at times when Eastern Bankshares, Inc. might otherwise determine not to provide it or when doing so might not otherwise be in the interests of the shareholders or creditors of Eastern Bankshares, Inc., and may include one or more of the following:

 

   

Any extension of credit from Eastern Bankshares, Inc. to Eastern Bank or any other bank subsidiary that is included in the relevant bank’s capital would be subordinate in right of payment to depositors and certain other indebtedness of such subsidiary banks.

 

   

In the event of a bank holding company’s bankruptcy, any commitment that the bank holding company had been required to make to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

 

   

In certain circumstances if we have two or more bank subsidiaries, one bank subsidiary could be assessed for losses incurred by another bank subsidiary. In addition, in the event of impairment of the capital stock of one of our banking subsidiaries, Eastern Bankshares, Inc., as our banking subsidiary’s shareholder, could be required to pay such deficiency.

Risks Related to the Offering

The future price of the shares of common stock may be less than the $10.00 purchase price per share in the offering.

If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the $10.00 purchase price in the offering. In many cases, shares of common stock issued by newly converted savings institutions or

 

40


Table of Contents

mutual holding companies have traded below the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of common stock. The independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to material change from time to time. After the shares begin trading, the trading price of our common stock will be determined by the marketplace, and may be influenced by many factors, including prevailing interest rates, the overall performance of the economy, changes in federal tax laws, new federal and/or state laws and regulations, investor perceptions of Eastern Bankshares, Inc. and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to our operating performance.

The market price and trading volume of our common stock may be volatile.

The market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:

 

   

quarterly variations in our operating results or the quality of our assets;

 

   

operating results that vary from the expectations of management, securities analysts and investors;

 

   

changes in expectations as to our future financial performance;

 

   

announcements of innovations, new products, strategic developments, significant contracts, acquisitions and other material events by us or our competitors;

 

   

the operating and securities price performance of other companies that investors believe are comparable to us;

 

   

our future dividend practices;

 

   

future sales of our equity or equity-related securities; and

 

   

changes in global financial markets and global economies and general market conditions, such as interest rates, stock, commodity or real estate valuations or volatility.

Our failure to effectively deploy the net proceeds of the offering may have an adverse effect on our financial performance.

We intend to contribute 50% of the net proceeds from the offering to Eastern Bank’s capital. The remaining net proceeds from the offering will be used in part to fund a loan to employee stock ownership plan to finance its purchase of shares in the offering (or possibly, after the offering, in open market purchases) and the balance will be retained by Eastern Bankshares, Inc. We may use the remaining net proceeds to invest in short-term investments and for general corporate purposes, including, subject to regulatory limitations, the repurchase shares of common stock and the payment of dividends. Eastern Bank may use the net proceeds it receives to fund new loans, expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies, or for other general corporate purposes. Except as noted in this prospectus, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and when we apply or reinvest such proceeds. Also, certain of these uses, such as opening new branches or acquiring or merging with other financial institutions, may require the approval of the Massachusetts Commissioner of Banks, the FDIC or the Federal Reserve Board. We have not established a timetable for reinvesting the net proceeds, and we cannot predict how long we will require to reinvest the net proceeds. Our failure to utilize these funds effectively would reduce our profitability and may adversely affect the value of our common stock.

The donation to the Eastern Bank Charitable Foundation will dilute your ownership interest and adversely affect net income in 2020.

Upon approval from the Massachusetts Commissioner of Banks and the Federal Reserve Board, we intend to donate a number of shares of our common stock equal to 4.0% of the sum of the shares that will be outstanding immediately following the offering, including the number of shares to be issued to the Eastern Bank Charitable Foundation. At the minimum, midpoint, maximum and adjusted maximum of the offering range, we would donate to Eastern Bank Charitable Foundation

 

41


Table of Contents

5,401,042, 6,354,167, 7,307,292, and 8,403,386 shares of common stock, respectively. As a result of the donation, we expect to record an after-tax expense of approximately $62.2 million during the quarter and year in which the offering is completed, assuming we sell 201,681,250 shares of common stock in the offering. In addition, persons purchasing shares in the offering will have their ownership and voting interests in Eastern Bankshares, Inc. diluted by 4.0% due to the issuance of shares of common stock to the Eastern Bank Charitable Foundation.

Our donation to the Eastern Bank Charitable Foundation may not be tax deductible, which could reduce our profits.

We may not have sufficient profits to be able to fully use the tax deduction from our donation to the Eastern Bank Charitable Foundation. Pursuant to the Internal Revenue Code, an entity is permitted to deduct up to 10% of its taxable income (income before federal income taxes and charitable donations) in any one year for charitable donations. Any donation in excess of the 10% limit may be deducted for federal income tax purposes over each of the five years following the year in which the charitable donation is made. Accordingly, a charitable donation could, if necessary, be deducted over a six-year period. Assuming that in future years our taxable income before income tax expense is not materially less than our taxable income before income tax expense for 2019, we expect that over time we will be able to deduct for federal income tax purposes the full amount of the stock donation to the Eastern Bank Charitable Foundation.

Our return on equity may be low following the offering. This could negatively affect the trading price of our shares of common stock.

Net income divided by average stockholders’ equity, known as “return on equity,” is a ratio many investors use to compare the performance of financial institutions. Our return on equity may be low until we are able to leverage the additional capital we receive from the offering. Our return on equity will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plans we intend to adopt after the offering. Until we can increase our net interest income and non-interest income and leverage the capital raised in the offering, we expect our return on equity to be low, which may reduce the market price of our shares of common stock.

We are subject to environmental, social and governance risks that could adversely affect our reputation and the trading price of our common stock.

We are subject to a variety of environmental, social and governance risks that arise out of the set of concerns that together comprise what have become commonly known as “ESG matters.” Risks arising from ESG matters may adversely affect, among other things, our reputation and the trading price of our common stock.

As a financial institution with a diverse base of customers, vendors and suppliers, we may face potential negative publicity based on the identity of those we choose to do business with and the public’s (or certain segments of the public’s) view of those customers, vendors and suppliers. This negative publicity may be driven by adverse news coverage in traditional media and may also be spread through the use of social media platforms. If our relationships with our customers, vendors and suppliers were to become the subject of such negative publicity, our ability to attract and retain customers and employees may be negatively impacted and our stock price may also be impacted.

Additionally, investors have begun to consider how corporations are addressing ESG matters when making investment decisions. For example, certain investors are beginning to incorporate the business risks of climate change and the adequacy of companies’ responses to climate change and other ESG matters as part of their investment theses. These shifts in investing priorities may result in adverse effects on the trading price of our common stock if investors determine that we have not made sufficient progress on ESG matters.

Our stock-based benefit plans will increase our expenses and reduce our income.

We intend to adopt one or more new stock-based benefit plans after the conversion and the offering, subject to stockholder approval, which will increase our annual compensation and benefit expenses related to the stock options and stock awards granted to participants under the new stock-based benefit plans. The actual amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards actually granted under the plans, the fair market value of our stock or options on the date of grant, the vesting period, and other factors which we cannot predict at this time. In the event we adopt stock-based benefit plans within 12 months following the conversion, the total

 

42


Table of Contents

shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such plans would be limited to 4% and 10%, respectively, of the total shares of our common stock sold in the offering. If we award restricted shares of common stock or grant options in excess of these amounts under stock-based benefit plans adopted more than 12 months after the completion of the conversion, our costs would increase further.

In addition, we will recognize compensation expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize compensation expense for restricted stock awards and stock options over the vesting period of awards made to recipients. We anticipate that in the first full year following the offering, our incremental compensation expense for shares purchased in the offering and for our new stock-based benefit plans will significantly increase our overall compensation expense as compared to 2019. For further discussion of our proposed stock-based plans, please refer to the section of this prospectus titled “Executive and Director Compensation—Benefits to be Considered Following Completion of the Offering.”

The implementation of stock-based benefit plans may dilute your ownership interest. Historically, stockholders have approved these stock-based benefit plans.

One or more new stock-based benefit plans that we adopt following the offering may be funded either through open market purchases or from the issuance of authorized but unissued shares of common stock. Our ability to repurchase shares of common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on stock repurchases, the availability of stock in the market, the trading price of the stock, our capital levels, alternative uses for our capital and our financial performance. Although our intention is to fund the new stock-based benefit plans through open market purchases, stockholders would experience a 12.28% dilution in ownership interest at the maximum of the offering range in the event newly issued shares of our common stock are used to fund stock options and shares of restricted common stock in amounts equal to 10% and 4%, respectively, of the shares sold in the offering. In the event we adopt the plans more than 12 months following the conversion, new stock-based benefit plans would not be subject to these limitations, and stockholders could experience greater dilution.

Although the implementation of new stock-based benefit plans would be subject to stockholder approval, historically, the overwhelming majority of stock-based benefit plans adopted by banks and their holding companies following mutual-to-stock conversions have been approved by stockholders.

We have not determined when we will adopt one or more new stock-based benefit plans. Stock-based benefit plans adopted more than 12 months following the completion of the conversion may exceed regulatory restrictions on the size of stock-based benefit plans adopted within 12 months, which would further increase our costs.

We currently expect that the number of shares available for grants of common stock and stock options will not exceed 4% and 10%, respectively, of the number of shares of common stock sold in the offering and issued to the Eastern Bank Charitable Foundation, regardless of when those plans are adopted. If, however, we adopt stock-based benefit plans more than 12 months following the completion of the offering, we would be permitted under applicable regulations to adopt equity plans under which we could grant shares of common stock or stock options exceeding 4% and 10%, respectively, of the number of shares of common stock sold in the offering and issued to the Eastern Bank Charitable Foundation. If we adopt stock-based benefit plans that provide for awards in excess of these amounts, our expenses associated with those plans would exceed the amounts estimated in the section of this prospectus titled “Pro Forma Data.” Stock-based benefit plans that provide for awards in excess of these amounts could also result in dilution to stockholders in excess of that described in the section of this prospectus titled “Executive and Director Compensation—Benefits to be Considered Following Completion of the Offering.” Although the implementation of stock-based benefit plans would be subject to shareholder approval, the timing of the implementation of such plans will be at the discretion of our Board of Directors.

Fulfilling our public company financial reporting and other regulatory obligations and transitioning to a public company will be expensive and time consuming and may strain our resources.

As a public company, we will be subject to the reporting requirements of the Exchange Act and will be required to implement specific corporate governance practices and adhere to a variety of reporting requirements under Sarbanes-Oxley and the related rules and regulations of the SEC, as well as the rules of Nasdaq. The Exchange Act will require us to file annual, quarterly and current reports with respect to our business and financial condition. Sarbanes-Oxley will require, among other things, that we maintain effective disclosure controls and procedures and integral control over financial reporting. Compliance with these

 

43


Table of Contents

requirements will place additional demands on our legal, accounting, finance and investor relations staff and on our accounting, financial and information systems and will increase our legal and accounting compliance costs as well as our compensation expense as we may be required to hire additional legal, accounting, tax, finance and investor relations staff. As a public company we may also need to enhance our investor relations and corporate communications functions and attract additional qualified board members. These additional efforts may strain our resources and divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition or results of operations. We expect to incur additional incremental ongoing and one-time expenses in connection with our transition to a public company. For more information, see the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook and Trends”. The actual amount of the incremental expenses we will incur may be higher, perhaps significantly, from our current estimates for a variety of reasons, and include additional costs we may incur that we have not currently anticipated.

In accordance with Section 404 of Sarbanes-Oxley, our management will be required to conduct an annual assessment of the effectiveness of our internal control over financial reporting and include a report on these internal controls in the annual reports we will file with the SEC on Form 10-K. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal controls until the later of the year following the first annual report required to be filed with the SEC and the date on which we are no longer an “emerging growth company.” When required, this process will require significant documentation of our policies, procedures and systems, review of that documentation by our internal auditing and accounting staff and our outside independent registered public accounting firm, and testing of our internal control over financial reporting by our internal auditing and accounting staff and our outside independent registered public accounting firm. This process will involve considerable time and attention, may strain our internal resources, and will increase our operating costs. We may experience higher than anticipated operating expenses and outside auditor fees during the implementation of these changes and thereafter. If our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional financial and management resources.

If we are not able to implement the requirements of Section 404 of Sarbanes-Oxley in a timely and capable manner, we may be subject to adverse regulatory consequences and there could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. This could have a material adverse effect on our business, financial condition or results of operations.

Due to Section 162(m) of the Internal Revenue Code, we may not be able to deduct all of the compensation of some executives, including executives of companies we may acquire in the future.

Section 162(m) of the Internal Revenue Code generally limits to $1 million annual deductions for compensation paid to “covered employees” of any “publicly held corporation.” A “publicly held corporation” includes any company that issues securities required to be registered under Section 12 of the Securities Exchange Act of 1934 or companies required to file reports under Section 15(d) of the Exchange Act, determined as of the last day of the company’s taxable year. We expect that Eastern will be deemed to be a publicly held corporation as of the last day of the taxable year in which this prospectus is filed and, as a consequence, Section 162(m) will limit the deductibility of compensation to our covered employees to $1 million beginning with the year ending December 31, 2020. Pursuant to proposed Treasury regulations issued on December 20, 2019 clarifying the changes made to Section 162(m) by the Tax Cuts and Jobs Act and the initial guidance provided by the IRS in Notice 2018-68 that was issued in August 2018, the definition of “covered employees” generally includes anyone who served as the principal executive officer (“PEO”) or principal financial officer (“PFO”) at any time during the taxable year; the three highest compensated executive officers (other than the PEO or PFO), determined under SEC rules; and any individual who was a covered employee, including of a “predecessor company,” at any point during a taxable year beginning on or after January 1, 2017, even after the employee terminates employment. We expect that in most if not all cases a publicly traded company that we might acquire in the future will be a “predecessor company.” Accordingly, we expect that the number of our covered employees will increase if Eastern acquires one or more publicly held corporations in the future.

As a result of the foregoing, under present law, we will likely not be able to deduct all of the compensation paid in 2020 and future years where Eastern qualifies as a “publicly held corporation.” Losing deductions under Section 162(m) could increase our income taxes and reduce our net income. A reduction in net income could negatively affect the price of Eastern Bankshares, Inc. stock.

 

44


Table of Contents

Various factors may make takeover attempts more difficult to achieve.

Certain provisions of our articles of organization and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of Eastern Bankshares, Inc. without our Board of Directors’ approval. Under regulations applicable to the offering, for a period of three years following completion of the offering, no person may acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board and the Massachusetts Commissioner of Banks. If any person exceeds this 10% beneficial ownership threshold, shares in excess of 10% will not be counted as shares entitled to vote during the three-year period following completion of the offering. After that three-year period, the holder of shares in excess of the 10% threshold will be entitled to cast only one one-hundredth (1/100) of a vote per share for each share in excess of the 10% threshold. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve Board before acquiring control of a bank holding company. Acquisition of 10% or more of any class of voting stock of a bank holding company, including shares of our common stock, creates a rebuttable presumption that the acquirer “controls” the bank holding company. Also, a bank holding company must obtain the prior approval of the Federal Reserve Board before, among other things, acquiring direct or indirect ownership or control of more than 5% of any class of voting shares of any bank, including Eastern Bank, and certain non-bank companies.

There also are provisions in our articles of organization that may be used to delay or block a takeover attempt, including, among others, a provision that prohibits any person from casting a full vote for any shares of common stock exceeding the 10% threshold, as described above, as well as a classified Board of Directors with three-year staggered terms; the prohibition on removal of directors without cause; and the required approval of at least 80% of the voting power of the shares then-outstanding entitled to vote for business combination transactions with interested shareholders. Furthermore, shares of restricted stock and stock options that we may grant to employees and directors, stock ownership by our management and directors, employment agreements that we have entered into with our executive officers and other factors may make it more difficult for companies or persons to acquire control of Eastern Bankshares, Inc. without the consent of our Board of Directors. Taken as a whole, these statutory provisions and provisions in our articles of organization could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.

The articles of organization of Eastern Bankshares, Inc. provide that state and federal courts located in Massachusetts will be the exclusive forum for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

The articles of organization of Eastern Bankshares, Inc. generally provide that, unless we consent in writing to the selection of an alternative forum, the Business Litigation Session of the Suffolk County Superior Court (the “BLS”) in general is the sole and exclusive forum for any derivative action or proceeding brought on behalf of Eastern Bankshares, Inc., any action asserting a claim of breach of a fiduciary duty, any action asserting a claim arising pursuant to any provision of Massachusetts corporate law, or any action asserting a claim governed by the internal affairs doctrine. The articles of organization provide that the BLS will have exclusive jurisdiction, unless the BLS does not have subject matter jurisdiction, in which case a state court located within Massachusetts or, if no state court located within Massachusetts has subject matter jurisdiction, the United States District Court for the District of Massachusetts will have exclusive jurisdiction. The choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder finds favorable for disputes with us or our directors and officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our articles of organization to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

The market price of our stock value may be negatively affected by applicable regulations that restrict stock repurchases by Eastern Bankshares, Inc.

Applicable regulations restrict us from repurchasing our shares of common stock during the first year following the offering unless extraordinary circumstances exist and limit us from repurchasing our shares of common stock during the first three years following the offering. Stock repurchases are a capital management tool that can enhance the value of a company’s stock, and our inability to repurchase our shares of common stock during the first year following the offering and limitations on our ability to repurchase our shares of common stock during the first three years following the offering may negatively affect our stock price.

 

45


Table of Contents

You may not revoke your decision to purchase shares of Eastern Bankshares, Inc. common stock in the subscription or community offerings after you send us your order.

Funds submitted or withdrawals authorized in connection with the purchase of shares of common stock in the subscription and community offerings will be held by us until the completion or termination of the offering, including any extension of the expiration date and consummation of a syndicated or best-efforts offering. Because completion of the offering will be subject to regulatory approvals and an update of the independent appraisal prepared by RP Financial, LC, among other factors, there may be one or more delays in completing the offering. Orders submitted in the subscription and community offerings are irrevocable, and purchasers will have no access to their funds unless the offering is terminated, or extended beyond [EXTENSION DATE], or the number of shares to be sold in the offering is increased to more than 201,681,250 shares or decreased to fewer than 129,625,000 shares.

The distribution of subscription rights could have adverse income tax consequences.

If the subscription rights granted to certain current or former depositors of Eastern Bank are deemed to have an ascertainable value, receipt of such rights may be taxable in an amount equal to such value. Whether subscription rights are considered to have ascertainable value is an inherently factual determination. We have received a letter from RP Financial LC, our independent appraiser, which states its belief, without having undertaken any independent investigation of state or federal law or the position of the Internal Revenue Service, that as a factual matter the subscription rights will have no ascertainable market value; however, such letter is not binding on the Internal Revenue Service.

We are an emerging growth company, and because we elect to comply only with the reduced reporting and disclosure requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we plan to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Investors may find our common stock less attractive if we choose to rely on these exemptions.

As an emerging growth company, we also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest to the effectiveness of our internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. Pursuant to the JOBS Act, we have elected to take advantage of the benefits of this extended transition period for complying with new or revised accounting standards as required when they are adopted for private companies. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards.

We will cease to be an emerging growth company upon the earliest of: (1) the end of the fiscal year following the fifth anniversary of the offering; (2) the first fiscal year after our annual gross revenues are $1.07 billion or more; (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (4) as of December 31 in any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of June 30 of that fiscal year. In light of the minimum offering expected under the appraisal, we expect that we will cease to be an emerging growth company as of December 31, 2021. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

There is no prior public market for our common stock, and one may not develop.

Prior to the offering, we have never issued capital stock and there has not been a public trading market for our common stock. We intend to apply to have our common stock listed for trading on Nasdaq under the symbol “EBC,” subject to completion of the offering and compliance with certain conditions. However, there can be no assurance that an active trading market will develop or be sustained after the offering. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. The market price of our common stock may decline below the initial offering price, and you may not be able to sell your common stock at or above the price you paid in the offering, or at all.

 

46


Table of Contents

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth historical selected consolidated financial and other data as of the dates and for the periods indicated. The following data is only a summary and should be read together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. The information as of and for the three months ended March 31, 2020 and 2019 was derived, in part, from our unaudited consolidated financial statements appearing elsewhere in this prospectus. The information as of and for the years ended December 31, 2019 and 2018 was derived, in part, from our audited consolidated financial statements appearing elsewhere in this prospectus. The information as of and for the years ended December 31, 2017, 2016 and 2015 was derived, in part, from our consolidated financial statements not appearing in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.

 

    As of March 31,     As of December 31,  
    2020     2019     2018     2017     2016     2015  
    (In thousands)  

Selected Financial Condition Data:

         

Total assets

  $ 12,343,754     $ 11,628,775     $ 11,378,287     $ 10,873,073     $ 9,801,109     $ 9,588,786  

Cash and cash equivalents

    766,449       362,602       259,708       311,153       104,750       683,796  

Trading securities

    652       961       52,899       46,791       51,663       61,050  

Securities available for sale

    1,549,927       1,508,236       1,455,898       1,504,810       1,207,596       979,647  

Loans, net of allowance for loan losses and unamortized premiums, net of unearned discounts and deferred fees

    8,971,605       8,899,184       8,774,913       8,153,986       7,635,838       7,069,066  

Federal Home Loan Bank stock, at cost

    8,805       9,027       17,959       24,270       15,342       10,548  

Goodwill and other intangibles, net

    377,033       377,734       381,276       373,042       362,980       362,762  

Total liabilities

    10,681,020       10,028,622       9,945,146       9,542,559       8,546,182       8,383,772  

Total deposits

    10,309,011       9,551,392       9,399,493       8,815,452       8,188,950       8,133,730  

Total borrowings

    31,427       235,395       334,287       526,505       154,331       53,048  

Total equity

    1,662,734       1,600,153       1,433,141       1,330,514       1,254,927       1,205,014  

Nonperforming loans

    49,087       43,775       26,591       18,645       22,787       16,904  

Nonperforming assets

    49,127       43,775       26,626       18,680       37,274       31,529  

 

    For the Three Months
Ended March 31,
    For the Years Ended December 31,  
    2020     2019     2019     2018     2017     2016     2015  
    (In thousands)  

Selected Operating Data:

             

Interest and dividend income

  $ 106,159     $ 111,483     $ 445,017     $ 415,166     $ 345,406     $ 299,194     $ 280,796  

Interest expense

    6,013       8,811       33,753       25,122       6,892       5,620       5,819  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    100,146       102,672       411,264       390,044       338,514       293,574       274,977  

Provision for loan losses

    28,600       3,000       6,300       15,100       5,800       7,900       (325
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

    71,546       99,672       404,964       374,944       332,714       285,674       275,302  

Noninterest income

    33,369       47,800       182,299       180,595       197,727       169,128       153,007  

Noninterest expense

    (95,172     (104,829     (412,684     (397,928     (389,413     (367,643     (333,695
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    9,743       42,643       174,579       157,611       141,028       87,159       94,614  

Provision for income taxes

    1,298       9,678       39,481       34,884       54,331       24,445       32,050  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 8,445     $ 32,965     $ 135,098     $ 122,727     $ 86,697     $ 62,714     $ 62,564  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

47


Table of Contents
     As of or For the
Three Months
Ended March 31,
    As of or For the Years Ended December 31,  
     2020     2019     2019     2018     2017     2016     2015  

Performance Ratios:

              

Return on average assets (1)

     0.07     0.29     1.18     1.10     0.83     0.63     0.65

Return on average equity (2)

     0.43     1.99     8.75     9.02     6.62     5.06     5.33

Interest rate spread (FTE) (3)

     0.91     0.96     3.74     3.68     3.59     3.28     3.13

Net interest margin (FTE) (4)

     0.94     1.00     3.96     3.84     3.65     3.33     3.17

Noninterest expenses to average assets

     0.81     0.93     3.62     3.57     3.75     3.71     3.45

Efficiency ratio (5)

     71.28     69.67     69.53     69.73     72.62     79.46     77.97

Average interest-earning assets to average interest-bearing liabilities

     169.37     165.51     167.46     167.29     174.98     174.87     165.52

Capital Ratios:

              

Average equity to average assets

     16.56     14.64     13.53     12.22     12.60     12.51     12.15

Total capital to risk weighted assets

     13.57     12.68     13.56     12.41     12.04     11.63     11.69

Tier 1 capital to risk weighted assets

     12.42     11.77     12.66     11.51     11.15     10.76     10.83

Common equity tier 1 capital to risk weighted assets

     12.42     11.77     12.66     11.51     11.15     10.76     10.83

Tier 1 capital to average assets

     11.28     10.71     11.47     10.39     9.85     9.87     9.56

Asset Quality Ratios:

              

Allowance for loan losses as a percentage of total loans

     1.20     0.92     0.92     0.91     0.90     0.91     0.92

Allowance for loan losses as a percentage of nonperforming loans

     222.34     295.85     188.00     303.32     397.48     308.02     387.48

Net charge-offs (recoveries) to average outstanding loans during the period

     0.02     0.01     0.05     0.10     0.02     0.04     (0.03 )% 

Nonperforming loans as a percentage of total loans

     0.54     0.31     0.49     0.30     0.23     0.30     0.24

Nonperforming loans as a percentage of total assets

     0.40     0.25     0.38     0.23     0.17     0.23     0.18

Total nonperforming assets as a percentage of total assets

     0.40     0.25     0.38     0.23     0.17     0.38     0.33

 

(1) 

Represents net income divided by average total assets.

(2) 

Represents net income divided by average equity.

(3) 

Represents the difference between average yield on average interest-earning assets and the average cost of interest-bearing liabilities for the periods on a fully tax-equivalent (FTE) basis.

(4) 

Represents net interest income as a percentage of average interest-earning assets adjusted on a FTE basis.

(5) 

Represents noninterest expenses divided by the sum of net interest income and noninterest income.

Presentation of regulatory measures, some of which follow regulatory definitions rather than GAAP, provides a meaningful base for comparability to other financial institutions. Such measures are used by the various banking regulators in reviewing the performance, stability, and capital adequacy of financial institutions they regulate. Although these regulatory measures are not GAAP terms, they are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation conforms to regulatory standards.

 

48


Table of Contents

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

   

statements of our goals, intentions and expectations;

 

   

statements regarding our business plans, prospects, growth and operating strategies;

 

   

statements regarding the quality of our loan and investment portfolios; and

 

   

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

   

conditions relating to the Covid-19 pandemic, including the severity and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;

 

   

general economic conditions, either nationally or in our market areas, that are worse than expected;

 

   

changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

 

   

our ability to access cost-effective funding;

 

   

fluctuations in real estate values and both residential and commercial real estate market conditions;

 

   

demand for loans and deposits in our market area;

 

   

our ability to continue to implement our business strategies;

 

   

competition among depository and other financial institutions;

 

   

inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

 

   

adverse changes in the securities markets;

 

   

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

 

   

our ability to manage market risk, credit risk and operational risk in the current economic conditions;

 

   

our ability to enter new markets successfully and capitalize on growth opportunities;

 

   

our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

 

   

changes in consumer spending, borrowing and savings habits;

 

   

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

 

   

our ability to retain key employees;

 

49


Table of Contents
   

our compensation expense associated with equity allocated or awarded to our employees; and

 

   

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Please see the section of this prospectus titled “Risk Factors” beginning on page 19.

 

50


Table of Contents

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the net proceeds will be between $1.3 billion and $1.8 billion, or $2.0 billion if the offering range is increased by 15%.

We intend to distribute the net proceeds as follows:

 

    Based Upon the Sale at $10.00 Per Share of  
    129,625,000
Shares at
Minimum of
Offering Range
    152,500,000
Shares at
Midpoint of
Offering Range
    175,375,000
Shares at
Maximum of
Offering Range
    201,681,250
Shares at
Adjusted Maximum of
Offering Range
 

(Dollars in thousands)

  Amount     Percent
of Net
Proceeds
    Amount     Percent
of Net
Proceeds
    Amount     Percent
of Net
Proceeds
    Amount     Percent
of Net
Proceeds
 

Offering proceeds

  $ 1,296,250       $ 1,525,000       $ 1,753,750       $ 2,016,813    

Less: offering expenses

    (33,942       (37,926       (41,910       (46,492  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net offering proceeds

    1,262,308       100.0     1,487,074       100.0     1,711,840       100.0     1,970,321       100.0

Less:

               

Proceeds contributed to Eastern Bank

    631,154       50.0     743,537       50.0     855,920       50.0     985,161       50.0

Proceeds used for loan to employee stock ownership plan

    108,021       8.6     127,083       8.5     146,146       8.5     168,068       8.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Proceeds retained by Eastern Bankshares, Inc.

  $ 523,133       41.4   $ 616,454       41.5   $ 709,774       41.5   $ 817,092       41.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of Eastern Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if fewer shares were sold in the subscription and community offerings and more in the syndicated offering than we have assumed.

Eastern Bankshares, Inc. may use the proceeds it retains from the offering:

 

   

to invest in securities;

 

   

to repurchase shares of our common stock, including repurchases to fund stock-based benefit plans;

 

   

to finance the potential acquisition of financial institutions or financial services companies, although we do not currently have any agreements or understandings regarding any specific acquisition transaction;

 

   

to pay cash dividends to shareholders; and

 

   

for other general corporate purposes.

See the section of this prospectus titled “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the offering. Under current federal regulations, we may not repurchase shares of our common stock during the first year following the completion of the offering, except when extraordinary circumstances exist and with prior regulatory approval, or except to fund management recognition plans (which would require notification to the Federal Reserve Board) or tax qualified employee stock benefit plans. In addition, under Massachusetts regulations, we may not repurchase shares of our common stock during the first three years following the completion of the offering except to fund tax-qualified or nontax-qualified employee stock benefit plans, or except in amounts not greater than 5% of our outstanding shares of common stock where compelling and valid business reasons are established to the satisfaction of the Massachusetts Commissioner of Banks.

Eastern Bank expects that it will primarily use the net proceeds it receives from the offering:

 

   

to fund new loans;

 

51


Table of Contents
   

to enhance existing products and services and to support the development of new products and services;

 

   

to support and enhance the development of our employees;

 

   

to pursue strategic growth opportunities primarily by acquiring other banking and insurance agency businesses as opportunities arise, although we do not currently have any understandings or agreements to acquire a financial institution or other entity;

 

   

to invest in securities; and

 

   

for other general corporate purposes.

We have not determined specific amounts of the net proceeds that would be used for the purposes described above. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, the attractiveness of potential acquisitions to expand our operations, and overall market conditions. The use of the proceeds may also change depending on our ability to receive regulatory approval to acquire other financial institutions. We expect our return on equity to be low until we are able to effectively deploy the additional capital raised in the offering. See the section of this prospectus titled “Risk Factors—Risks Related to the Offering—Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance.”

 

52


Table of Contents

OUR DIVIDEND POLICY

Following completion of the offering, our Board of Directors will have the authority to declare dividends on our common stock, subject to our capital requirements, our financial condition and results of operations, tax considerations, statutory and regulatory limitations, and general economic conditions. The payment and amount of any dividend payments will depend upon a number of factors. We cannot assure you that we will pay dividends in the future, or that any such dividends will not be reduced or eliminated in the future.

Eastern Bankshares, Inc. will not be permitted to pay dividends on its common stock if its shareholders’ equity would be reduced below the amount of the liquidation account established by Eastern Bankshares, Inc. in connection with the offering. The source of dividends will depend on the net proceeds retained by Eastern Bankshares, Inc. and earnings thereon, and dividends from Eastern Bank. In addition, Eastern Bankshares, Inc. will be subject to state law limitations and federal bank regulatory policy on the payment of dividends. Massachusetts law prohibits distributions to shareholders if, after giving effect to the distribution, the corporation would not be able to pay its debts as they become due in the usual course of business or the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. Eastern Bankshares, Inc. shall not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause its net worth to be reduced below (i) the amount required for the Liquidation Account or (ii) the regulatory capital requirements of Eastern Bankshares, Inc. (to the extent applicable).

After the completion of the offering, Eastern Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized. Eastern Bank must file an application with the Federal Deposit Insurance Corporation for approval of a capital distribution if the total capital distributions for the applicable calendar year exceed the sum of Eastern Bank’s net income for that year to date plus its retained net income for the preceding two years, or Eastern Bank would not be at least adequately capitalized following the distribution.

In addition, Massachusetts banking law and Federal Deposit Insurance Corporation regulations impose limitations on capital distributions by savings institutions. See the section of this prospectus titled “Supervision and Regulation—Massachusetts Banking Laws and Supervision—Dividends.”

Any payment of dividends by Eastern Bank to Eastern Bankshares, Inc. that would be deemed to be drawn from Eastern Bank’s bad debt reserves established prior to 1988, if any, would require a payment of taxes at the then-current tax rate by Eastern Bank on the amount of earnings deemed to be removed from the pre-1988 bad debt reserves for such distribution. Eastern Bank does not intend to make any distribution that would create such a federal tax liability. For further information concerning additional federal law and regulations regarding the ability of Eastern Bank to make capital distributions, including the payment of dividends to Eastern Bankshares, Inc., see the sections of this prospectus titled “Taxation—Federal Taxation” and “Supervision and Regulation—Massachusetts Banking Laws and Supervision—Dividends.”

We will file a consolidated federal tax return with Eastern Bank. Accordingly, it is anticipated that any cash distributions made by us to our shareholders would be treated as cash dividends and not as a non-taxable return of capital for federal tax purposes to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes.

Additionally, during the three-year period following the offering, we will not be permitted to make any capital distribution to shareholders that would be treated by recipients as a tax-free return of capital for U.S. federal income tax purposes.

 

53


Table of Contents

MARKET FOR THE COMMON STOCK

We have never issued capital stock and there is no established market for our shares of common stock. We expect that our shares of common stock will be listed for trading on Nasdaq under the symbol “EBC,” subject to completion of the offering and compliance with certain conditions, including the presence of at least three registered and active market makers. J.P. Morgan Securities LLC and Keefe, Bruyette & Woods, Inc. have advised us that they intend to make a market in shares of our common stock following the offering, but they are under no obligation to do so or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments from at least two other broker-dealers to make a market in shares of our common stock, there can be no assurance that we will be successful in obtaining such commitments.

The development and maintenance of a public market, having the desirable characteristics of depth, liquidity and orderliness, depends on the existence of willing buyers and sellers, the presence of which is not within our control or that of any market maker. The number of active buyers and sellers of shares of our common stock at any particular time may be limited, which may have an adverse effect on the price at which shares of our common stock can be sold. There can be no assurance that persons purchasing the shares of common stock will be able to sell their shares at or above the $10.00 offering purchase price per share. You should have a long-term investment intent if you purchase shares of our common stock and you should recognize that there may be a limited trading market in the shares of common stock.

 

54


Table of Contents

HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

At March 31, 2020, Eastern Bank Corporation exceeded all of the applicable regulatory capital requirements and was considered “well-capitalized.” The table below sets forth the historical consolidated equity capital and regulatory capital of Eastern Bank Corporation at March 31, 2020, and the pro forma consolidated equity capital and regulatory capital of Eastern Bank Corporation, after giving effect to the sale of shares of common stock at $10.00 per share.

Presentation of regulatory measures, some of which follow regulatory definitions rather than GAAP, provides a meaningful base for comparability to other financial institutions. Such measures are used by the various banking regulators in reviewing the performance, stability, and capital adequacy of financial institutions they regulate. Although these regulatory measures are not GAAP terms, they are not considered “non-GAAP” under U.S. financial reporting rules as long as their presentation conforms to regulatory standards.

 

    Eastern Bank
Corporation
Actual as of
March 31, 2020
    Eastern Bankshares, Inc. Pro Forma at March 31, 2020,
Based Upon the Sale in the Offering of
 
    129,625,000 Shares     152,500,000 Shares     175,375,000 Shares     201,681,250 Shares(1)  

(Dollars in thousands)

  Amount     Percent
of
Assets(2)
    Amount     Percent
of
Assets(2)
    Amount     Percent
of
Assets(2)
    Amount     Percent
of
Assets(2)
    Amount     Percent
of
Assets(2)
 

Equity

  $ 1,662,734       13.47   $ 2,777,054       20.63   $ 2,975,704       21.79   $ 3,174,354       22.91   $ 3,402,802       24.16
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tier 1 leverage capital

  $ 1,282,205       11.28   $ 2,396,525       19.20   $ 2,595,175       20.47   $ 2,793,825       21.69   $ 3,022,273       23.06

Tier 1 leverage capital requirement

    568,391       5.00     624,107       5.00     634,039       5.00     643,972       5.00     655,394       5.00
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess

  $ 713,814       6.28   $ 1,772,418       14.20   $ 1,961,136       15.47   $ 2,149,853       16.69   $ 2,366,879       18.06
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tier 1 risk-based capital(3)

  $ 1,282,205       12.42   $ 2,396,525       22.73   $ 2,595,175       24.52   $ 2,793,825       26.30   $ 3,022,273       28.32

Tier 1 risk-based requirement

    825,771       8.00     843,600       8.00     846,779       8.00     849,957       8.00     853,612       8.00
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess

  $ 456,434       4.42   $ 1,552,925       14.73   $ 1,748,396       16.52   $ 1,943,868       18.30   $ 2,168,661       20.32
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total risk-based capital(3)

  $ 1,400,389       13.57   $ 2,514,709       23.85   $ 2,713,359       25.63   $ 2,912,009       27.41   $ 3,140,457       29.43

Total risk-based requirement

    1,032,214       10.00     1,054,500       10.00     1,058,473       10.00     1,062,446       10.00     1,067,015       10.00
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess

  $ 368,175       3.57   $ 1,460,209       13.85   $ 1,654,886       15.63   $ 1,849,563       17.41   $ 2,073,442       19.43
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common equity Tier 1 risk-based capital

  $ 1,282,205       12.42   $ 2,396,525       22.73   $ 2,595,175       24.52   $ 2,793,825       26.30   $ 3,022,273       28.32

Common equity Tier 1 risk-based requirement

    670,939       6.50     685,425       6.50     688,008       6.50     690,590       6.50     693,560       6.50
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Excess

  $ 611,266       5.92   $ 1,711,100       16.23   $ 1,907,167       18.02   $ 2,103,235       19.80   $ 2,328,713       21.82
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

As adjusted to give effect to an increase in the number of shares, which increase could occur due to a 15% increase in the offering range to reflect demand for shares or changes in market conditions following the commencement of the offering.

(2)

Equity and Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.

(3)

Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

 

55


Table of Contents

CAPITALIZATION

The following table presents the historical consolidated capitalization of Eastern Bank Corporation at March 31, 2020 and the pro forma consolidated capitalization of Eastern Bankshares, Inc. after giving effect to the offering based upon the assumptions set forth in the “Pro Forma Data” section of this prospectus. See the section of this prospectus titled “How We Intend to Use the Proceeds from the Offering.”

 

    Eastern Bank
Corporation
Historical
Capitalization at
March 31, 2020
    Pro Forma Consolidated Capitalization at March 31, 2020 of
Eastern Bankshares, Inc.
Based Upon the Sale for $10.00 Per Share of
 

(Dollars in thousands)

  129,625,000
Shares
    152,500,000
Shares
    175,375,000
Shares
    201,681,250
Shares(1)
 

Deposits(2)

  $ 10,309,011     $ 10,309,011     $ 10,309,011     $ 10,309,011     $ 10,309,011  

Borrowings

    31,427       31,427       31,427       31,427       31,427  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total deposits and borrowings

  $ 10,340,438     $ 10,340,438     $ 10,340,438     $ 10,340,438     $ 10,340,438  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity:

         

Preferred stock, no par value per share; 10,000,000 shares authorized; none to be issued

  $ —       $ —       $ —       $ —       $ —    

Common stock, $0.01 par value per share; 1,000,000,000 shares authorized; shares to be issued as reflected(3)

    —         1,350       1,589       1,827       2,101  

Additional paid-in capital

    —         1,314,968       1,549,027       1,783,086       2,052,254  

Retained earnings

    1,651,314       1,651,314       1,651,314       1,651,314       1,651,314  

Accumulated other comprehensive loss, net of tax

    11,420       11,420       11,420       11,420       11,420  

Net impact of foundation

         

Expense of stock donation to foundation(4)

    —         (54,010     (63,542     (73,073     (84,034

Tax benefit of donation to foundation(5)

    —         14,043       16,521       18,999       21,849  

Less:

         

Common stock acquired by employee stock ownership plan(6)

    —         (108,021     (127,083     (146,146     (168,068

Common stock acquired by stock-based benefit plans(7)

    —         (54,010     (63,542     (73,073     (84,034
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

  $ 1,662,734       2,777,054       2,975,704       3,174,354       3,402,802  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro Forma Shares Outstanding

         

Total shares outstanding

      135,026,042       158,854,167       182,682,292       210,084,636  

Shares issued to foundation

      5,401,042       6,354,167       7,307,292       8,403,386  

Shares offered for sale

      129,625,000       152,500,000       175,375,000       201,681,250  

Total stockholder’s equity as a percent of pro forma total assets

    13.47     20.63     21.79     22.91     24.16

 

(1)

As adjusted to give effect to an increase of 15% in the number of shares sold in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.

(2)

Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the offering. These withdrawals would reduce pro forma deposits and assets by the amount of the withdrawals.

(3)

No effect has been given to the issuance of additional shares of common stock pursuant to the exercise of options under one or more stock-based benefit plans. If the plans are implemented within the first year after the closing of the offering, an amount up to 10% of the outstanding shares of common stock of Eastern Bankshares, Inc. at the completion of the offering will be reserved for issuance upon the exercise of options under the plans. See the section of this prospectus titled “Management—Benefits to be Considered Following Completion of Offering.”

(4)

Expense of stock contributed to the Foundation equal to the total shares issued to the Foundation at the offering price of $10.00 per share.

 

56


Table of Contents
(5)

The pro forma consolidated capitalization assumes that we will realize 100% of the income tax benefit as a result of our contribution to the Foundation based on a 26.0% combined federal and state tax rate.

(6)

Assumes that 8.0% of total shares sold in the offering and issued to the Foundation will be acquired by the employee stock ownership plan financed by a loan from Eastern Bankshares, Inc. The loan will be repaid principally from Eastern Bank’s contributions to the employee stock ownership plan. Since Eastern Bankshares, Inc. will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Eastern Bankshares, Inc.’s consolidated balance sheet. Accordingly, the number of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders’ equity.

(7)

Assumes a number of shares of common stock equal to 4% of total shares of common stock sold in the offering and issued to the Foundation will be purchased for grant by one or more stock-based benefit plans. The funds to be used by such plans to purchase the shares will be provided by Eastern Bankshares, Inc. The dollar amount of common stock to be purchased is based on the $10.00 per share subscription price in the offering and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the subscription price in the offering. Eastern Bankshares, Inc. will accrue compensation expense to reflect the vesting of shares pursuant to such stock-based benefit plans and will credit capital in an amount equal to the charge to noninterest expense. Implementation of such plans will require shareholder approval.

 

57


Table of Contents

PRO FORMA DATA

The following table summarizes historical data of Eastern Bank Corporation and pro forma data of Eastern Bankshares, Inc. as of and for the three months ended March 31, 2020 and as of and for the year ended December 31, 2019. This information is based on assumptions set forth below and in the table, and should not be used as a basis for projections of market value of the shares of common stock following the offering.

The net proceeds in the table are based upon the following assumptions:

 

  (i)

80% of the shares of common stock will be sold in the subscription and community offerings;

 

  (ii)

20% of the shares of common stock will be sold in the syndicated offering;

 

  (iii)

our employee stock ownership plan will purchase 8% of the shares of common stock sold in the offering (or possibly, after the offering, in open market purchases) and donated to the Eastern Bank Charitable Foundation with a loan from Eastern Bankshares, Inc. The loan will be repaid in substantially equal payments of principal and interest (at the prime rate of interest, calculated as of the date of the origination of the loan) over a period of 30 years. Interest income that we earn on the loan will offset the interest paid by Eastern Bank;

 

  (iv)

no fee will be paid to Keefe, Bruyette & Woods, Inc., J.P. Morgan Securities LLC, and other broker-dealers with respect to shares of common stock purchased by our tax-qualified and non-qualified employee stock benefit plans, or stock purchased by our officers, directors, trustees, corporators and employees, and their immediate families; and

 

  (v)

we will pay Keefe, Bruyette & Woods, Inc. and J.P. Morgan Securities LLC, collectively, a fee equal to 1.0% of the aggregate dollar amount of common stock sold in the subscription and community offerings (net of insider purchases and shares purchased by our tax-qualified and non-qualified employee stock benefit plans);

 

  (vi)

we will pay J.P. Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., and other broker-dealers participating in the syndicated offering, collectively, a fee equal to 5.5% of the aggregate dollar amount of common stock sold in the syndicated offering; and

 

  (vii)

total expenses of the offering, other than fees and commissions to be paid to Keefe, Bruyette & Woods, Inc., J.P. Morgan Securities LLC and other broker-dealers, will be $10.6 million.

We calculated pro forma consolidated net income for the three months ended March 31, 2020, and the year ended December 31, 2019 as if the estimated net proceeds had been invested at the beginning of the period at an assumed interest rate of 0.37% (0.27% after-tax). This rate represents the yield on the five-year U.S. Treasury Note at March 31, 2020, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted-average yield earned on our interest-earning assets and the weighted-average rate paid on our interest-bearing liabilities, which is the reinvestment rate generally required by applicable regulations.

We further believe that the reinvestment rate is factually supportable because:

 

   

the yield on the U.S Treasury Note can be readily determined or estimated from third-party sources; and

 

   

we believe that U.S. Treasury securities are not subject to credit losses due to a U.S. Government guarantee of payment of principal and interest.

We calculated historical and pro forma per share amounts by dividing historical and pro forma amounts of consolidated net income and shareholders’ equity by the indicated number of shares of common stock. For purposes of pro forma earnings per share calculations, we adjusted these figures to give effect to the shares of common stock purchased by the employee stock ownership plan. We computed per share amounts as if the shares of common stock were outstanding at the beginning of the year, but we did not adjust per share historical or pro forma shareholders’ equity to reflect the earnings on the estimated net proceeds.

The pro forma table gives effect to the implementation of one or more stock-based benefit plans. Subject to the receipt of shareholder approval, we have assumed that stock-based benefit plans will acquire for restricted stock awards a number of shares of common stock equal to 4.0% of the shares of common stock sold in the offering and issued to the Foundation at the same price for which they were sold in the offering. We assume that awards of common stock granted under such plans vest over a five-year period.

 

58


Table of Contents

We have also assumed that options will be granted under stock-based benefit plans to acquire shares of common stock equal to 10.0% of the shares of common stock sold in the offering and issued to the Foundation. In preparing the table below, we assumed that shareholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $2.53 for each option. In addition to the terms of the options described above, the Black-Scholes option pricing model assumed an estimated volatility rate of 18.08% for the shares of common stock, no dividend yield, an expected option term of 10 years and a risk-free rate of return of 0.70%.

We may grant options and award shares of common stock under one or more stock-based benefit plans in excess of 10.0% and 4.0%, respectively, of the shares of common stock sold in the offering and issued to the Foundation and that vest sooner than over a five-year period if the stock-based benefit plans are adopted more than one year following the offering.

As discussed under “How We Intend to Use the Proceeds from the Offering,” we intend to contribute 50% of the net proceeds from the offering to Eastern Bank, and we will retain the remainder of the net proceeds from the offering. We will use a portion of the proceeds we retain for the purpose of funding a loan to the employee stock ownership plan and retain the rest of the proceeds for future use.

The pro forma table does not give effect to:

 

   

withdrawals from deposit accounts to purchase shares of common stock in the offering;

 

   

our results of operations after the offering;

 

   

changes in the market price of the shares of common stock after the offering.

The following pro forma information may not be representative of the financial effects of the offering at the dates on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated shareholders’ equity represents the difference between the stated amounts of our pro forma assets and pro forma liabilities. The pro forma shareholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to shareholders if we liquidated. Moreover, pro forma shareholders’ equity per share does not give effect to the liquidation accounts to be established in the offering or, in the unlikely event of a liquidation of Eastern Bank, to the tax effect of the recapture of the bad debt reserve.

 

    

As of or for the three months ended March 31, 2020

Based Upon the Sale at $10.00 Per Share of

 

(Dollars in thousands, except per share data)

   129,625,000
Shares at
Minimum of
Offering
Range
    152,500,000
Shares at
Midpoint of
Offering
Range
    175,375,000
Shares at
Maximum of
Offering
Range
    201,681,250
Shares at
Adjusted
Maximum of
Offering Range (1)
 

Gross proceeds of offering

   $ 1,296,250     $ 1,525,000     $ 1,753,750     $ 2,016,813  

Plus: Market value of shares donated to the Foundation

     54,010       63,542       73,073       84,034  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma market capitalization

   $ 1,350,260     $ 1,588,542     $ 1,826,823     $ 2,100,846  

Gross proceeds of the offering

     1,296,250       1,525,000       1,753,750       2,016,813  

Expenses

     (33,942     (37,926     (41,910     (46,492
  

 

 

   

 

 

   

 

 

   

 

 

 

Estimated net proceeds

   $ 1,262,308     $ 1,487,074     $ 1,711,840     $ 1,970,321  

Common stock acquired by employee stock ownership plan

     (108,021     (127,083     (146,146     (168,068

Common stock granted for restricted stock awards

     (54,010     (63,542     (73,073     (84,034
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investable proceeds

   $ 1,100,277     $ 1,296,449     $ 1,492,621     $ 1,718,219  
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three months ended March 31, 2020

        

Consolidated net income

        

Historical net income

   $ 8,445     $ 8,445     $ 8,445     $ 8,445  

Pro forma income on net investable proceeds

     753       888       1,022       1,176  

Employee stock ownership plan (2)

     (666     (784     (901     (1,037

Shares granted under restricted stock awards (3)

     (1,999     (2,351     (2,704     (3,109

Options granted under stock-based benefit plans (4)

     (1,597     (1,879     (2,161     (2,485
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income(5)

   $ 4,937     $ 4,319     $ 3,701     $ 2,991  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

59


Table of Contents
    

As of or for the three months ended March 31, 2020

Based Upon the Sale at $10.00 Per Share of

 

(Dollars in thousands, except per share data)

   129,625,000
Shares at
Minimum of
Offering
Range
    152,500,000
Shares at
Midpoint of
Offering
Range
    175,375,000
Shares at
Maximum of
Offering
Range
    201,681,250
Shares at
Adjusted
Maximum of
Offering Range (1)
 

Earnings per share

        

Historical net income

   $ 0.07     $ 0.06     $ 0.05     $ 0.04  

Pro forma income on net investable proceeds

     0.01       0.01       0.01       0.01  

Employee stock ownership plan (2)

     (0.01     (0.01     (0.01     (0.01

Shares granted under restricted stock awards (3)

     (0.02     (0.02     (0.02     (0.02

Options granted under stock-based benefit plans (4)

     (0.01     (0.01     (0.01     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per share(5)

   $ 0.04     $ 0.03     $ 0.02     $ 0.01  
  

 

 

   

 

 

   

 

 

   

 

 

 

Offering price as a multiple of pro forma net income per share, annualized

     62.50x       83.33x       125.00x       250.00x  

Number of shares used in net income per share calculations

     124,313,976       146,251,736       168,189,497       193,417,922  

At March 31, 2020

        

Stockholders’ equity:

        

Historical stockholders’ equity

   $ 1,662,734     $ 1,662,734     $ 1,662,734     $ 1,662,734  

Estimated net proceeds

     1,262,308       1,487,074       1,711,840       1,970,321  

Market value of shares donated to Foundation

     54,010       63,542       73,073       84,034  

Expense of donation of stock to Foundation

     (54,010     (63,542     (73,073     (84,034

Tax benefit of donation to Foundation

     14,043       16,521       18,999       21,849  

Common Stock acquired by employee stock ownership plan (2)

     (108,021     (127,083     (146,146     (168,068

Common stock granted under restricted stock awards (3)

     (54,010     (63,542     (73,073     (84,034
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma stockholders’ equity

     2,777,054       2,975,704       3,174,354       3,402,802  

Intangible assets

     (377,033     (377,033     (377,033     (377,033
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma tangible stockholders’ equity

   $ 2,400,021     $ 2,598,671     $ 2,797,321     $ 3,025,769  
  

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity per share

        

Historical

   $ 12.31     $ 10.47     $ 9.10     $ 7.91  

Estimated net proceeds

     9.35       9.36       9.37       9.38  

Market value of shares donated to Foundation

     0.40       0.40       0.40       0.40  

Expense of donation of stock to Foundation

     (0.40     (0.40     (0.40     (0.40

Tax benefit of donation to Foundation

     0.10       0.10       0.10       0.10  

Common Stock acquired by employee stock ownership plan (2)

     (0.80     (0.80     (0.80     (0.80

Common stock granted under restricted stock awards (3)

     (0.40     (0.40     (0.40     (0.40
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma stockholders’ equity per share

     20.56       18.73       17.37       16.19  

Intangible assets

     (2.79     (2.37     (2.06     (1.79
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma tangible stockholders’ equity per share

   $ 17.77     $ 16.36     $ 15.31     $ 14.40  
  

 

 

   

 

 

   

 

 

   

 

 

 

Offering price as a percentage of pro forma stockholders’ equity per share

     48.64     53.39     57.57     61.77

Offering price as a percentage of pro forma tangible stockholders’ equity per share

     56.27     61.12     65.32     69.44

Number of shares outstanding for pro forma equity per share calculations

     135,026,042       158,854,167       182,682,292       210,084,636  

 

60


Table of Contents
    

At or For the Year Ended December 31, 2019

Based Upon the Sale at $10.00 Per Share of

 

(Dollars in thousands, except per share data)

   129,625,000
Shares at
Minimum of
Offering
Range
    152,500,000
Shares at
Minimum of
Offering
Range
    175,375,000
Shares at
Minimum of
Offering
Range
    201,681,250
Shares at
Adjusted
Maximum of
Offering Range (1)
 

Gross proceeds

   $ 1,296,250     $ 1,525,000     $ 1,753,750     $ 2,016,813  

Plus: Market value of shares donated to the Foundation

     54,010       63,542       73,073       84,034  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma market capitalization

   $ 1,350,260     $ 1,588,542     $ 1,826,823     $ 2,100,846  

Gross proceeds of the offering

     1,296,250       1,525,000       1,753,750       2,016,813  

Expenses

     33,942       37,926       41,910       46,492  
  

 

 

   

 

 

   

 

 

   

 

 

 

Estimated net proceeds

     1,262,308       1,487,074       1,711,840       1,970,321  

Common stock acquired by employee stock ownership plan

     (108,021     (127,083     (146,146     (168,068

Common stock granted for restricted stock awards

     (54,010     (63,542     (73,073     (84,034
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investable proceeds

   $ 1,100,277     $ 1,296,449     $ 1,492,621     $ 1,718,219  
  

 

 

   

 

 

   

 

 

   

 

 

 

For the year ended December 31, 2019

        

Consolidated net income

        

Historical net income

   $ 135,098     $ 135,098     $ 135,098     $ 135,098  

Pro forma income on net investable proceeds

     3,013       3,550       4,087       4,704  

Employee stock ownership plan (2)

     (2,665     (3,135     (3,605     (4,146

Shares granted under restricted stock awards (3)

     (7,994     (9,404     (10,815     (12,437

Options granted under stock-based benefit plans (4)

     (6,388     (7,516     (8,643     (9,939
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income(5)

   $ 121,064     $ 118,593     $ 116,122     $ 113,280  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Historical net income

   $ 1.08     $ 0.92     $ 0.80     $ 0.70  

Pro forma income on net investable proceeds

     0.02       0.02       0.02       0.02  

Employee stock ownership plan

     (0.02     (0.02     (0.02     (0.02

Shares granted under restricted stock awards

     (0.06     (0.06     (0.06     (0.06

Options granted under stock-based benefit plans

     (0.05     (0.05     (0.05     (0.05
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net income per share(5)

   $ 0.97     $ 0.81     $ 0.69     $ 0.59  
  

 

 

   

 

 

   

 

 

   

 

 

 

Offering price as a multiple of pro forma earnings per share

     10.31x       12.35x       14.49x       16.95x  

Number of shares used in earnings per share calculations

     124,584,028       146,569,445       168,554,861       193,838,091  

At December 31, 2019

        

Stockholders’ equity

        

Historical stockholders’ equity

   $ 1,600,153     $ 1,600,153     $ 1,600,153     $ 1,600,153  

Estimated net proceeds

     1,262,308       1,487,074       1,711,840       1,970,321  

Market value of shares donated to Foundation

     54,010       63,542       73,073       84,034  

Expense of donation of stock to Foundation

     (54,010     (63,542     (73,073     (84,034

Tax benefit of donation to Foundation

     14,043       16,521       18,999       21,849  

Common stock acquired by employee stock ownership plan (2)

     (108,021     (127,083     (146,146     (168,068

Common stock granted under restricted stock awards (3)

     (54,010     (63,542     (73,073     (84,034
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma stockholders’ equity

     2,714,473       2,913,123       3,111,773       3,340,221  

Intangible assets

     (377,734     (377,734     (377,734     (377,734
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma tangible stockholders’ equity

   $ 2,336,739     $ 2,535,389     $ 2,734,039     $ 2,962,487  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

61


Table of Contents
    

At or For the Year Ended December 31, 2019

Based Upon the Sale at $10.00 Per Share of

 

(Dollars in thousands, except per share data)

   129,625,000
Shares at
Minimum of
Offering
Range
    152,500,000
Shares at
Minimum of
Offering
Range
    175,375,000
Shares at
Minimum of
Offering
Range
    201,681,250
Shares at
Adjusted
Maximum of
Offering Range (1)
 

Stockholders’ equity per share

        

Historical

   $ 11.85     $ 10.07     $ 8.76     $ 7.62  

Estimated net proceeds

     9.35       9.36       9.37       9.38  

Market value of shares donated to Foundation

     0.40       0.40       0.40       0.40  

Expense of donation of stock to Foundation

     (0.40     (0.40     (0.40     (0.40

Tax benefit of donation to Foundation

     0.10       0.10       0.10       0.10  

Common stock acquired by employee stock ownership plan (2)

     (0.80     (0.80     (0.80     (0.80

Common stock granted under restricted stock awards (3)

     (0.40     (0.40     (0.40     (0.40
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma stockholders’ equity per share

   $ 20.10     $ 18.33     $ 17.03     $ 15.90  

Intangible assets

     (2.80     (2.38     (2.07     (1.80
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma tangible stockholders’ equity per share

   $ 17.30     $ 15.95     $ 14.96     $ 14.10  
  

 

 

   

 

 

   

 

 

   

 

 

 

Offering price as a percentage of pro forma stockholders’ equity per share

     49.75     54.56     58.72     62.89

Offering price as a percentage of pro forma tangible stockholders’ equity per share

  

 

57.80

 

 

62.70

 

 

66.84

 

 

70.92

Number of shares outstanding for pro forma equity per share calculations

     135,026,042       158,854,167       182,682,292       210,084,636  

 

(1)

As adjusted to give effect to an increase of 15% in the number of shares sold in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.

(2)

Assumes that 8.0% of the shares of common stock sold in the offering and issued to the Foundation will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from Eastern Bankshares, Inc. Eastern Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. Eastern Bank’s total annual payments on the employee stock ownership plan debt are based upon 30 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718-40, “Compensation—Stock Compensation—Employee Stock Ownership Plans” (“ASC 718-40”) requires that an employer record compensation expense in an amount equal to the fair value of the shares released each year for allocation to employee accounts. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Eastern Bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 26.0%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that 90,017, 105,903, 121,788 and 140,056 shares were committed to be released during the three months ended March 31, 2020 at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, that 360,069, 423,611, 487,153 and 560,226 shares were committed to be released during the year ended December 31, 2019 at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, and according to ASC 718-40, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes of earnings per share calculations.

(3)

Assumes that one or more stock-based benefit plans purchase an aggregate number of shares of common stock equal to 4.0% of the shares of common stock sold in the offering and issued to the Foundation. Stockholder approval of the plans and purchases by the plans may not occur earlier than six months after the completion of the offering. The shares may be acquired directly from Eastern Bankshares, Inc. or through open market purchases. Shares in the stock-based benefit plans are assumed to vest over a period of five years. The funds to be used to purchase the shares will be provided by Eastern Bankshares, Inc. The table assumes that (i) the stock-based benefit plans acquire the shares through open market

 

62


Table of Contents
  purchases at $10.00 per share, (ii) 5.0% of the amount contributed to the plans is amortized as an expense during the three months ended March 31, 2020, (iii) 20.0% of the amount contributed to the plans is amortized as an expense during the year ended December 31, 2019, and (iv) the plans’ expense reflects an effective combined federal and state tax rate of 26.0%. The issuance of authorized but unissued shares of common stock to fund these awards would dilute stockholders’ ownership and voting interests by approximately 3.85%.
(4)

Assumes that options are granted under one or more stock-based benefit plans to acquire an aggregate number of shares of common stock equal to 10.0% of the shares of common stock sold in the offering and issued to the Foundation. In calculating the pro forma effect of the stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $2.53 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options, and that 25% of the amortization expense (or the assumed portion relating to options granted to directors) resulted in a tax benefit using an effective combined federal and state tax rate of 26.0%. The actual expense will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted. Under the above assumptions, the implementation of the stock-based benefit plans will result in no additional shares under the treasury stock method for purposes of calculating net income per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares used to satisfy the exercise of options comes from authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options under such plan would dilute stockholders’ ownership and voting interests by approximately 9.09%.

(5)

Earnings per share computations are determined by taking the number of shares assumed to be sold in the offering and shares contributed to the Foundation and, according to ASC 718-40, subtracting the employee stock ownership plan shares which have not been committed for release during the period, see Note 2 above. The number of shares of common stock actually sold and the corresponding number of outstanding shares may be more or less than the assumed amounts

 

63


Table of Contents

COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT THE STOCK DONATION TO THE CHARITABLE FOUNDATION

As reflected in the table below, without the donation to Eastern Bank Charitable Foundation, RP Financial, LC. estimates that our pro forma valuation would be greater and, as a result, a greater number of shares of common stock would be issued in the offering. At the minimum, midpoint, maximum and adjusted maximum of the valuation range, our pro forma valuation is $1.35 billion, $1.6 billion, $1.8 billion and $2.1 billion with the Eastern Bank Charitable Foundation, as compared to $1.4 billion, $1.7 billion, $1.9 billion and $2.2 billion, respectively, without the Eastern Bank Charitable Foundation.

For comparative purposes only, set forth below are certain pricing ratios and financial data and ratios at and for the three-month period ended March 31, 2020 at the minimum, midpoint, maximum and adjusted maximum of the offering range, assuming the offering was completed at the beginning of the year, with and without the Eastern Bank Charitable Foundation.

 

    Minimum of
Offering Range
    Midpoint of
Offering Range
    Maximum of
Offering Range
    Adjusted Maximum of
Offering Range
 

(Dollars in thousands, except per
share data)

  With
Foundation
    Without
Foundation
    With
Foundation
    Without
Foundation
    With
Foundation
    Without
Foundation
    With
Foundation
    Without
Foundation
 

Estimated offering amount

  $ 1,296,250     $ 1,402,500     $ 1,525,000     $ 1,650,000     $ 1,753,750     $ 1,897,500     $ 2,016,813     $ 2,182,125  

Pro forma market capitalization

    1,350,260       1,402,500       1,588,542       1,650,000       1,826,823       1,897,500       2,100,846       2,182,125  

Total assets

    13,458,074       13,542,073       13,656,724       13,755,546       13,855,374       13,969,020       14,083,822       14,214,515  

Total liabilities

    10,681,020       10,681,020       10,681,020       10,681,020       10,681,020       10,681,020       10,681,020       10,681,020  

Pro forma stockholders’ equity

    2,777,054       2,861,053       2,975,704       3,074,526       3,174,354       3,288,000       3,402,802       3,533,495  

Pro forma net income

    4,937       4,839       4,319       4,204       3,701       3,569       2,991       2,839  

Pro forma stockholders’ equity per share

  $ 20.56     $ 20.40     $ 18.73     $ 18.64     $ 17.37     $ 17.33     $ 16.19     $ 16.19  

Pro forma earnings per share

  $ 0.04     $ 0.04     $ 0.03     $ 0.03     $ 0.02     $ 0.02     $ 0.01     $ 0.01  

Pro forma pricing ratios

               

Offering price as a percentage of pro forma stockholders’ equity per share

    48.64     49.02     53.39     53.65     57.57     57.70     61.77     61.77

Offering price as a percentage of pro forma tangible stockholders’ equity per share

    56.27     56.47     61.12     61.16     65.32     65.19     69.44     69.16

Offering price to annualized pro forma earnings per share

    62.50x       62.50x       83.33x       83.33x       125.00x       125.00x       250.00x       250.00x  

Pro forma financial ratios

               

Return on assets, annualized

    0.15     0.14     0.13     0.12     0.11     0.10     0.08     0.08

Return on equity, annualized

    0.71     0.68     0.58     0.55     0.47     0.43     0.35     0.32

Equity to assets

    20.63     21.13     21.79     22.35     22.91     23.54     24.16     24.86

Total shares issued

    135,026,042       140,250,000       158,854,167       165,000,000       182,682,292       189,750,000       210,084,636       218,212,500  

 

    Minimum of
Offering
Range
    Minimum of
Offering
Range
    Midpoint of
Offering
Range
    Midpoint of
Offering
Range
    Maximum of
Offering
Range
    Maximum of
Offering
Range
    Adjusted
Maximum of
Offering
Range
    Adjusted
Maximum of
Offering
Range
 

Before tax expense of contribution to Foundation

  $ (54,010   $ —       $ (63,542   $ —       $ (73,073   $ —       $ (84,034   $ —    

After-tax expense of contribution to Foundation

    (39,967     —         (47,021     —         (54,074     —         (62,185     —    

Pro forma net income

    4,937       4,839       4,319       4,204       3,701       3,569       2,991       2,839  

Pro forma net income per share

  $ 0.04     $ 0.04     $ 0.03     $ 0.03     $ 0.02     $ 0.02     $ 0.01     $ 0.01  

Pro forma tax benefit

    14,043       —         16,521       —         18,999       —         21,849       —    

Offering price to pro forma net income per share

    62.50x       62.50x       83.33x       83.33x       125.00x       125.00x       250.00x       250.00x  

Pro forma return on assets

    0.15     0.14     0.13     0.12     0.11     0.10     0.08     0.08

Pro forma return on equity

    0.71     0.68     0.58     0.55     0.47     0.43     0.35     0.32

 

64


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this prospectus. In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. See the section of this prospectus titled “Forward-Looking Statements” appearing elsewhere in this prospectus. Our actual results may differ materially from those in this discussion as a result of various factors, including, but not limited to, those discussed under “Risk Factors” appearing elsewhere in this prospectus.

Overview

We are a Massachusetts-chartered bank that has served the banking needs of our customers since 1818. Our business philosophy is to operate as a diversified financial services enterprise providing a broad array of banking and other financial services primarily to retail, commercial and small business customers. We had total assets of $12.3 billion and $11.6 billion at March 31, 2020 and December 31, 2019, respectively. We are subject to comprehensive regulation and examination by the Massachusetts Commissioner of Banks, the Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve Board and the Consumer Financial Protection Bureau.

We manage our business under two business segments: our banking business, which contributed $113.0 million, or 81.0%, of our total income (interest and dividend income and noninterest income) for the three months ended March 31, 2020 and contributed $534.9 million, or 85.2%, of our total income for the year ended December 31, 2019, and our insurance agency business, which contributed $26.5 million, or 19.0%, of our total income for the three months ended March 31, 2020 and $92.7 million, or 14.8%, of our total income for the year ended December 31, 2019. Our banking business consists of a full range of banking, lending (commercial, residential and consumer), savings and small business offerings, including our wealth management and trust operations that we conduct through our Eastern Wealth Management division.

Banking Business

Our banking business offers a range of commercial, retail, wealth management and banking services, and consists primarily of attracting deposits from the general public, including municipalities, and investing those deposits, together with borrowings and funds generated from operations, to originate loans in a variety of sectors and to invest in securities. The financial condition and results of operations of our banking business depend primarily on (i) us attracting and retaining low cost, stable deposits, (ii) us using those deposits to originate and acquire loans and earn net interest income and (iii) our operating expenses incurred.

Lending Activities

We use funds obtained from deposits, as well as funds obtained from the Federal Home Loan Bank (“FHLB”) of Boston (“FHLBB”) advances and Federal funds, primarily to originate loans and to invest in securities. Our lending focuses on the following categories of loans:

Commercial Lending

 

   

Commercial and industrial: Loans in this category consist of revolving and term loans extended to businesses and corporate enterprises for the purpose of financing working capital, equipment purchases and acquisitions. As of March 31, 2020 and December 31, 2019, we had total commercial and industrial loans of $1.8 billion and $1.6 billion, representing 19.5% and 18.3%, respectively, of our total loans. The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. Our primary focus for commercial and industrial loans is middle-market companies located in the markets we serve. In addition, we participate in the syndicated loan market and the Shared National Credit Program (“SNC Program”). As of March 31, 2020 and December 31, 2019, our SNC Program portfolio totaled $491.2 million and $419.0 million, or 27.7% and 25.5%, respectively, of our commercial and industrial portfolio, and 41.0% and 47.0%, respectively, of our SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial and industrial portfolio also includes our Asset Based Lending Portfolio (“ABL Portfolio”). As of March 31, 2020 and December 31, 2019, our ABL Portfolio totaled $168.5 million and $163.0 million, or 9.5% and 9.9%, respectively, of our commercial and industrial portfolio.

 

   

Commercial real estate: Loans in this category include mortgage loans on commercial real estate, both investment and owner occupied. As of March 31, 2020 and December 31, 2019, we had total commercial real estate loans of $3.5 billion, representing 38.8% and 39.3%, respectively, of our total loans. Property types

 

65


Table of Contents
 

financed include office, industrial, multi-family, affordable housing, retail, hotel and other types of properties. Collateral values are established by independent third-party appraisals and evaluations. The primary repayment sources include operating income generated by the real estate, permanent debt refinancing and/or the sale of the real estate.

 

   

Commercial construction: Loans in this category include construction project financing and are comprised of commercial real estate, business banking and residential loans for the purpose of constructing and developing real estate. Substantially all of our commercial construction portfolio is in commercial real estate. As of March 31, 2020 and December 31, 2019, we had total commercial construction loans of $293.1 million and $273.7 million, representing 3.2% and 3.0%, respectively, of our total loans.

 

   

Business banking: Loans in this category are comprised of loans to small businesses with exposures of under $1 million and small investment real estate projects with exposures of under $3 million, and are separate and distinct from our commercial and industrial and commercial real estate portfolios described above due to the size of the loans. As of March 31, 2020 and December 31, 2019, we had total business banking loans of $779.9 million and $771.5 million, respectively, representing 8.6% of our total loans for each period. In this category, commercial and industrial loans and commercial real estate loans totaled $232.0 million and $547.9 million, respectively, as of March 31, 2020, and $229.0 million and $542.0 million, respectively, as of December 31, 2019. Business banking originations include traditionally underwritten loans as well as partially automated scored loans. Our proprietary decision matrix, which includes a number of quantitative factors including, but not limited to, a guarantor’s credit score, industry risk, and time in business, is used when determining whether to make business banking loans. We also engage in Small Business Association (“SBA”) lending. SBA guarantees reduce our risk of loss when default occurs and are considered a credit enhancement to the loan structure.

Residential Lending

 

   

Residential real estate: Loans in this category consist of mortgage loans on residential real estate. As of both March 31, 2020 and December 31, 2019, we had total residential loans of $1.4 billion, representing 15.6% and 15.9%, respectively, of our total loans. Underwriting considerations include, among others, income sources and their reliability, willingness to repay as evidenced by credit repayment history, financial resources including cash reserves and the value of the collateral. We maintain policy standards for minimum credit score and cash reserves and maximum loan to value consistent with a “prime” portfolio. Collateral consists of mortgage liens on residential dwellings. We do not originate or purchase sub-prime or other high-risk loans. Residential loans are originated either for sale to investors or retained in our loan portfolio. Decisions about whether to sell or retain residential loans are made based on the interest rate characteristics, pricing for loans in the secondary mortgage market, competitive factors and our capital needs. During the three months ended March 31, 2020 and year ended December 31, 2019, residential real estate mortgage originations were $60.8 million and $443.0 million, respectively, of which $49.7 million and $209.0 million, respectively, were sold on the secondary markets. We generally do not continue to service residential loans that we sell in the secondary market.

Consumer Lending

 

   

Consumer home equity: Loans in this category consist of home equity lines of credit and home equity loans. As of March 31, 2020 and December 31, 2019, we had total consumer home equity loans of $929.6 million and $933.1 million, representing 10.2% and 10.4%, respectively, of our total loans. Home equity lines of credit are granted for ten years with monthly interest-only repayment requirements. Home equity lines of credit can be converted to term loans that are fully amortized. Underwriting considerations are materially consistent with those utilized in residential real estate. Collateral consists of a senior or subordinate lien on owner-occupied residential property.

 

   

Other consumer: Loans in this category consist of unsecured personal lines of credit, overdraft protection, automobile and aircraft loans, and other personal loans. As of March 31, 2020 and December 31, 2019, we had total other consumer loans of $369.7 million and $402.4 million, representing 4.1% and 4.5%, respectively, of our total loans. Our policy and underwriting in this category include the following factors, among others, income sources and reliability, credit histories, term of repayment and collateral value, as applicable. Included in this category are $210.5 million and $243.9 million of automobile loans, respectively, at March 31, 2020 and December 31, 2019. During the year ended December 31, 2018, we discontinued the origination of indirect automobile loans for liquidity purposes and we anticipate this portfolio to runoff over the next several years.

 

66


Table of Contents

Other Banking Products and Services

In addition to our lending activities, which are the core part of our banking business, we offer other banking products and services primarily related to (i) other commercial banking products, (ii) other consumer deposit products and (iii) wealth management services.

Other Commercial Banking Products

 

   

We offer a variety of deposit products, treasury management, electronic banking, interest rate protection and foreign exchange products to our customers. Deposit products include checking products, both interest-bearing and non interest-bearing, as well as money market deposits, savings deposits and certificates of deposits. Our treasury management products include a variety of cash management and payment products. Our interest rate protection and foreign exchange products include interest rate swaps and currency related transactions. As of March 31, 2020 and December 31, 2019, our total commercial deposits were $3.7 billion and $3.2 billion, respectively, and our commercial non-interest income during the three months ended March 31, 2020 and year ended December 31, 2019 were $4.9 million and $29.8 million, respectively. As of March 31, 2020, there were no Federal funds provided to us by financial institution customers. During the month of March 2020, Federal funds provided to us by our financial institution customers were transferred to noninterest bearing deposits and totaled $253.3 million. As of December 31, 2019, Federal funds provided to us by our financial institution customers were $201.1 million.

Other Consumer Deposit Products

 

   

We offer a wide variety of deposit products and services to our consumer customers. We service these customers through our 89 branches located in eastern Massachusetts and New Hampshire, through our call center in our facility in Lynn, MA and through our online and mobile banking applications.

Wealth Management Services

 

   

Through our Eastern Wealth Management division, we provide a wide range of trust services, including (i) managing customer investments, (ii) serving as custodian for customer assets and (iii) providing other fiduciary services, including serving as the trustee and personal representative of estates. As of March 31, 2020 and December 31, 2019, we held $2.4 billion and $2.7 billion, respectively, of assets in a fiduciary, custodial or agency capacity for customers, which are not our assets and therefore not included on the consolidated balance sheets included in this prospectus. For the three months ended March 31, 2020 and the year ended December 31, 2019, we had noninterest income of $5.1 million and $19.7 million, respectively, from providing these services.

Insurance Agency Business

Our insurance agency business consists of insurance-related activities such as acting as an independent agent in offering commercial, personal and employee benefits insurance products to individual and commercial clients through our wholly owned agency, Eastern Insurance Group LLC. Our insurance products include commercial property and liability, workers compensation, life, accident and health and automobile insurance. We also offer a wide range of employee benefits products and services, including professional advice related to health care cost management, employee engagement and retirement and executive services. As an agency business, we do not assume any underwriting or insurance risk. The commissions we earn on the sale of these insurance products and services is the most significant portion of our noninterest income, representing $27.5 million and $90.6 million, or 82.3% and 49.7%, respectively, of our noninterest income during the three months ended March 31, 2020 and year ended December 31, 2019. Our insurance business operates through 22 non-branch offices located primarily in eastern Massachusetts and had 411 full-time equivalent employees as of March 31, 2020.

 

67


Table of Contents

Business Segments

The following table presents certain financial information for our business segments:

 

    As of and for the three months ended March 31,  
    2020     2019  
    Banking     Insurance     Eliminations     Consolidated     Banking     Insurance     Eliminations     Consolidated  
    (in thousands)  

Net income

  $ 1,163     $ 6,369     $ 913     $ 8,445     $ 27,985     $ 4,072     $ 908     $ 32,965  

Total assets

  $ 12,221,799     $ 182,564     $ (60,609   $ 12,343,754     $ 11,221,425     $ 154,448     $ (44,895   $ 11,330,978  

Total liabilities

  $ 10,696,509     $ 45,120     $ (60,609   $ 10,681,020     $ 9,851,901     $ 28,874     $ (44,895   $ 9,835,880  

 

    As of and for the year ended December 31,  
  2019     2018  
    Banking     Insurance
Agency
    Other/
Eliminations
    Consolidated     Banking     Insurance
Agency
    Other/
Eliminations
    Consolidated  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (In thousands)        

Net income

  $ 121,939     $ 9,723     $ 3,436     $ 135,098     $ 105,271     $ 14,810     $ 2,646     $ 122,727  

Total assets

  $ 11,515,117     $ 165,965     $ (52,307   $ 11,628,775     $ 11,265,752     $ 152,832     $ (40,297   $ 11,378,287  

Total liabilities

  $ 10,046,189     $ 34,740     $ (52,307   $ 10,028,622     $ 9,954,112     $ 31,331     $ (40,297   $ 9,945,146  

Outlook and Trends

Covid-19 pandemic

 

   

The Covid-19 pandemic has already had a significant impact on our operating results, and we believe it will continue to have an impact for at least the remainder of the year ending December 31, 2020. We expect the short- and long-term economic consequences of Covid-19 to our customers to be significant, and that the continuing health safety concerns relating to the ongoing pandemic will change the way we conduct our business and interact with our customers.

 

   

Starting in March 2020, we realized the impact of the pandemic and economic shut down would have an immediate impact on selected segments of our customers. We downgraded the risk ratings of our entire loan portfolio of hotel and restaurant loans, and also downgraded the risk ratings for all commercial loans we expected to be significantly impacted by the pandemic or what we refer to in this prospectus as the Covid-19 recession. The total amount of loans impacted by these downgraded risk ratings was $1.6 billion, and along with our other activity during the three months ended March 31, 2020, these adjustments resulted in a provision for loan loss of $28.6 million, compared to a provision for loan loss of $3.0 million during the three months ended March 31, 2019.

 

   

In addition, starting in March 2020, we modified the terms of loans with customers impacted by the Covid-19-recession. Through the end of May 2020, these modifications have totaled $508.0 million of commercial real estate loans, including construction loans, $151.0 million of commercial and industrial loans, $96.0 million of business banking loans, $87.0 million of residential real estate loans and $25.0 million of consumer loans. These modifications are intended to provide customers with temporary relief. Generally, these modifications are for three to six months and allow customers to temporarily cease making either (i) interest payments or (ii) interest and principal payments. We believe these actions provide our customers with the best chance to meet their longer-term obligations and for us to work with those who will not be able to meet their obligations or default on their loans.

 

   

Starting in April 2020, we worked with our customers to help them understand the Paycheck Protection Program (PPP) of the CARES Act. As amended, effective June 4, 2020, the PPP generally provides eligible employers with funds to pay payroll costs (including benefits) and interest on mortgages, rent and utilities, and the PPP loan may be forgiven to the extent the loan proceeds are applied to eligible expenditures during a specified measurement period. Funds are provided in the form of loans that will generally be fully forgiven when used for permissible expenditures, subject to certain reductions based on certain decreases in the employer’s full-time equivalent employees or salary and wages during the measurement period. To the extent not forgiven, a PPP loan is intended to be 100% guaranteed by the SBA and will have a term of two years (or

 

68


Table of Contents
 

five years if the PPP loan is made after June 4, 2020) and carry an interest rate of 1%. Payment of principal, interest and fees on PPP loans is deferred until the amount to be forgiven is finalized, in general. Through May 31, 2020, we have originated approximately 7,900 PPP loans primarily for our customers, representing $1.1 billion of aggregate PPP loans. We intend to assist our PPP borrowers with the potential forgiveness process, which we expect will occur primarily in June and July 2020. The SBA has communicated a fee structure for the banks originating these loans, although we are waiting for final instructions and the payment for these fees. Based on what the SBA has communicated, we believe we could receive between approximately $30.0 million and $35.0 million in fees on these PPP loans. These fees would be accounted for as loan origination fees with the related income recognized over the life of the respective loan. Although the CARES Act, as amended, allows PPP borrowers to elect to use a longer measurement period that may delay forgiveness until 2021, we expect a large percentage of our PPP loans will be forgiven in whole or substantial part, or be repaid, in the year ending December 31, 2020. Accordingly, we expect to record the majority of our PPP origination fees in the second half of the year ending December 31, 2020. Our deferred origination costs will also be amortized over the life of the loans, as a reduction to our interest income, and we expect the majority of these origination costs to be recognized in the second half of the year ending December 31, 2020.

 

   

During March 2020, the Federal Reserve reduced the federal funds rate by .50% as an initial response to the Covid-19 pandemic. Later in March 2020, the Federal Reserve reduced the target range for the federal funds rate to between 0.0% and 0.25%, compared to the previous target of between 1.00% and 1.25%. These rate reductions, combined with the decline of longer-term interest rates, will reduce our net interest income to lower levels during 2020, and potentially beyond, compared to what we experienced for the year ended December 31, 2019. In 2020, the PPP fee income will be recorded as interest income, which will partially offset the decline in interest income due to rate reductions. After the PPP loans have been paid off or forgiven, we would expect lower levels of interest income going forward.

 

   

Additional impacts expected from the Covid-19 pandemic include:

 

  o

We expect a reduction in fees as we waive certain fees for our impacted customers. We also expect higher loan workout costs and expenses related to recovery activities.

 

  o

While we expect the impact of credit-related costs to be lower in the three months ending June 30, 2020 compared to the three months ended March 31, 2020, and the positive impact of the PPP to partially offset the decline in our interest income due to rate reductions, we expect the second half of the year ending December 31, 2020 to continue to be very challenging and therefore expect our net income in the year ending December 31, 2020 to be below that of the year ended December 31, 2019. Although we expect to see higher loans and deposits in the three months ending June 30, 2020, and potentially the entire second half of the year ending December 31, 2020, we are less certain about the longer-term impact of Covid-19 on our organic loan and deposit growth.

 

  o

Although we did not record any impairments to our goodwill and other intangibles, net during the three months ended March 31, 2020, we will continue to assess our goodwill and other intangibles, net to determine if impairments are necessary during the remainder of the year ending December 31, 2020 and beyond as it relates to the current economic environment resulting from the Covid-19 pandemic.

 

   

Due to the pandemic, we migrated much of our staff to working remotely beginning in March 2020. Except for branch personnel in our banking offices and insurance agency offices, the majority of our staff is working remotely. Through the date of this prospectus, our workforce has been productive working remotely, and we expect to see longer-term cost savings in real estate and related expenses as we accelerate the transformation of our business to a lower cost digital model. We expect our administrative staff will not begin to return to our offices until September 2020, and we do not expect the density of employees in our offices to approach 2019 levels until we have reason to believe that a vaccine, therapeutic or other factors have lessened the workplace health safety concerns. We also expect to enhance our work from home policies to encourage fewer employees in our administrative offices to work physically in an office on a full-time basis.

This offering

 

   

We expect this offering to significantly improve our capital and liquidity position and believe the strengthening of these will allow us to maintain low levels of wholesale funds and, without consideration of the impact of the Covid-19 pandemic, experience faster organic loan and deposit growth. We also believe the

 

69


Table of Contents
 

additional capital, together with our ability to structure acquisitions using stock, cash or a combination of both, will enhance our ability to pursue both bank and insurance agency acquisitions as opportunities present themselves.

 

   

As a result of this offering, our compensation, regulatory/compliance and other costs will increase. We expect to add personnel over the next two years and beyond in areas including, but not limited to, (i) operations, (ii) finance, (iii) compliance, (iv) commercial lending and (v) residential lending. These additional positions will increase our noninterest expense in the year ending December 31, 2021. We also expect to issue awards under stock-based incentive plans, and therefore incur stock-based compensation costs, during the year ending December 31, 2021, which will increase our noninterest expense. As a result, we anticipate an increase in our noninterest expense of approximately $10.0 million to $12.0 million during the year ending December 31, 2021, which could increase even more significantly in the year ending December 31, 2022 and beyond. As a result of this offering, we also expect to reduce the level of charitable donations, including those we make to Eastern Bank Charitable Foundation, such that charitable donations represent a significantly smaller percentage of our earnings.

Other

 

   

We anticipate that we will adopt Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, during the year ending December 31, 2021.

Non-GAAP Measures

We present non-GAAP measures, which are used to evaluate our performance and exclude the effects of certain transactions, non-cash items and GAAP adjustments that we believe are unrelated to our core business and not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility into our core businesses and underlying trends that may, to some extent, be obscured by inclusion of such items.

There are items that impact our results that we believe are unrelated to our core business. Therefore, we present net operating earnings, noninterest income on an operating basis, noninterest expense on an operating basis, total operating income and the efficiency ratio on an operating basis, each of which excludes the impact of the items that we do not believe are related to our core business as we believe excluding these items provides greater visibility into our core business and underlying trends. Items we do not consider to be core to our 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 benefit and (v) merger and acquisition expenses.

We also present tangible equity, tangible assets and tangible equity to tangible assets ratios, each of which excludes the impact of goodwill and other intangible assets, as we believe these measures provide the ability to further assess our performance, identify trends in our core business and provide a comparison of our capital adequacy to other companies. We have included information on these 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.

Our non-GAAP measures should not be considered as an alternative to GAAP net income, an indication of our cash flows from operating activities, a measure of our liquidity or an indication of funds available for our cash needs. An item which we consider to be noncore and exclude when computing these non-GAAP measures can be of substantial importance to our results for any particular period. In addition, our methodology for calculating non-GAAP measures may differ from the methodologies employed by other companies to calculate the same or similar performance measures and, accordingly, our reported non-GAAP measures may not be comparable to the same or similar performance measures reported by other companies.

 

70


Table of Contents

The following table summarizes the impact of noncore items recorded for the time periods indicated below and reconciles them to the most directly comparable GAAP measure.

 

     Three months ended March 31,     Year ended December 31,  
         2020             2019             2019             2018      
    

(In thousands)

 

Net income (GAAP)

   $ 8,445     $ 32,965     $ 135,098     $ 122,727  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjustments:

        

Noninterest income components:

        

(Income) losses from investments held in rabbi trusts

     6,743       (4,147     (9,866     1,542  

Gains on sales of securities available for sale, net

     (122     (50     (2,016     (50

(Gains) losses on sale of other assets

     (29     (29     15       (1,989

Noninterest expense components:

        

Rabbi trust employee benefit expenses (income)

     (3,479     1,946       4,604       (847

Merger and acquisition expenses

     —         —         —         244  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total impact of Non-GAAP adjustments:

     3,113       (2,280     (7,263     (1,100
  

 

 

   

 

 

   

 

 

   

 

 

 

Net tax (expense) benefit associated with Non-GAAP adjustment (1)

     (894     626       1,861       169  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjustments, net of tax

   $ 2,219     $ (1,654   $ (5,402   $ (931
  

 

 

   

 

 

   

 

 

   

 

 

 

Net operating earnings (Non-GAAP)

   $ 10,664     $ 31,311     $ 129,696     $ 121,796  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

The net tax (expense) benefit associated with these items is determined by assessing whether each item is included or excluded from net taxable income and applying our combined statutory tax rate only to those items included in net taxable income.

 

71


Table of Contents

The following table summarizes the impact of noncore items with respect to our total income, noninterest income, noninterest expense and the efficiency ratio, which reconciles to the most directly comparable respective GAAP measure, for the periods indicated:

 

     Three months ended
March 31,
    Year ended December 31,  
     2020     2019     2019     2018     2017     2016     2015  
    

(Dollars in thousands)

 

Net interest income (GAAP)

   $ 100,146     $ 102,672     $ 411,264     $ 390,044     $ 338,514     $ 293,574     $ 274,977  

Add:

              

Tax-equivalent adjustment (non-GAAP)

     1,368       1,380       5,254       5,695       10,607       8,271       6,597  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income (non-GAAP)

     101,514       104,052       416,518       395,739       349,121       301,845       281,574  

Noninterest income (GAAP)

     33,369       47,800       182,299       180,595       197,727       169,128       153,007  

Less:

              

Income (losses) from investments held in rabbi trusts

     (6,743     4,147       9,866       (1,542     6,587       2,161       698  

Gains (losses) on sales of securities available for sale, net

     122       50       2,016       50       11,356       261       (62

Gains (losses) on sale of other assets

     29       29       (15     1,989       6,075       2,698       2,014  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income on an operating basis (non-GAAP)

     39,961       43,574       170,432       180,098       173,709       164,008       150,357  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense (GAAP)

   $ 95,172     $ 104,829     $ 412,684     $ 397,928     $ 389,413     $ 367,643     $ 333,695  

Plus:

              

Rabbi trust benefit expenses (income)

     3,479       (1,946     4,604       (847     2,888       965       432  

Merger and acquisition expenses

     —         —         —         244       149       149       167  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense on an operating basis (non-GAAP)

   $ 98,651     $ 102,833     $ 417,288     $ 397,325     $ 392,450     $ 368,757     $ 334,294  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total income (GAAP)

   $ 133,515     $ 150,472     $ 593,563     $ 570,639     $ 536,241     $ 462,702     $ 427,984  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income (non-GAAP)

   $ 141,475     $ 147,626     $ 586,950     $ 575,837     $ 522,830     $ 465,853     $ 431,931  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ratios

              

Efficiency ratio (GAAP)

     71.28     69.67     69.53     69.73     72.62     79.46     77.97

Efficiency ratio on an operating basis (non-GAAP)

     69.73     69.69     71.09     69.00     75.06     79.16     77.40

 

72


Table of Contents

The following table summarizes the calculation of our tangible equity, tangible assets and tangible equity to tangible assets ratio, which reconciles to the most directly comparable respective GAAP measure, as of the dates indicated:

 

     As of March 31,     As of December 31,  
     2020     2019     2018     2017     2016     2015  
    

(Dollars in thousands)

 

Tangible equity

            

Total equity

   $ 1,662,734     $ 1,600,153     $ 1,433,141     $ 1,330,514     $ 1,254,927     $ 1,205,014  

Less: Goodwill and other intangibles

     377,033       377,734       381,276       373,042       362,980       362,762  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible equity (Non-GAAP)

     1,285,701     $ 1,222,419     $ 1,051,865     $ 957,472     $ 891,947     $ 842,252  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible assets

            

Total assets (GAAP)

     12,343,754       11,628,775       11,378,287       10,873,073       9,801,109       9,588,786  

Less: Goodwill and other intangibles

     377,033       377,734       381,276       373,042       362,980       362,762  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Tangible assets (Non-GAAP)

   $ 11,966,721     $ 11,251,041     $ 10,997,011     $ 10,500,031     $ 9,438,129     $ 9,226,024  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity to assets ratio (GAAP)

     13.5     13.8     12.6     12.2     12.8     12.6

Tangible equity to tangible assets ratio (Non-GAAP)

     10.7     10.9     9.6     9.1     9.5     9.1

Financial Position

Summary of Financial Position

 

                          Change  
     As of March 31,      As of December 31,      March 31, 2020 vs.
December 31, 2019
    December 31, 2019 vs.
December 31, 2018
 
     2020      2019      2018      Amount
($)
    Percentage
(%)
    Amount
($)
    Percentage
(%)
 
    

(Dollars in thousands)

 

Cash and cash equivalents

   $ 766,449      $ 362,602      $ 259,708      $ 403,847       111.4   $ 102,894       39.6

Securities available for sale

     1,549,927        1,508,236        1,455,898        41,691       2.8     52,338       3.6

Loans, net of allowance for credit losses

     8,971,605        8,899,184        8,774,913        72,421       0.8     124,271       1.4

Federal Home Loan Bank Stock

     8,805        9,027        17,959        (222     (2.5 )%      (8,932     (49.7 )% 

Goodwill and Other intangible assets

     377,033        377,734        381,276        (701     (0.2 )%      (3,542     (0.9 )% 

Deposits

     10,309,011        9,551,392        9,399,493        757,619       7.9     151,899       1.6

Borrowed funds

     31,427        235,395        334,287        (203,968     (86.6 )%      (98,892     (29.6 )% 

Cash and cash equivalents

Total cash and cash equivalents increased by $403.8 million, or 111.4%, to $766.4 million at March 31, 2020 from $362.6 million at December 31, 2019. This increase resulted primarily from customer deposit growth, which exceeded our funding needs for new lending activities.

Total cash and cash equivalents increased by $102.9 million, or 39.6%, to $362.6 million at December 31, 2019 from $259.7 million at December 31, 2018. This increase resulted from deposit growth and capital generation, which exceeded our funding needs for new lending activities.

Securities

Our current investment policy authorizes us to invest in various types of investment securities and liquid assets, including U.S. Treasury obligations, securities of government-sponsored enterprises, mortgage-backed securities,

 

73


Table of Contents

collateralized mortgage obligations, corporate notes, asset-backed securities and municipal securities. We do not engage in any investment hedging activities or trading activities, nor do we purchase any high-risk investment products. We typically invest in the following types of securities:

U.S. Government securities: We maintain these investments, to the extent appropriate, for liquidity purposes, at zero risk weighting for capital purposes and as collateral for interest rate derivative positions. At March 31, 2020 and December 31, 2019, U.S. Government securities consisted solely of U.S. Treasury securities.

Mortgage-backed securities: We invest in mortgage-backed securities insured or guaranteed by Freddie Mac or Fannie Mae. We have not purchased any privately-issued mortgage-backed securities. We invest in mortgage-backed securities to achieve a positive interest rate spread with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac or Fannie Mae.

Investments in mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities. We periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments. There is also reinvestment risk associated with the cash flows from such securities. In addition, the market value of such securities may be adversely affected by changes in interest rates.

State and municipal securities: We invest in fixed rate investment grade bonds issued primarily by municipalities in our local communities within Massachusetts and the Commonwealth of Massachusetts. The market value of these securities may be affected by call options, long dated maturities, general market liquidity and credit factors.

The Risk Management Committee of our Board of Directors is responsible for approving and overseeing our investment policy, which it reviews at least annually. This policy dictates that investment decisions be made based on the safety of the investment, liquidity requirements, potential returns and market risk considerations. We anticipate that the size of our investment portfolio will increase as a result of this offering, but that the risk profile of our portfolio characteristics will remain consistent subsequent to this offering.

Accounting guidance requires that debt and equity securities, at the time of purchase, are designated as held to maturity, available for sale, or trading, depending on our ability and intent for the respective security.

The following table shows the fair value of our securities by investment category as of the dates indicated:

Securities Portfolio Composition

 

     As of March 31,      As of December 31,  
     2020      2019      2018      2017  
    

(In thousands)

 

Available for sale securities:

           

Government-sponsored residential mortgage-backed securities

   $ 1,203,489      $ 1,167,968      $ 1,136,137      $ 1,167,444  

U.S. Treasury securities

     61,235        50,420        —          —    

State and municipal bonds and obligations

     278,954        283,538        313,716        331,380  

Other

     6,249        6,310        6,045        5,986  

Trading Securities:

           

Municipal bonds and obligations

     652        961        52,899        46,791  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,550,579      $ 1,509,197      $ 1,508,797      $ 1,551,601  
  

 

 

    

 

 

    

 

 

    

 

 

 

Our securities portfolio has remained relatively consistent. Available for sale securities increased $41.7 million, or 2.8%, to $1.55 billion at March 31, 2020 from $1.51 billion at December 31, 2019. Trading securities decreased $0.3 million, or 32.2%, to $0.7 million at March 31, 2020 from $1.0 million at December 31, 2019.