Hello, and welcome to the Eastern Bankshares, Inc. Third 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 the 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 press release, which can be found at investor.easternbank.com. Please note, this event is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator instructions] Thank you. I would now like to turn the call over to Bob Rivers, Chair and CEO. Please go ahead, sir.

Thank you, Patricia, and good morning, everyone. With me today is Jim Fitzgerald, our Chief Administrative Officer and Chief Financial Officer. And we're pleased to be with you today to provide another quarterly update. Two weeks ago we marked the one year anniversary since Eastern IPO, which we undertook to provide additional resources to grow our customer offerings, accelerate new business opportunities and better serve our customers and communities. A year later, we believe that we are delivering on our commitments in a number of ways, and are now just two weeks away from closing on the largest acquisition in Eastern’s history. A few recent accomplishments that make us especially proud include, we will once again named by the U.S. Small Business Administration, as the number one lender for SBA 7A and 504 loans in Massachusetts for the 13th consecutive year. In the area of AI and advanced analytics, we were recognized as a winner of the 2021 Impact Innovation Award in cash management and payments, by Aite-Novarica Group, a global advisory firm to the financial services industry for our partnership with Signal Financial Technologies to build Monit, a digital financial assistance for small business owners. The 2021 Finovate awards also recognized Eastern as a finalist for its best small business banking solution award, for offering quality products and an exceptional digital experience to small and medium businesses. In addition, MarCom, an international organization that honors the best creative storytelling and marketing recognized Eastern’s Join Us For Good advertising campaign with three awards for Strategic Communications, Video, and Print Media. And finally, we were ranked by Boston Business Journal as the fifth most charitable company in Massachusetts, our fifth consecutive year in the top 10. A few weeks ago, Jim and I were joined by the rest of the executive…

Thanks, Bob, and good morning, everyone. As Bob mentioned, we're very pleased with our third quarter results and look forward to closing the Century merger as expected on November 12. As we've communicated we have received all of our regulatory approvals back in September. We are converting sense for the Eastern systems over the weekend of the closing, and look forward to adding the former Century customers and our new colleagues at that time. I'll have more comments on both the impact of Century in our outlook later in this presentation. GAAP net income was $37.1 million for the quarter, or $0.22 per share. Operating net income was $37.4 million or $0.22 per share as well. Although, the non-operating items were relatively small in the third quarter, we would encourage everyone to review the reconciliation of non-GAAP earnings in Appendix A of the press release and the earnings presentation to see the adjustment. Our board of directors approved a quarterly dividend of $0.08 per share payable on December 15, and approved the share repurchase program to repurchase up to 5% of outstanding shares. The program remains subject to non-objection from the Federal Reserve, which we’ve applied for but have not yet received. Book value at September 30 was $18.36 per share, and tangible book value was $16.33 per share. Both of these were similar to the values at June 30, as growth and retained earnings was offset by a reduction in other comprehensive income due to the reduction in the market value of the securities portfolio. I’ll start with some comments on the balance sheet, as Bob mentioned and covered in the press release, we experienced strong growth in our core loans in the quarter. Excluding PPP loans, both residential and commercial loan growth was 9% on an annualized basis,…

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

Hey, good morning, guys. Hope, everybody's doing well today.

Good morning, Damon. How are you?

Doing great, thanks. First question, kind of looking at your outlook a little bit here. The non-interest income expectation of, I think it's $180 million to $190 million. How much contribution are you expecting from Century? And when I guess if you take that out, what kind of organic growth would you be expecting year-over-year?

Sure. No, it's good question, Damon. I think Century, if you look historically did not have a large fee component to its income stream. They had approximately somewhere between on a core basis $12 million and $15 million a year. If you look at our non-interest income, there has been some variability this year, especially the non-operating numbers, the rabbi trusts gains in the operating category swap revenue. So if you can see through those, we expect basically flat non-interest income year-over-year.

Got it. That’s helpful. Thanks. And then as you look at your outlook for loan growth, I think you said mid to high single digits in the commercial side in 2022. Can you just talk a little bit about what your commercial customers are seeing as far as like supply chain issues or wage inflation? Is that kind of factoring into the demand that may or may not be happening in the next 12-months?

Sure, no, it's a very good question as well. So I think, there's a number of mixed things going on. Clearly, what we hear from customers is wage inflation, supply chain, slowness to construction projects, many of the things that you hear commonly. And so that's definitely a factor. Offsetting that a little bit the other way, the Boston market's doing well, it's growing, a couple of our major industries, bio, and pharma in particular, really growing. And so the support that those and education, the support that those sectors give makes the underlying economy here a little bit stronger than what we sense in other parts of the country. So it's sort of a balancing act there. But those two things are what we hear most.

Got it. Okay, that's helpful. And then I guess, if I squeeze in one more question here, on the outlook for credit, obviously, things are continuing to go very well for you guys. Can you just give a little perspective on your forward looking provision? You've had three releases in a row, and just wondering if you could expect further release. Again, I should preface this by saying as to any day to see full impact, or any type of accounting impacts from the merger closing, but if you look at like, a core Eastern asset? Thanks.

Yeah. So I'm going to laugh and just give a shout out to our credit and accounting teams who actually have to do the accounting for Century on one basis. And then we are adopting CECL, as you mentioned, January 1. So to say it's a moving fluid target is the understatement, and it's a lot of work and very time sensitive. It's really hard to give you a straight answer to question, Damon, so much uncertainty in the transition from sort of the incurred loss model of the past over to CECL. So I think the best we can tell you is, credit trends have been very strong. And the fourth quarter, we will be on the incurred loss model. It probably looks like what you've seen the last couple of quarters. And then, we'll probably give an update more in January, as we know more from the Century closing and CECL.

Got it. Okay, fair enough. That's all I had. Thanks a lot. Appreciate it.

Thanks.

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

Hi, thanks. Good morning. I was hoping you can give us Jim an update on what intangibles are going to look like with the closing? I think it was last you gave us was around $617 million, I don't know if that's been fine-tuned?

Yeah. So I think, Laurie, no, we don't. There's so many moving pieces at this point. The biggest change, and that's outside of our control is interest rates. So what we feel good about, and what I communicated a couple minutes ago is that, we certainly had all the areas, the purchase accounting marks in due diligence, and we feel very good about the process we had and the understanding that we had there. The interest rates are a little bit different than they were back in April, and then all get determined as of November 12. So that's the one variable that makes it hard to give you an answer. But we feel very good about the knowledge that we had in due diligence, we feel very good about.

Okay, that's helpful. And then your color around margin was helpful, just hoping you can help us think about it just a little bit more specifically, right, because obviously, to your point, PPP fees are out, Century's margin is $182 million as of the third quarter, and you don't have liquidity as a challenge. And so, I'm kind of putting all that together, is the $235 million still baseline, but I'm just hoping that you can help us fine tune that a little bit? Is that still too high? Or how should we be thinking more specifically about margin for 2022?

Sure. So I think you've done a good job there, Laurie. You've gotten all the inputs there, right. And they were accurate. So the Century margin is lower than Eastern, that's obviously going to put downward pressure on our margin. And as we've tried to say, where we are originating loans and buying securities, they are at lower yields than our overall aggregate portfolio yield. So the margin compression issue is still there. On top of that, it's a cash transaction. So the liquidity component at Eastern is going to change as well. We did try to be helpful on the dollars. And that's as much guidance as I think we can give at this point.

Okay. And then expenses, your expense guide looks fabulous. Can you help us think a little bit, maybe more specifically as assuming your benefit plans are approved and conversion might be a norm, so it would seem to make sense there? Assuming that comes in, can you just refresh us, I believe it's about a $20 million expense, and then help us think about how you're mitigating that generally and dollar amounts in terms of hiring cash bonuses would be eliminated, maybe if you've got some more specific dollar numbers around that, that you could share?

Sure. So I hopefully can be helpful, Laurie. I think, first thing I would say is, there's no decisions and you know this, I'm not sure everybody else does. No decisions about the management team get made until post approval. So, we certainly when we put together budgets for next year, have some thoughts about what the equity plans might cost. But none of that's been approved, nor really individual's reviewed. So it's a little premature to talk about that. As I said in my comments that we have included that in the $445 million to $460 million next year, the component of that. What I would say is, and I think that will be consistent here and Boston consistent coming into being a public company, we realized we had to change many of the Eastern compensation programs in part, because the equity plans we knew would be coming in 2022. So just to recap there, we changed the pension plan for the company back in 2020. That was a significant employee benefit change. The way we structured it reduced the expense of the company in a significant way, and we expect that benefit to continue into the future. I think, as we've articulated previously, you can see in our detailed disclosures, the pension costs this year was about $7 million, $8 million less than last year. So that's a component going the right way. Second, as we disclosed back in July, there were some supplemental executive retirement programs for a few executives that got modified, again, that was in anticipation of the equity plans coming next year. And then thirdly, going back to 2020, really 2019, we had an executive incentive program that was a cash based program here that we basically stopped making new grants in the year 2020 and 2021, again, in anticipation of the equity plan is coming. So, hopefully that gives you some of the tools of how we approached it and the balances and the trade-offs that we made to get to that position.

Okay. That's helpful. And then two more questions, if I may. Loan deferrals, obviously that’s coming down to $111 million, a kind of a two part question here. Do you have balances on restaurant hotel and retail? And if not, I can follow up with you separately. And then on the $111 million of total deferrals, can you remind us how much of that is gone as of December 31?

So, we should follow-up. There are a significant number of -- there are some maturities in that last modification bucket. I don't believe a lot are in the fourth quarter of this year. But there are certainly more in 2022.

Okay, I'll follow up with you offline. And then, just Bob, last question for you. With this deal just about to close, can you give us a refresh now on how you're approaching future M&A If you would look to digest or you would potentially look to do something in 2022, if the opportunity arose? And then, just second part of that, how you think about using cash versus your currency? Thanks.

Sure. So certainly, we continue to look for opportunities for M&A. And if one were to come along in 2022, we certainly consider that very seriously. We're mindful of the fact that, the targets in the space that we're focused on here in Greater Boston are fewer, and these are rare opportunities, and they're terrific potential opportunities. So, they're kind of things that we wouldn't let pass by. That said, we are very focused on organic growth. It has always been very solid to strong and continues to be that way. We see a lot of opportunities. But right now our energies are very focused on things that will help accelerate organic growth. We're in the middle, for example of a major project, in the middle of integrating Century and assistance conversion. So really, kudos to our technology team of a new digital account opening system that we're currently underway and building, and very excited about as a way to further improve access for our clients, as well as help accelerate account acquisition. And as I mentioned in my remarks, as always focused on our middle market and small businesses, and see a lot of opportunities there. I think in terms of preference for cash versus stock, I'll defer to Jim on that one.

I think I've said this before, Laurie, it's ironic, because it's a very good question. But in reality, the sellers dictate that. So obviously, we have a very strong balance sheet and cash is something that's a relative advantage for us. But in reality that's determined more by sellers than buyers.

Great. Thanks for taking my question.

[Operator Instructions] Your next question comes from David Bishop from Seaport Research. Your line is open.

Yeah. Good morning, gentlemen. I think, I hopped on a little bit late. But can you talk about the balance sheet repositioning [indiscernible] walk through that again, just on a high level basis. Thanks.

Sure, Dave. I think you faded in and out. But I think I got the question, if not redirect me. But I think the question was the Century balance sheet positioning. I think, if you look at the Century and you look at Eastern, Eastern has very strong funding capabilities. And one of the things that we anticipate doing is looking at the deposits and probably and expecting some deposit runoff from the Century side. And we feel very comfortable with that, because we've got so much liquidity at Eastern and our funding sources are so strong. So, it's really just optimizing that funding side, and that takes time. That doesn't happen immediately. So it will be something that will reposition over time, but it's really the funding side is where we see the potential improvements there. And again, it's really just capitalizing on the Eastern strikes.

Got it. And then maybe some color in terms of the types of [technical difficulty] there?

I'm sorry, could you repeat that?

[Indiscernible] in terms of maybe the duration, types of security you put on [ph] balance sheet this quarter?

Sure. So, generally, there is pretty decent disclosure on the securities portfolio is what we bought in the past. And so I think the question is more of these specific recent purchases, which look in terms of types, like what we have in the portfolio, the average durations between three and four years.

And yield this quarter?

The yields on the on portfolio purchases in the quarter were about 1%, at about 1%.

1%. Got it. And then noticed in the outlook, the guidance, the effective tax rate is 20% to 21%. It looks a little bit lower than [indiscernible] running generally just curious what's sort of driving that outlook a little bit lower?

Sure, at Century. So one of the Century’s strengths in their education portfolio lending, is they do what you would generally refer to as an IRB kind of loan. So its tax advantaged. It's one reason their margins are little bit lower. But the tax advantages obviously run through the tax line. And that's what's causing, in essence, the reduction, the lower rate in ‘22 compared to ‘21.

Got it. Thank you.

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

Great. Well, again, thanks so much for tuning in, and for listening, and for your interest in for those of you asked questions, your questions as well. So again, best wishes for the upcoming holiday season, and we look forward to talking with you again next quarter.

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