Eastern Bankshares Inc
For the period ended Dec 31, 2024. Filed Feb 27, 2025.
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FY2024 · Filed Feb 27, 2025
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Financial Statements
To the Shareholders and the Board of Directors of Eastern Bankshares, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Eastern Bankshares, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Allowance for loan losses | |
| Description of the Matter | The Company’s loan portfolio totaled $18.1 billion as of December 31, 2024. As of December 31, 2024, management established an allowance for loan losses of $229 million. As described in Note 2 and Note 5 to the consolidated financial statements, the Company uses its allowance methodology to systematically estimate the amount of expected lifetime losses in the loan portfolio. Expected lifetime losses are estimated on a collective basis for loans sharing similar risk characteristics and are determined using a quantitative model based on management’s determination of a loan’s probability of default, loss given default and exposure at default, which are derived from the Company’s historical losses, industry loss experience and other factors, adjusted for economic forecasts. The quantitative model is combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. Additionally, the Company estimates an allowance for loan losses on an individual basis for loans that do not share similar risk characteristics, based on discounted cash flows or fair value of collateral.Auditing the Company’s allowance for loan losses was complex due to the quantitative modeling used, the subjective judgment involved to evaluate management’s assessment of qualitative factors in determining adjustments to the quantitative model output, and the subjective judgment involved to evaluate management’s individual allowance assessments. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s allowance for loan losses process, which included, among others, controls over the appropriateness of the methodology, the development, operation and monitoring of the quantitative model, management’s review of the qualitative adjustments to the quantitative model output and overall model result, and individual allowance assessments.We tested management’s quantitative model including, among other procedures, evaluating the model validation procedures performed over conceptual soundness of model methodology, and with the assistance EY Specialists, we tested management’s quantitative model including an evaluation of the model validation procedures performed over conceptual soundness of model methodology, assessed model governance policies and procedures, and assessed the conceptual soundness of the Company’s qualitative factor framework utilized in determining the overall allowance for loan losses.To test the qualitative risk factors, among other procedures, we assessed management’s methodology and considered whether relevant risks were reflected in the models and whether adjustments to the model output were appropriate. We tested the completeness, accuracy and relevance of the underlying data used to estimate the qualitative adjustments. We evaluated whether qualitative adjustments were reasonable based on changes in key model data, market conditions, the credit quality and composition of the loan portfolio, and the economic forecast. We tested whether management’s final qualitative factor weighting was consistent with the external and internal evidence obtained. We performed an independent test over the existence of potential new or contrary information relating to risks impacting the qualitative adjustments to validate that management’s considerations were appropriate. Additionally, we performed an analysis examining quarter-over-quarter changes to the Company’s qualitative factor adjustments to test reasonableness and timing of changes to the Company’s qualitative factors. To test the allowance on loans individually assessed for impairment among other procedures, on a sample basis we assessed credit risk-rating assignments, evaluated the fair value of collateral, and involved EY specialists to evaluate assumptions and fair value of certain collateral. |
| Fair Value of Acquired Loans and Core Deposit Intangible Recognized as Part of the Cambridge Bancorp, Inc. Merger | |
| Description of the Matter | As described in Note 3 to the consolidated financial statements, the Company acquired Cambridge Bancorp, Inc. (Cambridge) on July 12, 2024. The transaction has been accounted for as a business combination and accordingly, the assets acquired and liabilities assumed from Cambridge were recorded at fair value as of the merger date. The fair value of loans acquired from Cambridge was approximately $3.65 billion as of July 12, 2024. As disclosed by the Company, the fair value of acquired loans was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. Additionally, the Company recognized a core deposit intangible asset of approximately $115 million as of July 12, 2024. The fair value of the core deposit intangible asset was determined based on projected cash flows, discounted at a rate commensurate with market participants.Auditing the Company’s estimates of the fair value of acquired loans and core deposit intangible asset was complex due to the judgment required by management in determining the discount rates and prepayment rates used in the discounted cash flow methodology for the fair value of acquired loans and the discount rate, projected deposit attrition rates, deposit account servicing costs, and the cost of alternate funding sources assumptions for the fair value of the core deposit intangible asset. This required a high degree of auditor judgment and effort in performing procedures and evaluating audit evidence obtained related to the judgments made by management, and required the use of professionals with specialized skill and knowledge. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process for estimating the acquired loans and core deposit intangible asset fair values, including management’s controls over completeness and accuracy of key inputs and assumptions used in the discounted cash flow methodology, including loan and deposit data.To test the estimated fair value of acquired loans, our audit procedures included, among others, involving EY specialists to assist us in testing management’s methodology and significant assumptions used in measuring the fair value of the acquired loan portfolio. We involved our specialists to test, on a sample basis, the determination and application of discount rates and prepayment rates by comparing management’s selected assumptions to independently developed ranges based on third party market data. We tested, on a sample basis, completeness and accuracy of the underlying loan data provided by management that was used in the fair value calculation. On a sample basis, we performed independent comparative calculations of the fair value adjustment to the acquired loans.To test the estimated fair value of the core deposit intangible asset, our audit procedures included, among others, involving EY specialists to assist us in testing management’s methodology and significant assumptions used in measuring the fair value of the core deposit intangible. We involved our specialists to test the determination and application of discount rate, projected deposit attrition rates, deposit account servicing costs, and cost of alternate funding sources assumptions by comparing management’s selected assumptions to independently developed ranges based on third party market data. Additionally, we tested completeness and accuracy of the underlying deposit data provided by management that was used in the fair value calculation. Lastly, we performed an independent comparative calculation of the core deposit intangible asset fair value. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Boston, Massachusetts
February 27, 2025
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