Hello, and welcome to Eastern Bankshares Inc. Fourth 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 and CEO. Please go ahead.

Thank you, Julie. Good morning, everyone. And thank you for joining our fourth quarter earnings call. I hope year 2024 is off to a good start. With me today is Jim Fitzgerald, our Chief Administrative and Chief Financial Officer, who will review our financial [inaudible]. As I reflect on the year 2023, it was a year of strategic repositioning for Eastern. We remain nimble in navigating in a certain environment while remaining focused on our strategic priorities. We have emerged from 2023 better and stronger despite all of the year's challenges and believe we are well positioned for success in 2024 and beyond. As we answered 2023, Eastern and all banks were facing a big challenge with higher interest rates, changing customer preferences which placed a greater emphasis on liquidity and general economic headwinds. As you all know, these conditions led to the failures of a few US banks, marking a very tumultuous time for our industry. We responded quickly and boldly to this environment by restructuring our securities portfolio in the first quarter. The sale allowed us to immediately improve both our funding position and our earnings outlook. When we look back at this transaction, we are very pleased with the outcomes and very glad we did it early when the industry headwinds became apparent. After the securities repositioning, we move forward to sell our insurance agency business, Eastern Insurance Group. This too was a very difficult decision as Eastern Insurance had been a core part of Eastern and a significant piece of our culture. The transaction, which closed in the fourth quarter, exceeded our expectations. The valuation premium was very significant and the transaction further strengthened our financial foundation with enhanced liquidity and capital. The transaction also allowed us to think opportunistically about the future. While we were…

Great. Thank you, Bob. And good morning, everyone. As Bob mentioned, the fourth quarter closed a very busy year for us with the securities repositioning in early 2023, the sale of Eastern Insurance late in the year, and the announcement of the merger with Cambridge in September. Sale of Eastern Insurance closed in the fourth quarter and is included in our results. It had a very large and positive impact with a gain of $295 million after tax, which led to improved capital ratios. The net cash proceeds of about $500 million had a positive impact on our liquidity position as well. All-in-all, we continue to be pleased with the execution of the transaction, which exceeded all of our expectations. In addition to the gain and the movement of insurance results to discontinued operations, Q4 had some additional noise with the FDIC special assessment of $10.8 million and some higher compensation expenses. I will go through those through my remarks. First, I'll touch on some highlights of the quarter. Net income for the quarter was $318.5 million or $1.95 per diluted share and was driven by the gain on the insurance transaction of $295 million, which is slightly higher than we projected at the time of the announcement back in September. The transaction improved our TCE ratio by over three percentage points and our CET1 ratio by 2.5 percentage points from Q3. The combination of the cash proceeds from the sale and strong deposit performance in the quarter allowed us to reduce our broker deposits and FHLB advances by $1 billion and we ended the quarter with a nominal amount of wholesale funding. As I mentioned, deposit performance was stronger in the quarter than we had expected and better than the prior couple of quarters. Excluding broker deposits, our core…

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

Good morning. It sounds like you guys are pretty confident that you'll get approval in early second quarter on the Cambridge deal. Given that other banks have been waiting much longer for approvals, what gives you that level of confidence?

Sure, Mark. I'm sort of joking and hopefully you'll laugh with me. I anticipated that to be your first question, so thank you. I think on a serious note, we have very strong communications and relationships with our regulators. They obviously have a job to do. We've supplied all the information both in the initial application and all the follow-ups, and we understand that they have a job to do, but we'll continue to communicate with them. As I said in previous calls, this timeline is very comparable and similar to what we experienced in the Sentry transaction, and as we have further updates, we'll provide them.

Okay. I wondered if you could possibly give us an updated tangible book value estimate with Cambridge. Obviously, given the movement we've had in rates since the announcement you would think that the tangible book value would be much higher than that 10/16 original estimate. Any comments there?

Sure. I would say this, Mark, as you would expect and would know we've updated all of our analysis continuously since September. Spent a lot of time using yearend data the 12/31 both for marking the loans to market and all of the various assets and liabilities. At this point, I'm not sure it makes sense to provide some of that because rates have changed since then and rates will continue to change. We do anticipate this question and understand the interest in it and I think what we say on that is let us think about how best to provide some updates along the way. Again, we're a little bit nervous because things are going to change between now and closing. We don't want certain numbers to be overinterpreted but let us come back on how we could help out with that but also provide it in a way that we think makes sense.

Okay and then wondered if you could share any thoughts around sort of growth for loans excluding the impact of Cambridge and also fees.

Sure. I think on the, I’ll start with loans, it continues to be a challenging market for loan growth. We don't see that changing in the next quarter or two. We're very confident that our lending teams both here at Eastern and when we combine with Cambridge are going to be market leaders and should be well positioned but the loan growth that we had in the fourth quarter which was called at 1.5% is very much in line with the low single digits that we've been talking about for the last couple of quarters and I think as we look out a couple of quarters from now that's the same level we'd anticipate. I think one of our jobs here financially is to get the balance sheet in as good a position as possible and we feel like we're making very good strides there so when the market does turn, we'll be very capable of going. And as I said, we have very strong lending teams but at this point that low single digits are what we would continue to guide to.

And then fees, anything?

Fees, obviously, the big story there is the wealth fees that are coming over from Cambridge and really changes our income statement in a very positive way. Away from wealth, which I think was your specific question, there's very, what I would consider low single digit growth in those other accounts, deposit services, et cetera. Away from wealth there's not that much going on in those other line items.

Your next question comes from Laurie Hunsicker from Seaport Research Partners.

Yes, hi, thanks. Good morning. If we could just go back to sort of pro forma of the deal, maybe a different way to ask it is, can you help us to think about pro forma intangibles?

Sure. So I think I may give a similar answer I did to Mark. So Laurie, as you know, the announcement was September 19th. I think the rates that were used for that were September 15th, something very close to that. Rates were lower at 12/31 than they were at that time period in September. And the things that you would expect to happen did happen, right. The mark-to-market was a little bit lower that reduced the amount of the intangibles. Obviously, since then, rates have moved up a little bit. And it's not something you can track every day. There's a process involved there. I think, and it is similar to the spirit we said with Mark, I understand the question, and we want to be helpful there. A little reluctant to put information out that's going to be stale by the time you get it and then change even further between now and closing. But we'd be very open to thinking about sharing things and providing information that would be helpful. Just want to make sure it doesn't sort of create unintended consequences. As I said, by the time I'm a little bit afraid, by the time we get you information, it's going to be stale, which would be the case if we were giving you 12/31 numbers. So but very happy to think about that and come back within a short period of time to see what we can do.

Okay. So I guess probably you're going to have a similar answer then in terms of thinking about accretion impact on net interest income and margin?

Yes. I mean, it's a little different. We appreciate all of your questions and interest on that. And we are thinking through how we want to ultimately disclose all that. So your questions are very helpful that way in your insights. So we're thinking through that and we'll come back on that as well. That would be part of the total answer.

Okay. And then just to clarify, when you talked in your comments about modest margin decline for the first half of 2024, that was obviously exclusive of accretion income. Is that correct?

That was at Eastern. So definitely so yes, Laurie. That was the comments I was making there were stable net interest income and stabilizing margin at Eastern pre-closing.

Yes. Okay. That's helpful. And then can you just help us think about or maybe what's the spot margin for the month of December?

Same as the quarter, 2.69.

Okay. And then what was the timing in the quarter in terms of the reduction on borrowings and FHLB? The borrow for the FHLB. Was that -- when in the quarter for the [inaudible]?

Yes. The one lumpy item, lumpy is not a technical term obviously, but the EIG proceeds were call it November 1st and that was approximately $500 million. So that was a component of it. The other reductions were really due to deposit inflows that took place throughout the quarter.

Okay. Great. And then just going back to your, the Class B office, nonperformers, can you just, the four credits, can you just take us through the one that was sold, what was the balance and then what ultimately ended up being the right down there? The one under contract, same thing, the one being marketed, what's the balance, what's the new one? If you could just break out those four so we have it. And then the new one that came in, is that also Class B?

Yes, so let me, there is a lot down, let me try and go through slowly. So I'm going to focus first on the three nonperformers from last quarter that were office and they were all in the financial district in Boston, so your memory is very good there. The one that's sold is the one I can provide the information. It was a $9 million loan. The charge-off was $4 million and that closed in the fourth quarter. The one that's under contract for sale is a little bit of a smaller loan and we'll provide the details on that when it actually closes. The third office portfolio nonperformer from the third quarter is being marketed. That's a slightly larger loan. I don't remember that number, the loan balance off the top of my head but it's the larger, it’s the largest of the three. The new nonperforming loan in Q4 was not an office property. It was just a commercial real estate loan. It was approximately a $15 million loan. And we do expect to resolve it this quarter.

Got you. Okay. And then the three, I guess you gave us last quarter, $26 million. Was that $26 million net of the $4 million in charge-offs?

At that time, it was gross. So the charge-offs came later. The $26 million was the principal balance, yes.

Your next question comes from Damon DelMonte from KBW.

Hey, good morning, everyone. Thanks for taking my question this morning. Just a question on expenses. I got the commentary on the first two quarters of the year. We'll have an additional $3 million each for those two projects you have going on. But when we look at the underlying base, I think you said it was like $1.02, $1.03. What kind of growth are you expecting off of that base?

Again, putting the two items, the two $3 million items aside, Damon, so the first two quarters would be start at that level, $102 million, $103 million pretty modest growth from there. In fact, those would really be pretty close to run rates for the full quarter. Obviously, Cambridge is coming in and that's going to confuse that a little bit. But if you annualize the $102 million, $103 million, you'd be very close to the yearend to the annualized number that we expect -- would expect without Cambridge.

Got it. Okay. That's helpful. And then the commentary around the outlook for credit and more of a normalization. How would you characterize a normalized net charge-off year for you guys?

I'm laughing.

You've got to go back a few years for that probably, right?

Yes. No, I think what we believe here is that we were at very low levels. We and the industry, right, were at very low levels for a long period of time. When we look at our current levels and let's just call it nonperformers, again, 40-ish basis points, maybe a touch higher than that, and charge-offs for the year of call it 9 to 10 basis points, we would expect both of those metrics to migrate up a little bit, but in a contained way. We don't see large increases in them, but they were at very low levels for a very long period of time, and as you know, the environment is clearly changing, and we would expect those to move upward. But again, contained is the word we use internally, so it's hard to give you a number, but we don't see big increases there, contained is the word I would say one more time.

Got it. Okay. I think that's all that I had. Thank you very much.

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

Well, thank you for your interest in your questions. And we look forward to sharing more with you during our next earnings call at the end of April. Have a great day.

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