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Item 1A. Risk Factors

2025-02-27 compared with 2024-02-26 · 119 added, 122 removed, 542 unchanged (31% of the section changed)

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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 included in Part II, Item 7 in this Annual Report on Form 10-K.

You should carefully consider the following risk factors that may affect our business, future operating results and financial condition, as well as the other information set forth in this Annual Report on Form 10-K, before making a decision to invest in our common stock.

You should carefully consider the following risk factors, as well as the other information set forth in this Annual Report on Form 10-K, in evaluating whether to make or retain an investment in our common stock.

If any of the following risks actually occur, our business, financial condition or results of operations would likely be materially adversely affected.

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The following risks are not the only risks we face.

Additional risks that are not presently known or that we presently deem to be immaterial also could have a material adverse effect on our financial condition, results of operations and business.

Additional risks that are not presently known or that we presently deem to be immaterial also could have a material adverse effect on our future business, financial condition, results of operations and cash flows.

Summary of Material Risk Factors

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There are various risks associated with our acquisition growth strategy, any of which could have a material adverse effect on our business.

• Our pending merger with Cambridge is subject to numerous uncertainties and risks, including the potential for delays or burdensome conditions associated with regulatory approvals, the potential for shareholder litigation, significant or unexpected expenses associated with the merger and integration, and the potential for termination of the merger agreement in accordance with its terms.

There can be no assurances that the Company and Cambridge will ultimately obtain all of the required approvals or complete the merger.

• We may be unsuccessful in realizing the expected benefits of the Cambridge acquisition or other acquired businesses, 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 and/or negatively impact our financial results.

• When we acquire a business, a portion of the purchase price of the acquisition may be allocated to goodwill and other identifiable intangible assets.

The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill acquired.

Under current accounting guidance, if we determine that goodwill or intangible assets are impaired, we would be required to write down the value of these assets.

• We operate in a competitive market and may be unable to successfully identify additional acquisition opportunities or compete for attractive acquisition targets.

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• We may be unable to successfully execute on our strategic plan or performance targets, including through a failure to attract or retain the necessary highly skilled and qualified personnel.

• The fair value of our investments, including our securities portfolio, has declined due to increases in interest rates and may continue to decline, adversely impacting shareholders’ equity.

• The fair value of our investments, including our securities portfolio, has declined due to increases in interest rates beginning in March 2022 and may decline further in the future.

Unrealized gains and losses, net of tax, in the estimated fair value of the available-for-sale portfolio is recorded as other comprehensive income, which has the effect of reducing our shareholders’ equity and therefore our tangible book value per share, which is a metric many investors in our common stock consider.

• 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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The following risks are not the only risks we face.

Additional risks that are not presently known or that we presently deem to be immaterial also could have a material adverse effect on our financial condition, results of operations and business.

Additional risks that are not presently known or that we presently deem to be immaterial also could have a material adverse effect on our financial condition, results

of operations and business.

Please refer to the note at the beginning of this section for important caveats related to the following risk factors.

Risks Related to Our Acquisition Strategy

The market price of the Company’s common stock after the prospective merger with Cambridge may be affected by factors different from those currently affecting shares of Company common stock.

Subject to the receipt of regulatory and shareholder approvals, and the satisfaction of other closing conditions, upon the completion of the merger with Cambridge, the Company expects to incorporate Cambridge’s business into its own to create a combined enterprise.

While we believe there are significant similarities and expected synergies in core business activities and geographical locations of our businesses and services, the Company’s business differs from that of Cambridge.

Accordingly, the results of operations of the Company and the market price of the Company’s common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of the Company and Cambridge.

The Company may fail to realize all of the anticipated benefits of the merger, particularly if the integration of the Company’s and Cambridge’s businesses is more difficult than expected.

The Company may fail to realize some or all of the anticipated benefits of the transaction if the integration process takes longer or is more costly than expected.

Furthermore, any number of unanticipated adverse occurrences for either the business of Cambridge or the Company may cause us to fail to realize some or all of the expected benefits.

The integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger.

Each of these issues might adversely affect the Company, Cambridge or both during the transition period, resulting in adverse effects on the Company following the merger.

The Company may fail to realize all of the anticipated benefits of Cambridge or other acquired businesses, particularly if the integration of the acquired businesses is more difficult than expected.

The Company may fail to realize some or all of the anticipated benefits of Cambridge or other acquired businesses if the integration process takes longer or is more costly than expected.

Furthermore, any number of unanticipated adverse occurrences for either the acquired business or the Company may cause us to fail to realize some or all of the expected benefits.

The integration process, which is ongoing for Cambridge, could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger.

Each of these issues might adversely affect the Company during the transition period, resulting in adverse effects on the Company following the merger.

Additionally, our assumptions regarding the fair value of assets being acquired or projections of future benefits following the merger could prove to be inaccurate.

As a result, revenues may be lower than expected or costs may be higher than expected and the overall benefits of the merger may not be as great as anticipated, any of which could materially and adversely affect our business, financial condition, results of operations, and future prospects.

The Company may be unable to retain Company and/or Cambridge personnel successfully while the merger is pending or after the merger is completed.

The success of the merger will depend in part on the Company’s ability to retain the talents and dedication of key employees currently employed by the Company and Cambridge.

It is possible that these employees may decide not to remain with the Company or Cambridge, as applicable, while the merger is pending or with the Company after the merger is completed.

If the Company and Cambridge are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, the Company and Cambridge could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs.

In addition, following the merger, if key employees terminate their employment, the Company’s business activities may be adversely affected, and management’s attention may be diverted from successfully integrating the Company and Cambridge to hiring suitable replacements, all of which may cause the Company’s business to suffer.

In addition, the Company and Cambridge may not be able to locate or retain suitable replacements for any key employees who leave either company.

The Company and Cambridge have incurred and expect to continue to incur significant costs related to the merger and integration.

The Company and Cambridge have incurred and expect to incur significant, non-recurring costs in connection with negotiating the merger agreement and closing the merger.

In addition, the Company will incur integration costs following the completion of the merger as the Company integrates the Cambridge business, including facilities and systems consolidation costs and employment-related costs.

The Company and Cambridge will also incur significant legal, financial advisory, accounting, banking and consulting fees, fees relating to regulatory filings and notices, SEC filing fees, printing and mailing fees and other costs associated with seeking required shareholder and regulatory approvals.

Some of these costs incurred by the Company are payable regardless of whether the merger is completed.

The Company and Cambridge may also incur additional costs to maintain employee morale and to retain key employees.

There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time.

Regulatory approvals related to the merger may not be received, may take longer to receive than expected, or may impose burdensome conditions, which could impose additional costs and could delay or prevent completion of the merger.

Before the merger may be completed, certain approvals or consents must be obtained from various bank regulatory and other authorities of the United States, the Commonwealth of Massachusetts and the State of New Hampshire.

These governmental entities, including the Federal Reserve Board, the FDIC, the Massachusetts Division of Banks and the New

Hampshire Banking Department, may impose conditions on the completion of the merger or require changes to the terms of the merger.

Any such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of the Company following the merger, any of which might have a material adverse effect on the Company following the merger.

The Company is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger include any conditions or restrictions that would constitute a “Burdensome Condition” as defined in the merger agreement.

Additionally, there can be no assurance as to whether the regulatory approvals will be received or the timing of the approvals.

The merger agreement is subject to termination in accordance with its terms, and the pending merger may not be timely completed or at all.

The merger agreement is subject to termination by mutual written consent or by the Company or Cambridge based upon factors such as a failure to obtain required regulatory or shareholder approvals;

a breach of warranties, representations, or covenants;

or other factors as set forth in the merger agreement.

Additionally, either the Company or Cambridge may terminate the merger agreement if the merger has not been completed by September 19, 2024, unless the failure of the merger to be completed has resulted from the failure of the party seeking to terminate the merger agreement to perform its obligations.

Shareholder litigation could prevent or delay the completion of the merger or otherwise negatively impact the business and operations of the Company and Cambridge.

Shareholders of the Company and/or Cambridge may file lawsuits against the Company, Cambridge and/or the directors and officers of either company in connection with the merger.

One of the conditions to the closing is that no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the merger or any of the other transactions contemplated by the merger agreement be in effect.

If any plaintiff were successful in obtaining an injunction prohibiting the Company or Cambridge defendants from completing the merger or any of the other transactions contemplated by the merger agreement, then such injunction may delay or prevent the effectiveness of the merger and could result in significant costs to the Company and/or Cambridge, including any cost associated with the indemnification of directors and officers of each company.

We have received demand letters from purported shareholders generally alleging that the registration statement we initially filed with the SEC on November 13, 2023 to register the shares of our common stock that we expect to issue upon the acquisition of Cambridge Bancorp, and the related joint proxy statement/prospectus, dated January 16, 2024, for our special meeting of shareholders on February 28, 2024, omits material information in violation of the federal securities laws.

The shareholders have demanded disclosure of certain additional information pertaining to certain financial projections for each of us and Cambridge, certain information with respect to the analysis and opinion of our financial advisors, and other requested disclosures.

We received four demand letters in November 2023 prior to the date of the joint proxy statement/prospectus, and we received four other demand letters in February 2024 after we distributed the joint proxy statement/prospectus.

We believe that the allegations in the demand letters are meritless and no additional disclosure was or is required in this joint proxy statement/prospectus.

However, in order to avoid nuisance, cost and distraction, and to preclude any efforts to delay the closing of the merger, the Company and Cambridge voluntarily made additional disclosures in the definitive joint proxy statement/prospectus dated January 16, 2024, including supplemental disclosure contained in our Current Report on Form 8-K dated February 20, 2024.

While the Company believes the allegations in the demand letters were without merit, the Company or Cambridge may receive additional demand letters in connection with the merger, and shareholders could initiate litigation in connection with these or other demand letters, the Company and Cambridge may incur costs in connection with the defense or settlement of any shareholder lawsuits filed in connection with the merger.

Such litigation could have an adverse effect on the financial condition and results of operations of the Company and Cambridge and could prevent or delay the completion of the merger.

To the extent that we acquire other companies, including Cambridge and its subsidiary Cambridge Trust Company, our business may be negatively impacted by certain risks inherent with such acquisitions, including assumption of or potential exposure to significant liabilities of the acquired business, some of which may be unknown or contingent at the time of acquisition, including, without limitation, liabilities for regulatory and compliance issues.

We may be unsuccessful identifying and competing for acquisitions.

We regularly look for acquisition opportunities of banks and financial institutions that meet our criteria, some of which may be material to our business and financial performance and could involve significant cash expenditures or result in a material increase in the number of shares of our common stock that are outstanding.

We face competition from other financial services institutions, some of which may have greater financial resources than us, when considering acquisition opportunities.

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.

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.

The Company may be unsuccessful in retaining our personnel or the personnel of the company we acquire.

The success of any merger or other acquisition that we pursue will depend in part on the Company’s ability to retain the talents and dedication of key employees currently employed by the Company and employees who join the Company from the acquired company.

If the Company is unable to retain key employees, including management, who are critical to the successful integration and future operations of the combined company, the Company could face disruptions in its operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs.

In addition, if key employees terminate their employment, the Company’s business activities may be adversely affected, and management’s attention may be diverted from successfully integrating the Company and the acquired company to hiring suitable replacements, all of which may cause the Company’s business to suffer.

In addition, the Company may not be able to locate or retain suitable replacements for any key employees who leave the combined company.

The Company has incurred and expects to continue to incur costs related to the acquisition and integration of Cambridge and other businesses.

The Company routinely incurs significant, non-recurring costs when it agrees to acquire other businesses.

In addition, the Company incurs integration costs following the completion of acquisitions as it integrates the acquired business, including facilities and systems consolidation costs and employment-related costs.

The Company may also incur additional costs to retain key employees of the Company and the acquired business.

There can be no assurances that the expected benefits and efficiencies related to the integration of the acquired businesses will be realized to offset these transaction and integration costs over time.

Regulatory approvals related to proposed business acquisitions may not be received, may take longer to receive than expected, or may impose burdensome conditions, which could impose additional costs and could delay or prevent completion of the acquisition.

Before a merger or other acquisition may be completed, certain approvals or consents must be obtained from various bank regulatory and other authorities of the United States, the Commonwealth of Massachusetts and the State of New Hampshire.

These governmental entities, including the Federal Reserve Board, the FDIC, the Massachusetts Division of Banks and the New Hampshire Banking Department, may impose conditions on the completion of the transaction or require changes to the terms of the transaction, require divestitures or place restrictions on our conduct after the completion of the transaction.

Any such conditions or changes could have the effect of delaying completion of the transaction or imposing additional costs on or limiting the revenues of the Company following the completion of the transaction, any of which might have a material adverse effect on the Company.

The degree of scrutiny that our regulators give to mergers and other acquisitions can change from time to time.

In general, we anticipate that as the Company increases in size and complexity, our proposed mergers and other acquisitions will receive greater regulatory scrutiny and the time that regulators will take to process the applications will increase.

In September 2024, the Department of Justice’s Antitrust Division and the FDIC announced that each respective agency has withdrawn the 1995 Bank Merger Competitive Review Guidelines (the “1995 Guidelines”).

The Department of Justice’s Antitrust Division announced that it will instead evaluate the bank mergers using its 2023 Merger Guidelines that

apply across all industries.

As of the date of this Annual Report on Form 10-K, the Federal Reserve Board has not released any new guidance on its approach to bank merger reviews, nor has it withdrawn from the 1995 Guidelines.

Past statements from the Federal Reserve Board staff indicate that the Federal Reserve Board is not actively planning to alter its approach to bank merger reviews.

The 2023 Merger Guidelines set forth more stringent concentration limits than the 1995 Bank Merger Guidelines.

The 2023 Merger Guidelines provide additional, largely qualitative grounds on which the Department of Justice could object to a transaction beyond traditional local market concentration.

At this time, we are unable to predict whether the actions taken by the FDIC and the Department of Justice will have a material adverse effect on our ability to acquire or merge with banking companies in our market area.

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

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• Inability to improve the revenues and profitability or realize the cost savings and synergies expected of the acquired business;

• Potential future impairment of the value of goodwill and intangible assets acquired;

• Potential future impairment of the value of goodwill and intangible assets acquired, as discussed below and elsewhere in this Annual Report on Form 10-K;

• Identification of internal control deficiencies of the acquired business.

We anticipate that whenever we acquire a business through a merger or another type of transaction, a portion of the purchase price of the acquisition will be allocated to goodwill and other identifiable intangible assets, and our subsequent evaluation of that goodwill, at least annually, will be a critical accounting estimate.

Under current accounting rules, at the time we complete an acquisition, the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired will determine the amount of the purchase price that is allocated to goodwill acquired, and subsequently, if we determine that goodwill or intangible assets are impaired, we would be required to write down the value of these assets.

If such a write-down occurs, it may have a material adverse effect on our financial condition and operating results.

(For more information regarding the risk of goodwill impairment, please see “We may be required to write down goodwill and other acquisition-related identifiable intangible assets.”)

All of these and other potential risks may serve as a diversion of our management’s attention from other business concerns, and any of these factors could have a material adverse effect on our business.

Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of our tangible book value and net income per share may occur in connection with any future transaction.

Moreover, acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of our tangible book value and net income per share may occur in connection with any future transaction.

We may be unsuccessful identifying and competing for acquisitions.

We face competition from other financial services institutions, some of which may have greater financial resources than us, when considering acquisition opportunities.

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.

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.

Risks Related to Our Business and Our Industry Generally

Changes in interest rates have impacted and may continue to impact our profitability.

Changes in interest rates have impacted and may continue to impact our profitability and financial condition.

Net interest income historically has been, and we anticipate that it will remain, a significant component of our total revenue.

A high percentage of our assets and liabilities involve interest-bearing or interest-related instruments.

Thus, changes in interest rates have impacted and may continue to impact many areas of our business, including net interest income, both the earnings and volume of interest-earning assets and interest-bearing liabilities, as well as loan delinquency.

Thus, changes in interest rates have impacted and will likely continue to impact many areas of our business, including net interest income, both the earnings and volume of interest-earning assets and interest-bearing liabilities, as well as loan delinquency and the fair values of our investment portfolio.

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.

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Our net interest income and our earnings would be similarly affected if the interest rates on our interest earning assets declined at a faster pace than the interest rates on our interest-bearing liabilities.

The FOMC raised the target range for the federal funds throughout 2022 and 2023, and additional rate increases may occur if inflation pressures remain elevated or intensify.

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.

Any such downturn may adversely affect our asset quality, deposit levels, loan demand and results of operations.

The fair values of our investment portfolio can be adversely affected by changes in interest rates or expectations of changes, and inflation rates or expectations of inflation, among other factors.

The FOMC may and often does change its view as to whether the federal funds rate target band should increase or decrease and the rate at which such change should occur.

The FOMC decreased the federal funds rate by 50 basis points to a target range of 4.75% to 5.00% in September 2024 and by 25 basis points in November and December, reducing the federal funds rate target band at year end to 4.25% from 4.50%.

However, in December 2024, the FOMC revised its outlook for rate cuts in 2025, indicating that FOMC members anticipated two reductions in 2025 instead of the four reductions that the FOMC members anticipated in September 2024.

Powell, Chairman of the Board of Governors of the Federal Reserve System, stated in December 2024 that after the FOMC decreased the federal funds rate target band in 2024 by a total of 100 basis points, the FOMC could be more cautious as it considers further adjustments, emphasizing that in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the FOMC will assess future economic data.

Chairman Powell further explained in December 2024 that if the United States economy remains strong and inflation does not continue to move sustainably toward the FOMC’s 2% target, the FOMC could decide to slow the pace at which it chooses to reduce the federal funds rate target band, but alternatively if the labor market were to weaken unexpectedly or inflation were to decline more quickly than anticipated, the FOMC could choose to accelerate the pace at which it chooses to reduce the federal funds rate target band.

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.

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Changes in interest rates, prepayment speeds and other factors may also cause the value of our loans held for sale to change.

Although we have implemented risk management strategies, 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.

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.

Although we have implemented risk management strategies, as well as policies and procedures designed to manage the risks associated with changes in market interest rates, changes in interest rates have from time to time had and may in the future have an adverse effect on our operating results and financial condition.

If actual borrower or depositor behavior or overall economic conditions in the future 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.

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This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates.

If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or by events beyond our control, our business and operating results may be adversely affected.

If our reputation is negatively affected by the actions of our employees, by our inability to conduct our

operations in a manner that is appealing to current or prospective customers, or by events beyond our control, our business and operating results may be adversely affected.

Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, the perception of unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, cybersecurity breaches and questionable or fraudulent activities of our customers.

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Negative publicity regarding our business, employees, or customers, with or without merit, may result in the loss of customers and employees, costly litigation and increased governmental regulation, all of which could adversely affect our operating results.

Social media may exacerbate the risk of negative publicity, including by amplifying and accelerating the dissemination of rumors and disinformation.

The Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, released a report in October 2024 acknowledging the potential for social media to facilitate or accelerate deposit runs through the propagation of information, including rumors or false information.

In its report, the Financial Stability Board noted that the repetition of information in social media, which users experience through the re-posting or liking of other people’s posts, can reinforce a message and may make the message more believable.

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

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Accordingly, we may be required to expend additional resources to enhance our protective measures or to investigate and remediate any information security vulnerabilities or exposures.

Any breach of our

system security could result in disruption of our operations, unauthorized access to confidential customer information, significant regulatory costs, such as enforcement actions and/or the imposition of civil money penalties, litigation exposure and other possible damages, loss or liability.

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.

Such costs or losses could exceed the amount of available insurance coverage, if any, and would adversely affect our earnings.

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Although we require third-party providers to maintain certain levels of information security, such providers may remain vulnerable to operational and technology vulnerabilities, including cyber-attacks, security breaches, unauthorized access, breaches, fraud, phishing attacks, misuse, computer viruses, or other malicious attacks, which could result in unauthorized access, misuse, loss or destruction of data, an interruption in service or other similar events that may impact our business.

Although we may contractually limit liability in connection with attacks against third-party providers, we remain exposed to the risk of loss associated with such vendors.

Although we may contractually limit

liability in connection with attacks against third-party providers, we remain exposed to the risk of loss associated with such vendors.

In addition, a number of our vendors are large national entities with dominant market presence in their respective fields.

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These balloon payments may require the borrower to either sell or refinance the underlying property in order to make the balloon payment, which may increase the risk of default or non-payment.

In addition, because of the risks associated with commercial loans, including the economic stress in our market due to the COVID-19 pandemic, the switch to hybrid and remote work, and rising interest rates, we may experience higher rates of default than if the portfolio were more heavily weighted toward residential mortgage loans.

In addition, because of the risks associated with commercial loans, including the economic stress in our market due to the COVID-19 pandemic, the increasing prevalence of hybrid and remote work, and a higher interest rate environment than existed when loans were first originated, 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.

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At December 31, 2024, loans secured by one- to four-family residential real estate were $5.5 billion, or 31.2% 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.

Loans secured by one- to four-family residential real estate include residential real estate mortgages, home equity loans and lines of credit and investment real estate loans secured by one- to four-family residential properties.

At December 31, 2024, $236.1 million of one- to four-family residential real estate loans were part of the commercial loan portfolio.

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Declines in real estate values could cause some of our residential mortgages to be inadequately collateralized, which would expose us to a greater risk of loss.

Residential loans with combined higher loan-to-value ratios are more sensitive to declining property values than those with lower combined loan-to-value ratios and, therefore, may experience a higher incidence of default and severity of losses.

Residential loans with relatively high combined loan-to-value ratios are more sensitive to declining property values than those with lower combined loan-to-value ratios and, therefore, may experience a higher incidence of default and severity of losses.

In addition, if the borrowers sell their homes, they may be unable to repay their loans in full from the sale proceeds.

For home equity loans and lines of credit, we may be unsuccessful in recovering all or a portion of our loan proceeds in the event of default.

For these reasons, we may

experience higher rates of delinquencies, default and losses on our home equity loans, which could have a material adverse effect on our financial condition and results of operations.

For these reasons, we may experience higher rates of delinquencies, default and losses on our home equity loans, which could have a material adverse effect on our financial condition and results of operations.

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

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Hedging against interest rate exposure may adversely affect our earnings.

We employ techniques that limit, or “hedge,” the adverse effects of changing interest rates on our loan portfolios.

We employ techniques that are intended to limit, or “hedge,” the adverse effects of changing interest rates on our loan portfolios.

We also engage in hedging strategies with respect to arrangements where our customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa.

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As of December 31, 2023, goodwill and other identifiable intangible assets were $566.2 million.

As of December 31, 2024, goodwill and other identifiable intangible assets were $1.1 billion.

Under current accounting guidance, if we determine that goodwill or intangible assets are impaired, we would be required to write down the value of these assets.

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Any changes to regulatory capital requirements could adversely affect our ability to pay dividends or could require us to reduce business levels or to raise capital.

Our ability to raise additional capital will depend, for example, on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance.

If we are unable to raise additional capital on terms that are acceptable to us or at all, our operations or our financial condition and liquidity could be materially and adversely affected, and we may be subject to adverse regulatory action.

Our ability to raise additional capital will depend, for example, on conditions in the capital markets at that time, which are outside our control, and on our financial condition and our recent operating results at that time and expectations regarding our future operating results.

regulatory action.

Additionally, if we raise capital through the issuance of common stock or other securities, it could adversely impact the ownership interests or create rights senior to those of existing shareholders or dilute the per share value of our common stock.

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Our funding costs 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 raise interest rates to avoid losing deposits.

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 provide elevated deposit interest rates.

Increases to the federal funds rate in 2022 and 2023, and competitor and customer responses to those increases, have caused and potentially may cause competitive pressures to provide elevated deposit interest rates.

The reduction in our overall level of deposits has increased and could continue to increase the extent to which we rely on other, more expensive sources for funding.

As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments.

These additional sources consist primarily of Federal Home Loan Bank advances, proceeds from the sale of loans or investments, reciprocal deposits and brokered deposits.

These additional sources consist primarily of borrowings from the Federal Home Loan Bank that we sometimes refer to as “advances,” proceeds from the sale of loans or investments, reciprocal deposits and brokered deposits.

As we continue to grow, or as competitive pressures increase with regard to core funding sources, we could 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, constraining our financial flexibility.

If we are required to rely more heavily on more expensive

funding sources to support future growth, our revenues may not increase proportionately to cover our costs.

If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs.

In this case, our operating margins and results of operations would be adversely affected.

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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.

These have included and may continue to include accessing alternative funding sources, such as FHLBB advances and brokered certificates of deposit, as noted above.

These have included and may

continue to include accessing alternative funding sources, such as FHLBB advances and brokered certificates of deposit, as noted above.

Our investment portfolio also provides a potential source of liquidity that we have from time to time elected to and may continue to access.

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.

We have in the past elected to sell and may in the future elect to sell additional investment securities.

We have in the past elected to sell a significant amount of investment securities with substantial unrealized losses, and we may choose to do so from time to time in the future.

In that event, 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.

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In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations.

Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components.

Failure to optimize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components.

In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time.

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or the inadequacy or failure of systems and controls, including those of our suppliers or counterparties.

Although we have implemented risk controls and loss mitigation actions, and substantial resources are devoted to developing efficient procedures, identifying and rectifying weaknesses in existing procedures and training staff, it is not possible to be certain that such actions have been or will be effective in controlling each of the operational risks we face.

Any weakness in these systems or controls, or any violation or alleged violation of such laws or regulations, could result in increased regulatory supervision, enforcement actions and other disciplinary action, and have an adverse impact on our business, results of operations, reputation and ability to obtain future regulatory approvals, including those necessary to complete mergers or other acquisitions.

Although we have implemented and routinely refine our risk controls and loss mitigation actions, and we devote substantial resources to developing efficient procedures, identifying and rectifying weaknesses in existing procedures and staff training, it is not possible to be certain that such actions have been or will be effective in controlling each of the operational risks we face.

Any weakness in these systems or controls, or any violation or alleged violation of applicable laws or regulations, could result in increased regulatory supervision, enforcement actions and other disciplinary action, and have an adverse impact on our business, results of operations, reputation and ability to obtain future regulatory approvals, including those necessary to complete mergers or other acquisitions.

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

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Materially different results may occur as circumstances change and additional information becomes known.

Areas requiring significant estimates and assumptions by management include our valuation of goodwill and core deposit intangible in connection with our periodic impairment assessment of such balances, 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.

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” with Item 7 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.

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” within Item 7 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, which could impact our results of operations and financial condition.

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Substantially all of these tax credits are related to development projects that are subject to ongoing compliance requirements over certain periods of time to fully realize their value.

If these projects are not operated in full compliance with the required terms, the tax credits could be subject to recapture or restructuring.

If these projects are not operated in full compliance with the required terms, the tax credits could be subject to

recapture or restructuring.

Further, we may not be able to utilize any future tax credits.

If we are unable to utilize our tax credits or, if our tax credits are subject to recapture or restructuring, it could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to utilize our tax credits or, if our tax credits are subject to recapture or restructuring, it could have a material adverse effect on our financial condition and results of operations.

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

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• Lower wage income levels;

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

• Declines in the market value of residential and commercial real estate, including real estate that collateralizes our loans;

• Inflation or deflation;

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

Channels for servicing our customers are evolving rapidly, with less reliance on traditional branch facilities, more use of online and mobile banking, and increased demand for universal bankers and other relationship managers who can service multiples product lines.

We compete with larger providers who are rapidly evolving their service channels and escalating the costs of evolving the service process.

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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.

Public health crises, such as pandemics and epidemics, domestic or geopolitical crises, such as terrorism, military conflict, 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.

Public health crises, such as pandemics and epidemics (including a possible resurgence of the COVID-19 virus or the possible emergence of the H5 avian influenza), domestic or geopolitical crises, such as terrorism, military conflict, 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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Rising sea levels projected for the coastal regions of Massachusetts and New Hampshire could adversely affect our business.

We believe that progressively rising sea levels will be an area of risk over time for the coastal regions of Massachusetts and New Hampshire in our market, both as the frequency and severity of extreme weather events increase and as currently inhabited property and land parcels are exposed to episodic flooding and routinely higher tides.

currently inhabited property and land parcels are exposed to episodic flooding and routinely higher tides.

The increase in the relative sea level in Boston, as a coastal city, and other coastal regions of Massachusetts and New Hampshire in our market is expected to result in higher coastal surges during storm events and, when considered with projected increases in precipitation intensities, an increase in stormwater flooding.

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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.

The COVID-19 pandemic and the associated economic slowdown has impacted, and it or other widespread health emergencies could impact, our core business and the banking industry, including through remote and hybrid working arrangements that reduce demand for office space in our market.

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.

The duration and severity of the COVID-19 pandemic in 2024 and beyond, including the potential for resurgences and the impact of new variants, are impossible to predict.

It and or other widespread health emergencies may disrupt our operations, our clients and their businesses, and our communities, increasing the risk of detrimental impacts such as default, loan losses, foreclosures, and decreased loan demand and originations on our financial condition and results of operations.

The prevalence of remote and hybrid working arrangements has reduced demand for office space in our market.

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.

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In addition to being affected by general economic conditions, our earnings and growth are affected by the monetary and related policies of the Federal Reserve Board.

The Federal Reserve Board regulates the money supply and credit conditions by using instruments such as open market purchases and sales of U.S.

The Federal Reserve Board, acting through its Federal Open Market Committee (FOMC), regulates the money supply and credit conditions by using instruments such as open market purchases and sales of U.S.

government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits and the interest rate paid on such reserves.

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In addition, changes in the legal and regulatory framework under which we operate require us to update our information systems to ensure compliance.

Our need to review and evaluate the impact of ongoing rule proposals, final rules

and implementation guidance from regulators further complicates the development and implementation of new information systems for our business.

Our need to review and evaluate the impact of ongoing rule proposals, final rules and implementation guidance from regulators further complicates the development and implementation of new information systems for our business.

Also, our regulators expect us to perform increased due diligence and ongoing monitoring of third-party vendor relationships, thus increasing the scope of management involvement and decreasing the efficiency otherwise resulting from our relationships with third-party technology providers.

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however, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there were in place at the time systems and procedures designed to ensure compliance.

Failure to comply with these and other regulations, and supervisory expectations related thereto, may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage or restrictions on our business.

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

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In February 2024, the FDIC updated the estimated loss related to the banking crisis to $20.4 billion, an increase from its original estimate of $16.3 billion.

We expect an increase in special assessment expense, which is not expected to be material, on or around June 2024 based on the FDIC’s modified loss estimate.

Deposit insurance assessment rates are subject to change, and additional increases or modifications to assessments, due to, for

example, changes in base or special assessments or downgraded ratings of Eastern Bank, could have a materially adverse effect on our results of operations and financial condition.

Accordingly, based on the FDIC’s modified loss estimate, we experienced an increase in special assessment expense in June 2024 of $1.9 million.

Deposit insurance assessment rates are subject to change, and additional increases or modifications to assessments, due to, for example, changes in base or special assessments or downgraded ratings of Eastern Bank, could have a materially adverse effect on our results of operations and financial condition.

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

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The definition of “covered employees” generally includes anyone who served as the principal executive officer (“PEO”) or principal financial officer (“PFO”) at any time during the taxable year;

the three highest compensated executive officers (other than the PEO or PFO),

determined under SEC rules;

the three highest compensated executive officers (other than the PEO or PFO), determined under SEC rules;

and any individual who was a covered employee, including of a “predecessor company,” at any point during a taxable year beginning on or after January 1, 2017, even after the employee terminates employment.

We expect that in most if not all cases a publicly traded company that we might acquire in the future will be a “predecessor company.” Accordingly, we expect that the number of our covered employees will increase if Eastern acquires one or more publicly held corporations, including through the prospective acquisition of Cambridge.

Also, the list of covered executives is expected to expand beginning in 2027.

Beginning in 2027, the definition of “covered employees” under Section 162(m) will include, in addition to the CEO, CFO and the three highest-paid executive officers already covered by Section 162(m), our five next most highly compensated employees.

We expect that we will not be able to deduct all of the compensation paid to covered employees so long as Eastern qualifies as a “publicly held corporation,” thus increasing our income taxes and reducing our net income.

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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.

For example, the SEC and our banking regulators have proposed climate-related disclosure requirements and principles for climate-related financial risk management, respectively.

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.

These changes may also affect the array of products and services we offer to our customers.

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.

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.

Our business may be adversely affected by the public policy priorities of the Trump administration.

Changes in the public policy priorities of elected officials and appointed regulators can affect our business directly, including through changes in the regulatory environment in which we and our competitors operate, and the markets that we serve, which could have an indirect impact on our business.

Changes associated with the Trump administration’s emphasis on stablecoins and digital assets could have an adverse impact on our business.

President Trump’s Executive Order entitled “American Leadership in Digital Financial Technology” could result in larger scale adoption of stablecoins and other digital assets, which could potentially impact the number of customers who choose to engage with the traditional banking system and as a result could have a direct or indirect impact on our performance.

The Executive Order includes directives to promote dollar-backed stablecoins worldwide, promote the use of blockchain networks to transact and maintain self-custody of digital assets, and to promote and protect access to banking services for related companies and other law-abiding entities.

If implemented, these directives could result in broader adoption of stablecoins and other digital assets into the bank regulatory perimeter and the U.S.

payment system, which could threaten deposits held at traditional banks, including Eastern Bank.

Risks Related to Stock-Based Benefit Plans

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The actual amount of the stock-related compensation and benefit expenses will depend on the number of awards actually granted under the Equity Plan, the fair market value of the awards on the date of grant, the vesting period, and other factors which we cannot predict at this time.

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.

In addition, we recognize compensation expense monthly for our employee stock ownership plan (which we sometimes refer to as our ESOP) 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.

Risks Related to Our Articles of Organization and State and Federal Banking Laws

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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.

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.

Taken as a whole, these statutory provisions and provisions in our articles of

organization could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.

The articles of organization of Eastern Bankshares, Inc.

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The articles of organization also provide that the exclusive forum provision does not apply to any claim for which the federal courts have exclusive jurisdiction, including all suits brought to enforce any liability or duty created by the Exchange Act or the rules and regulations thereunder.

The choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder finds favorable for disputes, could discourage such lawsuits against us and our directors, officers and other employees.

The choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder finds favorable for disputes and could discourage such lawsuits against us and our directors, officers and other employees.

Alternatively, if a court were to find our choice of forum provision inapplicable or unenforceable, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

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Our repurchase of shares of common stock is subject to Federal Reserve Board policy related to repurchases of shares by depository institution holding companies.

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;

and one allowing the purchase of up to up to 8,900,000 shares, which expired on August 31, 2023.

To date, we have received three notices of non-objection to proposed share repurchase programs, as previously discussed.

Each notice of non-objection has covered an approximately 12-month period.

There can be no assurance that we will be able to obtain notices of non-objection from the Federal Reserve Board in the future.

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What changed 10-K

Item 1A. Risk Factors