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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.
−Removed: 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.
+Added: These risks include, but are not limited to, credit risk, market risks, liquidity risks, interest rate 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 Annual Report on Form 10-K.
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You should consider this summary together with the more detailed information provided below.
−Removed: The COVID-19 pandemic’s impact on businesses and consumers in our market area has had, and we expect will continue to have, a material adverse effect on our business, financial condition, results of operations and cash flows.
−Removed: • Since March 2020, when the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, to be a global pandemic, the COVID-19 pandemic, as well as governmental and private sector responses to it, have had a severe impact in our markets, causing, among other things:
−Removed: ◦ closures of many businesses, leading to loss of revenues and, from time to time, above average unemployment, and
−Removed: ◦ the imposition of governmental orders initially requiring non-essential businesses to close their facilities and later limiting the number of customers and other personnel permitted on their premises.
−Removed: • The duration and severity of the COVID-19 pandemic through 2022 and possibly beyond, including the potential for resurgences from time to time, as well as the pace of vaccination and testing programs both within and outside of our market area, and the efficacy of any vaccine against new variants of coronavirus are impossible to predict.
−Removed: • The continuation of the COVID-19 pandemic in 2022 may result in adverse economic conditions in our market that could have a significant adverse effect in 2022 on our business, financial condition, results of operations and cash flows, including by:
+Added: The COVID-19 pandemic’s impact on businesses and consumers in our market area has had, and we may continue to have, a material adverse effect on our business, financial condition, results of operations and cash flows.
+Added: • Since March 2020, the COVID-19 pandemic, as well as governmental and private sector responses to it, have had a severe impact in our markets.
+Added: The impact and severity of subsequent strains of COVID-19 on the economy and our business are impossible to predict.
+Added: • The continuation of the COVID-19 pandemic may continue to result in adverse economic conditions in our market that could have a significant adverse effect on our business, financial condition, results of operations and cash flows, including by:
◦ reducing demand for products and services from our customers, and
◦ causing greater than average recognition of credit losses and increases in our allowance for loan losses, especially if our business customers continue to experience reduced demand for their products and services
−Removed: • Our commercial and small business borrowers operating businesses such as hotels, inns, restaurants and retail stores that depend primarily upon customers patronizing their businesses in person have experienced the most significant adverse effects of the COVID-19 pandemic, and we expect these effects to persist for some or all of 2022.
−Removed: See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K for detail on the Company’s lending exposure to industries which management believes have experienced the most adverse effects of the COVID-19 pandemic.
−Removed: • The increase in remote and hybrid work arrangements, if continued, could ultimately result in reduced demand for office space in our market, and such reduction in demand could adversely affect both the value of the collateral securing some of our commercial real estate loans and the demand by developers and other borrowers for new commercial real estate loans.
−Removed: • Some negative effects of the COVID-19 pandemic, including the recognition of charge-offs, may be delayed because of the impact of prior and potential future government stimulus actions or payment assistance provided to clients and customers.
+Added: • Our commercial and small business borrowers operating businesses such as hotels, inns, restaurants and retail stores that depend primarily upon customers patronizing their businesses in person were adversely impacted by the effects of the COVID-19 pandemic, and we expect some of these effects to persist into 2023.
+Added: • The increase in remote and hybrid work arrangements has resulted and could continue to result in reduced demand for office space in our market, and such reduction in demand has adversely affected and could continue to adversely affect both the value of the collateral securing some of our commercial real estate loans and the demand by developers and other borrowers for new commercial real estate loans.
• 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 pandemic continues to be erratic.
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• We operate in a competitive market and may be unable to successfully identify acquisition opportunities or compete for attractive acquisition targets.
−Removed: • We may be unsuccessful in realizing the expected benefits of an acquired business, including failure to retain key employees or customers, incurrence of unexpected difficulty or expense in integrating operations, technologies or customers, assumption of significant (and potentially unknown) liabilities, and inexperience with the products and/or geographies offered by the acquired business, all of which could divert our management’s attention away from other business concerns and/or negatively impact our financial results.
+Added: • We may be unsuccessful in realizing the expected benefits of an acquired business, including failure to retain key employees or customers, incurrence of unexpected difficulty or expense in integrating operations, technologies or customers, assumption of significant (and potentially unknown) liabilities, and inexperience with the products
+Added: and/or geographies offered by the acquired business, all of which could divert our management’s attention away from other business concerns and/or negatively impact our financial results.
Various risks, including risks associated with changes in interest rates, loan losses, cybersecurity and regulatory compliance, are inherent in our business and our industry generally.
−Removed: • Changes in interest rates can have a material effect on many areas of our business, including on our net interest income, deposit costs, and loan volume and delinquency, and may have an adverse effect on our profitability.
−Removed: The Federal Open Market Committee’s decision to maintain the target range for the federal funds rate between 0.0% and 0.25% for an extended period of time to help mitigate the effects of the COVID-19 pandemic has had and may continue to have an adverse effect on our operating results.
−Removed: Any decision by the Federal Open Market Committee in 2022 to increase the federal funds rate could subsequently be modified or reversed depending on future changes in the U.S.
+Added: • Recent and anticipated future increases in interest rates have had and will likely continue to have a material effect on many areas of our business, including on our net interest income, deposit costs, and loan volume and delinquency, and they may have an adverse effect on our operating results.
+Added: • The fair value of our investments, including our securities portfolio, has declined due to the recent increases in interest rates and may continue to decline, adversely impacting shareholders’ equity.
+Added: • Interest rate increases, competition from other banks, and other factors adversely affect our liquidity, and our operating results may be impacted by these factors and by measures we undertake to manage our liquidity position.
• The geographic concentration of our loan portfolio and lending activities in eastern Massachusetts and southern and coastal New Hampshire makes us vulnerable to a downturn in our local economy.
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• If our allowance for loan losses is insufficient to cover actual loan losses, our earnings and capital could decrease.
−Removed: • On January 1, 2022, we adopted a new standard for determining the amount of the allowance for loan losses (commonly referred to as the “CECL standard”).
−Removed: Therefore, our allowance for loan losses for the year ended December 31, 2021 may be difficult to evaluate in comparison to our peers that previously adopted the new standard.
−Removed: • Replacement of the LIBOR benchmark interest rate may adversely affect our business, financial condition, and results of operations, including by causing us to incur significant expenses in effecting the transition, resulting in reduced loan balances if borrowers do not accept the substitute index or indices, and resulting in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index or indices.
+Added: • Replacement of the LIBOR benchmark interest rate with a substitute index may adversely affect our results of operations, including by causing us to incur significant expenses in effecting the transition, changes to loan balances, and disputes or litigation with customers.
• Technology has lowered barriers to entry in the financial services sector, making it possible for non-banks to offer products and services, such as loans and payment services, that traditionally were banking products, and also making it possible for technology companies to compete with financial institutions in providing electronic, internet-based, and mobile phone-based financial solutions.
−Removed: • We face continuing and growing security risks to our information databases, including information we maintain relating to our customers, as precautions taken by us and our vendors may not be completely effective to prevent unauthorized access, human error, phishing attacks or other forms of social engineering and other events that could impact the security, reliability, confidentiality, integrity and availability of our systems or those of our vendors.
+Added: • We face progressively increasing security risks to our information databases, including information we maintain relating to our customers, as precautions taken by us and our vendors may not be completely effective to prevent unauthorized access, human error, phishing attacks or other forms of social engineering and other events that could impact the security, reliability, confidentiality, integrity and availability of our systems or those of our vendors.
• We face significant legal risks, both from regulatory investigations and proceedings and from private actions brought against us.
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failure to comply with applicable regulatory requirements and conduct of business rules;
−Removed: equipment failures, including those caused by natural disasters or by
−Removed: electrical, telecommunications or other essential utility outages;
+Added: 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;
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• To the extent that we acquire other companies, our business may be negatively impacted by certain risks inherent with such acquisitions.
−Removed: • In 2021, we adopted a new stock-based benefit plan, which will increase our annual compensation and benefit expenses related to awards granted to participants under such plan.
+Added: • Our stock-based benefit plan, which we adopted in 2021, has increased and is expected to continue to increase our annual compensation and benefit expenses related to awards granted to participants under such plan.
Certain provisions of our articles of organization, as well as state and federal banking laws, may make our stock a less attractive investment compared to the stock of peer companies.
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Risks Related to the COVID-19 Pandemic and Associated Economic Slowdown
−Removed: The duration and severity of the COVID-19 pandemic in 2022 and beyond, including the potential for resurgences from time to time, as well as the pace of vaccination and testing programs both within and outside of our market area, and the efficacy of any vaccine against new variants of coronavirus are impossible to predict.
−Removed: The type of coronavirus that causes COVID-19 constantly changes through mutation, and new variants of the virus have emerged and will likely continue to emerge over time.
−Removed: Multiple variants of the virus that causes COVID-19 have been documented in the United States, including within our markets, and globally during this pandemic.
−Removed: Center for Disease Prevention and Control (the “CDC”)
−Removed: reports that several of these variants seem to spread more easily and quickly than other variants, and these variants may lead to more cases of COVID-19.
−Removed: A surge in the number of cases has, and may in the future, put more strain on health care resources, lead to more hospitalizations, and potentially lead to more deaths.
−Removed: There is also substantial uncertainty regarding the pace of economic recovery and the return of business and consumer confidence if and when the impact of the COVID-19 pandemic lessens.
−Removed: The COVID-19 pandemic, including associated governmental and private sector responses, has had, and we expect will continue to have, a material adverse effect on our business, financial condition, results of operations and cash flows, as discussed below.
−Removed: 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 remains premature to predict if or when economic activity will revert to the level that existed before the spread of COVID-19 in our region.
−Removed: Governmental and private sector action in response to the COVID-19 pandemic have generally had the effect in our market of curtailing household and business activity, although such action has not always been coordinated or consistent across jurisdictions and has fluctuated during the COVID-19 pandemic.
−Removed: Our market consists primarily of eastern Massachusetts and southern and coastal New Hampshire.
−Removed: Since the beginning of the COVID-19 pandemic, the nature of response by the states in which we operate have, at various times, included issuance and subsequent expiration of a state of emergency and the imposition, relaxation and/or reinstitution of restrictions on business and organizations that do not provide certain essential services.
−Removed: The number of cases in each state have fallen with widespread vaccinations (and booster shots) but risen in connection with the emergence of new variants.
−Removed: Quarantine requirements for those who tested positive for COVID-19 or were exposed to it, imposed by Massachusetts and New Hampshire, have caused staff shortages across our branch footprint, causing us to reduce hours and, at times, close branches, disrupting service for our customers.
+Added: The duration and severity of the COVID-19 pandemic in 2023 and beyond, including the potential for resurgences and the impact of new variants, are impossible to predict.
+Added: The COVID-19 pandemic, including associated governmental and private sector responses, has had, and may continue to have, a material adverse effect on our business, financial condition, results of operations and cash flows, as discussed below.
+Added: The COVID-19 pandemic and governmental and private sector action in response to the COVID-19 pandemic have had 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 remains premature to predict if or when economic activity will revert to the level that existed before the spread of COVID-19.
We are unable to predict how the governmental and private sector action will evolve in 2023 in response to the COVID-19 pandemic in our markets.
−Removed: 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 have experienced the most significant adverse effects of the COVID-19 pandemic, and we expect these effects to continue.
−Removed: Many individuals, households and businesses have changed their behavior in response to governmental mandates and advisories, sharply restraining certain commercial and social interactions.
−Removed: 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 have experienced the most significant adverse effects as a consequence of reduced commercial and social interactions and discretionary spending, and we expect these effects to persist for some or all of 2022 and possibly beyond.
−Removed: To the extent such changed customer behavior continues, our commercial and small business borrowers will continue to experience adverse effects to their businesses.
−Removed: We are unable to predict if or when economic activity for those borrowers will revert to the level that existed before the spread of COVID-19 in our region.
+Added: 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 were adversely affected by reduced commercial and social interactions, and we expect some of these effects to persist.
In addition, our commercial real estate borrowers with properties whose value is tied to customer patronage may experience significant decreases in their property values.
−Removed: See tabular disclosure of “High Risk Industries” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
−Removed: The COVID-19 pandemic has significantly affected from time to time the level of unemployment in our market, and during periods of elevated unemployment, the Company may experience greater levels of delinquent loans especially among our consumer and small business loans
−Removed: The economic consequences of the COVID-19 pandemic have significantly increased from time to time the level of unemployment in Massachusetts.
−Removed: For example, the unemployment rate reported by the Department of Labor’s Bureau of Labor Statistics for Massachusetts for May 2020 was 15.3%.
−Removed: Although, the level of unemployment in Massachusetts had declined to 3.9% as of December 31, 2021, unemployment in Massachusetts continues to exceed the pre-pandemic level of 2.9% reported as of December 31, 2019.
−Removed: Customary means to collect non-performing assets may be prohibited or impractical during the COVID-19 pandemic, and there is a risk that collateral securing a non-performing asset may deteriorate if we choose not to, or are unable to, foreclose on collateral on a timely basis.
−Removed: 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.
−Removed: Massachusetts, for example, enacted a law effective April 20, 2020 that temporarily imposed a moratorium on evictions and foreclosures.
−Removed: The law prohibited landlords and lenders from initiating or completing evictions and foreclosures.
−Removed: The law, which expired on October 17, 2020, also required lenders to
−Removed: provide forbearance to mortgage borrowers who submitted a request affirming that they have experienced a financial impact from the COVID-19 pandemic.
−Removed: A federal moratorium established by the CDC went into effect January 31, 2021 and was further extended to August 26, 2021.
−Removed: We are unable to predict whether Massachusetts or the CDC will reinstate the same or similar moratoriums because of a resurgence of the COVID-19 pandemic in Massachusetts or the United States, respectively.
−Removed: 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 pandemic.
−Removed: If a large percentage of the collateral securing our nonperforming assets deteriorates, our allowance for loan losses or charges may increase and our financial results may be negatively impacted.
As a result of the dramatic decline in cash flow that many of our commercial and commercial real estate borrowers have experienced and may continue to experience as a result of the COVID-19 pandemic, many of those borrowers have sought and may continue to seek payment deferments on their indebtedness.
−Removed: The effects of the COVID-19 pandemic in our market area have significantly reduced the cash flow for many of our commercial and commercial real estate borrowers.
−Removed: As a consequence, many of those borrowers have sought and may continue to seek payment deferments on their indebtedness.
−Removed: 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 believes that it has worked constructively with borrowers since March 2020 to negotiate loan modifications or forbearance arrangements that reduce or defer the monthly payments due to Eastern Bank.
−Removed: Generally, these modifications are for three to six months and allow customers to temporarily cease making either principal payments or both interest and principal payments.
+Added: The effects of the COVID-19 pandemic in our market area reduced cash flow for many of our commercial and commercial real estate borrowers.
+Added: Borrowers have sought and may continue to seek payment deferments on their indebtedness.
+Added: Eastern Bank has worked with borrowers throughout the COVID-19 pandemic to negotiate loan modifications or forbearance arrangements that reduce or defer the monthly payments due to Eastern Bank.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for additional information regarding loan modifications for the year ended December 31, 2022.
−Removed: Although many of the borrowers whose loans we modified in 2020 had resumed making timely loan payments as of December 31, 2021, it is possible that some of those borrowers, as well as some of our borrowers whose loans were previously not modified, may seek future modifications as they experience the continued impact of the COVID-19 pandemic.
−Removed: The increase in remote and hybrid work arrangements, if continued, could ultimately result in reduced demand for office space in our market, and such reduction in demand could adversely affect both the value of the collateral securing some of our commercial real estate loans and the demand by developers and other borrowers for new commercial real estate loans.
−Removed: The COVID-19 pandemic has caused many employers to shift to remote and/or hybrid workforce arrangements in which employees work from their homes instead of going into their employers’ offices.
−Removed: If remote and/or hybrid work patterns continue for an extended period of time or become more widespread, there may be long-term implications for how many businesses successfully operate and, in turn, their need for leased office space may contract.
−Removed: A reduction in the need for office space could result in a reduction in our loan demand and/or in our customers’ ability to repay their loans, which, in turn, may have an adverse effect on our business and results of operation.
−Removed: We cannot predict how hybrid and remote work patterns will evolve in practice and whether demand for office real estate will fall as a result.
−Removed: Commercial real estate loans for office, mixed use office and medical office space represented approximately 8.8% of our loan portfolio at December 31, 2021.
−Removed: Any material reduction in the demand for these categories of commercial office space in our market could adversely affect both the value of the collateral securing a portion of our commercial real estate loans and the demand by developers and other borrowers for new commercial real estate loans, which, in turn, may have a negative impact on our business and financial results.
+Added: Although many of the borrowers whose loans we modified resumed making timely loan payments, it is possible that some of those borrowers, as well as some of our borrowers whose loans were previously not modified, may seek future modifications.
+Added: The increase in remote and hybrid work may result in reduced demand for office space in our market, and such reduction in demand may adversely affect both the value of the collateral securing some of our commercial real estate loans and the demand by developers and other borrowers for new commercial real estate loans.
+Added: The COVID-19 pandemic caused many employers to shift to remote and/or hybrid workforce arrangements in which employees work from their homes instead of going into their employers’ offices.
+Added: Remote and/or hybrid work patterns may have long-term implications for how many businesses successfully operate and, in turn, their need for leased office space.
+Added: A reduction in the need for office space could result in a reduction in our loan demand and/or in our customers’ ability to repay their loans, which, in turn, may have an adverse effect on our business and results of operations.
+Added: Additionally, any material reduction in the demand for these categories of commercial office space in our market could adversely affect both the value of the collateral securing a portion of our commercial real estate loans and the demand by developers and other borrowers for new commercial real estate loans, which, in turn, may have a negative impact on our business and financial results.
We have experienced and may continue to experience greater than usual credit costs in the future if the effect of the COVID-19 pandemic in our market continues.
−Removed: The COVID-19 pandemic has caused us to experience greater than usual credit costs.
−Removed: For example, for the year ended December 31, 2020, our provision for loan losses increased to $38.8 million, compared to $6.3 million for the year ended December 31, 2019.
−Removed: The increase in our provision for loan losses for 2020, which occurred primarily in the quarter ended March 31, 2020, was driven primarily by our perception of the economic distress being experienced by many of our borrowers due to the COVID-19 pandemic.
−Removed: Although our provision for loan loss decreased to a net release of allowance for loan losses of $9.7 million, for the year ended December 31, 2021 due to a reduction in the level of our criticized and classified loans, we may still experience additional credit costs in the future if the economic effect of the continuing COVID-19 pandemic in our market worsens.
−Removed: Although the Federal Open Market Committee may raise the target range for the federal funds rate, our operating results have been, and may in the future be, adversely affected by low target ranges intended to help mitigate the effects of the COVID-19 pandemic.
−Removed: Anticipating the economic impact of the COVID-19 pandemic, the Federal Open Market Committee of the Federal Reserve in March 2020 reduced the target range for the federal funds rate to between 0.00% and 0.25%, compared to the previous target of between 1.00% and 1.25%.
−Removed: The range remained at such levels for the remainder of 2020 and all of 2021.
−Removed: Although the Federal Open Market Committee has stated that it may raise the target range for the federal funds rate above the current range, the Company’s operating results have already been adversely impacted by the prolonged period of low rates initiated by the Federal Reserve to mitigate the impact of the COVID-19 pandemic on the U.S.
−Removed: If the Federal Open Market Committee determines not to raise the target range for the federal funds rate, or if it raises but then lowers it again, such changes will impact our operating results.
−Removed: Changes in interest rates can have a material effect on many areas of our business, including our net interest income and net interest margin.
−Removed: 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.
−Removed: Our planning for 2022 assumes increases in the federal funds rate, but changes in economic conditions may preclude the Federal Reserve from raising interest rates or cause them to lower them again.
+Added: The COVID-19 pandemic initially caused us to experience greater than usual credit costs.
+Added: We initially increased our provision for loan losses in 2020 following the onset of the COVID-19 pandemic.
+Added: We may still experience additional credit costs in the future if the economic effect of the continuing COVID-19 pandemic in our market worsens.
The associated economic impacts of the COVID-19 pandemic may have other adverse effects on our operating results beyond the year ended December 31, 2022.
Other factors that may have an adverse effect on our operating results include:
−Removed: • reduced fee income to the extent we waive certain fees for our customers impacted by the COVID-19 pandemic,
−Removed: • possible constraints on liquidity and capital, due to supporting client activities or regulatory actions,
−Removed: • potential losses in our investment securities portfolio due to volatility in the financial markets, and
−Removed: • higher operating costs, increased cybersecurity risks and a potential loss of productivity while we continue to work remotely and must address a higher level of loan modifications and distressed credit management.
−Removed: In addition, because both the COVID-19 pandemic and the associated economic impacts are unprecedented, it may be challenging for management while the COVID-19 pandemic continues to make certain judgments and estimates, such as the current value of commercial real estate collateral, that are material to our Consolidated Financial Statements, given the inherently uncertain operating environment.
−Removed: Remote work performed by our employees due to the effects of the COVID-19 pandemic may disrupt our operations, which could have a material adverse effect on our business.
−Removed: Since the onset of the COVID-19 pandemic in our market in March 2020, a substantial majority of our colleagues have performed their work remotely.
−Removed: While we believe that our COVID-19 pandemic response plans and their implementation have helped avoid significant interruptions to our critical services, there can be no assurance that our employees will be able to continue to perform their jobs remotely on an uninterrupted basis, and reliance on such plans could expose our business to other operational risks.
−Removed: For example, while we have taken steps to ensure that our remote-work solutions are reliable and secure, there can be no assurance that these solutions will be used or function as intended, or that they will be completely effective in preventing interruptions in our services or cybersecurity incidents.
−Removed: In addition, there can be no assurance that the third parties that provide and maintain some of these solutions will be able to do so on a sustained and uninterrupted basis.
−Removed: Because we do not control these third parties, we are subject to the limitations, deficiencies, and vulnerabilities of their services, products, and operations.
−Removed: Any compromise, failure, or interruption in the availability of the solutions that support our remote-work operations could directly or indirectly result in cybersecurity incidents, interruptions to our business, and negative effects on our reputation and results of operations.
−Removed: We may experience additional expense and reputational risk arising out of our origination of PPP loans if one or more companies, individuals or regulators 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.
−Removed: Through December 31, 2021, we originated approximately 15,500 loans to PPP borrowers, representing in the aggregate $1.7 billion of PPP loans.
−Removed: 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.
−Removed: See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Outlook and Trends” in this Annual Report on Form 10-K for additional information regarding our PPP loans as of December 31, 2021.
−Removed: Federal and state law enforcement agencies and regulators have stated that investigations or other regulatory proceedings have been opened concerning how participating PPP lenders processed applications and whether certain PPP lenders may have inappropriately or unfairly prioritized certain customers to the detriment of other eligible borrowers.
−Removed: Similarly, there are pending lawsuits against other PPP lenders brought by PPP borrowers alleging that those lenders engaged in inappropriate conduct in connection with the approval and administration of PPP loans, such as improperly prioritizing existing customers when approving PPP loans, restricting loan eligibility and other alleged misconduct.
−Removed: There can be no assurance that we will not be the target of government scrutiny or that one or more private parties will not bring PPP-related claims against us that are similar to those brought against other banks.
−Removed: An important element of our business strategy is to pursue growth in our core business, and it may be challenging for us to grow our core business while the COVID-19 pandemic and associated economic slowdown continue or if the recovery from the COVID-19 pandemic continues to be erratic.
−Removed: The COVID-19 pandemic and the associated economic slowdown are unprecedented.
−Removed: 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.
−Removed: 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.
−Removed: 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 pandemic continues to be erratic.
−Removed: If the continuing effects of the COVID-19 pandemic 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.
+Added: • possible constraints on liquidity and capital, due to supporting client activities, increased competition, or regulatory actions, and
+Added: • potential losses in our investment securities portfolio due to volatility in the financial markets.
+Added: In addition, because both the COVID-19 pandemic and the associated economic impacts are unprecedented, it has been and may continue to be challenging for management to make certain judgments and estimates that are material to our business while the COVID-19 pandemic continues, such as the current value of commercial real estate collateral, that are material to our Consolidated Financial Statements.
Risks Related to Our Acquisition Strategy
−Removed: We may fail to realize all of the anticipated benefits of the Century Merger, or those benefits may take longer to realize than expected.
−Removed: We may also encounter significant difficulties in integrating with Century.
−Removed: On November 12, 2021, we acquired Century.
−Removed: The success of the Century Merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully integrate Century’s operations in a manner that results in various benefits and that does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers.
−Removed: The process of integrating operations could result in a loss of key personnel or cause an interruption of, or loss of momentum in, the activities of one or more of the combined company’s businesses.
−Removed: Inconsistencies in standards, controls, procedures and policies could adversely affect the combined company.
−Removed: The diversion of management’s attention and any delays or difficulties encountered in connection with the Century Merger and the integration of Century’s operations could have an adverse effect on the business, financial condition, operating results and prospects of the combined company.
−Removed: If we experience difficulties in the integration process, including those listed above, we may fail to realize the anticipated benefits and synergies of the Century Merger in a timely manner or at all.
Our future results will suffer if we do not effectively manage our expanded operations following the Century Merger.
−Removed: Following the Century Merger, the size and operational scope of our business has increased significantly beyond its current size and scope.
−Removed: The Century Merger has increased our asset size and will further increase the breadth and complexity of our business with the addition of new business lines in which we have not previously engaged, and exposure to industry sectors, such as higher education, which we have not historically served.
+Added: Following the Century Merger in November 2021, the size and operational scope of our business increased significantly beyond its prior size and scope.
+Added: The Century Merger increased our asset size and the breadth and complexity of our business with the addition of new business lines in which we had not previously engaged, and exposure to industry sectors, such as higher education, which we have not historically served.
The size and scope of our commercial loan and lease portfolio has also increased in size as a result of the Century Merger.
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Some such loans are of greater size than the typical size of commercial loans that we have made in recent years.
−Removed: Our future success depends, in part, upon our ability to manage this expanded business, which poses substantial challenges for our management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity.
−Removed: There can be no assurances that we will be successful in this regard or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Century Merger.
+Added: Our future success depends, in part, upon our ability to manage this expanded business, which poses substantial challenges for our management, including challenges related to the management and monitoring of new operations and associated increased costs
+Added: and complexity.
+Added: There can be no assurances that we will be successful in this regard or that we will realize the expected operating efficiencies, cost savings and other benefits that were anticipated from the Century Merger.
We may be unsuccessful identifying and competing for acquisitions.
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Accordingly, attractive opportunities may not be available to us, and there can be no assurance that we will be successful in identifying, completing or integrating future acquisitions.
−Removed: We may not be able to acquire
−Removed: other institutions on acceptable terms.
+Added: We may not be able to acquire other institutions on acceptable terms.
The ability to grow may be limited if we are unable to successfully make acquisitions in the future.
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As a condition to granting required regulatory approvals, governmental entities may impose conditions, limitations or costs, require divestitures or place restrictions on our conduct after the closing of a merger.
−Removed: Such conditions or changes and the process of obtaining regulatory approvals could, among other things, have the effect of delaying completion of
−Removed: a merger or of imposing additional costs or limitations on us following a merger, any of which may have an adverse effect on us following such merger.
+Added: Such conditions or changes and the process of obtaining regulatory approvals could, among other things, have the effect of delaying completion of a merger or of imposing additional costs or limitations on us following a merger, any of which may have an adverse effect on us following such merger.
The degree of scrutiny that bank regulators give to bank mergers can change from time to time.
−Removed: For example, in July 2021, President Biden issued an Executive Order encouraging the Department of Justice, in consultation with the federal bank regulators, to review current merger practices and adopt a plan for the “revitalization of merger oversight” to provide more extensive scrutiny of bank mergers.
−Removed: The Department of Justice’s Antitrust Division announced in December 2021 that it is seeking additional public comments on whether and how the Antitrust Division should revise the 1995 Bank Merger Competitive Review Guidelines.
−Removed: We are unable to predict whether any revision to the 1995 Guidelines, or any other change bank regulators may adopt, will have a material adverse effect on our ability to acquire or merge with banking companies in our market area.
+Added: We are unable to predict whether any change bank regulators may adopt, will have a material adverse effect on our ability to acquire or merge with banking companies in our market area.
Our acquisitions of assets from insurance agencies may not perform in accordance with our expectations.
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Risks Related to Our Business and Our Industry Generally
−Removed: Changes in interest rates may have an adverse effect on our profitability.
+Added: Changes in interest rates have impacted and may continue to impact our profitability.
Net interest income historically has been, and we anticipate that it will remain, a significant component of our total revenue.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: 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.
+Added: Thus, changes in interest rates have impacted and may continue to impact many areas of our business, including net interest income, deposit costs, and loan volume and delinquency.
+Added: Interest rates are highly sensitive to many factors that are beyond our control, including global, national, regional and local economic conditions, the effects of disease pandemics such as COVID-19, competitive pressures, and policies of various governmental and regulatory agencies and, in particular, the FOMC.
+Added: Changes in interest rates have influenced and could continue to influence the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, 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.
−Removed: The target range for the federal funds rates has been 0.00% to 0.25% since March 2020.
−Removed: Although the Federal Open Market Committee has indicated that it may raise interest rates in 2022, any decision by the Federal Open Market Committee to increase interest rates could subsequently be modified or reversed depending on future changes in the U.S.
−Removed: Interest rate changes may impact our ability to attract deposits and to generate attractive earnings through our loan and investment portfolio.
−Removed: We are unable to control or predict with certainty changes in market interest rates.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: The FOMC raised the target range for the federal funds rate seven times in 2022, and, additional rate increases may occur if inflation pressures remain elevated or intensify.
+Added: Aggressive increases to the target range for the federal funds rate, combined with ongoing geopolitical instability, could raise the risk of an economic recession and responsive measures, including a reduction of the federal funds rate.
+Added: Any such downturn, especially domestically and in the markets in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.
+Added: Higher interest rates generally are associated with a lower volume of loan originations and refinancings, while lower interest rates are usually associated with higher loan originations and refinancings.
+Added: Our ability to generate gains on sales of mortgage loans is significantly dependent on the level of originations.
+Added: Cash flows are affected by changes in market interest rates.
+Added: Generally, in rising interest rate environments, loan prepayment rates are likely to decline, and in falling interest rate environments, loan prepayment rates are likely to increase.
+Added: A significant amount of our commercial and industrial and commercial real estate, including multi-family residential real estate loans, are adjustable-rate loans and an increase in the
+Added: general level of interest rates may adversely affect the ability of borrowers, especially those with adjustable rate loans, to pay their loan obligations.
+Added: Changes in interest rates, prepayment speeds and other factors may also cause the value of our loans held for sale to change.
+Added: Although we have implemented risk management strategies, such as hedging certain loans indexed to a market rate that are expected to reprice with the federal funds rate by using interest rate swaps, as well as policies and procedures designed to manage the risks associated with changes in market interest rates, changes in interest rates have had and may continue to have an adverse effect on our operating results and financial condition.
+Added: 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 operating results and financial condition would be adversely affected.
If our allowance for loan losses is insufficient to cover loan losses, our earnings and capital could decrease.
−Removed: At December 31, 2021, our allowance for loan losses was $97.8 million, or 0.82% of total loans (excluding PPP loans but reflecting the impact of our Century acquisition), compared to $113.0 million, or 1.30% of total loans (excluding PPP
−Removed: loans), at December 31, 2020.
+Added: At December 31, 2022, our allowance for loan losses was $142.2 million, or 1.05% of total loans, compared to $97.8 million, or 0.80% of total loans, at December 31, 2021.
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.
−Removed: 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.
+Added: 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 and expected future 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.
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Any such additional provision for loan losses or net increase in charge-offs could have a material adverse effect on our financial condition and results of operations.
−Removed: We increased our allowance for loan losses as a result of our adoption as of January 1, 2022 of the new accounting standard for determining the amount of the allowance for loan losses and may be required to do so again in the future.
−Removed: Effective January 1, 2022, we adopted the Financial Accounting Standards Board Accounting Standards Update No.
−Removed: 2016-13 (“Measurement of Credit Losses on Financial Instruments”), commonly referred to as the “CECL standard.” We adopted this standard later than our peers, and as a result, our loan loss allowance may be difficult to evaluate in comparison to our peers.
−Removed: The CECL credit loss model represents a significant change from our past methodology because it requires the allowance for loan losses to be calculated based on current expected credit losses rather than losses inherent in the portfolio as of a point in time.
−Removed: CECL requires an allowance to be created upon the origination or acquisition of a financial asset measured at amortized cost.
−Removed: We expect an initial increase in our allowance for loan losses at the time of CECL adoption in the range of $25.0 million to $30.0 million.
−Removed: For discussion of factors that we anticipate will contribute to our expected increase to our allowance for loan losses under the CECL standard, see the “CECL Adoption” section within “Management’s Discussion and Analysis — Outlook and Trends” In Part II, Item 7 of this Annual Report on Form 10-K.
−Removed: We also expect that CECL will require us to greatly increase the data we need to collect and review to determine the appropriate level of our allowance for loan losses.
−Removed: Under CECL, the allowance for credit loss is an estimate of the expected credit losses on financial assets measured at amortized cost, which is measured using relevant information about past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.
−Removed: Changes in economic forecasts, loan portfolio composition and credit quality, changes in model assumptions and other factors will influence the CECL standard outcomes and the resulting calculation of our allowance for loan losses.
−Removed: Any increase in our allowance for loan losses, or expenses incurred to determine the appropriate level of our allowance for loan losses, could materially affect our financial condition and results of operations.
−Removed: Our loan loss allowance at December 31, 2021 may be difficult to evaluate in comparison to our peers.
−Removed: We adopted the CECL standard as of January 1, 2022, which is later than many of our peers that are publicly traded, and therefore, our loan loss allowance at December 31, 2021 may be difficult to evaluate in comparison to many of those peers.
The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the local economy.
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• 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 non-performing assets, net charge-offs, provisions for loan losses, and valuation adjustments on loans held for sale.
−Removed: 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.
+Added: 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
+Added: of our banking operations.
In addition, deflationary pressures, if present, 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.
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Hacking and identity theft risks, in particular, could cause serious reputational harm.
−Removed: Cyber threats are
−Removed: rapidly evolving, and we may not be able to anticipate or prevent all such attacks.
+Added: 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.
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Any breach of our system security could result in disruption of our operations, unauthorized access to confidential customer information, significant regulatory costs, such as enforcement actions and/or the imposition of civil money penalties, litigation exposure and other possible damages, loss or liability.
−Removed: Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect our earnings.
+Added: Such costs or losses could exceed the amount of available insurance coverage, if any,
+Added: 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 cause reputational harm, negatively impact customer confidence, undermine our ability to attract and keep customers, and possibly result in regulatory sanctions.
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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.
−Removed: For example, there have been a number of recently completed or announced mergers of financial institutions within our market areas.
−Removed: These mergers, if completed, will 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, brokerage and investment banking firms, mortgage companies and other financial intermediaries that offer similar services.
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Fintechs have and may continue to offer bank or bank-like products.
−Removed: 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.
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 under current and proposed interagency guidelines on third party relationships.
−Removed: Regulatory changes, such as the recent 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.
+Added: Regulatory changes, such as 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.
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In addition, new, unexpected technological changes could have a disruptive effect on the way banks offer products and services.
−Removed: 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.
+Added: 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.
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• that there will be no material change in competitive dynamics, including as a result of our seeking to increase market share.
−Removed: 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.
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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.
−Removed: 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 and
−Removed: insurance agents, 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.
+Added: 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 and insurance agents, 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.
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If we are unable to compete effectively, our business, financial condition and results of operations could be adversely affected, perhaps materially.
−Removed: The fair value of Eastern Bank’s investments could decline.
+Added: The fair value of Eastern Bank’s investments has declined and could decline further due to a variety of factors.
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.
−Removed: The fair value of Eastern Bank’s investment portfolio may decline, causing a corresponding decline in shareholders’ equity.
+Added: Due to the recent increases in interest rates, the fair value of Eastern Bank’s investment portfolio has declined, causing a corresponding decline in shareholders’ equity.
+Added: If interest rates rise further, the fair value of our investment portfolio may further decline and contribute to a further 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.
−Removed: 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.
In addition, unrealized losses on investment securities may result from changes in credit spreads and liquidity issues in the marketplace, along with changes in the credit profile of individual securities issuers.
−Removed: Under Generally Accepting Accounting Principles (“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.
−Removed: 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.
−Removed: Subsequent valuations, in light of factors prevailing at that time, may result in significant changes in the values of these securities in future periods.
−Removed: 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.
+Added: Under accounting principles generally accepted in the United States (“GAAP”), we are required to review our investment portfolio periodically for the presence of credit-related impairment of our investment 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, and our ability and intent to hold investments until a recovery in fair value, as well as other factors.
+Added: Adverse developments with respect to one or more of the foregoing factors may require us to measure and recognize an allowance for credit losses in a future period, with the resulting provision for credit losses recognized as a charge to our earnings.
+Added: Subsequent valuations, in light of management’s evaluation of the factors prevailing at that time, may result in significant changes in the values of these securities in future periods.
+Added: Any of these factors could require us to recognize an impairment in the value of our investment securities portfolio, which could 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.
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In addition, some of our commercial real estate loans are not fully amortizing and contain large balloon payments upon maturity.
−Removed: These balloon
−Removed: 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.
−Removed: In addition, because of the risks associated with commercial loans, and especially as a result of the economic stress in our market due to the COVID-19 pandemic, we may experience higher rates of default than if the portfolio were more heavily weighted toward residential mortgage loans.
+Added: 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.
+Added: In addition, because of the risks associated with commercial loans, including the economic stress in our market due to the COVID-19 pandemic, 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.
1 unchanged sentence
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.
−Removed: We are subject to environmental liability risk associated with lending activities.
+Added: We are subject to environmental liability risk associated with real estate 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.
−Removed: At December 31, 2021, $8.7 billion, or 72.7% of our total loans (excluding PPP loans), comprised loans secured by real estate.
+Added: At December 31, 2022, $10.0 billion, or 74.0% of our total loans, comprised loans secured by real estate.
During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans.
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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.
−Removed: 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.
+Added: Although management has implemented policies and procedures to mitigate this risk, they may not be sufficient in all instances 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.
−Removed: At December 31, 2021, loans secured by one- to four-family residential real estate were $3.2 billion, or 26.9% of total loans (excluding PPP loans).
+Added: At December 31, 2022, loans secured by one- to four-family residential real estate were $3.8 billion, or 28.1% of total loans.
Loans secured by one- to four-family residential real estate include residential real estate mortgages, home equity loans and lines and investment real estate loans secured by one- to four-family residential properties.
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We have entered into interest rate swap arrangements with customers that are indexed to USD LIBOR.
−Removed: USD LIBOR is a series of interest rates published on a daily basis for varying lengths of time known as tenors (e.g., 30, 60, 90 days, etc.) and is intended to reflect banks’ average cost of wholesale unsecured borrowing.
−Removed: Each day, a panel of approximately 16 large, internationally active banks submit their estimates of the cost to borrow U.S.
−Removed: dollars for each tenor.
−Removed: The upper and lower quartiles are removed, then the remaining estimates are averaged to determine USD LIBOR on that date for each tenor.
−Removed: 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 plans to phase out of regulatory oversight of USD LIBOR (and other LIBOR indices) by no longer compelling panel banks to submit estimated borrowing costs.
−Removed: The FCA has indicated that it will support the USD LIBOR indices generally only through 2021 and, with respect to certain USD LIBOR indices, only through June 2023, to allow for an orderly transition to alternative reference rates.
−Removed: This announcement indicates that the continuation of USD LIBOR on the current basis cannot and will not be generally guaranteed after 2021 or, with respect to certain USD LIBOR indices, after June 2023.
−Removed: 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 USD LIBOR.
−Removed: Similarly, it is not possible to predict whether USD LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to USD LIBOR or what the effect of any such changes in views or alternatives may be on the markets for USD LIBOR-indexed financial instruments.
−Removed: In June 2017, the Alternative Reference Rates Committee (the “ARRC”) convened by the Federal Reserve Board and Federal Reserve Bank of New York designated the Secured Overnight Financing Rate (“SOFR”) as its recommended alternative to USD LIBOR.
−Removed: Because SOFR is a broad U.S.
−Removed: Treasury repo financing rate applicable to overnight secured funding transactions, it differs fundamentally from USD LIBOR, which is an unsecured rate for the various prospective tenors.
−Removed: The Federal Reserve Board has announced that adjustments to SOFR will therefore be required to maintain economic equivalency with USD LIBOR.
−Removed: According to the Federal Reserve Board, these adjustments will be based on the median of the historical differences between LIBOR and SOFR over a 5-year period preceding the transition away from USD LIBOR.
−Removed: SOFR, as adjusted, is not intended to identically match USD LIBOR.
−Removed: The two rates will be calculated based on different data and different methodologies.
−Removed: It is possible therefore that differences between USD LIBOR and SOFR, as adjusted, may result in changes to the mark-to-market value of each affected transaction.
−Removed: At this time, it is not possible to determine if the use of SOFR, as adjusted, will result in yields that are materially different from the existing USD LIBOR-based yields on our loans and interest rate swap arrangements.
−Removed: Federal banking agencies are encouraging banks to determine appropriate reference rates for lending activities and to begin transitioning loans and other financial instruments away from USD LIBOR without delay.
+Added: In 2017, the Financial Conduct Authority (“FCA”), a regulator of financial services firms and financial markets in the United Kingdom, stated that it planned to phase out regulatory oversight of USD LIBOR (and other LIBOR indices) by no longer compelling panel banks to submit estimated borrowing costs.
+Added: The FCA indicated that it would support the USD LIBOR indices generally only through 2021 and, with respect to certain USD LIBOR indices, only through June 2023, to allow for an orderly transition to alternative reference rates.
+Added: In June 2017, the Alternative Reference Rates Committee (the “ARRC”) convened by the Federal Reserve Board and Federal Reserve Bank of New York designated the Secured Overnight Financing Rate (“SOFR”), with certain adjustments, as its recommended alternative to USD LIBOR.
Regulators, industry groups and the ARRC have published recommended fallback language for USD LIBOR-linked financial instruments, identified recommended alternatives for USD LIBOR (e.g., SOFR, as adjusted) and proposed implementation of the recommended alternatives in financial instruments indexed to USD LIBOR.
−Removed: At this time, however, 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 financial instruments indexed to USD LIBOR.
−Removed: The language in our USD LIBOR-based contracts and financial instruments has developed over time and generally has various events that trigger replacement of USD LIBOR with an alternative index.
−Removed: If a triggering event occurs, contracts and financial instruments may give us discretion to select the substitute index.
−Removed: The implementation of a substitute index for the calculation of interest rates under our loan agreements with our customers may result in our incurring significant expenses in effecting the transition, may result in reduced loan balances if customers do not accept the substitute index or indices, and may result in disputes or litigation with customers over the appropriateness or comparability of the substitute index to USD LIBOR, which could have an adverse effect on our results of operations.
−Removed: In addition, uncertainty as to the nature of such changes may adversely affect the market for or value of USD 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.
+Added: It is possible that differences between USD LIBOR and SOFR, as adjusted, or other alternatives may result in changes to the mark-to-market value of each affected transaction.
+Added: Payments under contracts linked to alternative indices may differ from those linked to USD LIBOR, as the rates under alternative indices are calculated differently.
+Added: The Company has established a working group to guide the transition and is continuing to assess its LIBOR-related contracts and amend agreements where necessary to permit application of an alternative index.
+Added: The Company is also transitioning its future floating rate loan, interest rate swap arrangement, and other applicable contracts to alternative reference rates.
+Added: The implementation of a substitute index for the calculation of interest rates may result in our incurring significant expenses in effecting the transition, changes to loan balances, and disputes or litigation with customers, which could have an adverse effect on our results of operations.
+Added: In addition, uncertainty as to the nature of such changes may adversely affect the market for or value of 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.
Hedging against interest rate exposure may adversely affect our earnings.
4 unchanged sentences
There are, however, no perfect hedging strategies, and interest rate hedging may fail to protect us from loss.
−Removed: Moreover, hedging activities
−Removed: could result in losses if the event against which we hedge does not occur.
+Added: 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:
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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.
−Removed: 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.
+Added: Our regulators require us 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.
1 unchanged sentence
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.
−Removed: 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.
+Added: In addition, if we are unable to raise additional capital when required by the
+Added: 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.
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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.
−Removed: Our funding costs may increase if our deposits decline and we 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.
−Removed: 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.
+Added: Our funding costs have increased materially beginning in 2022 and may continue to increase if our deposits decline and we 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.
+Added: Increases to the federal funds rate, and competitor and customer responses to those increases, have caused and we anticipate will continue to cause competitive pressures to increase our deposit interest rates.
+Added: The reduction in our overall level of deposits would increase the extent to which we rely on other, more expensive sources for funding, including Federal Home Loan Bank advances and brokered deposits, which would reduce our operating results.
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.
−Removed: These additional sources consist primarily of Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased and brokered deposits.
−Removed: As we continue to grow, we are likely to become more dependent on these sources.
+Added: These additional sources consist primarily of Federal Home Loan Bank advances, proceeds from the sale of loans or investments, federal funds purchased and brokered deposits.
+Added: As we continue to grow, or as competitive pressures increase with regard to core funding sources, we are likely to become more dependent on these additional sources.
Adverse operating results or changes in industry conditions could lead to difficulty or an inability in accessing these additional funding sources.
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In this case, our operating margins and results of operations would be adversely affected.
+Added: Various factors beyond our control, including interest rate increases and competition from banks and other financial institutions, adversely affect our liquidity.
+Added: Liquidity describes our ability to meet financial needs that arise in the normal course of our business, including deposit withdrawals and anticipated loan fundings, as well as current and planned expenditures.
+Added: Our primary sources of liquidity are deposits, principal and interest payments on loans and securities, and proceeds from calls, maturities and sales of securities.
+Added: The significant increases in market interest rates beginning in 2022 have contributed and may continue to contribute to a decline in our core deposits as customers seek higher interest rates from sources such as non-bank money market funds and bank competitors.
+Added: We have undertaken and may continue to undertake measures to mitigate market-wide competitive deposit pressures or interest rate uncertainty or to otherwise manage our liquidity position.
+Added: These have included and may continue to include accessing alternative funding sources, such as FHLBB advances and brokered certificates of deposit, as noted above.
+Added: Our investment portfolio also provides a potential source of liquidity that we have from time to time elected to and may continue to access.
+Added: Due to the increase in interest rates, the fair value of our available for sale investment portfolio has declined in value since our initial purchase, resulting in a net unrealized loss position.
+Added: If we elected to sell such investment securities, we would recognize a loss and take a charge to our operating results in the quarter in which a decision to sell such securities is made.
+Added: Additionally, a majority of our available for sale investment securities would generate a capital loss or gain upon their sale.
+Added: Capital losses are only deductible to the extent we are able to record capital gains during the applicable tax carryback and carryforward periods for federal tax purposes, and capital losses may not be carried back or carried forward for Massachusetts state tax purposes.
+Added: If we are unable to offset capital losses from the sale of securities, if any, with capital gains, the tax benefit associated with such sale would be less than the amount reflected as a deferred tax asset in our financial statements.
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.
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We cannot assure that our third-party service providers will be able to continue to provide their services in an efficient, cost effective manner, if at all, or that they will be able to adequately expand their services to meet our needs.
−Removed: Any problems caused by these third-parties, including an interruption in service, or as a result of their not providing us their services for any reason or their performing their services poorly, and our inability to make alternative arrangements in a timely manner, could cause a disruption to our business and could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively.
+Added: Any problems caused by these third-parties, including an interruption in service, or as a result of their not providing us their services
+Added: for any reason or their performing their services poorly, and our inability to make alternative arrangements in a timely manner, could cause a disruption to our business and 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.
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equipment failures, including those caused by natural disasters or by electrical, telecommunications or other essential utility outages;
−Removed: business continuity and data security system failures, including those caused by computer viruses, cyber-attacks or unforeseen problems encountered while implementing major new computer
−Removed: systems or upgrades to existing systems;
+Added: 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.
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Materially different results may occur as circumstances change and additional information becomes known.
−Removed: Areas requiring significant estimates and assumptions by management include our valuation of our current and future stock-based compensation and retirement 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.
−Removed: Please see the section of this Annual Report on Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” for more information.
+Added: Areas requiring significant estimates and assumptions by management include our valuation of our retirement plans and pension benefits, our determination of our income tax provision, our evaluation of the adequacy of our allowance for loan losses, and our evaluation of our securities portfolio.
+Added: Please see the section of this Annual Report on Form 10-K titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” for more information and Note 2, “Summary of Significant Accounting Policies” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.
Our internal controls, procedures and policies may fail or be circumvented.
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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.
−Removed: At December 31, 2021, we maintained investments of approximately $83.8 million in entities for which we receive allocations of tax credits, excluding investments of approximately $4.0 million in qualified zone academy bond investments, which we utilize to offset our income tax liability.
+Added: December 31, 2022, we maintained investments of approximately $131.3 million in entities for which we receive allocations of tax credits, excluding investments of approximately $3.9 million in qualified zone academy bond investments, which we utilize to offset our income tax liability.
We recorded the benefit of $7.3 million in credits for the year ended December 31, 2022.
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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.
−Removed: Public health crises, such as pandemics and epidemics, such as the global outbreak of COVID-19, domestic or geopolitical crises, such as terrorism, military conflict, including escalating military tension between Russia and Ukraine, war or the perception that hostilities may be imminent, political instability or civil unrest, or other conflict, human error or other events outside of our control, could cause disruptions to our business or the United States
−Removed: economy as a whole, and our business and operating results could suffer.
+Added: Public health crises, such as pandemics and epidemics, such as the global outbreak of COVID-19, domestic or geopolitical crises, such as terrorism, military conflict, the ongoing war between Russia and Ukraine, other wars or the perception that hostilities may be imminent, political instability or civil unrest, 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.
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Eastern Bank and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns.
−Removed: The Securities and Exchange Commission has stated that it plans to propose rules in reaction to climate change that could result in increased costs associated with compiling information about ourselves and our customers in order to comply with such rules.
We and our customers may face cost increases, asset value reductions, operating process changes, and the like.
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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.
−Removed: If our relationships with our customers, vendors and
−Removed: 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.
+Added: 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, many investors now consider how corporations are addressing ESG matters when making investment decisions.
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These shifts in investing priorities may result in adverse effects on the trading price of our common stock if investors determine that we do not sufficiently address ESG matters in accordance with their standards or other third-party standards for evaluating ESG matters.
+Added: Further, our regulators, including the Securities and Exchange Commission, may adopt regulations related to ESG matters that could require the collection, assessment, and reporting of extensive data, including emissions-related data, in categories and formats that are novel to us.
+Added: Although we have begun considering and developing various measures to address potential future regulatory requirements, these measures may not be sufficient in every instance to ensure full compliance with such requirements.
Risks Related to Regulations
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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.
−Removed: 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.
+Added: 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
+Added: adverse effect on our business, financial condition, and results of operations.
See the section of this Annual Report on Form 10-K titled “Business—Supervision and Regulation” for a discussion of the regulations to which we are subject.
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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.
−Removed: Also, our regulators expect us to perform increased due diligence and ongoing monitoring of third-
−Removed: party vendor relationships, thus increasing the scope of management involvement and decreasing the efficiency otherwise resulting from our relationships with third-party technology providers.
+Added: 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.
Presidential appointees to the independent bank regulatory agencies may adopt new regulatory policies and pursue different bank supervisory priorities.
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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.
−Removed: We became subject to new capital requirements in 2015.
−Removed: These new standards, which now apply and were fully phased-in as of January 1, 2019, require 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.
+Added: New capital requirements which were fully phased-in as of January 1, 2019, require 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.
−Removed: 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.
+Added: It could also result in our taking 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.
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The Dodd-Frank Act eliminated the maximum Deposit Insurance Fund (“DIF”) ratio of 1.5% of estimated deposits, and the FDIC has established a long-term ratio of 2.0%.
−Removed: On September 30, 2021, the Deposit Insurance Fund reserve ratio was 1.27%.
In September 2020, the FDIC adopted a restoration plan designed to ensure that the DIF reserve ratio reaches 1.35% by September 2028.
−Removed: Although the FDIC has the authority to increase assessments in order to maintain the DIF ratio at particular levels, as of the date of this Annual Report on Form 10-K the FDIC has not proposed a general increase in assessment rates that would apply to Eastern Bank.
+Added: On September 30, 2021, the Deposit Insurance Fund reserve ratio was 1.27%.
+Added: In October 2022, the FDIC increased the initial base deposit insurance assessment rate schedules for all FDIC insured depository institutions by 2 basis points, beginning with the quarterly assessment period ending March 31, 2023.
+Added: The new assessment rate schedules will remain in effect unless and until the DIF reserve ratio meets or exceeds 2%, absent further FDIC action.
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.
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Our growth and expansion into a variety of new fields may potentially involve new U.S.-based regulatory issues/requirements including, for example, the New York Department of Financial Services Cybersecurity Regulation or the California Consumer Privacy Act (“CCPA”).
−Removed: In addition, one or more members of the European Union (the “EU”) may take the position that we are subject to the EU General Data Protection Regulation (“GDPR”) because some of our customers are or may become residents of EU states while maintaining account relationships with us.
+Added: In addition, one or more members of the European Union (the “EU”) may take the position that we are
+Added: subject to the EU General Data Protection Regulation (“GDPR”) because some of our customers are 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.
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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.
−Removed: This may result in differences in the
−Removed: treatment of revenues, deductions, credits and/or differences in the timing of these items.
+Added: 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.
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A reduction in net income could negatively affect the price of Eastern Bankshares, Inc.
+Added: Regulatory developments could adversely affect our business by increasing our costs and thereby making our business less profitable.
+Added: Our profitability may be adversely affected by current and future rulemaking and enforcement activity by the various federal, state and self-regulatory organizations to which we are subject.
+Added: Regulations can adversely affect our compliance costs and other non-interest expenses, and failure to comply with regulations could subject us to regulatory actions or litigation, which could have a material adverse effect on our business, results of operations, or financial condition.
+Added: New laws, rules and regulations, or changes to the interpretation or enforcement of existing laws, rules or regulations, from time to time could increase our expenses, causing our recent historical expenses not to be indicative of future expenses, and could result in limitations on the lines of business we conduct or plan to conduct, modifications to our current or future business practices, and increased capital requirements.
+Added: For example, the SEC and our banking regulators have proposed climate-related disclosure requirements and principles for climate-related financial risk management, respectively.
+Added: We expect that these developments could negatively impact our results, including by increasing our legal, compliance, and information technology expenditures and could result in other costs, as well as greater risks of lawsuits and enforcement activity by regulators.
+Added: These changes may also affect the array of products and services we offer to our customers.
+Added: It is unclear how and whether our regulators, including the SEC, FDIC, other banking regulators and other state insurance regulators may respond to, or enforce elements of, these new regulations or develop their own similar laws and regulations.
+Added: The impacts, degree and timing of the effect of applicable laws, future regulations and industry principles on our business cannot now be anticipated and may have further impacts on our products and services and the results of operations.
Risks Related to Stock-Based Benefit Plans
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In addition, we recognize compensation expense monthly for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we recognize compensation expense for restricted stock awards, performance stock units and restricted stock units over the vesting period of awards made to recipients.
−Removed: We anticipate that in 2022, our incremental compensation expense for shares purchased in our IPO by the ESOP and the Equity Plan will significantly increase our overall compensation expense as compared to prior years.
+Added: We anticipate that in 2023, our incremental compensation expense for shares purchased in our IPO by the ESOP and for the Equity Plan will significantly increase our overall compensation expense as compared to prior years.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act 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.
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We have experienced and may continue to experience higher than anticipated operating expenses and outside auditor fees during the implementation of these changes and thereafter.
−Removed: 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
−Removed: 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.
+Added: 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.
Risks Related to Our Articles of Organization and State and Federal Banking Laws
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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.
−Removed: 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;
+Added: 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;
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.
+Added: Additionally, our Board of Directors is currently classified, with directors serving three-year staggered terms.
+Added: However, the classified structure is being phased out, and by our 2027 annual meeting of stockholders, directors will be elected for annual terms.
Furthermore, shares of restricted stock, restricted stock units or stock options that we may grant to employees and directors, stock ownership by our management and directors, employment agreements and/or change in control agreements that we have entered into with our executive officers and other factors may make it more expensive for companies or persons to acquire control of Eastern Bankshares, Inc.
−Removed: 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.
+Added: Taken as a whole, these
+Added: 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.
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The market price of our stock value may be negatively affected by applicable regulations that restrict stock repurchases by us.
−Removed: Massachusetts regulations prohibit us from repurchasing shares of our common stock through October 14, 2023 (i.e., during the first three years following the completion of our IPO), except to fund tax-qualified or nontax-qualified
−Removed: employee stock benefit plans, or except in amounts not greater than 5% of our outstanding shares of common stock then outstanding.
+Added: Massachusetts regulations prohibit us from repurchasing shares of our common stock through October 14, 2023 (i.e., during the first three years following the completion of our IPO), 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 then outstanding.
Our repurchase of shares of common stock is also subject to Federal Reserve Board policy related to repurchases of shares by depository institution holding companies.
−Removed: On November 12, 2021, we announced receipt of non-objection from the Federal Reserve Board to purchase over a 12-month period up to 9,337,900 shares of common stock, which represented 5% of our shares of common stock then outstanding.
−Removed: The repurchase program, which is limited to $225 million through November 30, 2022, may be modified or terminated by our Board of Directors at any time.
+Added: To date, we have received two notices of non-objection to proposed share repurchase programs, one allowing the purchase of up to 9,337,900 shares, which we completed in the third quarter of 2022;
+Added: and one allowing the purchase of up to up to 8,900,000 shares through August 31, 2023.
+Added: The outstanding repurchase program, which is limited to $200.0 million, may be modified or terminated by our Board of Directors at any time.
In addition, the Federal Reserve Board could subsequently limit or prohibit our repurchase of common stock if we experience a material adverse change in our financial condition or results of operations.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.