Hello, and welcome to Eastern Bankshares Inc Third 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 management's 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 and 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 [Operator Instructions] Thank you. I would now like to turn the call over to Bob Rivers, Chair CEO.

Great. Thank you, Julie. Good morning, everyone, and thank you for joining our third quarter earnings call. I'm joined today by Jim Fitzgerald, our Chief Administrative Officer and Chief Financial Officer, who will review our financial results shortly. The third quarter marked a very significant event for Eastern as we further advanced our strategic initiatives with the simultaneous announcement on September 19 of the sale of Eastern Insurance to A.J. Gallagher and the agreement to merge with Cambridge Trust. Both transactions are on track with the anticipated time lines communicated last month. We expect to close on the sale of Eastern Insurance next week and have filed all of the bank regulatory applications for the approvals required for the Cambridge Trust merger, which is expected to be completed in the first quarter of 2024. In addition, both the teams at Eastern and Cambridge Trust are engaged in planning the integration and a seamless transition for affected customers. We are also very pleased to announce our Board approved a 10% increase in our dividend from $0.10 per share to $0.11 per share, which will be paid in December, demonstrating our confidence in both our strategic direction and our operating results. In the midst of these 2 significant transactions, we produced strong operating results during the quarter. As Jim mentioned on the September 19 call, the insurance sale required us to account for Eastern Insurance as a discontinued operation in Q3 and also helped us realize some tax benefits that we weren't able to realize previously, allow these items caused our results to look different than earlier quarters. We have worked hard to provide transparency so that you can see the underlying results. We experienced a slower increase in our cost of funds in the third quarter, although like many banks, we…

Great. Thank you, Bob, and good morning, everyone. As Bob mentioned, it was a very busy third quarter for us with the insurance transaction and the merger with Cambridge announced together in mid-September. Both are very important strategic transactions for us and combined will lead to a stronger balance sheet, enhanced market share and a platform for future earnings growth that we are very excited about. As I mentioned on the call in September, the transactions do create some short-term noise in our results. The sale of the insurance operations requires us to account for Eastern Insurance as a discontinued operation and to restate our prior period results accordingly. In some ways, this is helpful as it provides an early view of what we will look like going forward without Eastern Insurance, although we recognize it's a change from what we've presented historically. We provide details on the results for Eastern Insurance that are contained in discontinued operations on Page 7 of the earnings presentation. In addition to the core results, there were $10.7 million of transaction-related charges that occurred in Q3. Excluding those costs, EIG's results were in line with expectations. One reminder is that discontinued operations are not included in our operating net income, which makes comparisons with the overall expectations difficult. In addition, the insurance transaction allowed us to eliminate a tax valuation allowance of approximately $15 million that we set up as part of the security sale in Q1. Although this was very positive and an additional economic benefit of the transaction, it's a onetime event. I'll provide some comments on our tax rate later in my remarks. As Bob mentioned, both transactions are progressing very well. We expect the sale of EIG to occur next week as anticipated and have submitted all the regulatory applications…

[Operator Instructions] Your first question comes from Mark Fitzgibbon from Piper Sandler. Please go ahead.

Maybe I could start off with a couple of questions around the SNCs. I was impressed by the price that you were able to sell that, if my math is correct, sort of $0.985 on the dollar. I guess I was curious to whom did you sell them, maybe not specifically the buyer, but the type of buyer. And what do you have left in terms of the SNC portfolio?

Sure. No, good question, Mark. And without getting into precision your assumption on the economics are pretty good. So good job on your part there. There's a pretty active market for that. I don't know who the buyer was or we think they were banks, but there's an active market for those assets. As we looked at the portfolio, those were the ones that made the most sense to us to sell, so I don't anticipate more of that, that's how I interpret part of your question. So we evaluated that pretty carefully, and those are the assets that made the most sense to us.

And roughly, how much do you have in remaining next, Jim?

I'm going to have to follow up. Let me -- rather than go off the state of my past. We can follow up on that mark.

And then the $4 million to $5 million of year-end expenses that you referenced in your guidance, what is in that exactly?

Sure. So no -- fair question. So if you break it down, marketing, we always do a lot of marketing in Q4. So we expect our marketing expenses to be $2 million higher than what they were in Q3, so that's a big component of it. Not to get too gritty, but our provision for off-balance sheet commitments is pretty volatile. It was volatile high in the first half of the year, it was volatile low and was actually negative in the third quarter, and we expect it to kind of revert to the mean in the fourth quarter. So that's another factor. And then the residual a couple of million dollars is just year-end sort of typical year-end expenses that get recorded at year-end.

And then on those three office loans, I wondered if you could share with us what the vacancy rates look like on those and maybe LTVs and debt service at origination.

Sure. So all 3 -- each one is a little bit different, but I think to answer your question, the characteristics are similar for all 3. All 3 of the buildings were sold well before the pandemic, the loan -- the original LTVs were 60%. They are battling vacancies now and cash flow issues. And we are working -- as I said, we are working with the borrowers to try and execute sales in those. And as I also said, we put some specific reserves up against all 3 of those to cover what we think will be the expected losses.

And then last question. You all seem fairly confident that you'll be able to close the Cambridge deal on the end of the first quarter, given that a lot of other banks have had an excruciatingly long approval process recently, what gives you confidence that you'll be able to close it so quickly?

Yes. No, it's -- it's a good question. I understand the question. Sometimes I get surprised because if you look at our track record for deals, the century 1 being the most recent, it's really the same time line. So it's similar to Century, it's an in-market transaction. We have very good regulatory relations as does Cambridge as did Century. And as we have -- we're aware of the sort of slowness in some particular transactions, but we have very constant communication with our regulators and have set the dates and expect to complete on that timetable. As I said, if you go back and look at the century, it's really -- it's a different time of the year, but it's the same time line.

Your next question comes from Damon DelMonte from KBW. Please go ahead.

I just want to start off with a little bit on the topic of credit here and kind of looking at the reserve level and I know the build was specific to these 3 office loans. But just kind of wondering what your thoughts are going forward with the provision line kind of given the pullback in loan growth and what you're seeing elsewhere in the portfolio and the potential need to build reserves further from here?

Sure. No, fair question. And we -- as we talked previous quarters and certainly similar to others. Loan growth is a big factor in provisioning levels, right? If you look specifically at Eastern, if you look at when we had much faster loan growth last year, we had much higher provisions and the correlation is pretty clear from that. We do expect modest loan growth over the quarter, the fourth quarter and into the first quarter of next year. That will be a factor. Our CECL methodology is very consistent and it's the same quarter-to-quarter. It starts with an economic forecast. To date, the economic outlook continues to be reasonably good, and that's a factor if that were to change, then obviously, the CECL calculations would change. But over the last couple of quarters and what we see through literally October, whatever today's date 27, the economic outlook is still pretty strong. So we don't see the provision levels that we've seen both in '22 and '23 and the correlation with loan growth is what we would expect over the next quarter or 2.

And then with respect to the office portfolio and kind of the like 38% is in the Boston Cambridge area? Are there any other properties or locations that are showing early signs of stress that have kind of popped up on the radar? Or do you think these 3 loans were just unique situations and not indicative of a broader weakening?

Yes. No, very good question, Damon, there's a lot there. Let me sort of unpack it a little bit out of time. So I think we do provide the statistics about Boston and Cambridge and not to get local here, but Cambridge is very different than Boston. There's a lot going on in Cambridge and we expect that to continue. If you look at the portfolio, generally, it is the Boston Financial District, where these 3 assets were and where the issues we expect to be concentrated. That's not to say there won't be issues in other places and we're carefully monitoring all of that. But the issues that were specific to these 3 loans that I described on Mark's question, we're very specific to the financial district. That's what we continue to monitor the entire portfolio very, very carefully.

Your next question comes from Laurie Hunsicker from Spark Research Partners. Please go ahead.

Hoping that I could just circle back where Damon was. So the 38% that you gave on your $717 million book, that's Boston and Cambridge, do you have the split as to what's just Boston Financial District.

We haven't provided that, Laurie. So we'd have to review that. I don't know this second. We are very focused on the financial district and that's where these 3 loans were from, as I mentioned. We can talk us internally about providing a little bit more information on that specifically.

And then just going back to the $26 million of nonperformers. What was the split there on those three properties in terms of Class A, Class B, Class C.

Yes. So I get a little worried about the Class C because different people have different definitions. But I think they would all be Class B types and they were all in the financial district in Boston.

Okay. Great. And then can you share with us what actually triggered the nonperforming status, i.e., did they hit a maturity wall? Or was it just something else?

Sure. So these are -- again, every loan every situation is slightly different. But I think in general, to answer the question the way you asked it, these are buildings that had lease issues, at least leases had come up. They had vacancies in the building, which led to deteriorating cash flow, and they had the borrowers have elected not to support the assets. Our strategy in that situation generally is to work with the borrowers to try and sell the buildings and as appropriate manner as possible to optimize price but also timing. And that's what happened really in all three of these cases.

And then just in terms of thoughts on selling some office, some of your peers sold office loans in the third quarter. including 1 who took a $0.37 haircut, how do you think about selling these? Are you actively trying to sell them? Or what can you share with us there?

Yes. So I would say our managed asset team who does a very good job here. Every time they get an asset and the same would be true for these three very and this didn't just these issues just didn't appear late in the third quarter. They've been monitoring these loans for a period of time. But -- but to answer the question, they do an asset-by-asset review and figure out the optimal strategy. They include things like note sales, as you referenced, the benefits being it moves out quickly. Sometimes price is less than one would like there. But for each individual asset based on the facts and circumstances that strategy is developed, -- in the cases of these three, it's to take the buildings themselves through the sale process. That's how we thought we would optimize our proceeds.

And then just sort of one last question on this. The $717 million investor Cree book, what is the specific reserve you have against that? Is it just on the 3 loan by the $7 million or is there more there?

So we have specific reserves against the three loans that we've been talking about and you just referenced. And in addition to that, the CECL calculation that we do has a lot of risk factors for all commercial real estate and included in there are certain attributes that we think the office portfolio has but it's in the general reserve in that way. So I think the way you're asking the question, it's really just the specific reserves on these 3 assets.

That's $1 million. Okay. Great. That's helpful. And then -- just going back to the SNC sale, can you help us think about when in the quarter that occurred or impacting margin in the quarter? Or how much in net interest income it did or didn't contribute. Just trying to -- and I understand and then if you also have a spot margin for the month of September, that would be helpful.

Yes. So I'll probably start there because it's pretty consistent -- is very consistent with our guidance for Q4. So the closing margin was in the 260s, again, consistent with our guidance. To answer your question, the SNC sales wasn't one loan, it was multiple loans and they happened over the quarter. It tended to be a little bit earlier in the quarter. The one thing I always get worried about doing one specific month on the margin, there's always lots of ins and outs, and September happens to be a seasonally lower month for municipal deposits. So September has a little bit more in borrowings than the months of August and July. And also there's a day count difference not to get too great, but there's a day count July and August at 31 days, which may not sound like much, but can have an impact as well. But to answer your question, the exit margin was in the 260 and very comparable to the guidance we gave for Q4.

And then just any -- I don't know. Do you have a rate on where the next were? Maybe that's the better way to ask it?

I don't have it as I'm sitting here now, we can think about that and they were just -- the one thing I can say is they were variable loans priced over [Indiscernible] variable loan price over sopher.

And then last question on CATC on their office. Can you provide us with any update on their book, I think it's around $285 million. if you have any new update or just any other color you could add on their office book and how you're thinking about it.

So sure. I think I'll probably repeat some of the things that we've said in the past, we're at point in the process where Cambridge is still a very independent company. So I don't feel like we can say too much more than we've said. But when we did extensive due diligence on the -- on all their loans but also the office portfolio. In many ways, it's similar to Easterns meaning it's concentrated in our markets. It does have some exposure to Boston, but it's got exposure outside of Boston as well. And in many ways, it looks a lot like the Eastern portfolio. I will say, we carefully reviewed it in due diligence, talked about at the time of the announcement, not just our due diligence process but also some of the purchase accounting that we assumed there, which included an evaluation of the office portfolio. I think one of your questions as we get closer to closing, we'll be giving updates generally and be happy to include more on that subject as we get closer.

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

Great. So thanks, everyone, for your interest and your questions today, and best wishes for the remainder of the year. Happy holidays.

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