Hello, and welcome to the Eastern Bankshares, Inc. Second Quarter 2023 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 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 risks and uncertainties that may cause actual results or the timing of events to differ materially from the views expressed today. More information about such risks and uncertainties is set forth under the caption forward-looking statements in the earnings press release as well as in the Risk Factors section and other disclosures in the company's periodic filings with the Securities and Exchange Commission. Any forward-looking statements made during this call represent managements views and estimates as of today and the company undertakes no obligation to update these statements as a result of new information or future events. During the call, the company will also discuss both GAAP and certain non-GAAP financial measures. For a reconciliation of GAAP to the non-GAAP financial measures, 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 speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Bob Rivers, Chair and CEO. Please go ahead.

Thank you, Joanne. Good morning, everyone and thank you for joining our second quarter earnings call. As always, I'm joined today by Jim Fitzgerald our Chief Administrative Officer and Chief Financial Officer. Although, the operating environment for banks remains challenging in some respects, we feel very good about our results this quarter. In particular, we demonstrated that our securities repositioning in the first quarter strengthened our balance sheet and improved our earnings outlook, improvements that were immediately impactful and can be seen in our second quarter results. Our net interest margin improved 14 basis points during the quarter and is in line with our guidance from last quarter. In total, our operating revenues were higher than the first quarter as well. In addition, we were able to reduce our wholesale funding by $1 billion during the quarter, which allowed us to shrink our asset base and create a stronger balance sheet and earnings profile. While we expect the challenging environment to continue and potentially become more so over the next few quarters we have taken steps to ensure that we are well prepared. For example, although both our leading credit indicators and traditional asset quality metrics improved in the quarter, we increased our allowance for loan losses and moved our provision higher in the quarter to be consistent with that outlook. We also believe the Fed will keep rates higher for longer and that the heightened competition for deposits will continue for some time. Although, we were able to contain our overall cost of funds in the quarter that was primarily due to the reduction of wholesale funds through the securities sale last quarter. We continue to see a migration from lower cost deposits to higher cost deposits and expect that trend to continue. We will look for opportunities to…

Great. Thanks Bob, and good morning everyone. I'll first provide some high-level comments on the quarter and then take a closer look at the balance sheet income statement and then our outlook for the rest of the year. As Bob mentioned, we're very pleased with our results for this quarter, especially given the challenges faced by our industry. The interest rate environment continues to create headwinds for deposit levels and overall funding costs, and we are carefully reviewing all our loan portfolios, as we watch for signs of a weakening economy. Despite of the environment, we produced very good core operating results, while maintaining strong asset quality this quarter. We feel confident we are very well positioned for future growth in our markets. The repositioning of the securities portfolio in the first quarter strengthened our liquidity, and improved our earnings path, while maintaining very robust capital levels. All of these attributes position us to better withstand today's environment and we expect will improve our prospects for growth and success over time. We experienced a 14 basis point improvement in our net interest margin in the second quarter as our margin expanded from 2.66% to 2.80% on a fully tax equivalent basis. We've reduced our borrowings by $800 million to $350 million at the end of the second quarter or less than 2% of total assets. We also ended the quarter with very meaningful levels of cash at nearly $900 million demonstrating liquidity enhancements from the first quarter repositioning. Net income was $48.7 million in the second quarter, and $45.3 million on an operating basis. Earnings were $0.30 per diluted share and $0.28 per diluted share on an operating basis. Asset quality remained very sound in the quarter with essentially no charge-offs a decline in non-performing loans to just $31 million…

Thank you. [Operator Instructions] First question comes from the line of Damon DelMonte at KBW. Please go ahead.

Hey good morning everybody. I hope everybody is doing well today. So just wanted to start off with a question on the margin outlook Jim, so if you kind of look at the first two quarters' worth of margin that kind of puts you in like 273, range or so. So do you kind of expect the margin to hold steady at this 280 level, or do you think it's going to kind of drift down over the next couple of quarters? And what are some of the puts and takes that go into that?

Yeah. I think, Damon, as we say on the slide and in my remarks we expect the margin to be between 270 and 280 so, somewhat along with what you said. The rate outlook today is higher than it was a quarter ago. If you go back and look at the forward curve at that time was different. So rates are up a little bit since then, which is why we're seeing a little bit of a modest reduction in our outlook there. But the margin as we said we expect to be between 270 and 280.

Okay. And what are your thoughts on the $900 million of cash that you have? Are you planning on holding that for a little while longer, or do you expect to try to reduce borrowings and/or brokered CDs in the coming quarters?

I would expect that to come down a little bit although, we are prioritizing balance sheet liquidity. I think coming through the bank failures that was obvious that it's important. So we expect it to come down a little bit, but we would still hold higher levels of cash than we did say a year ago.

Got it. Okay. And then, I guess, just with loan growth kind of moderating in commercial in low-single digits and not much other growth in the other areas of the portfolio. You did a little bit of reserve build this quarter. Do you feel like, you've adequately gotten to the level that you want to be at, or should we kind of expect that higher level provision similar to this quarter?

Right. It's a good question Damon. I would answer that, two-parts, right? So if you look at our provision this quarter and prior quarters considerable amount is driven by loan growth. So we had call, it $300 million worth of loan growth this quarter and that attracts a higher allowance and goes through the provision. So that will change if loan growth comes down which is what we guided to and what we anticipate that component of the provision would come down accordingly. The ACL buildup that we had this past quarter, I would consider a fine-tuning. We had overall given the size of the portfolio as I said, I would consider a fine-tuning. It's hard to give you any more color on what happens in the future will depend on the environment.

Got it. Okay. Great. Thanks for taking my question.

Thanks, Damon.

Thank you. The next question comes from the line of Mark Fitzgibbon at Piper Sandler. Please go ahead.

Hey guys. Good morning.

Mark, Good morning.

Jim, on your fee income guidance, the high-end of your guide of $185 million implies sort of fees of call it $41 million a quarter for the last two quarters of the year. I know you'll have some decline in insurance commissions. But what are some of the other areas where you expect things to soften up?

It primarily is insurance, Mark. So if you look at the prior years and the quarterly trends over the course of the year, it starts out very high and moves down over the course of the year. Some of that's insurance payments and there are some anomalies in the fourth quarter as well. So that reduction is primarily -- not primarily, it's essentially all in the insurance line.

Secondly, I was curious, if you are contemplating any additional balance sheet restructuring moves?

I think Mark, we continue to look at all sorts of balance sheet opportunities but we don't anticipate anything. I wouldn't say the first quarter actions were pretty significant. Certainly nothing like that. As Bob said and I said, we continue to look for ways around the edges to improve the funding profile and the balance sheet generally. But I would expect those will be very, very modest.

Okay. Do you have a sense for the dollar amount of office loans that either mature or reprice in say 2023 or 2024?

We can come back on that, it's steady. It's not lumpy. It's steady over time and we can come back on that as to whether or not we would provide that.

And then lastly, given some transactions in the industry recently, I wondered if you're thinking on M&A has changed at all. Do you think transactions can kind of get done in this environment in your market?

We're -- and Bob can comment as well. I think we're always students of the acquisition game. Those were interesting transactions and we'd love to understand them better. We'll take the time to do that. Facts and circumstances and things align as you know. So, it's really hard to comment other than say those were -- certainly, the PacWest transaction looked like it had some very clever attributes.

I mean Mark we're certainly interested in opportunities and stay in active contact with potential partners. And if we can find a situation that we can make the numbers work and works for us strategically, we'd certainly have an interest.

Thank you.

Thank you. Your next question comes from the line of Janet Lee at JPMorgan. Please go ahead.

Hello. Good morning.

Good morning, Janet.

I want to understand -- I want to make sure that I understand the prior comment. So for the rest of 2023 the trajectory of NIM could be fairly steady versus the second quarter and taking your NII sensitivity into your account, should the Fed start cutting rates in 2024, what would that mean for your NII and NIM trajectory?

So we haven't provided any guidance for 2024 yet, Janet. Janet, it's too much of a moving target at this point. I think what we put on the slide and what I articulated in my comments was for the rest of this year and obviously, the environment is moving very quickly. And as I said, we haven't put anything out for 2024 yet.

Okay. Fair. And I know it's very difficult to guess, but if you have to make your best guess as to where your non-interest bearing deposits would bottom as a percentage of total? Like what would be your guess there? Like could it dip much below 29% today?

Janet, those are really hard to guess is the right word. And it's not something -- we watch the trends like you watch the trends and we'll continue to watch. It's really hard to make predictions in that space.

Okay. And apologies if this came up already but any near-term plan for share repurchases given your capital levels still very high versus peers?

Sure. Similar to what we've said over time on share repurchases really three criteria. One is market conditions two is capital and three is liquidity. And those are three evolving and interrelated subjects as we didn't -- as we reported -- we didn't report any share repurchases but it is something we continue to evaluate. And if you look at our track record over a longer period of time something, we're interested in, but it's really those three criteria market conditions capital and liquidity that we need to feel very confident about. And we'll obviously communicate as we make decisions going forward.

Okay. Thanks for taking my questions.

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

Great. Well, thank you again for your interest and your questions, and best wishes for a great rest of summer.

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