Hello, and welcome to the Eastern Bankshares, Inc. First Quarter 2021 Earnings Conference Call. Today's call will include forward-looking statements, including statements about Eastern's future financial and operating results, outlook, business strategies and plans, including its pending merger with Century Bancorp, Inc., as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. Listeners are referred to disclosures set forth under the caption Forward-looking Statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission for more information about such risks and uncertainties. Any forward-looking statements made during this call represent management's views and estimates only as of today. While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so, even if management's views or estimates change. And you should not rely on such statements as representing management's views as of any date subsequent to today. During the call, the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings release, which can be found at investor.easternbank.com. Please note, this event is being recorded. [Operator Instructions] Thank you. I'd now like to turn the call over to Bob Rivers, Chair and CEO.

Good morning, and thank you for taking the time to join us today. I hope you and your families are well and looking forward to the summer months ahead, especially as vaccinations rise and our ability to enjoy the activities we have in the past increases. Joining me today on the call is our Chief Administrative Officer and Chief Financial Officer, Jim Fitzgerald. At Eastern, we are very pleased to share with you our first quarter 2021 results. We are reporting our highest-ever quarterly earnings, coupled with continued strong deposits and solid commercial loan growth due to PPP lending in the wake of the announcement of the largest bank acquisition in our history and our 33rd acquisition of an independent insurance agency since 2002. And earlier this month, Eastern was a lead investor in a fintech fund designed to help accelerate technology adoption at community banks across the United States. We believe that we are well on our way to another year of first for Eastern. In addition to Eastern's 203rd anniversary in business, we recently marked our sixth month as a public company during which we announced an acquisition that we believe will solidify Eastern's leading position in the Greater Boston area. The $642 million purchase price for Century Bank, almost 4x that of any prior acquisition in our history, is validation of our commitment to use the capital raised from our IPO to undertake opportunities to significantly scale our company to better serve our customers over time. Recent events have also validated the timing of our conversion in the acquisition of Century. In the months preceding our announcement of the Century acquisition and since, we continue to see transactions indicating a new wave of consolidation in our industry that has been driven by a similar rationale and a…

Great. Thank you, Bob, and good morning, everyone. As Bob mentioned, we're very pleased with this -- these first quarter results. I believe they demonstrate progress on our goal to improve our overall financial performance. We recognize that there are a number of items that are specific to this quarter that may not necessarily continue into the future. In addition to our comments in the press release and the presentation, I'll try and add some descriptions of those items as well as to focus on our core earnings trends. In addition, I'll include some comments on our overall outlook before taking questions. I'll start with net interest income, which was $101.4 million in the first quarter, down $3.5 million from the prior quarter and about flat from a year ago. There are a number of items to bring to your attention. Last quarter included a favorable nonrecurring item of $3.8 million and included 2 more business days in Q1. This quarter included $8.3 million of PPP fee accretion compared to $6.1 million last quarter, driving the PPP fee accretion with $241 million of loan forgiveness. We did add over $800 million of investment securities in the first quarter, although we were only able to reduce our cash position by approximately $200 million as we saw a very strong deposit growth of $800 million. Our net interest margin on a fully tax equivalent basis was 2.71% for the quarter, which was down 13 basis points from the prior quarter. As we have mentioned, the negative impact of lower interest rates is significant to Eastern, especially with the capital we raised in 2020 and the increased liquidity from that capital raise and the significant core deposit growth over the last year. We continue to deploy excess cash into the securities portfolio to…

[Operator Instructions] Your first question comes from the line of Damon DelMonte of KBW.

So my first question regarding loan growth. Could you guys just talk a little bit about what areas like geographically as well as within the loan portfolio that you think will soon produce some net growth for you guys as we go through 2021?

Sure, Damon, happy to. I think, as you know, primarily, our strength is in commercial lending. Most of it is in market. We do a little bit out of market as we have in our disclosures. But really, for the question you're asking, it's really our core Eastern Massachusetts, Southern New Hampshire market. Activity is pretty good. As we said, our pipeline is up $100 million from where it was at the end of the year. And activity levels are strong and improving. We expect to see modest growth as the rest of the year uncovers sort of across the -- across that footprint, both in commercial loans and commercial real estate. It's just been a little bit slow to -- the growth aspect of that has been slow to materialize. As I said, activity levels have been pretty good, and the pipeline has grown. But it will look like the growth that you saw in pre-pandemic from us in 2019 and 2018 in terms of the loan categories and also the geography.

Got it. Okay. That's helpful. And then with respect to the outlook for net interest income for the year, obviously, margin remains under pressure. Core margin remains under pressure just given the dynamics of the market right now. Could you give us a little perspective as to where you think that will kind of bottom out this year?

Sure. It's difficult, Damon, because as we try to say, I think you know, given the liquidity that we have from both the capital raise last year as well as the incredibly strong deposit growth that we've had, we have more liquidity. Liquidity isn't a great thing to happen. It's a burden in the current environment. So it's pretty hard to give you better insights than we -- that are different than what we've already given, which is it's a tough environment. We're modestly investing in the securities portfolio. We think that helps us in the medium term and improves the yield that we're -- as cash moves into the securities portfolio, there's a slight improvement yield there. PPP loans have obviously been helpful. But as rates have been so low, the core margin continues to move downward, and we don't see that bottoming in the near term.

Your next question comes from the line of David Bishop of Seaport Global Securities.

Noticed within the release on a point-to-point basis, looks like business banking, loan growth was pretty strong. I'm just curious, maybe some commentary, what drove the strength in the first quarter there.

It's the PPP. It's PPP loans, David. I think we're a very good -- we're very good in what we call business banking. But small business lending, we've seen the SBA leading lender in both Massachusetts and New Hamp for a number of time -- number of years. And it's something we do well. The PPP opportunity is one that we really capitalize on, and that's where all the loan growth is.

We're going to classify there. Got it. And then sort of circling back to the last question in terms of the deployment of excess liquidity into securities, just curious what you're seeing in terms of onboarding new securities investment yields, which you're able to onboard those at.

It's hard, David, because rates are moving. As we would have given you a month ago, it's different than I'm probably going to give you in a second here. It's below 1%.

Okay. And then the near-term outlook continues to be redeployment from net excess cash back into securities. Is there sort of a target level in terms of balance sheet you're hoping to get to over the near term in terms of securities to assets? How should we think about that as a percent of the assets or any assets?

Sure. As you can see, what makes that hard is we've had great deposit growth. So 90 days ago, we sat here both and said we were going to invest $300 million to $350 million a month in securities, which basically we did. And our cash position didn't really go down very much because we had offsetting deposit increases, which we're very happy about in the long term. So we don't really have a target that way, David. I think we're going to continue to do what we've been doing. And then as we get closer to the Century acquisition, we'll talk about that more. But obviously, that is a major component to our thinking as we get closer to that transaction.

Got it. And then I appreciate the sort of the color in terms of the expense trends this past quarter. Obviously, a lot of moving parts play into it, and it seems to suggest the guidance. There's a little bit of inflationary pressure into the second half. Just curious where we should expect to model that inflationary pressure from an expense perspective.

Sure. I think -- yes, I don't want to over interpret your question or I do want to make sure I'm answering it right. I think the guidance that we're giving is, I think, pretty straightforward, and I think it's pretty consistent with what we tried to guide last quarter as well. The one thing we've pointed out is the first quarter had the benefit of the -- in particular, the PPP expense deferrals. And that's -- obviously, that helped. But I think in terms of the guidance, we're -- I'm not sure we can give much more than we've already given.

Your next question comes from the line of Laurie Hunsicker of Compass Point.

Jim, I just wanted to go back to your net interest income guide that you gave, very helpful. Did that also assume the Century in there closing at mid-November? Or was that not part of that guide?

That was not. Just to be clear, the guidance that I gave does not include Century. As Bob said, as we get closer, we'll talk more about Century. But we did talk about it a couple of weeks ago, and the outlook excluded Century.

Okay. Perfect. That's helpful. And then Slide 9, love the slide. I just wanted to circle back here on -- within noninterest income, the insurance revenue line of $28.1 million this quarter. During the linked quarter adjustment or rather the year-ago adjustment, if I'm taking out $4.8 million, that takes me down to $23.3 million or so as a potential run rate. And then you just had NorthBridge that closed at the beginning of this month, and I couldn't find any revenues on them. Can you just help us think a little bit more about what insurance agency revenue specifically could look like for this year?

Sure. To start off, Laurie, you're doing a very good job. You figured out what we were hoping to provide you the data to figure out. I think the way I personally think about it is when you look year-over-year, which, in this particular case, I think, is the appropriate one because of the seasonal payments, insurance revenues are up 2%. We think that's good guidance for how the year would play out. The acquisitions that we've done really this year have been very small, really don't change our outlook on that particular line item.

Okay. Okay. And then, I guess, just in terms of insurance agency acquisitions still probably thinking hopefully to do 2 to 4 per year, is that still the target? Or have things shifted?

Yes. No, the pipeline is still very strong, and we would expect the same for this year.

Okay. Okay. Great. And then on deferrals -- and if you don't have that, I can follow up with you off-line. Hotel deferrals that look like were $92 million of your $178 million. Just wondered if you had deferrals and sort of the other 3 watch buckets of restaurants, retail and entertainment. And if not, I'll hit you off-line.

We don't. I think the -- given the overall level, and as you rightly pointed out, the $91 million or $92 million that are in hotels really are a pretty high percentage of the modifications. That's the only breakout I've got.

Okay. All right. Fair enough. I guess, Bob, last question to you. We last heard from you, obviously, 3 weeks ago with a very exciting acquisition. But since then, the M&A market has just been on fire. So can you sort of refresh us on what your appetite would potentially look like? And certainly, there are less players now in the Boston MSA. But what it would potentially look like? As you are doing this transaction, would you consider another if it comes your way while you're doing this? And just any other sort of viewpoint in terms of the movement we've seen in the last few weeks, would appreciate that.

Sure, sure. First of all, the outlook is the same. Our focus remains the same market area, same size of transactions. The market continues to consolidate as it has over many years, although certainly, we've seen that heat up in recent months. And I mean, certainly, we'd be open to discussing other potential opportunities if they were to come along. But first and foremost, we're very focused on Century. It's a large deal for us relative to size. We want to make sure that we execute it well. And so all resources are very much focused on that and other critical projects that we would normally have in the course of the year. So to be clear, we certainly wouldn't attempt to integrate 2 organizations at the same time. However, to the extent that there were interested parties in having discussions for future date, we certainly would be open to those.

And there are no further questions at this time. I will now turn the call back over to Bob Rivers for closing remarks.

Great. Well, again, thanks to all of you for participating in the call and listening in. Thanks to all of you who asked great questions, as usual. And wish you a terrific weekend. Look forward to connecting with you again in 90 days or so for our next earnings call. Thanks.

Thank you. This concludes today's conference call. You may now disconnect.