Hello, and welcome to the Eastern Bankshares, Inc. First Quarter 2024 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 can cause actual results or the timing of events to differ materially from the views expressed today. Before information -- 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 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. [Operator Instructions] Thank you. And now I would like to turn the call over to Bob Rivers, Chair and CEO. Please go ahead, sir.

Thank you, Sylvia. Good morning, everyone, and thank you for joining our first quarter earnings call. With me today is Jim Fitzgerald, our Chief Financial and Chief Administrative Officer, who will go through our financial highlights in a few minutes. We expected a continued challenging environment as we enter 2024, and we've not been disappointed. Higher for longer interest rates, the inverted yield curve and normalizing credit costs were all present in the first quarter, and we expect them to continue through the rest of the year. Our plan to meet these challenges has been twofold. The first is to maintain a fortress balance sheet, which we believe will continue to be a competitive advantage over time and allow us to capitalize on opportunities as they become available. Our Q1 balance sheet demonstrates this. Specifically, our capital ratios are robust with a CET1 ratio of 18.5%, and a TCE ratio of 11.6%. Our liquidity position is very strong with balance sheet cash of $700 million and essentially no wholesale funding. Our credit profile is a real strength with low levels of nonperforming loans very manageable charge-off levels and a healthy reserve that covers our nonperforming loans by more than 2.5x. The second is our anticipated merger with Cambridge Trust, which demonstrates how we are capitalizing on opportunities. During the course of our integration planning, we have become even more confident that the Cambridge Trust franchise is among the most valuable in our market. Their wealth, deposit and lending businesses are all very additive to our own and will help us solidify our position as the leading independent bank in the Greater Boston area. In addition, we will create efficiencies and synergies that will benefit shareholders as we consolidate the two companies. Our capital strength allows us to absorb and mark…

Well, thank you, Bob. Thank you for that, and good morning, everyone. As Bob said, and you all know, it's been a very challenging environment in the first quarter, and we expect that to continue for the next few quarters as well. Given that backdrop, we're very pleased with our first quarter results as our expense levels provided a foundation for solid earnings. GAAP net income was $38.6 million, or $0.24 per share and operating net income was $38.1 million, or $0.23 per share. I'll go through the details shortly. As Bob said, we continue to be and have high expectations for the Cambridge merger. There seems to be a little confusion, so we wanted to be very clear on the timing and regulatory approval. Consistent with what we communicated in our 8-K in February, we're working with our regulators to receive their approvals. We expect those approvals later this quarter, and we expect to close the merger in early July. This time line would be a delay of 1 quarter from our original expectations. I'll provide some specific updates to Cambridge in the second half of the year later in my remarks. I'll start with some highlights for the first quarter. As I just mentioned, net income was $38.6 million, or $0.24 per diluted share and operating net income was $38.1 million or $0.23 per diluted share. Overall, we saw a modest growth in the balance sheet with core deposits up $121 million, or 2.8% annualized and loans up by $115 million or 3.3% annualized, driven by commercial lending. The net interest margin was stable in the quarter at 2.68% and very similar to the prior quarter margin of 2.69%. Expenses were $101.2 million and $97.6 million on an operating basis. I'll go through expenses later in my remarks…

[Operator Instructions] And your first question will be from Mark Fitzgibbon of Piper Sandler.

Jim, let me start off by echoing Bob's congratulations on your well-deserved retirement.

Thank you.

Before I let you off the hook, I'm going to ask a question I've asked before, and that is what gives you all such confidence that you'll get approval to close the transaction in the third quarter, given how long it's taken some other banks to get approval to close their transactions.

Yes. Sure, Mark. I -- jokingly I would say I anticipated that to be your first question. And in the many ways, I appreciate it because we understand the environment as you do. I think just by things we've communicated in the past, we have a very good communication channel with the regulators, very good relations. We wish the process was faster, but we certainly respect that they are doing what they have to do in much of our communication, and there's a lot of back and forth here, the regulatory applications are voluminous as you know, and then they're incremental requests along the way. So we've supplied an incredible amount of detail that they are going through. They've been very clear that they want to support us, I think, and they know our time lines for this and have communicated that they believe they will put us in a position to meet them. As I said, we respect their process and understand that it is their process, but I appreciate the communication we have with them, and that's what gives us the confidence.

Okay. And then somewhat related, where do the higher cost saves come from and the EPS accretion versus your original estimates post deal? What's kind of driving that?

Yes. So I think things are generally as we expected. I think on the cost savings side, we're expected to be slightly higher than what we articulated last September. And I think -- so that's one component of it. And I think in this environment, gaining efficiencies is obviously critically important to us and to all banks. So we're very much excited about that. And as I said, we spent a lot of time in due diligence analyzing those costs, and we're comfortable then and continue to be. I think the mark-to-market of their balance sheet at closing, which is something we believe we're capable of doing it, and it's that balance sheet strength, the capital strength, in particular that we alluded to that allows us to afford that, if you will. And it's really just repricing those loans to market that enhances the Cambridge margin in such a way that when you combine it with Eastern you get the 32-basis-point uplift that I articulated. Actually those are the two drivers. Cambridge is a wonderful franchise, right? They've got a very strong wealth deposit and lending platform. And as Bob said in his remarks, and we've experienced in our last 6 months, it's very additive to us, and we think the market opportunity, especially when the environment gets a little bit easier or better is going to be very significant.

Okay. And then lastly, I think you mentioned you had two NPLs that you were selling. I guess I'm curious where you're selling those -- where the sales prices are relative to par.

Yes. No, I think I'd say this, Mark, we've had -- if you count them up, right, we've had a total of 5 properties that were in the process of either taking -- going through our charge-off process/provision process and/or we've sold. And it's a small sample size. Some of those are at discounts of 30% to 40% of the original values. One is a little bit worse than that, and some are slightly better. But I think the discounts that we expect of each asset is a little bit different. So it's hard to give you one number there. But the discounts are significant, as you know, and as I said, vary by facts and circumstances.

Next question will be coming from the line of Damon DelMonte at KBW.

Jim, congrats on the retirement. It's been enjoyable working with you.

Thank you.

Just first question on the expenses. Just trying to clarify on this. So the headquarter move impact and the mobile banking impact both combined, that's $3 million or it's $3 million for each that will be hitting in the second quarter.

Combined. And just to answer that question, we have moved into our new headquarters just to make it real, and everybody is welcome anytime you're in Boston then come over and see we're quite proud of the new space.

Excellent. Cool. So if -- so then it's going to come off the expense base in the third quarter. Is that correct?

Correct.

Okay. All right. Great. And then with the cash position that you had at the end of the quarter around $700 million or so, is the intent just to kind of leave that very liquid and not look to redeploy that into securities in the near term?

Correct. Yes. Our goal over time, Damon, is we've probably articulated is to bring the size of the securities portfolio down relative to total assets. So -- and if you look at where the yield curve is and the inversion there, our expectation certainly over the next couple of quarters, if we have that amount of cash would be to keep it in cash and earn overnight rates on it.

Got it. Okay. And then just lastly, I appreciate the commentary around credit and kind of the outlook there. So is it fair to assume that you're still kind of targeting maybe mid-20 net charge-off level and kind of a provision that supports the reserve around this current level?

Yes. Obviously, a volatile line item, Damon. And quarter-to-quarter, I'd expect some -- it's hard to be that precise on a quarter-to-quarter basis. But over the next couple of quarters, yes, on both the charge-off level and the provision.

Next question will be coming from the line of Laurie Hunsicker at Seaport Research.

And Jim, I do want to say congrats. It's been really great working with you.

Thank you, Laura.

If we could just start with margins. So your 3% margin guide, how much accretion income is in that number? And do you have an accretion income figure that you can give us for the back half of '24 and into '25, especially as accretion income winds down, how should we be thinking about that?

Sure. Laurie, I'm laughing because I anticipated that question. You're sort of like, Mark asked the timing question, and you asked the accretion question, that -- I said that very folly, by the way. That's -- please take it the way that it's intended. Yes. Accretion is clearly a part of that. We are working through sort of how we would -- one of the problems we've got right now is rates are moving around. It's a little bit volatile. We're still a quarter away from closing. So it feels a little premature to put too much information about what the exact data play is now because it's going to be different. But we are sort of studying how we present that to you. And we'll follow up. I don't want to give you an answer off the top of my head because I think that's inappropriate. But we understand the question. We understand the importance of the question and it's something we spend a lot of time internally. So if you give us a little bit of time, we'll try and figure out how to give yourself and everybody sort of a better road map there.

Okay. Okay. And then sort of in line with that pro forma intangibles, do you have a number for us on that?

We'll do that in the same way. I think our expectation -- and timing, again, makes this a little bit hard, right? If you go back to the original merger presentation, which was September 19, the pro forma tangible book value that we presented at that presentation, pretty confident it was $10.16, that's sort of at the end of the day, the tangible book value per share that was in the presentation. We're very comfortable it's going to be higher than that. Rates are moving around, both on the Eastern portfolio and obviously the Cambridge portfolio as well. So we're trying to figure out ways how best to present that. So at this point, I can say that we'll be higher than that and let us come back to you with some more thoughtful answers.

Okay. Okay. And then on office, and I really appreciate all the details you guys have added. What -- of your $668 million office book, how much is in nonperformers there? And any refresh on those loans that you can provide?

Yes. So I think, yes, we can go through the history because it's a small size. There's been -- and I may miss like a small business loan somewhere, but I don't believe I am. We've had four nonperforming office loans. Three, we reported first in the third quarter of 2023. Two of those were sold one in the fourth quarter, one in this quarter, and the third one is -- this quarter, meaning the first quarter of '24. So let me say it again, the three NPLs from the third quarter of '23, one was sold in the fourth quarter of '23, one was sold in the first quarter of '24, and the third one will be sold in the second quarter of '24. In addition to that, we had a retail commercial real estate loan that went nonperforming in the fourth quarter of '24, and that's slated to be sold in the second quarter -- I'm sorry, the fourth quarter of '23, and we sold in the second quarter of '24. And this new nonperformer we're just getting started went nonperforming just recently. And it's an -- so four NPLs.

Yes, the suburban office that went into nonperforming that's in workout that you're hopefully getting rid of this quarter. How much was that? And then how much did you actually provision for it in this first quarter?

So we don't like to give out specific customer information. But I would say this, it's a suburban office. It was the heaviest discounts to both our loan value and also the original purchase price of the building of all four. And it was in the provision and the charge-offs for this quarter of $7 million, most of that was concentrated in that asset.

I got you. Okay. And then just last year, CATC, their office exposure, do you have anything refreshed that you could share with us on that, what their balance is currently, how their book is looking? Anything that you can share there?

Sure. A little bit, right? Again, it's their information. But I think you can see from their public information, it's approximately $250 million in many ways, Cambridge Trust and Eastern were competitors in the commercial real estate arena. So we know many of those properties well. And I think our clear view is it's very similar to Easterns. Most of the loans that they originated had good underwriting characteristics and very similar to ours. The locations, there's some in Boston itself and some in the suburban areas. So the $250 million generally looks very similar to things that we would have expected and, quite frankly, look similar to our portfolio in many ways. And as I said -- I've said a couple of times, it will go through the -- as part of the mark-to-market process, it will be for both interest rates and credit. And we feel like we're developing a very good understanding of those assets.

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

Well, thank you for your interest in your questions this morning, and we look forward to sharing more with you during our next earnings call at the end of July.

Thank you, sir. Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines.