Eastern Bankshares Inc

Previous wording

This section is intended to assist in the understanding of the financial performance of the Company and its subsidiaries through a discussion of our financial condition at June 30, 2024, and our results of operations for the three and six months ended June 30, 2024 and 2023. This section should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto of the Company appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Company’s 2023 Form 10-K.

Current wording

This section is intended to assist in the understanding of the financial performance of the Company and its subsidiaries through a discussion of our financial condition at September 30, 2024, and our results of operations for the three and nine months ended September 30, 2024 and 2023. This section should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto of the Company appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Company’s 2023 Form 10-K.

Previous wording

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

Current wording

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words

Previous wording

•the possibility that future credit losses, loan defaults and charge-off rates are higher than expected due to changes in economic assumptions or adverse economic developments;

Current wording

•the possibility that future credit losses, loan defaults and charge-off rates are higher than expected due to changes in economic assumptions or adverse economic developments, including a reduction in demand for office space because of the prevalence of remote work practices;

Previous wording

•operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics, including COVID-19;

Current wording

•operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics, including a resurgence of COVID-19;

Previous wording

In September 2023, following the approval of the sale of our insurance agency business by our board of directors, we reclassified our insurance agency business as held for sale in connection with a planned disposition of the business. Accordingly, the Consolidated Statements of Income for the three and six months ended June 30, 2023 and Consolidated Statements of Cash flows for the six months ended June 30, 2023 present discontinued operations. For further discussion, refer to Note 15, “Discontinued Operations”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.

Current wording

In September 2023, following the approval of the sale of our insurance agency business by our board of directors, we reclassified our insurance agency business as held for sale in connection with a planned disposition of the business. Accordingly, the Consolidated Statements of Income for the three and nine months ended September 30, 2023 and Consolidated Statements of Cash flows for the nine months ended September 30, 2023 present discontinued operations. For further discussion, refer to Note 18, “Discontinued Operations”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.

Previous wording

There have been no other material changes in critical accounting policies during the three and six months ended June 30, 2024.

Current wording

There have been no other material changes in critical accounting policies during the three and nine months ended September 30, 2024.

Previous wording

We are a bank holding company, and our principal subsidiary, Eastern Bank, is 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 $21.0 billion and $21.1 billion at June 30, 2024 and December 31, 2023, respectively. We are subject to comprehensive regulation and examination by the Massachusetts Commissioner of Banks, the FDIC, the Federal Reserve Board and the Consumer Financial Protection Bureau. Our 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.

Current wording

We are a bank holding company, and our principal subsidiary, Eastern Bank, is 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 $25.5 billion and $21.1 billion at September 30, 2024 and December 31, 2023, respectively. We are subject to comprehensive regulation and examination by the Massachusetts Commissioner of Banks, the New Hampshire Banking Department, the FDIC, the Federal Reserve Board and the Consumer Financial Protection Bureau. Our 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 Cambridge Trust Wealth Management division. Previously, our wealth management and trust operations were conducted through Eastern Wealth Management. Following our merger with Cambridge Bancorp, described further below, the wealth management divisions of both banks now operate under the “Cambridge Trust Wealth Management, a division of Eastern Bank,” brand name.

Previous wording

On July 12, 2024, we consummated our previously announced merger with Cambridge Bancorp (“Cambridge”) and Cambridge Trust Company (“Cambridge Trust”). In accordance with the terms of the definitive merger agreement, through which we agreed to acquire Cambridge through a merger with the Company as the surviving entity, each share of Cambridge common stock was exchanged for 4.956 shares of our common stock. The transaction was intended to qualify as a tax-free reorganization for federal income tax purposes and provided Cambridge shareholders with a tax-free exchange of their shares of Cambridge common stock in exchange for our common stock as the consideration they received in the merger. We issued 38.9 million shares of our common stock in the exchange which resulted in a transaction value of approximately $580.6 million based upon the closing price of our common stock on July 12, 2024 of $14.87 per share.

Current wording

On July 12, 2024, we completed our previously announced merger with Cambridge Bancorp (“Cambridge”) and Cambridge Trust Company (“Cambridge Trust”). In accordance with the terms of the definitive merger agreement, through which we agreed to acquire Cambridge through a merger with the Company as the surviving entity, each share of Cambridge common stock was exchanged for 4.956 shares of our common stock. The transaction qualifies as a tax-free reorganization for federal income tax purposes and provided Cambridge shareholders with a tax-free exchange of their shares of Cambridge common stock in exchange for our common stock as the consideration they received in the merger. We issued 38.9 million shares of our common stock in the exchange which resulted in a transaction value of approximately $580.6 million based upon the closing price of our common stock on July 12, 2024 of $14.87 per share.

Previous wording

Cambridge, a Massachusetts corporation, was a federally registered bank holding company headquartered in Cambridge, Massachusetts. Cambridge Trust, a Massachusetts-chartered trust company formed in 1890, was a wholly-owned subsidiary of Cambridge that operated through a network of 19 full-service banking offices in eastern Massachusetts and New Hampshire with $5.3 billion in total assets and $3.9 billion in deposits as of July 12, 2024. Cambridge’s core services also included wealth management. Through its wealth management group, which had offices in Massachusetts and New Hampshire, it offered comprehensive investment management, as well as trust administration, estate settlement, and financial planning services. Cambridge had assets under management and administration of approximately $5.0 billion as of July 12, 2024.

Current wording

Cambridge, a Massachusetts corporation, was a federally registered bank holding company headquartered in Cambridge, Massachusetts. Cambridge Trust, a Massachusetts-chartered trust company formed in 1890, was a wholly-owned subsidiary of Cambridge that operated through a network of 18 full-service banking offices in eastern Massachusetts and New Hampshire with $5.3 billion in total assets and $3.9 billion in deposits as of July 12, 2024. Cambridge’s core services also included wealth management. Through its wealth management group, which had offices in Massachusetts and New Hampshire, it offered comprehensive investment management, as well as trust administration, estate settlement, and financial planning services. Cambridge had assets under management and administration of approximately $5.0 billion as of July 12, 2024. Cambridge Trust’s wholly owned subsidiary, Cambridge Trust Company of New Hampshire Inc. (“CTCNH”), offered trust services pursuant to New Hampshire law and was regulated by the New Hampshire Banking Department. CTCNH is now a subsidiary of Eastern Bank.

Previous wording

In recent years, we managed our business under two business segments: our banking business and our insurance agency business. On October 31, 2023, we sold substantially all of the assets and transferred certain liabilities of our insurance agency business. In the third quarter of 2023, following management’s decision to sell our insurance agency business, we reclassified the related assets and liabilities to assets and liabilities of discontinued operations, respectively, on our Consolidated Balance Sheets. Accordingly, the results of discontinued operations were reclassified to “net income from discontinued operations” on our Consolidated Statements of Income. For additional discussion of discontinued operations, refer to Note 15,

Current wording

In recent years, we managed our business under two business segments: our banking business and our insurance agency business. On October 31, 2023, we sold substantially all of the assets and transferred certain liabilities of our insurance agency business. In the third quarter of 2023, following management’s decision to sell our insurance agency business, we reclassified the related assets and liabilities to assets and liabilities of discontinued operations, respectively, on our Consolidated Balance Sheets. Accordingly, the results of discontinued operations were reclassified to “net income from discontinued operations” on our Consolidated Statements of Income. For additional discussion of discontinued operations, refer to Note 18, “Discontinued Operations” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q. The following discussion excludes amounts reported as discontinued operations.

Previous wording

Net income from continuing operations for the three and six months ended June 30, 2024 computed in accordance with GAAP was $26.3 million and $65.0 million, respectively, as compared to net income and net loss from continuing operations of $44.4 million and $157.7 million for the three and six months ended June 30, 2023, respectively, representing a decrease of 40.7% and an increase of 141.2%, respectively. The decrease in net income from continuing operations for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to lower net interest income for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and higher noninterest expense for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Refer to the later sections titled“Results of Operations”within this Item 2 for additional discussion. The increase in net income from continuing operations for the six months ended June 30, 2024 from a net loss from continuing operations for the six months ended June 30, 2023 was primarily due to the sale of available for sale securities at a loss in connection with our balance sheet repositioning completed in March 2023 which resulted in a net loss for the six months ended June 30, 2023. Refer to the later section titled“Results of Operations” within this Item 2 for additional discussion.

Current wording

Net loss and net income from continuing operations for the three and nine months ended September 30, 2024, respectively, computed in accordance with GAAP was $6.2 million and $58.8 million, respectively, as compared to net income and net loss from continuing operations of $63.5 million and $94.2 million for the three and nine months ended September 30, 2023, respectively, representing a decrease of 109.8% and an increase of 162.4%, respectively. The decrease in net income from continuing operations to a net loss for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to one-time expenses associated with our merger with Cambridge including the non-PCD loan “day-2” provision for the allowance for loan losses, which was recorded subsequent to the completion of the merger and is hereafter referred to as the “non-PCD loan “day-2” provision for the allowance for loan losses, and merger and acquisition expenses recorded during the three months ended September 30, 2024. Refer to the later sections titled“Results of Operations”within this Item 2 for additional discussion. The increase in net income from continuing operations for the nine months ended September 30, 2024 from a net loss from continuing operations for the nine months ended September 30, 2023 was primarily due to the sale of available for sale securities at a loss in connection with our balance sheet repositioning completed in March 2023 which resulted in a net loss for the nine months ended September 30, 2023 and was partially offset by the previously indicated one-time expenses associated with our merger with Cambridge including the non-PCD loan “day-2” provision for the allowance for loan losses and merger and acquisition expenses. Refer to the later section titled“Results of Operations” within this Item 2 for additional discussion.

Previous wording

Net income from continuing operations for the three and six months ended June 30, 2024 and net income and net loss from continuing operations for the three and six months ended June 30, 2023, respectively, included items that our management considers non-core, which management excludes for purposes of assessing our operating net income, a non-GAAP financial measure. Operating net income for the three and six months ended June 30, 2024 was $36.5 million and $74.6 million, respectively, compared to operating net income for the three and six months ended June 30, 2023 of $41.1 million and $94.2 million, respectively, representing decreases of 11.1% and 20.8%, respectively. These decreases were primarily due to lower net interest income and higher noninterest expense on an operating basis for both the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. See“Non-GAAP Financial Measures”and“Results of Operations” within this Item 2 for a reconciliation of operating net income to net income on a GAAP basis and further discussion of noninterest income and noninterest expense.

Current wording

Net loss and income from continuing operations for the three and nine months ended September 30, 2024 and net income and net loss from continuing operations for the three and nine months ended September 30, 2023, respectively, included items that our management considers non-core, which management excludes for purposes of assessing our operating net income, a non-GAAP financial measure. Operating net income for the three and nine months ended September 30, 2024 was $49.7 million and $124.3 million, respectively, compared to operating net income for the three and nine months ended September 30, 2023 of $52.1 million and $146.3 million, respectively, representing decreases of 4.6% and 15.1%, respectively. These decreases were primarily due to higher noninterest expense on an operating basis for both the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. See“Non-GAAP Financial Measures”and“Results of Operations” within this Item 2 for a reconciliation of operating net income to net income on a GAAP basis and further discussion of noninterest income and noninterest expense.

Previous wording

•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, facilitating equipment purchases and facilitating acquisitions. As of June 30, 2024 and December 31, 2023, we had total commercial and industrial loans of $3.1 billion and $3.0 billion, respectively, representing 21.9% and 21.8%, 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 SNC Program. As of June 30, 2024 and December 31, 2023, commercial and industrial loans in our SNC Program portfolio totaled $653.5 million and $606.2 million, respectively, or 21.2% and 20.1%, respectively, of our commercial and industrial portfolio, and 47.6% and 45.1%, respectively, of our commercial and industrial 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”) and industrial revenue bonds (“IRBs”), the balances of which are detailed below:

Current wording

•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, facilitating equipment purchases and facilitating acquisitions. As of September 30, 2024 and December 31, 2023, we had total commercial and industrial loans of $3.3 billion and $3.0 billion, respectively, representing 18.8% and 21.8%, 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 SNC Program. As of September 30, 2024 and December 31, 2023, commercial and industrial loans in our SNC Program portfolio totaled $673.7 million and $606.2 million, respectively, or 20.2% and 20.0%, respectively, of our commercial and industrial portfolio, and 51.3% and 45.1%, respectively, of our commercial and industrial 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”) and industrial revenue bonds (“IRBs”), the balances of which are detailed below:

Previous wording

◦As of June 30, 2024 and December 31, 2023, our ABL Portfolio totaled $195.2 million and $203.1 million, respectively, or 6.3% and 6.7%, respectively, of our commercial and industrial portfolio.

Current wording

◦As of September 30, 2024 and December 31, 2023, our ABL Portfolio totaled $201.8 million and $203.1 million, respectively, or 6.0% and 6.7%, respectively, of our commercial and industrial portfolio.

Previous wording

◦As of June 30, 2024 and December 31, 2023, our commercial and industrial IRB portfolio, which is comprised of municipal bonds issued to finance major capital projects, totaled $930.3 million and

Current wording

◦As of September 30, 2024 and December 31, 2023, our commercial and industrial IRB portfolio, which is comprised of municipal bonds issued to finance major capital projects, totaled $934.1 million and $934.5 million, respectively, or 28.0% and 30.8%, respectively, of our commercial and industrial portfolio.

Previous wording

•Commercial real estate: Loans in this category include mortgage loans and lines of credit on commercial real estate, both investment and owner occupied. Property types financed include office, industrial, multi-family, affordable housing, retail, hotel, and other type properties. As of June 30, 2024 and December 31, 2023, we had total commercial real estate loans of $5.4 billion and $5.5 billion, representing 38.6% and 39.1%, respectively, of our total loans as of each period end. As of June 30, 2024 and December 31, 2023, owner occupied loans totaled $0.9 billion and $1.0 billion, respectively, representing 17.2% and 18.2%, respectively, of our commercial real estate loans. 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. Our commercial real estate loan portfolio also includes loans included in our SNC Program portfolio described above. As of June 30, 2024 and December 31, 2023, commercial real estate loans in our SNC Program portfolio totaled $92.0 million and $86.3 million, respectively, or 1.7% and 1.6%, respectively, of our commercial real estate loan portfolio. As of June 30, 2024 and December 31, 2023, 93.5% and 100.0%, respectively, of our commercial real estate SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial real estate loan portfolio also included IRB loans of $598.3 million and $591.0 million as of June 30, 2024 and December 31, 2023, respectively, representing 11.0% and 10.8%, respectively, of our commercial real estate portfolio.

Current wording

•Commercial real estate: Loans in this category include mortgage loans and lines of credit on commercial real estate, both investment and owner occupied. Property types financed include office, industrial, multi-family, affordable housing, retail, hotel, and other type properties. As of September 30, 2024 and December 31, 2023, we had total commercial real estate loans of $7.2 billion and $5.5 billion, representing 40.4% and 39.1%, respectively, of our total loans as of each period end. As of both September 30, 2024 and December 31, 2023, owner occupied loans totaled $1.0 billion, representing 13.8% and 18.2%, respectively, of our commercial real estate loans. 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. Our commercial real estate loan portfolio also includes loans included in our SNC Program portfolio described above. As of September 30, 2024 and December 31, 2023, commercial real estate loans in our SNC Program portfolio totaled $113.1 million and $86.3 million, respectively, or 1.6% of our commercial real estate loan portfolio at each period end. As of September 30, 2024 and December 31, 2023, 76.1% and 100.0%, respectively, of our commercial real estate SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial real estate loan portfolio also included IRB loans of $643.9 million and $591.0 million as of September 30, 2024 and December 31, 2023, respectively, representing 9.0% and 10.8%, respectively, of our commercial real estate portfolio.

Previous wording

•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. As of June 30, 2024 and December 31, 2023, we had total commercial construction loans of $447.2 million and $387.0 million, respectively, representing 3.2% and 2.8%, respectively, of our total loans. Our commercial construction loan portfolio also includes loans included in our SNC Program portfolio described above. As of June 30, 2024 and December 31, 2023, commercial construction loans in our SNC Program portfolio totaled $37.6 million and $10.2 million, respectively, or 8.4% and 2.6% respectively, of our commercial construction loan portfolio. As of both June 30, 2024 and December 31, 2023, 100.0% of our commercial construction SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial construction loan portfolio also included IRB loans of $101.1 million and $63.8 million as of June 30, 2024 and December 31, 2023, respectively, representing 22.6% and 16.5% respectively, of our commercial construction portfolio.

Current wording

•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. As of September 30, 2024 and December 31, 2023, we had total commercial construction loans of $513.5 million and $387.0 million, respectively, representing 2.9% and 2.8%, respectively, of our total loans. Our commercial construction loan portfolio also includes loans included in our SNC Program portfolio described above. As of September 30, 2024 and December 31, 2023, commercial construction loans in our SNC Program portfolio totaled $39.9 million and $10.2 million, respectively, or 7.8% and 2.6% respectively, of our commercial construction loan portfolio. As of both September 30, 2024 and December 31, 2023, 100.0% of our commercial construction SNC Program portfolio were loans to borrowers headquartered in our primary lending market. Our commercial construction loan portfolio also included IRB loans of $114.0 million and $63.8 million as of September 30, 2024 and December 31, 2023, respectively, representing 22.2% and 16.5% respectively, of our commercial construction portfolio.

Previous wording

•Business banking: Loans in this category are comprised of loans to small businesses with exposures of under $1.0 million and small investment real estate projects with exposures of under $3.0 million. These loans 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 both June 30, 2024 and December 31, 2023, we had total business banking loans of $1.1 billion, representing 7.9% and 7.8% of our total loans for each period end, respectively. In this category, commercial and industrial loans and commercial real estate loans totaled $204.8 million and $903.4 million, respectively, as of June 30, 2024, and $186.9 million and $898.9 million, respectively, as of December 31, 2023.

Current wording

•Business banking: Loans in this category are comprised of loans to small businesses with exposures of under $1.0 million and small investment real estate projects with exposures of under $3.0 million. These loans 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 September 30, 2024 and December 31, 2023, we had total business banking loans of $1.3 billion and $1.1 billion, respectively, representing 7.4% and 7.8% of our total loans for each period end, respectively. In this category, commercial and industrial loans and commercial real estate loans totaled $239.4 million and $1.1 billion, respectively, as of September 30, 2024, and $186.9 million and $898.9 million, respectively, as of December 31, 2023.

Previous wording

•Residential real estate: Loans in this category consist of mortgage loans on residential real estate. As of both June 30, 2024 and December 31, 2023, we had total residential real estate loans of $2.6 billion, representing 18.2% and 18.4%, 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 scores 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 real estate loans are originated either for sale to investors or to retain in our loan portfolio. Decisions about whether to sell or retain residential real estate 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 and six months ended June 30, 2024, residential real estate mortgage loan originations were $89.3 million and $127.6 million, respectively, of which $14.8 million and $34.7 million, respectively, were sold on the secondary markets. Comparatively, during the three and six months ended June 30, 2023, residential real estate mortgage loan originations were $80.5 million and $137.7 million, respectively, of which $12.8 million and $21.8 million, respectively, were sold on the secondary markets.

Current wording

•Residential real estate: Loans in this category consist of mortgage loans on residential real estate. As of September 30, 2024 and December 31, 2023, we had total residential real estate loans of $4.1 billion and $2.6 billion, respectively, representing 23.0% and 18.4%, 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 scores 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 real estate loans are originated either for sale to investors or to retain in our loan portfolio. Decisions about whether to sell or retain residential real estate 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 and nine months ended September 30, 2024, residential real estate mortgage loan originations were $117.3 million and $244.9 million, respectively, of which $30.9 million and $65.7 million, respectively, were sold on the secondary markets. Comparatively, during the three and nine months ended September 30, 2023, residential real estate mortgage loan originations were $115.3 million and $253.0 million, respectively, of which $14.7 million and $36.6 million, respectively, were sold on the secondary markets.

Previous wording

•Consumer home equity: Loans in this category consist of home equity lines of credit and home equity loans. As of June 30, 2024 and December 31, 2023, we had total consumer home equity loans of $1.3 billion and $1.2 billion, respectively, representing 8.9% and 8.7%, respectively, of our total loans. Home equity lines of credit are granted for ten years with monthly interest-only repayment requirements. Full principal repayment is required at the end of the ten-year draw period. Home equity lines of credit can be converted to term loans that are fully amortized. Underwriting considerations are materially consistent with those utilized in the residential real estate category. Collateral consists of a senior or subordinate lien on owner-occupied residential property.

Current wording

•Consumer home equity: Loans in this category consist of home equity lines of credit and home equity loans. As of September 30, 2024 and December 31, 2023, we had total consumer home equity loans of $1.4 billion and $1.2 billion, respectively, representing 7.7% and 8.7%, respectively, of our total loans. Home equity lines of credit are granted for ten years with monthly interest-only repayment requirements. Full principal repayment is required at the end of the ten-year draw period. Home equity lines of credit can be converted to term loans that are fully amortized. Underwriting considerations are materially consistent with those utilized in the residential real estate category. Collateral consists of a senior or subordinate lien on owner-occupied residential property.

Previous wording

•Other consumer: Loans in this category consist of unsecured personal lines of credit, overdraft protection, automobile and aircraft loans, home improvement loans and other personal loans. As of June 30, 2024 and December 31, 2023, we had total other consumer loans of $248.7 million and $235.5 million, respectively, representing 1.8% and 1.7%, 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.

Current wording

•Other consumer: Loans in this category consist of unsecured personal lines of credit, overdraft protection, automobile and aircraft loans, home improvement loans and other personal loans. As of September 30, 2024 and December 31, 2023, we had total other consumer loans of $271.8 million and $235.5 million, respectively, representing 1.5% and 1.7%, 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.

Previous wording

•We offer a wide variety of deposit products and services to our consumer customers. We service these customers through our 97 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.

Current wording

•We offer a wide variety of deposit products and services to our consumer customers. We service these customers through our 109 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.

Previous wording

•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 June 30, 2024 and December 31, 2023, we held $3.5 billion and $3.3 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 Quarterly Report on Form 10-Q. For the three and six months ended June 30, 2024, we had noninterest income of $6.7 million and $13.3 million, respectively, from providing these services compared to $6.1 million and $11.9 million for the three and six months ended June 30, 2023, respectively.

Current wording

•Through our Cambridge Trust 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 September 30, 2024 and December 31, 2023, we held $8.7 billion and $3.3 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 Quarterly Report on Form 10-Q. For the three and nine months ended September 30, 2024, we had noninterest income of $14.9 million and $28.2 million, respectively, from providing these services compared to $6.2 million and $18.1 million for the three and nine months ended September 30, 2023, respectively.

Previous wording

Beginning in March 2022, the Federal Open Market Committee (“FOMC”) voted to increase the federal funds rate multiple times from a range of 0.00% to 0.25% to a range of 5.25% to 5.50% on July 26, 2023, when the FOMC stated that it will continue to assess additional information and its implications for monetary policy. At its most recent meeting on July 31, 2024, the FOMC decided to maintain the target range for the federal funds rate at the range set at its July 26, 2023 meeting. The FOMC indicated, in consideration of adjustments to the target range for the federal funds rate, it will carefully assess incoming data, the evolving outlook, and the balance of risks. Further, it indicated that it does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward its long-term target of 2%.

Current wording

Beginning in March 2022, the Federal Open Market Committee (“FOMC”) voted to increase the federal funds rate multiple times from a range of 0.00% to 0.25% to a range of 5.25% to 5.50% on July 26, 2023, when the FOMC stated that it will continue to assess additional information and its implications for monetary policy. At its meeting on September 18, 2024, the FOMC decided to lower the target range for the federal funds rate by 50 basis points from the range set at its July 26, 2023 meeting to a range of 4.75% to 5.00%. At its most recent meeting on November 7, 2024, the FOMC again decided to lower the target range for the federal funds rate by 25 basis points from the range set at its September 18, 2024 meeting to a range of 4.50% to 4.75% and indicated, in considering additional adjustments to the target range for the federal funds rate, it will carefully assess incoming data, the evolving outlook, and the balance of risks. The FOMC further indicated it is strongly committed to supporting maximum employment and reducing the annual inflation rate to its 2 percent objective.

Previous wording

Inevitably, not all of our interest rate-sensitive assets and liabilities will re-price simultaneously and in equal volume in response to changes in the federal funds rate, and therefore the potential for interest rate exposure exists. Management believes that several factors will affect the actual impact of interest rate changes on our balance sheet and operating results, including, but not limited to, actual changes in interest rates or expectations of future changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve. We attempt to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging our exposure. Approximately 36% of the outstanding principal balance of our loans, gross of outstanding interest rate swaps as described further below, as of June 30, 2024 was indexed to a market rate that is expected to reprice with similar magnitude and direction as the federal funds rate. A portion of these loans have been hedged using interest rate swaps to convert the floating rate interest receipts to a fixed rate. The notional amount of floating rate loans swapped totaled $2.4 billion on June 30, 2024, representing approximately 17.0% of the outstanding principal balance of our loans at that date. For more detail regarding such hedging financial instruments, refer to Note 10, “Derivative Financial Instruments”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q. Refer to the section titled“Management of Market Risk” within this Item 2 for additional discussion including the estimated change to our net interest income under interest rate risk measurement methodologies that use a variety of hypothetical scenarios assuming immediate and parallel changes in interest rates that may not reflect the manner in which actual yields and costs respond to changes in market interest rates.

Current wording

Inevitably, not all of our interest rate-sensitive assets and liabilities will re-price simultaneously and in equal volume in response to changes in the federal funds rate, and therefore the potential for interest rate exposure exists. Management believes that several factors will affect the actual impact of interest rate changes on our balance sheet and operating results, including, but not limited to, actual changes in interest rates or expectations of future changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve. We attempt to manage interest rate risk by identifying, quantifying, and, where appropriate, hedging our exposure. Approximately 33% of the outstanding principal balance of our loans, gross of outstanding interest rate swaps as described further below, as of September 30, 2024 was indexed to a market rate that is expected to reprice with similar magnitude and direction as the federal funds rate. A portion of these loans have been hedged using interest rate swaps to convert the floating rate interest receipts to a fixed rate. The notional amount of floating rate loans swapped totaled $2.4 billion on September 30, 2024, representing approximately 13.3% of the outstanding principal balance of our loans at that date. For more detail regarding such hedging financial instruments, refer to Note 13, “Derivative Financial Instruments”within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q. Refer to the section titled“Management of Market Risk” within this Item 2 for additional discussion including the estimated change to our net interest income under interest rate risk measurement methodologies that use a variety of hypothetical scenarios assuming immediate and parallel changes in interest rates that may not reflect the manner in which actual yields and costs respond to changes in market interest rates.

Previous wording

We present certain non-GAAP financial measures, which management uses to evaluate our performance, and which exclude the effects of certain transactions, non-cash items and GAAP adjustments that we believe are unrelated to our core business and are therefore not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into our core business as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding GAAP financial measures. Except as otherwise indicated, the information presented for the three and six months ended June 30, 2023 within this section excludes discontinued operations. Refer to Note 15, “Discontinued Operations” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q for further discussion regarding discontinued operations.

Current wording

We present certain non-GAAP financial measures, which management uses to evaluate our performance, and which exclude the effects of certain transactions, non-cash items and GAAP adjustments that we believe are unrelated to our core business and are therefore not necessarily indicative of our current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into our core business as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding GAAP financial measures. Except as otherwise indicated, the information presented for the three and nine months ended September 30, 2023 within this section excludes discontinued operations. Refer to Note 18, “Discontinued Operations” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q for further discussion regarding discontinued operations.

Previous wording

There are items in our financial statements that impact our results but which we believe are unrelated to our core business. Accordingly, we present operating net income, noninterest income on an operating basis, noninterest expense on an operating basis, total operating revenue, operating earnings per share, operating net income to average tangible shareholders’ equity, tangible book value per share, and the operating efficiency ratio, each of which excludes the impact of such items because we believe such exclusion can provide greater visibility into our core business and underlying trends. Such items that 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 benefits expense, (v) impairment charges on tax credit investments and associated tax credit benefits, (vi) OREO gains and losses, (vii) merger and acquisition expenses, and (viii) certain discrete tax items. There were no expenses indirectly associated with OREO gains or losses, or impairment charges on tax credit investments and associated tax credit benefits during the periods presented in this Quarterly Report on Form 10-Q.

Current wording

There are items in our financial statements that impact our results but which we believe are unrelated to our core business. Accordingly, we present operating net income, noninterest income on an operating basis, noninterest expense on an operating basis, total operating revenue, operating earnings per share, tangible net income to average tangible shareholders’ equity, tangible operating net income to average tangible shareholders' equity, tangible book value per share, and the operating efficiency ratio, each of which excludes the impact of such items because we believe such exclusion can provide greater visibility into our core business and underlying trends. Such items that 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 benefits expense, (v) impairment charges on tax credit investments and associated tax credit benefits, (vi) OREO gains and losses, (vii) merger and acquisition expenses, including the “day-2” provision for allowance for loan losses for non-PCD acquired loans, and (viii) certain discrete tax items. There were no expenses indirectly associated with OREO gains or losses, or impairment charges on tax credit investments and associated tax credit benefits during the periods presented in this Quarterly Report on Form 10-Q.

Previous wording

We also present tangible shareholders’ equity, tangible assets, the ratio of tangible shareholders’ equity to tangible assets, average tangible shareholders’ equity, the ratios of net income (loss) from continuing operations and operating net income to average tangible shareholders’ equity and tangible book value per share, each of which excludes the impact of goodwill and other intangible assets, as we believe these financial measures provide investors with 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 the 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.

Current wording

We also present tangible shareholders’ equity, tangible assets, the ratio of tangible shareholders’ equity to tangible assets, average tangible shareholders’ equity, the ratios of tangible net (loss) income from continuing operations and tangible operating net income to average tangible shareholders’ equity and tangible book value per share, each of which excludes the impact of goodwill and other intangible assets, as we believe these financial measures provide investors with 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 the 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.

Previous wording

Our non-GAAP financial measures should not be considered as an alternative or substitute to GAAP net income (loss), or as 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 non-core and exclude when computing these non-GAAP financial measures can be of substantial importance to our results for any particular period. In addition, our methodology for calculating non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar performance measures and, accordingly, our reported non-GAAP financial measures may not be comparable to the same or similar performance measures reported by other companies.

Current wording

Our non-GAAP financial measures should not be considered as an alternative or substitute to GAAP net (loss) income, or as 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 non-core and exclude when computing these non-GAAP financial measures can be of substantial importance to our results for any particular period. In addition, our methodology for calculating non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar performance measures and, accordingly, our reported non-GAAP financial measures may not be comparable to the same or similar performance measures reported by other companies.

Previous wording

(1)The net tax benefit associated with these items is generally 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. The net tax benefit for the three months ended June 30, 2023 was primarily the net effect of changes in management’s estimate of the Company’s annual taxable income. The net tax benefit amount for the six months ended June 30, 2023 primarily resulted from the sale of securities classified as available for sale in the first quarter of 2023 and a $23.7 million tax benefit resulting from the transfer of certain securities from Market Street Securities Corp(“MSSC”), a wholly owned subsidiary which was liquidated during the first quarter of 2023, to Eastern Bank. In addition, upon the sale of securities in the first quarter of 2023, we established a valuation allowance of $17.4 million, which is included in the net tax benefit amount, as it was determined at that time that it was not more-likely-than-not that the entirety of the deferred tax asset related to the loss on such securities would be realized.

Current wording

(1)The net tax benefit associated with these items is generally 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. The net tax benefit amount for the nine months ended September 30, 2023 primarily resulted from the sale of securities classified as available for sale in the first quarter of 2023 and a $23.7 million tax benefit resulting from the transfer of certain securities from Market Street Securities Corp(“MSSC”), a wholly owned subsidiary which was liquidated during the first quarter of 2023, to Eastern Bank, and the net effect of establishing a valuation allowance and the subsequent reversal of the federal portion of such valuation allowance. Upon the sale of securities in the first quarter of 2023, we established a valuation allowance of $17.4 million, which is included in the net tax benefit amount, as it was determined at that time that it was not more-likely-than-not that the entirety of the deferred tax asset related to the loss on such securities would be realized. Following the execution of the agreement to sell our insurance agency business in September 2023 and our estimate of the resulting capital gain, we reversed the associated federal valuation allowance previously established as we had determined it was more-likely-than-not that the entirety of the federal deferred tax asset related to the loss on such securities would be realized. The net tax benefit for the three months ended September 30, 2023 was primarily due to the reversal of the remainder of the federal portion of the valuation allowance described above and a net tax benefit associated with a change in management’s estimate of annual pre-tax loss for purposes of determining our quarterly income tax provision.

Previous wording

The following table summarizes the impact of non-core items with respect to our total revenue (loss), noninterest income (loss), noninterest expense, and the efficiency ratio, which reconciles to the most directly comparable respective GAAP financial measure, for the periods indicated:

Current wording

The following table summarizes the impact of non-core items with respect to our total revenue, noninterest income (loss), noninterest expense, and the efficiency ratio, which reconciles to the most directly comparable respective GAAP financial measure, for the periods indicated:

Previous wording

The following table summarizes the calculation of our average tangible shareholders’ equity and ratio of net income (loss) from continuing operations and operating net income to average tangible shareholders’ equity (“operating return on average tangible shareholders’ equity”), which reconciles to the most directly comparable GAAP measure, for the periods indicated:

Current wording

The following table summarizes the calculation of our average tangible shareholders’ equity and ratio of net (loss) income from continuing operations and operating net income to average tangible shareholders’ equity (“operating return on average tangible shareholders’ equity”), which reconciles to the most directly comparable GAAP measure, for the periods indicated:

Previous wording

(1)Refer to the table above within this “Non-GAAP Financial Measures” section for a reconciliation of operating net income to net income (loss) from continuing operations.

Current wording

(1)Refer to the table above within this “Non-GAAP Financial Measures” section for a reconciliation of operating net income to net (loss) income from continuing operations.

Previous wording

(2)Includes goodwill and other intangibles included in assets of discontinued operations within the Company’s Consolidated Balance Sheets for the three and six months ended June 30, 2023.

Current wording

(2)Includes goodwill and other intangibles included in assets of discontinued operations within the Company’s Consolidated Balance Sheets for the three and nine months ended September 30, 2023.

Previous wording

Total cash and cash equivalents increased by $57.8 million, or 8.3%, to $750.8 million at June 30, 2024 from $693.1 million at December 31, 2023. This increase was primarily due to proceeds from maturities and principal paydowns of AFS and HTM securities of $186.8 million and proceeds from the sale of AFS securities of $85.2 million. Partially offsetting this increase was an increase in gross loans of $172.1 million during the six months ended June 30, 2024 and a net decrease in deposits of $58.4 million during the six months ended June 30, 2024. For further discussion of the change in securities, deposits, and loans, refer to the later“Securities,” “Loans,” and “Deposits,” sections in this Item 2.

Current wording

Total cash and cash equivalents increased by $196.4 million, or 28.3%, to $889.5 million at September 30, 2024 from $693.1 million at December 31, 2023. This increase was primarily due to proceeds from the sale of AFS securities of $955.3 million and proceeds from maturities and principal paydowns of AFS and HTM securities of $305.5 million. Partially offsetting these increases were net repayments of FHLB advances of $763.0 million, which includes repayment of advances assumed in connection with our merger with Cambridge, a net decrease in deposits, excluding deposits acquired from Cambridge, of $253.1 million, and a net increase in gross loans, excluding loans acquired from Cambridge, of $156.0 million during the nine months ended September 30, 2024. For further discussion of the change in securities, deposits, and loans, refer to the later“Securities,” “Borrowings,” “Deposits,” “Loans,” and “Deposits,” sections in this Item 2. For further information regarding our merger with Cambridge, refer to Note 3, “Mergers and Acquisitions” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q.

Previous wording

Our securities portfolio decreased $0.3 billion, or 6.6%, to $4.5 billion at June 30, 2024 from $4.9 billion at December 31, 2023. This decrease was primarily due to maturities and principal paydowns of AFS and HTM securities of $186.8 million and sales of AFS securities of $85.2 million.

Current wording

Our securities portfolio decreased $0.3 billion, or 5.5%, to $4.6 billion at September 30, 2024 from $4.9 billion at December 31, 2023. This decrease was primarily due to maturities and principal paydowns of AFS and HTM securities of $305.5 million and sales of AFS securities of $955.3 million. Included in this activity are principal paydowns and proceeds from the sale of securities acquired in connection with our merger with Cambridge of $883.0 million, representing all of the securities acquired at fair value. All acquired securities paid down or were sold immediately following the completion of the merger. No gain or loss was recognized upon the sale as the securities were marked to fair value in connection with our purchase accounting based upon quoted sale prices.

Previous wording

A portion of our securities portfolio continues to be tax-exempt. Investments in federally tax-exempt securities totaled $183.4 million at June 30, 2024 compared to $191.1 million at December 31, 2023.

Current wording

A portion of our securities portfolio continues to be tax-exempt. Investments in federally tax-exempt securities totaled $190.6 million at September 30, 2024 compared to $191.1 million at December 31, 2023.

Previous wording

We consider our loan portfolio to be relatively diversified by borrower and industry. Our gross loans increased $172.1 million, or 1.2%, to $14.1 billion at June 30, 2024 from $14.0 billion at December 31, 2023. The increase was primarily due to increases in our commercial construction and commercial and industrial portfolio balances.

Current wording

We consider our loan portfolio to be relatively diversified by borrower and industry. Our gross loans increased $4.1 billion, or 29.3%, to $18.1 billion at September 30, 2024 from $14.0 billion at December 31, 2023. The increase was primarily due to loans acquired in connection with our merger with Cambridge. Refer to Note 3, “Mergers and Acquisitions” within the Notes to the Unaudited Consolidated Financial Statements included in Part I, Item 1 in this Quarterly Report on Form 10-Q for additional discussion. Excluding the addition of acquired loans, our gross loans increased $156.0 million, or 1.1%, which was primarily attributable to increased balances of business banking and consumer home equity loans.

Previous wording

We believe that our commercial loan portfolio composition is relatively diversified in terms of industry sectors, property types and various lending specialties, and it is concentrated in the New England geographical area, with 82.8% of our commercial loans in Massachusetts and New Hampshire as of June 30, 2024.

Current wording

We believe that our commercial loan portfolio composition is relatively diversified in terms of industry sectors, property types and various lending specialties, and it is concentrated in the New England geographical area, with 84.0% of our commercial loans in Massachusetts and New Hampshire as of September 30, 2024.

Previous wording

Special mention, substandard and doubtful loans totaled 6.4% and 4.1% of total commercial loans outstanding at June 30, 2024 and December 31, 2023, respectively. This increase was driven by several risk rating downgrades of loans in the commercial real estate and commercial and industrial portfolios.

Current wording

Special mention, substandard and doubtful loans totaled 6.8% and 4.1% of total commercial loans outstanding at September 30, 2024 and December 31, 2023, respectively. This increase was driven by several risk rating downgrades of loans in the commercial real estate and commercial and industrial portfolios.